FORM 10-Q/A

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

For the quarterly period ended March 31, 2002

Commission File Number 0-15313

BIO–TECHNOLOGY GENERAL CORP.

(Exact name of registrant as specified in its charter)

Delaware		13–3033811
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

70 Wood Avenue South, Iselin, New Jersey 08830

(Address of principal executive offices)

(732) 632-8800

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year,

if changed since last report)

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 ý No o

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.

Common Stock, par value $.01 per share, outstanding as of May 9, 2002: 58,440,300

INDEX

Part I. Financial Information

Item 1.	Financial Statements:

	Consolidated Balance Sheets at March 31, 2002 and December 31, 2001

	Consolidated Statements of Operations for the three months ended March 31, 2002 and 2001

	Consolidated Statement of Changes in Stockholders’ Equity for the three months ended March 31, 2002

	Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and 2001

	Notes to Consolidated Financial Statements

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

3/31/10QA

PART I. FINANCIAL INFORMATION

CONSOLIDATED BALANCE SHEETS

(In thousands except share data)

	March 31, 2002*			December 31, 2001
	(Unaudited)
ASSETS:
Current Assets
Cash and cash equivalents	$	91,581		$	75,451
Short-term investments	12,248			43,473
Accounts receivable, net	37,043			24,538
Inventories	14,598			14,140
Deferred income taxes	5,078			5,079
Prepaid expenses and other current assets	1,440			1,167
Total current assets	161,988			163,848

Deferred income tax	14,585			14,687
Severance pay funded	2,414			2,385
Property and equipment, net	54,320			51,059
Other assets	3,133			3,107
Total assets	$	236,440		$	235,086

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Deferred revenues	$	1,600		$	1,646
Accounts payable	10,515			10,328
Current portion of long-term debt	2,848			1,234
Other current liabilities	11,390			11,168
Total current liabilities	26,353			24,376

Negative goodwill	16,028			15,953
Long-term debt	17,226			18,896
Deferred revenues	12,726			13,092
Provision for severance pay	5,083			5,229

Stockholders’ equity:
Preferred stock — $.01 par value; 4,000,000 shares authorized; no shares issued	—			—
Common stock — $.01 par value; 150,000,000 shares authorized; issued: 58,332,000 (58,260,000 at December 31, 2001)	583			582
Additional paid in capital	212,882			212,408
Accumulated deficit	(54,581		)	(55,570		)
Accumulated other comprehensive income	140			120
Total stockholders’ equity	159,024			157,540
Total liabilities and stockholders’ equity	$	236,440		$	235,086

* Restated. See note 2.

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

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)
(Restated. See note 2)
(in thousands except per share data)

	Three Months Ended March 31,
	2002		2001*
Revenues:
Product sales	$	18,938	$	29,887
Contract fees	564		414
Royalties	1,016		843
Other revenues	330		221
	20,848		31,365
Expenses:
Research and development	8,935		5,927
Cost of product sales	3,171		3,524
General and administrative	3,225		3,272
Marketing and sales	4,449		4,741
Royalties	683		646
Finance	7		17
Write-off of in-process research and development acquired	—		45,600
	20,470		63,727
	378		(32,362		)

Investment income, net	935		2,277
Income (loss) before income taxes	1,313		(30,085		)

Income taxes	324		4,820
Net income (loss)	$	989	$	(34,905	)

Earnings (loss) per common share:
Basic	$	0.02	$	(0.63	)
Diluted	$	0.02	$	(0.63	)

Weighted average number of common and common equivalent shares:
Basic	58,305		55,117
Diluted	58,649		55,117

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

* Interest income has been reclassified from revenue to conform to 2002 presentation.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(in thousands)

	Common Stock
	Shares	Par Value		Additional Paid In Capital		Accumulated Deficit			Accumulated Other Comprehensive Income		Total Stockholders’ Equity
Balance, December 31, 2001	58,260	$	582	$	212,408	$	(55,570	)	120		$	157,540
Comprehensive income:
Net income for three months ended March 31, 2002*						989					989
Unrealized gain on marketable securities									20		20
Total comprehensive income*											1,009
Issuance of common stock	68	1		450							451
Exercise of stock options	4			24							24
Balance, March 31, 2002*	58,332	$	583	$	212,882	$	(54,581	)	$	140	$	159,024

* Restated. See note 2.

The accompanying notes are an integral part of this consolidated finanical statement.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)
(Restated. See note 2.)

(In thousands)

		Three Months Ended March 31,
		2002			2001
Cash flows from operating activities:
Net income (loss)		$	989		$	(34,905	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Deferred revenues		(412		)	(413		)
Depreciation and amortization		654			791
Provision for severance pay		(146		)	(142		)
Write-off of in-process research and development acquired		—			45,600
Compensation expense in connection with option modification		—			(74		)
Loss (gain) on sales of short-term investments		—			(303		)
(Gain) on sales of fixed assets		—			(1		)
Common stock issued as payment for services		17			17
Changes in:	Receivables	(12,505		)	(13,208		)
	Inventories	(458		)	215
	Prepaid expenses and other current assets	(274		)	(1,075		)
	Accounts payable	349			3,978
	Other current liabilities	168			2,599
Net cash (used in) provided by operating activities		(11,618		)	3,079
Cash flows from investing activities:
Short-term investments		1,864			(1,614		)
Capital expenditures		(3,866		)	(4,439		)
Changes in other long-term assets		(40		)	(38		)
Severance pay funded		(29		)	97
Proceeds from sales of fixed assets		—			25
Cash acquired from acquisition		—			67
Other investment		—			(5,000		)
Proceeds from sales of short-term investments		29,361			36,454
Net cash provided by investing activities		27,290			25,552

Cash flows from financing activities:
Proceeds from issuance of common stock		458			503

Net increase in cash and cash equivalents		16,130			29,134
Cash and cash equivalents at beginning of period		75,451			26,353
Cash and cash equivalents at end of period		$	91,581		$	55,487
Supplementary Information
Other information:
Income tax paid		$	1,407		$	53
Interest paid		$	149		$	364
Acquisition of Myelos Corporation:
Assets acquired		$	—		$	9,078
Liabilities assumed		—			(1,124		)
Negative goodwill		—			(19,241		)
Amount due		—			(15,348		)
Equity issued		—			(19,032		)
In-process research and development acquired		—			45,600
Net cash acquired		$	—		$	(67	)

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Basis of Presentation

In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting of only normal recurring accruals, considered necessary for a fair presentation. Due to fluctuations in quarterly revenues earned, operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. The accounting policies continue unchanged from December 31, 2001, except for the adoption of SFAS 142. (See Note 3). For further information, refer to the Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2001.

Note 2 Restatement of Consolidated Financial Statements

The Company restated its financial statements for each of the years ended December 31, 1999, 2000 and 2001 and related quarterly results. The principal adjustments to the consolidated financial statements as originally filed for the quarters ended March 31, 2001 and 2002 are discussed below.

The accompanying consolidated financial statements for 2001 and 2002 include expense of $62,000 and $182,000, respectively, for development and start-up costs associated with establishing alternate manufacturing sources for its approved drug Oxandrin and for a new tablet formulation, which costs were originally capitalized within other long-term assets. These costs are included as a component of research and development in the accompanying consolidated financial statement of operations.

The accompanying consolidated financial statements for 2001 have been restated to reflect a reduction in compensation expense of $74,000 arising from modification of the period of vesting and exercisability of certain stock option awards to certain employees and former employees made in connection with the termination of their employment and post-employment consulting arrangements, which expense should have been recognized at the time of the modification. This reduction in expense is included as a component of research and development in the accompanying consolidated statement of operations.

The accompanying consolidated financial statements have been restated to reverse the effect of a 1999 product sale, and the subsequent inventory repurchase in 2001, to a distributor in the amount of $2,000,000 and the related cost of sales of $385,000 in 1999 because of significant uncertainties concerning the realization of the invoiced amount at the the time of sale. The effect of this reversal includes a reduction in cost of product sales of $1,615,000 for the three months ended March 31, 2001.

The accompanying consolidated financial statements have been restated to reflect contract fees received in 2000 and originally fully recognized in 2000 as a milestone payment, which fee has now been deferred and is being recognized ratably over the 10 year estimated term of the agreement in accordance with Staff Accounting Bulletin 101. The accompanying consolidated financial statements reflect contract fee revenue from this contract of $125,000 in both 2001 and 2002.

The accompanying consolidated financial statements have been restated to reflect the reestablishment of $884,000 of property and equipment received in connection with the Myelos acquisition that was written off against negative goodwill and subsequent depreciation and amortization of $4,000 and $54,000 in the first quarter of 2001 and 2002, respectively. The depreciation and amortization on the reestablished assets is included as a component of research and development in the accompanying statement of operations. The additional amortization of negative goodwill is included as a component of general and administrative expense in the accompanying statement of operations.

The following tables present the impact of the restatements on a condensed basis (in thousands except per share amounts):

	March 31, 2002
	As Previously Reported			Restated
Balance Sheet:
Total current assets	$	161,988		$	161,988
Total assets	238,199			236,440
Total current liabilities	27,132			26,353
Total liabilities	73,887			77,416
Accumulated deficit	(44,150		)	(54,581		)
Total stockholders’ equity	164,312			159,024

	Three Months Ended March 31,
	2001						2002
	As Previously Reported			Restated			As Previously Reported		Restated
Statement of Operations:
Revenues	$	31,240		$	31,365		$	20,723	$	20,848
Expenses	65,350			63,727			20,235		20,470
Income (loss) before income taxes	(31,614		)	(30,085		)	1,423		1,313
Tax expense	4,515			4,820			469		324
Net income (loss)	(36,129		)	(34,905		)	954		989
Net earnings (loss) per common share:
Basic	(0.66		)	(0.63		)	0.02		0.02
Diluted	(0.66		)	(0.63		)	0.02		0.02

For further information, refer to note 2 of the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2001.

Note 3: New Accounting Pronouncements

In June 2001, the FASB approved SFAS No. 142 entitled “Goodwill and Other Intangible Assets”. SFAS No. 142 requires companies to use a fair-value approach to determine whether there is an impairment of existing and future goodwill. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. As a result of the adoption of SFAS No. 142, beginning in 2002 we are no longer amortizing the negative goodwill resulting from the March 2001 acquisition of Myelos Corporation, which reduced general and administrative expense by approximately $1,000,000 per quarter for financial reporting purposes beginning in the second quarter of 2001. Under SFAS No. 142, the negative goodwill balance of $15,953,000 remaining at December 31, 2001 will be maintained on the balance sheet as a deferred credit until it is either netted against the contingent payments, if any, made to the former Myelos shareholders or reflected in net income as an extraordinary item should the contingent payments not become due. The only impact of the adoption of SFAS No. 142 on BTG’s consolidated financial statements is that the negative goodwill recorded in connection with the Myelos acquisition will no longer be amortized. The amortization of negative goodwill during 2001 reduced our reported general and administrative expense beginning in the second quarter of 2001.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Three months ended March 31, 2002

compared with three months ended March 31, 2001

Statements in this Quarterly Report on Form 10-Q concerning the Company’s business outlook or future economic performance; anticipated profitability, revenues, expenses or other financial items; introductions and advancements in development of products, and plans and objectives related thereto; and statements concerning assumptions made or expectations as to any future events, conditions, performance or other matters, are “forward-looking statements” as that term is defined under the Federal Securities Laws. Forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from those stated in such statements. Such risks, uncertainties and factors include, but are not limited to, changes and delays in product development plans and schedules, changes and delays in product approval and introduction, customer acceptance of new products, changes in pricing or other actions by competitors, patents owned by the Company and its competitors, changes in healthcare reimbursement, risk of operations in Israel, risk of product liability, governmental regulation, dependence on third parties to manufacture products and commercialize products and general economic conditions, as well as other risks detailed in the Company’s filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2001.

Overview

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

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

Restatement of Consolidated Financial Statements

and is being recognized ratably over the 10 year estimated term of the agreement in accordance with Staff Accounting Bulletin 101. The accompanying consolidated financial statements reflect contract fee revenue from this contract of $125,000 in both 2001 and 2002.

The accompanying consolidated finanical statements have been restated to reflect the reestablishment of $884,000 of property and equipment received in connection with the Myelos acquisition that was written off against negative goodwill and subsequent depreciation and amortization of $4,000 and $54,000 in the first quarter of 2001 and 2002, respectively. The depreciation and amortization on the reestablished assets is included as a component of research and development in the accompanying statement of operations. The additional amortization of negative goodwill is included as a component of general and administrative expense in the accompanying statement of operations.

The following tables present the impact of the restatements on a condensed basis (in thousands except per share amounts):

	March 31, 2002
	As Previously Reported			Restated
Balance Sheet:
Total current assets	$	161,988		$	161,988
Total assets	238,199			236,440
Total current liabilities	27,132			26,353
Total liabilities	73,887			77,416
Accumulated deficit	(44,150		)	(54,581		)
Total stockholders’ equity	164,312			159,024

	Three Months Ended March 31,
	2001						2002
	As Previously Reported			Restated			As Previously Reported		Restated
Statement of Operations:
Revenues	$	31,240		$	31,365		$	20,723	$	20,848
Expenses	65,350			63,727			20,235		20,470
Income (loss) before income taxes	(31,614		)	(30,085		)	1,423		1,313
Tax expense	4,515			4,820			469		324
Net income (loss)	(36,129		)	(34,905		)	954		989
Net earnings (loss) per common share:
Basic	(0.66		)	(0.63		)	0.02		0.02
Diluted	(0.66		)	(0.63		)	0.02		0.02

For further information, refer to note 2 of the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2001.

Acquisition of Myelos Corporation

On March 19, 2001, BTG acquired Myelos Corporation, a privately-held biopharmaceutical company focused on the development of novel therapeutics to treat diseases of the nervous system. Under the terms of the acquisition agreement, BTG paid Myelos shareholders $35 million in a combination of cash and stock ($14 million in cash and $21 million through the issuance of approximately 2,344,700 shares of BTG common stock (based on a value of $8.9564, representing the average closing price of BTG’s common stock for the 20 trading day period ending one day prior to the February 21, 2001 date the acquisition agreement was executed)). BTG is obligated to make additional payments if the Prosaptide product being developed by Myelos is successfully commercialized.

The transaction was treated as a “purchase” for accounting purposes. The purchase price for accounting purposes was approximately $34,387,000 (including acquisition costs of $1,387,000), based on a per share value for the approximately 2,344,700 shares of BTG common stock issued in the acquisition of $8.1172, representing the average closing price of BTG’s common stock for the four day period preceding the date the terms of the acquisition were agreed to (February 21, 2001). In connection with the merger and based on an independent valuation, BTG allocated $45,600,000 to in-process research and development projects of Myelos, representing the estimated fair value based on risk-adjusted cash flows of the acquired technology. At the date of the merger the technology acquired in the acquisition was not fully commercially developed and had no alternative future uses. Accordingly, the value was expensed as of the acquisition date. BTG recorded negative goodwill of $18,914,000 on its balance sheet, primarily because the amount written off as in-process research and development acquired exceeded the purchase price for accounting purposes. Beginning in the second quarter of 2001 this negative goodwill was being amortized over its expected useful life of five years. In accordance with SFAS No. 142, amortization of the negative goodwill ceased beginning January 1, 2002, and the balance remaining will be maintained as a deferred credit until it is either netted against the contingent payments or reflected in net income as an extraordinary item should the contingent payments not become due because the technology did not meet the milestones which trigger payment.

2002 Outlook

BTG currently anticipates total 2002 revenues, excluding interest income, of at least $100 million. Although BTG also anticipates growth in total product sales, it expects the growth in sales of Oxandrin to be partially offset by a lower level of human growth hormone sales in 2002 as compared to 2001. Due in part to industry-wide pricing pressures in Japan by the Japanese Health Ministry and management of inventory levels by JCR Pharmaceuticals, BTG’s Japanese distributoer, the level of sales of BTG’s human growth hormone to JCR for the Japanese market will be adversely affected, despite an increasing market share. Based on wholesaler orders through the first quarter of 2002, revenues from Delatestryl sales are currently anticipated to exceed those of 2001. Royalty revenues may fall below their 2001 level due to potential generic competition for Mircette. In addition, BTG’s anticipated revenues for 2002 may be affected by the injunction preventing Teva Pharmaceuticals USA, Inc., BTG’s exclusive distributor of human growth hormone in the United States, from introducing BTG’s human growth hormone product and the delay in the planned introduction of a new Oxandrin tablet until later in the year.

In order to optimize the maturation of BTG’s proprietary pipeline products, BTG is committing significant additional resources to them in 2002. Although BTG had initially expected research and development expense to increase by approximately 40% in 2002, it now anticipate such expense will only increase by approximately 35%. The decrease in anticipated research and development expenditures is a result of (i) BTG’s determination not to continue to pursue its SOD product until it reaches a favorable resolution of clinical design issues with the FDA and (ii) completion of our Phase I clinical studies of Puricase™, which began in the first quarter of 2002, being delayed as BTG evaluate how best to proceed with the clinical studies in light of topical hypersensitivity reactions in some individuals participating in the study, despite encouraging early observation of the drug’s effectiveness. Additionally, to fully maximize Oxandrin’s potential and provide stimulus to its growth, marketing and sales expenses are expected to grow this year by approximately 20%.

Given this significant investment in BTG’s future growth, the increase in expenses is anticipated to outpace revenue growth and therefore BTG is expecting full year EPS to be in the range of fifteen to twenty cents. BTG’s 2002 EPS will depend in significant measure on the growth in Oxandrin prescriptions and the sales achieved by both the Ross Products Division of Abbott Laboratories in the long-term care market and BTG. In addition, acquisition activities could affect 2002 EPS. BTG expects its quarterly EPS in 2002 to vary based on the timing of product sales to customers and research and development and marketing expenses.

Results of Operations

The following tables set forth for the fiscal periods indicated the percentage of revenues represented by certain items reflected on the Company’s statements of operations.

	Three Months Ended March 31,
	2002		2001
Revenues:
Products sales	90.8	%	95.3	%
Contract fees	2.7		1.3
Royalties	4.9		2.7
Other revenues	1.6		0.7
Total	100.0		100.0
Expenses:
Research and development	42.9		18.9
Cost of product sales	15.2		11.2
General and administrative	15.5		10.4
Marketing and sales	21.3		15.1
Royalties	3.3		2.1
Finance	0.0		0.1
Write-off of in-process research and development acquired	—		145.4
Total	98.2		203.2
	1.8		(103.2	)
Investment income, net	4.5		7.3
Income (loss) before income taxes	6.3		(95.9	)
Income taxes	1.6		15.4
Net income (loss)	4.7	%	(111.3	)%

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

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

	Three Months Ended March 31,
	2002		2001
Oxandrin	50.5	%	55.8	%
Human growth hormone	7.2		18.5
BioLon^®	8.7		7.5
Delatestryl	32.8		17.8
Other	0.8		0.4
Total	100.0	%	100.0	%

The Company believes that its product mix will vary from period to period based on the purchasing patterns of its customers and the Company’s focus on: (i) increasing market penetration of its existing products; (ii) expanding into new markets; and (iii) commercializing additional products. In particular, quarterly fluctuations in sales of Oxandrin can have a significant impact on BTG’s quarterly results of operations.

The following table summarizes the Company’s U.S. and international product sales as a percentage of total product sales for the period indicated:

	Three Months Ended March 31,
	2002		2001
United States	83.1	%	74.2	%
International	16.9		25.8
Total	100.0	%	100.0	%

Comparison of Three Months Ended March 31, 2002 and March 31, 2001.

Revenues. Total revenues decreased 33.5% in the first quarter of 2002 to $20,848,000 from $31,365,000 in the first quarter of 2001. The decrease in total revenues from the comparable prior period was mainly due to the decrease in product sales.

Product sales decreased by $10,949,000, or 36.6%, in the three months ended March 31, 2002 from the comparable prior period in 2001. Oxandrin sales in the three months ended March 31, 2002 were $9,556,000, a decrease of $7,136,000, or 42.8%, from the three months ended March 31, 2001. BTG experienced a significant increase in Oxandrin sales in the first quarter of 2001 primarily due to (i) the commencement, in September 2000, of sales by the Ross Products Division of Abbott Laboratories in the long-term care market for the treatment of patients with involuntary weight loss, including stocking activity by wholesalers in connection with the launch of this product in the long-term care market, and (ii) stocking by certain wholesalers in anticipation of a price increase. However, because of this significant increase in Oxandrin purchases by wholesalers in the first quarter of 2001, purchases of Oxandrin in the second quarter of 2001 by Accredo Health Services, Inc., formerly known as Gentiva Health Services, Inc. (“Accredo”), BTG’s wholesale and retail distributor of Oxandrin in the United States, were higher than the levels of its sales of Oxandrin to wholesalers in that period. As a result, Accredo’s inventory of Oxandrin increased beyond the desired level. Accordingly, BTG and Accredo amended their distribution arrangement effective August 2001 to provide for reduced purchases of Oxandrin until Accredo’s inventory was reduced to desired levels and thereafter to ensure that sales of Oxandrin by BTG to Accredo more accurately reflected end-user demand. Sales of Delatestryl in the first quarter of 2002 were $6,218,000, an increase of $908,000, or 17.1%, compared to the first quarter of 2001. Product sales of human growth hormone and BioLon were $1,373,000 and $1,647,000, respectively, in the first quarter of 2002, a decrease of $4,152,000 and $585,000, or 75.1% and 26.2%, respectively, over the comparable period in 2001. The decrease in sales of human growth hormone was primarily due to the purchasing patterns of BTG’s customers.

Contract fees in the three month periods ended March 31, 2002 and 2001 represent contract fees received in prior periods but recognized in the first quarter of 2002 and 2001 in accordance with SAB 101.

Royalties were $1,016,000 in the first quarter of 2002, as compared to $843,000 in the same period last year. These revenues consist mainly of royalties from the licensee of the Company’s Mircette product in both periods and insulin product in 2002.

Other revenues were primarily generated from partial research and development funding by the Chief Scientist of the State of Israel.

Research and development expense increased 50.8% in the first quarter of 2002 to $8,935,000 from $5,927,000 in the first quarter of 2001. The increase in research and development expenditures resulted mainly from the addition of research and development activities for Prosaptide following the acquisition of Myelos, as well as increased patent related expenses.

Cost of product sales decreased by 10.0% in the three months ended March 31, 2002 to $3,171,000 from $3,524,000 in the three months ended March 31, 2001, primarily as a result of the 36.6% decrease in product sales, partially offset by an unfavorable mix of product in the first quarter of 2002. Cost of product sales as a percentage of product sales increased to 16.7% in the first quarter of 2002 as compared to 11.8% in the comparable period last year, due to the unfavorable mix of products and lower product sales. Oxandrin and human growth hormone have a relatively low cost of manufacture as a percentage of product sales, while BioLon has the highest cost to manufacture as a percentage of product sales. Cost of product sales as a percentage of product sales varies from year to year and quarter to quarter depending on the quantity and mix of products sold.

General and administrative expense decreased by 1.4% in the three months ended March 31, 2002 to $3,225,000 from $3,272,000 in the comparable prior period. The decrease in general and administrative expenses was mainly due to larger merger and acquisition activities in the first quarter of 2001 compared to the first quarter of 2002, partially offset by increased compensation costs in 2002 compared to last year. As a percentage of revenues, general and administrative expense increased to 15.5% in the three months ended March 31, 2002 from 10.4% in the three months ended in March 30, 2001 as a result of the decrease in revenues.

Marketing and sales expense decreased 6.2% in the first quarter of 2002 to $4,449,000 from $4,741,000 for the prior year period. As a percentage of product sales, marketing and sales expense increased to approximately 23.5% from 15.9% for the first quarter of 2001. These expenses primarily related to the sales and marketing force in the United States that the Company established to promote distribution of Oxandrin in the United States. The decrease was primarily due to the decreased incentive compensation costs partially offset by increased compensation costs and advertising promotions and market research expenses.

Royalty expense was $683,000 in the three months ended March 31, 2002, as compared to $646,000 in the three months ended March 31, 2001. These expenses consist primarily of royalties to entities from which the Company licensed certain of its products and to the Chief Scientist.

Write-off of In-Process Research and Development Acquired. In the three months ended March 31, 2001 BTG wrote off $45,600,000 as in-process research and development acquired relating to the acquisition of Myelos Corporation, which amount represented the estimated fair value based on risk-adjusted cash flows of the acquired technology based on an independent valuation. At the date of the acquisition the technology acquired in the acquisition was not fully commercially developed and had no alternative future uses. Accordingly, the value was expensed as of the acquisition date.

Investment income, net decreased by $1,342,000, or 58.9%, over the comparable prior period, primarily as a result of lower interest rates earned on BTG’s investments, the use of $15,603,000, net to acquire Myelos, the use of approximately $21,134,000 to fund construction of the Company’s new manufacturing facility after March 31, 2001, the use of $5,000,000 to purchase shares of Omrix Biopharmaceuticals and a realized capital loss on the sale of short-term investments, partially offset by cash flow from operations, proceeds from the exercise of options and proceeds from a $20,000,000 loan borrowed to finance construction of BTG’s new manufacturing facility in Israel.

Income Taxes. Provision for income taxes for the three months ended March 31, 2002 was $324,000, representing approximately 24.6% of income before income taxes, as compared to $4,820,000, or 31.1% of income before income taxes (on a pro forma basis excluding the write-off of in-process research and development acquired,

which is not taken into account in computing income taxes), in the comparable quarter last year. BTG’s consolidated effective tax rate differs from the statutory rate because of Israeli tax benefits, tax credits and similar items which reduce the effective tax rate.

Earnings per Common Share. BTG had approximately 3.2 million additional basic weighted average shares outstanding for the three month period ended March 31, 2002, as compared to the same period in 2001. The increased number of basic shares was primarily the result of the issuance, subsequent to March 31, 2001, of shares upon the exercise of options and the issuance of approximately 2.3 million shares to the former shareholders of Myelos in March 2001. For 2001, diluted weighted average shares outstanding does not include dilutive securities because the effect would be anti-dilutive. On a pro forma basis, excluding the write-off of in-process research and development acquired, net income would have been $10,695,000, or $0.19 per share on both a basic and diluted share basis, for the first quarter of 2001. On a pro forma basis, diluted weighted average shares in 2001 would have been 55,809,000. Diluted weighted average shares in 2002 was 58,649,000, a 2.8 million share increase over pro forma diluted weighted average shares in 2001. The increase in the number of diluted shares was primarily the result of the issuance of approximately 2.3 million shares to the former shareholders of Myelos and the issuance of shares upon exercise of options, partially offset by the fact that less outstanding options were considered common equivalents in 2002 because their exercise price was above the average fair market value of the common stock for the first quarter of 2002, which average fair market value was lower than in the comparable period in 2001.

Liquidity and Capital Resources

The Company’s working capital at March 31, 2002 was $135,635,000, as compared to $139,472,000 at December 31, 2001. The decrease was due primarily to a $1,614,000 increase in the current portion of long-term debt and a $31,225,000 decrease in short-term investments, partially offset by a $16,130,000 increase in cash and cash equivalents and a $12,505,000 increase in accounts receivable.

The cash flows of the Company have fluctuated significantly due to the impact of net income, capital spending, working capital requirements, the issuance of common stock and other financing activities. BTG expects that cash flow in the near future will be primarily determined by the levels of net income and financings, if any, undertaken by the Company. Net cash increased by $16,130,000 and $29,134,000 in the three months ended March 31, 2002 and 2001, respectively, due entirely to the sale of short-term investments in those periods. Cash, cash equivalents and short-term investments decreased by $15,095,000 in the three months ended March 31, 2002, primarily due to net cash of $6,737,000 being used by operating activities and $3,866,000 being used for capital expenditures. Cash, cash equivalents and short-term investments decreased by $5,408,000 in the three months ended March 31, 2001, primarily due to the Company’s $5,000,000 investment in Omrix Biopharmaceuticals in March 2001.

Net cash (used in) provided by operating activities was $(11,618,000) and $3,079,000 in the three months ended March 31, 2002 and 2001, respectively. Net income (loss) was $989,000 and $(34,905,000) in the same periods, respectively. In the three months ended March 31, 2002 the Company used net cash in operating activities despite the net income mainly due to the increase in receivables of $12,505,000, partially offset by depreciation and amortization of $654,000. In the three months ended March 31, 2001 BTG had net cash provided by operating activities despite the net loss primarily due to the write-off of in-process research and development acquired of $45,600,000 and an increase in accounts payable and other current liabilities of $3,978,000 and $2,599,000, respectively, partially offset by an increase in receivables and prepaid expenses of $13,208,000 and $1,075,000, respectively.

Net cash provided by investing activities was $27,290,000 and $25,552,000 in the three months ended March 31, 2002 and 2001, respectively. Net cash used in investing activities included capital expenditures of $3,866,000 and $4,439,000 in these periods, respectively, primarily for the new manufacturing facility, as well as a $5,000,000 investment in Omrix in the three months ended March 31, 2001. The remainder of the net cash used in investing activities was primarily for purchases and sales of short-term investments.

Net cash provided by financing activities was $458,000 and $503,000 in the three months ended March 31, 2002 and 2001, respectively, which are net proceeds from issuance of common stock primarily resulting from the exercise of stock options in both periods.

In April 1999, BTG purchased a manufacturing facility in Israel for approximately $6,250,000. Construction of a modern production facility meeting FDA GMP requirements for drugs, biologics and devices was completed at the end of 2001, and validation has commenced and is expected to be completed toward the end of 2002. BTG will then commence the process validation for products manufactured in the existing facility to be transferred to the new facility. Production of BTG’s products cannot be relocated to the new facility until the new facility has received all necessary regulatory approvals, which BTG anticipates will occur by the end of 2003. Through March 31, 2002, BTG has spent approximately $43,095,000 to complete construction of the production facility (including capitalized interest but excluding the cost of purchasing the facility and post-completion validation), and expects to spend approximately $5,100,000 to complete validation activities, of which approximately $500,000 has been expended through March 31, 2002. In addition, BTG has agreed to purchase additional property adjacent to the new manufacturing facility for approximately $1,200,000, of which approximately $400,000 has been paid to date. This property will allow BTG to locate its principal research and development activities adjacent to its new manufacturing facility.

In June 2000, Bio-Technology General (Israel) Ltd., BTG’s wholly-owned subsidiary (“BTG-Israel”), entered into a $20,000,000 revolving credit facility with Bank Hapoalim B.M. to finance a portion of the cost of completing its new production facility. Short-term borrowings under the facility are due 12 months from the date of borrowing and long-term borrowings are due five years from the date of borrowing and are to be repaid monthly over a three year period beginning September 2002 with respect to $10,000,000 of borrowings and March 2003 with respect to the remaining $10,000,000 of borrowings. Loans under the facility bear interest at the rate of LIBOR plus 0.5% in the case of short-term borrowings and LIBOR plus 1% in the case of long-term borrowings. Amounts repaid under the facility can be reborrowed. The credit facility is secured by the assets of BTG-Israel and has been guaranteed by the Company. At March 31, 2002 the Company had outstanding long-term borrowings of $20,000,000 under the facility.

On September 20, 2002, BTG agreed to acquire Rosemont Pharmaceuticals, Limited, a leader in the UK market for oral formulations of branded non-proprietary drugs. The purchase price of £64,000,000, or approximately $99,100,000 (£61,000,000 or approximately $95,000,000 net of Rosemont's anticipated cash balances on closing), will be paid out of BTG's available cash resources. The acquisition is expected to close by September 30, 2002. In connection with the acquisition, BTG entered into a forward contract for the delivery of £64,000,000 on September 30, 2002 at a cost of $99,123,200 (representing an exchange rate of $1.5488 per £1).

BTG maintains its funds in commercial paper, money market funds and other liquid debt instruments.

BTG manages its Israeli operations with the objective of protecting against any material net financial loss in U.S. dollars from the impact of Israeli inflation and currency devaluation on its non-U.S. dollar assets and liabilities. The cost of the Company’s operations in Israel, as expressed in dollars, is influenced by the extent to which any increase in the rate of inflation in Israel is not offset (or is offset on a lagging basis) by a devaluation of the Israeli Shekel in relation to the U.S. dollar. The consumer price index (which is used to measure the rate of inflation) decreased approximately 0.5% in the three months ended March 31, 2001, while the Shekel’s value in relation to the U.S. dollar decreased by approximately 3.7%. For the full year of 2001, the rate of inflation was approximately 1% while the Israeli Shekel was devalued by approximately 9%. In the three months ended March 31, 2002, the consumer price index increased approximately by 2.4% and the Shekel’s value in relation to the U.S. dollar decreased by approximately 5.7%. As a result, for those expenses linked to the Israeli Shekel, such as salaries and rent, this resulted in corresponding decrease in these costs in U.S. dollar terms in the first quarter of 2001 and 2002. To the extent that expenses in Shekels exceed BTG’s revenues in Shekels (which to date have consisted primarily of research funding from the Chief Scientist and product sales in Israel), the devaluation of Israeli currency have been and will continue to be a benefit to BTG’s financial condition. However, should BTG’s revenues in Shekels exceed its expenses in Shekels in any material respect, the devaluation of the Shekel will adversely affect BTG’s financial condition. Further, to the extent the devaluation of the Shekel with respect to the U.S. dollar does not substantially offset the increase in the costs of local goods and services in Israel, BTG’s financial results will be adversely affected as local expenses measured in U.S. dollars will increase.

The Company believes that its remaining cash resources as of March 31, 2002, together with anticipated product sales and continued funding from the Chief Scientist at current levels, will be sufficient to fund the Company’s current operations for the foreseeable future. There can, however, be no assurance that product sales will occur as anticipated, that current agreements with third party distributors of BTG’s products will not be canceled, that the Chief Scientist will continue to provide funding at current levels, that BTG will not use a substantial portion of its cash resources to acquire businesses, products and/or technologies, or that unanticipated events requiring the expenditure of funds will not occur. The satisfaction of the Company’s future cash requirements will depend in large part on the status of commercialization of the Company’s products, the Company’s ability to enter into additional research and development and licensing arrangements, and the Company’s ability to obtain additional equity

investments, if necessary. There can be no assurance that the Company will be able to obtain additional funds or, if such funds are available, that such funding will be on favorable terms.

Market Risk

Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. To date BTG’s exposure to market risk has been limited. Other than one foreign currency exchange rate hedge, BTG does not currently hedge any market risk, although it may do so in the future. BTG does not hold or issue any derivative financial instruments for trading or other speculative purposes. In early 2002, BTG purchased forward contracts in the amount of $3,000,000 to hedge part of its commitments in Israeli Shekels, primarily salaries, by locking in the Shekel/U.S. Dollar exchange rate, which had become more volatile in recent months. All of these contracts matured by July 1, 2002.

BTG’s obligations under its $20,000,000 revolving credit facility bear interest at floating rates and, therefore, BTG is impacted by changes in prevailing interest rates. A 100 basis point increase in market interest rates on the $20,000,000 outstanding under this facility at March 31, 2002 would result in an increase in its annual interest expense of $200,000. Because these borrowings relate to the construction of BTG’s new facility, interest expense is currently being capitalized.

BTG’s material interest bearing assets consist of cash and cash equivalents and short–term investments consisting primarily of investments in commercial paper, time deposits and mutual funds which invest in short–term instruments. BTG’s interest income is sensitive to changes in the general level of interest rates, primarily U.S. interest rates and other market conditions.

As discussed above under “Liquidity and Capital Resources,” BTG manages its Israeli operations with the objective of protecting against any material net financial loss in U.S. dollars from the impact of Israeli inflation and currency devaluation on its non-U.S. dollar assets and liabilities. All of BTG’s revenues are in U.S. dollars except for payments from the Chief Scientist and sales of its products in Israel, which are denominated in Israeli Shekels.

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.

		BIO-TECHNOLOGY GENERAL CORP.
		(Registrant)

By:		/s/ Sim Fass
		Sim Fass
		Chairman and Chief Executive Officer
		(Principal Executive Officer)

		/s/ John A. Bond
		John A. Bond
		Senior Vice President-Finance and Treasurer
		(Principal Financial and Accounting Officer)

Dated: September 24, 2002

CERTIFCATIONS

I, Sim Fass, certify that:

1. I have reviewed this Quarterly Report on Form 10Q/A of Bio-Technology General Corp.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report.

September 24, 2002

/s/ Sim Fass
Sim Fass

Chairman of the Board and CEO

I, John Bond, certify that:

1. I have reviewed this Quarterly Report on Form 10Q/A of Bio-Technology General Corp.;

September 24, 2002

/s/ John Bond
John Bond

Senior Vice President—Finance

I, Yehuda Sternlicht, certify that:

1. I have reviewed this Quarterly Report on Form 10Q/A of Bio-Technology General Corp.;

September 24, 2002

/s/ Yehuda Sternlicht
Yehuda Sternlicht

Vice President—Chief Financial Officer