Item 1. BUSINESS

General

In January 2001, Antares Pharma, Inc. ("Antares" or the "Company") (formerly known as Medi-Ject Corporation) completed a business combination to acquire the three operating subsidiaries of Permatec Holding AG ("Permatec"), headquartered in Basel, Switzerland. Upon consummation of the transaction, the acquired Permatec subsidiaries were renamed Antares Pharma AG, Antares Pharma IPL AG and Antares Pharma NV. The transaction is being accounted for as a reverse acquisition as Permatec's shareholders will initially hold approximately 67% of the outstanding stock of Antares. Accordingly, for accounting purposes, Permatec is deemed to have acquired Antares. Upon completion of the transaction, our name was changed to Antares Pharma, Inc. The following discussion of our business incorporates the Permatec transaction. References to the historical business of Medi-Ject Corporation are referred to as Medi-Ject and discussions related to the Permatec businesses are similarly referenced.

Medi-Ject develops, manufactures and markets novel medical devices, called jet injectors, that allow people to self-inject drugs without using a needle. We make a small spring-action device and the attached disposable plastic syringes to hold the drug. A liquid drug is drawn up into the syringe through a small hole at the end. When the syringe is held against the body and the spring is released, a piston drives the fluid stream into the tissues beneath the skin. A person may re-arm the device and repeat the process or attach a new sterile syringe between injections. Recently we have developed a variation of the jet injector by adding a very small hidden needle to a pre-filled, single-use injector.

With the Permatec combination, Antares is also committed to other methods of drug delivery, including trandsdermal patches, topical gel formulations and fast-dissolve oral and transbuccal delivery. These other drug delivery methods have become a material part of the business moving forward.

Our proxy statement dated December 28, 2000, and our Form 8-K/A filed with the SEC on April 13, 2001, contain pro forma financial information regarding this transaction.

From inception as a combined business entity, we will have fifty-three employees with thirty-five research and development personnel, engineers, formulation chemists and technicians, engaged in designing and formulating new products for the pharmaceutical industry.

We were a pioneer in the invention of home needle-free injection systems in the late 1970s. Earlier needle-free injection systems were powered by large air compressors, so their use was limited to vaccinations by the military or school health programs. Early injectors were painful in comparison to today's injectors, and they were large. Our first home insulin injector was five times as heavy as the current injector, which weighs five ounces. Today's insulin injector sells at a retail price of $299 compared to $799 eight years ago. Our first growth hormone injector was introduced in Europe in 1994. This was our first success in achieving distribution through a license to a pharmaceutical manufacturer, and it has resulted in significant market penetration and a very high degree of customer satisfaction. Distribution of growth hormone injectors has expanded to include Japan and other Asian countries. Insulin injectors, which we market through small distributors of diabetes products, remain a novelty in the U.S. market.

Permatec developed its first topical products in Argentina in the mid-1990s. This effort resulted in the commercialization of a seven-day estradiol patch in South America in 2000. Over time, the Argentine research effort moved away from the crowded transdermal patch field and focused on topical gel formulations, the ability to deliver estrogens, progestogens, testosterone and other drugs in a gel base without the need for an occlusive or irritating adhesive bandage. We believe that the commercial potential for topical gel therapies is attractive, and several agreements with pharmaceutical companies have led to the early and successful clinical evaluation of Antares formulations. The Argentine operations were moved to Basel, Switzerland in late 1999 and were consolidated with research efforts in fast-dissolve and transbuccal delivery.

We plan to operate in the specialized drug delivery sector of the pharmaceutical industry. Companies in this sector generally bring technology and know-how in the area of drug formulation (in our case this will include injection devices) to pharmaceutical manufacturers through licensing and development agreements. We view the pharmaceutical

manufacturer as our customer. We have negotiated and executed licensing relationships in the growth hormone segment (needle-free devices in Europe and Asia) and the hormone replacement segment (transdermal delivery of estradiol in South America) and topical hormone gels (several development programs in place worldwide). In addition, we continue to market needle-free devices for the home administration of insulin in the U.S. market as we seek a distribution relationship with an insulin manufacturer.

We are a Minnesota corporation, incorporated in February 1979. Our offices are located at 161 Cheshire Lane, Minneapolis, Minnesota 55441; telephone (763) 475-7700. We have wholly-owned subsidiaries in Switzerland (Antares Pharma AG and Antares Pharma IPL AG) and the Netherlands Antilles (Antares Pharma NV).

Industry Trends

Based upon our experience in the industry, we believe the following significant trends in healthcare have important implications for the growth of our business.

After a drug loses patent protection, the branded version of the drug often faces competition from generic alternatives. Often market share may be preserved by altering the delivery method, e.g., a single daily controlled release dosage form rather than four pills a day. We expect pharmaceutical manufacturers will continue to seek differentiating delivery characteristics to defend against generic competition. This may be an injection device or a novel formulation that offers convenience or improved dosage schedules.

The increasing trend of pharmaceutical companies marketing directly to consumers and recent focus on patient rights may encourage the use of innovative, user-friendly drug delivery. Part of this trend involves offering patients a wider choice of dosage forms. We believe the patient-friendly attributes of our topical gel, fast-dissolve and jet injection technologies meet these market needs.

Our focus on new topical formulations and transbuccal delivery in part complements our earlier experience with the new injection methods. We envision our program with topical gel formulation as second-generation technology, replacing the older transdermal patch products with more patient-friendly products. Topical gels will offer the patient more choices and added convenience with no compromise of efficacy. Although newer, the gel technology is based upon so-called GRAS ("Generally Recognized as Safe") substances, meaning the toxicology profiles of the ingredients are known and widely used. This approach has a major regulatory benefit and may reduce the cost and time of product development.

Many drugs, including selected hormones and protein biopharmaceuticals, are destroyed in the gastrointestinal tract and may only be administered through the skin, the lung or by injection. Pulmonary delivery is complex and only in the early stages of commercialization, and injection remains the mainstay of protein delivery. Therefore, the growing number of protein biopharmaceuticals requiring injection may compromise patient compliance with treatment programs. The failure to take all prescribed injections can lead to increased health complications for the patient, decreased drug sales for pharmaceutical companies and increased healthcare costs for insurance companies. In addition, conventional syringe needles require special and often costly disposal methods.

In addition to the increase in the number of drugs requiring self-injection, changes in the frequency of insulin injections for the treatment of diabetes also may contribute to an increase in the number of self-injections. For many years, standard treatment protocol was for insulin to be administered once or twice daily for the treatment of diabetes. However, according to recent studies, tightly controlling the disease by, among other things, administration of insulin as many as four to six times a day, can decrease its debilitating effects. We believe that as the benefits of tightly controlling diabetes become more widely known, the number of insulin injections self-administered by people with diabetes will increase. The need to increase the number of insulin injections given per day may also motivate diabetics to seek an alternative to traditional needles and syringes.

The importance of vaccines in industrialized and emerging nations is expanding as the prevalence of infectious diseases increases. New vaccines and improved routes of administration are the subject of intense research in the pharmaceutical industry. In the past, Antares had focused only upon the injection of medication in the home, but in 2000 we began to research the feasibility of using our devices for vaccines and new vaccine ingredients.

Due to the substantial costs involved, our marketing efforts are not currently focused on drug applications administered by healthcare professionals. Jet injection systems, however, may be attractive to hospitals, doctors' offices and clinics, and we may explore such applications in the future. The issues raised by accidental needle sticks and disposal of used syringes have led to the development of syringes with sheathed needles as well as the practice of giving injections through intravenous tubing to reduce the number of contaminated needles. In 1998, the State of California banned the use of exposed needles in hospitals and doctors' offices, and ten additional states have adopted similar legislation. We believe that needle-free injection systems may be attractive to healthcare professionals as a further means to reduce accidental needle sticks and the burdens of disposing of contaminated needles. Furthermore, certain drugs, particularly experimental DNA vaccines, may actually be more effective if delivered by jet injection.

Market Opportunity

An estimated nine to 12 billion needles and syringes are sold annually worldwide according to industry sources. We believe that a significant portion of these are used for the administration of drugs that could be delivered using our injectors but that only a small percentage of people who self-administer drugs currently use jet injection systems.

Our focus is on the market for the delivery of self-administered injectable drugs. The largest and most mature segments of this market consist of the delivery of insulin for diabetics and human growth hormone for children with growth retardation. In the U.S., over 3.2 million people inject insulin for the treatment of diabetes, resulting in an estimated 2.3 billion injections annually, and we believe that the number of insulin injections will increase with time as the result of new diabetes management techniques which recommend more frequent injections. A second, attractive market has developed with growth hormone; children suffering from growth retardation take daily hormone injections for an average of five years. The numbers of children with growth retardation are small relative to diabetes, but most children are exceptionally needle adverse. Our distributors in Europe, Japan and Asia have made significant inroads using our injectors in their markets. Other injectable drugs that are presently self-administered and may be suitable for injection with our systems include therapies for the prevention of blood clots and the treatment of multiple sclerosis, migraine headaches, impotence, hormone therapy, AIDS and hepatitis. We also believe that many injectable drugs currently under development will be given by self-injection once they reach the market.

According to one industry publication, the worldwide hormone replacement therapy market, the initial focus of our transdermal patch and topical gel formulation program, is expected to grow to $4.0 billion by 2002. As of 1998, only 15% of this market was composed of transdermal delivery systems in the U.S. However, we believe that the market is shifting away from oral systems, as evidenced in Europe, more specifically France, the leading country in the usage of transdermal hormone replacement therapy. According to an industry report, 64.8% of treated menopausal women in France used either patch (44.7%) or gel (20.1%) therapy. In the future, products may be formulated to address equally large market opportunities in other sectors of the pharmaceutical industry, including cardiovascular, osteoporosis, addiction and central nervous system therapies.

Products and Technology

Current Needle-Free Injection Systems

A smaller, easier to use insulin injector, the Medi-Jector Vision(R), was introduced in October 1999, replacing the Medi-Jector Choice(R). The Vision replaced the Choice in the U.S. insulin market and will gradually replace the Choice in international growth hormone markets. Each injector model is operated by first compressing a coil spring mechanism and then filling the attached disposable plastic syringe from a multi-use medication vial. The proper dosage is displayed in the dosage window. An injection is given by holding the injector perpendicular to the skin in a location appropriate for the injection and pressing the trigger button. An injector is recommended for 3,000 injections, and the needle-free plastic syringes are recommended for 7-21 injections, depending upon the drug and schedule of injections. The U.S. retail price of the Vision insulin device (excluding the needle-free syringe) is $299. The total annual cost to the end user of needle-free syringes and related supplies is approximately $250 per year (based upon an average of two injections per day). Based in part upon the results of marketing and clinical studies performed by us, we believe that injections using an Antares injection system are considered more comfortable and more discreet than injections using a conventional needle and syringe. The needle-free syringes used with any of the injector systems do not require special disposal. Once a needle-free syringe is removed from the device portion of the system, it cannot pierce the skin;

consequently, the risk of cross-infection from discarded needle-free syringes is reduced significantly from the risk associated with needles.

New Device Development

We are currently developing three new injector platforms. One platform, code named the MJ-8, represents a new concept in needle-free delivery, incorporating a smaller power pack with a self-contained medicinal cartridge. This device has been designed to compete with cartridge-based pen-like devices, which use replaceable needles, common in the European insulin market and rapidly replacing conventional syringes in the U.S. insulin market. A second platform, referred to as the AJ-1, combines a very low energy power source with a small hidden needle to offer a totally disposable, single injection system best suited for high volume doses or medications that require infrequent injections. A modification of this device is being developed to deliver vaccines to the very superficial layers of skin, a popular direction of vaccine research. A third platform, referred to as the MJ-10, is a needle-free version of the disposable pre-filled injector. We believe that this diverse development program will offer pharmaceutical manufacturers a broad and attractive array of delivery choices while providing consumers with less expensive and more user-friendly injectors.

MJ-8 Injector. We believe the major obstacle to widespread market acceptance of needle-free injection systems has been the lack of a suitably compact and easy- to-use injector. Although we have reduced the size and complexity of our injectors over the years, we believe further reduction in size is possible by limiting delivery of a single dose to 0.25ml or less. To this end, we have targeted the insulin market where most people in Europe and a growing number in the U.S. take four injections daily of 0.10ml to 0.15ml. Smaller doses require less energy and smaller energy sources. The space conserved by reducing the energy source is used to store a vial cartridge within the device, adding further user convenience. Prototypes of this platform are scheduled to be tested in clinical trials during the third quarter of 2001 and to reach the market in 2002.

AJ-1 Injector. The coil springs of our commercial needle-free injectors limit injection volume to 0.5ml; larger fluid volumes require larger springs and are therefore impractical. Nevertheless, injection volumes of 1.0ml or more are not uncommon. In 1998, our engineers found that they could greatly reduce the size of the coil spring by adding a very short, hidden needle (mini-needle). They concluded that breaking the very outer layers of the skin with a small needle allows very low energy jet injection. At lower energies, the devices could hold the drug in small, standard, single dose glass cartridges. We built and successfully tested a small, pre-filled, totally disposable mini-needle injector during 1999, and we have continued to refine this platform for the needs of interested pharmaceutical companies.

Engineers with Elan Corporation plc ("Elan"), a drug delivery company based in Ireland, had developed additional proprietary technologies that complement our AJ-1 design, and in November 1998, we licensed the Elan technology for certain applications. During the fourth quarter of 1999, we collaborated with an undisclosed pharmaceutical manufacturer to adapt the design to a novel drug formulation, and tests of additional drugs are planned for 2001.

MJ-10 Injector. Several needle-free injection companies and pharmaceutical manufacturers are pursuing needle-free versions of the AJ-1 device with only limited success. Our engineers believe that they have identified unique opportunities in this field, and we are proceeding with product development.

We expended approximately $3,517,000, $2,551,000 and $1,223,000 on research and development efforts during fiscal years 1998, 1999 and 2000, respectively. Of these amounts, approximately $527,000, $1,381,000 and $33,000, respectively, were funded by third-party sponsored development programs and licensing fees.

Current Transdermal Patch Technology

Permatec markets a seven-day estradiol patch for hormone replacement therapy in Brazil and Chile. Patches are small adhesive structures applied to the skin. The patch allows for the diffusion of one or more active compounds through the skin during an extended period of time. These patches are based upon the second generation of technology known as matrix patches where the active material is dispersed in the adhesive polymer. The seven-day estradiol patches are manufactured by contract in Germany. Permatec commenced sales of the seven-day estradiol patches in the fourth quarter of 2000.

New Formulation Products

Permatec's Combi Gel(TM) product containing estradiol and norethindrone acetate ("NETA") was licensed to Solvay in Europe in 1999 and has progressed successfully through Phase I clinical evaluation. Phase II studies are scheduled to commence in 2001. In 2000, we signed an exclusive agreement with BioSante, an early stage U.S. pharmaceutical company, and began clinical studies of four Combi Gel(TM) hormone formulations for commercialization in the U.S. and other countries.

Patents

When appropriate we actively seek protection for our products and proprietary information by means of U.S. and international patents and trademarks. With the Medi-Ject injection device technology, we currently hold 21 patents and have an additional 38 applications pending in the U.S. and other countries. With Permatec's drug formulation technology we hold 29 patents and an additional 45 applications, in various countries, are pending. Our patents have expiration dates ranging from 2002 to 2019.

Some of our technology is developed on our behalf by independent outside contractors. To protect the rights of our proprietary know-how and technology, our policy requires all employees and consultants with access to proprietary information to execute confidentiality agreements prohibiting the disclosure of confidential information to anyone outside our Company. These agreements also require disclosure and assignment to the Company of discoveries and inventions made by such individuals while devoted to Company-sponsored activities. Companies with which we have entered into development agreements have the right to certain technology developed in connection with such agreements.

Manufacturing

We operate a U.S. device manufacturing facility in compliance with current Quality System Regulations ("QSR") established by the Food and Drug Administration ("FDA") and by the centralized European regulatory authority (ISO 9001 and EN 46,001). Injector and disposable parts are manufactured by third-party suppliers and assembled at our facility in Minneapolis, Minnesota. Quality control and final packaging are performed on site. We may need to invest in automated assembly equipment if volume increases in the future. We are obligated to allow Becton Dickinson to bid on manufacturing our disposable plastic components of certain injector systems. We pay Becton Dickinson royalties on sales of plastic components of certain injector systems.

Permatec's transdermal estradiol patches are manufactured in Germany through a contract arrangement. Permatec's Combi Gel(TM) formulations for clinical studies are currently manufactured by contract under our supervision. Permatec has approximately 3,000 square feet of undeveloped space reserved in our Basel facility for pilot manufacturing of gel and fast-dissolve products.

Marketing

Our basic business strategy is to develop and manufacture new products specific to certain pharmaceutical applications but to market through the existing distribution systems of pharmaceutical and medical device companies.

Injection Devices

With respect to current injection device selling efforts, our relationship with Ferring NV best reflects this basic strategy. Ferring is selling human growth hormone throughout Europe with a marketing campaign tied exclusively to the Medi-Ject needle-free delivery system. Ferring has been successful in establishing a user base of more than 1,000 children for its drug using the Medi-Ject needle-free system. In the Netherlands, where they enjoy their largest market share, 22% of children taking growth hormone use our injector. During the past five years, a Japanese pharmaceutical company, JCR, has distributed small numbers of growth hormone injectors to hospital-based physicians. In 1999, SciTech Genetics began distribution in Asia of our growth hormone injectors along with their drug.

During 2000, our international sales revenue accounted for 74% of our total product sales revenue. Europe (primarily Germany) accounted for 88% of international product sales revenue with the remainder coming primarily

from Asia. Three customers (Ferring, JCR and SciGen) accounted for 93% of international product sales revenue and 69% of worldwide product sales revenue.

There is no backlog of sales orders.

The table below summarizes our current collaborative and distribution agreements in the injection device sector.

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                 Company                                         Market
============================================= =============================================
Ferring NV................................                   Growth Hormone
                                                                (Europe)
--------------------------------------------- ---------------------------------------------
JCR Pharmaceuticals Co., Ltd..............                   Growth Hormone
                                                                 (Japan)
--------------------------------------------- ---------------------------------------------
SciGen Pte Ltd............................                   Growth Hormone
                                                             (Asia/Pacific)
--------------------------------------------- ---------------------------------------------
Bio-Technology General Corporation .......                   Growth Hormone
                                                             (United States)
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Chronimed ................................               Insulin - Direct Sales
                                                             (United States)
--------------------------------------------- ---------------------------------------------
drugstore.com ............................                Insulin - E-Commerce
                                                             (United States)
--------------------------------------------- ---------------------------------------------
MediSense (Abbott Laboratories) ..........               Insulin - Distribution
                                                            (Norway, Sweden)
--------------------------------------------- ---------------------------------------------
Beijing Wilcon, Ltd. .....................               Insulin - Distribution
                                                                 (China)
--------------------------------------------- ---------------------------------------------
Direct Trading International .............               Insulin - Distribution
                                                            (Czech Republic)
--------------------------------------------- ---------------------------------------------
Prosamed .................................               Insulin - Distribution
                                                                (Germany)
--------------------------------------------- ---------------------------------------------
Organon, a division of Akzo Nobel.........           Undisclosed Development Program

--------------------------------------------- ---------------------------------------------
Becton Dickinson and Company (1) .........          Manufacturing - All Applications
                                                               (worldwide)
--------------------------------------------- ---------------------------------------------
BioSante Pharmaceuticals .................                DNA vaccine research
                                                               (worldwide)
--------------------------------------------- ---------------------------------------------
Infusiones Gove, S.A. DE C.V. ............               Insulin - Distribution
                                                                (Mexico)
--------------------------------------------- ---------------------------------------------
Comar Cardio Technology srl ..............               Insulin - Distribution
                                                                 (Italy)
--------------------------------------------- ---------------------------------------------
University of Minnesota ..................              DNA Porcine Vaccine Study
                                                               (worldwide)
--------------------------------------------- ---------------------------------------------
Pharmacia ................................                AJ1 PK Clinical Study
                                                               (worldwide)
--------------------------------------------- ---------------------------------------------
CVS.com ..................................                Insulin - E-Commerce
                                                             (United States)
--------------------------------------------- ---------------------------------------------
Bergen Brunswig ..........................               Insulin - Distribution
                                                             (United States)
--------------------------------------------- ---------------------------------------------
McKesson Corporation .....................               Insulin - Distribution
                                                             (United States)
--------------------------------------------- ---------------------------------------------
Donawa Italia srl ........................         Authorized European Representative
--------------------------------------------- ---------------------------------------------
Care Services, Inc. ......................         Insulin - Distribution - E-Commerce
                                                         (United States/Canada)
--------------------------------------------- ---------------------------------------------

(1) Becton Dickinson has certain manufacturing rights to our disposable needle-free syringes for any indication.

In January 1996, we entered into a strategic alliance with Becton Dickinson that included an exclusive Development and Licensing Agreement, an equity purchase and a seat on the Board of Directors. The agreement provided Becton Dickinson with exclusive rights to market the Vision insulin injector and subsequent generations of injectors developed as a result of collaborative development. In addition, Becton Dickinson held the right to manufacture the disposable components of injector systems. In turn, Becton Dickinson contributed funding and other resources, including dedicated engineering skills, to the development program. We believe that with time, both parties reached the conclusion that the Vision product and its disposable components would not fulfill the marketing or manufacturing requirements of Becton Dickinson. Therefore, the Development and Licensing Agreement of 1996 was terminated in February 1999 and replaced with a new agreement. Under the terms of the new agreement, we are free to market the Vision insulin injector and manufacture disposables in exchange for a payment to Becton Dickinson of a royalty on sales. Becton Dickinson retains an option to manufacture the disposable components of the Vision system under certain conditions.

Over the past year, we have taken several steps to increase our U.S. insulin injector distribution while lowering the associated expense. We have succeeded at lowering our expenses, but we have not materially increased sales volumes. In February 1999, we established an E-commerce distribution channel that allows purchase through the Internet, and in October 1999, we began E-commerce distribution with drugstore.com, a leading Internet pharmacy. Our effort to market through the Internet has proven unsatisfactory. In April 1999, the FDA granted us permission to sell our insulin injectors without requiring a prescription. In February 2000, we transferred responsibility for the majority of our direct sales to the Home Service Medical division of Chronimed, and more recently, in March 2001, we again transferred U.S. distribution to Diabetic Express, a division of Care Services, Inc. Antares has concluded that the successful distribution of insulin devices will require additional physician support and the marketing power of a major insulin manufacturer to succeed. However, our current effort will continue because our devices provide a vital service to the needle-phobic diabetic and provide us with considerable information regarding the needs of people required to self-administer drugs by injection.

Topical Delivery Products

Currently we market the transdermal estradiol patch in Brazil and Chile. Market introduction is recent but we estimate that the markets for our products will remain small because of intense competition in this field. Over the short term, the majority of revenues generated from topical drug formulation will be through the fees generated by licensing and development agreements.

The following table describes existing pharmaceutical relationships in the topical delivery sector.

---------------------------------------- ------------------------ --------------------------------- ----------------------
    Pharmaceutical Company Partner
                                                Compound                   Market Segment                Technology
---------------------------------------- ------------------------ --------------------------------- ----------------------
Solvay (The Netherlands)                 NETA/Estradiol           Hormone replacement therapy       Combi Gel(TM)
---------------------------------------- ------------------------ --------------------------------- ----------------------
Segix (Italy)                            Estradiol                Hormone replacement therapy       Patch
---------------------------------------- ------------------------ --------------------------------- ----------------------
Sigmapharma/Novaquimica (Brazil)         Estradiol                Hormone replacement therapy       Patch
---------------------------------------- ------------------------ --------------------------------- ----------------------
Recalcine (Chile)                        Estradiol                Hormone replacement therapy       Patch
---------------------------------------- ------------------------ --------------------------------- ----------------------
Lab Chile (Chile)                        Estradiol                Hormone replacement therapy       Patch
---------------------------------------- ------------------------ --------------------------------- ----------------------
BioSante (US)                            Progesterone/Estradiol/  Hormone replacement therapy       Combi Gel(TM)and Patch
                                         Testosterone
---------------------------------------- ------------------------ --------------------------------- ----------------------
Farmasierra                              Loperamide               Digestive disorder                Easy Tec
---------------------------------------- ------------------------ --------------------------------- ----------------------
Pharmacia (Sweden)                       Ibuprofen Gel            Pain                              Combi Gel(TM)
---------------------------------------- ------------------------ --------------------------------- ----------------------

Competition

Competition in the injectable drug delivery market is intensifying. We face competition from traditional needle syringes, newer pen-like and sheathed needle syringes and other needle-free injection systems as well as alternative drug delivery methods including oral, transdermal and pulmonary delivery systems. Nevertheless, the vast majority of injections currently are administered using needles. Because injection is typically only used when other drug delivery methods are not feasible, our needle-free injection systems may be made obsolete by the development or introduction of drugs or drug delivery methods which do not require injection for the treatment of conditions we have currently

targeted. In addition, because we intend to enter into collaborative arrangements with pharmaceutical companies, our competitive position will depend upon the competitive position of the pharmaceutical company with which we collaborate for each drug application.

Three companies currently sell injectors to the U.S. insulin market. Antares believes that it retained the largest market share in 2000 and competes on the basis of device size, price and ease of use. In 1998, Bioject, Inc., the manufacturer of a needle-free vaccine injector, purchased the insulin injector business of Vitajet, and after some months of redesign, they entered the U.S. insulin injector market. Equidyne, Inc. entered the worldwide insulin injector market in mid-2000. Powderject Pharmaceuticals, Plc, a British research company, is developing a needle-free injection system based upon the principle of injecting a fine dry powder, and Weston Medical Ltd., another U.K. based company, is developing a single-use needle-free system. Both Powderject and Weston Medical compete actively and successfully for licensing agreements with pharmaceutical manufacturers and have accumulated large cash resources.

Even though we expect the needle-free injection market to expand, improvements continue to be made in needle syringes, including syringes with hidden needles and pen-like needle injectors. We expect we will compete with existing needle injection methods as well as new delivery methods yet to be commercialized. For example, Inhale in partnership with Pfizer and Aventis is completing Phase III clinical testing of inhaled insulin which, if successful, could replace the use of injection in some patients.

Competition in the formulation sector differs in that the market is considerably larger, more mature and dominated by much larger companies like ALZA and Elan plc. Other large competitors include SkyePharma and Alkermes. These companies have substantially greater capital resources, more experienced research teams, larger facilities and a broader range of products and technologies. Nevertheless, ALZA and Elan have focused in recent years on growth through the acquisition and sales of traditional pharmaceutical products.

Government Regulation

Our products and manufacturing operations are subject to extensive government regulations, both in the United States and abroad. In the United States, the Food & Drug Administration (FDA) administers the Federal Food Drug and Cosmetic Act (the "FDC Act") and has adopted regulations, including those governing the introduction of new medical devices, the observation of certain standards and practices with respect to the manufacturing and labeling of medical devices, the maintenance of certain records and the reporting of device-related deaths, serious injuries and certain malfunctions to the FDA. Manufacturing facilities and certain Company records are also subject to FDA inspections. The FDA has broad discretion in enforcing the FDC Act and the regulations thereunder, and noncompliance can result in a variety of regulatory steps ranging from warning letters, product detentions, device alerts or field corrections to mandatory recalls, seizures, injunctive actions and civil or criminal actions or penalties.

Drug delivery systems such as our injectors may be approved or cleared for sale as a medical device or may be evaluated as part of the drug approval process in connection with a new drug application ("NDA") or a Product License Application ("PLA"). To the extent permitted under the FDC Act and current FDA policy, we intend to seek the required approvals and clearance for the use of our new injectors, as modified for use in specific drug applications under the medical device provisions, rather than under the new drug provisions, of the FDC Act.

Products regulated as medical devices may not be commercially distributed in the United States unless they have been cleared or approved by the FDA, unless otherwise exempted from the FDC Act and regulations thereunder. There are two methods for obtaining such clearance or approvals. Certain products qualify for a pre-market notification under Section 510(k) of the FDC Act ("510(k) notification") of the manufacturer's intention to commence marketing the product. The manufacturer must, among other things, establish in the 510(k) notification that the product to be marketed is substantially equivalent to another legally marketed product (that is, that it has the same intended use and that it is as safe and effective as a legally marketed device and does not raise questions of safety and effectiveness that are different from those associated with the legally marketed device). Marketing may commence when the FDA issues a letter finding substantial equivalence to such a legally marketed device. The FDA may require, in connection with a 510(k) notification, that it be provided with animal and/or human test results. If a medical device does not qualify for the 510(k) procedure, the manufacturer must file a pre-market approval ("PMA") application under Section 515 of the FDC Act. A PMA must show that the device is safe and effective and is generally a much more complex submission than a 510(k) notification, typically requiring more extensive pre-filing testing and a longer FDA review process. We

believe that injection systems, when indicated for use with drugs or biologicals approved by the FDA, will be regulated as medical devices and are eligible for clearance through the 510(k) notification process. There can be no assurance, however, that the FDA will not require a PMA in the future.

In addition to submission when a device is being introduced into the market for the first time, a 510(k) notification is also required when the manufacturer makes a change or modification to an already marketed device that could significantly affect safety or effectiveness, or where there is a major change or modification in the intended use or in the manufacture of the device. When any change or modification is made in a device or its intended use, the manufacturer is expected to make the initial determination as to whether the change or modification is of a kind that would necessitate the filing of a new 510(k) notification. The FDA's regulations provide only limited guidance in making this determination.

If the FDA concludes that any or all of our new injectors must be handled under the new drug provisions of the FDC Act, substantially greater regulatory requirements and approval times will be imposed. Use of a modified new product with a previously unapproved new drug likely will be handled as part of the NDA for the new drug itself. Under these circumstances, the device component will be handled as a drug accessory and will be approved, if ever, only when the NDA itself is approved. Our injectors may be required to be approved as part of the drug delivery system under a supplemental NDA for use with previously approved drugs. Under these circumstances, our device could be used with the drug only if and when the supplemental NDA is approved for this purpose. It is possible that, for some or even all drugs, the FDA may take the position that a drug-specific approval must be obtained through a full NDA or supplemental NDA before the device may be labeled for use with that drug.

To the extent that our modified injectors are handled as drug accessories or part of a drug delivery system, rather than as medical devices, they are subject to all of the requirements that apply to new drugs. These include drug manufacturing requirements, drug adverse reaction reporting requirements, and all of the restrictions that apply to drug labeling and advertising. In general, the drug requirements under the FDC Act are more onerous than medical device requirements. These requirements could have a substantial adverse impact on our ability to commercialize our products and our operations.

We have received 510(k) marketing clearance from the FDA allowing us to market the Medi-Jector Choice and the Medi-Jector Vision systems.

We expect in the future to submit 510(k) notifications with regard to further device design improvements and uses with additional drug therapies.

In the European Union, a drug delivery device that is an integral combination with the drug to be delivered is considered part of the medicinal product and is regulated as a drug. Transdermal patches such as the estradiol patch are drug delivery devices which are, therefore, regulated as drugs and must comply with the requirements described in the Medicinal Products Directive 85/65/EEC.

The FDC Act also regulates our quality control and manufacturing procedures by requiring us and our contract manufacturers to demonstrate compliance with the current Quality System Regulations ("QSR"). The FDA's interpretation and enforcement of these requirements have been increasingly strict in recent years and seem likely to be even more stringent in the future. The FDA monitors compliance with these requirements by requiring manufacturers to register with the FDA and by conducting periodic FDA inspections of manufacturing facilities. If the inspector observes conditions that might violate the QSR, the manufacturer must correct those conditions or explain them satisfactorily. Failure to adhere to QSR requirements would cause the devices produced to be considered in violation of the FDA Act and subject to FDA enforcement action that might include physical removal of our devices from the marketplace.

The FDA's Medical Device Reporting Regulation requires that we provide information to the FDA on the occurrence of any death or serious injuries alleged to have been associated with the use of our products, as well as any product malfunction that would likely cause or contribute to a death or serious injury if the malfunction were to recur. In addition, FDA regulations prohibit a device from being marketed for unapproved or uncleared indications. If the FDA believed that we were not in compliance with these regulations, it could institute proceedings to detain or seize

our devices, issue a recall, seek injunctive relief or assess civil and criminal penalties against us or our executive officers, directors or employees.

We are also subject to the Occupational Safety and Health Act ("OSHA") and other federal, state and local laws and regulations relating to such matters as safe working conditions, manufacturing practices, environmental protection and disposal of hazardous or potentially hazardous substances.

Sales of medical devices outside of the U.S. are subject to foreign legal and regulatory requirements. Our injection systems have been approved for sale only in certain foreign jurisdictions. Legal restrictions on the sale of imported medical devices vary from country to country. The time required to obtain approval by a foreign country may be longer or shorter than that required for FDA approval, and the requirements may differ. We rely upon the companies marketing our injectors in foreign countries to obtain the necessary regulatory approvals for sales of our injectors in those countries. Generally, devices having an effective 510(k) clearance or PMA may be exported without further FDA authorization.

We have obtained ISO 9001/EN 46001 systems. This certification shows that our procedures and manufacturing facilities comply with standards for quality assurance and manufacturing process control. Such certification, along with European Medical Device Directive certification, evidence compliance with the requirements enabling us to affix the CE Mark to our current products. The CE Mark denotes conformity with European standards for safety and allows certified devices to be placed on the market in all European Union ("EU") countries. Semi-annual audits by the notified body, British Standards Institute, are required to demonstrate continued compliance.

Forward Looking Statements

We and our representatives may from time to time make written or oral forward-looking statements with respect to our annual or long-term goals, including statements contained in our filings with the Securities and Exchange Commission and in our reports to shareholders.

The words or phrases "will likely result," "are expected to," "will continue to," "is anticipated," "estimate,", "project" or similar expressions identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.

In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, we are identifying the important risk factors below that could affect our financial performance and could cause our actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

We undertake no obligation to publicly revise any forward-looking statements to reflect future events or circumstances.

Risk Factors

The following "risk factors" contain important information about us and our business and should be read in their entirety.

Uncertainty Of Market Acceptance; Limited Current Market For Injector Drug Delivery Technologies; Transdermal Patches; Transdermal Gels; Injectable Gels

Our success will depend upon increasing market acceptance of our drug delivery technologies as an alternative to traditional delivery systems. During the time period since initial commercial introduction, our products have had only limited success competing with traditional drug delivery systems because, we believe, of the size, cost and complexity of use and maintenance of our drug delivery technologies and the relatively small number of drugs that have been self-administered. In order to increase market acceptance, we believe that we must successfully develop improvements in the design and functionality of future drug delivery technology that will reduce cost and increase appeal to users, thereby making these technologies desirable despite their premium cost over traditional drug delivery systems. Projected improvements in functionality and design may not adequately address the actual or perceived complexity of using our drug delivery technologies or adequately reduce cost. In addition, we believe that our future success depends upon our ability to enter into additional collaborative agreements with drug and medical device manufacturers, as discussed below. There can be no assurance that we will be successful in these efforts or that our drug delivery technologies will ever gain sufficient market acceptance to achieve and/or sustain profitable operations.

Although transdermal patches are a well accepted method of drug delivery, many other companies compete in this sector. Because the cost of manufacturing equipment is high, most manufacturing is done by a limited number of contract manufacturers. Therefore, our costs will remain high and our pricing options will be limited. We may develop a superior patch, but we may not be able to price it competitively, or our margins may not justify maintaining the business if our market share is low. Patches are not central to our business strategy and may suffer from lack of attention. There can be no assurance that we will be successful in the transdermal patch market.

Because transdermal gels are a newer, less understood method of drug delivery, our potential consumers (the pharmaceutical manufacturers) have little experience with manufacturing costs or pricing parameters. Our assumption of higher value may not be shared by the consumer. To date, transdermal gels have successful entry into only a limited number of markets. There can be no assurance that transdermal gels will ever gain sufficient market acceptance in those or other markets to achieve and/or sustain profitable operations.

Although the injectable gel research field is active, there is essentially no data regarding consumer acceptance. Regulatory compliance and approvals can take a substantial amount of time due to clinical evaluations that are required for this type of method but not for other drug delivery methods. There can be no assurance that injectable gels will ever obtain the necessary regulatory approvals or gain sufficient market acceptance to achieve and/or sustain profitable operations.

Limited Operating History; Lack Of Profitability

Medi-Ject recorded the first revenue from developing its injector technologies in 1979. In addition, there have been limited commercial sales of products utilizing our technologies and most of our technologies are still under development. Since 1993, we have generated revenues from product development fees and licensing arrangements, and from royalties. We do not have an operating history with the Permatec Subsidiaries.

Currently, we are not profitable. Medi-Ject has accumulated aggregate net losses from inception through December 31, 2000, of approximately $29,084,000. The costs for research and product development of our drug delivery technologies along with marketing and selling expenses and general and administrative expenses have been the principal causes of our losses. Permatec had net losses through December 31, 2000, of approximately $13,861,605 and amounts due from Medi-Ject of $5,133,296, and since inception has had net losses and negative cash flows from operating activities. Our ability to achieve and/or sustain profitable operations depends on a number of factors, many of which are beyond our direct control. These factors include:

o the demand for our technologies;
o our ability to manufacture products efficiently and with the required quality;
o our ability to increase manufacturing capacity;
o the level of product and price competition;
o our ability to develop additional commercial applications for our products;
o our ability to obtain regulatory approvals;
o our ability to control costs; and
o general economic conditions.

Need For Additional Capital And Capital Requirements

After our privately placed capital investment of $10,000,000, received in February and March 2001, Antares' cash resources will be insufficient to fund our capital requirements beyond approximately mid-2002 and will not be sufficient for us to reach profitability. Accordingly, we will require equity and/or debt financing prior to mid-2002. There can be no assurance that sufficient additional equity or debt financing will be available. If we cannot obtain financing when needed, or obtain it on favorable terms, we may be required to curtail development of new drug delivery technologies or their expansion of manufacturing capacity.

Expansion Strategy

We intend to continue to enhance our current technologies and pursue additional proprietary drug delivery technologies. However, we may be unable to achieve our objectives of revenue growth and profitability. Even if enhanced or additional technologies appear promising during various stages of development, we may not be able to develop commercial applications for them because:

o the potential technologies may fail clinical studies;
o we may not find a pharmaceutical company to adopt the technologies;
o it may be difficult to apply the technologies on a commercial scale; or
o the technologies may be uneconomical to market.

Our future success depends to a significant degree on our ability to obtain regulatory approval for and commercialize the use of our drug delivery technologies. However, we have not yet completed research and development work or obtained regulatory approval for such improved systems or for use with any drugs other than insulin, human growth hormone and estradiol. There can be no assurance that any development work will ultimately be successful or that unforeseen difficulties will not occur in research and development, clinical testing, regulatory submissions and approval, product manufacturing and commercial scale up, marketing, or product distribution related to any such improved technologies or new uses. Any such occurrence could materially delay the commercialization of such improved technologies or new uses or prevent their market introduction entirely.

Dependence On Major Customers

Our revenue currently depends on a limited number of customers. The loss of any one of these customers could cause revenues to decrease significantly, resulting in, or increasing, our losses from operations. If we cannot broaden our customer base, we will continue to depend on a few customers for the majority of our revenues. We may be unable to negotiate favorable business terms with customers that represent a significant portion of our revenues. If that occurs, our revenues and gross profits may be insufficient to allow us to achieve and/or sustain profitability.

Dependence On Single Source Suppliers

Certain of our technologies contain a number of customized components manufactured by various third-parties. Regulatory requirements applicable to medical device and transdermal patch manufacturing can make substitution of suppliers costly and time-consuming. In the event that we could not obtain adequate quantities of these customized components from our suppliers, there can be no assurance that we would be able to access alternative sources of such components within a reasonable period of time, on acceptable terms or at all. The unavailability of adequate quantities, the inability to develop alternative sources, a reduction or interruption in supply or a significant increase in the price of components could have a material adverse effect on our ability to manufacture and market our products.

Risks Associated With Third-Party Reimbursement Of End Users

Certain sales of our current and proposed technologies in certain markets are dependent in part on the availability of adequate reimbursement from third-party healthcare payors. Currently, insurance companies and other third-party payors reimburse the cost of certain technologies on a case-by-case basis and may refuse reimbursement if they do not perceive benefits to their use in a particular case. Third-party payors are increasingly challenging the pricing of medical products and services, and there can be no assurance that such third-party payors will not in the future

increasingly reject claims for coverage of the cost of certain of our technologies. In addition, there can be no assurance that adequate levels of reimbursement will be available to enable us to achieve or maintain market acceptance of our technologies or maintain price levels sufficient to realize profitable operations. Furthermore, there is a possibility of increased government control or influence over a broad range of healthcare expenditures in the future. Any such trend could negatively impact the market for our drug delivery technologies.

Dependence On Collaborative Agreements With Pharmaceutical Companies

We believe that the introduction and broad acceptance of our drug delivery technologies is in part dependent upon the success of our current and any future development and licensing arrangements with pharmaceutical and medical device companies covering the development, manufacture, use and marketing of drug delivery technologies with specific parenteral drug therapies. We anticipate that under these arrangements the pharmaceutical or medical device company will assist in the development of systems for such drug therapies and collect or sponsor the collection of the appropriate data for submission for regulatory approval of the use of the drug delivery technology with the licensed drug therapy. The pharmaceutical or medical device company also will be responsible for distribution and marketing of the technologies for these drug therapies either worldwide or in specific territories. We are currently a party to a number of such agreements. There can be no assurance that we will be successful in executing additional agreements with pharmaceutical or medical device companies or that existing or future agreements will result in the sale of our drug delivery technologies. If we do not enter into additional agreements in the future, or if our current or future agreements do not result in successful marketing of our products, our business, results of operations and financial condition could be adversely affected and our revenues and gross profits may be insufficient to allow us to achieve and/or sustain profitability. As a result of these arrangements, we are dependent upon the development, data collection and marketing efforts of such pharmaceutical and medical device companies. The amount and timing of resources such pharmaceutical and medical device companies devote to these efforts are not within our control, and such pharmaceutical and medical device companies could make material decisions regarding these efforts that could adversely affect our future financial condition and results of operations. In addition, factors that adversely impact the introduction and level of sales of any drug covered by such licensing arrangements, including competition within the pharmaceutical and medical device industries, the timing of regulatory or other approvals and intellectual property litigation may also negatively affect sales of our drug delivery technology.

Additional risks that we face related to our collaborative agreements include:

o inability to enter into collaborative agreements to develop additional products using drug delivery technologies;
o any existing or future collaborative agreements may not result in additional commercial products;
o additional commercial products that we may develop may not be successful;
o we may not be able to meet the milestones established in our current or future collaborative agreements and thus, would not receive the fees; and
o we may not be able to develop successful new drug delivery technologies that will be attractive to potential pharmaceutical company partners.

Limited Manufacturing Experience; Risks Associated With New Materials, New Assembly Procedures And Increased Production Levels

Our past assembly, testing and manufacturing experience for certain of our technologies has involved the assembly of products from machined stainless steel and composite components in limited quantities. Our planned future drug delivery technologies necessitate significant changes and additions to our manufacturing and assembly process to accommodate new components. These systems must be manufactured in compliance with regulatory requirements, in a timely manner and in sufficient quantities while maintaining quality and acceptable manufacturing costs. In addition, our plans call for significantly increased levels of production and a shift to performing more manufacturing functions internally rather than relying on third-party suppliers, which will require us to eventually expand beyond our current facilities. In the course of these changes and additions to our manufacturing and production methods, we may encounter difficulties, including problems involving yields, quality control and assurance, product reliability, manufacturing costs, existing and new equipment, component supplies and shortages of personnel, any of which could result in significant delays in production. There can be no assurance that we will be able to produce and manufacture

successfully our drug delivery technology. Any failure to do so would negatively impact our business, financial condition and results of operations.

Dependence On Third Parties To Develop, Obtain Regulatory Approvals, Market, Distribute And Sell Our Products

Pharmaceutical company partners help us develop, obtain regulatory approvals for, manufacture and sell our products. If one or more of these pharmaceutical company partners fail to pursue the development or marketing of the products as planned, our revenues and gross profits may not reach expectations or may decline. We may not be able to control the timing and other aspects of the development of products because pharmaceutical company partners may have priorities that differ from ours. Therefore, commercialization of products under development may be delayed unexpectedly. Further, we may incorporate certain of our drug delivery technologies into the oral dosage forms of products marketed and sold by pharmaceutical company partners. We do not have a direct marketing channel to consumers for drug delivery technologies. Therefore, the success of the marketing organizations of the pharmaceutical company partners, as well as the level of priority assigned to the marketing of the products by these entities, which may differ from our priorities, will determine the success of the products incorporating our technologies.

Acceptance Of Drug Delivery Technologies By Patients And Physicians

Our revenues depend on ultimate patient and physician acceptance of our needle-free injectors, gels, patches and our other potential drug delivery technologies as an alternative to more traditional forms of drug delivery including injections using a needle, tablets and liquid formulas. If our drug delivery technologies are not accepted in the marketplace, the pharmaceutical company partners may be unable to successfully market and sell our products, which would limit our ability to generate revenues and to achieve and/or sustain profitability. The degree of acceptance of our drug delivery systems depend on a number of factors. These factors include:

o demonstrated clinical efficacy and safety;
o cost-effectiveness;
o convenience and ease of administration of injectors, transdermal gels and patches;
o advantages over alternative drug delivery systems; and
o marketing and distribution support.

Physicians may refuse to prescribe products incorporating our drug delivery technologies if the physicians believe that the active ingredient is better administered to a patient using alternative drug delivery technologies or the physicians believe that the delivery method will result in patient noncompliance. Factors, such as allergic reactions, patient perceptions that a gel is inconvenient and cosmetic considerations about patches, may cause patients to reject our drug delivery technologies.

In addition, we expect that the pharmaceutical company partners will price products incorporating their drug delivery technologies slightly higher than conventional methods, which may impair their acceptance. Because only a limited number of products incorporating our drug delivery technologies are commercially available, we cannot yet assess the level of market acceptance of our drug delivery technologies.

Competition; Risk Of Technological Obsolescence

Our current competition is primarily from traditional hypodermic needles and syringes which are used for the vast majority of injections administered today and from transdermal patch and gel products marketed by others. Currently, competition in the needle-free injection market is limited to small companies with modest financial and other resources, but the barriers to entry are currently low and additional competitors may enter the needle-free injection systems market, including companies with substantially greater resources and experience than us. There can be no assurance that we will be able to compete effectively against our current or potential competitors in the drug delivery market, or that such competitors will not succeed in developing or marketing products that will be more accepted in such market. Competition in this market could also force us to reduce the prices of our technologies below currently planned levels, which could adversely affect our revenues and future profitability.

In general, injection is used only with drugs for which other drug delivery methods are not possible, in particular with biopharmaceutical proteins (drugs derived from living organisms, such as insulin and human growth hormone)

that cannot currently be delivered orally, transdermally (through the skin) or pulmonarily (through the lungs). Transdermal patches and gels are also used for drugs that cannot be delivered orally. Many companies, both large and small, are engaged in research and development efforts on novel techniques aimed at delivering such drugs through the skin, either without needle injection or by patch and gel. The successful development and commercial introduction of such a non-injection technique would likely have a material adverse effect on our business, financial condition, results of operations and general prospects.

Protection Of Technology And Proprietary Rights

Our success depends, in part, on our ability to obtain and enforce patents for our products, processes and technologies and to preserve our trade secrets and other proprietary information. If we cannot do so, our competitors may exploit our innovations and deprive us of the ability to realize revenues and profits from our developments.

Any patent applications we may have made or may make relating to our potential products, processes and technologies may not result in patents being issued. Our current patents may not be valid or enforceable and may not protect us against competitors that challenge our patents, obtain patents that may have an adverse effect on our ability to conduct business or are able to circumvent our patents. Further, we may not have the necessary financial resources to enforce our patents.

To protect our trade secrets and proprietary technologies and processes, we rely, in part, on confidentiality agreements with employees, consultants and advisors. These agreements may not provide adequate protection for our trade secrets and other proprietary information in the event of any unauthorized use or disclosure, or if others lawfully develop the information.

We May Infringe The Proprietary Rights Of Others

Third parties may claim that the manufacture, use or sale of our drug delivery technologies infringe their patent rights. If such claims are asserted, we may have to seek licenses, defend infringement actions or challenge the validity of those patents in court. If we could not obtain required licenses, are found liable for infringement or are not able to have these patents declared invalid, we may be liable for significant monetary damages, encounter significant delays in bringing products to market or be precluded from participating in the manufacture, use or sale of products or methods of drug delivery covered by the patents of others. We may not have identified, or be able to identify in the future, United States or foreign patents that pose a risk of potential infringement claims.

We enter into collaborative agreements with pharmaceutical companies to apply drug delivery technologies to drugs developed by others. Ultimately, we receive license revenues and product development fees, as well as revenues from the sale of products incorporating our technologies and royalties. The drugs to which our drug delivery technologies are applied are generally the property of the pharmaceutical companies. Those drugs may be the subject of patents or patent applications and other forms of protection owned by the pharmaceutical companies or third parties. If those patents or other forms of protection expire, become ineffective or are subject to the control of third parties, sales of the drugs by the collaborating pharmaceutical company may be restricted or may cease. Our revenues, in that event, may decline.

We May Incur Significant Costs Seeking Approval for Our Products

The design, development, testing, manufacturing and marketing of pharmaceutical compounds, medical nutrition and diagnostic products and medical devices are subject to regulation by governmental authorities, including the United States Food and Drug Administration (the "FDA"), and comparable regulatory authorities in other countries. The approval process is generally lengthy, expensive and subject to unanticipated delays. Currently, we, along with our partners, are actively pursuing marketing approval for a number of products from regulatory authorities, in other countries and anticipate seeking regulatory approval from the FDA for products developed pursuant to the agreement with BioSante. Our revenue and profit will depend, in part, on the successful introduction and marketing of some or all of such products by us or our partners. There can be no assurance as to when or whether such approvals from regulatory authorities will be received.

Applicants for FDA approval often must submit extensive clinical data and supporting information to the FDA. Varying interpretations of the data obtained from pre-clinical and clinical testing could delay, limit or prevent regulatory approval of a drug product. Changes in FDA approval policy during the development period, or changes in regulatory review for each submitted new drug application also may cause delays or rejection of an approval. Even if the FDA approves a product, the approval may limit the uses or "indications" for which a product may be marketed, or may require further studies. The FDA also can withdraw product clearances and approvals for failure to comply with regulatory requirements or if unforeseen problems follow initial marketing.

In other jurisdictions, we, and the pharmaceutical companies with whom we are developing technologies, must obtain required regulatory approvals from regulatory agencies and comply with extensive regulations regarding safety and quality. If approvals to market the products are delayed, if we fail to receive these approvals, or if we lose previously received approvals, our revenues would be reduced. We may not be able to obtain all necessary regulatory approvals. We may be required to incur significant costs in obtaining or maintaining regulatory approvals.

We May Be Subject To Sanctions If We Fail To Comply With Regulatory Requirements

If we, or pharmaceutical companies with whom we are developing technologies, fail to comply with applicable regulatory requirements, we, and the pharmaceutical companies, may be subject to sanctions, including:

o warning letters;
o fines;
o product seizures or recalls;
o injunctions;
o refusals to permit products to be imported into or exported out of the applicable regulatory jurisdiction;
o total or partial suspension of production;
o withdrawals of previously approved marketing applications; and
o criminal prosecutions.

Our Revenues May Be Limited If The Marketing Claims Asserted About Our Products Are Not Approved

Once a drug product is approved by the FDA, the Division of Drug Marketing, Advertising and Communication, the FDA's marketing surveillance department within the Center for Drugs, must approve marketing claims asserted by our pharmaceutical company partners. If a pharmaceutical company partner fails to obtain from the Division of Drug Marketing acceptable marketing claims for a product incorporating our drug technologies, our revenues from that product may be limited. Marketing claims are the basis for a product's labeling, advertising and promotion. The claims the pharmaceutical company partners are asserting about our drug delivery technologies, or the drug product itself, may not be approved by the Division of Drug Marketing.

We May Face Product Liability Claims Related To Participation In Clinical Trials Or The Use Or Misuse Of Our Products

The testing, manufacturing and marketing of products utilizing our drug delivery technologies may expose us to potential product liability and other claims resulting from their use. If any such claims against us are successful, we may be required to make significant compensation payments. Any indemnification that we have obtained, or may obtain, from contract research organizations or pharmaceutical companies conducting human clinical trials on our behalf may not protect us from product liability claims or from the costs of related litigation. Similarly, any indemnification we have obtained, or may obtain, from pharmaceutical companies with whom we are developing drug delivery technologies may not protect us from product liability claims from the consumers of those products or from the costs of related litigation. If we are subject to a product liability claim, our product liability insurance may not reimburse us, or may not be sufficient to reimburse us, for any expenses or losses that may have been suffered. A successful product liability claim against us, if not covered by, or if in excess of, the product liability insurance, may require us to make significant compensation payments, which would be reflected as expenses on our statement of operations. As the result either of adverse claim experience or of medical device or insurance industry trends, we may in the future have difficulty in obtaining product liability insurance or be forced to pay very high premiums, and there can be no assurance that insurance coverage will continue to be available on commercially reasonable terms or at all.

We Must Keep Pace With The Rapid Technological Change And Meet The Intense Competition In The Industry

Our success depends, in part, upon maintaining a competitive position in the development of products and technologies in a rapidly evolving field. If we cannot maintain competitive products and technologies, our current and potential pharmaceutical company partners may choose to adopt the drug delivery technologies of our competitors. Drug delivery companies that compete with our technologies include ALZA and Elan, along with many other companies. We also compete generally with other drug delivery, biotechnology and pharmaceutical companies, engaged in the development of alternative drug delivery technologies or new drug research and testing. Many of these competitors have substantially greater financial, technological, manufacturing, marketing, managerial and research and development resources and experience than we do, and, therefore, represent significant competition.

Competitors may succeed in developing competing technologies or obtaining governmental approval for products before we do. Competitors' products may gain market acceptance more rapidly than our products. Developments by competitors may render our products, or potential products, noncompetitive or obsolete.

Quarterly Fluctuations In Operating Results

Our operating results may vary significantly from quarter to quarter, in part because of changes in consumer buying patterns, aggressive competition, the timing of the recognition of licensing or development fee payments and the timing of, and costs related to, any future technology or new drug use introductions. Our operating results for any particular quarter are not necessarily indicative of any future results. The uncertainties associated with the introduction of any new technology or drug use and with general market trends may limit management's ability to forecast short-term results of operations accurately. Fluctuations caused by variations in quarterly operating results or our failure to meet analysts' projections or public expectations as to results may adversely affect the market price of our Common Stock.

Possible Stock Price Volatility

The trading prices of our Common Stock could be subject to wide fluctuations in response to events or factors, many of which are beyond our control. These could include, without limitation (i) quarter to quarter variations in our operating results, (ii) announcements by us or our competitors regarding the results of regulatory approval filings, clinical trials or testing, (iii) developments or disputes concerning proprietary rights, (iv) technological innovations or new commercial products, (v) material changes in our collaborative arrangements and (vi) general conditions in the medical technology industry. Moreover, the stock market has experienced extreme price and volume fluctuations, which have particularly affected the market prices of many medical technology and device companies and which have often been unrelated to the operating performance of such companies.

The Integration Of Our Companies

Operating the former Permatec Subsidiaries as our subsidiaries involves technological, operational and personnel-related risks. The integration process will be complex, time-consuming and expensive, and will disrupt the business of the companies after completion of the transaction if not completed in a timely and efficient manner. We and our subsidiaries will utilize common information and communication systems, facilities, operating procedures, financial controls and human resources practices. We may encounter difficulties, costs and delays involved in integrating these operations, including:

o Integrating the information and communications systems of our companies may be more challenging, expensive and time-consuming than we anticipate;

o Combining other operational systems, such as product fulfillment and customer service, may be more difficult than we anticipate;

o Maintaining the quality of products and services that we and the Permatec Subsidiaries have historically provided may be more challenging that we anticipate;

o Coordinating geographically diverse organizations may be more challenging, expensive and time-consuming than we anticipate; and

o Integrating our business culture and the Permatec Subsidiaries' business culture may be more difficult than we anticipate.

If these difficulties, costs or delays occur, we may fail to realize the benefits that we currently expect to result from the transaction with Permatec and material adverse short and long-term effects on our operating results and financial condition could result.

Loss Of Certain Key Officers Or Employees; New Chief Executive Officer

The success of our business is materially dependent upon the continued services of certain of our key officers and employees. The loss of such key personnel could have a material adverse effect on our business, operating results or financial condition. We plan on hiring personnel to work in the areas of: regulatory/clinical, device production, and administrative support. Competition for such personnel is intense, and there can be no assurance that we will be successful in attracting and retaining key personnel in the future.

We have recently appointed Dr. Roger Harrison as chief executive officer to replace Franklin Pass, M.D., who will continue to serve as our vice chairman. Dr. Harrison joins us after a successful career with Eli Lilly and Company.

Uncertainties In Realizing Benefits From The Transaction

Even if we are able to integrate the operations of the companies successfully, there can be no assurance that such integration will result in the realization of the full benefits that we currently expect to result from such integration or that such benefits will be achieved within the time frame that we currently expect. Potential risks, any of which could harm our business, results of operations or financial condition, relating to the integration of the companies include:

o The benefits from the transaction may be offset by costs incurred in integrating the companies;

o The process of integrating operations could cause an interruption of our ongoing business activities;

o The benefits from the transaction may also be offset by increases in other expenses, by operating losses or by problems in the business unrelated to the transaction; and

o The attention and effort devoted to the integration of the companies will significantly divert management's attention from other important issues.

Employees

As of March 31, 2001, we employed 32 full-time and 3 part-time employees in Minnesota and the subsidiaries had 18 full-time employees in Switzerland. None of our employees are represented by any labor union or other collective bargaining unit. We believe that our relations with our employees are good.

            Name            Age               Position
            ----            ---               --------
Roger G. Harrison, Ph.D. ..  53  President, Chief Executive Officer and
                                 Director, from March 12, 2001

Franklin Pass, M.D. .......  64  President, Chief Executive Officer and
                                 Chairman of the Board of Directors until
                                 March 12, 2001; currently Vice Chairman
                                 of the Board of Directors

                                 19

Lawrence Christian ........  58  Vice President - Finance, Chief Financial
                                 Officer and Secretary

Peter Sadowski, Ph.D. .....  53  Vice President - Devices Group

Dario Carrara, Ph.D. ......  37  Executive Director - Formulations Group

Carlos Samayoa ............  35  Finance and Administration Manager -
                                 Formulations Group andAssistant Secretary

Roger G. Harrison, Ph.D., joined us as Chief Executive Officer and a member of our Board of Directors in March 2001. Prior to that time, Dr. Harrison was Director of Alliance Management at Eli Lilly and Company. In this role he helped to create a renewed focus on generating value from corporate alliances as part of the company's core business strategy. In his 25-years at Eli Lilly and Company, his roles also included Global Product Team Leader and Director, Development Projects Management and Technology Development and Planning. He is the author of twelve publications, has contributed to four books and holds nine patents. Dr. Harrison earned a Ph.D. in organic chemistry and a B.Sc. in chemistry from Leeds University in the United Kingdom and conducted postdoctoral research work at Zurich University in Switzerland.

Franklin Pass, M.D., joined us as a director and consultant in January 1992 and has served as our President, Chief Executive Officer and Chairman of the Board of Directors from February 1993 to March 2001. From 1990 to 1992, Dr. Pass served as President of International Agricultural Investments, Ltd., an agricultural technology consulting and investment company. Dr. Pass, a physician and scientist, was Director of the Division of Dermatology at Albert Einstein College of Medicine from 1967 to 1973, the Secretary and Treasurer of the American Academy of Dermatology from 1978 to 1981 and the co-founder and Chief Executive Officer of Molecular Genetics, Inc., now named MGI Pharma, Inc., from 1979 to 1986. He is the author of more than 40 published medical and scientific articles.

Lawrence Christian is currently Vice President - Finance, Chief Financial Officer and Secretary. He joined us in March 1999 as Vice President, Finance & Administration, Chief Financial Officer and Secretary. Mr. Christian took early retirement from 3M after a 16-year career. Since 1996 Mr. Christian had been 3M Financial Manager - World-Wide Corporate R&D and Government Contracts involved in organizing new business venture units and commercialization of new technologies. Prior to 1996 Mr. Christian served as Financial Merger - Government Contracts, European Controller and Division Controller within 3M. Prior to joining 3M in 1982, Mr. Christian was Vice President/CFO of APC Industries, Inc., a closely-held telecommunications manufacturing company in Texas.

Peter Sadowski, Ph.D., is currently Vice President - Devices Group, located in Minneapolis, Minnesota. He joined us in March 1994 as Vice President, Product Development. He was promoted to Executive Vice President and Chief Technology Officer in 1999. From October 1992 to February 1994, Dr. Sadowski served as Manager, Product Development for GalaGen, Inc., a biopharmaceutical company. From 1988 to 1992, he was Vice President, Research and Development for American Biosystems, Inc., a medical device company. Dr. Sadowski holds a Ph.D. in microbiology.

Dario Carrara, Ph.D. is currently Executive Director - Formulations Group, located in Basel, Switzerland. He served as General Manager of Permatec's Argentinean subsidiary from 1995 until its liquidation in 2000. Prior to joining Permatec, Dr. Carrara worked as Pharmaceutical Technology Manager for Laboratorios Beta, a pharmaceutical laboratory in Argentina that ranks among the top ten pharmaceutical companies in Argentina, between 1986 and 1995. Dr. Carrara has extensive experience in developing transdermal drug delivery devices. He earned a double degree in Pharmacy and Biochemistry, as well as a Ph.D. in Pharmaceutical Technology from the University of Buenos Aires.

Carlos Samayoa is currently Financial and Administration Manager - Formulations Group, located in Basel, Switzerland. He joined Permatec in January 1999, where he held various positions and played a key role both in the restructuring of the Permatec Group and in the closing of the Permatec/Medi-Ject transaction. From 1997 through 1998

Mr. Samayoa was a Consultant at Arthur D. Little's European Health Care Practice. From 1992 to 1996 Mr. Samayoa held positions as Assistant to the President and Head of Planning and Budgeting at JAGO Pharma AG. Mr. Samayoa holds an MBA from Cesma, Ecole de Management, Lyon France and a B.Sc. in Business Administration from Ohio State University in Columbus, Ohio.

Liability Insurance

Our business entails the risk of product liability claims. Although we have not experienced any material product liability claims to date, any such claims could have a material adverse impact on our business. We maintain product liability insurance with coverage of $1 million per occurrence and an annual aggregate maximum of $5 million. We evaluate our insurance requirements on an ongoing basis.