<PAGE>
 
                                                                    EXHIBIT 10.3


                            NOTE PURCHASE AGREEMENT

     NOTE PURCHASE AGREEMENT dated as of July 21, 1997, between Targon
Corporation, a Delaware corporation (the "Company"), and Cytogen Corporation, a
Delaware corporation (the "Purchaser").


                                R E C I T A L S:
                                ----------------

     A.  The Company desires to issue and sell to the Purchaser and the
Purchaser desires to purchase from the Company a Promissory Note, dated as of
the date hereof, in the principal amount of U.S.$10 million in the form attached
hereto as Exhibit A (the "Note").
          ---------              

     B.  In connection with such transaction, the Company has granted to the
Purchaser certain additional rights, as provided herein.


                               A G R E E M E N T:
                               ----------------- 

     The parties agree as follows:

     SECTION 1.  Closings.
                 ---------

     (a)  The closing of the transaction contemplated hereby (the "Closing")
shall occur on the date hereof (the "Closing Date"), at the offices of Brock
Fensterstock Silverstein McAuliffe & Wade LLC, 153 East 53rd Street, New York,
New York 10122, or such other place as the parties may agree.
 
     (b)  At the Closing, the Company shall issue and sell to the Purchaser, and
the Purchaser shall purchase from the Company the Note, upon the terms and
subject to the conditions set forth herein, for an aggregate purchase price of
U.S.$10 million.
 
     (c)  At the Closing, the parties hereto shall execute and deliver to each
other, as applicable:

          (i)  the Note, which shall be executed and delivered by the Company to
   the Purchaser; and

          (ii) certificates as to the incumbency of the officers executing this
   Agreement and the Note and such other matters as shall be customary for
   transactions of this type and as may be reasonably requested by each of the
   parties hereto of the other.
 
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     SECTION 2.  Representations and Warranties of the Company.
                 ----------------------------------------------

           2.1 Organization.
               -------------

     The Company is duly organized, validly existing and in good standing under
the laws of the State of Delaware and has all requisite corporate power and
authority to own and lease its properties, to consummate its business as
presently conducted and as proposed to be conducted and to carry out the
transactions contemplated hereby.  The Company is qualified and in good standing
to do business in the State of New Jersey and each other jurisdiction in which
the nature of the business conducted or the property owned by it requires such
qualification, except where the failure to so qualify would not reasonably be
expected to have a material adverse effect on the business or condition
(financial or otherwise) of the Company (a "Material Adverse Effect").

           2.2 Authorization of Agreement.
               ---------------------------

     The execution, delivery and performance by the Company of this Agreement
and the Note (including the issuance and sale thereof) have been authorized by
all requisite corporate action by the Company; and this Agreement and the Note
(including the issuance and sale thereof) have been duly executed and delivered
by the Company and are the valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms.

           2.3 No Conflicts.
               -------------

     The execution, delivery and performance by the Company of this Agreement
and the Note (including the issuance and sale thereof), and compliance with the
provisions hereof by the Company, will not (a) violate any provision of
applicable law, statute, rule or regulation applicable to the Company or any
ruling, writ, injunction, order, judgment or decree of any court, arbitrator,
administrative agency or other governmental body applicable to the Company or
any of its properties or assets or (b) conflict with or result in any breach of
any of the terms, conditions or provisions of, or constitute (with notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, or result in the creation of, any
Encumbrance (as defined below) upon any of the properties or assets of the
Company under its Certificate of Incorporation, as amended, its Certificate of
Designations or By-laws or any material contract to which the Company is a
party, except where such violation, conflict or breach would not, individually
or in the aggregate, have a Material Adverse Effect.  As used herein,
"Encumbrance" shall mean any liens, charges, encumbrances, equities, claims,
options, proxies, pledges, security interests, or other similar rights of any
nature, except for such conflicts, breaches or defaults which would not,
individually or in the aggregate, have a Material Adverse Effect.

                                       2
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           2.4 Approvals.
               ----------

     Except for the filing of any notice subsequent to the Closing that may be
required under applicable federal or state law (which, if required, shall be
filed on a timely basis), no permit, authorization, consent or approval of or
by, or any notification of or filing with, any person or entity (governmental or
otherwise) is required in connection with the execution, delivery or performance
of this Agreement or the Note (including the issuance and sale thereof) by the
Company.  There is no approval of the Company's stockholders required under
applicable laws, regulations or stock exchange or listing authority rules or
regulations in connection with the execution and delivery this Agreement or the
Note or the consummation of the transactions contemplated thereby, including the
issuance of the Note.

           2.5 Absence of Changes.
               -------------------

     Except as set forth on Schedule 2.5, since March 31, 1997, there has been
                            ------------                                      
no change in the assets, liabilities, financial condition or operating results
of the Company, except changes in the ordinary course of business that have not,
individually or in the aggregate, had a material Adverse Effect

           2.6 Disclosure.
               -----------

     This Agreement and the Note do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements contained herein and therein not misleading.

           2.7 Brokers or Finders.
               -------------------

     The Company has not retained any investment banker, broker or finder in
connection with the transactions contemplated by this Agreement and the Note.
The Company agrees to indemnify and hold the Purchaser harmless against any
liability, settlement or expense arising out of, or in connection with, any such
claim (without regard to the limitations described in Section 7 below).

     SECTION 3.  Representation and Warranties of the Purchaser.
                 -----------------------------------------------

     The Purchaser hereby represents and warrants to the Company as follows:

           3.1 Organization.
               -------------

     The Purchaser is a corporation duly organized, validly existing and in good
standing under the laws of Delaware and has all requisite corporate power and
authority to own and lease its properties, to carry on its business as presently
conducted and as proposed to be conducted and to consummate the transactions
contemplated hereby.  The Purchaser is qualified

                                       3
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and in good standing to do business in each jurisdiction in which the nature of
the business conducted or the property owned by it requires such qualification,
except where the failure to so qualify would not reasonably be expected to have
a material adverse effect on the business or condition (financial or otherwise)
of the Purchaser.

           3.2 Authorization of Agreement.
               ---------------------------

     The Purchaser has full legal right, power and authority to enter into this
Agreement, purchase and accept the Note, and perform its obligation hereunder,
which have been duly authorized by all requisite corporate action.  This
Agreement and the funding of the Note are the valid and binding obligations of
the Purchaser, enforceable against it in accordance with their respective terms.

           3.3 No Conflicts.
               -------------

     The execution, delivery and performance by the Purchaser of this Agreement,
the purchase and acceptance of the Note and compliance with provisions hereof by
the Purchaser, will not (a) violate any provisions of applicable law, statute,
rule or regulation applicable to the Purchaser or any ruling, written,
injunction, order, judgement or decree of any court, arbitration, administrative
agency of other governmental body applicable to the Purchaser of any of its
properties or assets or (b) conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute (with notice or lapse of time
to both) a default (or give rise to any right of termination, cancellation or
acceleration) under, or result in the creation of any Encumbrance upon any of
the properties or assets of the Purchaser under the Certificate of Incorporation
or By-laws of the Purchaser or any material contract to which the Purchaser is
party, except where such violation conflict or breach would not, individually or
in the aggregate, have a material adverse effect on the Purchaser.

           3.4 Approvals.
               ----------

     No permit, authorization, consents or approval of or by, or any
notification of or filing with, any person or entity (governmental or private)
is required in connection with the execution, delivery or performance of this
Agreement or the purchase of the Note (including the funding and acceptance
thereof) by the Purchaser.

           3.5 Investment Representations.
               ---------------------------

     (a) The Purchaser is capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own interests.
The Purchaser has not been formed solely for the purpose of making this
investment and is acquiring the Note for investment for its owns account, not as
a nominee or agent, and not with the view to, or for sale in connection with,
any distribution of any part thereof.

                                       4
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     (b) Nothing contained in this Section 3.5 shall limit any of the Company's
representations or warranties or limit the Purchaser's recourse in respect
thereof.

           3.6 Brokers or Finder.
               ------------------

     Except as previously disclosed to the Company, the Purchaser has not
retained any investment banker, broker or finder in connection with the purchase
of the Note.

     SECTION 4.  Covenants of the Company.
                 -------------------------

     (a) From the date hereof, the Company shall not disclose to any person or
entity (other than its directors, officers and agents who need to know such
information in connection with the transactions described herein (each of whom
shall be informed of this confidentiality provision and in respect of whose
breaches the Company shall be responsible)) this Agreement or the substance of
the transactions described herein, without the prior written consent of Elan
International Services, Ltd., a Bermuda corporation ("EIS").

     (b) Each of the parties hereto hereby acknowledges and agrees that the
representations and warranties made by the Company under Section 2 hereof and
the Purchaser under Section 3 hereof, shall inure to the benefit of EIS and its
affiliates, which collectively shall be third party beneficiaries thereof.

     (c) Each of the parties hereto hereby agrees that it will not consent to
any waiver to or modification of, this Agreement or the Note, without the prior
written consent of EIS.

     (d) From and after the date hereof, (i) the Company agrees to do or cause
to be done such further acts and things and deliver or cause to be delivered to
the Purchaser such additional assignments, agreements, powers and instruments,
as the Purchaser may reasonably require or deem advisable to carry into effect
the purposes of this Agreement and the Note or to better to assure and confirm
unto the Purchaser its rights, powers and remedies hereunder and thereunder.

     (e) The Company shall use the proceeds of the Note solely to make payment
to third parties, pursuant to the terms of license agreements entered into
between the Company and such third parties (if any), and to fund development
expenses incurred by the Company in connection with the rights licensed to the
Company under the License Agreements.
 
     SECTION 5.  Parties in Interest; Etc.
                 -------------------------

     This Agreement shall not be assigned, transferred or delegated by either
party hereto without the prior written consent of the other party.  Subject to
the preceding sentence, this Agreement shall bind and inure to the benefit of
the Company, the Purchaser and their respective successors and assigns.


                                       5
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     SECTION 6.  Entire Agreement.
                 -----------------

     This Agreement and the Note contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto.

     SECTION 7.  Indemnification.
                 ----------------

     (a) In addition to all rights and remedies available to the parties
hereunder at law or in equity, each party (in such capacity, an "Indemnifying
Party") shall indemnify the other party, and their respective affiliates and
their respective stockholders, officers, directors, employees, agents,
representatives, successors and permanent assigns (collectively, the
"Indemnified Person") and save and hold each of them harmless against and pay on
behalf of or reimburse such party as and when incurred for any loss, liability,
demand, claim, action, cause of action, cost, damage, deficiency, tax, penalty,
fine or expense, whether or not arising out of any claims by or on behalf of the
Indemnified Person or any third party, including interest, penalties, reasonable
attorneys' fees and expenses and all amounts paid in investigation, defense or
settlement of any of the foregoing (collectively, "Losses") that any such
Indemnified Person may suffer, sustain or become subject to, as a result of, in
connection with, relating or incidental to or by virtue of:

               (i)  any misrepresentation or breach or warranty on the part of
   the Indemnifying Party under Section 2 or 3 of this Agreement, as applicable;
   or
 
               (ii) any nonfulfillment or breach of any covenant or agreement on
   the part of the Indemnifying Party under Section 4 of this Agreement.

     (b) The maximum recovery of the Purchaser under this Section 7 shall not
exceed $10 million; the maximum recovery of the Company under this Section 7
shall not exceed actual costs and expenses of the Company in negotiating,
executing and delivering this Agreement and out-of-pocket expenses incurred in
connection with the successful assertion of any claim hereunder.  Neither
Indemnified Party shall assert any such claim unless Losses in respect thereof,
when aggregated with all previous Losses hereunder, equal or exceed $50,000, but
at such time that an Indemnified Party is so permitted to assert a claim shall
include all Losses covered by this indemnification.

     (c) Notwithstanding the foregoing, and subject to the following sentence,
upon judicial determination which is final and no longer appealable that the act
or omission giving rise to the indemnification set forth above resulted
primarily out of or was based primarily upon the Indemnified Person's gross
negligence, fraud or willfull misconduct (unless such action was based upon the
Indemnified Person's reliance in good faith upon any of the representations,
warranties, covenants or promises made by the Indemnifying Party herein), the
Indemnifying Party shall not be responsible for any Losses sought to be
indemnified in connection therewith,


                                       6
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and the Indemnifying Party shall be entitled to recover from the Indemnified
Persons all amounts previously paid in full or partial satisfaction of such
indemnity, together with all costs and expenses of the Indemnifying Party
reasonably incurred in effecting such recovery, if any.

     (d) All indemnification rights hereunder shall survive the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby to the extent provided in Section 7(b) above, irrespective of any
investigation, inquiry or examination made for or on behalf of, or any knowledge
of the Indemnified Persons or the acceptance of any certificate or opinion.  All
indemnification rights hereunder shall terminate 18 months after the Closing
Date, except for claims made in writing prior to such time.

     (e) If for any reason the indemnity provided for in this Section 7 is
unavailable to any Indemnified Person or is insufficient to hold each such
Indemnified Person harmless from such Losses arising with respect to the
transactions contemplated by this Agreement, then the Indemnifying Party and the
Indemnified Person shall each contribute to the amount paid or payable for such
Loss in such proportion as is appropriate to reflect not only the relative
benefits received by the Indemnifying Party on the one hand and the Indemnified
Person on the other, but also the relative fault of the Indemnifying Party and
be in addition to any liability that the Indemnifying Party may otherwise have.
The indemnity, contribution and expense reimbursement obligations that the
Indemnifying Party has under this Section 7 shall survive the expiration of this
Agreement.  The parties further agree that the indemnification and reimbursement
commitments set forth in this Agreement shall apply whether or not the
Indemnified Person is a formal part to any such lawsuit, claims or other
proceedings.

     SECTION 8.  Notices.
                 --------

     (a) All notices, demands and requests of any kind to be delivered to any
party in connection with this Agreement shall be in writing and shall be deemed
to have been duly given if personally delivered or if sent by nationally-
recognized overnight courier or by registered or certified airmail, return
receipt requested and postage prepaid, or by facsimile transmission, addressed
as follows:

           (i) if to the Company, to:

           Targon Corporation
           600 College Road East
           CN 5308
           Princeton, New Jersey 08540-55308
           Telecopy: (609) 951-9298
           Attention: President
           ----------          

                                       7
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           (ii) if to the Purchaser, to:

           Cytogen Corporation
           600 College Road East
           CN 5308
           Princeton, New Jersey 08540-55308
           Telecopy: (609) 951-9298
           Attention: General Counsel
           ----------                

           with copies to:

           Elan International Services, Ltd.
           102 St. James Court
           Flatts Smiths
           SL04
           Bermuda
           Telecopy: (441) 292-2224
           Attention: President;
           ----------           

           Brock Fensterstock Silverstein McAuliffe & Wade LLC
           153 East 53rd Street
           New York, New York 10022
           Telecopy: (212) 371-5500
           Attention: David Robbins
           ---------               

or to such other address as the party to whom notice is to be given may have
furnished to the other party hereto in writing in accordance with provisions of
this Section 8.  Any such notice or communication shall be deemed to have been
received (i) in the case of personal delivery or facsimile transmission, on the
date of such delivery, (ii) in the case of nationally-recognized overnight
courier, on the next business day after the date when sent and (iii) in the case
of mailing, on the third business day following that on which the piece of mail
containing such communication is posted.

     (b) Notice hereunder may be given on behalf of the parties by their
respective attorneys.

     SECTION 9.  Amendments.
                 -----------

     This Agreement may not be modified or amended, or any of the provisions
hereof waived, except by written agreement of the Company and the Purchaser.

                                       8
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     SECTION 10.  Counterparts and Facsimile.
                  ---------------------------

     The Agreement may be executed in any number of counterparts, and each such
counterpart hereof shall be deemed to be an original instrument, but all such
counterparts together shall constitute one agreement.  This Agreement may be
signed and delivered to the other party by facsimile transmission; such
transmission shall be deemed a valid signature.

     SECTION 11.  Headings.
                  ---------

     The section and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of the Agreement.

     SECTION 12.  Governing Law.
                  --------------

     This Agreement shall be governed by and construed in accordance with the
laws of the State of New Jersey (without giving effect to principles of
conflicts of laws).

     SECTION 13.  Expenses.
                  ---------

     Each party shall bear and be responsible for its own costs and expenses
incurred in connection with this Agreement and the Note and the transactions
contemplated hereby.

     SECTION 14.  Public Releases.
                  ----------------

     The parties shall reasonably agree upon the contents of a press release or
releases and other public disclosure in respect of the transaction contemplated
hereby, except as may otherwise be required by applicable law, each party
covenants not to issue such release or make such disclosure absent such
agreement.


                           [Signature page to follow]

                                       9
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     IN WITNESS WHEREOF, each of the undersigned has duly executed this Note
Purchase Agreement as of the date first written above.


                                  TARGON CORPORATION


                                  By: /s/ Michael Sember
                                     ---------------------------------
                                     Name: Michael Sember
                                     Title: Chairman and CEO


                                  CYTOGEN CORPORATION


                                  By: /s/ T. Jerome Madison
                                     -------------------------------------------
                                     Name: T. Jerome Madison
                                     Title: Chief Financial Officer