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                                                                    EXHIBIT 10.8

                        CONFIDENTIAL TREATMENT REQUESTED

                  Confidential Portions of This Agreement Which Have Been
         Redacted Are Marked With Brackets ("[***]"). The Omitted Material Has
         Been Filed Separately With The Securities and Exchange Commission.

                    PRODUCT DEVELOPMENT AND SUPPLY AGREEMENT

     THIS AGREEMENT (the "Agreement") is entered into as of March 25, 1999 (the
"Effective Date") by and between Penwest Pharmaceuticals Co., a Washington
corporation with a principal place of business at 2981 Route 22, Patterson, New
York 12563 ("Penwest"), and Horizon Pharmaceutical Corporation, a Delaware
corporation with a principal place of business at 660 Hembree Parkway, Suite
106, Roswell, Georgia 30076 ("Horizon").

     A. Whereas Penwest has developed a controlled-release agent covered by one
or more patents, patent applications, know-how and other proprietary technology,
which agent Penwest markets under the name "TIMERx" ("TIMERx"), and Penwest is
the owner of certain patents covering controlled release formulations of the
active ingredient [***];

     B. Whereas Horizon is interested in developing for manufacture and
marketing a pharmaceutical product incorporating [***] in a solid-dosage
controlled-release delivery system for oral administration in humans; and

     C. Whereas the parties desire to engage in certain research, development,
and testing activities designed to determine if Penwest's TIMERx
controlled-release system can be adapted and combined with [***] to make a
controlled-release version of [***] for oral solid-dosage administration in
humans in a 24 hour release form in a 200 mg dosage strength and, if such
activities are successful, Horizon desires to contract for a supply of TIMERx
for use in the manufacture of such a controlled-release form of [***], and
Penwest is willing to supply the same, provided that Horizon agrees to obtain
all of its requirements for controlled-release agents for [***] products in the
form of TIMERx from Penwest as provided herein;

     NOW, THEREFORE, the parties hereby agree as follows:

1.Definitions.

     1.1 "Affiliate" shall mean any corporation, company, partnership, joint
venture and/or firm which controls, is controlled by, or is under common control
with a specified person or entity. For purposes of this Section 1.1, "control"
shall mean (a) in the case of corporate entities, direct or indirect ownership
of at least fifty percent (50%) of the stock or shares having the right to vote
for the election of directors, and (b) in the case of non-corporate entities,
direct or indirect ownership of at least fifty percent (50%) of the equity
interest with the power to direct the management and policies of such
non-corporate entities.
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                                        [***] - CONFIDENTIAL TREATMENT REQUESTED

     1.2 "Approval Date" shall mean the date on which the Designated Product is
first approved by the FDA for commercial sale in oral solid-dosage form for
administration in humans, pursuant to an NDA.

     1.3 "Capable Entity" shall mean any third party that, in Penwest's
reasonable judgment, (a) has, as applicable, (i) a sales force in the Exclusive
Territory that exceeds Horizon's sales force therein, (ii) annual sales that
exceed those of Horizon, (iii) a financial capacity to market the Designated
Product that exceeds that of Horizon and (iv) a capacity to manufacture the
Designated Product in finished form that exceeds that of Horizon, and (b) does
not manufacture, market or promote any oral, controlled-release drug delivery
product.

     1.4 "Certification Period" shall mean the period beginning on the
Submission Date and ending on the earlier of:

          1.4.1 the Approval Date; or

          1.4.2 the termination of this Agreement as provided herein.

     1.5 "Confidential Information" shall mean all information, technology and
know-how disclosed hereunder that is, at the relevant time hereunder, protected
or required to be protected by both parties hereto as confidential information
pursuant to Article 8 hereof.

     1.6 "Covered Infringement" shall have the meaning set forth for such term
in Section 9.1.

     1.7 "Designated Product" shall mean the solid-dosage form of a
controlled-release pharmaceutical for oral administration in humans that
combines a racemic mixture of [***] with TIMERx and other excipients, as more
fully described in Exhibit A, which exhibit is subject to modifications as
Penwest and Horizon may mutually agree during the Development Period.

     1.8 "Development Period" shall mean the period from the Effective Date
through the Submission Date or the earlier termination of this Agreement as
provided herein.

     1.9 "Development Tasks" shall have the meaning set forth for such term in
Section 3.4.

     1.10 "DMF" shall mean Drug Master File with respect to Formulated TIMERx as
defined in 21 CFR 300 et seq., including amendments and supplements which will
be filed by Penwest.

     1.11 "FDA" shall mean the U.S. Food and Drug Administration.

     1.12  "Formulated  TIMERx"  shall mean  TIMERx and certain  additives  in a
formulation  to be developed  hereunder  specifically  for use in the Designated
Product.
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     1.13 "Horizon Test and Regulatory Data" shall mean any and all test data,
test designs and protocols, clinical studies and results thereof, government
licenses and applications therefor, government certifications and findings, and
related materials, information and rights (including without limitation
information regarding bioavailability and bioequivalence, and any adverse drug
reactions), developed, commissioned or otherwise obtained by Horizon or any of
its Affiliates or sublicensees during the term of this Agreement (or, with
respect to such sublicensees, during the term of the respective sublicenses)
relating to TIMERx, TIMERx Improvements, the Designated Product, Penwest
Patents, Penwest Technology, and/or Penwest's Confidential Information, together
with all intellectual property and other rights and interests of Horizon and its
Affiliates or sublicensees thereto and therein, worldwide.

     1.14 "Horizon Trademarks" shall mean trademarks which are the exclusive
property of and which shall remain at all times the exclusive property of
Horizon or its Affiliates.


     1.15 "IMS Data" shall mean data published in the IMS Retail Perspective(,
published by IMS America, Ltd.

     1.16 "IND" shall mean an investigational new drug application filed with
the FDA.

     1.17 "Inpharmakon" shall mean Inpharmakon Corporation.

     1.18 "Indication" shall mean the treatment and/or prophylaxis of migraine.

     1.19 "Joint Developments" shall mean any and all inventions, improvements,
modifications, alterations, or enhancements, other than TIMERx Improvements,
that are made jointly by Horizon or any of its Affiliates or sublicensees, on
the one hand, and Penwest or any of its Affiliates or sublicensees, on the other
hand, in the course of this Agreement, together with all United States and
foreign intellectual property and other rights and interests of the parties and
their respective Affiliates thereto and therein, including without limitation
patents, trade secrets, copyright, periods of market exclusivity, and other
related rights or interests, to the extent the same remain protected by any such
rights and interests from being used freely by others; provided, however, that
none of the Penwest Test and Regulatory Data or Horizon Test and Regulatory Data
shall be considered Joint Developments.

     1.20 "License Term" shall mean the cumulative period covered by the
Development Period, the Certification Period, and the Marketing Period.

     1.21 "Marketing Period" shall have the meaning set forth for such term in
Section 5.1.

     1.22 "Minimum Sales" shall have the meaning set forth for such term in
Exhibit G.


     1.23 "NDA" shall mean a new drug application filed with the FDA.

     1.24 "Net Sales" shall have the meaning set forth for such term in Exhibit
B.
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     1.25 "Penwest Patents" shall mean:

          1.25.1 those patents and patent applications listed in Exhibit C and
     all divisions, continuations, reissues, or extensions thereof, any periods
     of marketing exclusivity relating thereto, and any letters patent that
     issue thereon; and

          1.25.2 Penwest's rights in and to any United States patents or patent
     applications other than those included in Section 1.20.1, obtained and in
     force during the License Term covering any inventions included in the
     Penwest Technology.

     1.26 "Penwest Technology" shall mean any technology and know-how belonging
to Penwest from time to time during the term of this Agreement that directly
relate to, and/or are necessary for the production of, the Designated Product,
and Penwest's rights therein and thereto.


     1.27 "Penwest Test and Regulatory Data" shall mean any and all test data,
test designs and protocols, clinical studies and results thereof, government
licenses and applications therefor, government certifications and findings, and
related materials, information and rights (including without limitation
information regarding bioavailability and any adverse drug reactions),
developed, commissioned or otherwise obtained by Penwest or any of its
Affiliates during the term of this Agreement relating to TIMERx, Penwest
Patents, Penwest Technology, and/or Penwest's Confidential Information, together
with all intellectual property and other rights and interests of Penwest and its
Affiliates thereto and therein in the Territory.

     1.28 "Penwest Trademark(s)" shall mean those names, symbols and/or
characters described in Exhibit D hereto, as the same may be amended from time
to time during the terms of this Agreement by Penwest on at least six (6)
months' prior written notice to Horizon, that are owned and registered (or are
registrable) by Penwest and that have been designated by it for use in
conjunction with Horizon's packaging and promotion of the Designated Product
hereunder, pursuant to Section 6.10.

     1.29 "Project Contact(s)" shall mean the persons appointed by each party to
serve as contact persons between the parties during the Development Period and
the Certification Period. The initial Project Contact for Penwest is Mr. Michael
Mallon and the initial Project Contact for Horizon is Mr. Bala Venkataraman.
Each party shall promptly notify the other party of any substitution of other
personnel as its Project Contact. Each party may select and supervise its other
project staff as needed.

     1.30 "Royalties" (or "Royalty") shall mean the royalties payable to Penwest
pursuant to Article 5 hereof.

     1.31 "Sales Differential" shall have the meaning set forth for such term in
Section 11.2.2.
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     1.32 "Specifications" shall mean such standards and analytical methods
established and mutually agreed to in writing by Penwest and Horizon as are
reasonably necessary or appropriate to assure the identity, strength, quality
and purity of the TIMERx and Formulated TIMERx, as set forth in Exhibit E, which
(a) shall be mutually agreed to by the parties hereto, and (b) may be modified
from time to time by mutual agreement of the parties hereto.

     1.33 "Submission Date" shall mean the date on which Horizon submits to the
FDA an NDA for the Designated Product (in any dosage strength).


     1.34 "Territory" shall mean Canada, the United States, Mexico and their
respective territories and possessions.

     1.35 "TIMERx Improvements" shall mean any and all improvements,
modifications, alterations, or enhancements to any of the inventions covered by
the Penwest Patents or included in the Penwest Technology or Penwest's
Confidential Information, that are developed, owned, or controlled by Horizon or
any of its Affiliates or sublicensees, either alone or jointly with Penwest or
any of its Affiliates or sublicensees, or in which Horizon or any of its
Affiliates or sublicensees otherwise has any rights or interests during the term
of this Agreement (or, with respect to such sublicensees, during the term of the
respective sublicenses) together with all United States and foreign intellectual
property and other rights and interests of Horizon and its Affiliates and
sublicensees thereto and therein, including without limitation patents, trade
secrets, copyright, periods of market exclusivity, and other related rights or
interests, to the extent the same remain protected by any such rights and
interests from being used freely by others.

     1.36 "Unit Price" shall mean [***] U.S. dollars (US$[***]) per kilogram of
Formulated TIMERx, subject to adjustment no more often than once annually to
reflect any increase in the Pharmaceutical Producers' Price Index.

2. Grant of Licenses and Transfer of Technology.

     2.1 Grants by Penwest.

          2.1.1 Penwest hereby grants to Horizon an exclusive, royalty-bearing
     license, under the Penwest Patents, the Penwest Technology, the Joint
     Developments, the TIMERx Improvements and Penwest's Confidential
     Information disclosed to Horizon hereunder, to manufacture, use and sell
     and register the Designated Product in the Territory during the License
     Term. Such license does not extend to (a) the making of TIMERx or
     Formulated TIMERx, but does cover the incorporation of Formulated TIMERx
     into the Designated Product, or (b) any metabolite, isolated enantiomer or
     non-racemic mixture of [***]. Horizon shall have the right to grant
     sublicenses of its rights hereunder to any Affiliate(s) of Horizon (and
     this Agreement shall thereby be binding upon and inure to the benefit of
     such Affiliate(s) within the area of such sublicense), but shall otherwise
     have no right to grant sublicenses hereunder without the prior written
     consent of Penwest. Such consent of Penwest shall be based on whether, as
     of the time the proposed sublicense is to be granted, the proposed

<PAGE>   6
     sublicensee is a Capable Entity, unless Horizon is able to demonstrate to
     Penwest's reasonable satisfaction that such proposed sublicensee, based on
     the particular characteristics of such proposed sublicensee, including but
     not limited to the region of the Territory in which such proposed
     sublicensee would operate, is a suitable sublicensee despite its failure to
     qualify as a Capable Entity. Penwest shall, throughout the License Term,
     promptly notify Horizon of all Penwest Patents referred to in Section
     1.20.2 and provide Horizon with access to all of the same, solely for use
     within the scope of the license stated in this section.


          2.1.2 Penwest hereby grants to Horizon and its Affiliates (with the
     right to sublicense only as such right is granted under Section 2.1.1) a
     nonexclusive, paid-up license under all rights of Penwest and its
     Affiliates in and to the Penwest Test and Regulatory Data to use the same
     as is necessary for purposes of complying with governmental requirements,
     but solely with respect to the Designated Product for marketing or use in
     the Territory. Penwest hereby consents to Horizon's and its Affiliates' and
     such sublicensees' cross-referencing the DMF as is necessary for the filing
     of an NDA for the Designated Product hereunder.

          2.1.3 Penwest hereby grants to Horizon and its Affiliates an exclusive
     license (with the right to sublicense only as such right is granted under
     Section 2.1.1) under any and all rights of Penwest in and to the Penwest
     Trademark(s), to use the Penwest Trademark(s) solely in connection with the
     manufacture, distribution, and sale of the Designated Product in the
     Territory for the term of this Agreement.

     2.2 Grants by Horizon.

          2.2.1 Horizon hereby grants to Penwest and its Affiliates a
     nonexclusive, paid-up, license, with the right to sublicense, under any and
     all patents, patent applications, trade secrets, copyrights, and other
     intellectual property rights of any sort owned or controlled by Horizon or
     its Affiliates or sublicensees, to make and have made anywhere in the
     world, and to use and sell to Horizon and its Affiliates and permitted
     sublicensees Formulated TIMERx for use in the Designated Product during the
     License Term, if and to the extent such license is necessary for Penwest to
     do so as agreed hereunder.
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                                        [***] - CONFIDENTIAL TREATMENT REQUESTED

          2.2.2 Horizon shall grant to Penwest and its Affiliates a
     nonexclusive, paid-up license, with the right to sublicense, under all
     rights of Horizon and its Affiliates and sublicensees in and to that
     portion of the Horizon Test and Regulatory Data that is disclosed or
     provided to Penwest hereunder, granting to Penwest the right to use the
     same for purposes of complying with governmental requirements of any
     country, other than with respect to the Designated Product for marketing or
     use in the Territory. Horizon shall consent to Penwest's and its
     Affiliates' and sublicensees' cross-referencing, in any filings that are
     essentially the equivalent of the sorts of filings that are termed NDA
     filings if made with the FDA, made by them within the scope of such
     license, any NDA filing made or FDA master file created by Horizon or its
     Affiliates or sublicensees relating to or containing any of the Horizon
     Test and Regulatory Data. Such license under this Section 2.2.2 shall
     survive any termination or expiration of the term of this Agreement, except
     a termination under Section 11.5 due to an uncured breach by Penwest.
     Horizon shall, throughout the License Term and solely for use within the
     scope of such license, promptly provide to Penwest copies of all of the
     Horizon Test and Regulatory Data in or coming into Horizon's possession or
     otherwise reasonably available to it.

     2.3 Penwest Technology Transfer to Horizon. Penwest shall, at its expense,
exert reasonable efforts to make knowledgeable personnel reasonably available
within thirty (30) days from the date of Horizon's written request, to consult
with Horizon to the extent necessary to enable Horizon to produce Designated
Product for Horizon and its Affiliates pursuant to this Agreement; provided,
however, that Horizon shall reimburse Penwest, at the rate of one thousand U.S.
dollars (US$1,000) per person per day, for Penwest personnel costs associated
with any such consultation that is not performed at Penwest. The parties
understand and agree that Horizon's performance under this Agreement depends
upon the communication of the Penwest Technology, and that, if for any reason,
it is not possible to transfer such technology to Horizon, this will not lead to
liability on Horizon's part. The Penwest Technology will be deemed to have been
successfully transferred upon completion of scale-up on production-scale
equipment and demonstration of dissolution results comparable to those obtained
for pilot scale batches.

     2.4 Product Development Outside the Territory. In the event that, during
the License Term, either party hereto approaches the other party with a proposal
that development of the Designated Product be undertaken outside the Territory,
such other party agrees to reasonably consider negotiating a separate agreement
with such party concerning such development, provided that any such negotiation
shall take into account a variety of factors including but not limited to the
parties' respective costs relating to, and proceeds realized from, the
development of the Designated Product.

     2.5 Horizon's Rights with Respect to Other TIMERx Products.


          2.5.1 During the License Term, with respect to any product that (a) is
     not the Designated Product and (b) combines TIMERx and [***], not including
     any metabolite, isolated enantiomer or non-racemic mixture of [***] for any
     therapeutic or prophylactic use(s) in humans, Penwest and Horizon agree to
     discuss collaborations concerning the development and commercialization of
     such product in the Territory. When Penwest recognizes the possibility for
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                                        [***] - CONFIDENTIAL TREATMENT REQUESTED

     developing any such product, it shall present such information to Horizon
     in writing and Horizon shall have a period of forty-five (45) days in which
     to initiate good faith negotiations concerning a potential collaboration
     with respect to such product. If Horizon initiates such negotiations, the
     parties shall have a period of ninety (90) days in which to execute a
     definitive agreement, the terms and conditions of which shall govern any
     collaboration between the parties with respect to such product. If either
     (a) a negotiation concerning a potential collaboration with respect to any
     such product is not initiated, or (b) the parties cannot agree to the terms
     of a collaboration witH respect to such product, then Penwest shall have
     the exclusive right, either alone or in collaboration with a third party,
     to undertake the development and commercialization of such product, unless
     (i) such product is for use for the Indication or (ii) Horizon demonstrates
     to Penwest's reasonable satisfaction that such product is likely to be used
     off-label for the Indication, in which case Penwest shall not have the
     right, either alone or in collaboration with a third party, to undertake
     the development and commercialization of such product in the Territory.

          2.5.2 During the License Term, with respect to any product that (a) is
     not the Designated Product and (b) combines TIMERx and any metabolite,
     isolated enantiomer or non-racemic mixture of [***] for any therapeutic or
     prophylactic use(s) in humans, Penwest agrees promptly to notify Horizon in
     writing when Penwest recognizes the possibility for developing such product
     in the Territory. Horizon shall have a period of forty-five (45) days
     following such notification in which to provide to Penwest a written
     request that Penwest refrain from pursuing the development and
     commercialization of such product in the Territory. If (a) Horizon makes
     such request and (b) (i) such product is for use for the Indication or (ii)
     within thirty (30) days following Penwest's receipt of such request,
     Horizon demonstrates to Penwest's reasonable satisfaction that such product
     is likely to be used off-label for the Indication in the Territory, Penwest
     shall refrain from pursuing the development and commercialization of such
     product in the Territory either on its own or with a third party. If
     Horizon (a) fails to provide such request or (b) makes such request but (i)
     such product is not for the Indication or (ii) Horizon fails to make such
     demonstration, then Penwest shall have the right to pursue the development
     and commercialization of such product in the Territory either on its own or
     with a third party.

     2.6 Penwest Use of TIMERx. Horizon acknowledges that (a) subject to other
provisions of this Agreement, Penwest and its Affiliates, for themselves and for
others, apply, and will seek to apply, TIMERx and Formulated TIMERx to products
in and outside of the Territory and (b) subject to Sections 2.5.1 and 2.5.2, no
provision hereof, and no exclusivity hereunder, shall prevent Penwest from so
applying TIMERx, Formulated TIMERx or other oral, controlled release drug
delivery technology, so long as the end product is not the Designated Product
hereunder for commercial use and/or sale in the Territory; provided, however,
that, subject to Sections 2.5.1 and 2.5.2, Penwest hereby affirms that, in the
Territory, neither it nor its Affiliates shall apply, for themselves or for
others, TIMERx, Formulated TIMERx or other oral, controlled release drug
delivery technology to products containing [***].

     2.7 Commercially Reasonable Efforts. During License Term, each of Penwest
and Horizon shall exert their continuing commercially reasonable efforts to
perform their respective tasks hereunder in order to create and produce the
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Designated Product, and each shall cooperate with the other in such efforts. It
is understood that the exertion of a party's commercially reasonable efforts
shall mean that this project will receive a priority at least as high as any of
such party's other drug development efforts. Each party shall, promptly and
throughout the term of this Agreement, provide to the other all necessary
information in or coming into its possession or reasonably available to it for
such purposes. Notwithstanding anything else to the contrary contained herein,
nothing shall require either party to disclose confidential information for
which such party has an obligation of confidentiality to a third party.

3. Development Period.

     3.1 Initial Fee. In consideration of Penwest's entering into this
Agreement, Horizon shall pay Penwest two (2) non-refundable, non-creditable
payments of [***] U.S. dollars (US$[***]) each, (a) the first such payment to be
made on the Effective Date, and (b) the second such payment to be made within
seventy-five (75) days following the Effective Date.

     3.2 Non-Competition by Horizon. As additional inducement to Penwest to
enter into this Agreement, Horizon hereby affirms that, other than (a)
confidentiality agreements not binding either party to any further agreement and
(b) that certain Collaboration Agreement between Horizon and Inpharmakon, dated
October 31, 1998, it currently has no agreement or arrangement with any party
other than Penwest for or including the development, design, testing,
certification, manufacture or marketing by it or such other party (or the
Affiliate(s) of either) in the Territory of any controlled-release product that
incorporates [***], and agrees that it will refrain from entering into any such
agreement or arrangement (other than such confidentiality agreements) for the
term of this Agreement.

     3.3 Development Period Obligations. Each party understands and agrees that
the other does not warrant or commit that the Designated Product will be
successfully developed, and neither party shall have any liability or
responsibility to the other or to third parties for any such failure of the
development process hereunder, except to the extent such failure results from
said party's intentional misconduct, gross negligence, or material breach of its
duties or obligations as set forth herein.

     3.4 Development Period Schedule and Milestones. During the Development
Period, Penwest and Horizon shall use their commercially reasonable efforts to
perform their respective tasks set forth in the Development Tasks and Success
Criteria contained in Exhibit F hereto (the "Development Tasks") within the
estimated time periods set forth for such tasks therein in order to create and
produce the Designated Product. (The schedule laid out in Exhibit F shall serve
as a general guide for the parties' personnel in pursuing such tasks, but,
except as provided in Section 11.2, strict conformance to such schedule shall
not be an independent criterion of success.) Each party shall bear its own costs
associated with the Development Tasks, except as is otherwise specified in
Exhibit F and Section 3.7. The parties hereby agree to the following:
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          3.4.1 Within [***] days following the successful completion of
     preformulation, formulation, dissolution testing, and biostudy formulation
     finalization with respect to the Designated Product, Horizon shall pay
     Penwest a non-refundable, non-creditable milestone payment of [***] U.S.
     dollars (US$[***]).

          3.4.2 Within [***] days following the successful completion of a
     proof-of-principal biostudy for the Designated Product, Horizon shall pay
     Penwest a non-refundable, non-creditable milestone payment of [***] U.S.
     dollars (US$[***]).

     3.5 Governmental Requirements. Subject to Section 2.4, in all countries of
the Territory where the Designated Product is being developed, manufactured,
used and/or sold by Horizon, its Affiliates and/or sublicensees, Horizon shall
be responsible for, and hereby agrees to conduct or arrange for, at the expense
of Horizon, substantial compliance with all material and relevant governmental
requirements imposed in the Territory with respect to such development,
manufacture, use, and/or sale.

     3.6 Reports by Project Contacts. Each party's Project Contact shall provide
written reports to the other party's Project Contact at least monthly throughout
the Development Period, stating in detail all efforts made and in process, and
all significant progress achieved and difficulties encountered in the
development effort since the last such report. Each party's Project Contact
shall also be available throughout the Development Period to answer any
reasonable questions from the other party's Project Contact. The parties shall
cooperate reasonably during the Development Period such that the sites for
meetings among their respective personnel shall be alternated between the
parties' facilities to the extent practicable.

     3.7 Supply of Materials. The price for any Formulated TIMERx purchased by
Horizon from Penwest during the Development Period shall be determined as set
forth in Section 6.2. Penwest shall supply, at its own expense, all TIMERx that
it requires for the conduct of its own Development Period activities hereunder.
Penwest shall manufacture, at its own expense, a clinical batch of the
Designated Product for the first proof-of-principal biostudy. Horizon shall pay
to Penwest [***] U.S. dollars (US$[***]) for each clinical batch of the
Designated Product for any additional proof-of-principal biostudy.

4. Certification Period.

     4.1 Filing of NDA. During the Certification Period, Horizon shall be
responsible for the preparation of all documentation necessary for the filing of
an NDA for the Designated Product and shall file such NDA. Each party
understands and agrees that the other does not warrant or commit that the
Designated Product will be successfully certified for marketing by the FDA, and
neither party shall have any liability or responsibility to the other or to
third parties for any such failure of the certification process hereunder,
except to the extent such failure results from said party's intentional
misconduct, gross negligence, or material breach of its duties or obligations as
set forth herein.

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     4.2 Certification Period Milestones. Horizon agrees to pay Penwest, within
[***] days following the filing by Horizon of an NDA for the Designated Product,
a non-refundable, non-creditable milestone payment of [***] U.S. dollars
(US$[***]).

     4.3 Reports by Project Contacts. Horizon's Project Contact shall provide
written reports to Penwest's Project Contact at least quarterly throughout the
Certification Period, stating in reasonable detail all efforts made and in
process, and all significant progress achieved and difficulties encountered in
the certification effort since the last such report. Horizon's Project Contact
also shall be available throughout the Certification Period to answer any
reasonable questions from Penwest's Project Contact.

     4.4 Supply of Materials. During the Certification Period, Horizon shall
provide, at its own expense, all [***] and other materials and manufacturing and
testing services reasonably required to support the testing and certification
effort. Horizon shall purchase from Penwest, in accordance with the terms set
forth in Section 6.2, all Formulated TIMERx that Horizon requires for the
conduct of Horizon's Certification Period activities hereunder. Penwest shall
supply, at its own expense, all TIMERx that it requires for the conduct of its
own Certification Period activities hereunder.

5. Marketing Period.

     5.1 Term of Marketing Period. The Marketing Period shall extend from the
Approval Date until fifteen (15) years thereafter, unless this Agreement is
terminated earlier pursuant to Article 11. The Marketing Period may be renewed
by agreement of the parties for one (1) or more additional terms of five (5)
years each, provided that such agreement is reached at least one hundred eighty
(180) days prior to the expiration of this Agreement or any such additional
term.

     5.2 Reasonable Commercial Efforts by Horizon. Subject to the granting of
all necessary governmental approvals or concurrences to sell the Designated
Product, Horizon hereby agrees to market, promote and sell the Designated
Product throughout the Territory. Each party understands and agrees that the
other does not warrant or commit that the Designated Product will be
successfully marketed, and neither party shall have any liability or
responsibility to the other or to third parties for any such failure of the
development process hereunder, except to the extent such failure results from
said party's intentional misconduct, gross negligence, or material breach of its
duties or obligations as set forth herein.

     5.3 Amount of Royalties. Horizon hereby agrees to pay to Penwest royalties
on Net Sales made during the Marketing Period ("Royalties"), as follows:
<PAGE>   12
                                        [***] - CONFIDENTIAL TREATMENT REQUESTED

          5.3.1 [***] of Net Sales on all Net Sales until cumulative Net Sales
     of [***] U.S. dollars (US$[***]) have been attained;

          5.3.2 [***] of Net Sales on all Net Sales after cumulative Net Sales
     of [***] U.S. dollars (US$[***]) have been attained until cumulative Net
     Sales of [***] US. dollars (US$[***]) have been attained; and

          5.3.3 [***] of Net Sales on all Net Sales after Net Sales of [***]
     U.S. dollars (US$[***]) have been attained.

Such Royalties shall be reduced by [***] (e.g. a [***] Royalty would become a
[***] Royalty) with respect to Net Sales of a Designated Product as to which (a)
no license to Penwest Patents or to patent applications or patents included in
the Joint Developments or TIMERx Improvements hereunder is applicable to the
manufacture, sale or use of such Designated Product, or (b) a license to a
patent application included in the Penwest Patents, Joint Developments or TIMERx
Improvements is applicable to the manufacture, sale or use of such Designated
Product, but no patent has yet issued thereon; provided, however, that, with
respect to Section 5.3.3(b), (i) as of the date of issue of any such patent, the
unreduced Royalty shall become payable on all subsequent Net Sales of such
Designated Product and (ii) within ten (10) days following such date, Horizon
shall pay to Penwest an amount equal to the unreduced Royalty that would have
been payable on Net Sales of such Designated Product up until such date less the
total amount of Royalties already paid on such sales.

     5.4 Payment of Royalties. All Royalties payable pursuant to this Agreement
shall be due quarterly within sixty (60) days following the end of each calendar
quarter for Net Sales in such calendar quarter. Each such payment shall be
accompanied by a statement of Net Sales for the quarter and the calculation of
Royalties payable hereunder. All Royalties and all other amounts which are
overdue under this Agreement shall bear interest at the rate of one and one-half
percent (11/2%) per month from the date due through the date of payment. Horizon
shall keep and shall cause its Affiliates and its and their sublicensees to keep
complete, true and accurate records for the purpose of showing the derivation of
all Royalties payable to Penwest under this Agreement. Penwest's duly accredited
representatives (which representatives are approved for such purpose by Horizon,
which approval shall not be unreasonably withheld nor shall it be revocable by
Horizon following the start of any inspection hereunder) shall have the right to
inspect, copy, and audit such records at any time during reasonable business
hours upon reasonable prior notice to Horizon or any of its Affiliates or
sublicensees, respectively, but such right shall not be exercised more often
than once annually (it being understood that a single exercise of such right may
include a series of related or continuing inspections, copying and audits). Any
such audit shall be at the expense of Penwest, unless the audit reveals that,
with respect to the period under audit, less than ninety-five percent (95%) of
the Royalties due to Penwest hereunder have been reported, in which event
Horizon shall pay or reimburse Penwest for the reasonable expenses of such
audit, in addition to Penwest's other remedies for such underpayment. In the
event that any such audit reveals that, with respect to the period under audit,
Horizon has paid to Penwest Royalties in excess of those due hereunder, Horizon
shall be entitled to offset the full amount of such excess payment against
future Royalties due to Penwest.
<PAGE>   13
                                        [***] - CONFIDENTIAL TREATMENT REQUESTED

     5.5  Marketing  Period  Milestones.  Horizon also agrees to pay Penwest the
following non-refundable, non-creditable milestone payments:

          5.5.1 within [***] days  following  the first  commercial  sale of the
     Designated Product, [***] U.S. dollars (US$[***]); and

          5.5.2 [***] following the first commercial sale of the Designated
     Product, [***] U.S. dollars (US$[***]).

     5.6 Form of Payment. All monies due hereunder shall be paid in United
States Dollars to Penwest in Patterson, New York, USA. Said payment may be made
at Horizon's option by check or wire transfer.

6. Supply of Formulated TIMERx.

     6.1 Supply and Requirements of Formulated TIMERx. During the term of this
Agreement, Penwest shall supply Horizon and its Affiliates and sublicensees, in
accordance with the terms set forth in Section 6.2, with sufficient quantities
of Formulated TIMERx to meet their reasonable requirements for TIMERx, and
Horizon shall purchase, all of its requirements, and shall ensure that its
Affiliates and sublicensees purchase all of their requirements, for
controlled-release agents for [***] products that are essentially equivalent to
the Designated Product in the form of Formulated TIMERx from Penwest.

     6.2 Price of TIMERx. The price for all Formulated TIMERx sold hereunder
shall equal the Unit Price multiplied by the number of kilograms of Formulated
TIMERx purchased; provided, however, that the price for the first [***]
kilograms of Formulated TIMERx sold during the Development Period and/or the
Certification Period shall be [***] U.S. dollars (US$[***]) multiplied by the
number of kilograms of Formulated TIMERx purchased. All sales of Formulated
TIMERx hereunder shall be F.O.B. Patterson, New York, and Horizon shall bear all
transportation, insurance, taxes, duties, and other costs and risks of loss,
spoilage and damage associated with the shipping and delivery of Formulated
TIMERx to Horizon or its Affiliates or sublicensees. Horizon shall pay for all
Formulated TIMERx purchased from Penwest hereunder within thirty (30) days after
receipt by Horizon or any of its Affiliates or sublicensees of an invoice and
the Formulated TIMERx shipped by Penwest.

     6.3 Changes to Penwest DMF. Penwest warrants that it will not change or
modify its DMF, the Specifications, or its method of manufacture for Formulated
TIMERx without prior written consent from Horizon, which consent shall not be
unreasonably withheld.

     6.4 Quality Control. Penwest shall perform quality control tests with
respect to each lot or batch of Formulated TIMERx as required by the FDA as set
forth in the DMF, such testing to be at the expense of (a) Penwest to the extent
such testing pertains to TIMERx or Formulated TIMERx and (b) Horizon to the
extent such testing pertains to [***]. In addition, Penwest may perform such
<PAGE>   14
                                        [***] - CONFIDENTIAL TREATMENT REQUESTED

other tests as Penwest deems necessary in accordance with its applicable
policies. No other or special tests by Penwest with respect to the raw materials
or Formulated TIMERx will be required during the License Term, unless and to the
extent that Horizon establishes that any such other or special tests are
required in order to obtain or maintain FDA approval to market the Designated
Product in the Territory, in which case any such other or special tests that are
to be performed by Penwest shall be agreed to by Penwest, such testing to be at
the expense of (a) Penwest to the extent such testing pertains to TIMERx or
Formulated TIMERx and (b) Horizon to the extent such testing pertains to [***].
Penwest shall, promptly upon completion of any such other or special tests,
deliver to Horizon a copy of the results of such other or special tests. Each
shipment of the Formulated TIMERx shall:

          6.4.1 be accompanied by a Certificate of Analysis and a Certificate of
     Origin;

          6.4.2  meet  all  present   applicable   FDA   requirements   and  the
     Specifications; and

          6.4.3 be manufactured, packaged, stored and shipped in conformance
     with the Specifications and current Good Manufacturing Practices or other
     relevant regulations and requirements promulgated by the FDA and applicable
     to Formulated TIMERx.

     6.5 Non-Acceptance of Formulated TIMERx by Horizon. Within a reasonable
period but not more than thirty (30) days after receipt, Horizon shall analyze
each shipment of the Formulated TIMERx. If Horizon considers any such shipment
not to conform to the Specifications, Horizon shall notify Penwest immediately
and provide Penwest with the relevant analysis. If Penwest does not agree, the
parties shall submit such disagreement to the arbitration of one mutually
accepted neutral analytical laboratory. The cost of the neutral analytical
laboratory shall be borne by the party whose testing results are determined to
have been in error. If Penwest or the neutral analytical laboratory agrees with
Horizon, Penwest shall not have any obligation to Horizon other than to
accomplish the following:

     i)   at its own  expense  accept  return of any  shipment  not  accepted or
          reimburse  Horizon  for  the  cost  of  disposal  or  destruction,  at
          Horizon's option; and

     ii)  use commercially reasonable efforts to replace the non-conforming
          shipment with conforming Formulated TIMERx.

     6.6 Horizon Access to Penwest Facilities. Horizon shall have the right to
enter into Penwest's manufacturing facilities and the manufacturing facilities
of its Affiliates and sublicensees, of any, at times agreed by the parties
and/or to take other appropriate methods to check the quality of the Formulated
TIMERx manufactured or offered by Penwest and its Affiliates and sublicensees,
of any, from time to time during the term of this Agreement after reasonable
prior notice to Penwest and its Affiliates and sublicensees, if any.
<PAGE>   15
     6.7 Forecasting of Orders by Horizon. Throughout the term of this
Agreement, Horizon shall deliver to Penwest, and shall ensure that its
Affiliates and sublicensees, if any, deliver to Penwest, a firm written order
stating their requirements for Formulated TIMERx for each calendar quarter to be
used for production of the Designated Product for commercial use or sale (a
"Firm Order") no less than ninety (90) days in advance of each required delivery
date during such calendar quarter (each a "Firm Order Quarter"). Horizon shall
be responsible for purchasing from Penwest one hundred percent (100%) of the
quantity of Formulated TIMERx specified in each such Firm Order. The first Firm
Order shall be submitted immediately following the reasonable determination by
Horizon that the NDA for the Designated Product will be approved by the FDA and
shall be accompanied by a written, non-binding estimate of Horizon's
requirements for Formulated TIMERx to be used for production of the Designated
Product for commercial use or sale (an "Estimated Order") during the next three
(3) calendar quarters following the first Firm Order Quarter. On or before the
first day of (a) the calendar quarter following the first Firm Order Quarter and
(b) each Firm Order Quarter thereafter, Horizon shall deliver to Penwest an
Estimated Order covering the three (3) calendar quarters following each such
Firm Order Quarter.

     6.8 Adherence to Estimated Orders. Unless the parties otherwise agree in
writing, Penwest shall not be obligated to supply Horizon with quantities of
Formulated TIMERx during any calendar quarter in excess of one hundred forty
percent (140%) of the quantity estimated in Horizon's most recent Estimated
Order applicable to that quarter. Horizon shall be responsible for purchasing
from Penwest in each calendar quarter at least seventy-five percent (75%) of the
quantity estimated in Horizon's most recent Estimated Order applicable to that
quarter.

     6.9 Product Safety; Government Inspections. Each party shall promptly
notify the other of any fact, circumstance, condition or knowledge dealing with
TIMERx, Formulated TIMERx or the Designated Product of which the party becomes
aware that bears upon the safety or efficacy of TIMERx, Formulated TIMERx or the
Designated Product. Each party shall immediately notify the other of any
inspection or audit relating to TIMERx, Formulated TIMERx or the Designated
Product by any governmental regulatory authority in the Territory. If a
representative of the governmental authority takes samples in connection with
such audit or inspection, the parties shall immediately provide each other, as
appropriate, with samples from the same batch. The party in receipt of such
notice shall provide the other party, within seventy-two (72) hours, with copies
of all relevant documents, including but not limited to FDA Forms 482, 483,
warning letters and other correspondence and notifications as such other party
may reasonably request. Penwest and Horizon agree to cooperate with each other
during any inspection, investigation or other inquiry by the FDA or other
governmental entity, including but not limited to providing information and/or
documentation, as requested by the FDA or other governmental entity. To the
extent permissible, Penwest and Horizon also agree to discuss any responses to
observations or notifications received and to give the other party an
opportunity to comment on any proposed response before it is made. In the event
of disagreement concerning the content or form of such response, Horizon shall
be responsible for deciding the appropriate form and content of any response
with respect to any of its cited activities and Penwest shall be responsible for
deciding the appropriate form and content of any response with respect to any of
<PAGE>   16
its cited activities. Each party shall inform the other of all comments
and conclusions received from the governmental authority.

     6.10 Packaging of Designated Product; Use of Penwest Trademark(s). Horizon
shall manufacture and package the Designated Product in accordance with all
applicable laws and regulations in the Territory. Provided that the Penwest
Trademark(s) remain registered in the Territory, and that Penwest undertakes
reasonable efforts to protect and defend the same in the Territory, Horizon
agrees, upon and only upon Penwest's request, to market the Designated Product
in the Territory in conjunction with the appropriate Penwest Trademark(s). In
the event that Penwest so requests, the parties agree to the following:

          6.10.1 Horizon acknowledges that all Penwest Trademark(s) and all
     rights therein or registrations thereof, worldwide, shall belong
     exclusively to Penwest, and Penwest shall use all reasonable efforts to
     obtain and maintain registrations for the Penwest Trademark(s) in the
     Territory. All use of the Penwest Trademark(s) as contemplated in this
     Agreement by Horizon shall accrue to the benefit of Penwest. Neither
     Horizon nor its Affiliates or sublicensees shall (a) make use of any of the
     Penwest Trademark(s) except to identify and promote the Designated Product
     as contemplated hereunder for sale in the Territory, or (b) continue using
     the Penwest Trademark(s) after termination or expiration of this Agreement,
     nor after the removal or alteration of any such Penwest Trademark(s) from
     Exhibit D, except to complete sale of reasonable quantities of inventory of
     the Designated Product on hand at the time of termination or expiration, or
     at the time of such removal or alteration.

          6.10.2 Horizon shall cooperate with Penwest, at Penwest's request and
     at Penwest's expense, to protect the interest of Penwest in the Penwest
     Trademark(s), and shall neither attempt to register nor authorize others to
     register the Penwest Trademark(s) without the prior written consent of
     Penwest in each instance.

          6.10.3 Horizon shall use, and shall ensure that its Affiliates and
     sublicensees, if any, use, all appropriate notices of trademark status of
     the Penwest Trademark(s), including the "(tm)" designation (or the (r)
     symbol for registered marks), in all labeling and promotional materials and
     shall otherwise conform with, and shall ensure that its Affiliates and
     sublicensees, if any, conform with, all policies and notices of Penwest's
     rights in the Penwest Trademark(s) and for the protection of the Penwest
     Trademark(s), including without limitation the inclusion of an appropriate
     footnote acknowledging the use of the Penwest Trademark(s) under license.

          6.10.4 Representative samples of the Designated Product and any
     advertising, promotional materials or packaging related thereto shall be
     provided by Horizon to Penwest, at Horizon's expense, at least thirty (30)
     days prior to the first use or sale thereof, quarterly thereafter and at
     other times upon the reasonable written request of Penwest. So long as
     Horizon is using the Penwest Trademark(s) in the Territory, Penwest shall
     have the right to enter into Horizon's manufacturing facilities and the
     manufacturing facilities of its Affiliates and sublicensees, if any, at

<PAGE>   17

     times agreed by the parties and/or to take other appropriate methods to
     check the quality of the Designated Product manufactured or offered by
     Horizon and its Affiliates and sublicensees, if any, from time to time
     during the term of this Agreement after reasonable prior notice to Horizon
     and its Affiliates and sublicensees, if any. If at any time or times
     Penwest determines that the quality of the Designated Product manufactured
     or offered by Horizon and its Affiliates and sublicensees, if any, or the
     packaging or promotional materials therefor, does not comply with Penwest
     standards as communicated in writing from time to time to Horizon and its
     Affiliates and sublicensees, if any, Penwest (a) shall so notify Horizon
     and its Affiliates and sublicensees, if any, in writing and (b) if Horizon
     and/or its Affiliates and sublicensees, as the case may be, has not cured
     such non-compliance within sixty (60) days following such notice, shall
     have the right (as its only remedy as to trademark matters) to suspend or
     prohibit the use of the Penwest Trademark(s), immediately upon written
     notice to Horizon and its Affiliates and sublicensees; provided, however,
     that Penwest need not give such opportunity to cure any non-compliance that
     has been the subject of more than two such notices on prior occasions
     during the preceding twelve (12) months.

7. Ownership of Technology and Intellectual Property.

     7.1 Ownership of Intellectual Property. Horizon agrees to assign and ensure
that each of its Affiliates and sublicensees, if applicable, assigns its rights
in and to any and all TIMERx Improvements to Penwest. All right, title, and
interest in and to any and all Joint Developments shall be owned jointly by
Horizon and Penwest, and, except as specifically provided in this Agreement,
each party shall have the full right to practice and license such Joint
Developments, without obligation to obtain the approval of or to make payment of
any kind to the other party in respect thereof. Horizon shall have the right to
obtain, at its sole expense, and shall solely own any trademarks relating to the
Designated Product, subject to the approval of Penwest, which approval shall not
be unreasonably withheld. Neither party makes any grant of rights by
implication.

     7.2 Prosecution and Maintenance of Intellectual Property. Penwest shall be
responsible for the filing and prosecution of any and all patent applications
with respect, in whole or in part, to its own intellectual property and for the
maintenance of any available patent protection with respect thereto; provided,
however, that Penwest does not represent that any such patent protection will be
available or continuous hereunder.

     7.3 Marking of Patented Products. Horizon agrees to mark and to have marked
by its Affiliates and sublicensees (if any) every Designated Product
manufactured, used or sold by it or its Affiliates or sublicensees in the
Territory, in accordance with the laws of the United States relating to the
marking of patented articles with notices of patent.

8. Confidentiality

     8.1   Non-Disclosure  of  Confidential   Information.   In  the  course  of

<PAGE>   18

performance under this Agreement, a party may disclose to the other Confidential
Information belonging to such party in writing, orally or by demonstration or
sample, which information is marked or stated in writing at or within thirty
(30) days after its disclosure to be "confidential" or "trade secret"
information. All such Confidential Information of a party shall be maintained in
confidence by the other and shall not be used by the other party for any purpose
except as authorized hereunder. Each party shall exercise, and shall cause its
Affiliates, sublicensees, consultants, agents and employees to exercise, a
reasonable degree of care and at least the same degree of care as it uses to
protect its own confidential information of similar nature to preserve the
confidentiality of such information of the other party. Each party shall
safeguard such information against disclosure to third parties, including
without limitation employees and persons working or consulting for such party
that do not have an established, current need to know such information for
purposes authorized under this Agreement. This obligation of confidentiality
does not apply to information and material that:

          8.1.1 were properly in the possession of the receiving party, without
     any restriction on use or disclosure, prior to receipt from the other
     party;

          8.1.2 are at the time of disclosure hereunder in the public domain by
     public use, publication, or general knowledge;

          8.1.3 become general or public knowledge through no fault of the
     receiving party or its Affiliates or sublicensees following disclosure
     hereunder;

          8.1.4 are properly obtained by the receiving party from a third party
     not under a confidentiality obligation to the disclosing party hereto;

          8.1.5 consist merely of an idea or conception for the combination of
     one or more active drug ingredients with a controlled-release agent such as
     TIMERx; or

          8.1.6 are required to be disclosed by order of any court or
     governmental authority.

     8.2 Non-Disclosure of Terms of or Work Under Agreement. Neither party shall
make any disclosure, public announcement or other publication regarding this
Agreement (whether as to the existence, conditions or terms thereof) or the
development work or projects performed hereunder or the results thereof,
including but not limited to the results of any clinical trial involving the
Designated Product, without the prior, written consent of the other party, which
consent shall not be unreasonably withheld; provided, however, that either party
may disclose the terms and conditions of this Agreement (a) as required, in the
opinion of counsel to the disclosing party, by any court, administrative agency,
or other governmental body, after making all reasonable efforts to protect the
confidentiality thereof and providing notice to the disclosing party, (b) as
otherwise required by law, (c) in confidence, to legal counsel, accountants,
banks, and financing sources and their advisors, (d) in confidence, in
connection with the enforcement of this Agreement or rights under this

<PAGE>   19

Agreement, or (e) in confidence, in connection with a merger or acquisition or
proposed merger or proposed acquisition. Each party shall ensure that its
Affiliates, sublicensees, consultants, agents and employees comply with the
provisions of this Section 8.2.

9. Infringement.

     9.1 Notice and Prevention of Infringement. Penwest shall (a) promptly
inform Horizon of any suspected infringement of any of the Penwest Patents or
Penwest Trademark(s) or the infringement or misappropriation of any of the
Penwest Technology, the Joint Developments or TIMERx Improvements by a third
party, to the extent such infringement involves the manufacture, use or sale of
the Designated Product in the Territory ("Covered Infringement") and (b)
consistent with its policies as to its TIMERx patent and trade secret portfolio
generally, exert reasonable efforts to monitor and to attempt to stop any
Covered Infringement. Horizon shall promptly inform Penwest of any suspected
infringement of any of the Penwest Patents or Penwest Trademark(s) or
infringement or misappropriation of any of the Penwest Technology, the Joint
Developments or TIMERx Improvements, whether or not the same involves a Covered
Infringement.

     9.2 Penwest Action Against Infringers. If the suspected infringement or
misappropriation does not involve a Covered Infringement, Penwest may take, or
refrain from taking, any action it chooses, with written notice to Horizon, and
Horizon shall have no right to take any action with respect to such suspected
infringement or misappropriation, nor to any recoveries with respect thereto. If
the suspected infringement or misappropriation involves a Covered Infringement,
Penwest shall, within thirty (30) days of the first notice referred to in
Section 9.1, inform Horizon whether or not Penwest intends to institute suit
against such third party with respect to a Covered Infringement. Horizon shall
not take any steps toward instituting suit against any third party involving a
Covered Infringement until Penwest has informed Horizon of its intention
pursuant to the previous sentence, and then only in accordance with the terms
set forth in Sections 9.2.2 and 9.3.

          9.2.1 If Penwest notifies Horizon that it intends to institute suit
     against a third party with respect to a Covered Infringement, and Horizon
     does not agree to join in such suit as provided in Section 9.2.2, Penwest
     may bring such suit on its own and shall in such event bear all costs of,
     and shall exercise all control over, such suit Horizon agrees to, at its
     expense, provide any assistance to and cooperate as reasonably necessary
     with Penwest to institute and/or maintain any such suit with respect to any
     Covered Infringement. Recoveries, if any, whether by judgment, award,
     decree or settlement, shall belong solely to Penwest.

          9.2.2 If Penwest notifies Horizon that it intends to institute suit
     against such third party with respect to a Covered Infringement, and
     Horizon notifies Penwest within thirty (30) days after receipt of such
     notice that Horizon desires to institute suit jointly, the suit shall be
     brought jointly in the names of both parties and all costs thereof shall be

<PAGE>   20

     borne equally. Recoveries, if any, whether by judgment, award, decree or
     settlement, shall, after the reimbursement of each of Penwest and Horizon
     for its share of the joint costs in such action, be shared between Penwest
     and Horizon equally; provided, however, that any portion of such net
     recoveries that constitutes the equivalent of, or damages or payments in
     lieu of, defendant's net sales shall not be shared equally, but shall
     belong to Horizon and be added to Horizon's Net Sales for the purpose of
     determining Royalties payable to Penwest.

10. Representations, Warranties and Indemnities.

     10.1 Authority to Enter into Agreement; Validity of Patents; Debarment.
Each party represents and warrants to the other that, to the best of its current
knowledge, it has the full right and authority to enter into this Agreement and
to grant the licenses granted herein. Each party believes, to the best of its
current knowledge, that any existing patents licensed by it to the other party
under this Agreement are valid. Each party represents and warrants to the other
that neither it nor any of its officers, directors, or employees performing
services under this Agreement has been debarred, or convicted of a crime which
could lead to debarment, under the Generic Drug Enforcement Act of 1992, 21
United States Code 306(a) and (b). In the event that either party, or any of its
officers, directors, or employees performing services under this Agreement, (a)
becomes debarred or receives notice of action or threat of action with respect
to its debarment or (b) becomes the object of any investigation or subject of
any report regarding such party, or any of its officers, directors, or employees
performing services under this Agreement, in connection with any activity that
could result in debarment or suspension or refusal of approval, including
without limitation any inspection report, warning letter, notice of opportunity
for hearing in a case of debarment, or any other Justice Department, FDA or
other federal or state government inquiry or action bearing on potentially
illegal activities, such party shall notify the other party immediately.

     10.2 Penwest Warranties to TIMERx. Penwest represents and warrants that any
Formulated TIMERx supplied by it to Horizon hereunder for use in the Designated
Product, at the point of delivery (a) has been manufactured in accordance with
cGMP, (b) will conform to the Specifications, and (c) to the best of Penwest's
current knowledge, will not infringe upon an article patent of any third party.

PENWEST MAKES NO REPRESENTATIONS OR WARRANTIES AS TO ANY TIMERx OR FORMULATED
TIMERx SUPPLIED BY IT TO HORIZON EXCEPT AS ARE EXPLICITLY STATED HEREIN.

     10.3 Government Licenses, Permits and Authorizations. Each party represents
and warrants to the other party that it has obtained and will at all times
during the term of this Agreement, hold and comply with all licenses, permits
and authorizations necessary to perform this Agreement and to test, manufacture,
market, export, and import the products and assistance to be provided by it
hereunder, as now or hereafter required under any applicable statutes, laws,
ordinances, rules and regulations of the United States and any applicable
foreign, state, and local governments and governmental entities.
<PAGE>   21

     10.4 Government Regulatory Requirements. Horizon warrants that any
Designated Product manufactured, marketed or distributed by Horizon or its
Affiliates or sublicensees shall meet and be manufactured, packaged, labeled,
sold, and promoted in accordance with all applicable regulatory requirements
within the Territory.

     10.5 Indemnification by Penwest Against Infringement Claims. Penwest shall
indemnify, defend and hold Horizon and its Affiliates and sublicensees harmless
from any claim, action or damages arising out of any alleged infringement by
reason of the manufacture, use, sale or distribution by Horizon of the
Designated Product to the extent such infringement would apply as well to the
manufacture, sale or distribution of TIMERx alone. If Horizon or its Affiliate
or sublicensee, by reason of its manufacture, sale or distribution of the
Designated Product, is accused of infringing the patent of a third party, and
such claim of infringement, as framed by the claimant, would apply as well to
the manufacture, sale or distribution of TIMERx alone, Horizon shall immediately
so notify Penwest and provide Penwest with all available information, and the
parties shall consult reasonably as to the proper course of action. If Penwest
and Horizon jointly determine that such claim is likely to prevail, or if an
arbitrator hereunder or a court of competent jurisdiction so determines, Horizon
shall be entitled to offset against any Royalties payable to Penwest hereunder
the full amount of any third party royalties for which Horizon or its Affiliate
or sublicensee becomes liable. For any given year following the Approval Date,
such offset shall not reduce the Royalties payable to Penwest to less than (a)
if such Royalties have not been reduced pursuant to Section 5.3, fifty percent
(50%) of the Royalty amount otherwise due Penwest absent such offset, or (b) if
such Royalties have been reduced pursuant to Section 5.3, twenty-five percent
(25%), of the Royalty amount otherwise due Penwest absent such offset and
reduction; provided, however, that Horizon may carry forward any unutilized
portion of such offset to future years.

     10.6 Indemnification by Penwest Against Other Third Party Claims. Penwest
shall indemnify, defend and hold Horizon and its Affiliates and sublicensees
harmless from any and all third-party claims (other than infringement claims) to
the extent arising from, in connection with, based upon, by reason of, or
relating in any way to:

          10.6.1 Penwest's contributions to the formulation or development of
     the Formulated TIMERx and the Specifications therefor hereunder;

          10.6.2 any failure of the Formulated TMERx supplied by Penwest to
     Horizon hereunder for use in the Designated Product to conform to the
     Specifications; or

          10.6.3 any failure of Penwest to comply with its obligation under
     Section 6.9 to notify Horizon of any information coming into Penwest's
     possession and bearing on the safety of TIMERx or the Designated Product;

and, with respect to Sections 10.6.1, 10.6.2 and 10.6.3, not arising from any
other aspect of the Designated Product or its formulation, development, supply,

<PAGE>   22

production, manufacture, sale, delivery, distribution or use, or from any act or
omission of Horizon with respect to the Formulated TIMERx following its delivery
to Horizon hereunder.

     10.7 Indemnification by Horizon Against Other Third Party Claims. Horizon
shall indemnify, defend and hold Penwest harmless from any and all third-party
claims to the extent arising from, in connection with, based upon, by reason of,
or relating in any way to, the formulation, development, supply, production,
manufacture, sale, delivery, distribution or use of the Designated Product,
except for any matters which are covered by Penwest's indemnities under Sections
10.5 and 10.6.

     10.8 Indemnification by Horizon Against Infringement Claims. Horizon shall
indemnify, defend and hold Penwest harmless from and against any patent claims
or litigation (and all damages and expenses associated therewith, including
without limitation reasonable attorneys fees and other costs of defense and of
the preparation of a defense, at all stages of proceedings) based on any feature
of the Designated Product or its formulation, independent of the TIMERx
component by itself. Penwest shall cooperate and assist Horizon reasonably with
the defense of any such claims or litigation. It is understood that neither
Horizon nor Penwest shall have the right to force the other into any settlement
or compromise of any such litigation, nor to dictate the terms thereof.

     10.9 Indemnification Disclaimer. Notwithstanding anything to the contrary
set forth elsewhere herein, neither Horizon nor Penwest shall be obligated to
indemnify the other party for claims or liabilities to the extent arising from
such other party's, or its Affiliates', sublicensees' or assigns', gross
negligence, intentional misconduct, or material breach of its duties,
obligations, warranties or representations set forth herein.

     10.10 Indemnified Parties; Notice and Defense of Third Party Claims.
Whenever indemnification is provided for a party under this Agreement with
respect to any claim or action, such right of indemnification shall extend also
to the indemnified party's Affiliates, officers, directors, shareholders,
successors, assigns, agents, employees, and insurers to the extent the same
become subject to such claim or action in such capacity. The party seeking
indemnification shall provide the indemnifying party with written notice of such
claim or action within ten (10) days of its receipt thereof and shall afford the
indemnifying party the right to control the defense and settlement of such claim
or action. The party seeking indemnification shall provide reasonable assistance
to the indemnifying party in the defense of such claim or action. If the
defendants in any such action include both Horizon and Penwest and either party
concludes that there may be legal defenses available to it which are different
from, additional to, or inconsistent with, those available to the other, that
party shall have the right to select separate counsel to participate in the
defense of such action on its behalf, and such party shall thereafter bear the
cost and expense of such separate defense. Should the indemnifying party
determine not to defend such claim or action, the other party shall have the
right to maintain the defense of such claim or action and the indemnifying party
agrees to provide reasonable assistance to it in the defense of such claim or
action. Neither party to this Agreement shall settle or defend such claim or
action in a way that prejudices or adversely affects the other party to this

<PAGE>   23

Agreement without the prior approval of such other party (which approval shall
not be unreasonably withheld).

     10.11 Disputes Concerning Indemnification. Any dispute concerning
indemnification shall be determined by arbitration in accordance with Section
12.10 of this Agreement.

     10.12 LIMITATION OF WARRANTIES. THE FOREGOING WARRANTIES ARE IN LIEU OF ALL
OTHER WARRANTIES, EXPRESS, IMPLIED OR ARISING BY LAW, INCLUDING WITHOUT
LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A
REPRESENTATION OR WARRANTY (A) BY PENWEST AS TO THE PATENTABILITY, VALIDITY
(EXCEPT AS STATED IN SECTION 10.1), OR SCOPE OF ANY PENWEST PATENTS, PENWEST
TECHNOLOGY, PENWEST'S CONFIDENTIAL INFORMATION, JOINT DEVELOPMENTS, OR PENWEST
TEST AND REGULATORY DATA; OR (B) BY HORIZON AS TO THE PATENTABILITY, VALIDITY
(EXCEPT AS STATED IN SECTION 10.1), OR SCOPE OF ANY TIMERX IMPROVEMENTS, JOINT
DEVELOPMENTS, OR HORIZON TEST AND REGULATORY DATA.

     10.13 LIMITATION OF LIABILITY. NOTWITHSTANDING ANYTHING TO THE CONTRARY
CONTAINED HEREIN, NEITHER PARTY SHALL UNDER ANY CIRCUMSTANCES BE LIABLE FOR ANY
THIRD PARTY CLAIMS (OTHER THAN THE INDEMNIFICATIONS STATED IN THIS ARTICLE 10)
OR FOR ANY INCIDENTAL, CONSEQUENTIAL, INDIRECT OR SPECIAL DAMAGES INCLUDING ANY
LOST PROFITS OR SAVINGS, ARISING FROM ANY BREACH OF WARRANTY OR THE PERFORMANCE
OR BREACH OF ANY OTHER PROVISION OF THIS AGREEMENT OR THE USE OR INABILITY TO
USE TIMERx, FORMULATED TIMERx, THE DESIGNATED PRODUCT, PENWEST PATENTS, PENWEST
TECHNOLOGY, PENWEST'S CONFIDENTIAL INFORMATION, JOINT DEVELOPMENTS, PENWEST TEST
AND REGULATORY DATA, TIMERX IMPROVEMENTS, OR HORIZON TEST AND REGULATORY DATA,
EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
<PAGE>   24
                                        [***] - CONFIDENTIAL TREATMENT REQUESTED

     10.14 Insurance Coverage. Each party shall, at its own cost and expense,
obtain and maintain from a qualified insurance company comprehensive general
liability and products liability insurance coverage during the term of this
Agreement (and any subsequent period of sale or distribution pursuant to Section
11.6). Such insurance shall be in an amount no less than [***] U.S. dollars
(US$[***]) combined single limit for each occurrence for bodily injury and/or
property damage. Each party agrees to provide the other party with a certificate
of insurance evidencing such insurance within thirty (30) days after the
Effective Date and again thereafter from time to time as reasonably requested by
such other party.

11. Term and Termination.

     11.1 Term. The term of this Agreement shall begin on the Effective Date and
shall, unless extended or earlier terminated as provided herein, continue until
fifteen (15) years following the Approval Date.

     11.2 Termination by Penwest. Penwest may at its option terminate this
Agreement upon thirty (30) days' prior written notice to Horizon if:

          11.2.1 Horizon fails to:

               11.2.1.1 file an IND for the Designated Product within [***]
          following the Effective Date, unless Horizon's failure to do so is
          attributable to Penwest;

               11.2.1.2 initiate a program of clinical trials for the Designated
          Product within [***] following successful completion of
          preformulation, formulation, dissolution testing and biostudy
          formulation finalization with respect to the Designated Product,
          unless Horizon's failure to do so is attributable to Penwest; 11.2.1.3
          complete a program of clinical trials for the Designated Product
          within [***] following the initiation of such program, unless
          Horizon's failure to do so is attributable to Penwest;

               11.2.1.4 file an NDA for the Designated Product within [***]
          following the successful completion of a program of clinical trials
          for the Designated Product, unless Horizon's failure to do so is
          attributable to Penwest; or

               11.2.1.5 commercially launch the Designated Product within [***]
          following approval by the FDA of an NDA for the Designated Product,
          unless Horizon's failure to do so is attributable to Penwest.; or

          11.2.2 Horizon fails to meet the relevant Minimum Sales, as specified
     in Exhibit G, for any two (2) consecutive years following the Approval
     Date, unless (a) the sum of the Minimum Sales for all years since the
     Approval Date less the sum of Horizon's Net Sales for such years (the
     "Sales Differential") is equal to or less than zero, or (b) if the Sales
     Differential is greater than zero Horizon makes, within such thirty (30)
     day period, an additional payment to Penwest equal to the product of (i)

<PAGE>   25
                                        [***] - CONFIDENTIAL TREATMENT REQUESTED

     the Sales Differential and (ii) the applicable royalty percentage set forth
     in Section 5.3.

     11.3 Termination by Horizon. Horizon shall have the right, at its option,
to terminate this Agreement:

          11.3.1 at any time prior to the first anniversary of the Effective
     Date upon ninety (90) days' prior notice to Penwest, if Horizon, despite
     its commercially reasonable efforts, expects to be unable to meet the
     Minimum Sales specified in Exhibit G for the first year following the
     Approval Date; provided, however, that Horizon shall pay Penwest an early
     termination fee of [***] U.S. dollars (US$[***]) at the time of any
     exercise of Horizon's option to terminate for this reason; or

          11.3.2 upon ninety (90) days' prior written notice to Penwest, if
     Horizon fails to meet the relevant Minimum Sales, as specified in Exhibit
     G, for any two (2) consecutive years following the Approval Date.

     11.4 Extension of Licenses. Following any expiration or termination of this
Agreement, other than due to an uncured breach on the part of Penwest (but
subject to Section 11.8), Penwest may request that the license to Penwest under
Section 2.2.2 be extended to include (in addition to their coverage as stated in
such section) making, using and selling the Designated Product in the Territory
and the use of Horizon Test and Regulatory Data for purposes of complying with
governmental requirements with respect to the Designated Product for marketing
or use in the Territory, and otherwise continue to be governed by the terms
stated in such section. In the event of such a request by Penwest, Horizon
agrees to enter into good faith negotiations with Penwest concerning a
reasonable payment to be made by Penwest to Horizon in consideration of such an
extension.

     11.5 Termination Due to Breach. In the event that either party materially
breaches any of the terms, conditions or agreements contained in this Agreement
to be kept, observed or performed by it, then the other party may terminate this
Agreement, at its option, by giving the party who committed the breach (a) in
the case of breach of obligations other than the payment of money, ninety (90)
days' notice in writing, unless the notified party within such ninety (90) day
period shall have cured the breach, and (b) in the case of breach of an
obligation for the payment of money, thirty (30) days' notice in writing, unless
the notified party within such thirty (30) day period shall have cured the
breach, including any required payment of interest on previously unpaid amounts
as set forth herein; provided, however, that:

          11.5.1 no termination of this Agreement under this Section 11.5 shall
     become effective during the pendency of a good faith dispute between the
     parties as to the existence of grounds for such a termination, provided
     that the parties are complying with the process in Section 12.10 in good
     faith in order to resolve such dispute, and that such termination shall

<PAGE>   26

     become effective immediately upon any binding determination that such
     grounds did exist at the time the notice of termination was given; and

          11.5.2 if a notice of termination is given pursuant to this Section
     11.5 and it is subsequently determined that grounds for such a notice did
     not exist, the giving of such notice shall not itself constitute a
     repudiation or default under this Agreement, so long as such notice was
     given in the good faith belief that such grounds did exist.

No termination of this Agreement under this Section 11.5 shall impair either
party's right to seek other legal or equitable rights or remedies.

     11.6 Deletion of Inventory Following Termination. In the event of any
expiration or termination of this Agreement, Horizon shall be entitled to sell
and distribute reasonable inventories of Designated Product remaining on hand as
of the effective date of such expiration or termination, provided that such
sales and distribution are otherwise in conformance with this Agreement. Horizon
may continue to make, use or sell such Designated Product only until Horizon has
exhausted remaining raw materials in its possession at the time of expiration or
termination of this Agreement. Net Sales of the Designated Product pursuant to
this Section 11.6 shall be subject to the Royalty payment obligations set forth
in Section 5.3.

     11.7 Termination or Assignment of Sublicensees. Any sublicenses granted by
Horizon or its Affiliates under this Agreement shall provide for termination or
assignment to Penwest, at the option of Penwest, of Horizon's or its Affiliate's
interest therein upon expiration or termination of this Agreement.

     11.8 Survival of Terms. Horizon's obligations regarding payment of
Royalties accrued as of the date of expiration or termination of this Agreement,
and the provisions of Sections 7.1, 8, 10, 11 and 12 hereof shall survive any
expiration or termination of this Agreement.

     11.9 Return of Data and Materials. In the event of any termination or
expiration of this Agreement, (a) Horizon shall return to Penwest all Penwest
data and materials and (b) Penwest shall return to Horizon all Horizon data and
materials, except to the extent such Horizon data and materials are necessary to
permit Penwest to fully exercise its retained rights hereunder.

12. Miscellaneous.

     12.1 Furtherance of Agreement. Each of Penwest and Horizon agrees to duly
execute and deliver, or cause to be duly executed and delivered, such further
instruments and cause to be done such further acts and things as are reasonably
within its control and its responsibilities under this Agreement, including,
without limitation, the filing of such additional assignments, agreements,
documents and instruments, that may be necessary or as the other party hereto

<PAGE>   27

may from time to time reasonably request in connection with this Agreement to
carry out more effectively the provisions and purposes of this Agreement.

     12.2 Entire Agreement. This Agreement constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
between the parties hereto with respect to the subject matter hereof.

     12.3 Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their Affiliates, successors and permitted
assigns; provided, however, that except for assignments or delegations to
Affiliates of a party (which shall not release such party from any of its rights
or responsibilities hereunder), or as part of the transfer of all or
substantially all assets to a single buyer or pursuant to a merger, sale of all
or substantially all of such party's stock or any similar transaction, or as
otherwise specifically permitted hereunder, neither party shall assign or
delegate any of its rights or obligations hereunder at any time without the
prior written consent of the other party hereto, which consent shall not be
unreasonably withheld. Penwest's decision with respect to such consent shall be
based on whether, as of the time of the proposed assignment, the proposed
assignee is a Capable Entity. Penwest shall notify Horizon of such decision
within sixty (60) days following Penwest's receipt from Horizon of any written
proposal concerning assignment of this Agreement. Notwithstanding the foregoing,
Horizon shall have the right to assign or delegate any of its rights or
oblations hereunder to Inpharmakon without the prior written consent of Penwest;
provided, however, that (a) any such assignment or delegation to Inpharmakon
shall be limited to Horizon's rights and obligations hereunder with respect to
the Designated Product for use for the Indication, and (b) six (6) months
following such assignment or delegation, (i) such right shall become ineffective
and (ii) Horizon shall terminate any such assignment or delegation, unless
Inpharmakon has entered into an agreement with a Capable Entity for development
of the Designated Product. Horizon shall reimburse Penwest for reasonable
attorneys' fees incurred by Penwest in connection with such assignment to
Inpharmakon, whether or not such assignment remains effective and continues
beyond the end of such six (6) month period. In no event shall Horizon assign
rights hereunder unless the proposed assignee agrees to assume those of
Horizon's obligations hereunder that are relevant to the scope of the proposed
assignment, including but not limited to Horizon's due diligence and
confidentiality obligations and Horizon's obligation to pay milestones. Out of
any Assignment-Related Compensation received by Horizon from any third party,
Horizon shall reimburse Penwest for Penwest's costs incurred in connection with
the development of the Designated Product, except to the extent such costs have
already been reimbursed by Horizon through the payment of milestones hereunder.
For the purposes of this Section 12.3, "Assignment-Related Compensation" shall
mean any payments of any kind whatsoever received by Horizon from a third party
in consideration for, or otherwise in connection with, the assignment of all or
any part of Horizon's rights under this Agreement. In the event that this
Agreement is assigned as part of the sale of all or substantially all of the
assets of Horizon, or Horizon is acquired pursuant to a merger, sale of stock or
similar transaction, then, out of the proceeds from such transaction, Horizon
shall reimburse Penwest for Penwest's costs incurred in connection with the

<PAGE>   28

development of the Designated Product, except to the extent such costs have
already been reimbursed by Horizon through the payment of milestones hereunder.

     12.4 Notices. All notices, requests or other communication provided for or
permitted hereunder shall be given in writing and shall be hand delivered or
sent by facsimile, reputable courier or by registered or certified mail, postage
prepaid, return receipt requested, to the address set forth on the signature
page of this Agreement, or to such other address as either party may inform the
other of in writing. Notices will be deemed delivered on the earliest of
transmission by facsimile, actual receipt or three days after mailing as set
forth herein.

     12.5 Modifications; Waivers. No change, modification, extension,
termination or waiver of any obligation, term or provision contained herein
shall be valid or enforceable unless same is reduced to writing and signed by a
duly authorized representative of each of the parties to be bound hereby. No
waiver of any right in any one instance shall constitute a waiver of that right
or of any other right in other instances under this Agreement.

     12.6 Severability. If any provision of this Agreement shall be held
invalid, illegal or unenforceable, such provision shall be enforced to the
maximum extent permitted by law and the parties' fundamental intentions
hereunder, and the remaining provisions shall not be affected or impaired.

     12.7 Independent Contractors. Nothing herein contained shall constitute
this a joint venture agreement or constitute either party as the partner,
principal or agent of the other, this being an Agreement between independent
contracting entities. Neither party shall have the authority to bind the other
in any respect whatsoever. Except as provided herein, nothing contained in this
Agreement shall be construed as conferring any right on either party to use any
name, trade name, trademark or other designation of the other party hereto,
unless the express, written permission of such other party has been obtained.

     12.8 Force Majeure. In the event that either party hereto is prevented from
carrying out its obligations under this Agreement by events beyond its
reasonable control, including without limitation acts or omissions of the other
party, acts of God or government, natural disasters or storms, fire, political
strife, labor disputes, failure or delay of transportation, default by suppliers
or unavailability of parts, then such party's performance of its obligations
hereunder shall be excused during the period of such event and for a reasonable
period of recovery thereafter, and the time for performance of such obligations
shall be automatically extended for a period of time equal to the duration of
such event or events.

     12.9 Governing Law. This Agreement  shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York without regard to
its conflict of laws rules.
<PAGE>   29

     12.10 Dispute Resolution. Any dispute, controversy, or claim arising out of
or relating to this Agreement or to a breach thereof, including its
interpretation, performance, or termination, other than any dispute, controversy
or claim concerning patent infringement, validity or enforceability, shall be
finally resolved by arbitration. The arbitration shall be conducted by three (3)
arbitrators, one to be appointed by the party initiating the proceeding within
ten (10) days of filing its claim, one to be appointed within thirty (30) days
thereafter by the other party, and the third being nominated by the two
arbitrators so selected within thirty days thereafter or, if they cannot agree
on a third arbitrator, by the President of the American Arbitration Association.
The arbitration shall be conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association, which shall administer the
arbitration, and the laws of the State of New York. The arbitration, including
the rendering of the award, shall take place in New York, New York. The decision
of the arbitrators shall be binding upon the parties to this Agreement, and the
expense of the arbitration (including without limitation the award of the
attorneys' fees to the prevailing party) shall be paid as the arbitrators
determine. The decision of the arbitrators shall be final, and judgment thereon
may be entered by any court of competent jurisdiction. Notwithstanding this,
application may be made to any court for a judicial acceptance of the award or
order of enforcement. In the event of any dispute relating to patent
infringement, validity or enforceability, the parties agree to waive their
respective rights to a jury trial.

     IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and acknowledge this Agreement as of the Effective Date.
This Agreement may be executed in one or more counterparts, each of which shall
be an original instrument, but all of which together shall constitute a single
agreement creating one set of rights and obligations.

Horizon Pharmaceutical Corporation:         Penwest Pharmaceuticals Co.:


By ________________________________         By ________________________________
Brent Dixon                                    Tod R. Hamachek
President                                      Chairman and
                                               Chief Executive Officer

Address:                                       Address:
660 Hembree Parkway                            2981 Route 22
Suite 106                                      Patterson, NY  12563
Roswell, GA 30076                              FAX:  (914) 878-3420
FAX: (770) 442-9594                            Attn: Michael T. Mallon
Attn: Brent Dixon


<PAGE>   30
                                        [***] - CONFIDENTIAL TREATMENT REQUESTED

                                   Exhibit A


                               DESIGNATED PRODUCT


[***] form of a controlled-release pharmaceutical for oral administration in
humans in a 24 hour release form in a [***] strength that (a) combines a racemic
mixture of [***] with TIMERx and other excipients and (b) is eligible for
approval, or has been approved, by the FDA under an NDA.


<PAGE>   31

                                   Exhibit B


                                   NET SALES


     "Net Sales" shall mean gross invoice price for sales by Horizon or its
Affiliates or sublicensees to unrelated third parties ("Customers"), less
deductions for (to the extent such amounts are included in the gross invoiced
sales price for the Designated Product) (a) statutory or contractual liability
for rebates to any governmental entity, rebates paid pursuant to the Medicaid
Rebate legislation, and any state and local governmental rebate programs; (b)
cash discounts generally available at the time of sale; (c) adjustments for
allowances or credits for returned Designated Product, free Designated Product
provided in lieu of discounts or rebates, damaged Designated Product, commercial
rebates, chargebacks, or trade discounts, whether or not paid directly to the
Customer; and (d) sales, excise, turnover, inventory, value-added, and similar
taxes and duties assessed on the sale of Designated Product. Notwithstanding the
foregoing, no discount, allowance, rebate, management fee, wholesaler
chargeback, or any similar amount however designated, that is given or
associated with the purchase by the Customer or its affiliates or associates of
any product other than the Designated Product, or with the purchase or provision
of any service, shall be taken into consideration in calculating any deductions
from the gross invoice. To the extent any of the amounts described in the
immediately preceding sentence are afforded to a Customer prior to the
calculation of the gross invoice price, such gross invoice price shall be
increased to reflect such amounts, solely for purposes of the calculation of Net
Sales under this Agreement. In the case of Designated Product sold to any
customer together with other products or services, the price of such Designated
Product, solely for purposes of the calculation of Net Sales under this
Agreement, shall be deemed to be no less than the price at which Designated
Product would be sold in a similar transaction to a customer not also purchasing
other products or services.


<PAGE>   32

                                        [***] - CONFIDENTIAL TREATMENT REQUESTED



                                   Exhibit C


                                PENWEST PATENTS


<TABLE>
<CAPTION>



U.S. Patent             Date                            Title                   Inventor
Number

<S>                     <C>                             <C>                     <C>
[***]                   [***]                           [***]                   [***]

</TABLE>

<PAGE>   33


                                   Exhibit D


                              PENWEST TRADEMARK(S)


TIMERx(r) Oral Delivery System

<PAGE>   34


                                   Exhibit E

                                 SPECIFICATIONS

                                (to be attached)


<PAGE>   35

                                   Exhibit F

                         DEVELOPMENT TASKS AND SCHEDULE

                                   (attached)

<PAGE>   36
                                        [***] - CONFIDENTIAL TREATMENT REQUESTED

<TABLE>
<CAPTION>

                    TIMERx - [***] Development Plan - DRAFT
                            Effective March 25,1999

ID        Task Name Duration  Start     Finish    December       January   February  March     April
<S>     <C>         <C>       <C>       <C>       <C>            <C>       <C>       <C>       <C>
1         [***]     [***]     [***]                                                            [***]
2         [***]     [***]     [***]                                                            [***]
3         [***]     [***]     [***]                                                            [***]
4         [***]     [***]     [***]                                                            [***]
5         [***]     [***]     [***]                                                            [***]
6         [***]     [***]     [***]                                                            [***]
7         [***]     [***]     [***]                                                            [***]
8         [***]     [***]     [***]                                                            [***]
9         [***]     [***]     [***]                                                            [***]
10        [***]     [***]     [***]                                                            [***]
11        [***]     [***]     [***]                                                            [***]
12        [***]     [***]     [***]                                                            [***]
13        [***]     [***]     [***]                                                            [***]
14        [***]     [***]     [***]                                                            [***]
15        [***]     [***]     [***]                                                            [***]
16        [***]     [***]     [***]                                                            [***]
17        [***]     [***]     [***]                                                            [***]
18        [***]     [***]     [***]                                                            [***]
19        [***]     [***]     [***]                                                            [***]
20        [***]     [***]     [***]                                                            [***]
21        [***]     [***]     [***]                                                            [***]
</TABLE>

<TABLE>

<S>                 <C>       <C>       <C>                 <C>       <C>                 <C>
Project             Task      Graphic   Summary             Graphic   Rolled Up Progress  Graphic
Date:  Thu 3/25/99  Progress  Graphic   Rolled Up Task      Graphic
                    Milestone Graphic   Rolled Up Milestone Graphic
</TABLE>
<PAGE>   37
                                        [***] - CONFIDENTIAL TREATMENT REQUESTED

<TABLE>
<CAPTION>

                    TIMERx - [***] Development Plan - DRAFT
                            Effective March 25,1999

ID        Task Name Duration  Start     Finish    December       January   February  March     April
<S>     <C>         <C>       <C>       <C>       <C>            <C>       <C>       <C>       <C>
22        [***]     [***]     [***]     [***]
23        [***]     [***]     [***]     [***]
24        [***]     [***]     [***]     [***]
25        [***]     [***]     [***]     [***]
26        [***]     [***]     [***]     [***]
</TABLE>







<TABLE>

<S>                 <C>       <C>       <C>                 <C>       <C>                 <C>
Project             Task      Graphic   Summary             Graphic   Rolled Up Progress  Graphic
Date:  Thu 3/25/99  Progress  Graphic   Rolled Up Task      Graphic
                    Milestone Graphic   Rolled Up Milestone Graphic
</TABLE>
<PAGE>   38

<TABLE>

<S>     <C>         <C>       <C>       <C>       <C>            <C>       <C>       <C>
May     June        July      August    September October        November  December  January


</TABLE>




<TABLE>

<S>                 <C>       <C>       <C>                 <C>       <C>                 <C>
Project             Task      Graphic   Summary             Graphic   Rolled Up Progress  Graphic
Date:  Thu 3/25/99  Progress  Graphic   Rolled Up Task      Graphic
                    Milestone Graphic   Rolled Up Milestone Graphic
</TABLE>
<PAGE>   39


<TABLE>

<S>     <C>         <C>       <C>       <C>       <C>            <C>       <C>       <C>
May     June        July      August    September October        November  December  January


</TABLE>




<TABLE>

<S>                 <C>       <C>       <C>                 <C>       <C>                 <C>
Project             Task      Graphic   Summary             Graphic   Rolled Up Progress  Graphic
Date:  Thu 3/25/99  Progress  Graphic   Rolled Up Task      Graphic
                    Milestone Graphic   Rolled Up Milestone Graphic
</TABLE>
<PAGE>   40


<TABLE>

<S>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
February  March     April     May       June      July      August    September October   November


</TABLE>




<TABLE>

<S>                 <C>       <C>       <C>                 <C>       <C>                 <C>
Project             Task      Graphic   Summary             Graphic   Rolled Up Progress  Graphic
Date:  Thu 3/25/99  Progress  Graphic   Rolled Up Task      Graphic
                    Milestone Graphic   Rolled Up Milestone Graphic
</TABLE>
<PAGE>   41
<TABLE>
<CAPTION>

<S>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
February  March     April     May       June      July      August    September October   November


</TABLE>




<TABLE>

<S>                 <C>       <C>       <C>                 <C>       <C>                 <C>
Project             Task      Graphic   Summary             Graphic   Rolled Up Progress  Graphic
Date:  Thu 3/25/99  Progress  Graphic   Rolled Up Task      Graphic
                    Milestone Graphic   Rolled Up Milestone Graphic
</TABLE>
<PAGE>   42

                                        [***] - CONFIDENTIAL TREATMENT REQUESTED

                                   Exhibit G


                                 MINIMUM SALES


The "Minimum Sales" shall be equal to the level of Net Sales of the Designated
Product for each of the years following the Approval Date set forth in the table
below.




               Year                     Minimum Sales
               1                        [***] U.S. dollars
                                        (US$[***])

               2                        [***] U.S. dollars
                                        (US$[***])

               3                        [***] U.S. dollars
                                        (US$[***])

               4 and each               [***] U.S. dollars
               subsequent year          (US$[***])