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                                                                  EXHIBIT 4.5(e)

                               DATED JULY 14, 2004

                                  US$50,000,000

                                 LOAN AGREEMENT

                                     BETWEEN

                                  VERNALIS PLC

                                    AS PARENT

                          VERNALIS DEVELOPMENT LIMITED

                                   AS BORROWER

                                       AND

                            ENDO PHARMACEUTICALS INC.

                                    AS LENDER

                    SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
                                 4 TIMES SQUARE
                               NEW YORK, NY 10036

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THIS AGREEMENT (this "AGREEMENT") is made the 14th day of July, 2004.

BETWEEN:

(1)   VERNALIS PLC a limited liability company incorporated in England and Wales
      with its registered office at Oakdene Court, 613 Reading Road, Winnersh,
      Wokingham, Berkshire RG41 5UA, United Kingdom (the "PARENT");

(2)   VERNALIS DEVELOPMENT LIMITED a limited liability company incorporated in
      England and Wales with its registered office at Oakdene Court, 613 Reading
      Road, Winnersh, Wokingham, Berkshire RG41 5UA, United Kingdom ("VDL"); and

(3)   ENDO PHARMACEUTICALS INC. whose principal place of business is at 100
      Painters Drive, Chadds Ford, PA 19317, USA ("ENDO").

WHEREAS Endo has agreed to make available to VDL a loan (the "LOAN") in
accordance with the terms hereof. VDL agrees, inter alia, to grant Endo security
over the Secured Assets in accordance with the terms of the Security Agreement
as a condition precedent to Endo agreeing to advance the Loan.

IT IS AGREED AS FOLLOWS:

1.    DEFINITIONS AND INTERPRETATION

1.1   DEFINITIONS

      In this Agreement:

      "ACT" means the Companies Act 1985, a United Kingdom statute.

      "ADVANCE" means the single drawing under this Agreement or (as the context
      requires) the aggregate of (i) the principal amount outstanding under this
      Agreement; and (ii) the aggregate of all Deemed Advances made available
      under this Agreement and then outstanding.

      "AVAILABILITY PERIOD" means the period from the date hereof, and ending on
      the earlier of (i) 30 days after the Closing Date (as that expression is
      defined in the License Agreement) and (ii) the date on which the License
      Agreement is terminated pursuant to clause 2.2 of the License Agreement.

      "BUSINESS DAY" means a day (other than a Saturday, Sunday or public
      holiday) on which banks are customarily open for business in London and
      New York.

      "CAPITAL STOCK" means any and all shares, interests, participations,
      rights or other equivalents (however designated) of corporate stock,
      including, without limitation, partnership interests.

      "CERTIFIED COPY" means a copy, certified to be a true, complete and
      up-to-date copy by or on behalf of the Parent and/or VDL (as the case may
      be) and the term "CERTIFIED COPIES" shall be construed accordingly.

      "CHANGE OF CONTROL" means a situation where any person or group of persons
      acting in concert obtains control of the Parent where:

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      (a)   "acting in concert" has the meaning given to it in the City Code on
            Takeovers and Mergers; and

      (b)   "control" has the meaning given to it in section 416 of the Income
            and Corporations Taxes Act of 1988, a United Kingdom statute.

      "DEFAULT" means an Event of Default or a Potential Event of Default.

      "DEEMED ADVANCE" means, on any Interest Payment Date (as defined in Clause
      5.1.1) an amount equal to the interest accrued on the Advance but unpaid
      on that Interest Payment Date.

      "DRAWDOWN DATE" has the meaning given to that term in Clause 4(a).

      "DRAWDOWN NOTICE" means a drawdown notice in the form set out in
      Schedule 1.

      "ELAN OUTSTANDING LIABILITY" means the aggregate of all amounts owing
      (whether or not then due) to Elan Pharma International Limited by either
      or both of the Parent and VDL at the Drawdown Date.

      "ENDO" has the meaning given to that term in the preamble.

      "ENDO GROUP" means Endo, any person that holds 20% or more of the equity
      share capital of Endo and any direct or any indirect subsidiary of Endo
      (as such terms are defined in the Act).

      "EVENT OF DEFAULT" means any of the events specified in Clause 10.1.

      "EXISTING FLOATING CHARGE" means the floating charge dated 18 May 2004 and
      entered into between Elan Pharma International Limited and VDL.

      "FACILITY AMOUNT" has the meaning given to it in Clause 3.1.

      "FINAL REPAYMENT DATE" means the fifth anniversary of the date hereof;
      provided, that if prior to the fifth anniversary of the date hereof the
      License Agreement is terminated either (i) by VDL, exercising its rights
      as a Terminating Party under (and as that expression is defined in) Clause
      17.2 of the License Agreement or (ii) by Endo on expiry of twelve (12)
      months' notice given under Clause 17.3 of the License Agreement, the Final
      Repayment Date shall mean the fifth anniversary of the date hereof or, if
      later, the earlier of (x) the date falling five (5) years and six (6)
      months after the date hereof and (y) the date falling twelve (12) months
      after the date on which the License Agreement is terminated.

      "FINANCE DOCUMENTS" means each of this Agreement, the Security Agreement,
      a Drawdown Notice, any document executed by VDL pursuant to Clause 7(r),
      any notice or other document given under the Security Agreement and any
      other document designated as a "Finance Document" by Endo and VDL.

      "GROUP" means the Parent, VDL and each of its other subsidiaries from time
      to time.

      "INSOLVENCY EVENT" means in relation to any person, each of the following:

      (a)   Such person is unable or admits inability to pay its debts as they
            fall due or is deemed to or declared to be unable to pay its debts
            under applicable law, suspends or threatens to suspend making
            payments on any of its debts or, by reason of actual or

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            anticipated financial difficulties, commences negotiations with one
            or more of its creditors with a view to rescheduling any of its
            indebtedness.

      (b)   The value of the assets of that person is less than its liabilities
            (taking into account contingent and prospective liabilities).

      (c)   A moratorium is declared in respect of any indebtedness of that
            person. If a moratorium occurs, the ending of the moratorium will
            not remedy any Event of Default caused by that moratorium.

      (d)   Any corporate action, legal proceedings or other procedure or step
            is taken in relation to:

            (i)   the suspension of payments, a moratorium of any indebtedness,
                  winding-up, dissolution, administration or reorganisation (by
                  way of voluntary arrangement, scheme of arrangement or
                  otherwise) of that person other than a solvent liquidation or
                  reorganisation of any person which is not an Obligor;

            (ii)  a composition, compromise, assignment or arrangement with any
                  creditor of that person;

            (iii) the appointment of a liquidator (other than in respect of a
                  solvent liquidation of a person which is not an Obligor),
                  receiver, administrative receiver, administrator, compulsory
                  manager or other similar officer in respect of that person or
                  any of its assets; or

            (iv)  enforcement of any security over any assets of that person,

            or any analogous procedure or step is taken in any jurisdiction.

      (e)   Paragraph (d) shall not apply to any winding-up petition which is
            frivolous or vexatious and is discharged, stayed or dismissed within
            14 days of commencement or, if earlier, the date on which it is
            advertised; or

      (f)   Any expropriation, attachment, sequestration, distress or execution
            or any analogous process in any jurisdiction affects any asset or
            assets of that person having an aggregate value of $500,000 and is
            not discharged within 7 days.

      "INTEREST RATE" means five percent (5%) per annum.

      "LICENSE AGREEMENT" means the License Agreement entered into between VDL
      and Endo on the date hereof in the agreed form.

      "LISTING RULES" means the listing rules of the UK Listing Authority.

      "MAM APPROVAL DATE" means the date of receipt of the Marketing
      Authorization in the USA of the Product for MAM (each term as defined in
      the License Agreement).

      "MAM APPROVAL DATE PREPAYMENT AMOUNT" has the meaning given to that term
      in Clause 3.3(b).

      "MATERIAL ADVERSE EFFECT" means, subject to the provisions of Clause 3.6,
      a material adverse effect on:

      (a)   the business, operations, property or financial condition of the
            Obligors taken as a whole (after taking into account the status of
            the Obligors as biotechnology

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            companies having regard to their earnings since the first date of
            the period covered by the most recently published audited annual
            accounts of an Obligor and the ability to access capital markets
            they have at the time this definition is applied); or

      (b)   the ability of an Obligor to perform its obligations under the
            Finance Documents; or

      (c)   the validity or enforceability of, or the effectiveness or ranking
            of any security granted or purporting to be granted pursuant to any
            of the Finance Documents or the rights or remedies of Endo under any
            of the Finance Documents.

      "MILESTONE PAYMENTS" means the payment pursuant to Section 11.5.1 of the
      License Agreement.

      "NET DISPOSAL PROCEEDS" has the meaning given to that term in Clause
      3.3(c).

      "OBLIGATIONS" means all present and future obligations (whether actual or
      contingent) of VDL to Endo under the Finance Documents.

      "OBLIGORS" means the Parent and/or VDL, and "OBLIGOR" shall be construed
      accordingly.

      "PAYMENT DATE" has the meaning given to that term in Clause 3.3(a).

      "PERMITTED LIEN" means:

      (a)   liens for Taxes provided such Taxes are not overdue;

      (b)   liens arising by operation of law in the ordinary course of trading
            or day to day business in whatever jurisdiction and statutory liens
            of landlords and liens of carriers, warehousemen, mechanics,
            materialmen and other similar liens, in each case, incurred in the
            ordinary course of business, provided such liens are not securing
            any amount more than 30 days overdue;

      (c)   any security arising under the Security Agreement;

      (d)   any right of a bank to set-off deposits against debts owed to such
            bank existing as a matter of law or arising pursuant to any
            agreement customarily entered into by such bank and its depositors
            in connection with a cash management scheme;

      (e)   any title transfer or retention of title arrangement entered into by
            VDL in the normal course of its trading activities on the
            counterparty's standard or usual terms;

      (f)   any security created or subsisting with the prior consent of Endo;

      (g)   up to and including the Drawdown Date, the Existing Floating Charge;
            and

      (h)   the mortgage on VDL's property at Watlington Road, Oxford OX4 6LY
            England (the "MORTGAGED REAL ESTATE") in favour of Canada Life
            Assurance Company, provided that the amount secured thereby does not
            exceed (pound)2 million at any time, recourse in respect of such
            debt is just to the Mortgaged Real Estate and such mortgage is
            discharged and released and the debt which it secures is repaid in
            full out of (i) the proceeds of the disposal of the Oxford Property
            plus (ii) not more than (pound)500,000 from other resources.

      "POTENTIAL EVENT OF DEFAULT" means any event or circumstance which, with
      the giving of notice, lapse of time or making of any determination, would
      become an Event of Default.

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      "QUALIFYING LENDER" means a company which at the time the payment is made
      is beneficially entitled to the interest payable to it under the Finance
      Documents and is entitled under a double taxation agreement in force at
      that date (subject only to the completion of any necessary formalities or
      administrative procedures, (including, without limitation, the matters
      referred to in Clause 12.3(c)) to receive any payments of interest under
      the Finance Documents without a Tax Deduction.

      "RELEVANT ASSETS" means the Vernalis IP (as defined in the License
      Agreement) and the payments to be made by Endo to VDL pursuant to Clause
      11 of the License Agreement.

      "ROYALTY PAYMENT" has the meaning given to that term in Clause 3.3(a).

      "SATISFACTORY PURCHASER" has the meaning given to that term in Clause
      3.3(e).

      "SECURITY AGREEMENT" means the security deed to be entered into between
      VDL and Endo in the form set out in Schedule 2 as a condition precedent to
      Endo making the Advance.

      "SECURED ASSETS" means the assets subject to the security constituted by
      the Security Agreement.

      "TAX" means any tax, levy, impost, duty, or other fee, charge or
      withholding of a similar nature (including any penalty or interest payable
      in connection with any failure to pay or any delay in paying the same),
      and "Taxes" and "Taxing" shall be construed accordingly.

      "TAX DEDUCTION" means a withholding or deduction for or on account of Tax.

      "TERM" means the period beginning on the date hereof and ending on the
      date on which all amounts outstanding under the Finance Documents are
      repaid.

      "TRANSACTION DOCUMENTS" means each of the Finance Documents and the
      License Agreement.

      "UK LISTING AUTHORITY" means the Financial Services Authority acting in
      its capacity as the competent authority for the purposes of Part VI of the
      Financial Services and Markets Act 2000, a United Kingdom statute.

      "VDL" has the meaning given to that term in the preamble.

1.2   HEADINGS

      In this Agreement, the headings shall not affect its interpretation and
      are for ease of reference only.

1.3   INTERPRETATION

      In this Agreement (unless otherwise provided):

      (a)   words importing the singular shall include the plural and vice
            versa;

      (b)   words importing one gender shall include all genders;

      (c)   references to Clauses and Schedules are to be construed as
            references to the Clauses of, and Schedules to, this Agreement
            unless otherwise specifically provided;

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      (d)   references to this Agreement or any other document shall be
            construed as references to this Agreement or that other document, as
            amended, varied, novated or supplemented from time to time;

      (e)   references to any statute or statutory provision include any statute
            or statutory provision which amends, extends, consolidates or
            replaces the same, or which has been amended, extended, consolidated
            or replaced by the same, and shall include any orders, regulations,
            instruments or other subordinate legislation made under the relevant
            statute;

      (f)   the words "INCLUDING" and "IN PARTICULAR" shall be construed as
            being by way of illustration or emphasis only and shall not be
            construed as, nor shall they take effect as, limiting the generality
            of any preceding words;

      (g)   the words "OTHER" and "OTHERWISE" shall not be construed ejusdem
            generis with any foregoing words where a wider construction is
            possible;

      (h)   references to a person shall be construed so as to include that
            person's assigns, transferees or successors in title and shall be
            construed as including references to an individual, firm,
            partnership, joint venture, company, corporation, body corporate,
            unincorporated body of persons or any state or any agency of a
            state;

      (i)   references to a "DRAWING" are to the drawing of the Advance under
            this Agreement;

      (j)   references to a document in "AGREED FORM" are to the form of the
            relevant document which has been initialled for the purposes of
            identification by or on behalf of Endo and VDL on or prior to the
            date of this Agreement;

      (k)   the terms "SUBSIDIARY" and "HOLDING COMPANY" have the meaning
            ascribed thereto in the Act;

      (l)   "INDEBTEDNESS" means any indebtedness for or in respect of:

            (i)   moneys borrowed;

            (ii)  any amount raised by acceptance under any acceptance credit
                  facility;

            (iii) any amount raised pursuant to any note purchase facility or
                  the issue of bonds, notes, debentures, loan stock, preferred
                  stock, redeemable stock or any similar instrument;

            (iv)  the amount of any liability in respect of any lease or hire
                  purchase contract which would, in accordance with generally
                  accepted accounting principles in England, be treated as a
                  finance or capital lease;

            (v)   receivables sold or discounted (other than any receivables to
                  the extent they are sold on a non-recourse basis);

            (vi)  any amount raised under any other transaction (including any
                  forward sale or purchase agreement) having the commercial
                  effect of a borrowing;

            (vii) for the purposes of Clause 10.1(g) only, any derivative
                  transaction entered into in connection with protection against
                  or benefit from fluctuation in any rate or price (and, when
                  calculating the value of any derivative transaction, only the

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                  marked to market value shall be taken into account);

            (viii) any counter-indemnity obligation in respect of a guarantee,
                   indemnity, bond, standby or documentary letter of credit or
                   any other instrument issued by a bank or financial
                   institution; and

            (ix)   the amount of any liability in respect of any guarantee or
                   indemnity for any of the items referred to in paragraphs (i)
                   to (viii) inclusive above.

      (m)   "LIEN" shall have the meaning given to that expression by English
            law.

      (n)   "SECURITY" means mortgage, charge, pledge, lien or other security
            interest securing any obligation of any person or any other
            agreement or arrangement having a similar effect;

      (o)   "ASSETS" includes present and future properties, revenues and rights
            of every description; and

      (p)   "US$" and "DOLLARS" shall mean the lawful currency of the United
            States of America ("USA").

2.    CONDITIONS PRECEDENT

2.1   CONDITIONS PRECEDENT - GENERAL

      The obligations of Endo with respect to the making of the Advance
      hereunder are subject to the conditions precedent that Endo shall have
      received the following in form and substance reasonably satisfactory to
      it:

      (a)   an original copy of this Agreement duly signed by VDL and the
            Parent;

      (b)   Certified Copies of each of the Parent's and VDL's certificate of
            incorporation, certificate of incorporation on change of name (if
            any) and Memorandum and Articles of Association;

      (c)   Certified Copies of the resolutions of each of the Parent's and
            VDL's board of directors authorising the execution and delivery of
            the Transaction Documents to which it is a party and the performance
            of the transactions contemplated thereby;

      (d)   written confirmation from Elan Pharma International Limited dated no
            earlier than the Drawdown Date of the amount of the Elan Outstanding
            Liability (being an amount less than the Facility Amount), of the
            account details to which such payment should be made, and that upon
            payment of such amount the Existing Floating Charge shall be
            immediately discharged and released;

      (e)   a deed of discharge and release in respect of the Existing Floating
            Charge executed by Elan Pharma International Limited held to its
            order on terms that are reasonably satisfactory to Endo but which in
            any event are irrevocable and provide for the automatic and
            immediate release and delivery of the deed of discharge to VDL upon
            payment of the amount referred to in paragraph 2.1(d);

      (f)   two originals of the Security Agreement, duly executed and delivered
            by VDL, and the security constituted by the Security Agreement being
            in full force and effect and perfected in accordance with its terms;

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      (g)   two originals of the License Agreement, duly executed by VDL;

      (h)   a certificate from an officer of VDL confirming that the Closing
            Date under and as defined in the License Agreement has occurred;

      (i)   evidence that, VDL will discharge all Elan Outstanding Liability out
            of the Advance (which evidence may take the form of an appropriately
            completed Drawdown Notice);

      (j)   a Certified Copy of the most recently prepared consolidated monthly
            management accounts of, the Parent (comprising at least a balance
            sheet, income statement and cash flow statement for such month and
            the year to date);

      (k)   legal opinions from Morrison & Foerster MNP and Morrison & Foerster
            LLP, (respectively) counsel to VDL and the Parent, in respect of the
            Finance Documents; and

      (l)   an ordinary resolution of the shareholders of VDL authorizing the
            Advance.

2.2   FURTHER CONDITIONS PRECEDENT TO THE ADVANCE

      The obligations of Endo with respect to the making of the Advance under
      this Agreement are subject to the further conditions precedent that:

      (a)   Endo shall have received a duly completed Drawdown Notice; and

      (b)   both at the date of the relevant Drawdown Notice and the Drawdown
            Date:

            (i)   the matters represented and warranted by each Obligor in
                  Clause 6 are true and correct at that time as if made at that
                  time and will be true and correct immediately after the
                  drawing has been made;

            (ii)  no Default has occurred and is continuing; and

            (iii) the principal amount of the proposed drawing, does not exceed
                  the Facility Amount.

3.    AMOUNT, REPAYMENT, CANCELLATION AND PURPOSE

3.1   FACILITY AMOUNT

      The aggregate principal amount available to be drawn under this Agreement
      is US$50,000,000 (fifty million Dollars) (the "FACILITY AMOUNT"). In
      addition to the Facility Amount, Endo shall also make the Deemed Advances
      available to VDL but only on the basis set out in Clause 5.

3.2   REPAYMENT

      The Advance shall be repaid in full on or before the Final Repayment Date.
      Voluntary repayments are permitted in whole or in part without premium,
      make-whole or penalty.

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3.3   MANDATORY PREPAYMENT AND SET-OFF

      (a)   Endo may, by written notice to VDL at least five (5) Business Days
            prior to any payment pursuant to clause 11.9 of the License
            Agreement (a "ROYALTY PAYMENT") require VDL to make a mandatory
            prepayment of all or any part of the Advance on the date such
            Royalty Payment is due under the License Agreement (each a "PAYMENT
            DATE"), in an amount (the "MANDATORY PREPAYMENT AMOUNT") not greater
            than fifty percent (50%) (or, following the occurrence of a Material
            Adverse Effect, not greater than seventy five percent (75%)) of the
            Royalty Payment then due on that date. VDL and Endo agree that any
            Mandatory Prepayment Amount then due on such Payment Date from VDL
            shall be set-off against and reduce the Royalty Payment then due by
            Endo to VDL, the balance of which Royalty Payment shall be paid to
            VDL or otherwise dealt with in accordance with the terms of the
            License Agreement or as those parties shall have otherwise agreed.

      (b)   On the MAM Approval Date, if Endo so requires by giving not less
            than five (5) Business Days written notice to VDL, VDL shall be
            required to make a mandatory prepayment of an amount not greater
            than fifty percent (50%) (or, following the occurrence of a Material
            Adverse Effect, not greater than seventy five percent (75%)) of the
            Milestone Payment due on such date pursuant to Clause 11.5 of the
            License Agreement (the "MAM APPROVAL DATE PREPAYMENT AMOUNT"). VDL
            and Endo agree that the MAM Approval Date Prepayment Amount then due
            to Endo from VDL shall be set-off against and reduce the amounts
            then due by Endo to VDL as the Milestone Payment due on the MAM
            Approval Date and the balance of any such moneys then due and
            payable by Endo to VDL shall be paid to VDL or otherwise dealt with
            in accordance with the terms of the License Agreement or as those
            parties shall have otherwise agreed.

      (c)   Without prejudice to any other provisions of the Finance Documents,
            VDL and the Parent shall apply fifty percent (50%) of all Net
            Disposal Proceeds in mandatory prepayment of the Advance and all
            other sums outstanding under the Finance Documents immediately upon
            receipt of the same by any member of the Group. For these purposes:

            "NET DISPOSAL PROCEEDS" means all cash and other consideration (and
            in respect of non-cash consideration, the market value thereof shall
            be taken into account) including the assumption or repayment of debt
            paid to or to the order of any member of the Group in connection
            with an MP Disposal by it less any costs, expenses and taxes
            incurred to persons other than members of the Group in connection
            with such MP Disposal which are documented and reasonably and
            properly incurred and which are customary in nature and amount for
            such type of disposal; and

            "MP DISPOSAL" means any voluntary or involuntary sale, lease,
            transfer or other disposal of any asset of any member of the Group
            save for (i) the granting of intellectual property licenses in the
            ordinary course of business, (ii) a disposal of the type permitted
            by Clause 7(l), (iii) the disposal of VDL's property at Watlington
            Road, Oxford OX4 6LY England, (iv) MP Disposals not referred to in
            paragraphs (i)-(iii) where the aggregate Net Disposal Proceeds of
            all such MP Disposals in any financial year does not exceed $1
            million provided that, for the avoidance of doubt, only such excess
            shall be taken into account for the purposes of this Clause 3.3(c),
            and (v) any disposition where the provisions of Clause 3.3(e) apply.

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      (d)   If VDL defaults in the payment of any amount of principal or
            interest or otherwise on the due date for such payment, Endo may,
            without prejudice to any other remedy which may be available to it,
            reduce any amounts owing or due to be made by Endo under the License
            Agreement by an amount equal to the amount in default, and, so long
            as no Event of Default is outstanding, Endo agrees to notify VDL in
            writing promptly upon so doing.

      (e)   Immediately upon the occurrence of the sale of the whole or
            substantially the whole of the Group's or VDL's business and assets
            other than to a single Satisfactory Purchaser (in which event the
            terms of Clause 3.3(c) shall not apply and no payment otherwise
            required thereby shall be due), Endo's commitment hereunder shall be
            cancelled in full and VDL shall repay the Advance in full together
            with interest thereon and all other amounts accrued and owing by the
            Obligors under the Finance Documents.

            A "SATISFACTORY PURCHASER" shall mean a company which:

            (i)   having regard to all the circumstances, including its assets
                  and liabilities (actual and contingent), has, and provides,
                  Endo with evidence that such company has a credit worthiness
                  such that its ability to meet the payment obligations under
                  the Finance Documents is at least equal to that of VDL and the
                  Parent, and

            (ii)  (x) acquires all rights and obligations in respect of the
                  Relevant Assets and acquires all VDL's rights and obligations
                  under the License Agreement, this Agreement and the other
                  Finance Documents, (y) expressly confirms (and executes such
                  documents as Endo reasonably requires to evidence) (1) the
                  continuation or novation of all the terms of such Transaction
                  Documents (including any principles of set-off), and (2) that
                  the security over the Secured Assets survives and remains
                  unaffected by the acquisition or is replaced with
                  substantially equivalent security over the Secured Assets with
                  the Satisfactory Purchaser as grantor of such replacement
                  security (or with such variations as Endo reasonably agrees)
                  (and with Endo being satisfied that any such new security will
                  not be subject to any "hardening" or "suspect" periods (as
                  those expressions are generally understood by United Kingdom
                  insolvency practitioners)), and (z) provides Endo with such
                  opinion of outside counsel as Endo reasonably requires (in
                  form and content reasonably satisfactory to Endo) confirming
                  the corporate status of such acquiring company, the legality,
                  validity, binding effect and enforceability of the Transaction
                  Documents (or replacements thereof) on the acquiring company,
                  and that the continuation of the security remains unaffected
                  by the acquisition or (in the case of the replacement of such
                  security) that the new security provides substantially
                  equivalent security over the Secured Assets; and Endo has
                  received satisfactory legal advice that its rights to set-off
                  are not adversely affected by such acquisition;

            provided that if there is any dispute as to whether a person meets
            the test in paragraph (i) of the definition of a "Satisfactory
            Purchaser", such matter shall be referred to a "Panel" (as defined
            in Clause 3.6 below) and a person shall only be regarded as
            satisfying the test in paragraph (i) above once the Panel has so
            determined and for

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            these purposes, the procedures specified in Clause 3.6 for
            determining a Material Adverse Effect shall apply mutatis mutandis
            (with the procedure being capable of being started by either VDL or
            Endo) save that under all circumstances the fees and expenses shall
            be paid by VDL;

      (f)   No Advance prepaid may be re-drawn. Notice of prepayment is
            irrevocable.

3.4   CANCELLATION

      For the avoidance of doubt, VDL shall not be permitted to draw down any
      undrawn portion of the Facility Amount following the expiry of the
      Availability Period, and thereafter, Endo shall have no obligation to make
      any further advances hereunder.

3.5   PURPOSE

      VDL shall use the proceeds of the Advance first to discharge all Elan
      Outstanding Liability and thereby effect a release and discharge of the
      Existing Floating Charge and, thereafter, the balance for general
      corporate purposes.

3.6   PANEL

      As used herein, the term "EXPERT" means the London branch or office of an
      independent investment bank regulated in both the United States and the
      United Kingdom with specific expertise in both the United States and
      United Kingdom capital markets for biotechnology and pharmaceutical
      companies.

      If Endo believes that events constituting a Material Adverse Effect have
      occurred and are continuing, or if there is a dispute as to whether a
      person is a "Satisfactory Purchaser", Endo shall promptly notify VDL
      making express reference to this Clause 3.6, and provide a written
      explanation in reasonable detail of the basis therefor to VDL. Unless VDL
      acknowledges that it agrees with Endo, both VDL and Endo shall arrange for
      an in-person meeting or a telephone conference call between their
      respective presidents or chief executive officers or officers of similar
      status within five (5) Business Days after VDL's receipt of such notice.
      If following such meeting or call, the parties continue to disagree, each
      of Endo and VDL shall, within five (5) Business Days after such meeting,
      by giving written notice to the other party, propose a party as an
      "Expert". The Endo Expert and the VDL Expert shall together choose a third
      Expert and all decisions shall be made by a majority of the three Experts
      so chosen (the three Experts, are hereinafter referred to as the "PANEL").
      The Panel shall be provided with such information as it shall reasonably
      request, subject to applicable confidentiality restrictions. The Panel
      shall be instructed to make a decision as to whether a Material Adverse
      Effect shall have occurred as soon as reasonably practicable after
      receiving all relevant data and information, but in any event not more
      than fourteen (14) days after its engagement. The Panel shall be
      instructed to give a full written explanation of its decision. All
      communications between the parties hereto and the Panel shall be made in
      writing and a copy thereof provided simultaneously to the other parties
      hereto. No meeting between the Panel and the parties hereto shall take
      place unless all the parties have a reasonable opportunity to attend such
      meeting. Except as set forth in Clause 3.3(e), all fees and expenses of
      the Panel shall be paid by Endo, provided that if the Panel determines
      that a Material Adverse Effect has occurred, all such fees and expenses
      shall be paid by VDL.

4.    DRAWING

      Subject to Clause 2:

                                      -11-
<PAGE>

      (a)   VDL may make a drawing under this Agreement on one Business Day
            during the Availability Period, provided that VDL shall inform Endo
            of such proposed date of drawing (the "DRAWDOWN DATE"), by delivery
            to Endo of a Drawdown Notice by no later than 11.00 a.m. on the
            fifth Business Day prior to the Drawdown Date. Once notice has been
            given it may not be revoked and shall oblige VDL to borrow the
            stated amount on the Drawdown Date specified in the Drawdown Notice;

      (b)   the drawing shall be in a single amount not exceeding US$50,000,000
            (fifty million Dollars); and

      (c)   only one drawing may be made.

5.    INTEREST AND COMMITMENT FEES

5.1   INTEREST RATE

      5.1.1 Interest shall accrue at the Interest Rate on the principal amount
            drawn down plus the aggregate amount of Deemed Advances made
            available under Clause 5.1.2 below. Interest will be paid
            semi-annually in arrear on each 31 July and 31 January throughout
            the Term (each an "INTEREST PAYMENT DATE"), provided that accrued
            interest on the Advance shall be paid on the Final Repayment Date or
            the date on which the Advance is prepaid in full, if earlier, in
            respect of the period from the most recent Interest Payment Date to
            the date of such repayment or prepayment. Interest shall accrue from
            day to day and shall be calculated on the basis of a year of 365
            days and for the actual number of days elapsed.

      5.1.2 Subject as provided elsewhere in this Agreement, provided VDL has
            given Endo written notice (the "DEEMED ADVANCE NOTICE") of its
            intention to exercise its option under this Clause 5.1.2 at least
            five (5) Business Days before the relevant Interest Payment Date,
            Endo shall (subject always to the provisions of Clauses 5.1.3 and
            5.1.4) make to VDL on the relevant Interest Payment Date a Deemed
            Advance in an amount equal to the amount of interest accrued under
            Clause 5.1.1 above but unpaid on that Interest Payment Date (such
            interest being "ACCRUED INTEREST").

      5.1.3 Each Deemed Advance is made available on its relevant Interest
            Payment Date subject to satisfaction of each of the following
            conditions:

            (a)   the Deemed Advance shall be applied only by way of set-off
                  against the Accrued Interest due on that Interest Payment Date
                  (which application is irrevocably authorized by VDL); and

            (b)   notwithstanding anything else contained in the Finance
                  Documents, Endo shall not be required to make any part of any
                  Deemed Advance available by the disbursement of money or
                  otherwise than by set-off as referred to in 5.1.3(a); and

            (c)   no Event of Default has occurred and is outstanding on the
                  relevant Interest Payment Date.

      5.1.4 If any of the conditions in Clause 5.1.3 are not met in respect of a
            Deemed Advance on an Interest Payment Date (including, for the
            avoidance of doubt, if for any reason the set-off arrangements
            described therein are not effective), the provisions of Clause 5.1.2
            shall not apply and the Deemed Advance shall not be made available.

                                      -12-
<PAGE>

5.2   DEFAULT INTEREST

      5.2.1 If VDL fails to pay any amount payable by it under this Agreement,
            VDL shall pay default interest on an Advance to Endo from the due
            date to the date of actual payment (but exclusive of such dates) in
            full before, as well as after, judgment at the rate per annum of the
            Interest Rate plus one percent (1%).

      5.2.2 So long as the default set out in Clause 5.2.1 continues, unpaid
            interest then payable but unpaid under this Clause shall be
            compounded quarterly but shall remain payable on demand.

6.    REPRESENTATIONS AND WARRANTIES

6.1   REPRESENTATIONS AND WARRANTIES

      Each Obligor represents and warrants on the date of this Agreement and
      (other than in respect of 6.1(h), which representation shall be repeated
      in respect of those accounts delivered pursuant to Clauses 2.1(k) and 7
      only on the date of delivery of such accounts) on each Interest Payment
      Date throughout the period of the Term in relation to which a Deemed
      Advance Notice has been given that:

      (a)   it is and will remain a company duly incorporated under the laws of
            England and Wales, validly existing and having full corporate
            capacity to carry on its business as conducted at any time, to own
            its assets, to enter into and perform its obligations under each of
            the Transaction Documents to which it is a party which constitute
            and will constitute its legal, valid and binding obligations, and to
            incur the indebtedness contemplated by this Agreement;

      (b)   it has obtained and shall maintain in effect all necessary
            corporate, shareholder and other authorisations and all other
            necessary consents, licenses, exemptions and authorisations in
            connection with the Transaction Documents to which it is a party;

      (c)   execution of this Agreement, execution and delivery of the Security
            Agreement and the utilisation of the Facility Amount and the
            performance of its obligations under the Transaction Documents to
            which it is a party does not and shall not constitute a default
            (howsoever described) or a breach of any law or regulation or of its
            memorandum and articles of association or of any limitation on the
            powers of its directors or of the terms of any charge, agreement,
            undertaking or restriction to which it is a party or which is
            binding on it;

      (d)   no Default has occurred and is continuing;

      (e)   it is not in default under any agreement to which it is a party or
            which is binding upon it or any of its assets which is reasonably
            likely to have a material and adverse effect on its business,
            financial condition, assets or its ability to perform its
            obligations under this Agreement;

      (f)   no litigation, arbitration or proceeding is taking place, pending,
            or to the best of the its knowledge and belief, threatened in
            writing against it or any of its assets which is reasonably likely
            to be adversely determined against it and which if adversely
            determined would have a material and adverse effect on its ability
            to perform its obligations under the Transaction Documents or its
            assets, financial condition or prospects; provided, that when
            repeated, this representation and warranty shall be repeated as if
            the words "or prospects" were deleted;

                                      -13-

<PAGE>

      (g)   it has taken no action, and no steps have been taken or legal
            proceedings started or (to the actual knowledge of any of its
            directors) threatened against it, for an administration or
            winding-up order to be made against it or for its dissolution or
            reorganisation or for the appointment of a receiver, administrative
            receiver, administrator, liquidator, supervisor, trustee or similar
            officer over, or for the taking into possession or enforcement of
            security by any person, mortgagee or chargee in respect of, all or
            any part of its assets, undertaking or revenues nor has any
            analogous event occurred in any jurisdiction nor (to the actual
            knowledge of any of its directors) are there any circumstances which
            would entitle any person or the court to take any such action nor
            has any event occurred causing or which may cause any floating
            charge created by it to crystallise over any of its assets or any
            charge created by it to become enforceable over any of its assets
            nor has any such crystallisation occurred nor is any such
            enforcement in process;

      (h)   the annual accounts most recently published prior to the date of
            this Agreement and the accounts delivered to Endo pursuant to
            Clauses 2.1(k) and 7 present a true and fair view of (in the case of
            audited accounts) or disclose with reasonable accuracy (in other
            cases) its financial condition during the period for which such
            accounts were prepared and have been prepared in accordance with
            accounting practices and principles generally accepted in the United
            Kingdom and consistently applied;

      (i)   for the purposes of The Council of the European Union Regulation No.
            1346/2000 on Insolvency Proceedings (the "REGULATION"), its centre
            of main interest (as that term is used in Article 3(1) of the
            Regulation) is and will remain situated in England and Wales; and

      (j)   the amount of the Elan Outstanding Liability is less than the
            Facility Amount and upon payment of such amount to Elan Pharma
            International Limited, neither Obligor shall have any outstanding
            actual liability to Elan Pharma International Limited.

7.    UNDERTAKINGS AND COVENANTS

      Each Obligor agrees, throughout the duration of the Term:

      (a)   to give Endo notice in writing immediately upon becoming aware of
            the occurrence of any event or circumstance, which constitutes or
            which, with the giving of notice, lapse of time or making of any
            determination, is reasonably likely to lead to the occurrence of an
            Event of Default together with reasonable details of what steps it
            is taking to avoid or cure such event or circumstance;

      (b)   as soon as they become available but in any event within 180 days
            after the end of each financial year to provide Endo with a copy of
            its published annual audited accounts and (in the case of the Parent
            or a Satisfactory Purchaser only) as soon as they become available
            but in any event within 120 days of the end of the first six months
            of each financial year to provide Endo with a copy of its half
            yearly accounts for the half year then ended as presented to its
            board of directors,

      (c)   as soon as they become available but in any event within 30 days of
            the end of each month the Parent and any Satisfactory Purchaser
            shall provide Endo with a copy of its monthly management accounts
            for the month then ended;

      (d)   (i) (in the case of the Parent and any Satisfactory Purchaser only)
            to procure that each set of its annual audited accounts provided
            pursuant to Clause 7(a) and each set of its half yearly accounts
            provided pursuant to Clause 7(b) are consolidated and comply in

                                      -14-

<PAGE>

            form, substance and content with the requirements of (A) in the case
            of a Satisfactory Purchaser which is a UK listed and incorporated
            corporate entity, the Act and the Listing Rules or (B) in the case
            of any other Satisfactory Purchaser, the laws and generally accepted
            accounting principles in its jurisdiction of incorporation
            consistently applied; and that each set of its monthly management
            accounts provided pursuant to Clause 7(c) are consolidated and
            contain a balance sheet, income statement and cashflow statement and
            related notes to such financial statements and are otherwise in the
            same form and have the same content as is provided to its board of
            directors and; (ii) to procure that each set of the annual audited
            accounts of VDL comply in form, substance and content with the
            requirements of the Act;

      (e)   prior to the beginning of each financial year, to deliver to Endo a
            copy of its annual budget;

      (f)   to provide Endo promptly with such other financial information
            relating to it as Endo may from time to time require to comply (i)
            with any regulatory requests or requirements or (ii) with any
            reasonable requests or requirements from financial institutions
            making financial facilities available to Endo provided that (A)
            those institutions have agreed with Endo to keep such information
            confidential (save for customary exceptions such as requirement of
            law or regulatory requirements) and (B) such Obligor would not
            thereby be in breach of any restrictions contained in (i) any
            confidentiality obligation binding on it at the date of this
            Agreement or (ii) any law or governmental or quasi-governmental
            regulation then binding on it or (iii) the Listing Rules to the
            extent then applicable to it but provided further that, at Endo's
            request, such Obligor shall use reasonable endeavors to seek a
            waiver of such restrictions;

      (g)   prior to the MAM Approval Date, it will not and will ensure that
            each of its subsidiaries will not incur or permit to remain
            outstanding any indebtedness whatsoever save for:

            (i)   indebtedness owing by a subsidiary acquired after the date of
                  this Agreement provided that (a) such indebtedness was not
                  created in contemplation of that acquisition, (b) such
                  indebtedness is not increased after the date of that
                  acquisition and (c) neither the Parent nor VDL nor any of the
                  Parent's other subsidiaries assumes any obligation or
                  liability (whether by guarantee or otherwise) for such
                  indebtedness;

            (ii)  indebtedness incurred pursuant to the Transaction Documents;

            (iii) trade indebtedness incurred in the ordinary course of its
                  business; and

            (iv)  indebtedness not otherwise excluded by paragraphs (i)-(iii)
                  above incurred or outstanding to the Parent, VDL and each of
                  the Parent's other subsidiaries which in aggregate does not
                  exceed $10 million at any time;

      (h)   save with respect to Permitted Liens, it will not, without the prior
            written consent of Endo, create, or permit to subsist any security
            over:

            (i)   prior to the MAM Approval Date, any of its assets or any of
                  the assets of its subsidiaries;

                                      -15-

<PAGE>

            (ii)  on and after the MAM Approval Date, (A) any of the Secured
                  Assets or other Relevant Assets; or (B) any book and other
                  debts and monetary claims relating to the Secured Assets or
                  other Relevant Assets and any proceeds of such debts and
                  claims (including without limitation, any claims or sums of
                  money deriving from or in relation to the Secured Assets or
                  other Relevant Assets, any court order or judgment, any
                  contract or agreement to which VDL is party and any other
                  assets, property rights or undertaking of the Company in each
                  case in or relating to the Secured Assets or other Relevant
                  Assets);

      (i)   prior to the MAM Approval Date, it will not pay dividends or make
            any distributions on its Capital Stock (other than distributions in
            the nature of the allotment of new Capital Stock) and will not
            purchase, redeem or otherwise acquire for value any of its Capital
            Stock;

      (j)   (in respect of the Parent only) it will at all times throughout the
            Term own directly or indirectly one hundred percent (100%) of the
            issued share capital in VDL and at least 51% of the Capital Stock of
            each other company which has been a subsidiary at any time since the
            date of this Agreement;

      (k)   it will not, and will not permit any subsidiary to, make any
            payments, distributions or disposals or incur any liabilities or
            grant any security, loans, collateral, guarantee or indemnity to or
            for the benefit of any related party other than the other Obligor
            and save for (i) payments and liabilities to related parties who are
            individuals acting on their own account and not representing any
            third party (and who do not account for such payments or liabilities
            to any third party) on arm's length contracts of employment or
            consultancy agreements and (ii) dividends and distributions on its
            Capital Stock permitted by this Agreement and for the purposes of
            this Clause 7(k), "related party" shall have the meaning given in
            Chapter 11 of the Listing Rules but as if the percentage referred to
            in the definition of "substantial shareholder" therein was (i) prior
            to any Change of Control, 5 percent and (ii) following a Change of
            Control, to any shareholding;

      (l)   save in the circumstances described in Clause 3.3(e), it will not
            enter into any single transaction or series of transactions (whether
            related or not) and whether voluntary or involuntary to sell, lease,
            transfer or otherwise dispose of any interest in the Secured Assets
            or other Relevant Assets save as part of the sale of the whole or
            substantially the whole of the Group's or VDL's business and assets
            to be a single Satisfactory Purchaser;

      (m)   (in respect of VDL only) immediately on discharge of the Secured
            Obligations (under and as defined in the Existing Floating Charge)
            it will procure that the Existing Floating Charge is released and
            will file a form 403a in respect of that release of the Companies
            Registry no later than the Business Day following such release;

      (n)   (in respect of VDL only) it will use the proceeds of an Advance in
            accordance with the terms of this Agreement only;

      (o)   not to substantially change the general nature of its business;

      (p)   obtain, comply with and do all that is necessary to maintain in full
            force and effect any authorisation required under any law or
            regulation of its jurisdiction of incorporation to enable it to
            perform its obligations under the Finance Documents and

                                      -16-

<PAGE>

            to ensure the legality, validity, enforceability or admissibility in
            evidence in its jurisdiction of incorporation of any Finance
            Document;

      (q)   shall comply in all respects with all laws to which it may be
            subject, if failure to so comply would impair its ability to perform
            its obligations under the Finance Documents;

      (r)   (in respect of VDL only):

            (i)   promptly do all such acts or execute all such documents
                  (including assignments, transfers, mortgages, charges, notices
                  and instructions) as Endo may reasonably specify (and in such
                  form as Endo may reasonably specify) to perfect the security
                  created or intended to be created under or evidenced by the
                  Security Agreement (which may include the execution of a
                  mortgage, charge, assignment or other security over all or any
                  of the assets which are, or are intended to be, the subject of
                  the Security Agreement) or for the exercise of any rights,
                  powers and remedies of Endo provided by or pursuant to the
                  Finance Documents or by law;

            (ii)  subject to the terms hereof and of the Security Agreement, and
                  following an Event of Default and during the continuance
                  thereof to facilitate the realisation of the assets which are,
                  or are intended to be, the subject of the Security Agreement;

            (iii) take all such action as is available to it (including making
                  all filings and registrations) as may be necessary for the
                  purpose of the creation, perfection, protection or maintenance
                  of any security conferred or intended to be conferred on Endo
                  by or pursuant to the Finance Documents;

      (s)   shall ensure that at all times any unsecured and unsubordinated
            claims of Endo against it under the Finance Documents rank at least
            pari passu with the claims of all its other unsecured and
            unsubordinated creditors except those creditors whose claims are
            mandatorily preferred by laws of general application to companies;

      (t)   it will not default under any agreement to which it is a party or
            which is binding on it or any of its assets where the nature and
            consequences of such default are reasonably likely to have a
            material adverse effect on its business, financial condition, assets
            or its ability to perform its obligations under the Finance
            Documents;

      (u)   promptly upon becoming aware of the same, it shall notify Endo of
            all litigation, arbitration or proceedings taking place, pending or
            threatened in writing against it or any of its assets which is
            reasonably likely to be adversely determined against it and which if
            so adversely determined would have a material adverse effect on its
            ability to perform its obligations under the Transaction Documents
            or its assets, financial condition or prospects;

      (v)   it will not dispose of any asset or make any acquisition on terms
            which are not arm's length or better for it except with respect to
            one or more such transactions which taken as a whole are not
            material in the context of the Parent or VDL (as applicable);

      (w)   it will not enter into any derivative transaction except for the
            purposes of hedging interest rate and currency rate exposures
            incurred under the Finance Documents or its

                                      -17-

<PAGE>

            ordinary course of trading and in any event will not enter into any
            derivative transaction for speculative purposes.

8.    GUARANTEE

      (a)   The Parent irrevocably and unconditionally:

            (i)   guarantees as primary obligor and not as surety, to Endo
                  performance by VDL of all of the Obligations;

            (ii)  undertakes with Endo, that whenever VDL does not pay any
                  amount when due under or in connection with any Finance
                  Document, VDL shall immediately on demand pay that amount as
                  if it was the principal obligor; and

            (iii) indemnifies Endo immediately on demand against any cost, loss
                  or liability suffered by it if any obligation guaranteed by it
                  hereunder is or becomes unenforceable, invalid or illegal. The
                  amount of the cost, loss or liability shall be equal to the
                  amount which Endo would otherwise have been entitled to
                  recover.

      (b)   The guarantee contained in this Clause 8 is a continuing guarantee
            and will extend to the ultimate balance of sums payable by any
            Obligor under the Finance Documents, regardless of any intermediate
            payment or discharge in whole or in part.

      (c)   If any payment by an Obligor or any discharge given by Endo (whether
            in respect of the obligations of any Obligor or any security for
            those obligations or otherwise) is avoided or reduced as a result of
            insolvency or any similar event:

            (i)   the liability of each Obligor shall continue as if the
                  payment, discharge, avoidance or reduction had not occurred;
                  and

            (ii)  Endo shall be entitled to recover the value or amount of that
                  security or payment from each Obligor, as if the payment,
                  discharge, avoidance or reduction had not occurred.

      (d)   The obligations of the Parent under this Clause 8 will not be
            affected by an act, omission, matter or thing which, but for this
            Clause, would reduce, release or prejudice any of its obligations
            under this Clause 8 (without limitation and whether or not known to
            it) including:

            (i)   any time, waiver or consent granted to, or composition with,
                  any Obligor or other person;

            (ii)  the release of any other Obligor or any other person under the
                  terms of any composition or arrangement with any creditor of
                  any Obligor;

            (iii) the taking, variation, compromise, exchange, renewal or
                  release of, or refusal or neglect to perfect, take up or
                  enforce, any rights against, or security over assets of, any
                  Obligor or other person or any non-presentation or
                  non-observance of any formality or other requirement in
                  respect of any instrument or any failure to realise the full
                  value of any security;

                                      -18-

<PAGE>

            (iv)  any incapacity or lack of power, authority or legal
                  personality of or dissolution or change in the members or
                  status of an Obligor or any other person;

            (v)   any amendment (however fundamental) or replacement of a
                  Finance Document or any other document or security;

            (vi)  any unenforceability, illegality or invalidity of any
                  obligation of any person under any Finance Document or any
                  other document or security; or

            (vii) any insolvency or similar proceedings.

      (e)   The Parent waives any right it may have of first requiring Endo to
            proceed against or enforce any other rights or security or claim
            payment from any person prior to Endo claiming from the Parent under
            this Clause 8. This waiver applies irrespective of any law or any
            provision of a Finance Document to the contrary.

      (f)   Until all amounts which may be or become payable by the Obligors
            under or in connection with the Finance Documents have been
            irrevocably paid in full, Endo may:

            (i)   refrain from applying or enforcing any other moneys, security
                  or rights held or received by it (or any trustee or agent on
                  its behalf) in respect of those amounts, or apply and enforce
                  the same in such manner and order as it sees fit (whether
                  against those amounts or otherwise) and the Parent shall not
                  be entitled to the benefit of the same; and

            (ii)  hold in an interest-bearing suspense account any moneys
                  received from the Parent or on account of the Parent's
                  liability under this Clause 8.

      (g)   Until all amounts which may be or become payable by the Obligors
            under or in connection with the Finance Documents have been
            irrevocably paid in full and unless Endo otherwise directs, the
            Parent will not exercise any rights which it may have by reason of
            performance by it of its obligations under the Finance Documents:

            (i)   to be indemnified by VDL; and/or

            (ii)  to take the benefit (in whole or in part and whether by way of
                  subrogation or otherwise) of any rights of Endo under the
                  Finance Documents or of any other guarantee or security taken
                  pursuant to, or in connection with, the Finance Documents by
                  Endo.

      (h)   The guarantee in this Clause 8 is in addition to and is not in any
            way prejudiced by any other guarantee or security now or
            subsequently held by Endo.

9.    STANDSTILL

9.1   Without prejudice to any obligation Endo may have under applicable law and
      regulation, under other provisions of this Agreement, pursuant to the
      requirements of any government, governmental agency or regulatory or other
      authority or body, under The City Code on Takeovers and Mergers (the
      "CODE") or otherwise, Endo undertakes that so long as the

                                      -19-

<PAGE>

      Obligors are in compliance with Clauses 7(b)-(e) inclusive it shall not,
      and shall (so far as it is legally able) procure that no member of the
      Endo Group shall, directly or indirectly, or in concert (as the same would
      be construed for the purposes of and in accordance with the Code) with or
      in conjunction with any third party, before the earliest to occur of (i)
      the expiry of the Term, (ii) the Final Repayment Date, and (iii) the
      exercise of any remedy under Clause 10.2 (Acceleration) without the prior
      written approval of the board of the Parent:

      (a)   acquire, or procure or induce any other person to acquire, any
            interest in the shares comprised in the relevant share capital of
            the Parent (within the meaning of sections 198 to 210 of the Act) or
            enter into any agreement or arrangement (whether legally binding or
            not) having a similar affect; or

      (b)   make, or procure or induce any other person to make, any offer for
            all or any of the shares of the Parent or enter into any agreement
            or arrangement (whether legally binding or not) having a similar
            affect; or

      (c)   announce, or procure or induce any other person to announce, any
            offer for all or any of the shares of the Parent or enter into any
            agreement or arrangement (whether legally binding or not) having a
            similar affect,

      unless, the acquisition, offer or the announcement, as the case may be, is
      recommended by a majority of the directors of the Parent at the time when
      the acquisition, offer or announcement is made.

9.2   In Clauses 9.1 and 9.3 "OFFER" means any general, partial, tender or other
      type of offer including, without limitation, any takeover or merger
      transaction (however effected), reverse takeover, scheme of arrangement or
      other court scheme, offer by a parent company for shares in its
      subsidiary, share exchange or similar transaction.

9.3   Notwithstanding Clauses 9.1 and 9.2, nothing shall restrict Endo or any
      member of its group or any other person from discussing (on a confidential
      basis, without any intent to require the public disclosure thereof) with
      members of the Parent's board the possibility of any such persons
      acquiring any interest in any shares in the Parent and the basis upon
      which the directors of the Parent would recommend such offer or
      announcement or acquisition.

10.   EVENTS OF DEFAULT

10.1  DEFAULTS

      There shall be an Event of Default if any of the following occurs:

      (a)   an Obligor does not pay on the due date any amount payable by it
            under the Finance Documents unless:

            (i)   its failure to pay is caused by administrative or technical
                  error by a third party which is not a member of the Group; and

            (ii)  payment is made within 3 Business Days of its due date;

      (b)   an Obligor is in breach of any of its other obligations under any of
            the Finance Documents unless:

            (i)   such breach is not a breach of an Immediate Default Clause;
                  and

                                      -20-

<PAGE>

            (ii)  such breach is capable of remedy; and

            (iii) such breach is remedied within 14 days of Endo giving notice
                  to an Obligor or an Obligor becoming actually aware of the
                  failure to comply,

            For these purposes an "IMMEDIATE DEFAULT CLAUSE" is each of Clauses
            3.3 (Mandatory Prepayment and Set-off), 7(g) (indebtedness), 7(h)
            (negative pledge), 7(i) (dividends) to 7(m) (release of Existing
            Floating Charge) inclusive and 8 (Guarantee);

      (c)   an Insolvency Event occurs with respect to an Obligor, a
            Satisfactory Purchaser or a parent undertaking of any such person as
            defined in the Act;

      (d)   it is or becomes unlawful for an Obligor to perform any of its
            obligations under the Transaction Documents or any security created
            or expressed to be created or evidenced by the Security Agreement
            cease to be effective, or any obligation of any Obligor under any
            Transaction Document is not or ceases to be legal, valid, binding or
            enforceable.

      (e)   VDL is the Defaulting Party as defined in and for the purposes of
            Clause 17.2 of the License Agreement;

      (f)   an Obligor suspends or ceases or threatens to suspend or cease to
            carry on its business or all or any substantial part of its assets
            are seized or appropriated by or on behalf of any governmental or
            other authority or are compulsorily acquired (provided that any such
            action is not discharged, stayed or withdrawn within 10 days of its
            occurrence);

      (g)   any indebtedness (whether in respect of capital or interest) of an
            Obligor in excess of US$1,000,000 in aggregate is not paid when due
            or is declared to be or otherwise becomes due and payable prior to
            its specified maturity;

      (h)   any consent or exemption required which is material to enabling an
            Obligor to perform its obligations under the Finance Documents to
            which it is a party is withdrawn or modified or for any reason it
            becomes unlawful for VDL to perform any of its obligations under the
            Finance Documents; or

      (i)   any representation or warranty made to Endo by an Obligor in any of
            the Finance Documents proves to have been incorrect in any respect
            when made, deemed made or repeated.

10.2  ACCELERATION

      Without prejudice to the provisions of Clause 3.3(d), at any time when any
      Event of Default remains unremedied Endo may by notice to VDL:

      (a)   require VDL immediately to repay the Advance and all other sums
            payable under the Finance Documents, whereupon the same shall become
            immediately due and payable;

      (b)   place the Advance on demand, whereupon the Advance and all other
            sums payable under the Finance Documents shall become repayable on
            demand;

      (c)   declare that some or all of the commitment hereunder shall be
            cancelled forthwith, whereupon the same shall be so cancelled;
            and/or

                                      -21-

<PAGE>

      (d)   exercise any of its rights as a secured creditor under the Security
            Agreement provided that prior to the occurrence of any Insolvency
            Event (as defined in the License Agreement) or any analogous event
            in any jurisdiction, Endo may not sell or assign or otherwise
            dispose of (reserving at all times Endo's right to receive and apply
            to the Obligations the proceeds thereof) the Secured Assets (except
            in connection with any assignment or transfer of its rights under
            and as permitted by this Agreement) unless an Event of Default has
            occurred under either Clause 10.1(d) or Clause 10.1(f).

      Upon the service of any such notice Endo's obligations under this
      Agreement shall be terminated.

11.   SECURITY AND CONFIDENTIALITY

      (a)   Any security or guarantee granted to Endo pursuant to any of the
            Finance Documents shall be in addition to and without prejudice to
            any other security or guarantee which Endo now holds or may in the
            future hold as security for the Facility Amount.

      (b)   The provisions of Clause 29 and 16 of the License Agreement shall
            apply mutatis mutandis to this Agreement, save that disclosure may
            also be made by Endo to any person to whom it is permitted to assign
            or transfer its rights under this Agreement.

12.   PAYMENTS

12.1  PLACE

      All payments to be made by an Obligor pursuant to this Agreement shall be
      made in Dollars in immediately available funds to Endo into a bank
      account, details of which shall be notified to an Obligor by Endo not less
      than five (5) Business Days before payment is due.

12.2  NO WITHHOLDINGS

      All payments by an Obligor under the Finance Documents are to be made (a)
      free and clear of and without any Tax Deduction unless the Tax Deduction
      is required by law; and (b) without any set-off or counter-claim
      whatsoever.

12.3  GROSSING-UP

      (a)   Subject to Clause 12.3(b) below, if a Tax Deduction is required by
            law in respect of any sum payable by an Obligor to Endo under the
            Finance Documents, that Obligor shall increase such sum so that the
            amount received by Endo after the Tax Deduction shall be equal to
            the amount which Endo would have been entitled to receive in the
            absence of any requirement to make that Tax Deduction.

      (b)   An Obligor is not required to make an increased payment to Endo
            under Clause 12.3(a) above for a Tax Deduction if on the date on
            which the payment is made:

            (i)   the payment could have been made to Endo without a Tax
                  Deduction but for the sole fact that, on that date, Endo is
                  not or has ceased to be a Qualifying Lender other than as a
                  result of any change after the date of this Agreement in (or
                  in the published interpretation, administration or application
                  of) any law, directive, treaty or regulation or any published
                  practice or concession of any relevant Taxing authority; or

                                      -22-

<PAGE>

            (ii)  the relevant Obligor could have made the payment to Endo
                  without a Tax Deduction had Endo complied with its obligations
                  under Clause 12.3(c) below, provided that, pending receipt of
                  the authorisation referred to in Clause 12.3(c) below, this
                  Clause 12.3(b)(ii) shall not apply (and the relevant Obligor
                  shall be required to make an increased payment to Endo under
                  Clause 12.3(a) above for a Tax Deduction) if Endo has
                  reasonably promptly taken all such steps as are reasonably
                  practicable to comply with its obligations under Clause
                  12.3(c) following the date of this Agreement or the relevant
                  request from the Obligor (as applicable).

      (c)   Endo and the Obligors shall co-operate in completing, as soon as
            reasonably practicable after the date of this Agreement, any
            procedural formalities necessary for the Obligors to obtain
            authorisation to make a payment under this Agreement without a Tax
            Deduction (including, for the avoidance of doubt, the completion and
            submission to the Taxing authority in Endo's country of
            incorporation (or, if different, its country of residence for the
            purposes of the relevant double taxation agreement) of appropriate
            forms and documents that are provided to it by the Obligors).

      (d)   If an Obligor makes a payment to Endo without a Tax Deduction in
            circumstances where Endo has not notified that Obligor that it has
            ceased to be a Qualifying Lender (other than as a result of any
            change after the date of this Agreement in, or in the published
            interpretation, administration or application of, any law or treaty,
            or any published practice or concession of any relevant Taxing
            authority):

            (i)   where any liability in respect of an amount which should have
                  been deducted or withheld is imposed, levied or assessed
                  against an Obligor, Endo shall, within three (3) Business Days
                  of demand by the relevant Obligor, indemnify that Obligor
                  against such liability or payment together with any interest,
                  penalties and expenses payable or incurred in connection with
                  the same; and

            (ii)  Endo authorises the Obligors to withhold amounts equivalent to
                  the Tax Deduction which should have been made from subsequent
                  payments to Endo under this Agreement and to pay such amounts
                  to the relevant Taxing authority

            provided that any amounts withheld in accordance with Clause
            12.3(d)(ii) shall not also be recoverable under Clause 12.3(d)(i)
            above.

      (e)   If an Obligor makes a payment under Clause 12.3(a) above (a "TAX
            PAYMENT") and Endo determines in its sole discretion that:

            (i)   a Tax Credit is attributable to that Tax Payment; and

            (ii)  Endo has obtained, utilised and retained that Tax Credit,

            Endo shall, to the extent that it can do so without prejudice to the
            retention of the Tax Credit, pay such amount to the relevant Obligor
            as Endo determines in its absolute discretion to be attributable to
            the Tax Payment and will leave it (after that payment to the
            Obligor) in the same after-Tax position as it would have been in had
            the Tax Payment not been required to be made by that Obligor.
            Nothing herein contained shall interfere with the right of Endo to
            arrange its Tax affairs in whatever manner it

                                      -23-

<PAGE>

            thinks fit nor oblige it to disclose any information relating to its
            Tax affairs or any computations in respect thereof.

      (f)   If an Obligor makes any Tax Deduction, it shall pay the full amount
            of that Tax Deduction to the relevant Tax authority within the time
            allowed for such payment under applicable law and shall deliver to
            Endo, as soon as reasonably practicable after such payment falls due
            to the applicable authority, any original receipt (or a certified
            copy thereof) issued by such authority evidencing such payment.

12.4  NON-BUSINESS DAYS

      Any payments which, but for this Clause 12.4, would fall due under this
      Agreement on a day other than a Business Day shall be made on the next
      succeeding Business Day.

12.5  SET-OFF

      Endo may set off any matured obligation due from an Obligor under the
      Finance Documents against any matured obligation owed by Endo to that
      Obligor, regardless of the place of payment or currency of either
      obligation. If the obligations are in different currencies, Endo may
      convert either obligation at a market rate of exchange for the purpose of
      the set-off.

13.   LAW AND JURISDICTION

13.1  APPLICABLE LAW.

      THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
      SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
      WITH, THE LAWS OF THE STATE OF NEW YORK INCLUDING GENERAL OBLIGATION LAW
      5-1401.

13.2  CONSENT TO JURISDICTION AND SERVICE OF PROCESS.

      (a)   ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY OBLIGOR ARISING OUT OF
            OR RELATING HERETO OR ANY OTHER FINANCE DOCUMENT, OR ANY OF THE
            OBLIGATIONS, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF
            COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY
            EXECUTING AND DELIVERING THIS AGREEMENT, EACH OBLIGOR, FOR ITSELF
            AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (i) ACCEPTS
            GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND
            VENUE OF SUCH COURTS; (ii) WAIVES ANY DEFENSE OF FORUM NON
            CONVENIENS; (iii) AGREES THAT, NOTWITHSTANDING CLAUSE 13.2 (b),
            SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY
            BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED,
            TO THE APPLICABLE OBLIGOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH
            CLAUSE 18; (iv) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (iii) IS
            SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE APPLICABLE
            OBLIGOR IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE
            CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; AND (v)
            AGREES ENDO RETAINS THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
            PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST ANY OBLIGOR IN THE
            COURTS OR ANY OTHER JURISDICTION; and

                                      -24-

<PAGE>

      (b)   EACH OBLIGOR HEREBY IRREVOCABLY AND UNCONDITIONALLY APPOINTS CT
            CORPORATION, 111 EIGHTH AVENUE, TEAM 6, NEW YORK, NEW YORK 10011,
            USA (FAX: 001-212-894-8690) ("THE PROCESS AGENT"), AS ITS AGENT TO
            RECEIVE ON BEHALF OF SUCH OBLIGOR AND ITS PROPERTY SERVICE OF COPIES
            OF THE SUMMONS AND COMPLAINTS AND ANY OTHER PROCESS WHICH MAY BE
            SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY COURT
            SPECIFIED IN CLAUSE 13.2(a), SUCH SERVICE MAY BE MADE BY MAILING OR
            DELIVERING A COPY OF SUCH PROCESS TO AN OBLIGOR IN CARE OF THE
            PROCESS AGENT AT THE ADDRESS SPECIFIED ABOVE FOR THE PROCESS AGENT,
            AND EACH OBLIGOR HEREBY IRREVOCABLY AUTHORIZES AND DIRECTS THE
            PROCESS AGENT TO ACCEPT SUCH SERVICE ON ITS BEHALF. EACH OBLIGOR
            FURTHER CONSENTS TO MAILING COPIES THEREOF BY REGISTERED OR
            CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH OBLIGOR AT ITS ADDRESSES
            FOR NOTICE HEREUNDER, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER
            MAILING. FAILURE OF THE PROCESS AGENT TO GIVE NOTICE TO ANY OBLIGOR
            OR FAILURE OF AN OBLIGOR TO RECEIVE NOTICE OF SUCH SERVICES OF
            PROCESS SHALL NOT AFFECT IN ANY WAY THE VALIDITY OF SUCH SERVICE ON
            THE PROCESS AGENT OR SUCH OBLIGOR. EACH OBLIGOR COVENANTS AND AGREES
            THAT IT SHALL TAKE ANY AND ALL REASONABLE ACTION, INCLUDING THE
            EXECUTION AND FILING OF ANY AND ALL DOCUMENTS, THAT MAY BE NECESSARY
            FOR THE PROCESS AGENT TO ACT AS SUCH. IN THE EVENT THAT AT ANY TIME
            SUCH PROCESS AGENT SHALL FOR ANY REASON CEASE TO MAINTAIN AN OFFICE
            IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY, OR CEASE TO ACT AS
            PROCESS AGENT, THEN SUCH OBLIGOR IRREVOCABLY CONSENTS TO THE SERVICE
            OF ANY AND ALL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING IN
            ACCORDANCE WITH THE TERMS CLAUSE (iii) OF CLAUSE 13.2(a). EACH
            OBLIGOR ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS CLAUSE 13.2(b)
            SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER
            MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER
            JURISDICTION.

13.3  WAIVER OF JURY TRIAL

      EACH OF THE PARTIES HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO
      A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
      HEREUNDER OR UNDER ANY OF THE OTHER FINANCE DOCUMENTS OR ANY DEALINGS
      BETWEEN THEM RELATING THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE
      LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. THE SCOPE OF THIS
      WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY
      BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS
      TRANSACTION, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS
      AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO
      ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A
      BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THIS WAIVER IN
      ENTERING INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THIS
      WAIVER IN ITS RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER WARRANTS
      AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL

                                      -25-

<PAGE>

      AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
      FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE,
      MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER
      THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS CLAUSE 13.3
      AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY
      TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
      HERETO OR ANY OF THE OTHER FINANCE DOCUMENTS OF TO ANY OTHER DOCUMENTS OR
      AGREEMENTS RELATING TO THE ADVANCE MADE HEREUNDER. IN THE EVENT OF
      LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY
      THE COURT.

14.   SEVERANCE

      If at any time any provision of this Agreement is or becomes invalid,
      illegal or unenforceable in any respect under any law of any jurisdiction,
      the validity, legality and enforceability of the remaining provisions of
      this Agreement and the validity, legality and enforceability of those
      provisions under the law of other jurisdictions shall not in any way be
      affected or impaired thereby.

15.   FEES, COSTS AND INDEMNITY

15.1  COSTS AND EXPENSES

      Each party shall be liable for its own costs, charges and expenses arising
      at any time in connection with the preparation, negotiation and execution
      of the Finance Documents and the transactions contemplated thereby.

15.2  INDEMNITY

      Each Obligor shall indemnify Endo on an after tax basis from and against
      all losses, costs, expenses, claims, proceedings and damages suffered or
      incurred by Endo in consequence of any Event of Default (other than to the
      extent the same arise solely under the License Agreement) and/or any
      failure to borrow in accordance with any notice given under Clause 4.

16.   NON-WAIVER

      No failure by Endo to exercise and no delay by Endo in exercising any
      right, power or privilege under this Agreement shall operate as a waiver
      thereof nor shall any single or partial exercise of any right, power or
      privilege preclude any other or further exercise thereof or the exercise
      of any other right, power or privilege. The rights and remedies provided
      in this Agreement are cumulative and not exclusive of any rights or
      remedies provided by law.

17.   SUCCESSORS

      The agreement evidenced by this Agreement shall enure to the benefit of
      Endo and its successors and assigns from time to time. No Obligor may
      assign or transfer any of its rights, benefits or obligations under this
      Agreement. Endo may assign or transfer its rights and obligations under
      this Agreement to any of its subsidiaries, to any holding company of Endo,
      to any subsidiary of any such holding company or to any holders of Endo
      secured senior debt. Endo or its successor or assignee or transferee shall
      pay any stamp duty, transfer registration or similar Taxes payable on such
      assignment.

                                      -26-

<PAGE>

18.   NOTICE

18.1  METHOD

      Each notice or other communication to be given under this Agreement shall
      be given in writing and, unless otherwise provided, shall be made by fax
      or letter.

18.2  DELIVERY

      Any notice or other communication to be given by Endo or an Obligor to the
      other under this Agreement shall (unless one party has by fifteen (15)
      days' notice to the other party specified another address) be given to
      that other party at the respective addresses given in Clause 18.3.

18.3  ADDRESSES

      The address and fax number of each Obligor and Endo are:

            (A) Endo:

                  Endo Pharmaceuticals Inc.
                  100 Painters Dr.
                  Chadds Ford, PA 19317
                  Attention: Chief Legal Officer
                  Telecopy: 610-558-9684

                  With a copy to:

                  Skadden, Arps, Slate, Meagher & Flom LLP
                  Four Times Square
                  New York, NY 10036
                  Attention: Eileen Nugent and Bruce Goldner
                  Telecopy: 212-735-2000

            (B) the Parent:

                  Vernalis PLC
                  Oakdene Court
                  613 Reading Road
                  Winnersh
                  Wokingham
                  RG41 5UA
                  United Kingdom
                  Attention: Chief Financial Officer
                  Telecopy: 011-44-118-989-9300

                                      -27-

<PAGE>

            (C) VDL:

                  Vernalis Development Limited
                  Oakdene Court
                  613 Reading Road
                  Winnersh
                  Wokingham
                  RG41 5UA
                  United Kingdom
                  Attention: Chief Financial Officer
                  Telecopy: 011-44-118-989-9300

18.4  DEEMED RECEIPT

      Any notice or other communication given by an Obligor or Endo shall be
      deemed to have been received:

      (a)   if sent by fax, with a confirmed receipt of transmission from the
            receiving machine, on the day on which transmitted;

      (b)   in the case of a written notice given by hand, on the day of actual
            delivery; and

      (c)   if posted, on the second Business Day following the day on which it
            was despatched by first class mail postage prepaid

      provided that a notice given in accordance with the above but received on
      a day which is not a Business Day or after normal business hours in the
      place of receipt shall only be deemed to have been received on the next
      Business Day.

19.   COUNTERPARTS

      This Agreement may be executed in any number of counterparts, and this has
      the same effect as if the signatures on the counterparts were on a single
      copy of this Agreement.

20.   THIRD PARTY BENEFICIARIES

20.1  The terms and provisions of this Agreement are for the purpose of defining
      the relative rights and obligations of each party hereto with respect to
      the transactions contemplated hereby and no Person shall be a third party
      beneficiary of any of the terms and provisions of this Agreement.

                                      -28-

<PAGE>

IN WITNESS WHEREOF the parties have executed this agreement as of the day and
year first above written.

VERNALIS PLC

By: /s/ A J Weir

Name: AJ Weir, CFO

VERNALIS DEVELOPMENT LIMITED

By: /s/ AJ Weir

Name: AJ Weir, Director

ENDO PHARMACEUTICALS INC

By: /s/ Carol A Ammon

Name: Carol A Ammon

                                      -29-

<PAGE>

                                   SCHEDULE 1

                                 DRAWDOWN NOTICE

To: [       ]

From: Vernalis Development Limited

Dear Sirs,

LOAN AGREEMENT DATED [       ] (THE "AGREEMENT")

Terms defined in the Agreement have the same meaning in this notice.

We request a drawing under the Agreement as follows:

1. Amount of Advance: US$50,000,000

2. Drawdown Date: [       ]

3. Payment Details:

The Advance should be disbursed on the Drawdown Date to the following persons
and accounts:

3.1 Amount: [sufficient to discharge the Elan Outstanding Liability]
    Payee: Elan Pharma International Limited
    Payee Account
    Details: [       ]

3.2 Amount: [The balance of $50M]
    Payee: Vernalis Development Limited
    Payee Account
    Details: [       ]

We confirm that today and on the Drawdown Date:

(a)   the representations and warranties in Clause 6.1 of the Agreement are and
      will be correct;

(b)   no Event of Default or Potential Event of Default has occurred and is
      continuing or will occur on the making of the drawing.

SIGNED

For and on behalf of

VERNALIS DEVELOPMENT LIMITED

                                      -30-

<PAGE>

                                   SCHEDULE 2

                                 SECURITY DEED

                                 [See Attached]

                                      -1-
<PAGE>

                                  SECURITY DEED

                            DATED AS OF JULY __, 2004

                                     BETWEEN

                          VERNALIS DEVELOPMENT LIMITED,

                                 AS THE GRANTOR

                                       AND

                           ENDO PHARMACEUTICALS INC.,

                              AS THE SECURED PARTY

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                              PAGE
<S>                                                                           <C>
SECTION 1. DEFINITIONS; GRANT OF SECURITY...................................    1
1.1  GENERAL DEFINITIONS....................................................    1
1.2  DEFINITIONS; INTERPRETATION............................................    3
1.3  THIRD PARTY RIGHTS.....................................................    4
SECTION 2. GRANT OF SECURITY................................................    4
2.1  GRANT OF SECURITY......................................................    4
2.2  CERTAIN LIMITED EXCLUSIONS.............................................    4
SECTION 3. SECURITY FOR OBLIGATIONS; GRANTORS REMAIN LIABLE.................    4
3.1  SECURITY FOR OBLIGATIONS...............................................    4
3.2  CONTINUING LIABILITY UNDER COLLATERAL..................................    5
3.3  IMMEDIATE RECOURSE.....................................................    6
3.4  ADDITIONAL SECURITY....................................................    6
SECTION 4. REPRESENTATIONS AND WARRANTIES AND COVENANTS.....................    6
4.1  GENERALLY..............................................................    6
4.2  RECEIVABLES............................................................    8
SECTION 5. ACCESS; RIGHT OF INSPECTION AND FURTHER ASSURANCES...............    9
5.1  ACCESS; RIGHT OF INSPECTION............................................    9
5.2  FURTHER ASSURANCES.....................................................    9
SECTION 6. SECURED PARTY APPOINTED ATTORNEY-IN-FACT.........................   10
6.1  POWER OF ATTORNEY......................................................   10
6.2  NO DUTY ON THE PART OF SECURED PARTY...................................   10
SECTION 7. REMEDIES, GENERALLY..............................................   10
7.1  GENERALLY..............................................................   10
7.2  APPLICATION OF PROCEEDS................................................   12
7.3  SALES ON CREDIT........................................................   12
7.4  CASH PROCEEDS..........................................................   12
SECTION 8. REMEDIES, UK. ...................................................   13
8.1  UK ENFORCEMENT OF SECURITY, GENERALLY..................................   13
8.2  RECEIVER...............................................................   13
SECTION 9. SECURED PARTY....................................................   14
SECTION 10. CONTINUING SECURITY INTEREST; TRANSFER OF THE ADVANCE...........   14
SECTION 11. STANDARD OF CARE; SECURED PARTY MAY PERFORM.....................   15
SECTION 12. MISCELLANEOUS...................................................   15
</TABLE>

                                       i
<PAGE>

EXHIBITS:

Exhibit A - Form of Pledge Supplement
Exhibit B - Form of Notice
Exhibit C - Powers of Receiver

SCHEDULES:

Schedule 4.1(a)(ii) - Organizational Information
Schedule 4.1(a)(iii) - Other Names of Grantor
Schedule 4.1(a)(iv) - Changes in Organizational Information and Structure
Schedule 4.1(a)(v) - Filing Offices

                                       ii
<PAGE>

                  This SECURITY DEED, dated as of July __, 2004 (this "SECURITY
DEED"), between VERNALIS DEVELOPMENT LIMITED, a limited liability company
incorporated under the laws of England and Wales with company number 2600483 and
with a registered address at Oakdene Court, 613 Reading Road, Winnersh,
Workingham, Berkshire, RG41 5UA, as the grantor (the "GRANTOR"), and ENDO
PHARMACEUTICALS INC., a Delaware corporation, as the secured party (the "SECURED
PARTY").

                                    RECITALS:

            WHEREAS, reference is made to that certain Loan Agreement, dated as
of the date hereof (as it may be amended, restated, supplemented or otherwise
modified from time to time, the "LOAN AGREEMENT"), by and among Vernalis
Development Limited, as borrower, Vernalis PLC, as parent, and Endo
Pharmaceuticals Inc. ("ENDO");

            WHEREAS, in consideration of the extensions of credit and other
accommodations of Endo as set forth in the Loan Agreement, the Grantor has
agreed to secure its obligations under the Finance Documents as set forth
herein; and

            NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the Grantor and the Secured Party
agree as follows:

SECTION 1.DEFINITIONS; GRANT OF SECURITY.

      1.1   GENERAL DEFINITIONS. In this Security Deed, the following terms
shall have the meanings provided below:

            "ACCOUNT DEBTOR" shall mean each Person who is obligated on a
Receivable or any Supporting Obligation related thereto.

            "ACCOUNTS" shall mean all "accounts" as defined in Article 9 of the
UCC.

            "ACT" shall have the meaning assigned in Section 8.1.

            "BANKRUPTCY CODE" shall mean Title 11 of the United States Code
entitled "Bankruptcy", as now and hereafter in effect, or any successor statute.

            "CASH PROCEEDS" shall have the meaning assigned in Section 7.4.

            "CHATTEL PAPER" shall mean all "chattel paper" as defined in Article
9 of the UCC, including, without limitation, "electronic chattel paper" or
"tangible chattel paper", as each term is defined in Article 9 of the UCC.

            "CLOSING DATE" means July __, 2004.

            "COLLATERAL" shall have the meaning assigned in Section 2.1.

            "COLLATERAL ACCOUNT" shall mean any account established by the
Secured Party and details of which have been noticed to the Grantor.

            "COLLATERAL SUPPORT" shall mean all property (real or personal)
collaterally assigned, hypothecated or otherwise securing any Account included
in the Collateral (including

<PAGE>

the royalty stream payable to the Grantor under the License Agreement) and shall
include any security agreement or other agreement granting a lien or security
interest in such real or personal property.

            "ENDO" shall have the meaning assigned in the recitals.

            "GOVERNMENTAL AUTHORITY" shall mean any nation or government, any
state or other political subdivision thereof, and any agency, authority,
instrumentality, regulatory body, court, administrative tribunal, central bank
or other entity exercising executive, legislative, judicial, taxing, regulatory
or administrative powers or functions of or pertaining to government.

            "GRANTOR" shall have the meaning assigned in the preamble.

            "INSTRUMENTS" shall mean all "instruments" as defined in Article 9
of the UCC.

            "LICENSE AGREEMENT" shall have the meaning assigned in Section 2.1.

            "LIEN" shall mean any lien, mortgage, pledge, collateral assignment,
security interest, charge or encumbrance of any kind (including any agreement to
give any of the foregoing, any conditional sale or other title retention
agreement, and any lease in the nature thereof) and any other agreement, option,
trust or other arrangement having the practical effect of any of the foregoing.

            "LOAN AGREEMENT" shall have the meaning assigned in the recitals.

            "OBLIGATIONS" shall mean all obligations of every nature of the
Grantor from time to time owed to the Secured Party under any Finance Document,
whether for principal, interest (including interest which, but for the filing of
a petition in bankruptcy with respect to the Grantor, would have accrued on any
obligation, whether or not a claim is allowed against the Grantor for such
interest in the related bankruptcy proceeding), fees, expenses, indemnification
or otherwise.

            "PERMITTED SALES" shall mean those sales, assignments or other
dispositions permitted by the Loan Agreement.

            "PERSON" shall mean and include natural persons, corporations,
limited partnerships, general partnerships, limited liability companies, limited
liability partnerships, joint stock companies, joint ventures, associations,
companies, trusts, banks, trust companies, land trusts, business trusts or other
organizations, whether or not legal entities, and Governmental Authorities.

            "PLEDGE SUPPLEMENT" shall mean any supplement to this Security Deed
in substantially the form of Exhibit A attached hereto, together with all
supplements and schedules thereto.

            "PROCEEDS" shall mean: (i) all "proceeds" as defined in Article 9 of
the UCC, and (ii) whatever is receivable or received when Collateral or proceeds
are sold, exchanged, collected or otherwise disposed of, whether such
disposition is voluntary or involuntary.

                                       2
<PAGE>

            "RECEIVABLES" shall mean all Accounts, including all rights to
payment, whether or not earned by performance, for property licensed or
otherwise disposed of and all Collateral Support and Supporting Obligations
related thereto and all Receivables Records.

            "RECEIVABLES RECORDS" shall mean (i) all original copies of all
documents, instruments or other writings or electronic records or other Records
evidencing the Receivables, (ii) all books, correspondence or other files,
Records, ledger sheets or cards, invoices, and other papers relating to
Receivables, including, without limitation, all tapes, cards, computer tapes,
computer discs, computer runs, record keeping systems and other papers and
documents relating to the Receivables, whether in the possession or under the
control of Grantor or any computer bureau or agent from time to time acting for
Grantor or otherwise, and (iii) any other written or nonwritten forms of
information related in any way to the foregoing or any Receivable.

            "RECEIVER" shall have the meaning assigned in Section 8.2(a)(i).

            "RECORD" shall have the meaning specified in Article 9 of the UCC.

            "RELEVANT ASSETS" means the Vernalis IP (as defined in the License
Agreement) and the Collateral.

            "SECURITY DEED" shall have the meaning assigned in the preamble.

            "SECURED OBLIGATIONS" shall have the meaning assigned in Section
3.1.

            "SUPPORTING OBLIGATION" shall mean all "supporting obligations" as
defined in Article 9 of the UCC.

            "SECURED PARTY" shall have the meaning assigned in the preamble.

            "UCC" shall mean the Uniform Commercial Code as in effect from time
to time in the State of New York or, when the context implies, the Uniform
Commercial Code as in effect from time to time in any other applicable
jurisdiction.

            "UK" shall mean the United Kingdom.

            "UNITED STATES" shall mean the United States of America.

      1.2   DEFINITIONS; INTERPRETATION. All capitalized terms used herein
(including the preamble and recitals hereto) and not otherwise defined herein
shall have the meanings ascribed thereto in the Loan Agreement or, if not
defined therein, in the UCC. References to "Sections," "Exhibits" and
"Schedules" shall be to Sections, Exhibits and Schedules, as the case may be, of
this Security Deed unless otherwise specifically provided. Section headings in
this Security Deed are included herein for convenience of reference only and
shall not constitute a part of this Security Deed for any other purpose or be
given any substantive effect. Any of the terms defined herein may, unless the
context otherwise requires, be used in the singular or the plural, depending on
the reference. The use herein of the word "include" or "including", when
following any general statement, term or matter, shall not be construed to limit
such statement, term or matter to the specific items or matters set forth
immediately following such word or to similar items or matters, whether or not
nonlimiting language (such as "without limitation" or "but not limited to" or
words of similar import) is used with reference thereto, but rather shall be
deemed to refer to all other items or matters that fall within the broadest
possible scope of such general statement,

                                       3
<PAGE>

term or matter. If any conflict or inconsistency exists between this Security
Deed and the Loan Agreement, the Loan Agreement shall govern. All references
herein to provisions of the UCC shall include all successor provisions under any
subsequent version or amendment to any Article of the UCC.

      1.3   THIRD PARTY RIGHTS.

            (a)   Any security granted to the Secured Party pursuant to this
Security Deed shall be in addition to and without prejudice to any other
security which the Secured Party now holds or may in the future hold as security
for the Secured Obligations.

            (b)   The terms and provisions of this Security Deed are for the
purpose of defining the relative rights and obligations of each party hereto
with respect to the transactions contemplated hereby and no Person shall be a
third party beneficiary of any of the terms and provisions of this Security
Deed.

SECTION 2.GRANT OF SECURITY.

      2.1   GRANT OF SECURITY. To secure the Secured Obligations, the Grantor
hereby grants to the Secured Party a security interest in and continuing lien on
all of the Grantor's right, title and interest in, to and under those portions
of the License Agreement, dated as of a date on or about the date hereof,
between Vernalis Development Limited and Endo Pharmaceuticals Inc. (as may be
amended, supplemented or modified from time to time, the "LICENSE AGREEMENT")
related to the payments due to the Grantor thereunder, including, without
limitation, the royalty stream payable to the Grantor pursuant to, and any
Receivables and Accounts related to, the License Agreement, and all Proceeds,
products, accessions, rents and profits of or in respect of the License
Agreement (all of which being hereinafter collectively referred to as the
"COLLATERAL").

      2.2   CERTAIN LIMITED EXCLUSIONS. Notwithstanding anything herein to the
contrary, in no event shall the security interest granted under Section 2.1
hereof attach to any lease, license, contract, property rights or agreement to
which the Grantor is a party or any of its rights or interests thereunder if and
for so long as the grant of such security interest shall constitute or result in
(a) the abandonment, invalidation or unenforceability of any right, title or
interest of the Grantor therein or (b) in a breach or termination pursuant to
the terms of, or a default under, any such lease, license, contract property
rights or agreement (other than to the extent that any such term would be
rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the
UCC (or any successor provision or provisions) of any relevant jurisdiction or
any other applicable law (including the Bankruptcy Code) or principles of
equity), provided, however, that such security interest shall attach immediately
at such time as the condition causing such abandonment, invalidation or
unenforceability shall be remedied and to the extent severable, shall attach
immediately to any portion of such Lease, license, contract, property rights or
agreement that does not result in any of the consequences specified in (a) or
(b) above.

SECTION 3.SECURITY FOR OBLIGATIONS; GRANTORS REMAIN LIABLE.

      3.1   SECURITY FOR OBLIGATIONS (a) Generally. This Security Deed secures,
and the Collateral is collateral security for, the prompt payment or performance
in full when due, whether at stated maturity, by required prepayment,
declaration, acceleration, demand or otherwise (including the payment of amounts
that would become due but for the operation of the automatic

                                       4
<PAGE>

stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a) (and
any successor provision thereof), of all Obligations (the "SECURED
OBLIGATIONS").

            (b)   Creation of Floating Charge. The Grantor, with full title
guarantee and as further continuing security for the payment and discharge of
the Secured Obligations, charges the Collateral in favor of the Secured Party by
way of first floating charge.

            (c)   Conversion of Floating Charge

                  (i)   The Secured Party may, by notice to the Grantor, convert
      the floating charge created by this Security Deed, with immediate effect,
      into a fixed charge over all or any of the Grantor's assets specified in
      the notice if:

      (1)   an Event of Default has occurred and is continuing; or

      (2)   the Secured Party reasonably considers those assets to be in danger
            of being seized or sold under any form of distress, attachment,
            execution or other legal process or to be otherwise in jeopardy.

                  (ii)  Upon notice being given by the Secured Party under
      paragraph 3.1(c)(i) above, the Grantor will not exercise any rights it has
      over the Collateral, other than as provided in this Security Deed.

                  (iii) The giving by the Secured Party of a notice pursuant to
      paragraph (i) above in relation to the Collateral shall not be construed
      as a waiver or abandonment of the Secured Party's rights to give other
      similar notices in respect of the Collateral.

            (d)   Miscellaneous. Upon the occurrence and during continuation of
an Event of Default, if the charge of Collateral referred to in Clause 3.1(c)
(Creation of Floating Charge) is found to be ineffective or any sums payable in
respect of such Collateral are received by the Grantor, the Grantor shall hold
the benefit of such Collateral and any such sums received by it in trust for the
Secured Party and shall account to the Secured Party for or otherwise apply all
such sums as the Secured Party may direct and shall otherwise, at its own cost,
take such action and execute such documents as the Secured Party may, in its
sole discretion, require.

      3.2   CONTINUING LIABILITY UNDER COLLATERAL. Notwithstanding anything
herein to the contrary, (a) the Grantor shall remain liable for all obligations
under the Collateral and nothing contained herein is intended or shall be a
delegation of duties to the Secured Party, (b) the Grantor shall remain liable
under each of the agreements now or hereafter included in the Collateral to
perform all of the obligations undertaken by it thereunder all in accordance
with and pursuant to the terms and provisions thereof and the Secured Party
shall not have any obligation or liability under any of such agreements by
reason of or arising out of this Security Deed or any other document related
thereto nor shall the Secured Party have any obligation to make any inquiry as
to the nature or sufficiency of any payment received by it or have any
obligation to take any action to collect or enforce any rights under any
agreement now or hereafter included in the Collateral and (c) the exercise by
the Secured Party of any of its rights hereunder shall not release the Grantor
from any of its duties or obligations under the contracts and agreements now or
hereafter included in the Collateral.

                                       5
<PAGE>

      3.3   IMMEDIATE RECOURSE. The Grantor waives any right it may have of
first requiring the Secured Party to proceed against or enforce any other rights
or security before enforcing the security constituted hereby.

      3.4   ADDITIONAL SECURITY. The security constituted by this Security Deed
is in addition to, and not in any way prejudiced by, any other security now or
hereafter held by the Secured Party.

SECTION 4. REPRESENTATIONS AND WARRANTIES AND COVENANTS.

      4.1   GENERALLY

            (a)   Representations and Warranties of the Grantor. The Grantor
hereby represents and warrants, on the Closing Date and on each Interest Payment
Date throughout the period of the Term in relation to which a Deemed Advance
Notice has been given is made available, that:

                  (i)   it is the sole and exclusive owner of the entire right,
      title, and interest in the Collateral, as to all Collateral whether now
      existing or hereafter acquired, will continue to have such rights in the
      Collateral (except with respect to Proceeds), in each case free and clear
      of any and all Liens, rights or claims of all other Persons to the extent
      not otherwise included above, including, without limitation, liens arising
      as a result of the Grantor becoming bound (as a result of merger of
      otherwise) as a debtor under a security agreement entered into by another
      Person, other than Permitted Liens;

                  (ii)  as indicated on Schedule 4.1(a)(ii), it is a limited
      liability company incorporated solely under the laws of England and Wales
      and remains duly existing as such. The Grantor has not filed any
      certificates of domestication, transfer or continuance in any other
      jurisdiction. The Grantor has also indicated on Schedule 4.1(a)(ii) (as
      such schedule may be amended or supplemented from time to time): (w) the
      full legal name of the Grantor, (x) its organizational identification
      number (as applicable), (y) the jurisdiction where the chief executive
      office is located, and for the one-year period preceding the date hereof
      has been located, and (z) its notice address.

                  (iii) it has not done in the last five (5) years, and does not
      do, business under any other name (including any trade-name or fictitious
      business name) except for those names set forth on Schedule 4.1(a)(iii)
      (as such schedule may be amended or supplemented from time to time);

                  (iv)  except as provided on Schedule 4.1(a)(iv) (as such
      schedule may be amended or supplemented from time to time), it has not
      changed its name, jurisdiction of organization, or chief executive office
      within the past five (5) years;

                  (v)   upon the filing of (x) all UCC financing statements
      naming the Grantor as "debtor" and the Secured Party as "secured party",
      and (y) all relevant filings in the UK, describing the Collateral in the
      filing office set forth on Schedule 4.1(a)(v) hereof (as such schedule may
      be amended or supplemented from time to time), the security interest
      granted to the Secured Party hereunder constitutes a valid, legal,
      enforceable and perfected first priority Lien (subject in the case of
      priority only to Permitted Liens);

                                       6
<PAGE>

                  (vi)  all actions and consents, including all filings,
      notices, registrations and recordings necessary or desirable for the
      exercise by the Secured Party of the rights provided for in this Security
      Deed or the exercise of remedies in respect of the Collateral have been
      made or obtained;

                  (vii) other than the financing statements filed in favor of
      the Secured Party, no effective UCC financing statement or other
      instrument similar in effect under any applicable law covering all or any
      part of the Collateral is on file in any filing or recording office except
      for (y) financing statements for which proper termination statements have
      been delivered to the Secured Party for filing and (z) financing
      statements filed in connection with Permitted Liens;

                  (viii) no authorization, approval or other action by, and no
      notice to or filing with, any Governmental Authority or regulatory body is
      required for either (y) the grant by the Grantor of the Lien purported to
      be created in favor of the Secured Party hereunder or (z) the exercise by
      the Secured Party of any rights or remedies in respect of the Collateral
      (whether specifically granted or created hereunder or created or provided
      for by applicable law), except for the filings contemplated by clause (v)
      above;

                  (ix)  as of the Closing Date, it has delivered notice,
      substantially in the form of Exhibit C attached hereto, of the Lien
      created by this Security Deed to Endo.

            (b)   Covenants and Agreements of the Grantor. The Grantor hereby
covenants and agrees that:

                  (i)   save with respect to Permitted Liens, it will not,
      without the prior written consent of Secured Party, create, or permit to
      subsist any security over:

                        (1) prior to the MAM Approval Date, any of its assets or
      any of the assets of its subsidiaries; and

                        (2) on and after the MAM Approval Date: (A) any of the
      Collateral or other Relevant Assets; or (B) any book and other debts and
      monetary claims relating to the Collateral or other Relevant Assets and
      any proceeds of such debts and claims (including without limitation, any
      claims or sums of money deriving from or in relation to the Collateral or
      other Relevant Assets, any court order or judgment, any contract or
      agreement to which the Grantor is party and any other assets, property
      rights or undertaking of the Grantor in each case in or relating to the
      Collateral or other Relevant Assets);

                  (ii)  except with the prior consent of the Secured Party or as
      permitted under the Loan Agreement the Grantor shall not execute, and
      there will not be on file in any public office, any financing statement or
      other documents or instruments, except financing statements or other
      documents or instruments filed or to be filed in favor of the Secured
      Party and the Grantor shall not (except as permitted by the Loan
      Agreement) sell, assign, transfer, license, grant any option, or create or
      suffer to exist any Lien upon or with respect to, or otherwise dispose of
      (by operation of law or otherwise) the Collateral, except Permitted Liens
      and the Lien created by and under this Security Deed and other Finance
      Documents, and the Grantor shall defend the Collateral against all Persons
      at any time claiming any interest therein;

                                       7
<PAGE>

                  (iii) it shall not change the Grantor's name, chief executive
      office, type of organization or jurisdiction of organization unless it
      shall have (y) notified the Secured Party in writing, by executing and
      delivering to the Secured Party a completed Pledge Supplement, at least
      thirty (30) days prior to any such change or establishment, identifying
      such new proposed name, chief executive office or jurisdiction of
      organization and providing such other information in connection therewith
      as the Secured Party may reasonably request and (z) taken all actions
      necessary or advisable in the reasonable opinion of the Secured Party to
      maintain the continuous validity, perfection and the same or better
      priority of the Secured Party's security interest in the Collateral
      intended to be granted and agreed to hereby;

                  (iv)  it shall pay promptly when due all property and other
      taxes, assessments and governmental charges or levies imposed upon, and
      all claims against, the Collateral, except to the extent the validity
      thereof is being contested in good faith; provided, the Grantor shall in
      any event pay such taxes, assessments, charges, levies or claims not later
      than five (5) days prior to the date of any proposed sale under any
      judgment, writ or warrant of attachment entered or filed against the
      Grantor or any of the Collateral as a result of the failure to make such
      payment;

                  (v)   upon the Grantor obtaining actual knowledge thereof, it
      shall promptly notify the Secured Party in writing of any event that is
      reasonably likely to have a material and adverse effect on the ability of
      the Grantor or the Secured Party to dispose of the Collateral or any
      portion thereof following an Event of Default, including, without
      limitation, the levy of any legal process against the Collateral or any
      portion thereof; and

                  (vi)  it shall not take or permit any action which is
      reasonably likely to impair the Secured Party's rights in the Collateral.

      4.2   RECEIVABLES.

            (a)   Representations and Warranties. The Grantor represents and
warrants, on the Closing Date and on each Interest Payment Date throughout the
period of the Term in relation to which a Deemed Advance Notice has been given
is made available, that no Receivable requires the consent of the Account Debtor
in respect thereof in connection with the pledge hereunder, except any consent
which has been obtained.

            (b)   Covenants and Agreements. The Grantor hereby covenants and
agrees that:

                  (i)   it shall keep and maintain at its own cost and expense
      satisfactory and complete records of the Receivables, including, but not
      limited to, the originals of all documentation with respect to all
      Receivables and records of all payments received and all credits granted
      on the Receivables;

                  (ii)  it shall not evidence Receivables as Chattel Paper or
      Instruments except with the prior consent of the Secured Party, and it
      shall mark conspicuously, in form and manner reasonably satisfactory to
      the Secured Party, all Chattel Paper and Instruments hereafter created
      with an appropriate reference to the fact that the Secured Party has a
      security interest therein;

                                       8
<PAGE>

                  (iii) except as otherwise provided in this subsection, the
      Grantor shall continue to collect all amounts due or to become due to the
      Grantor under the Receivables and any Supporting Obligation.
      Notwithstanding anything in the foregoing, at any time following the
      occurrence and during the continuation of an Event of Default, the Secured
      Party may: (y) direct the Account Debtors under any Receivables to make
      payment of all amounts due or to become due to the Grantor thereunder
      directly to the Secured Party; and (z) notify, or require the Grantor to
      notify, each Person (if any) maintaining a lockbox or similar arrangement
      to which Account Debtors under any Receivables have been directed to make
      payment to remit all amounts representing collections on checks and other
      payment items from time to time sent to or deposited in such lockbox or
      other arrangement directly to the Secured Party. If following the
      occurrence and continuance of an Event of Default the Secured Party
      notifies the Grantor that it has elected to collect the Receivables in
      accordance with the preceding sentence, any payments of Receivables
      received by the Grantor shall be forthwith (and in any event within two
      (2) Business Days) deposited by the Grantor thereafter in the exact form
      received, duly indorsed by the Grantor to the Secured Party if required,
      in the Collateral Account maintained under the sole dominion and control
      of the Secured Party, and until so turned over, all amounts and proceeds
      (including checks and other instruments) received by the Grantor in
      respect of the Receivables, any Supporting Obligation or Collateral
      Support shall be received in trust for the benefit of the Secured Party
      hereunder and shall be segregated from other funds of the Grantor and the
      Grantor shall not adjust, settle or compromise the amount or payment of
      any Receivable, or release wholly or partly any Account Debtor or obligor
      thereof, or allow any credit or discount thereon.

            (c)   Delivery and Control of Receivables. With respect to any
Receivables that are evidenced by, or constitute, Chattel Paper or Instruments,
the Grantor shall cause each originally executed copy thereof to be delivered to
the Secured Party (or its agent or designee) appropriately indorsed to the
Secured Party or indorsed in blank within ten (10) days of the Grantor acquiring
rights therein. With respect to any Receivables which at anytime hereafter would
constitute "electronic chattel paper" under Article 9 of the UCC, the Grantor
shall take all steps necessary to give the Secured Party control over such
Receivables (within the meaning of Section 9-105 of the UCC) within ten (10)
days of the Grantor acquiring rights therein.

SECTION 5. ACCESS; RIGHT OF INSPECTION AND FURTHER ASSURANCES.

      5.1   ACCESS; RIGHT OF INSPECTION. The Secured Party and its
representatives shall at all times following the occurrence and during the
continuation of an Event of Default, have full and free access during normal
business hours to all the books, correspondence and records of the Grantor that
are related to the Collateral, and the Secured Party and its representatives may
examine the same, take extracts therefrom and make photocopies thereof, and the
Grantor agrees to render to the Secured Party, at the Grantor's cost and
expense, such clerical and other assistance as may be reasonably requested with
regard thereto.

      5.2   FURTHER ASSURANCES (a) The Grantor agrees that from time to time, at
its expense, that it shall promptly execute and deliver all further instruments
and documents, and take all further action, that may be necessary or that the
Secured Party may reasonably request, in order to create and/or maintain the
validity, perfection or priority of and protect any security interest granted
hereby or, upon the occurrence and during the continuance of an Event of
Default, to enable the Secured Party to exercise and enforce its rights and
remedies hereunder with respect to the Collateral. Without limiting the
generality of the foregoing, the Grantor shall:

                                       9
<PAGE>

                  (i)   file (x) such financing or continuation statements (or
      similar documents) or (y) such other agreements, instruments,
      endorsements, powers of attorney or notices as may be necessary under UK
      law, or as the Secured Party may reasonably request, in order to perfect
      and preserve the security interests granted or purported to be granted
      hereby;

                  (ii)  at the Secured Party's request, appear in and defend any
      action or proceeding that is reasonably likely to affect such Grantor's
      title to or the Secured Party's security interest in all or any part of
      the Collateral.

            (b)   The Grantor hereby authorizes the Secured Party to file a
Record, including, without limitation, financing or continuation statements, and
amendments thereto, in any jurisdictions and with any filing offices as the
Secured Party may determine, in its reasonable discretion, are necessary or
advisable to perfect the security interest granted to the Secured Party herein.
Such financing statements may describe the Collateral in the same manner as
described herein or may contain an indication or description of collateral that
describes such property in any other manner as the Secured Party may determine,
in its reasonable discretion, is necessary, advisable or prudent to ensure the
perfection of the security interest in the Collateral granted to the Secured
Party herein. The Grantor shall furnish to the Secured Party from time to time
statements and schedules further identifying and describing the Collateral as
the Secured Party may reasonably request, all in reasonable detail.

SECTION 6. SECURED PARTY APPOINTED ATTORNEY-IN-FACT.

      6.1   POWER OF ATTORNEY. The Grantor, by way of security, irrevocably
appoints the Secured Party and any of its delegates and sub-delegates to be its
attorney to take, at any time after the security constituted by this Security
Deed has become enforceable, any action which the Grantor is obliged to take
under this Security Deed. The Grantor ratifies and confirms whatever any
attorney does or purports to do pursuant to its appointment under this Clause.

      6.2   NO DUTY ON THE PART OF SECURED PARTY. The powers conferred on the
Secured Party hereunder are solely to protect its interests in the Collateral
and shall not impose any duty upon the Secured Party to exercise any such
powers. The Secured Party shall be accountable only for amounts that it actually
receive as a result of the exercise of such powers, and neither the Secured
Party nor any of its officers, directors, employees or agents shall be
responsible to the Grantor for any act or failure to act hereunder, except for
the own gross negligence or willful misconduct.

SECTION 7. REMEDIES, GENERALLY.

      7.1   GENERALLY.

            (a)   If any Event of Default shall have occurred and be continuing,
the Secured Party may exercise in respect of the Collateral, in addition to all
other rights and remedies provided for herein or otherwise available to it at
law or in equity, all the rights and remedies of the Secured Party on default
under the UCC (whether or not the UCC applies to the affected Collateral) to
collect, enforce or satisfy any Secured Obligations then owing, whether by
acceleration or otherwise, and also may pursue any of the following separately,
successively or simultaneously:

                                       10
<PAGE>

                  (i)   require the Grantor to, and the Grantor hereby agrees
      that it shall at its expense and promptly upon request of the Secured
      Party forthwith, assemble all or part of the Collateral as directed by the
      Secured Party and make it available to the Secured Party at a place to be
      designated by the Secured Party that is reasonably convenient to both
      parties;

                  (ii)  take possession of the Collateral with or without
      judicial process;

                  (iii) prior to the disposition of the Collateral, prepare the
      Collateral for disposition in any manner to the extent the Secured Party
      deems appropriate; and

                  (iv)  subject to the terms of Section 10.2 of the Loan
      Agreement, without notice except as specified below or under the UCC,
      sell, assign, lease, license (on an exclusive or nonexclusive basis) or
      otherwise dispose of the Collateral or any part thereof in one or more
      parcels at public or private sale, at any of the Secured Party's offices
      or elsewhere, for cash, on credit or for future delivery, at such time or
      times and at such price or prices and upon such other terms as the Secured
      Party may deem commercially reasonable.

            (b)   The Secured Party may be the purchaser of any or all of the
Collateral at any public or private (to the extent to the portion of the
Collateral being privately sold is of a kind that is customarily sold on a
recognized market or the subject of widely distributed standard price
quotations) sale in accordance with the UCC and the Secured Party shall be
entitled, for the purpose of bidding and making settlement or payment of the
purchase price for all or any portion of the Collateral sold at any such sale
made in accordance with the UCC, to use and apply any of the Secured Obligations
as a credit on account of the purchase price for any Collateral payable by the
Secured Party at such sale. Each purchaser at any such sale shall hold the
property sold absolutely free from any claim or right on the part of the
Grantor, and the Grantor hereby waives (to the extent permitted by applicable
law) all rights of redemption, stay and/or appraisal which it now has or may at
any time in the future have under any rule of law or statute now existing or
hereafter enacted. The Grantor agrees that, to the extent notice of sale shall
be required by law, at least ten (10) days notice to the Grantor of the time and
place of any public sale or the time after which any private sale is to be made
shall constitute reasonable notification. The Secured Party shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. The Secured Party may adjourn any public or private sale from time
to time by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned. The Grantor hereby waives any claims against the Secured Party
arising by reason of the fact that the price at which any Collateral may have
been sold at such a private sale was less than the price which might have been
obtained at a public sale, even if the Secured Party accepts the first offer
received and does not offer such Collateral to more than one offeree. If the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay all the Secured Obligations, the Grantor shall be liable for the deficiency
and the fees of any attorneys employed by the Secured Party to collect such
deficiency. The Grantor further agrees that a breach of any of the covenants
contained in this Section will cause irreparable injury to the Secured Party,
that the Secured Party has no adequate remedy at law in respect of such breach
and, as a consequence, that each and every covenant contained in this Section
shall be specifically enforceable against the Grantor, and the Grantor hereby
waives and agrees not to assert any defenses against an action for specific
performance of such covenants except for a defense that no default has occurred
giving rise to the Secured

                                       11
<PAGE>

Obligations becoming due and payable prior to their stated maturities. Nothing
in this Section shall in any way alter the rights of the Secured Party
hereunder.

            (c)   The Secured Party may sell the Collateral without giving any
warranties as to the Collateral. The Secured Party may specifically disclaim or
modify any warranties of title or the like. This procedure will not be
considered to adversely affect the commercial reasonableness of any sale of the
Collateral.

            (d)   The Secured Party shall have no obligation to marshal any of
the Collateral.

      7.2   APPLICATION OF PROCEEDS. Except as expressly provided elsewhere in
this Security Deed, all proceeds received by the Secured Party in respect of any
sale, any collection from, or other realization upon all or any part of the
Collateral shall be applied in full or in part by the Secured Party against, the
Secured Obligations in the following order of priority:

            (a)   first, to the payment of all costs and expenses of such sale,
collection or other realization, including reasonable compensation to the
Secured Party's agents and counsel, and all other expenses, liabilities and
advances made or incurred by the Secured Party in connection therewith, and all
amounts for which the Secured Party is entitled to indemnification hereunder and
all advances made by the Secured Party hereunder for the account of the Grantor;

            (b)   second, to the payment of all other costs and expenses paid or
incurred by the Secured Party in connection with the exercise of any right or
remedy hereunder or under the Loan Agreement, all in accordance with the terms
hereof or thereof;

            (c)   third, to the extent of any excess of such proceeds, to the
payment of all other Secured Obligations; and

            (d)   fourth, to the extent of any excess of such proceeds, to the
payment to or upon the order of the Grantor or to whosoever may be lawfully
entitled to receive the same or as a court of competent jurisdiction may direct.

      7.3   SALES ON CREDIT. If Secured Party sells any of the Collateral upon
credit, the Grantor will be credited only with payments actually made by
purchaser and received by Secured Party and applied to indebtedness of the
purchaser. In the event the purchaser fails to pay for the Collateral, the
Secured Party may resell the Collateral and the Grantor shall be credited with
proceeds of the sale.

      7.4   CASH PROCEEDS.

            In addition to the rights of the Secured Party specified in Section
4.2 with respect to payments of Receivables, all proceeds of any Collateral
received by the Grantor after the occurrence and during the continuation of an
Event of Default consisting of cash, checks and other non-cash items
(collectively, "CASH PROCEEDS") shall be held by the Grantor in trust for the
Secured Party, segregated from other funds of the Grantor, and shall, forthwith
upon receipt by the Grantor, be turned over to the Secured Party in the exact
form received by the Grantor (duly indorsed by the Grantor to the Secured Party,
if required) and held by the Secured Party. Any Cash Proceeds received by the
Secured Party (whether from the Grantor or otherwise), if an Event of Default
shall have occurred and be continuing, may, in the sole discretion of the
Secured Party, (a) be held by the Secured Party for the benefit as collateral
security for the Secured

                                       12
<PAGE>

Obligations (whether matured or unmatured) or (b) then or at any time thereafter
may be applied by the Secured Party against the Secured Obligations then due and
owing.

            For the avoidance of doubt, so long as no Event of Default has
occurred and is continuing, nothing contained herein shall limit the rights of
the Grantor to use and apply Cash Proceeds as it sees fit.

SECTION 8. REMEDIES, UK.

      8.1   UK ENFORCEMENT OF SECURITY, GENERALLY

            Without limiting anything contained in this Security Deed, for the
purposes of all powers implied by UK statute, the Secured Obligations are deemed
to have become due and payable on the date of this Security Deed and Section 103
of the Law of Property Act (Eng.) (the "ACT") (restricting the power of sale)
and Section 93 of the Act (restricting the right of consolidation) do not apply
to the security constituted by this Security Deed. The statutory powers of
leasing conferred on the Secured Party are extended so as to authorize the
Secured Party to lease, make agreements for leases, accept surrenders of leases
and grant options as the Secured Party may think fit and without the need to
comply with any provision of Sections 99 or 100 of the Act; and further

            (a)   Contingencies. If the Secured Party enforces the security
constituted by this Security Deed at a time when no amounts are due under any
Finance Document but at a time when amounts may or will become so due, the
Secured Party (or the Receiver) may pay the proceeds of any recoveries effected
by it into any account established for such purpose upon documentary terms and
conditions satisfactory to the Secured Party;

            (b)   No Liability as Mortgagee in Possession. Neither the Secured
Party nor any Receiver will be liable, by reason of entering into possession of
all or any of the Collateral, to account as mortgagee in possession or for any
loss on realization or for any default or omission for which a mortgagee in
possession might be liable;

            (c)   Agent of the Grantor. Each Receiver is deemed to be the agent
of the Grantor for all purposes and accordingly is deemed to be in the same
position as a Receiver duly appointed by a mortgagee under the Act. The Grantor
alone shall be responsible for his contracts, engagements, acts, omissions,
defaults and losses and for liabilities incurred by him and the Secured Party
shall not incur any liability (either to the Grantor or to any other Person) by
reason of the Secured Party making his appointment as a Receiver or for any
other reason; and

            (d)   Privileges. Each Receiver and the Secured Party is entitled to
all the rights, powers, privileges and immunities conferred by the Act on
mortgagees and receivers when such receivers have been duly appointed under the
Act, except that Section 103 of the Act does not apply.

      8.2   RECEIVER

            (a)   Appointment of Receiver.

                  (i)   Subject to paragraph (iii) below at any time after the
      occurrence and during the continuation of an Event of Default and after
      the security constituted by this Security Deed becomes enforceable or the
      Secured Party may without

                                       13
<PAGE>

      further notice appoint by deed, under seal or in writing, under its hand
      any one or more persons to be a receiver (a "RECEIVER") of all or any part
      of the Collateral in like manner in every respect as if the Secured Party
      had become entitled under the Act to exercise the power of sale conferred
      under the Act (subject to Clause 10.2 of the Loan Agreement);

                  (ii)  Section 109(1) of the Act shall not apply to this
      Security Deed; and

                  (iii) the Secured Party shall be entitled to appoint a
      Receiver save to the extent prohibited by Section 72A of the Insolvency
      Act 1986 (Eng.); and

                  (iv)  any duly appointed Receiver has, until removed, the
      powers set forth on Exhibit D attached hereto.

            (b)   Removal. The Secured Party may by notice remove from time to
time any Receiver appointed by it (subject to the provisions of Section 45 of
the Insolvency Act 1986 (Eng.) in the case of any administrative receivership if
applicable) and, whenever it may deem appropriate, appoint a new Receiver in the
place of any Receiver whose appointment has terminated for whatever reason;

            (c)   Remuneration. The Secured Party may fix the remuneration of
any Receiver appointed by it and the maximum rate specified in Section 109(6) of
the Act shall not apply; and

            (d)   Relationship with the Secured Party. To the fullest extent
permitted by law, any right, power or discretion conferred by this Security Deed
(either expressly or impliedly) upon a Receiver of the Collateral may after the
continuation and during the continuation of an Event of Default and after the
security created by this Security Deed becomes enforceable, be exercised by the
Secured Party in relation to any of the Collateral without first appointing a
Receiver or notwithstanding the appointment of a Receiver.

SECTION 9. SECURED PARTY.

            The Secured Party has the right hereunder, to make demands, to give
notices, to exercise or refrain from exercising any rights, and to take or
refrain from taking any action (including, without limitation, the release or
substitution of Collateral), solely in accordance with the Finance Documents and
any statutory provisions related therewith.

SECTION 10. CONTINUING SECURITY INTEREST; TRANSFER OF THE ADVANCE.

            This Security Deed shall create a continuing security interest in
the Collateral and shall remain in full force and effect until the payment in
full of all Secured Obligations and the cancellation or termination of the Loan
Agreement, be binding upon the Grantor, its successors and assigns, and inure,
together with the rights and remedies of the Secured Party hereunder, to the
benefit of the Secured Party and its successors, transferees and assigns (to the
extent permitted by the Loan Agreement). Without limiting the generality of the
foregoing, but subject to the terms of the Loan Agreement, the Secured Party may
assign or otherwise transfer the Advance held by it to any other Person, and
such other Person shall thereupon become vested with all the benefits in respect
thereof granted to the Secured Party herein or otherwise. Upon the payment in
full of all Secured Obligations and the cancellation or termination of the Loan
Agreement, the

                                       14
<PAGE>

security interest granted hereby shall terminate hereunder and of record and all
rights to the Collateral shall revert to the Grantor. Upon any such termination
the Secured Party shall, at the Grantor's expense, execute and deliver to the
Grantor such documents as it shall reasonably request to evidence such
termination.

SECTION 11. STANDARD OF CARE; SECURED PARTY MAY PERFORM.

            The powers conferred on the Secured Party hereunder are solely to
protect its interest in the Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the exercise of reasonable care in the
custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, the Secured Party shall have no duty as to
any Collateral or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Collateral. The
Secured Party shall be deemed to have exercised reasonable care in the custody
and preservation of Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which the Secured Party accords its own
property. Neither the Secured Party nor any of its directors, officers,
employees or agents shall be liable for failure to demand, collect or realize
upon all or any part of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of the Grantor or otherwise. If the Grantor fails to perform any
agreement contained herein, the Secured Party may itself perform, or cause
performance of, such agreement, and the reasonable expenses of the Secured Party
incurred in connection therewith shall be immediately due and payable by the
Grantor.

SECTION 12. MISCELLANEOUS.

            Any notice required or permitted to be given under this Security
Deed shall be given in accordance with Section 18 of the Loan Agreement. No
failure or delay on the part of the Secured Party in the exercise of any power,
right or privilege hereunder or under any other Finance Document shall impair
such power, right or privilege or be construed to be a waiver of any default or
acquiescence therein, nor shall any single or partial exercise of any such
power, right or privilege preclude other or further exercise thereof or of any
other power, right or privilege. All rights and remedies existing under this
Security Deed and the other Finance Documents are cumulative to, and not
exclusive of, any rights or remedies otherwise available. In case any provision
in or obligation under this Security Deed shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations, or of such provision or obligation in
any other jurisdiction, shall not in any way be affected or impaired thereby.
All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or would otherwise be within
the limitations of, another covenant shall not avoid the occurrence of a
Potential Event of Default or an Event of Default if such action is taken or
condition exists. This Security Deed shall be binding upon and inure to the
benefit of the Secured Party and the Grantor and their respective successors and
assigns. The Grantor shall not, without the prior written consent of the Secured
Party given in accordance with the Loan Agreement, assign any right, duty or
obligation hereunder, except as contemplated by the Loan Agreement. This
Security Deed and the other Finance Documents embody the entire agreement and
understanding between the Grantor and the Secured Party and supersede all prior
agreements and understandings between such parties relating to the subject
matter hereof and thereof. Accordingly, the Finance Documents may not be
contradicted by evidence of prior, contemporaneous or subsequent oral agreements
of the parties. There are no unwritten oral agreements between the parties. This
Security Deed may be executed in one or more counterparts and by different
parties hereto in separate counterparts, each of which when so

                                       15
<PAGE>

executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document.

            THIS SECURITY DEED AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS
CONFLICTS OF LAW PROVISIONS (OTHER THAN SECTION 5-1401 AND SECTION 5-1402 OF THE
NEW YORK GENERAL OBLIGATION LAWS).

                                       16
<PAGE>

      IN WITNESS WHEREOF, the Grantor and the Secured Party have caused this
Security Deed to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.

                                         Executed as a Deed, by:

                                         VERNALIS DEVELOPMENT LIMITED,
                                         as the Grantor

                                         By: ___________________________________
                                                Name:
                                                Title: Director

                                         By: ___________________________________
                                                Name:
                                                Title: Director/Secretary

                                         ENDO PHARMACEUTICALS INC.,
                                         as the Secured Party

                                         By: ___________________________________
                                                Name:
                                                Title:

                                       17
<PAGE>

                            EXHIBITS TO SECURITY DEED

                                    EXHIBIT A
                            FORM OF PLEDGE SUPPLEMENT

            This PLEDGE SUPPLEMENT, dated [MM/DD/YY], is delivered by VERNALIS
DEVELOPMENT LIMITED a limited liability company incorporated in England and
Wales (the "GRANTOR") pursuant to the Security Deed, dated as of July __, 2004
(as it may be from time to time amended, restated, modified or supplemented, the
"SECURITY DEED"), among the Grantor, and ENDO PHARMACEUTICALS INC., as the
Secured Party. Capitalized terms used herein not otherwise defined herein shall
have the meanings ascribed thereto in the Security Deed.

            Grantor hereby confirms the grant to the Secured Party of, and does
hereby grant to the Secured Party, a security interest in all of Grantor's
right, title and interest in and to all Collateral to secure the Secured
Obligations, in each case whether now or hereafter existing or in which Grantor
now has or hereafter acquires an interest and wherever the same may be located.
Grantor represents and warrants that the attached supplements to schedules
accurately and completely set forth all additional information required pursuant
to the Security Deed and hereby agrees that such supplements to schedules shall
constitute part of the schedules to the Security Deed.

            IN WITNESS WHEREOF, Grantor has caused this Pledge Supplement to be
duly executed and delivered by its duly authorized officer as of the date first
written above.

                                         VERNALIS DEVELOPMENT LIMITED

                                         By:____________________________________
                                         Name:
                                         Title:

<PAGE>

                            EXHIBITS TO SECURITY DEED

                                    EXHIBIT B
                                 FORM OF NOTICE

                                NOTICE OF CHARGE

To:   Endo Pharmaceuticals Inc.
      100 Painters Drive
      Chadds Ford, PA 19317
      United States of America
      (as licensee under the License Agreement (as defined below))

Dear Sir or Madam,

We hereby give you notice that pursuant to a security deed dated as of July __,
2004 (the "SECURITY DEED") we have charged to Endo Pharmaceuticals Inc. (as
secured party under the Security Deed) (the "SECURED PARTY") all our right,
title and interest in, to and in respect of all payments made by the licensee
under the license agreement (the "LICENSE AGREEMENT"), dated as of July __,
2004, between Vernalis Development Limited and Endo Pharmaceuticals Inc.

With effect from your receipt of this notice we hereby give you notice that we
have agreed that upon the occurrence and during the continuation of an Event of
Default, the Secured Party shall have certain rights and remedies under the
Security Deed, including, without limitation:

      (a)   all payments to be made to us under or arising from the License
            Agreement should be made to the Secured Party or to its order as it
            may specify from time to time;

      (b)   all remedies provided for in the License Agreement or available at
            law or in equity shall be exercisable by the Secured Party;

      (c)   all rights to compel performance of the License Agreement shall be
            exercisable by the Secured Party (although we shall remain liable to
            perform all the obligations assumed by us under the License
            Agreement); and

      (d)   all rights, interests and benefits whatsoever accruing to or for the
            benefit of ourselves arising from the License Agreement belong to
            the Secured Party and no changes may be made to the terms of the
            License Agreement, nor may the License Agreement be terminated,
            without the Secured Party's prior written consent.

You are hereby authorized and instructed, without requiring further approval
from us, to provide the Secured Party with such information related to the
License Agreement as it may from time to time request and to send it copies of
all notices issued by you under the License Agreement to the Secured Party, as
well as to us.

These instructions may not be revoked, nor may the terms of the License
Agreement be amended, varied or waived without the prior written consent of the
Secured Party.

Yours faithfully,

For and on behalf of
VERNALIS DEVELOPMENT LIMITED

<PAGE>

                            EXHIBITS TO SECURITY DEED

                                    EXHIBIT C
                               POWERS OF RECEIVER

1.1   GENERAL.

      (a)   Each Receiver has, and is entitled to exercise, all of the rights,
            powers and discretions set out below in this Exhibit D in addition
            to those conferred by the Act on any receiver appointed under the
            Act;

      (b)   If there is more than one Receiver holding office at the same time,
            each Receiver may (unless the document appointing him states
            otherwise) exercise all of the powers conferred on a Receiver under
            this Security Deed individually and to the exclusion of any other
            Receivers;

      (c)   Each Receiver has all the rights, powers and discretions set out in
            schedule 1 to the Insolvency Act 1986 (Eng.); and

      (d)   A Receiver who is an administrative receiver of the Grantor has all
            the rights, powers and discretions of an administrative receiver
            under the Insolvency Act 1986 (Eng.).

1.2   POSSESSION. Receiver may take immediate possession of, get in and collect
      any of the Collateral.

1.3   PROTECTION OF ASSETS. A Receiver may do all acts which the Grantor might
      do in the ordinary conduct of its business as well for the protection as
      for the improvement of the Collateral, in each case as he may think fit.

1.4   EMPLOYEES. A Receiver may appoint and discharge managers, the officers,
      the Secured Party, accountants, servants, workmen and others for the
      purposes of this Security Deed upon such terms as to remuneration or
      otherwise as he may think proper and discharge any such persons appointed
      by the Grantor.

1.5   BORROW MONEY. A Receiver may raise and borrow money either unsecured or on
      the securing of any of the Collateral either in priority to the security
      constituted by this Security Deed or otherwise and generally on any terms
      and for whatever purpose he thinks fit. No person lending that money shall
      be concerned to enquire as to the propriety or purpose of the exercise of
      that power or to check the application of any money so raised or borrowed.

1.6   SALE OF ASSETS. Subject to the provisions of Clause 10.2 of the Loan
      Agreement, a Receiver may sell, exchange, convert into money and realise
      any of the Collateral by public auction or private contract and generally
      in any manner and on any terms that he thinks proper. The consideration
      for any such transaction may consist of cash, debentures or other
      obligations, shares, stock or other valuable consideration and any such
      consideration may be payable in a lump sum or by instalments spread over
      such period as he thinks fit.

<PAGE>

1.7   COMPROMISE. A Receiver may settle, adjust, refer to arbitration,
      compromise and arrange any claims, accounts, disputes, questions and
      demands with or by any person who is or claims to be a creditor of the
      Grantor or relating in any way to any of the Collateral.

1.8   LEGAL ACTIONS. A Receiver may bring, prosecute, enforce, defend and
      abandon all actions, suits and proceedings in relation to any of the
      Collateral that may seem to him to be expedient.

1.9   RECEIPTS. A Receiver may give valid receipts for all moneys and execute
      all assurances and things that may be proper or desirable for realising
      any of the Collateral.

1.10  OTHER POWERS

      Any Receiver may:

      (a)   do all other acts and things which he may consider desirable or
            necessary for realising any of the Collateral or incidental or
            conducive to any of the rights, powers or discretions conferred on a
            Receiver under or by virtue of this Security Deed;

      (b)   exercise in relation to any of the Collateral all the powers,
            authorities and things which he would be capable of exercising if he
            were the absolute beneficial owner of the same, and

      (c)   and may use the name of the Grantor for any of the above purposes.
<PAGE>

                           SCHEDULES TO SECURITY DEED

                               SCHEDULE 4.1(a)(ii)
                           ORGANIZATIONAL INFORMATION

<TABLE>
<CAPTION>
                                                                                            CHIEF
                                                               ORGANIZATION             EXECUTIVE OFFICE
     GRANTOR'S            TYPE OF         JURISDICTION OF     IDENTIFICATION                  AND
  FULL LEGAL NAME       ORGANIZATION       ORGANIZATION           NUMBER                NOTICE ADDRESS
-------------------     ------------     -----------------    --------------    -------------------------------
<S>                     <C>              <C>                  <C>               <C>
VERNALIS DEVELOPMENT    Limited          England and Wales    2600483           CHIEF EXECUTIVE OFFICE:
LIMITED                 Liability
                        Company

                                                                                NOTICE ADDRESS:
                                                                                Vernalis Development Limited
                                                                                Oakdene Court
                                                                                613 Reading Road
                                                                                Winnersh
                                                                                Wokingham
                                                                                RG41 5UA
                                                                                United Kingdom
                                                                                Attention: Head of Legal
                                                                                Affairs/Chief Financial Officer
                                                                                Telecopy: 0118-989-98300
</TABLE>

<PAGE>

                           SCHEDULES TO SECURITY DEED

                              SCHEDULE 4.1(a)(iii)
                             OTHER NAMES OF GRANTOR

<PAGE>

                           SCHEDULES TO SECURITY DEED

                               SCHEDULE 4.1(a)(iv)
               CHANGES IN ORGANIZATIONAL INFORMATION AND STRUCTURE

CHANGES IN NAME:

<TABLE>
<CAPTION>
  DATE OF CHANGE                               DESCRIPTION OF CHANGE
  --------------                               ---------------------
<S>                                         <C>
-------------------                         ----------------------------

-------------------                         ----------------------------
</TABLE>

CHANGES IN JURISDICTION OF ORGANIZATION:

<TABLE>
<CAPTION>
  DATE OF CHANGE                               DESCRIPTION OF CHANGE
  --------------                               ---------------------
<S>                                         <C>
-------------------                         ----------------------------

-------------------                         ----------------------------
</TABLE>

CHANGES IN CHIEF EXECUTIVE OFFICE:

<TABLE>
<CAPTION>
  DATE OF CHANGE                               DESCRIPTION OF CHANGE
  --------------                               ---------------------
<S>                                         <C>
-------------------                         ----------------------------

-------------------                         ----------------------------
</TABLE>

<PAGE>

                           SCHEDULES TO SECURITY DEED

                               SCHEDULE 4.1(a)(v)
                                 FILING OFFICES

Recorder of Deeds, District of Columbia

Companies House, London, England