<PAGE>
                                                                  EXHIBIT 10.114

 Confidential Treatment Requested. Confidential portions of this document have
       been redacted and have been filed separately with the Commission.


                               LICENSE AGREEMENT



                                 by and between



                        TAKEDA CHEMICAL INDUSTRIES, LTD.



                                      and



                       INTERNEURON PHARMACEUTICALS, INC.
<PAGE>

                               LICENSE AGREEMENT



     THIS LICENSE AGREEMENT, effective as of December 2, 1999, by and between
Interneuron Pharmaceuticals, Inc., a corporation organized and existing under
the laws of the State of Delaware, United States, and having its principal
office at 99 Hayden Avenue, Suite 200, Lexington, Massachusetts 02421-7966,
United States ("Interneuron"), and Takeda Chemical Industries, Ltd., a
corporation organized and existing under the laws of Japan and having its
principal office at 1-1 Doshomachi 4-chome, Chuo-Ku, Osaka 540-8645, Japan
("Takeda").



                              W I T N E S S E T H:


     WHEREAS, Interneuron is the owner of, or has certain rights to, the
Interneuron Intellectual Property, as defined herein; and

     WHEREAS, Takeda desires to obtain exclusive license and sublicense rights,
with a right to grant further sublicenses, of the Interneuron Intellectual
Property, and Interneuron desires to grant such license and sublicense rights to
Takeda, upon the terms and conditions set forth herein;

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Parties hereby
agree as follows:



                                   ARTICLE I



                                  DEFINITIONS
                                  -----------

     Unless specifically set forth to the contrary herein, the following
capitalized terms, where used in the singular or plural, shall have the
respective meanings set forth below:

1.1  "Affiliate" shall mean (i) any corporation or other business entity of
     -----------
     which at least fifty percent (50%) of the securities or other ownership
     interests representing the equity, voting stock or general partnership
     interest thereof are owned, controlled or held, directly or indirectly, by
     a Party, (ii) any corporation or other business entity which, directly or
     indirectly, owns, controls or holds at least fifty percent (50%) of the
     securities or other ownership interests representing the equity, voting
     stock or general partnership interest of a Party or (iii) any corporation
     or other business entity of which a Party has the right to acquire,
     directly or indirectly, at least fifty percent (50%) of the securities or
     other ownership interests representing the equity, voting stock or general
     partnership interest thereof.
<PAGE>

1.2  "Back-Up Compound" shall mean any compound, other than the Compound or
     ------------------
     pagoclone, owned by Interneuron or to which Interneuron has exclusive
     rights to license in the Territory at the time Takeda elects to exercise
     the option referred to in Section 4.7 hereof.

1.3  "Business Day" shall mean any day that is not a Saturday or a Sunday or a
     --------------
     day on which the New York Stock Exchange or the Tokyo Stock Exchange is
     closed.

1.4  "Calendar Quarter" shall mean the respective periods of three (3)
     ------------------
     consecutive calendar months ending on March 31, June 30, September 30 and
     December 31.

1.5  "Calendar Year" shall mean each successive period of twelve (12) months
     ---------------
     commencing on January 1 and ending on December 31.

1.6  "cGMP" shall mean current applicable good manufacturing practices
     ------
     regulations of the FDA.

1.7  "Compound" shall mean cytidyl diphosphocholine, also known as CDP-choline
      --------
     or citicoline.

1.8  "CRO Contracts" shall mean the contracts entered into by and between
     ---------------
     Interneuron or its Affiliates and Third Parties for clinical studies
     concerning the Compound and/or Product, copies of which are attached hereto
     as Appendix 1.8.

1.9  "Due Date" shall mean a date when a particular sum of money falls due and
     ----------
     payable to Interneuron hereunder.  For avoidance of doubt, if a sum of
     money is to be paid to Interneuron within a particular period of time after
     a particular event, the last day of that period shall be the Due Date for
     the purpose of this Agreement.

1.10 "Effective Date" shall mean the date first above written.
     --------------

1.11 "Ferrer Agreement" shall mean the License and Supply Agreement dated as of
     ------------------
     January 15, 1993, by and between Interneuron and Ferrer Internacional, S.A.
     ("Ferrer"), including all exhibits thereto and all amendments thereto, a
     copy of which is attached hereto as Appendix 1.11.

1.12 "Ferrer Consent Agreement" shall mean an agreement dated as of December 1,
     --------------------------
     1999 by and among Ferrer, Interneuron and Takeda, a copy of which is
     attached hereto as Appendix 1.12.

1.13 "FDA" shall mean the United States Food and Drug Administration or any
     -----
     successor agency having substantially the same functions.

                                       2
<PAGE>

1.14 "First Commercial Sale" shall mean, with respect to any Product, the first
     -----------------------
     commercial sale of such Product by Takeda, its Affiliates or any of its
     sublicensees anywhere in the Territory.

1.15 "GAAP" shall mean generally accepted accounting principles in the United
      ----
     States.

1.16 "Improvement" shall mean any enhancement in the manufacture, formulation,
     -------------
     ingredients, preparation, presentation, means of delivery or
     administration, dosage, indication, use or packaging of the Compound or
     Product.

1.17 "Initial Indication" shall mean all indications for the Product included in
      ------------------
     the first NDA as filed.

1.18 "Interneuron Intellectual Property" shall mean the Interneuron Patents and
      ---------------------------------
     Interneuron Know-How.

1.19 "Interneuron Know-How" shall mean any and all information and materials,
     ----------------------
     including but not limited to, discoveries, information, processes,
     formulas, data, inventions, know-how and trade secrets, whether patentable
     or otherwise, which:

     (a)  as of the Effective Date or at any time during the term of this
          Agreement, are owned or controlled by Interneuron or any of its
          Affiliates; and

     (b)  relate in any way to the Compound, the Product and/or any Improvement.
          Such information and materials shall include, by way of example but
          without limitation, all chemical, pharmaceutical, toxicological,
          preclinical, clinical, assay control, manufacturing, regulatory, and
          like information, including information owned or controlled by
          Interneuron which is used in NDAs, which may be used or useful for the
          development, manufacturing, obtaining of regulatory approval,
          marketing and/or sale of the Compound or Product, whether or not
          considered proprietary and whether or not subject to statutory
          registration or protection. For the purpose of this Agreement,
          Interneuron shall be deemed to control the Interneuron Know-How if it
          does not own the same but has the right to grant a license or
          sublicense of same in any country within the Territory.

1.20 "Interneuron Patents" shall mean any and all issued United States and
     ---------------------
     Canadian patents and filed United States and Canadian patent applications,
     which (excluding U.S. Patent No. 5,958,896 and any related applications
     owned by the McLean Hospital):

     (a)  as of the Effective Date or at any time during the term of this
          Agreement, are owned or controlled by Interneuron or any of its
          Affiliates; and

                                       3
<PAGE>

     (b)  relate in any way to the Compound, the Product and/or any Improvement;
          including but not limited to certificates of invention, substitutions,
          additions, divisions, continuations, continuations-in-part, reissues,
          renewals, re-examinations, extensions, supplementary protection
          certificates or the like of any such patents and patent applications,
          including but not limited to the patents and patent applications
          listed on Appendix 1.20 hereto. For the purpose of this Agreement,
          Interneuron shall be deemed to control the Interneuron Patents if it
          does not own the same but has the right to grant a license or
          sublicense of same in any country within the Territory.

1.21 "IPI-018 Study" shall mean a Phase 3 clinical trial which comprises a
     ---------------
     randomized double blind study for the ischemic stroke patients on oral
     citicoline.

1.22 "IPI-020 Study" shall mean a Phase 3 clinical trial which comprises a
     ---------------
     bioavailability study of intravenous and oral preparations of citicoline in
     volunteers.

1.23 "Kyowa Hakko Agreement" shall mean the Supply Agreement, dated July 30,
     -----------------------
     1999, between Interneuron and Kyowa Hakko USA, Inc., a copy of which is
     attached hereto as Appendix 1.23.

1.24 "Kyowa Hakko Agreement Assignment" shall mean an assignment dated as of
     ----------------------------------
     December 1, 1999, by and among Kyowa Hakko USA, Inc., Interneuron and
     Takeda, a copy of which is attached hereto as Appendix 1.24.

1.25 "MIT Consent Agreement" shall mean an agreement dated as of December 1,
     -----------------------
     1999, by and among Massachusetts Institute of Technology ("MIT"),
                                                                ---
     Interneuron and Takeda, a copy of which is attached hereto as Appendix
     1.25.

1.26 "NDA" shall mean any new drug application regarding a Product filed with
     -----
     the FDA after the Effective Date, including a reactivation, refiling,
     resubmission and/or amendment of new drug application number 20-904.

1.27 "NDS" shall mean a new drug submission filed with the Health Protection
     -----
     Branch of Health Canada for marketing authorization of a Product in Canada.

1.28 "Net Sales" shall mean the actual gross amount invoiced for the commercial
     -----------
     sale of Product commencing upon the date of First Commercial Sale by
     Takeda, its Affiliates or its sublicensees to the first Third Party after
     deducting in accordance with GAAP, if not previously deducted from the
     amount invoiced:

     (a)  trade, cash, promotional and quantity discounts;

     (b)  recalls, credits and allowances on account of returned or rejected
          products including, but not limited to, allowance for breakage and
          spoilage;

                                       4
<PAGE>

     (c)  rebates, chargebacks and amounts paid on the sale or dispensing of
          Product; and

     (d)  sales or excise taxes, VAT or other taxes, transportation and
          insurance charges and additional special transportation, custom
          duties, and other governmental charges invoiced to a Third Party.

1.29 "Party" shall mean Interneuron or Takeda.
     -------

1.30 "Payment Year" shall mean (i) for the year in which the First Commercial
     --------------
     Sale occurs, the period commencing with the date of First Commercial Sale
     and expiring on the last day of the month which is twelve (12) months after
     the month in which the date of First Commercial Sale occurs and (ii) for
     all subsequent years, each successive twelve (12) month  period.

1.31 "Product" shall mean any finished pharmaceutical formulations containing
     ---------
     the Compound in any dosage form, the development, manufacture, use, import,
     offer for sale, marketing, sale or other disposition of which uses
     Interneuron Intellectual Property.

1.32 "Proprietary Information" shall mean any and all scientific, clinical,
     -------------------------
     regulatory, marketing, financial and commercial information or data,
     whether communicated in writing, orally or by any other means, which is
     provided by one Party to the other Party in connection with this Agreement.
     Information or data orally disclosed shall constitute Proprietary
     Information if it is reduced to writing and sent to the other Party within
     sixty (60) days after the oral disclosure to that other Party.

1.33 "SEC" shall mean the United States Securities and Exchange Commission.
      ---

1.34 "Territory" shall mean Canada and the United States of America and the
     -----------
     territories and possessions of the United States of America, including the
     District of Columbia, Puerto Rico and U.S. Virgin Islands.

1.35 "Third Party" shall mean a person or entity who or which is neither a Party
      -----------
     nor an Affiliate of a Party.

1.36 "Valid Claim" shall mean a claim of an issued and unexpired patent included
     -------------
     within the Interneuron Patents, which has not been revoked or held
     unenforceable or invalid by a decision of a court or other governmental
     agency of competent jurisdiction, unappealable or for which an appeal has
     not been filed within the time allowed for appeal, and which has not been
     disclaimed, denied or admitted to be invalid or unenforceable through
     reissue or disclaimer or otherwise. For the purposes of this Agreement, a
     Valid Claim shall also include a claim in a pending application included
     within the Interneuron Patents, which application (i) is under active
     prosecution, (ii) for which formal examination has been requested, or (iii)
     is entitled to provisional protection.

                                       5
<PAGE>

                                   ARTICLE II



                               LICENSE AND OPTION
                               ------------------

2.1  License and Sublicense Grants. Subject to the terms and conditions of the
     ------------------------------
     Ferrer Agreement, Interneuron hereby grants to Takeda (i) an exclusive
     (even as to Interneuron) license  under the Interneuron Intellectual
     Property owned by Interneuron as of the Effective Date or at any time
     thereafter during the term of this Agreement, and (ii) an exclusive (even
     as to Interneuron) sublicense  under the Interneuron Intellectual Property
     which is controlled (but not owned) by Interneuron as of the Effective Date
     or at any time thereafter during the term of this Agreement, to develop,
     make, have made, use, import, offer for sale, market, sell and otherwise
     dispose of the Compound and Product in the Territory.

2.2  Right to Sublicense.  Takeda shall have the right to grant sublicenses
     --------------------
     under the Interneuron Intellectual Property in the United States of America
     (including the territories and possessions thereof) to (i) its Affiliates,
     (ii) to Third Parties having a market capitalization (i.e., the number of
     outstanding shares multiplied by the market price of a share) of at least
     ten (10) billion U.S. Dollars and (iii) subject to prior written consent by
     Interneuron, which shall not be unreasonably withheld, to other Third
     Parties.  Takeda shall have the unlimited right to grant sublicenses under
     the Interneuron Intellectual Property in Canada.  Interneuron shall execute
     and deliver to Takeda concurrently herewith: (i) the Ferrer Consent
     Agreement in the form of Appendix 1.12 and (ii) the MIT Consent Agreement
     in the form of Appendix 1.25.

2.3  Option to License Back-Up Compound.  Interneuron hereby grants Takeda an
     -----------------------------------
     exclusive option to obtain  an exclusive (even as to Interneuron) license
     to develop, make, have made, use, import, offer for sale, market, sell and
     otherwise dispose of a Back-Up Compound in the Territory, on and subject to
     the terms and conditions set forth in Section 4.7 hereof.

2.4  Meaning of Exclusivity.  For the purpose of this Agreement, "an exclusive
     -----------------------                                     -------------
     license", "an exclusive sublicense" or "an exclusive option" shall mean
     --------  -------------------------    ---------------------
     that Interneuron does not have the right to exploit itself, nor have the
     right to grant to any of its Affiliates or any Third Parties a license,
     sublicense, option or other right to exploit, the Compound, a Back-Up
     Compound or Product or otherwise interfere with the right or option granted
     to Takeda hereunder until expiration of the  such  right or option, except
     for the rights granted to Takeda hereunder.

2.5  Option to Obtain Assignment. At any time following payment by Takeda to
     ----------------------------
     Interneuron of the amount set forth in Section 6.1.1(d) (as may be adjusted
     by

                                       6
<PAGE>

     Section 6.1.3), and up to the time of any re-assignment pursuant to
     Section 2.6, Takeda may at its sole option, by written notice to
     Interneuron, require Interneuron to assign to it or its Affiliates all
     right, title and interest in and to all Interneuron Intellectual Property
     in the Territory owned by Interneuron as of the Effective Date or at any
     time thereafter during the term of this Agreement, free and clear of any
     and all liens, security interests or other encumbrances (other than the
     security interests granted to Takeda pursuant to this Agreement and
     Takeda's obligation to reassign such Interneuron Intellectual Property to
     Interneuron pursuant to Section 2.6 of this Agreement).  Upon Takeda's
     exercise of such option, Interneuron shall, within five (5) days following
     receipt of Takeda's written notice as aforesaid, execute and deliver to
     Takeda an Assignment of Invention in the form reasonably acceptable to
     Takeda with respect to Interneuron Intellectual Property in the Territory
     owned by Interneuron at any time from the Effective Date through the date
     of its execution of such Assignment of Invention.  Interneuron shall
     immediately inform Takeda of any Interneuron Intellectual Property in the
     Territory which is acquired or owned by Interneuron after the date of its
     execution of the Assignment of Invention ("After-Acquired Property").
                                               -------------------------
     Interneuron shall transfer, convey, assign and deliver to Takeda, all
     After-Acquired Property (including any right, title and interest arising
     therefrom) within five (5) days of Interneuron's acquisition or ownership
     thereof.  Interneuron further shall execute and deliver to Takeda such
     other instruments, and take such other actions, as Takeda may reasonably
     deem necessary in order more effectively to transfer, convey and assign to
     Takeda all right, title and interest in and to the Interneuron Intellectual
     Property owned by Interneuron as of the Effective Date or at any time
     thereafter during the term of this Agreement.  Upon such assignment of
     Interneuron Intellectual Property, the security interest granted to Takeda
     under Article III of this Agreement shall be released, and the Parties
     shall continue to be bound by the other provisions of this Agreement.

2.6  Re-assignment.  If there occurs an assignment to Takeda of Interneuron
     --------------
     Intellectual Property pursuant to Section 2.5 of this Agreement,
     Interneuron may, by written notice to Takeda, require Takeda to re-assign
     such Interneuron Intellectual Property to Interneuron, in accordance with
     the procedures set forth in Section 2.5, provided that at the time of such
     request for reassignment (i) Interneuron's market capitalization (i.e., the
     number of outstanding shares multiplied by the market price of a share) has
     averaged at least US$400 million during three (3) consecutive Calendar
     Quarters preceding such request for re-assignment, (ii) Interneuron is not
     subject to a bankruptcy proceeding, and (iii) Interneuron has had a current
     working capital ratio (i.e., current assets divided by current liabilities)
     of at least two to one during the two consecutive Calendar Quarters
     preceding such request for re-assignment (collectively, the "Financial
                                                                 ----------
     Criteria").  Upon such re-assignment of Interneuron Intellectual Property,
     ---------
     the Parties shall continue otherwise to be bound by the provisions of this
     Agreement.

                                       7
<PAGE>

                                  ARTICLE III

                                    SECURITY
                                    --------



3.1  Grant of Security Interest.  Interneuron hereby grants to Takeda a first
     ---------------------------
     priority security interest, senior to any and all other liens and
     encumbrances, in all of the Interneuron Intellectual Property and, in the
     event Takeda licenses a Back-Up Compound, in the Back-Up Compound selected
     by Takeda, whether now owned or hereafter acquired by Interneuron and in
     all of Interneuron's rights in and to all Interneuron Intellectual Property
     controlled by Interneuron (collectively, the "Collateral").
                                                  ------------

3.2  Security for Obligations.  The grant of security interest set forth in this
     -------------------------
     Section secures the performance when due of each of the following
     obligations of Interneuron ("Obligations") owed to Takeda under this
                                 -------------
     Agreement and any Ancillary Agreements: (i) obligation to assign the
     Interneuron Intellectual Property to Takeda pursuant to Section 2.5, (ii)
     obligation to perform the FDA related responsibilities set forth in Section
     4.2.1, (iii) obligation to grant the option and negotiate a license for the
     Back-Up Compound to Takeda pursuant to Section 4.7 and (iv) any other
     material obligations of Interneuron.

3.3  Further Assurances.
     ------------------

     (a)  From time to time, Interneuron shall promptly execute and deliver such
          other agreements, instruments, documents or notices (including without
          limitation financing statements or amendments thereto), and take such
          other actions, as Takeda may reasonably deem necessary in order to
          perfect, protect and preserve any lien granted or purported to be
          granted hereby and to enable Takeda to exercise and enforce any of its
          rights and remedies hereunder with respect to any Collateral. Upon any
          failure by Interneuron to perform in accordance with this Section 3.3,
          Takeda may make, execute, record, file, re-record and/or refile any
          and all such agreements, instruments, documents or notices for and in
          the name of Interneuron, and Interneuron hereby appoints Takeda as
          Interneuron's agent and attorney-in-fact so to do, which appointment
          is coupled with an interest and is irrevocable.

     (b)  Interneuron hereby authorizes Takeda to file one or more financing or
          continuation statements, and amendments thereto, relative to all or
          any part of the Collateral without the signature of Interneuron where
          permitted by law.

     (c)  Interneuron shall furnish to Takeda from time to time statements and
          schedules further identifying and describing the Collateral and such
          other reports in connection with the Collateral as Takeda may
          reasonably request in writing, all in reasonable detail.

                                       8
<PAGE>

3.4  Release of Security Interest.  The security interest granted pursuant to
     -----------------------------
     Section 3.1 of this Agreement shall be released by Takeda (i) upon the
     assignment of Interneuron Intellectual Property pursuant to Section 2.5 of
     this Agreement, (ii) upon achievement by Interneuron of the Financial
     Criteria set forth in Section 2.6 of this Agreement, (iii) upon
     satisfaction of the Obligations set forth in Section 3.2 of this Agreement,
     (iv) with respect to the security interest in Interneuron Intellectual
     Property, upon exercise by Takeda of its option to license a Back-Up
     Compound, or (v) upon termination of this Agreement (provided that there
     are no accrued and unperformed obligations of Interneuron hereunder).



                                  ARTICLE  IV



                       DEVELOPMENT AND COMMERCIALIZATION
                       ---------------------------------

4.1  Disclosure of Information. Within ten (10) days of execution of this
     --------------------------
     Agreement, Interneuron shall disclose to Takeda in writing all Interneuron
     Intellectual Property which has not previously been disclosed to Takeda.
     Within ten (10) days after Interneuron acquires the ownership or obtains
     control of Interneuron Intellectual Property on or after the Effective
     Date, Interneuron shall disclose to Takeda in writing on an ongoing basis
     all Interneuron Intellectual Property. All costs and expenses required for
     copying and transporting documents to Takeda containing the Interneuron
     Intellectual Property shall be borne by Takeda. It is expected that the
     initial output of key efficacy and safety parameters of the IPI-018 Study,
     with preliminary statistical evaluation in tabular form, will be available
     and delivered to Takeda before the end of January 2000; and that the final
     report of the IPI-020 study will be available and delivered to Takeda
     before the end of January, 2000.  In addition, Interneuron shall provide
     Takeda with a draft copy of the first NDA at least two (2) weeks before the
     Target Date, as hereinafter defined, at Takeda Pharmaceuticals America,
     Inc. in Lincolnshire, Illinois.

4.2  Diligence; Development and Commercialization.
     --------------------------------------------

     4.2.1  Interneuron's Responsibility.    Interneuron will be responsible
            ----------------------------
            for:

          (a)  conducting, completing and funding the cost of the currently
               ongoing Phase 3 clinical trials known as IPI-018 and IPI-020
               Studies, subject to Section 4.2.5;

          (b)  preparation of all documents necessary for the filing of the
               first NDA in the name of Takeda or its sublicensee, including,
               but not limited to, documents concerning chemistry, manufacturing
               and controls ("CMC"), provided that Takeda provides Interneuron
               with necessary assistance and cooperation regarding CMC matters;

                                       9
<PAGE>

          (c)  submission of the first NDA in the name of Takeda or its
               sublicensee, provided that Interneuron shall remain the primary
               contact with FDA through the FDA advisory committee meeting (or,
               until Takeda assumes such primary contact pursuant to Section
               4.2.2), subject to Takeda's rights to receive prompt notice of
               FDA requests and to consult and participate with respect to
               discussions with FDA regarding the agenda for the advisory
               committee meeting, and with respect to responses as hereinafter
               provided;

          (d)  all such things and assistance as are reasonably necessary and
               appropriate for the first NDA to be approved in the name of
               Takeda or its sublicensee, including, but not limited to,
               responding on behalf of Takeda or its sublicensee to inquiries,
               requests or recommendations which may be made by the FDA,
               provided that Interneuron is not required to conduct any
               additional clinical or non-clinical studies other than those
               specified in Section 4.2.1 (a) above;

          (e)  to the extent Interneuron has advance notice, notifying Takeda
               prior to any FDA inspections or meetings and permitting Takeda to
               be present and participate in such inspections and meetings; and

          (f)  all such other things as are reasonably necessary, incidental or
               conducive and appropriate to the discharging of the
               responsibilities set forth in paragraph (a) through (e) above.

          Interneuron shall not file the first NDA prior to April 30, 2000, or
          such later date as provided in the next sentence (the "Target Date"),
                                                                 -----------
          without the mutual written consent of the Chief Executive Officer of
          Interneuron and the General Manager of the Pharmaceutical
          International Division of Takeda.  If the preliminary report of the
          IPI-018 Study, the final report of the IPI-020 Study, or the draft
          copy of the first NDA are not delivered to Takeda within the
          respective time periods contemplated for each in Section 4.1, the
          Target Date shall be extended by the same number of days as the
          delivery of each such report to Takeda is delayed beyond its
          respective contemplated delivery date.

          All the costs and expenses for any work or services for which
          Interneuron is responsible under this Section 4.2.1 shall be borne by
          Interneuron.  Interneuron shall comply, in all material respects, with
          all applicable laws and regulations in discharging its
          responsibilities hereunder.

    4.2.2 Takeda's Responsibility.  Takeda shall be the primary contact with FDA
          ------------------------
          following the advisory committee meeting (or, if no such meeting is
          held,

                                       10
<PAGE>

          with respect to matters normally addressed following such
          meeting, e.g., labeling, marketing, etc.), subject to Interneuron's
          rights to receive prompt notice of FDA requests and to consult with
          respect to responses until such time as Interneuron notifies Takeda.
          Takeda will be responsible for conducting and funding the cost of all
          other development, including regulatory filings, of Product in the
          Territory required for commercialization which Takeda deems necessary
          in its sole discretion, including but not limited to: (i) Phase 3B and
          Phase 4 studies with respect to the Compound or Product which are
          related to, but not required in connection with or to support approval
          of, the labeling claims for the Initial Indication for Product, as
          well as new labeling claims for Product; (ii) outcome studies for the
          Initial Indication as well as new labeling claims; (iii) developing
          and obtaining regulatory approval for indications other than the
          Initial Indication for the Territory; and (iv) developing and
          obtaining regulatory approval in the Territory for new formulations of
          Product or additional dosage forms of the formulation of the Compound
          or Product.  All the costs and expenses for any work or services for
          which Takeda is responsible shall be borne by Takeda.  With respect to
          Canada, Takeda shall have the sole right to decide whether and when to
          file and prosecute the NDS.  Takeda shall comply, in all material
          respects, with all applicable laws and regulations in discharging its
          responsibilities hereunder.

    4.2.3 Cooperation; Other Matters.  The progress and results of development
          ---------------------------
          of the Product, including, but not limited to, all correspondence and
          communications with the FDA, as well as such other information
          reasonably requested by each Party relating to the progress, goals or
          performance of such development, shall be reported in writing to the
          other Party as soon as practicable. The Parties will use their best
          efforts to consult and cooperate with each other, without undue
          expense or delay, in connection with all substantive communications
          with FDA. Each Party shall also notify the other Party upon the
          receipt of regulatory approvals and Takeda shall immediately notify
          Interneuron of the date of First Commercial Sale. Takeda shall use its
          best efforts to maximize commercialization in the Territory of the
          Product and shall launch Product in the United States within six (6)
          months after receipt of FDA authorization to market Product in the
          United States. Takeda shall comply, in all material respects, with all
          applicable laws and regulations in the marketing of Product in the
          Territory. The term "best efforts" as used herein shall mean such
          efforts as are reasonable in light of commercial considerations which
          are generally accepted in the pharmaceutical sector.

                                       11
<PAGE>

    4.2.4 Takeda's Rights to Assist in  the Preparation of the first NDA;
          ---------------------------------------------------------------
          Requests for Additional Tests or Studies.  Takeda may, at its own cost
          -----------------------------------------
          and responsibility, have its personnel assist and join in the
          performance of the work and services to be rendered by Interneuron in
          connection with the preparation and the filing of the first NDA and
          other work and services described in Section 4.2.1, provided that such
          assistance and services do not cause a delay in submitting the first
          NDA beyond the Target Date. From the sooner of January 10, 2000, or
          when the preliminary statistical evaluation of the IPI-018 Study
          becomes available, Takeda will have the right to dispatch one of its
          regulatory personnel to Interneuron in order to assist with the filing
          and approval of the first NDA.  If the FDA notifies Interneuron that
          additional testing or studies are required for approval of the first
          NDA, Takeda shall have the right to determine by written notice to
          Interneuron within ninety (90) days of such notice from Interneuron
          whether to conduct, at Takeda's expense, such additional testing and
          proceed with, or, alternatively, to transfer or assign the NDA to
          Interneuron.  In the event Takeda does not determine to proceed with
          such testing within such ninety (90) day period, Takeda shall promptly
          transfer or assign the NDA to Interneuron, and this Agreement shall
          terminate and all rights to the Interneuron Intellectual Property
          shall revert to Interneuron.

    4.2.5 Takeda's Right to Assume Development Work. If the Chief Executive
          ------------------------------------------
          Officer of Interneuron and the General Manager of the Pharmaceutical
          International Division of Takeda mutually determine that Interneuron
          cannot or may not be able to perform the work and services set forth
          in Section 4.2.1 in an efficient manner by the Target Date (as defined
          in Section 4.2.1), or if Interneuron files or institutes bankruptcy,
          reorganization, liquidation or receivership proceedings or assigns a
          substantial portion of the assets for the benefit of creditors and
          becomes unable to perform the work and services set forth in Section
          4.2.1 by the Target Date (as defined in Section 4.2.1), Takeda may
          assume the responsibility to perform such work and services, and
          Interneuron shall provide Takeda with all reasonably necessary
          cooperation and assistance to enable Takeda to perform and complete
          such work and services in an expeditious and effective manner.  Such
          determination shall be made timely and in good faith.

4.3  Steering Committee.  The Parties agree to establish a steering committee
     -------------------
     (the "Committee") to facilitate the approval of the first NDA, and the
          -----------
     development and commercialization of the Product as follows:

     (a)  Composition of the Committee.  The Committee shall be comprised of at
          -----------------------------
          least one (1) named representative of Interneuron and at least one (1)
          named representative of Takeda, it being understood that the number of
          the representative(s) of each Party shall be the same.  The initial

                                       12


<PAGE>

          representatives of each Party shall be set forth on Appendix 4.3.
          Each Party shall appoint its respective representatives to the
          Committee from time to time, and may substitute one or more of its
          representatives, in its sole discretion, effective upon notice to the
          other Party of such change.  Additional representatives or consultants
          may from time to time, by mutual consent of the Parties, be invited to
          attend Committee meetings, subject to compliance with Section 5.1.
          The Committee shall use its reasonable efforts in good faith to
          resolve by unanimous consent any issue relevant to the development and
          commercialization of the Product within the scope of the Committee's
          responsibility pursuant to Section 4.3(d).

     (b)  Committee Resolution.  Two representatives or other even number of
          ---------------------
          representatives, one half of whom shall be representative(s) of
          Interneuron and the remaining shall be representative(s) of Takeda,
          shall constitute a quorum of any meeting of the Committee.  Each
          representative of each Party shall have one vote.  If the Committee is
          unable to unanimously agree with respect to any issue, notwithstanding
          the exercise of its reasonable efforts in accordance with Section
          4.3(a), (i) prior to the filing of the first NDA, such issue shall be
          referred to the Chief Executive Officer of Interneuron and the General
          Manager of the Pharmaceutical International Division of Takeda for
          resolution, and (ii) on or after the filing of the first NDA, such
          issue shall be referred to such General Manager of Takeda for
          resolution.  Any final decision so made shall be conclusive and
          binding on the Parties.  All issues not relating to the first NDA,
          including, without limitation, interpretation of this Agreement, shall
          be determined in accordance with the provisions of Section 11.7.

     (c)  Meetings and Costs.  The Committee shall meet at least once each
          -------------------
          Calendar Quarter, starting in the Calendar Quarter in which this
          Agreement is executed, at a location to be mutually agreed upon by the
          Parties.  If the Parties fail to agree as to the location of any such
          meeting, the Committee shall meet by means of conference call or other
          similar communications medium.  Each Party shall bear its own costs in
          connection with meetings of the Committee.

     (d)  Committee Responsibilities.  Except as otherwise specifically set
          ---------------------------
          forth in this Agreement, the Committee shall be responsible for
          overseeing the development of Product including but not limited to
          generation, review and discussion of all clinical protocols, budgets,
          timetables for the development and commercialization of the Product,
          contents of the first NDA and the filing of the first NDA

     (e)  Notwithstanding any provision of this Section, if either Interneuron
          or Takeda fails to designate its respective Committee member(s) in a
          timely manner, the other Party may unilaterally decide such issues,
          and upon such other Party's request, the Party failing to designate
          the Committee

                                       13
<PAGE>

          member shall perform or provide all things reasonably
          necessary to effectuate any decision so made by the other Party, to
          the extent not inconsistent with the terms of this Agreement.

4.4  Regulatory Matters.  Subject to the provisions of Sections 4.2 and 4.3,
     -------------------
     Interneuron shall have primary responsibility for the preparation, filing
     and prosecution of all filings and regulatory applications (in the name and
     on behalf of Takeda or its sublicensee) necessary to obtain the first NDA
     approval of the Product in the United States provided, however, that Takeda
     shall have the right to monitor Interneuron's progress prior to and during
     the filing and prior to the approval of the first NDA.  Interneuron shall
     request and use its best efforts to hold one or more pre-NDA meetings
     regarding CMC matters and other issues, provided that in no event shall
     Interneuron be required to delay submission of the first NDA or the Target
     Date by reason of pre-NDA meetings regarding such other issues, and
     Interneuron shall permit Takeda to participate in pre-NDA meetings.  After
     FDA approval of the first NDA, Takeda shall assume all responsibilities and
     obligations relating to the first approved NDA and any subsequently
     prepared or filed NDAs.  Takeda shall have the right to cross reference any
     regulatory filing owned or controlled by Interneuron or to which
     Interneuron has access and the legal right to disclose.

     Takeda shall, subject to the provisions of Section 10.2, have sole
     responsibility for, and bear all costs and expenses associated with, any
     recall, withdrawal or seizure of the Product in the Territory.  Any Product
     returned to Interneuron shall be shipped to Takeda's nearest facility, and
     Takeda shall pay any reasonable or authorized shipping or other documented
     direct cost relating to such returns.  Subject to the provisions of Section
     10.2, Interneuron shall incur no liability of any nature in the handling of
     such returns.

4.5  Manufacturing.  Concurrently herewith, Interneuron shall execute and
     --------------
     deliver to Takeda the Kyowa Hakko Agreement Assignment, in the form of
     Appendix 1.24. Takeda shall be responsible for the manufacture of the
     Compound and Product, subject to the Ferrer Consent Agreement and the Kyowa
     Hakko Agreement Assignment.  Takeda will manufacture or have manufactured
     the Compound and Product in accordance with cGMP.

4.6  Trademark. Takeda may select any trademarks for Product, subject to the
     ----------
     Ferrer Agreement.

4.7  Back-Up Compound.
     -----------------

     4.7.1 Option.   Until the earlier of the Target Date or the date of
           -------
           submission of the first NDA, Takeda shall have the exclusive option,
           exercisable by written notice to Interneuron, to obtain from
           Interneuron a license with respect to Back-Up Compound in accordance
           with Section 2.3, including the right to grant further sublicenses in
           the Territory (subject to the same

                                       14
<PAGE>

           qualifications regarding sublicensing as set forth in Section 2.2 of
           this Agreement); provided, however, that upon exercise of such
           exclusive option to license of a Back-Up Compound, this Agreement
           shall, subject to Sections 4.7.2 to 4.7.5, immediately terminate.

     4.7.2 Evaluation and Negotiation Period Following Notice.  Takeda shall
           ---------------------------------------------------
           have a ten (10) month period (the "Negotiation Period") from the date
                                             --------------------
           of its exercise of its option pursuant to Section 4.7.1 to evaluate
           potential Back-Up Compounds, select one Back-Up Compound and
           negotiate to enter into a license agreement for the Back-Up Compound.
           Prior to the expiration of the Negotiation Period, Takeda shall
           notify Interneuron in writing of (i) its selection of a Back-Up
           Compound and the identification of such compound or (ii) its decision
           not to select a Back-Up Compound.

     4.7.3 License Agreement for the Selected Back-Up Compound.  Interneuron
           ----------------------------------------------------
           shall provide Takeda with its proposed terms for a license of the
           Back-Up Compound selected by Takeda within ten (10) days of its
           receipt of the notice referred to in Section 4.7.2(i).  The Parties
           shall commence good faith negotiations to enter into a license
           agreement for the Back-Up Compound before the expiration of the
           Negotiation Period. The license agreement shall include commercially
           reasonable terms and conditions, including provisions for
           development, commercialization and due diligence by Takeda. The
           US$3,000,000 option fee referred to in Section 6.1.1(c) shall be
           credited against amounts payable under such license agreement.

     4.7.4 Interneuron's Obligation on Back-Up Compounds. During the period in
           ----------------------------------------------
           which Takeda may exercise its option to obtain a license for a
           Back-Up Compound, Interneuron shall not grant any rights to Third
           Parties which are inconsistent with Takeda's option rights under this
           Section 4.7 or, if the Back-Up Option is exercised, abandon the
           Back-Up Compound, and shall use its best efforts to maintain the
           value of the Back-Up Compound.

     4.7.5 Most-favored Option.  In the event that the Parties cannot agree
           --------------------
           upon the terms of the license agreement for a Back-Up Compound prior
           to expiration of the Negotiation Period, Interneuron shall not, for
           an additional period of six (6) months, offer to any Third Party a
           license to such Back-Up Compound under terms which are, on the whole,
           more favorable to such Third Party than those offered to Takeda. If
           Interneuron wishes to license a Back-Up Compound to a Third Party,
           Interneuron shall first provide written notice to Takeda setting
           forth the terms of such proposed license, and Takeda shall have the
           exclusive option exercisable within thirty (30) days after such
           notice, to enter into a license agreement for such Back-Up Compound
           in accordance with the terms of such proposed license. If Takeda
           exercises such option, then the last two sentences of Section 4.7.3
           shall apply.

                                       15
<PAGE>

                                   ARTICLE V



                        CONFIDENTIALITY AND PUBLICATION
                        -------------------------------

5.1  Non-Disclosure and Non-Use Obligations.  All Proprietary Information
     ---------------------------------------
     disclosed by one Party to the other Party hereunder, and the royalty rates
     under this Agreement, shall be maintained in confidence and shall not be
     disclosed to any Third Party or used for any purpose except as expressly
     permitted herein, without the prior written consent of the Party that
     disclosed the Proprietary Information to the other Party.  The foregoing
     non-disclosure and non-use obligations shall not apply to the extent that
     such Proprietary Information:

     (a)  is known by the receiving Party at the time of its receipt, except for
          Proprietary Information previously disclosed to the receiving Party by
          the disclosing Party, as documented by business records;

     (b)  is properly in the public domain or knowledge;

     (c)  is subsequently disclosed to a receiving Party by a Third Party who
          may lawfully do so and is not under an obligation of confidentiality
          to the disclosing Party; or

     (d)  is developed by the receiving Party independently of Proprietary
          Information received from the other Party, as documented by research
          and development records.

5.2  Permitted Disclosure of Proprietary Information.  Notwithstanding Section
     ------------------------------------------------
     5.1, a Party receiving Proprietary Information of the other Party may
     disclose such Proprietary Information:

     (a)  to governmental or other regulatory agencies in order to obtain
          patents pursuant to this Agreement, or to gain approval to conduct
          clinical trials for or to market Products under this Agreement,
          provided, however, that such disclosure shall be limited to the extent
          reasonably necessary to obtain such patents or authorizations;

     (b)  to its respective agents, consultants, Affiliates, Takeda's
          sublicensees and/or other Third Parties for the research and
          development, manufacturing and/or marketing of the Compound and/or
          Products (or for such parties to determine their interests in
          performing such activities) on the condition that such Affiliates,
          sublicensees and Third Parties agree to be bound by the
          confidentiality obligations contained in this Agreement; or

     (c)  if required to be disclosed by law or court order, provided that
          notice is promptly delivered to the non-disclosing Party by the Party
          disclosing the

                                       16
<PAGE>

          Proprietary Information in order to provide an opportunity to
          challenge or limit such disclosure; provided, however, that without
          limiting any of the foregoing, each Party, including any Affiliates or
          Takeda's sublicensees, may make disclosure of this Agreement, and the
          terms hereof in any filings required by the SEC or its counterparts to
          which such Party is subject, may file this Agreement as an exhibit to
          any filing with the SEC or its counterparts, and may distribute any
          such filing in the ordinary course of its business.

     Upon execution of this Agreement, the Parties may issue a press release in
     the form attached as Appendix 5.2.

5.3  Publication.  The Committee shall be responsible for supervising any
     ------------
     proposed publications or oral disclosures relating to the Compound or
     Product by either Party until the first NDA has been approved, provided
     that Interneuron shall have a right to publish or present the data from the
     IPI-018 Study, subject to Takeda's review and comment.  Any submissions of
     proposed publications and other disclosures presented to the Committee
     shall be in the English language.

5.4  Interneuron's Obligation.  At all times prior to Takeda's exercise of its
     -------------------------
     option pursuant to Section 2.5, Interneuron shall take all steps reasonably
     necessary and appropriate to preserve and protect its proprietary rights in
     and to the Interneuron Intellectual Property.  Following assignment thereof
     to Takeda pursuant to Section 2.5, Interneuron shall not use nor disclose
     Interneuron Know-How and any information relating thereto (including but
     not limited to the patentability thereof) to its Affiliates or Third
     Parties except in accordance with the terms of this Agreement.



                                   ARTICLE VI



                              PAYMENTS AND REPORTS
                              --------------------



6.1  Initial Fees, Reimbursement Payment, Option Fee and Milestone Payments
     ----------------------------------------------------------------------

     6.1.1 Initial Fees, Reimbursement Payment, Option Fee and Milestone
           -------------------------------------------------------------
           Payments.  Subject to the terms and conditions contained in this
           ---------
           Agreement, in consideration of the license, assignment and sublicense
           rights granted to it of the Interneuron Intellectual Property, the
           option for Back-Up Compound, as well as FDA-related services and
           other services contemplated hereby, Takeda shall pay or cause to be
           paid to Interneuron the following amounts, each of which is non-
           refundable and non-creditable unless otherwise set forth herein:

           (a)  US$5,000,000 upon execution of this Agreement, as an initial
                fee;

                                       17
<PAGE>

          (b)  US$5,000,000 upon the later of (i) the date of completion of IPI-
               018 Study (defined as the date that the last patient enrolled in
               IPI-018 has finished participation in the study and Takeda
               receives a written notice from Interneuron with respect thereto
               or (ii) December 15, 1999, as partial reimbursement of the costs
               of the IPI-018 and IPI-020 Studies;

          (c)  US$3,000,000 upon the payment provided for in Section 6.1.1(b),
               as an option fee for the Back-Up Compound;

          (d)  US$20,000,000 upon the FDA's acceptance for filing of the first
               NDA;

          (e)  US$30,000,000 upon the receipt of written approval by the FDA of
               the first NDA;

          (f)  US$3,000,000 upon the acceptance for filing of the NDS in Canada;

          (g)  US$7,000,000 upon the receipt of written approval of the NDS in
               Canada; and

          (h)  US$[*] for every US$[*] (the "Sales Milestone") of cumulative Net
                                        ---------------------
               Sales in the Territory provided that a Sales Milestone is
               achieved within any consecutive 24-month period.  In determining
               whether a Sales Milestone has been reached, cumulative Net Sales
               shall be calculated on a rolling 24-month basis until a Sales
               Milestone has been reached for the immediately preceding 24-month
               period, at which time the calculation of cumulative Net Sales
               shall commence again.  For example, in the event that a Sales
               Milestone is achieved during month 11, a new 24-month period
               shall commence on the date immediately following the achievement
               of such Sales Milestone.

     6.1.2 Payments set forth in Section 6.1.1(a) to (c).  The payments
           ----------------------------------------------
           referred to in (a) to (c) in Section 6.1.1 shall be due and payable
           to Interneuron no later than five (5) Business Days after each
           milestone event set forth therein; provided, that (i) with respect to
           the payments referred to in Sections 6.1.1(b) and (c), if such
           payments are due on December 15, 1999, they shall be made on such
           date and (ii) in relation to the payment set forth in Section
           6.1.1(b), Takeda may (x) deduct the total unpaid contractual amount
           due by Interneuron to Third Parties under the CRO Contracts as of
           December 15, 1999, which amount shall be set forth in a written
           notice by Interneuron to Takeda no later than December 8, 1999 (the
           "Unpaid CRO Amount"), (y) pay invoices of the CRO in a timely manner
           -------------------
           (after



-----------------------------------
* Confidential treatment requested.

                                       18
<PAGE>

           providing Interneuron with the opportunity to negotiate the fees and
           expenses charged under the CRO Contracts) up to the Unpaid CRO
           Amount, and (z) pay any balance of the Unpaid CRO Amount to
           Interneuron within five (5) Business Days after the final payment by
           Takeda on behalf of Interneuron pursuant to the CRO Contracts.

     6.1.3 Payment set forth in Section 6.1.1(d).  The payment referred to in
           --------------------------------------
           Section 6.1.1(d) shall be due and payable to Interneuron as soon as
           practicable but no later than five (5) Business Days after
           Interneuron notifies Takeda in writing of the achievement of the
           relevant milestone event, with evidence reasonably acceptable to
           Takeda, it being understood that the FDA's acceptance of the filing
           of an NDA is deemed to be made within sixty (60) days after
           submission unless the FDA notifies the applicant within such period
           of the rejection, request or recommendation of modification or
           condition of acceptance in relation to the same. Notwithstanding the
           foregoing, in a case where Takeda has taken over pursuant to Section
           4.2.5 the work and services set forth in Section 4.2.1, Takeda shall
           be entitled to deduct from the payment set forth in Section 6.1.1(d),
           the reasonable out of pocket expenses which Takeda incurs in assuming
           such work and services.

     6.1.4 Payments set forth in Section 6.1.1(e) to (h).  The payments
           ----------------------------------------------
           referred to in (e) to (h) in Section 6.1.1 shall be due and payable
           to Interneuron as soon as practicable but no later than (i) five (5)
           Business Days after each milestone event set forth in Section
           6.1.1(e) to (g), and (ii) thirty (30) days after each achievement of
           a Sales Milestone referred to in Section 6.1.1(h) above. Takeda shall
           notify Interneuron in writing within five (5) Business Days after
           each milestone set forth in Section 6.1.1(e) to (h) has been
           achieved. Payment under Section 6.1.1(h) shall accrue on Net Sales
           occurring, on a country-by-country basis, until the later of (i) [*]
           or (ii) expiration of the last to expire of a Valid Claim that covers
           the manufacture, use, import, offer for sale, marketing, sale or
           other disposition of the Product. Thereafter, Takeda shall not be
           required to make any payment set forth in Section 6.1.1(h) and any
           Interneuron Intellectual Property licensed by Interneuron to Takeda
           hereunder shall, vis-a-vis Interneuron, become subject to a
           perpetual, exclusive, freely sublicensable, royalty-free, paid-up
           right and license to Takeda in the Territory, which right and license
           shall survive expiration of this Agreement.

6.2  Other Payments.
     ---------------

     6.2.1 Payments Based on Sale.
           -----------------------

------------------------------------
*  Confidential treatment requested.

                                       19
<PAGE>

          (a)  Subject to the terms and conditions contained in this Agreement,
               in consideration of the license, assignment and sublicense rights
               granted to it of the Interneuron Intellectual Property, the
               option for Back-Up Compound, as well as FDA-related services and
               other services contemplated hereby, Takeda shall, in addition to
               the consideration set forth in Section 6.1.1, pay to Interneuron
               an amount equal to the following percentages of Net Sales in the
               Territory for each Payment Year:

                       Amount of Net Sales         Rate
                       --------------------        ----

                       Up to US$300 million        [*]%

                       From US$300 million to

                       US$500 million              [*]%

                       Over US$500 million         [*]%

               By way of example, if the Net Sales achieved in a particular
               Payment Year is US$800 million, the amount payable hereunder is
               the aggregate of (US$300 million x [*]%) + (US$200 million x
               [*]%) + (US$300 million x [*]%).

          (b)  The payments set forth above shall be subject to the following
               conditions:

               (i)  that only one payment shall be due with respect to the same
                    unit of Product; and

               (ii) no payment shall accrue on the disposition of Product by
                    Takeda or its sublicensees as samples (promotion or
                    otherwise) or as donations (for example, to non-profit
                    institutions or government agencies for a non-commercial
                    purpose) or the disposition of Product to Interneuron or its
                    Affiliates.

          (c)  Payment on Net Sales of Product as set forth above shall accrue
               as of the date of First Commercial Sale of Product in the
               Territory and shall continue and accrue on Net Sales, on a
               country-by-country basis, until the later of (i) [*] or (ii)
               expiration of the last to expire of a Valid Claim that covers the
               manufacture, use, import, offer for sale, marketing, sale or
               other disposition of the Product, subject, however, to the
               provisions of Section 6.2.4. Thereafter, Takeda shall not be
               required to make any payments set forth in this Section 6.2.1(a)
               and any Interneuron Intellectual Property licensed or sublicensed
               by Interneuron to Takeda hereunder shall, vis-a-vis Interneuron,
               become subject to a perpetual, exclusive, freely sublicensable,
               royalty-free, paid-up right and license to Takeda in the
               Territory which right and license shall survive expiration of
               this Agreement.


-----------------------------------
* Confidential treatment requested.

                                       20
<PAGE>

     6.2.2 Payment for Bulk Compound.  In cases where Takeda or its
           --------------------------
           sublicensees sell bulk Compound to be incorporated into Product,
           rather than a Product, to a Third Party (excluding sales within or
           among Takeda, its Affiliates and/or its sublicensees), payments
           required by Sections 6.1.1(h) and 6.2.1 shall be calculated as if the
           bulk Compound is deemed to be Product.

     6.2.3 Ferrer Royalty.  Takeda shall be solely responsible for all payments
           ---------------
           set forth in Article 9 of the Ferrer Agreement on behalf of
           Interneuron in accordance with the terms of the Ferrer Agreement and
           Takeda shall provide Interneuron with evidence of such payments by
           Takeda.  Such payments to Ferrer shall not be offset against any
           payments from Takeda to Interneuron.  In the event Takeda is in
           default to Ferrer, Interneuron has the right to cure any such payment
           defaults and invoice the same to Takeda, with payment due within five
           (5) Business Days.

     6.2.4 Reduction of Payments under Section 6.2.1(a).
           ---------------------------------------------

          (a)  Notwithstanding any provision set forth herein to the contrary,
               if Net Sales in a particular country within the Territory in a
               particular year ("Year in Question") decrease by [*] percent
                                ------------------
               ([*]%) or more from Net Sales in that country in the Benchmark
               Year, as defined below, the payment amount based on the rates set
               forth in Section 6.2.1(a) shall be reduced in accordance with the
               following procedure, provided that for purposes of this Section
               6.2.4 (x) the Year in Question shall commence, for the first Year
               in Question, on, and, for each subsequent year, on the
               anniversary of (i) the date on which the Valid Claim in that
               country ceases to exist or (ii) the date on which a generic
               product of the Product enters into the market of that country and
               (y) the Benchmark Year shall mean the twelve (12) month period
               immediately preceding such event:

               (i)   first, the total amount of the Net Sales in the Territory
                     during the Year in Question is determined and the total
                     amount of payment with respect to that year is calculated
                     pursuant to Section 6.2.1(a);

               (ii)  next, a weighted average rate of payment is calculated by
                     dividing such total amount of payment by the total amount
                     of the Net Sales in the Territory during the Year in
                     Question;

               (iii) then, an adjusted percentage of payment is calculated by
                     multiplying such weighted average rate of payment by 0.5;


-----------------------------------
* Confidential treatment requested.

                                       21
<PAGE>

               (iv)  after that an adjusted amount of payment for that country
                     with respect to the Year in Question is calculated by
                     multiplying the total amount of the Net Sales in that
                     country during the Year in Question by such adjusted
                     percentage of payment; and

               (v)   finally, the total amount of payment due and payable to
                     Interneuron in relation to the Net Sales in the Territory
                     during the Year in Question is calculated by subtracting
                     such adjusted amount of payment from the total amount of
                     the payment calculated pursuant to this Section 6.2.4(a)
                     (i).

               An example of the calculation set forth above is illustrated in
               Appendix 6.2.4(a) attached hereto.

               Takeda shall notify Interneuron in writing when such event which
               triggers Year in Question occurs.

               The reduced percentage of a payment rate made pursuant to this
               Section 6.2.4(a) shall apply to the Year in Question and any
               consecutive subsequent years. For the purpose of this Section,
               "any generic product of the Product" shall mean a prescription
               drug product which FDA approved for marketing by a Third Party
               excluding sublicensees based on an application submitted by a
               Third Party excluding sublicensees under Section 505(b)(2) or
               505(j) of the Federal Food, Drug, and Cosmetic Act, 21 U.S.C.
               (S)(S) 355(b)(2) and (j); or any drug product which FDA approved
               for marketing by a Third Party excluding sublicensees based on an
               application submitted by a Third Party excluding sublicensees
               under Section 505(b)(1) of the Federal Food, Drug, and Cosmetic
               Act, 21 U.S.C. (S)(S) 355(b)(1), and which users consider, in
               view of its product characteristics and intended use, to be
               interchangeable or substitutable for the Product.

          (b)  It has been agreed upon by and between the Parties that
               Interneuron will bear an amount equal to one percent (1%) of the
               Net Sales of the total amount of the royalty payable to Ferrer by
               Takeda on behalf of Interneuron pursuant to Article 9 of the
               Ferrer Agreement after the date of expiration of the royalty
               obligation set forth in Article 9.1(a) of that agreement
               ("Trigger Date"). As a result, during the period set forth in
                --------------
               Section 6.2.1(c), such reimbursement shall be made by reducing
               the rates of payments set forth in Section 6.2.1(a) by one
               percent (1%), so that such rates of payments after the Trigger
               Date are reduced to sixteen percent (16%), twenty one percent
               (21%) and twenty four percent (24%), respectively. Interneuron's
               obligation to make such reimbursement to Takeda will cease when
               Takeda's royalty payment obligation to Interneuron ceases.

                                       22
<PAGE>

6.3  Payments and Reports.
     --------------------

     6.3.1 Payments and Reports.  Following the First Commercial Sale of a
           --------------------
           Product and during the term of this Agreement for so long as payments
           under Section 6.1 or 6.2 are due, Takeda shall furnish to Interneuron
           a quarterly written report for each Calendar Quarter showing the
           sales of all Products subject to payments under Section 6.1 or 6.2,
           sold by Takeda, its Affiliates, or its sublicensees in the Territory
           during the reporting period (and a reconciliation of gross sales to
           Net Sales in units and dollar amounts) and the amount payable under
           Section 6.1 or 6.2. Reports shall be due on the thirtieth (30th) day
           following the close of each Calendar Quarter. Payments shown to have
           accrued by each report shall be due and payable on the date such
           report is due. In the event a Sales Milestone is achieved during a
           Calendar Quarter, Takeda shall furnish to Interneuron an interim
           written report for the period within such Calendar Quarter expiring
           on the date a Sales Milestone was achieved, showing the calculation
           of cumulative Net Sales and the milestone payment payable under this
           Agreement. The interim report shall be due on the thirtieth (30th)
           day following the date a Sales Milestone was achieved. The Sales
           Milestone shown to have accrued by such interim report shall be due
           and payable on the date the interim report is due. Takeda shall keep
           complete and accurate records in sufficient detail to enable payments
           under Section 6.2 and milestone payments under Section 6.1.1(h) to be
           determined.

     6.3.2 Bank Transfer.  All payments due and payable to Interneuron
           --------------
           hereunder shall be made by way of bank transfer to the bank account
           specified below:

                    Account Name:     Interneuron Pharmaceuticals, Inc.

                    Bank Name:        [*]

                                      [*] USA

                    ABA Number:       [*]

                    Account Number:   [*]

           Bank charges and other charges and fees necessary for making the bank
           transfer shall be incurred by Takeda. Interneuron may change the bank
           account specified above by written notice to Takeda at least ten (10)
           Business Days before any payment is due.

6.4  Audits.
     ------

     6.4.1 Upon the written request of Interneuron, which request shall be made
           at least five (5) Business Days prior to the proposed day of audit,
           and not



-----------------------------------
* Confidential treatment requested.

                                       23
<PAGE>

           more than once in each Calendar Year, Takeda shall permit an
           independent certified public accounting firm of nationally recognized
           standing selected by Interneuron and reasonably acceptable to Takeda,
           to have access during normal business hours at times mutually
           convenient to the Parties and upon reasonable notice to Takeda to
           such of the records of Takeda as may be reasonably necessary to
           verify the accuracy of the reports hereunder for any year ending not
           more than thirty-six (36) months prior to the date of such request.
           The accounting firm shall disclose to Interneuron only whether the
           reports are correct or incorrect and the specific details concerning
           any discrepancies.

     6.4.2 If such accounting firm concludes that additional payments under
           Sections 6.1.1(h) and 6.2 were owed during such period, Takeda shall
           make such additional payments within five (5) Business Days of the
           date Interneuron delivers to Takeda such accounting firm's written
           report so concluding. In the event such accounting firm concludes
           that amounts were overpaid by Takeda during such period, Interneuron
           shall reimburse Takeda the amount of such overpayment within five (5)
           Business Days of receipt of such accounting firm's written report.
           The fees charged by such accounting firm shall be paid by
           Interneuron; provided, however, that if the conclusion by such
           accounting firm shows that the amount of underpayment by Takeda is
           more than the lesser of (i) US$100,000 or (ii) five percent (5%) of
           payments due under Sections 6.1.1(h) or 6.2 for the period being
           reviewed, then the reasonable fees and expenses of the accounting
           firm shall be reimbursed by Takeda.

     6.4.3 Upon the expiration of thirty-six (36) months following the end of
           any Payment Year, the calculation of payment under Sections 6.1.1(h)
           and 6.2 with respect to such year shall be binding and conclusive
           upon Interneuron, and Takeda shall be released from any liability or
           accountability with respect to any such payment for such year.

     6.4.4 Interneuron shall treat all financial information subject to review
           under this Section 6.4 in accordance with the confidentiality
           provisions of this Agreement.

6.5  Payment Exchange Rate.  All payments to Interneuron under this Agreement
     ----------------------
     shall be made in United States dollars.  The rate of exchange to be used in
     computing the amount of currency equivalent in United States dollars due to
     Interneuron shall be calculated monthly in accordance with GAAP based on
     the average of the buying rates on the first and last Business Days of the
     month published in the Wall Street Journal, Eastern edition.  Any loss of
     exchange value, taxes, bank or other administrative expenses incurred in
     connection with Takeda's transfer or conversion of a currency into United
     States dollars shall be borne by Takeda.

                                       24
<PAGE>

6.6  Tax Withholding.  If laws, rules or regulations require withholding of
     ----------------
     income taxes or other taxes imposed upon payments set forth in this Article
     VI, Interneuron shall, upon request of Takeda, provide Takeda, prior to any
     such payment, annually or more frequently if required, with all forms or
     documentation required by any applicable taxation laws, treaties or
     agreements relating to such withholding or as necessary to claim a benefit
     thereunder (including, but not limited to, Form 1001 and any successor
     form) and Takeda shall make such withholding payments as required and
     subtract such withholding payments from the payments set forth in this
     Article VI.  Takeda shall submit to Interneuron appropriate proof of
     payment of the withholding taxes to Interneuron within a reasonable period
     of time.  Takeda will use efforts consistent with its usual business
     practices to minimize any withholding taxes imposed under the provisions of
     the current or any future taxation treaties or agreements between foreign
     countries, and Interneuron shall cooperate with such efforts.

6.7  Third Party Royalties; Etc.
     --------------------------

     6.7.1 Third Party Royalty.  Notwithstanding any provision contained
           --------------------
           herein, if Takeda or any of its sublicensees is required to pay and
           pays a Third Party (other than Ferrer) any monetary consideration in
           relation to the development, manufacture, use, import, offer for
           sale, marketing, sale or other disposition of the Compound and/or
           Product hereunder for the Initial Indication as a result of
           infringement of patents, patent applications or other intellectual
           property rights owned or controlled by that Third Party or settlement
           thereof, the amount equal to [*] percent ([*]%) of such consideration
           shall be deducted from payments made or due under Sections 6.1.1(h)
           and 6.2.1(a).

     6.7.2 Termination of Agreement by Takeda.  Takeda shall have the right,
           -----------------------------------
           without penalty, to terminate this Agreement on a country-by-country
           basis in the case set forth in Section 6.7.1. The exercise of such
           right by Takeda shall be without prejudice to the right of Takeda to
           deduct from payments pursuant to Section 6.7.1.

6.8  No Limitation of Damages.  No payments or agreements to pay under this
     -------------------------
     Agreement (including those referred to as non-refundable) shall in any way
     preclude or limit the rights of either Party to seek the full recovery of
     its damages, or to seek equitable relief, for breach of this Agreement by
     the other Party.


-----------------------------------
* Confidential treatment requested.

                                       25
<PAGE>

                                  ARTICLE VII

                        REPRESENTATIONS AND WARRANTIES
                         -------------------------------

7.1  Interneuron Representations and Warranties.  As of the Effective Date,
     -------------------------------------------
     Interneuron represents and warrants to Takeda that:

     (a)  this Agreement, and the Ferrer Consent Agreement, MIT Consent
          Agreement, Kyowa Hakko Agreement Assignment and other agreements to
          which Interneuron and Takeda are parties (collectively, the "Ancillary
                                                                      ----------
          Agreements"), have been duly executed and delivered by it and
          -----------
          constitute legal, valid and binding obligations of it; enforceable
          against it in accordance with their respective terms;

     (b)  except as contemplated by this Agreement, no approval, authorization,
          consent, or other order or action of or filing with any court,
          administrative agency or other governmental authority is required for
          the execution and delivery by it of this Agreement, the Ancillary
          Agreements or the consummation by it of the transactions contemplated
          hereby and thereby;

     (c)  it has the full right, power and authority to enter into and deliver
          this Agreement and the Ancillary Agreements, and to consummate the
          transactions contemplated hereby and thereby, and all corporate acts
          and other proceedings required to be taken to authorize such execution
          and delivery hereof and thereof, and to consummate the transactions
          contemplated hereby and thereby have been duly and properly taken and
          obtained;

     (d)  it has not previously assigned, transferred, conveyed or otherwise
          encumbered its rights, title and interest in the Interneuron
          Intellectual Property and owns all rights, title and interest in the
          Interneuron Patents (other than U.S. Patent No. 4,609,647) and
          controls other Interneuron Intellectual Property, free and clear of
          any liens, security interests or other encumbrances of Third Parties;

     (e)  subject to the Ferrer Agreement, it has the full legal right, title,
          interest, and authority to grant to Takeda the exclusive license to
          develop, make, have made, use, import, offer for sale, market, sell
          and otherwise dispose of the Compound and Product in the Territory
          under the Interneuron Intellectual Property;

     (f)  it has not breached in any material respect any terms and conditions
          set forth in the Ferrer Agreement, the Kyowa Hakko Agreement or any
          CRO Contracts, and each of these agreements is in full force and
          effect;

                                       26
<PAGE>

     (g)  the list of the Interneuron Patents set forth in Appendix 1.20 is
          correct, true and accurate;

     (h)  Appendix 1.7 sets forth all of the CRO Contracts, Appendix 1.11 sets
          forth the complete agreement between Ferrer and Interneuron concerning
          Interneuron Intellectual Property, and Appendix 1.23 sets forth the
          complete agreement by which Interneuron is entitled to acquire
          supplies of the Compound from Kyowa Hakko;

     (i)  Interneuron has taken reasonable measures to protect the secrecy and
          confidentiality of the Interneuron Intellectual Property incorporated
          in the Product, including but not limited to having each employee and
          consultant of Interneuron sign appropriate
          nondisclosure/confidentiality and proprietary rights agreements;

     (j)  to its knowledge, Interneuron Know-How contains no materially false or
          misleading data, and Interneuron has disclosed, or has made available
          to Takeda, in NDA No. 20-904, all material data relating to
          Interneuron Know-How which Interneuron owns or controls as of the
          Effective Date;

     (k)  to its knowledge, there are no patents, patent applications or
          other intellectual property rights owned or controlled by a Third
          Party which are infringed by the development, manufacture, use,
          importation, offer for sale, marketing, sale or other disposition of
          the Compound or the Product in the Territory for the Initial
          Indication;

     (l)  to its knowledge, there are no claims, judgments or settlements
          against or owed by Interneuron or pending or, to Interneuron's
          knowledge, threatened claims or litigation relating to the Interneuron
          Intellectual Property;

     (m)  to its knowledge, there are no oppositions, challenges or
          re-examination proceedings in relation to the validity or
          enforceability of Interneuron Patents pending or, to Interneuron's
          knowledge, threatened before any court, administrative agency or other
          governmental authority;

     (n)  to its knowledge, in connection with its development of Product,
          Interneuron has followed in all material respects applicable U.S. laws
          and regulations, the non-compliance with which would have a material
          adverse effect on the development of the Product;

     (o)  to its knowledge, Interneuron has followed in all material respects
          (i) U.S. good laboratory practices in its conduct of toxicology
          studies on Compound and (ii) U.S. good clinical practices in its
          conduct of clinical studies on Compound;

                                       27
<PAGE>

     (p)  to its knowledge, no contract research organization, corporation,
          business entity or individual which have been involved in non-
          clinical, clinical or other studies conducted for the purpose of
          filing NDAs have been debarred individuals or entities within the
          meaning of 21 U.S.C. (S)335a (a) or (b); and

     (q)  it is not aware of any information not disclosed to Takeda or not
          included in the NDA No. 20-904 regarding efficacy or safety which
          could have a material adverse effect on the filing of the first NDA
          for the Product.

7.2  Takeda Representations and Warranties.  As of the Effective Date, Takeda
     --------------------------------------
     represents and warrants to Interneuron that:

     (a)  this Agreement, and the Ancillary Agreements, have been duly executed
          and delivered by it and constitute legal, valid and binding
          obligations of it; enforceable against it in accordance with their
          respective terms;

     (b)  except as contemplated by this Agreement, no approval, authorization,
          consent, or other order or action of or filing with any court,
          administrative agency or other governmental authority is required for
          the execution and delivery by it of this Agreement, the Ancillary
          Agreements or the consummation by it of the transactions contemplated
          hereby and thereby; and

     (c)  it has the full right, power and authority to enter into and deliver
          this Agreement and the Ancillary Agreements, and to consummate the
          transactions contemplated hereby and thereby, and all corporate acts
          and other proceedings required to be taken to authorize such execution
          and delivery hereof and thereof, and to consummate the transactions
          contemplated hereby and thereby have been duly and properly taken and
          obtained.



                                  ARTICLE VIII



                                 PATENT MATTERS
                                 --------------



8.1  Filing, Prosecution and Maintenance of Patent Applications or Patents.
     ----------------------------------------------------------------------
     Interneuron shall file, prosecute and maintain any and all patent
     applications and patents included in the Interneuron Patents or arising
     from the Interneuron Know-How in such countries in the Territory as Takeda
     shall determine in its sole discretion. If, however, Interneuron does not
     conduct such activities with a particular patent or patent application in a
     particular country in the Territory, Takeda may file, prosecute, and
     maintain such patent application or patent, and in such case Interneuron
     shall provide Takeda with all necessary cooperation and

                                       28
<PAGE>

     assistance to effectuate the same and shall thereafter cooperate in the
     filing, prosecution, or maintenance of such patent application or patent by
     Takeda. In each case, the filing Party shall give the non-filing Party an
     opportunity to review for a reasonable period of time, but not to exceed
     two (2) weeks, the text of the application before filing, shall consult, if
     necessary, with the non-filing Party with respect thereto, and shall supply
     the non-filing Party with a copy of the application as filed, together with
     notice of its filing date and serial number. The filing Party shall keep
     the non-filing Party advised of the status of the actual and prospective
     patent application filings and upon the request of the non-filing Party,
     provide advance copies of any papers related to the filing, prosecution, or
     maintenance of such patent application filings. A filing Party shall give
     notice to the non-filing Party of the grant, lapse, revocation, surrender,
     invalidation or abandonment of any patent or patent application included in
     the Interneuron Patents. The Party that is the filing Party under this
     Section shall be responsible for the payment of all costs and expenses
     related to such filing and subsequent prosecution and maintenance thereof,
     provided, however, that Takeda shall reimburse Interneuron for reasonable
     external costs and expenses incurred by Interneuron in relation to the
     filing, prosecution or maintenance of patent applications and patents
     pursuant to this Section. For the purpose of this Section, "external costs
                                                                ---------------
     and expenses" shall mean costs and expenses which are payable to a Third
        -------------
     Party as evidenced by written records.

8.2  Patent Office Proceedings.  A filing Party shall inform the other Party of
     --------------------------
     any request for, filing, or declaration of any proceeding before a patent
     office seeking to protest, oppose, cancel, reexamine, declare an
     interference proceeding, initiate a conflicts proceeding, or analogous
     process involving a patent application or patent included in the
     Interneuron Patents.  A non-filing Party thereafter shall cooperate fully
     with the filing Party with respect to any such patent office proceeding
     that the filing Party chooses in its sole discretion to defend.  A non-
     filing Party will provide the filing Party with any information or
     assistance that the filing Party reasonably may request.  The Party that is
     the filing Party under this Section shall be responsible for the payment of
     all costs and expenses related to such  patent office proceeding.

8.3  Enforcement and Defense of Interneuron Patents.
     -----------------------------------------------

     (a)  Each Party shall promptly give the other Party notice of any
          infringement in the Territory of any patent application or patent
          included in the Interneuron Patents that comes to such Party's
          attention.  The Parties will thereafter consult and cooperate fully to
          determine a course of action, including, without limitation, the
          commencement of legal action by any Party.  However, Takeda, upon
          notice to Interneuron, shall have the first right to initiate and
          prosecute such legal action at its own expense and in the name of
          Interneuron and Takeda, or to control the defense of any declaratory
          judgment action relating to Interneuron Patents.  Interneuron shall
          have the right, at its own cost and expense, to participate in any

                                       29
<PAGE>

          action brought by Takeda and in any settlement discussions and to
          approve any decisions to settle same, and to be represented by counsel
          of its choice.  Takeda shall promptly inform Interneuron if Takeda
          elects not to exercise such first right, and Interneuron thereafter
          shall have the right either to initiate and prosecute such action or
          to control the defense of such declaratory judgment action in the name
          of Interneuron and, if necessary, Takeda.

     (b)  If Takeda elects not to initiate and prosecute an infringement or
          defend a declaratory judgement action in any country in the Territory
          as provided in Subsection 8.3(a), and Interneuron elects to do so, the
          cost of any agreed upon course of action, including the costs of any
          legal action commenced or any declaratory judgment action defended,
          shall be borne by Interneuron.

     (c)  For any such legal action or defense, in the event that any Party is
          unable to initiate, prosecute, or defend such action solely in its own
          name, the other Party will join such action voluntarily and will
          execute all documents necessary for the Party to prosecute, defend and
          maintain such action.  In connection with any such action, the Parties
          will cooperate fully and will provide each other with any information
          or assistance that either reasonably may request.  Each Party shall
          keep the other informed of developments in any such action or
          proceeding, including, to the extent permissible by law, the status of
          any settlement negotiations and the terms of any offer related
          thereto.

     (d)  Any recovery obtained by Takeda or Interneuron shall be shared as
          follows:

          (i)   the Party that initiated and prosecuted, or maintained the
                defense of, the action shall recoup all of its costs and
                expenses incurred in connection with the action, whether by
                settlement or otherwise;

          (ii)  the other Party then shall, to the extent possible, recover its
                costs and expenses incurred in connection with the action;

          (iii) if Interneuron initiated and prosecuted, or maintained the
                defense of, the action, the amount of any recovery remaining
                then shall be retained by Interneuron; and

          (iv)  if Takeda initiated and prosecuted, or maintained the defense
                of, the action, the amount of any recovery remaining shall be
                retained by Takeda except that Interneuron shall receive a
                portion equivalent to the payments they would have received on
                such remaining amount if such amount were deemed Net Sales.

                                       30
<PAGE>

8.4  Interneuron shall inform Takeda of any notice of certification regarding
     any Interneuron Intellectual Property it has received pursuant to either 21
     U.S.C. (S)(S) 355(b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) or under Canada's
     Patented Medicines (Notice of Compliance) Regulations Article 5 and shall
     provide Takeda with a copy of such notice of certification within five (5)
     days of receipt.  Interneuron's and Takeda's rights with respect to the
     initiation and prosecution, or defense, of any legal action as a result of
     such notice of certification or any recovery obtained as a result of such
     legal action shall be allocated as defined in Sections 8.3(a) through (d);
     provided, however, that Takeda shall exercise the first right to initiate
     and prosecute, or defend, any action and shall inform Interneuron of such
     decision within fifteen (15) days of receipt of the notice of
     certification, after which time, if Takeda has not advised Interneuron of
     its intention to initiate and prosecute or defend such action, Interneuron
     shall have the right to initiate and prosecute or defend such action.

8.5  Patent Term Extensions and Supplemental Protection Certificates.  The
     ----------------------------------------------------------------
     Parties shall cooperate in obtaining patent term extensions or supplemental
     protection certificates or their equivalents where applicable and where
     desired by the filing Party.  If elections with respect to obtaining such
     extension or supplemental protection certificates are to be made, the
     filing Party shall have the right to make the election and the other Party
     shall abide by such election.



                                   ARTICLE IX


                              TERM AND TERMINATION
                              --------------------

9.1  Term and Expiration.  This Agreement shall be effective as of the Effective
     --------------------
     Date and unless terminated earlier pursuant to relevant provisions set
     forth herein , the term of this Agreement shall continue in effect until
     expiration of all payment obligations under Section 6.1 and 6.2.

9.2  Termination by Notice.  Notwithstanding anything contained herein to the
     ----------------------
     contrary, Takeda shall have the right (i) to terminate this Agreement at
     any time on a country-by-country basis by giving a written notice to
     Interneuron, until the first NDA has been approved by the FDA and (ii) to
     terminate this Agreement at any time on a country-by-country basis by
     giving ninety (90) days advance written notice to Interneuron, after the
     first NDA has been approved by the FDA.  Except as otherwise set forth in
     this Agreement, in the event of such termination, (i) the rights and
     obligations hereunder, excluding any obligation for payment which has
     accrued as of the termination date, shall terminate and (ii) Takeda shall
     have no further rights with respect to the Interneuron Intellectual
     Property .

                                       31
<PAGE>

9.3  Termination.
     ------------

     9.3.1  Termination for Cause.  Either Party may terminate this Agreement on
            ----------------------
            a country by country basis by notice to the other Party at any time
            during the term of this Agreement as follows:

            (a)  if the other Party is in breach of its material obligations
                 hereunder by causes and reasons within its control, or has
                 breached, in any material respect, any representations or
                 warranties set forth in Article VII, and, if capable of being
                 cured, has not cured such breach within thirty (30) Business
                 Days after notice requesting cure of the breach or within five
                 (5) Business Days if Takeda is in breach of its payment
                 obligations under Article VI hereof; provided, however, that if
                 the breach (other than a breach of Takeda's payment obligations
                 under Article VI hereof, which shall not be subject to any
                 extensions except as specifically provided in Article VI) is
                 capable of being cured and the breaching Party, within such
                 thirty (30) Business Day period, commences and is taking
                 diligent and commercially reasonable actions to cure such
                 breach, this Agreement may not be terminated so long as the
                 breaching Party continues to take such actions and such breach
                 remains capable of being cured; or

            (b)  upon the filing or institution of bankruptcy, reorganization,
                 liquidation or receivership proceedings, or upon an assignment
                 of a substantial portion of the assets for the benefit of
                 creditors by the other Party; provided, however, in the case of
                 any involuntary bankruptcy, reorganization, liquidation,
                 receivership or assignment proceeding such right to terminate
                 shall only become effective if the Party consents to the
                 involuntary proceeding or such proceeding is not dismissed
                 within ninety (90) days after the filing thereof.

     9.3.2  License Status in Bankruptcy.
            -----------------------------

            (a)  This Agreement shall constitute an executory contract under
                 Section 365 of the United States Bankruptcy Code, 11 U.S.C.
                 (S)101 et seq. (the "Bankruptcy Code"). All rights and licenses
                                     -----------------
                 granted pursuant to this Agreement are, and shall be deemed to
                 be, licenses of and rights to "intellectual property" as that
                 term is defined in Section 101(35A), and used in Section 365,
                 of the Bankruptcy Code. The Parties agree that (i) Takeda, as
                 licensee under this Agreement, shall possess and may fully
                 exercise all of its rights, remedies and elections afforded by
                 and under the Bankruptcy Code, and (ii) Interneuron, as
                 licensor under this Agreement, shall possess and may fully
                 exercise all of its rights, remedies and elections afforded by
                 and under the Bankruptcy Code.

                                       32
<PAGE>

            (b)  The Parties further agree that, in the event of the
                 commencement of a bankruptcy case by or against Interneuron
                 under the Bankruptcy Code, Takeda shall be entitled to all
                 applicable rights under Section 365 of the Bankruptcy Code,
                 including but not limited to a complete duplicate of (or
                 complete access to, as appropriate) any such intellectual
                 property referred to above in subsection (a) and all
                 embodiments of such intellectual property upon written request
                 therefor by Takeda.

9.4  Effect of Expiration or Termination.
     ------------------------------------

     9.4.1  Expiration or termination of this Agreement shall not relieve the
            Parties of any obligation accruing prior to such expiration or
            termination unless otherwise provided for hereunder.

     9.4.2  In addition to any other provisions of this Agreement which by
            their terms continue after the expiration of this Agreement, and
            notwithstanding any other provisions of this Agreement, the
            provisions of Articles V and X shall survive the expiration or
            termination of this Agreement; and the provisions of Article III
            shall survive expiration of this Agreement and, if there are accrued
            and unperformed obligations of Interneuron hereunder, termination of
            this Agreement. Article V shall continue in effect for five (5)
            years from the date of expiration or termination.

     9.4.3  Any expiration or early termination of this Agreement shall be
            without prejudice to the rights of any Party against the other
            accrued or accruing under this Agreement prior to termination,
            including the obligation to make payments for Product(s) or Compound
            sold prior to such termination. For avoidance of doubt, an
            obligation to pay any of the consideration hereunder which has not
            accrued at the time of expiration or termination shall not be an
            obligation accruing prior to such expiration or termination.
            Exercise of rights available under any act or other statutes or at
            common law shall be without prejudice to the exercising or seeking
            rights or remedies available in equity.

     9.4.4  Except as otherwise provided herein, in the event of termination by
            Interneuron pursuant to this Article IX, Takeda shall promptly
            return any and all Interneuron Intellectual Property in its
            possession at the time of termination.

                                       33
<PAGE>

                                   ARTICLE X



                                INDEMNIFICATION
                                ---------------

10.1 Indemnification by Takeda.  Takeda shall indemnify, defend and hold
     --------------------------
     Interneuron and its officers, directors, shareholders, agents and employees
     harmless against any and all claims, liability, damage, loss, cost or
     expense (including reasonable attorney's fees) (collectively, "Losses")
                                                                   --------
     arising or resulting from any third party claim made or suit brought
     against Interneuron or such persons to the extent any such Losses arise out
     of (i) any breach by Takeda of any of its representation, warranty or
     covenant in this Agreement and/or in any of the Ancillary Agreements, (ii)
     Takeda's negligence or willful misconduct; or (iii) the development,
     manufacture, use, marketing, packaging, handling storage or other
     disposition of the Compound or Product by Takeda, or its Affiliates,  or
     its sublicensees, provided, however, that Takeda shall not be required to
     indemnify any indemnified party referred to in this paragraph to the extent
     it is determined that the Losses resulted from the negligence or willful
     misconduct of such indemnified party.

10.2 Indemnification by Interneuron.  Interneuron shall indemnify, defend and
     -------------------------------
     hold Takeda, and its sublicensees, and their officers, directors,
     shareholders, agents and employees harmless against any and all Losses
     arising or resulting from any third party claim made or suit brought
     against Takeda, its sublicensees or such other persons to the extent any
     such Losses arise out of (i) any breach by Interneuron of any of its
     representation, warranty or covenant in this Agreement and/or in any of the
     Ancillary Agreements, (ii) Interneuron's negligence or willful misconduct;
     or (iii) the development, manufacture, use or other disposition of the
     Compound or Product by Interneuron, or its Affiliates, provided, however,
     that Interneuron shall not be required to indemnify any indemnified party
     referred to in this paragraph to the extent it is determined that the
     Losses resulted from the negligence or willful misconduct of such
     indemnified party.



                                   ARTICLE XI



                                 MISCELLANEOUS
                                 -------------

11.1 Force Majeure.  Neither Party shall be held liable or responsible to the
     --------------
     other Party nor be deemed to have defaulted under or breached this
     Agreement for failure or delay in fulfilling or performing any term of this
     Agreement during the period of time when such failure or delay is caused by
     or results from causes beyond the reasonable control of the affected Party
     including, but not limited to, fire, flood,

                                       34
<PAGE>

     embargo, war, acts of war (whether war be declared or not), insurrection,
     riot, civil commotion, strike, lockout or other labor disturbance, act of
     God or act, omission or delay in acting by any governmental authority or
     the other Party. The affected Party shall notify the other Party of such
     force majeure circumstances as soon as reasonably practicable.

11.2 Assignment.  Except as expressly provided hereunder, this Agreement, and
     -----------
     any rights or obligations hereunder (including, but not limited to,
     Interneuron Intellectual Property), may not be assigned or otherwise
     transferred (whether voluntarily or by operation of law) by either Party;
     provided, however, that either Party may assign the Agreement and its
     rights and obligations hereunder to an Affiliate or in connection with the
     transfer or sale of all or substantially all of its assets related to
     Compound or Licensed Products or its business or in the event of its merger
     or consolidation or change in control or similar transaction. Any permitted
     assignee shall assume all obligations of its assignor under this Agreement.

11.3 Severability.  In the event that any of the provisions contained in this
     -------------
     Agreement are held invalid, illegal or unenforceable in any respect, the
     validity, legality and enforceability of the remaining provisions contained
     herein shall not in any way be affected or impaired thereby, unless the
     absence of the invalidated provision(s) adversely affect the substantive
     rights of the Parties.  In such event, the Parties shall replace the
     invalid, illegal or unenforceable provision(s) with valid, legal and
     enforceable provision(s) which, insofar as practical, implement the
     purposes of this Agreement.

11.4 No Implied Right.  Unless otherwise stated herein, no right or license
     -----------------
     whatsoever, either expressed or implied, is or shall be deemed granted to
     one Party pursuant to this Agreement, the Ancillary Agreements or otherwise
     under any Proprietary Information of the other Party.

11.5 Notices.  All notices or other communications which are required or
     --------
     permitted hereunder shall be in writing and sufficient if delivered
     personally, sent by facsimile or sent by nationally-recognized overnight
     courier, addressed as follows:

     if to Interneuron to:  Interneuron Pharmaceuticals, Inc.

                            99 Hayden Avenue, Suite 200
                            Lexington, MA, 02421-7966
                            USA
                            Attention:  President
                            Fax No.:  781-862-3859

                                       35
<PAGE>

     if to Takeda to:  Takeda Chemical Industries, Ltd.

                         1-1 Doshomachi 4-chome,
                         Chuo-Ku, Osaka 540-8645
                         Japan
                         Attention:
                         General Manager, Pharmaceutical International Division
                         Fax No.: 011-81-6-6204-2943

     With copies to:     Takeda Pharmaceutical America, Inc.
                         475 Half Day Road, Suite 500
                         Lincolnshire, IL 60069
                         USA
                         Attention: President
                         Fax No.:   847-383-3050


                         Morgan, Lewis & Bockius LLP
                         101 Park Avenue
                         New York, NY 10178
                         USA
                         Attention: Alan J. Neuwirth, Esq.

                         Fax No.:   212-309-6273

     or to such other address as the Party to whom notice is to be given may
     have furnished to the other Parties in writing in accordance herewith.  All
     notices shall be deemed to have received (i) if personally delivered, upon
     delivery, (ii) if sent by facsimile, upon dispatch of such facsimile and
     (iii) if sent by courier, on the second Business Day (or the third Business
     Day in case of notice between Interneuron and Takeda) following the date
     sent by such courier or upon receipt.

11.6 Applicable Law.  This Agreement shall be governed by and construed in
     ---------------
     accordance with the laws of the United States of America and State of New
     York without reference to any rules of conflict of laws.

11.7 Dispute Resolution. The Parties agree to attempt initially to solve all
     -------------------
     claims, disputes, or controversies arising under, out of, or in connection
     with this Agreement by conducting good faith negotiations. If the Parties
     are unable to settle the matter between themselves within thirty (30) days
     of the occurrence of such claims, disputes or controversies, the matter
     shall thereafter be resolved by arbitration. Whenever a Party shall decide
     to institute arbitration proceedings, it shall give written notice to that
     effect to the other Party. The Party giving such notice shall refrain from
     instituting the arbitration proceedings for a period of thirty (30) days
     following such notice. During such period, the Parties shall continue to
     make good faith efforts to amicably resolve the dispute without

                                       36
<PAGE>

     arbitration.  Any arbitration hereunder shall be conducted pursuant to the
     rules of arbitration of the International Chamber of Commerce ("ICC")
     before a panel of three arbitrators.  One arbitrator shall be nominated by
     each of Takeda and Interneuron and the third arbitrator shall be nominated
     by the other two arbitrators.  The place of arbitration shall be New York,
     New York, USA.  The arbitrators shall have the authority to grant specific
     performance and shall endeavor to enforce the provisions and intent of this
     Agreement.  Judgment upon the award so rendered may be entered in any court
     having jurisdiction or application may be made to such court for judicial
     acceptance of any award and an order of enforcement, as the case may be.
     Each Party shall pay the fees of its own attorneys and the expenses of its
     witnesses.  All other fees, costs and expenses of the arbitration shall be
     paid by the Party against whom the arbitrators have awarded the same.  If
     the arbitrators shall have made no assessments of such other fees, costs
     and expenses, they shall be borne equally by the Parties.  Notwithstanding
     the foregoing, nothing contained herein shall be construed as preventing
     any party from instituting legal action against the other Party for a
     temporary injunction or other similar provisional relief to the full extent
     permitted under the laws applicable to this Agreement or the performance
     hereof or otherwise, pending final settlement of any dispute by arbitration
     pursuant to this Section 11.7.

     Subject to the foregoing, for purposes of this Agreement each Party
     consents, for itself and its affiliates and permitted sublicensees and
     assignees hereunder, to the jurisdiction of the courts of the State of New
     York and the U.S. District Court for the Southern District of New York.

11.8 Entire Agreement.
     -----------------

     11.8.1  This Agreement, including all of its Appendixes, Ancillary
             Agreements contains the entire understanding of the Parties with
             respect to the subject matter hereof. All express or implied
             agreements and understandings, either oral or written, heretofore
             made are expressly merged in and made a part of this Agreement.

     11.8.2  Notwithstanding the above, the Data Transfer Agreement dated March
             3, 1997, and the Secrecy Agreement dated February 27, 1997  each of
             which have been entered into between the Parties, shall remain
             effective and shall not be affected by Section 11.8.1

     11.8.3  This Agreement may be amended, or any term hereof modified, only by
             a written instrument duly executed by all Parties hereto.

                                       37
<PAGE>

11.9   Headings.  The captions to Articles and Sections hereof are not a part of
       ---------
       this Agreement, but are merely guides or labels to assist in locating and
       reading such Articles and Sections.

11.10  Independent Contractors.  It is expressly agreed that the Parties shall
       ------------------------
       be independent contractors and that the relationship between the Parties
       shall not constitute a partnership, joint venture or agency.  Except as
       otherwise set forth in this Agreement, neither Party shall have the
       authority to make any statements, representations or commitments of any
       kind, or to take any action, which shall be binding on the other Party,
       without the prior consent of such other Party.

11.11  Waiver.  The waiver by a Party hereto of any right hereunder or the
       -------
       failure to perform or of a breach by another Party shall not be deemed a
       waiver of any other right hereunder or of any other breach or failure by
       said other Party whether of a similar nature or otherwise.

11.12  Counterparts.  This Agreement may be executed in two or more
       -------------
       counterparts, each of which shall be deemed an original, but all of which
       together shall constitute one and the same instrument.

11.13  Interneuron's Responsibility as to Amendment of the Ferrer Agreement.
       ---------------------------------------------------------------------
       Takeda is of the opinion that several terms and conditions of the Ferrer
       Agreement, including, but not limited to, Articles 2.2, 6.1, 10, 11, 12,
       14, 15 and 16, need to be amended. In particular, Takeda wishes to have
       the right to purchase the Compound from any third party which it may
       select in its sole discretion on condition that Takeda pays to Ferrer a
       sum equal to ten percent (10%) of the purchase price which Takeda or its
       sublicensees have paid to such third party. Also Takeda wishes to have
       the right to use, or to have its sublicensees to use, a trademark or
       trademarks it may select without transferring the same to Ferrer on
       condition that a royalty at the rate of three percent (3%) of the Net
       Sales is paid to Ferrer. Interneuron understands such wishes of Takeda
       and agrees upon request by Takeda to use commercially reasonable efforts
       to amend the Ferrer Agreement in accordance with Takeda's wishes outlined
       above.

11.14  Costs and Expenses.  Except as expressly provided in this Agreement, each
       -------------------
       Party shall pay its own costs and expenses in connection with the
       negotiation and preparation of this Agreement.

                                       38
<PAGE>

     IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first set forth above.



TAKEDA CHEMICAL INDUSTRIES, LTD.



By:     /s/ Yasuchika Hasegawa
        ----------------------
Name:   Yasuchika Hasegawa

Title:  Member of the Board
        General Manager
        Pharmaceutical International Division



INTERNEURON PHARMACEUTICALS, INC.



By:     /s/ Glenn L. Cooper, M.D.
        --------------------------
Name:   Glenn L. Cooper, M.D.

Title:  President and Chief Executive Officer

                                       39
<PAGE>

                                 Appendix  1.20
                                 --------------


                              Interneuron  Patents



Title:    Reduction of Infarct Volume Using Citicoline
------

Issued:   [*]
-------

Assignee: Interneuron Pharmaceuticals
---------

U.S.:     [*]
-----

Foreign:  [*]
--------

Title:    Method Of Protecting Brain Tissue From Cerebral Infarction Subsequent
------
          To Ischemia

Issued:   [*]
-------

Assignee: Interneuron Pharmaceuticals
---------

U.S.:     [*]
-----

Foreign:  [*]
--------

Title:    Method Of Protecting Brain Tissue From Cerebral Infarction Subsequent
------
          To Ischemia

Issued:   [*]
-------

Assignee: Interneuron Pharmaceuticals
---------

U.S.:     [*]
-----

Foreign:  [*]
--------


-----------------------------------
* Confidential treatment requested.

                                       43
<PAGE>

Title:        Reduction of Infarct Volume Using Citicoline
-----

Filed:        October 23, 1998
-----

Application:  US 09/177,508
-----------

Status:       Pending
------

Title:        Reduction of Infarct Volume Using Citicoline
-----

Filed:        June 18, 1999
-----

Application:  US 09/335,726
-----------

Status:       Pending
------

Title:        Reduction of Infarct Volume Using Citicoline
-----

Filed:        March 6, 1996
-----

Application:  CANADA  2,213,000
-----------

Status:       Pending
------

Title:        Hyperhydrated Citicoline, Process and Use
-----

Filed:        December 23, 1998
-----

Application:  US 09/219,595
-----------

Status:       Office Action
------

Title:        Hyperhydrated Citicoline, Process and Use
-----

Filed:        December 23, 1998
-----

Application:  PCT US 98/27435
-----------

Status:       Pending
------

                                       44
<PAGE>

Title:        Method of Treating Motor Neuron Disease and Demylenating
-----
              Diseases with Citicoline

Filed:        August 6, 1998
-----

Application:  US 09/129,778
-----------

Status:       Office Action
------

Title:        Method of Treating Motor Neuron Disease and Demylenating
-----
              Diseases with Citicoline

Filed:        November 24, 1998
-----

Application:  PCT US 98/25051
-----------

Status:       Pending  Filed Demand
------

Canadian Applications for the above series of Citicoline Applications:

Title:        Reduction of Infarct Volume Using Citicoline

Country       Application/Patent No.:   Filing/Issue Date:  Status:
-------------------------------------------------------------------
Canada        2,213,000                 March 6, 1996       pending

MIT Citicoline Patent (Sublicensed from Ferrer)

Title:        Cytidyl Diphosphocholine-Drug Composition & Process
------

Issued:       September 2, 1986
-------

Assignee:     MIT (North American rights sublicensed from Ferrer)
---------

U.S.:         4,609,647
-----

Foreign:      Canada 1,114,295
--------


                                       45
<PAGE>

                                Appendix 1.23
                                -------------

                                SUPPLY AGREEMENT

                                    between

                            KYOWA HAKKO U.S.A., INC.

                                      and

                       INTERNEURON PHARMACEUTICALS, INC.
<PAGE>

     2.2  Shipment.  Shipment shall be made no later than sixty (60) days
          --------
after the date of Interneuron's or its designee's purchase order.  All Compound
delivered hereunder shall have a shelf life of not less than twelve (12) months
as determined by an appropriate stability evaluation to be performed in
accordance with U.S. and International Conference of Harmonization ("ICH")
Guidances. All Compound delivered hereunder shall not be manufactured not more
than two (2) years prior to the date of said delivery.  With respect to pre-
launch build up, the parties will agree on a date for start of manufacturing
and, based on production lead times, determine an acceptable shelf life for pre-
launch shipment of launch inventories.  Supplier shall be responsible for
delivery of the Compound to Interneuron or its designee in the United States.
Title and risk of loss shall pass to Interneuron or its designee upon delivery
to Interneuron or its designee in the United States.  The Compound shall be
shipped in powder form in appropriate packaging for transport, as set forth in
the NDA.

     2.3  Testing and Certificate of Analysis.  Before releasing any lot of
          -----------------------------------
the Compound, Supplier and its Affiliates shall confirm the compliance of such
lot with the Specifications.  Such compliance check shall be performed by
Supplier's Quality Assurance/Quality Control department and shall be certified
by the head of such department (or his/her designee).  Copies of the certificate
of analysis incorporating such certification and manufacturing and
analytical/microbiological records, shall be sent to Interneuron:  (i) with each
shipment of the Compound containing material from such lot, and (ii) within ten
(10) business days of the first shipment of the Compound containing material
from such lot.  All such copies shall be sent to the addressees specified by
Interneuron or, if no addressee is specified, to the place of delivery of the
Compound.

     2.4  Preservation Samples/Retained Samples.  Pursuant to all applicable
          -------------------------------------
laws, rules and regulations and to the Specifications, Supplier and its
Affiliates shall assign and apply lot numbers and shall take from each lot of
the Compound manufactured pursuant to this Agreement preservation
samples/retained samples ("Samples") which Supplier and its Affiliates shall
retain and store for a period of at least five (5) years after production of the
said lot and shall make the said Samples available for two (2) full analyses by
Supplier and its Affiliates for the discrepancy of the Specifications.  The
Samples, as referred to herein, do not include samples retained for purposes of
stability testing.

     2.5  Manufacturing Records.  Supplier and its Affiliates shall keep on file
          ---------------------
at the site of the Compound manufacturing manufacturing records and analytical
results pertaining to the manufacture of each lot of the Compound supplied to
Interneuron for a period of at least six (6) years after production of the said
lot.

     2.6  Inspection Upon Delivery.  Upon receipt of the Compound in any
          ------------------------
shipment, Interneuron or its designee shall inspect such Compound and assay
samples thereof.  If Interneuron deems that any Compound delivered to
Interneuron or its designee hereunder fails to conform to the Specifications
upon delivery to Interneuron or its designee, then Interneuron shall notify
Supplier thereof in writing within sixty (60) days of receipt of such Compound
by Interneuron or its designee.

                                      -3-
<PAGE>

Notwithstanding the foregoing, it is understood and agreed by the Parties that
Interneuron or its designee shall have no obligation to inspect each lot of the
Compound. Interneuron or its designee shall retain the non-conforming Compound
and Supplier shall have the right to inspect such Compound.

          (a) Undisputed Claims.  Supplier shall, if it agrees with
              -----------------
Interneuron's complaint, replace any such non-conforming Compound with an equal
quantity of the Compound complying with the Specifications at no cost to
Interneuron and without undue delay.  Interneuron shall dispose of any Compound
which is not in compliance with the Specifications at Supplier's cost, except
that Interneuron shall follow any reasonable instructions from Supplier to
return to Supplier or otherwise dispose of such non-conforming Compound in
another manner at Supplier's cost.

          (b) Disputed Claims.  If Supplier does not agree with Interneuron's
              ---------------
complaint, then Supplier shall notify Interneuron of such disagreement within
ten (10) days of receipt of notice of deficiency.  The parties shall use
commercially reasonable efforts to resolve such disagreement within ten (10)
days of Interneuron's receipt of Supplier's notice of disagreement.  Until such
time as the disagreement is resolved, no Compound from the lot tested shall be
released.  Any related expense shall be borne by the Party whose analysis was in
error.

     2.7  Stability Testing.  Supplier and its Affiliates, at its sole expense,
          -----------------
shall perform and shall monitor routine stability testing of the Compound in
accordance with CGMPs, applicable standards of the FDA, and other applicable law
and regulations, including without limitation any such testing required under
the post-NDA stability protocol.  Pre-NDA testing shall include without
limitation performing stability testing on three batches of the Compound
according to current ICH guidelines and thereafter on one batch of such Compound
per year at the saleable unit level.  In the event that Specifications or the
Chemistry Manufacture and Control ("CMC") section of the NDA shall be amended or
supplemented, Supplier and its Affiliates, at its sole expense, shall monitor
routine stability testing on the Compound as manufactured pursuant to the
amended Specifications or CMC section.  If such change constitutes a major
change(s), such testing shall include without limitation performing stability
testing on the initial three batches of the Compound as manufactured pursuant to
the amended Specifications or CMC.

     2.8  Stability Failure.  If Supplier or its Affiliates discovers a
          -----------------
stability failure with respect to the Compound (or, if applicable, the Compound
as manufactured pursuant to the amended Compound Specifications or CMC),
Supplier or its Affiliates shall promptly notify Interneuron thereof and the
parties take appropriate corrective action.

     2.9  Customer Complaints.  Interneuron shall be responsible for
          -------------------
investigating and responding to all customer complaints relating to the Compound
delivered to Interneuron or its designee hereunder.  Each Party shall without
delay notify the other of any such complaints of which it becomes aware and the
parties shall cooperate in resolving any such complaints.  Supplier and its
Affiliates shall provide Interneuron with all reasonable assistance in
investigating and responding to

                                      -4-
<PAGE>

complaints that are alleged to have arisen from the manufacturing or supply of
the Compound hereunder.

     2.10  Health or Government Authority Inquiries.  Supplier and its
           ----------------------------------------
Affiliates shall be responsible for responding to any inquiry from any duly
authorized health or government authority regarding the Compound.  Supplier and
its Affiliates shall immediately inform Interneuron of any such inquiries or any
requests for inspections of which it becomes aware and shall without delay make
available to Interneuron a copy of any inspection report received by Supplier
and its Affiliates resulting from any inspection of the facilities of Supplier
and its Affiliates, or Supplier's suppliers by such health or government
authority to the extent such report relates to the Compound, the formulation,
manufacture, testing, storage and delivery of the Compound or any premises used
by Supplier and its Affiliates or Supplier's supplier(s) in performing its
obligations under this Agreement as well as a copy of any response(s) thereto.
Any Form 483 comments related to the Compound shall be provided to Interneuron.
Any response to such 483 comments shall be provided to Interneuron.  Interneuron
shall provide Supplier and its Affiliates with reasonable assistance in
responding to such inquiries and in handling inspections of such facilities by
such authorities.

     2.11  Inspections.
           -----------

          (a) Representatives of Interneuron or its designee shall have the
right to inspect the Compound and those sections of Supplier's and its
Affiliates' or Supplier's vendors' manufacturing, laboratory, packaging and
warehouse facilities used in the manufacture, testing, storage and shipping of
the Compound, its methods of manufacturing and all related records for the same
at all premises used by Supplier and its Affiliates or Supplier's vendors in
performing its obligations under this Agreement during normal business hours
upon thirty (30) days notice.  Supplier and its Affiliates shall use reasonable
efforts to obtain consent from Supplier's vendors for Interneuron to accompany
Supplier and its Affiliates on such inspections of Supplier's vendors.  Such
notice shall be thirty (30) days advance notice unless Supplier and its
Affiliates and Interneuron mutually determine that there is a need for more
prompt inspection.

          (b) With respect to the Compound supplied by it, Supplier and its
Affiliates shall be responsible for all production process, equipment, cleaning,
and analytical validation required by the FDA and shall take all steps necessary
to pass government inspection by the FDA and any other governmental agency.
Supplier and its Affiliates shall also assist Interneuron in preparing and
updating any required regulatory submission and all other documents required by
the FDA for approval of the NDA, including providing Interneuron with a right of
reference to any Drug Master File related to the Compound.  Supplier and its
Affiliates shall make no amendment to such Drug Master File without notification
to Interneuron and shall make no change that may affect chemical and/or physical
properties of the Compound, or analytical protocols/procedures without
Interneuron's prior consent.  Supplier and its Affiliates shall maintain all
appropriate original regulatory documents, retention samples and records
relating to its responsibilities with respect to the manufacturing of the
Compound according to CGMPs. Compound's manufacturing records, related documents
and certificates of analysis may be inspected by Interneuron and or its
designee.

                                      -5-
<PAGE>

                       ARTICLE 3 - FORECASTS AND ORDERING

     3.1  Forecasting.  During the Term, Interneuron shall provide Supplier
          -----------
every calendar month starting upon NDA filing in the United States with a twelve
(12) month rolling forecast including desired delivery dates, of Interneuron's
estimated requirements of the Compound, which may be expressed in a reasonable
range, and shall update the same on a monthly basis (the "Forecast(s)").
Interneuron will provide Supplier with the initial forecast no later than three
(3) months prior to the anticipated date of First Commercial Sale.  Except for
the first three (3) months, such Forecast(s) shall not be deemed to be firm
orders. After receiving the Forecast, Supplier shall promptly provide
Interneuron with Supplier's production schedules and shall immediately notify
Interneuron if Supplier and its Affiliates will be unable to supply
Interneuron's forecasted requirements of the Compound.  Such production
schedules shall be provided within fourteen (14) days of receipt of the
Forecast.

     3.2  Firm Orders.  In addition to the initial order, the first three (3)
          -----------
months of each Forecast submitted to Supplier shall be a firm order, against
which Supplier or its Affiliates is authorized to institute production and
Interneuron or its designee is authorized to issue purchase orders (the
"Purchase Order(s)"). Together with the issuance of the Forecast, Interneuron or
its designee shall forward to Supplier a new Purchase Order(s) of its
requirements of the Compound for the new calendar month.  Supplier will confirm
to Interneuron receipt of such Purchase Order. Supplier and its Affiliates shall
use commercially reasonable efforts to fulfill orders made hereunder by
delivering the Compound to Interneuron or its designee on or prior to an agreed
delivery date, which shall be within sixty (60) days of receipt of such Purchase
Order.  No delivery is to be made without a Purchase Order.

          (a) Full Lot Quantities.  The Purchase Order(s) for the Compound shall
              -------------------
be in Supplier's and its Affiliates' ordinary full lot quantities or multiples
thereof.  Supplier and its Affiliates shall use best effort to fill orders with
a single lot quantity or multiples thereof.

          (b) Shortages.  Supplier and its Affiliates agree that it will use its
              ---------
best efforts to prevent an interruption of supply to Interneuron and shall
immediately notify Interneuron of any problems or unusual production situations
which may adversely affect production or quality of the Compound or its
Specifications or its timely delivery to Interneuron or its designee.  If, at
any time during the term of this Agreement, Supplier becomes aware that Supplier
and its Affiliates will not be able to satisfy the Forecasts or Purchase Orders
for the Compound, then Supplier and its Affiliates shall: (i) give Interneuron
immediate notice thereof, and (ii) continue to use commercially reasonable
efforts to fulfill orders made pursuant to this Section 3.2.

          (c) Inventories.  Supplier and its Affiliates shall maintain 60 days'
              -----------
inventories of the Compound based on the forecasted amounts, having a shelf life
determined in accordance with Section 2.2 hereof and not less than 12 months
upon delivering to Interneuron or its designees.

                                      -6-
<PAGE>

                      ARTICLE 4 - PRICES AND PAYMENT TERMS

     4.1  Price.  Supplier agrees to sell the Compound and Interneuron or its
          -----
designee agrees to purchase the Compound manufactured by Supplier and its
Affiliates at the prices (in United States dollars) set forth in Schedule 4.1
attached hereto (as may be amended from time to time).  The parties agree that
the prices set forth in Schedule 4.1 shall remain in effect through the Initial
Term (as defined in Section 6.1) of the Agreement: provided, however, in the
event that the Initial Term is extended pursuant to Section 6.1, parties agree
to negotiate the new pricing terms to be replaced in Schedule 4.1.

         (a) The prices are determined based on total quantity ordered during
the any calendar year during the term of the Agreement (the "Relevant Year").
The price of all Compound actually ordered by Interneuron or its designee during
the Relevant Year will be retroactively adjusted prior to the end of the
Relevant Year to reflect the benefit of the highest quantity threshold ordered
by Interneuron or its designee during the Relevant Year: provided, however, that
the quantity of the Compound ordered by Interneuron or its designee during a
partial calendar year during the Initial Term will be prorated to reflect an
annualized quantity, for example, if the first order is placed on July 1 and a
total order of 3 tons was placed through December of the same year, the
annualized quantity is calculated to be 6 tons and the price shall be determined
accordingly.

         (b) The prices are based on a Japanese Yen ((Yen)) / U.S. Dollar ($)
exchange rate of 120 Yen to the U.S. Dollar ("Standard Rate"). The prices shall
remain firm as long as the exchange rate remains within plus or minus fifteen
percent (15%) of the Standard Rate (the "Range"). If the daily exchange rates
published by Wall Street Journal, or some other mutually acceptable publication,
fall outside of the Range for a period of ninety (90) consecutive days, the
prices for the following calendar quarter and thereafter shall be adjusted
according to the following formula with the exchange rate effective as of such
90th day being Current Rate:

               Adjusted = Original X [ 1  +  (Standard (Yen) / $ Rate
                                             ----------------------------
               Current (Yen) / $ Rate) X 0.5]
               ------------------------------
               Price        price                      Standard (Yen) / $ Rate

               Further adjustments shall be made if the daily exchange rates
               fall outside of the Range (from the then Standard Rate) for a
               period of ninety (90) consecutive days.

     4.2  Payment Terms.  Interneuron or its designee shall settle invoices
          -------------
received from Supplier within forty-five (45) days from the date of the invoice
or, for amounts in dispute pursuant to Section 7.4, within thirty (30) days from
the date the dispute is resolved.  Payments hereunder shall be in US dollars.
The price calculated pursuant to Schedule 4.1 for all Compound delivered to
Interneuron or its designees.

                                      -7-
<PAGE>

     4.3  Most Favored Customer.   In the event that Supplier offers another
          ---------------------
purchaser of the Compound in the United States, (i) prices for the Compound
lower than those then in effect for Interneuron or its designee under this
Agreement and (ii) under terms and conditions similar to those in effect under
this Agreement, Supplier agrees that it shall offer such lower prices to
Interneuron or its designee for the Compound.


              ARTICLE 5 - WARRANTY, INDEMNIFICATION AND INSURANCE

     5.1  Warranties.  Supplier and its Affiliates hereby represent and
          ----------
warrant to Interneuron that

          (a) the Compound delivered to Interneuron or its designee hereunder
shall, on the date of delivery:  (i) conform to the validated routes of
synthesis and standards described in Interneuron NDA; (ii) not be adulterated or
misbranded within the meaning of the U.S. FDA regulations or, for the Compound
labeled for shipment outside the United States, any applicable equivalent law,
rule or regulation; (iii) not be prohibited from being introduced into
interstate commerce; (iv) perform in accordance with the Specifications; (v)
comply with all applicable laws, rules and regulations (including, but not
limited to, the CGMP regulations of the FDA applicable to the Compound) and for
the Compound labeled for shipment outside the United States, any applicable
laws, rules or regulations governing the formulation, manufacture, testing prior
to delivery, storage and delivery of the Compound; and (vi) be of merchantable
quality;

          (b)  it has reviewed and is familiar with the Ferrer Agreement and
acknowledges that Interneuron's activities and obligations hereunder are subject
to the applicable terms and conditions of the Ferrer Agreement; and

          (c)  to Supplier's knowledge, the process by which Supplier and its
Affiliates manufacture the Compound does not infringe any Third Party patent
directed to a process for the manufacture of the Product or the Compound.

     5.2  Indemnity.  As used herein, the phrase "under this Agreement"
          ---------
includes but is not limited to references to actions under or pursuant to
Article 6 of this Agreement, which might otherwise be post termination of this
Agreement.

          (a) Supplier Indemnity.  Supplier shall indemnify, hold harmless and
              ------------------
defend Interneuron and its Affiliates and their respective directors, officers,
employees, successors, assignees and agents from and against any and all claims,
demands, suits or proceedings, damages and costs (including reasonable
attorneys' fees) expenses and losses (collectively "Losses") resulting from the
manufacture, use, storage, handling, packaging, distribution or sale of the
Compound or of the Product (to the extent that any such Loss arises out of any
manufacture, use, storage, handling, packaging, distribution or sale of the
Compound) or resulting from the failure of the Compound to meet the requirements
of this Agreement, or a breach or violation of Supplier's and its Affiliates'


                                      -8-
<PAGE>

representations or warranties set forth in this Agreement; or the negligence or
willful misconduct of Supplier and its Affiliates in the performance of its
duties under this Agreement.

         (b) Interneuron Indemnity. Interneuron shall indemnify, hold harmless
             ---------------------
and defend Supplier and its respective directors, officers, employees,
successors, assignees and agents from and against any and all Losses arising out
of the breach or violation of this Agreement by Interneuron or from the
negligence or willful misconduct of Interneuron in the performance of its duties
under this Agreement. Interneuron represents and warrants that this Agreement
will not result in a breach of or conflict with any agreements in which
Interneuron is a party or by which it is bound.

     5.3  Cooperation of the Parties.  Any party claiming indemnification
          --------------------------
pursuant to this Article 5 (the "Claiming Party") shall give prompt written
notice to the other party (the "Indemnifying Party") of the commencement of any
action, suit or proceeding for which indemnification may be sought, provided
that the failure to give such notice shall not excuse the Indemnifying Party
from its indemnity obligations hereunder.  Upon receipt of such notice, the
Indemnifying Party shall assume the defense thereof; provided, however, that the
Claiming Party shall be entitled to participate in any such action, suit or
proceeding with counsel of its own choice, but at its own expense.  If the
Indemnifying Party fails to assume the defense within a reasonable time, the
Claiming Party may assume such defense and the fees and expenses of its
attorneys will be covered by the Indemnifying Party pursuant to the indemnity
provisions provided for herein.  The Claiming Party will cooperate with the
Indemnifying Party at the Indemnifying Party's expense in the defense of any
suit.  Neither Party shall be liable for any costs resulting from any settlement
made by a Party without the consent of the other Party to such settlement, which
consent shall not be unreasonably withheld.

     5.4  Joint Negligence.  If any Loss incurred by or rendered against
          ----------------
either Party is due to, or is determined to be due to, both the negligence or
willful misconduct of Supplier and its Affiliates as well as the negligence or
willful misconduct of Interneuron, then the Parties shall share the costs
attributable to such Loss (including but not limited to the cost of defense
thereof) in the proportion of that Party's share of the negligence or willful
misconduct of the total.  Each Party shall give the other Party notice of any
Loss to which the preceding sentence applies and the Parties shall cooperate in
the defense thereof.

     5.5  Insurance.    At all times during the term of this Agreement and for a
          ---------
period of not less than five (5) years thereafter, each of Supplier and
Interneuron shall maintain in full force and effect commercial general liability
insurance issued by a reputable insurance company having a Best's rating of B+,
Class IV or higher, insuring against all liability, including product liability,
personal injury, physical injury and property damage in an amount equal to a
minimum of $10 million per occurrence and per year and shall furnish the other
Party at its request with a certificate of insurance showing the above coverage,
signed by an authorized agent of the insurance company.  Each Party shall be
named as an additional insured on the other Party's insurance policy.

                                      -9-
<PAGE>

     5.6  Recall.  Supplier shall reimburse Interneuron for any damages
          ------
incurred by Interneuron resulting from a recall, stop sale or governmental
action or direction resulting from a breach of this Agreement by Supplier or
from negligence due to Supplier's actions or inactions.


                        ARTICLE 6 - TERM AND TERMINATION

     6.1  Term.  The Term of this Agreement shall run from the date of this
          ----
Agreement until the fifth anniversary of the First Commercial Sale ("Initial
Term"): provided that either party shall have the right to extend the term of
this Agreement for one year periods by giving the other party notice of its
intention to renew within thirty (30) days prior to the expiration of the then
term.

     6.2  Termination. Notwithstanding anything contained herein to the
          -----------
contrary, either party shall have the right to terminate this Agreement for
cause according to the provisions of Section 6.2.1 below.  In the event of such
termination, the rights and obligations hereunder, including any payment
obligations not due or not owed as of the termination date shall terminate.

          6.2.1  Termination for Cause. This Agreement may be terminated by
                 ---------------------
written notice at any time during the term of this Agreement:

          (a) by either party if the other party is in breach of its material
obligations hereunder by causes and reasons within its control and has not cured
such breach within sixty (60) days after notice requesting cure of the breach;
or

          (b) by either party upon the filing or institution of bankruptcy,
reorganization, liquidation or receivership proceedings, or upon an assignment
of a substantial portion of the assets for the benefit of creditors by the other
party; provided, however, in the case of any involuntary bankruptcy proceeding
such right to terminate shall only become effective if the other party consents
to the involuntary bankruptcy or such party has not taken steps to oppose the
initiation of such actions against it within sixty (60) days after the filing
thereof.

          (c) by Interneuron if the FDA or any other regulatory agency takes any
action which would prohibit or materially restrict the manufacture, sale or use
of the Compound or the Product.

          6.2.2  Effect of Termination for Cause.  In the event either party
                 -------------------------------
terminates this Agreement under Section 6.2.1, the other party shall be entitled
to any payments then due or owing under this Agreement and the terminating party
shall have no further rights hereunder.

     6.3  Effect of Expiration or Termination. Expiration or termination of
          -----------------------------------
this Agreement shall not relieve the parties of any obligation accruing prior to
such expiration or termination, and the provisions of Article 7 shall survive
the expiration or termination of this Agreement and shall continue in effect for
seven (7) years from the date of expiration or termination. Any expiration or
early

                                     -10-
<PAGE>

termination of this Agreement shall be without prejudice to the rights of
either party against the other accrued or accruing under this Agreement prior to
termination.

     6.4  Survival.  Notwithstanding anything herein to the contrary, the
          --------
provisions of Articles 5 and 7 as well as those portions of Sections 6.2 and
6.3, which relate to post termination rights and obligations, shall survive any
termination of this Agreement.


               ARTICLE 7 - CONFIDENTIALITY AND DISPUTE RESOLUTION

     7.1  Non-disclosure and Non-Use Obligations. All proprietary information
          --------------------------------------
disclosed by one party to any other party hereunder shall be maintained in
confidence and shall not be disclosed to any nonparty or used for any purpose
except as expressly permitted herein without the prior written consent of the
other parties to this Agreement. The foregoing nondisclosure and nonuse
obligations shall not apply to the extent that such proprietary information:

          (a) is known by the receiving party at the time of its receipt, and
not through a prior disclosure by the disclosing party, as documented by
business records;

          (b) is properly in the public domain;

          (c) is subsequently disclosed to a receiving party by a third party
who may lawfully do so and is not under an obligation of confidentiality to the
disclosing party; or

          (d) is developed by the receiving party independently of proprietary
information received from the other party, as documented by research and
development records.

     7.2  Permitted Disclosure of Proprietary Information. Notwithstanding
          -----------------------------------------------
Section 7.1, a party receiving proprietary information of the other party may
disclose such proprietary information:

          (a) to governmental or other regulatory agencies in order to obtain
patents or to gain approval to conduct clinical trials or to market Product, but
such disclosure may be only to the extent reasonably necessary to obtain patents
or authorizations;

          (b) to its sublicensees, agents, consultants, Affiliates and/or other
third parties for the research and development, manufacturing and/or marketing
of the Product (or to such third parties to determine their interest in
performing such activities) on the condition that such third parties agree to be
bound by the confidentiality obligations contained in this Agreement; or

          (c) is required to be disclosed by law or court order, provided that
notice is promptly delivered to the other party in order to provide an
opportunity to challenge or limit the disclosure obligations; provided, however,
without limiting any of the foregoing it is understood that any party hereto,
including any Affiliate, may make reasonable disclosure of this Agreement, and
the

                                     -11-
<PAGE>

terms hereof in any filings required by the Securities and Exchange Commission,
subject to requests for confidential treatment for certain provisions of this
Agreement, as agreed to by the parties.

     7.3  Applicable Law.   The Agreement shall be governed by and construed
          --------------
in accordance with the laws of the State of New York in the United States
without reference to any rules of conflict of laws.

     7.4  Dispute Resolution. The parties agree to attempt initially to solve
          ------------------
all claims, disputes, or controversies arising under, out of, or in connection
with this Agreement by conducting good faith negotiations. If the parties are
unable to settle the matter between themselves, the matter shall thereafter be
resolved by alternative dispute resolution, starting with mediation and
including, if necessary, a final and binding arbitration. Whenever a party shall
decide to institute arbitration proceedings, it shall give written notice to
that effect to the other party.  The party giving such notice shall refrain from
instituting the arbitration proceedings for a period of sixty (60) days
following such notice.  During such period, the parties shall make good faith
efforts to amicably resolve the dispute without arbitration.  All disputes
arising in connection with this Agreement shall be finally settled under the
Rules of Arbitration of the American Arbitration Association by one or more
arbitrators appointed in accordance with the said Rules. Judgment upon the award
so rendered may be entered in any court having jurisdiction or application may
be made to such court for judicial acceptance of any award and an order of
enforcement, as the case may be. In no event shall a demand for arbitration be
made after the date when institution of a legal or equitable proceeding based on
such claim, dispute or other matter in question would be barred by the
applicable statute of limitations.


                         ARTICLE 8 - GENERAL PROVISIONS

     8.1  Force Majeure.  Neither Party shall be deemed to be in breach hereof
          -------------
on account of any delay in delivery or other performance caused in whole or in
part by, or otherwise materially related to, the occurrence of any contingency
beyond Supplier's or Interneuron's control, including but not limited to: war or
hostility; failure or delay on land, water or air transportation; act of any
government or agency, subdivision or branch thereof; judicial action; strikes or
other labor disputes; accident, fire, explosion, flood, storm, earthquake or
other acts of God; shortage of labor, fuel, power, inventory or machinery;
technical failures; delay or failure to perform by any supplier; or, in general,
any other contingency whatsoever (whether similar or dissimilar to those set
forth herein) where Supplier or Interneuron has exercised ordinary care in the
prevention thereof.  In the event of any contingency as described hereunder, the
affected Party shall give immediate notice thereof to the other.  The affected
Party shall render the delayed performance in the manner as practicable as
possible after such event of force majeure has ceased or otherwise abated
sufficiently in order to permit it to do so without incurring any material
additional expense which it would not have had in the absence of such event of
force majeure.

     8.2  Notices.  All notices, requests, reports, demands and other
          --------
communications made or given under the terms of this Agreement or in connection
herewith shall be in writing and shall be

                                     -12-
<PAGE>

either personally delivered, transmitted by postage prepaid registered mail, by
courier providing documentation of receipt or by telecopier (confirmed in
writing by postage prepaid registered mail or by such courier), and shall be
addressed to the appropriate Party at the addresses set forth in Schedule 8.2
hereto or to such other address or place as such Party may from time to time
designate. Any notice, request, demand or other communication given or made
pursuant to this section shall be deemed effective on the date which is the
confirmed date of receipt by the registered mail or courier service.

     8.3  Non-Waiver of Rights.  The failure by either party at any time to
          --------------------
enforce any of the provisions of this Agreement shall not be construed as a
waiver of such provisions or any other provisions hereof.  The exercise by
either party of any of its rights herein or at law or in equity shall not
preclude or prejudice such party from exercising any other rights provided
herein or at law or in equity.

     8.4  Entire Agreement - Modifications.  This Agreement supersedes all
          --------------------------------
prior agreements, oral or written, between the Parties hereto with respect to
the subject matter hereof and contains the entire and only agreement between the
Parties regarding the subject matter hereof (except as otherwise expressly
provided herein), and any representation, terms or conditions relating thereto
or in connection therewith, oral or in writing, not incorporated herein will not
be binding upon either Party.  No modification or discharge of this Agreement or
any of the provisions hereof nor any representation, promise or condition
relating to this Agreement nor any terms or conditions of any purchase order,
invoice, shipping document or other document shall be binding unless made in
writing with express reference to this Agreement and signed by authorized
representatives of both parties.  The Parties hereby acknowledge and agree that
if there shall be at any time a conflict, misinterpretation or discrepancy
between this Agreement and any other documentation between Interneuron and
Supplier relating to this Agreement, including any invoices for the Compound or
purchase orders, the provisions of this Agreement shall prevail to the extent
permitted by applicable law.  Notwithstanding anything herein to the contrary,
the Parties may mutually amend any of the Schedules hereto at any time during
the Term by executing a version thereof dated after the then-current version.
All of the Schedules, and any amendments thereto made pursuant to this section,
are a part of this Agreement and are hereby incorporated herein.

     8.5  Assignment.  Neither Party may assign or delegate any of its rights
          ----------
or obligations hereunder without the prior written approval of the other except
that either Party may transfer all or part of this Agreement to an Affiliate or
to a successor in interest or transferee of all or substantially all of the
portion of the business to which this Agreement relates, by means of prior
notice hereunder to the other Party, provided that such assignee or successor
assumes in writing the performance of all the terms and conditions of this
Agreement to be performed by said Party.

     8.6  Severability.  If one or more of the provisions contained in this
          ------------
Agreement shall be invalid, illegal or unenforceable in any respect under any
applicable law, the remaining portions hereof shall remain in full force and
effect.  If any of the terms or provisions of this Agreement are in conflict
with any applicable statute or rule of law, then such terms or provisions shall
be deemed inoperative

                                     -13-
<PAGE>

to the extent that they may conflict therewith and shall be deemed to be
modified to conform with such statute or rule of law. If the terms and
conditions of this Agreement are materially altered as a result of the preceding
two sentences, the Parties shall negotiate in good faith the terms and
conditions of this Agreement to resolve any inequities. In the absence of
agreement within ninety (90) days of commencing negotiations, the Parties will
seek arbitration pursuant to Section 7.4.

     8.7  Interpretation.  Unless expressly set forth, the use of the singular
          --------------
form of terms herein shall include the plural and the use of the plural form of
terms herein shall include the singular.  The word "including" shall be deemed
to be followed by the words "without limitation."  Headings are for reference
only and shall not be used to interpret this Agreement.

     8.8  Independent Contractors.    It is expressly agreed that Interneuron
          -----------------------
and Supplier are independent contractors and that the relationship between the
two Parties shall not constitute a partnership, joint venture or agency.
Neither Supplier nor Interneuron shall have the authority to make any
statements, representations or commitments, or to take any action, which shall
be binding on the other, without the prior consent of the other Party to do so.

     IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first set forth above.


KYOWA HAKKO U.S.A., INC.


By:    /s/ Toshifumi Asada
       -------------------

Name:  Toshifumi Asada
       ---------------

Title: President and CEO
       -----------------



INTERNEURON PHARMACEUTICALS, INC.


By:    /s/ Glenn L. Cooper, M.D.
       -------------------------

Name:  Glenn L. Cooper, M.D.
       ---------------------

Title: President and Chief Executive Officer
       -------------------------------------

                                     -14-
<PAGE>

                                 Schedule 1.10

                                 Specifications
                                 --------------


                           CITICOLINE MONOSODIUM SALT
                           --------------------------

<TABLE>
<CAPTION>

<S>                                            <C>
TEST:                                            SPECIFICATION:


         [*]                                        [*]


         [*]                                        [*]

         [*]                                        [*]

         [*]                                        [*]

         [*]                                        [*]

         [*]                                        [*]

         [*]                                        [*]

         [*]                                        [*]

         [*]                                        [*]


         [*]                                        [*]

                  [*]                               [*]

                  [*]                               [*]

                  [*]                               [*]

                  [*]                               [*]

                  [*]                               [*]

         [*]                                        [*]

         [*]                                        [*]

         [*]                                        [*]

         [*]                                        [*]

         [*]                                        [*]

         [*]                                        [*]

         [*]                                        [*]


</TABLE>


----------------------------------
*Confidential treatment requested.



<PAGE>

                                  Schedule 4.1


                     Pricing Terms [United States Dollars]
                     -------------------------------------

<TABLE>
<CAPTION>


Quantity in Relevant Year    Price per kg (Delivered)
<S>                          <C>
Up to 5 tons                                     $[*]
5-10 tons                                        $[*]
10-20 tons                                       $[*]
Over 20 tons                                     $[*]
</TABLE>

----------------------------------
*Confidential treatment requested.

<PAGE>

                                 Schedule 8.2

                               Notice Addresses
                               ----------------


1.  If to Interneuron:

          Interneuron Pharmaceuticals, Inc.
          99 Hayden Avenue, Suite 200
          Lexington, Massachusetts 02421
          Attention:  President

2.  If to Kyowa Hakko U.S.A., Inc.:

          Kyowa Hakko U.S.A., Inc.
          599 Lexington Avenue
          Suite 4103
          New York, New York 10022
          Attention:  President

<PAGE>

                                 Appendix 1.24
                                 -------------

                        Kyowa Hakko Agreement Assignment

                                       47
<PAGE>

                                 Appendix 1.25
                                 -------------


                             MIT Consent Agreement

                                       48
<PAGE>

                                 Appendix  4.3
                                 -------------

                         The Steering Committee Members

Takeda Chemical Industries, Ltd.

1. Wayman Wendell Cheatham, M.D., FACE
   Director, Medical & Regulatory Affairs
   Takeda Pharmaceuticals America, Inc.

2. Linda J. Peters, M.S.
   Associate Director, Regulatory Affairs
   Takeda Pharmaceuticals America, Inc.

3. Shigeru Toyoda
   Product Manager, Product Management Group I
   Pharmaceuticals International Division
   Takeda Chemical Industries, Ltd.

4. Makoto Iwane
   Manager, Strategic Development Department
   Strategic Planning Pharmaceutical Development Division
   Takeda Chemical Industries, Ltd.





Interneuron Pharmaceuticals, Inc.

1. Bobby W. Sandage, Jr., Ph.D.
   Executive Vice President, Research & Development

2. Richard Gammans, Ph.D.
   Senior Vice President, Clinical Research

3. Sonja Loar, Pharm. D.
   Vice President, Regulatory & Scientific Affairs

4. Gregory Lerch
   Executive Director, Regulatory Affairs & Pharmaceutical Development

                                       49
<PAGE>

                                  Appendix 5.2
                                  ------------


                                 Press Release

                                       50
<PAGE>

FOR IMMEDIATE RELEASE
---------------------

CONTACT, AT (781) 402-3410:
    GLENN L. COOPER, M.D.                            WILLIAM B. BONI
    PRESIDENT AND CEO                                VP, CORP. COMMUNICATIONS


            INTERNEURON LICENSES NORTH AMERICAN RIGHTS FOR CERAXON

                      TO TAKEDA CHEMICAL INDUSTRIES, LTD.

        COMPOUND NEARING THE END OF PHASE 3 CLINICAL TRIALS FOR STROKE


LEXINGTON, MA, December 2, 1999 -- Interneuron Pharmaceuticals, Inc. (NASDAQ:
IPIC) today announced an agreement with Takeda Chemical Industries, Ltd. (J.TKD
4502) under which Interneuron has licensed to Takeda exclusive North American
commercialization rights to CerAxon (citicoline), Interneuron's Phase 3 product
under development for ischemic stroke.  The agreement includes $73 million in
near-term licensing and milestone payments from Takeda, the largest
pharmaceutical company in Japan, to Interneuron.

Under the agreement, Interneuron will receive $13 million in licensing and other
guaranteed payments in 1999 and $60 million in payments contingent upon the
achievement of future regulatory milestones in the U.S. and Canada.  Takeda will
also pay Interneuron royalties on net sales. In addition, Takeda will fulfill
the royalty payment obligations of Interneuron to Ferrer Internacional, S.A.,
pursuant to Interneuron's agreement with Ferrer.  Takeda would be responsible
for funding future Phase 4 studies of CerAxon in stroke and, in the future,
Phase 3 studies for additional indications.

"Our agreement ensures that Takeda's considerable expertise and experience with
citicoline will benefit the regulatory review and marketing of this drug in the
U.S.," said Glenn L. Cooper, M.D., president and chief executive officer of
Interneuron.  "As the discoverer and originator of citicoline, Takeda has
conducted extensive clinical testing with the drug in Japan and has gathered
data that will be included in our regulatory filing package in the U.S.  In
addition, from a marketing perspective Takeda understands the particular
competitive advantages of this compound in treating stroke.


                                    - more -


Page 1 of 3
<PAGE>

                                      -2-

"Terms of the agreement include royalty payments that allow Interneuron to
participate meaningfully in the profitability of this compound," said Dr.
Cooper.  "Finally, securing a corporate partner with the resources of Takeda at
this time provides the foundation for a timely product launch following
regulatory review."

Enrollment in Interneuron's 899-patient, Phase 3 ECCO 2000 (Effects of
Citicoline on Clinical Outcome  2000 mg) clinical trial was completed in late
August 1999.  ECCO 2000 is the largest clinical trial of citicoline in stroke
conducted to date worldwide. Preliminary results from the trial are expected at
the beginning of calendar year 2000. Pending a complete analysis of the results
and a positive outcome, Interneuron plans to re-submit the New Drug Application
(NDA) for citicoline under Takeda's name. Citicoline has been granted "fast
track" status by the FDA, reflecting the agency's determination that it is
intended to treat a serious or life-threatening condition that currently has an
unmet medical need.

Takeda will file the Canadian regulatory filing counterpart for citicoline under
its name. Interneuron and Takeda will jointly oversee the development and
regulatory filings of citicoline in the U.S. and Canada.

Takeda intends to directly commercialize CerAxon through Takeda Pharmaceuticals
America, Inc., established in 1998 as the wholly owned U.S. marketing subsidiary
of Takeda Chemical Industries, Ltd.  Takeda Pharmaceuticals America co-promotes
Actos (pioglitazone hydrochloride) with Eli Lilly and Company in the U.S.
diabetes market.

In 1993, Interneuron licensed exclusive marketing and manufacturing rights to
citicoline in the U.S. and Canada, based on an MIT (Massachusetts Institute of
Technology) patent, from Ferrer Internacional, S.A., a leading European
pharmaceutical company. Interneuron subsequently obtained an exclusive right to
use a Japanese clinical database of citicoline from Takeda.

Takeda Chemical Industries, Ltd. is an R&D-oriented corporation specializing in
pharmaceuticals and is the largest pharmaceutical company in Japan.  Its main
prescription drug products, leuprolide (GnRH analogue) and lansoprazole (proton
pump inhibitor), are marketed in more than 70 countries.

Interneuron Pharmaceuticals is engaged in the development and commercialization
of a portfolio of products and product candidates for central nervous system and
other disorders, including multiple compounds in late-stage clinical
development.


                                    - more -


Page 2 of 3
<PAGE>

                                     - 3 -

Except for the descriptions of historical facts contained herein, this press
release contains forward-looking statements that involve risks and uncertainties
that could cause the Company's actual results and financial condition to differ
materially from those anticipated by the forward looking statements.  These
risks and uncertainties are set forth in the Company's filings under the
Securities Act of 1933 and the Securities Exchange Act of 1934 under "Risk
Factors" and elsewhere, and include, but are not limited to, risks relating to
the Redux-related litigation, uncertainties relating to clinical trials and
regulatory approvals; need for additional funds and corporate partners; history
of operating losses and expectation of future losses; product liability;
dependence on third parties for manufacturing and marketing; the early stage of
products under development; government regulation, patent risks and competition.


                                      ###
<PAGE>

                               Appendix 6.2.4(a)
                               -----------------

                              Reduction of Payment



Key Assumptions

Net Sales in Territory in Year in Question               US$500MM
Net Sales in Country A in Benchmark Year                 US$400MM
Net Sales in Country A in Year in Question               US$300MM

Step 1:  Calculate Weighted Average Rate of Payment with respect to Year in
         Question
         Calculation of Total Amount of Payment
         (US$300MM x [*]) + (US$200MM x [*]) = US$[*] (Total Amount of Payment)


         Calculation of Weighted Average Rate of Payment:
         [*] (Weighted Average Rate of Payment)

Step 2:  Calculate Adjusted Percentage of Payment
         [*] (Adjusted Rate)

Step 3:  Calculate Adjusted Amount of Payment in Country A with respect to Year
         in Question
         US$300MM x [*] = US$[*] (Adjusted Amount of Payment in Country A in
         Year in Question)

Step 4:  Calculate Adjusted Total Amount of Payment in Territory in Year in
         Question
         US$[*] - US$[*] = US[*] (Adjusted Total Amount of Payment in Territory
         in Year in Question)


-----------------------------------
* Confidential treatment requested.