<PAGE>
                                                                   Exhibit 10.31

                            RESEARCH AND DEVELOPMENT
                              AND OPTION AGREEMENT

          This Agreement dated as of December 14, 1995, (the "Agreement") by and
between CYTOGEN CORPORATION ("Cytogen"), a Delaware corporation, having its
place of business at 600 College Road East, Princeton, NJ 08540-5308, and ELAN
CORPORATION, plc ("Elan"), organized and existing under the laws of Ireland,
having its place of business at Monksland, Athlone, County Westmeath, Ireland.

          WHEREAS, Cytogen has developed a genetic diversity library technology
which, among other things, may be utilized to discover peptide molecules which
target certain cell receptors; and

          WHEREAS, Elan has developed drug delivery technologies including,
without limitation, encapsulation technologies which have been shown to
facilitate the transport of a spectrum of drugs across a variety of biological
barriers, including, without limitation, intestinal epithelium, pulmonary
epithelium, dermis, vascular endothelium and the blood brain barrier; and

          WHEREAS, Elan has developed in vitro screening assays to characterize
                                      --------                                 
the transport of drugs, including peptides, across a variety of biological
barriers; and

          WHEREAS, Elan has developed a phage display and combinatorial library
technology which, among other things, may be utilized to discover peptide
molecules which target certain cell receptors or facilitate the transport of a
drug across a Biological Barrier (as hereinafter defined), which technology
<PAGE>
 
will not be utilized as part of the Research Program (as hereinafter defined);
and thus this Agreement shall not be construed as granting Cytogen any right or
license to peptides discovered by Elan using Elan's phage display and
combinatorial library technology; and

          WHEREAS, discussions between representatives of both parties have been
held concerning the combination of Cytogen's GDL Technology, as hereinafter
defined, and Elan's Technology, as hereinafter defined, to develop a novel drug
delivery approach; and

          WHEREAS, as both parties desire to implement a collaborative research
program to demonstrate enhanced absorption in vivo of a drug across a Biological
                                           -------                              
Barrier, as hereinafter defined, in an animal model using the GDL Patents and
GDL Technology, as hereinafter defined, and Elan Patents and Elan Technology, as
hereinafter defined.

          NOW THEREFORE, the parties hereto, intending to be legally bound,
agree as follows:

     1.   Definitions.  Unless otherwise provided, each capitalized term used 
          -----------                             
herein shall have the following meanings.

          1.1  "Affiliate(s)" shall mean, with respect to a party to this
Agreement, any corporation, partnership or organization which directly or
indirectly controls, is controlled by or is under common control with such
party. Existence of such control

                                     - 2 -
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is established by the direct or indirect ownership of more than 50% of the
voting interest in an entity.

          1.2  "Biological Barrier" shall mean the intestinal epithelium, the
pulmonary epithelium, the blood-brain barrier, and the dermis.

          1.3  "Cytogen Products" shall mean Products that are not covered by
one or more claims, or produced, processed, or otherwise manufactured by any
method and/or process covered by one or more claims, of an application or patent
within the Elan Patents or the Program Patents relating to the Elan Patents or
the Elan Technology.

          1.4  "Cytogen Program Patents" shall mean Program Patents conceived or
made solely by one or more Cytogen employees.

          1.5  "Cytogen Program Technology" shall mean Program Technology that
(a) is related to the GDL Patents or GDL Technology; and (b) is unrelated to the
Elan Patents or Elan Technology.

          1.6  "Elan Patents" shall mean inventions owned or controlled by or
licensed to Elan that are directed to in vivo drug delivery methods and drug
delivery systems, including without limitation, drug encapsulation methods and
systems, or biological systems designed to assay biological agents, including
without limitation, peptides, with respect to their transport, toxicity,
(including without limitation, inflammation), absorption, or adsorption
properties; all United States and

                                     - 3 -
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foreign patent applications which may be filed covering such inventions, as well
as continuations, continuations-in-part, divisions and renewals thereof; all
United States and foreign patents which may be granted thereon, and all
reissues, reexamined patents, and extensions thereof.  A list of the Elan
Patents shall be promptly furnished to Cytogen at its request at any time during
the Research Program Period.

          1.7  "Elan Products" shall mean Products that are not covered by one
or more claims, or produced, processed, or otherwise manufactured by any method
and/or process covered by one or more claims, of an application or patent within
the GDL Patents or of the Program Patents that relate to the GDL Patents or GDL
Technology. Moreover, Elan Products shall not include any Product containing a
peptide or a molecule derived from such peptide, in which the peptide was
identified from a peptide library in the performance of the Research Program, in
which such peptide, peptide library, or method of identification is covered by
one or more claims of an application or patent within the GDL Patents or the
Program Patents that relate to the GDL Patents or GDL Technology.

          1.8  "Elan Program Patents" shall mean Program Patents conceived or
made solely by one or more Elan employees. 

          1.9 "Elan Program Technology" shall mean Program Technology that (a)
is related to the Elan Patents or Elan Technology; and (b) is unrelated to the
GDL Patents or GDL Technology.

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          1.10  "Elan Technology" shall mean all Technology related to one or
more inventions within the Elan Patents, that is owned or controlled by or
licensed to Elan, the subject matter of which is in vivo drug delivery methods
                                                 -------                      
and drug delivery systems, including without limitation, drug encapsulation
methods and systems, or biological systems designed to assay biological agents,
including without limitation, peptides, with respect to their transport,
toxicity, (including, without limitation, inflammation), absorption, or
adsorption properties.

          1.11  "Field" shall mean the treatment of human disease and human
disorders.

          1.12  "GDL Patents" shall mean the patent applications identified in
Schedule A annexed hereto, and all continuations, continuations-in-part,
divisions and renewals thereof; all United States and foreign patents which may
be granted thereon, and all reissues, reexamined patents, and extensions
thereof, as well as the inventions described and claimed therein, that are owned
or controlled by or licensed to Cytogen with the right to sublicense.  Schedule
A shall be updated from time-to-time.

          1.13  "GDL Technology" shall mean all Technology related to one or
more inventions within the GDL Patents, that is owned or controlled by or
licensed to Cytogen with the right to sublicense.

          1.14  "Joint Program Patents" shall mean Program Patents conceived or
made jointly by (i) one or more Elan employees; and (ii) one or more Cytogen
employees.

                                     - 5 -
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          1.15  "Know-How Product" shall mean any product that (a) is contained
within Program Technology; or (b) is produced, processed or otherwise
manufactured by any method and/or process contained within the Program
Technology.

          1.16  "Option Period" shall mean the period commencing on the date
hereof and continuing until ninety (90) days after the Research Program
Termination Date, as may be extended pursuant to Section 4.2 hereof.

          1.17  "Product" shall mean any product which, at the time of
manufacture, use or sale is either (a) covered by one or more pending claims of
an application or one or more Valid Claims of a patent within the Program
Patents; or (b) produced, processed, or otherwise manufactured by any method
and/or process covered by one or more pending claims of an application or one or
more Valid Claims of a patent within the Program Patents; or (c) contains a
peptide or a molecule derived from such peptide, in which the peptide was
identified from a peptide library in the performance of the Research Program,
and in which such peptide, peptide library, or method of identification is
covered by one or more pending claims of an application or one or more Valid
Claims of a patent within the GDL Patents or Program Patents.

          1.18  "Program Patents" shall mean (a) all inventions which are
conceived or made at any time during the Research Program in connection with any
research conducted under the Research Program; and (b) all United States and
foreign patent applications which may be filed covering such inventions, as well

                                     - 6 -
<PAGE>
 
a continuations, continuations-in-part, divisions and renewals thereof; all
United States and foreign patents which may be granted thereon, and all
reissues, reexamined patents, and extensions thereof.

          1.19  "Program Technology" shall mean all technical information
pertaining to the Research Plan of Exhibit A including all inventions, formulas,
methods, plans, processes specifications, characteristics, equipment, design,
know-how, experience and trade secrets which the participants in the Research
Plan may discover or learn in connection with their respective work for or
participation in the Research Program, to the extent that, as of its date of
disclosures to both parties, is not (a) already known to one of the parties; (b)
disclosed in the published literature; (c) generally available to industry; or
(d) obtained by one of the parties from a third party without binder of secrecy,
provided, however, that such third party has no confidentiality obligation to
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the other party or any of its affiliates with respect to such information.  All
such information which is characterized as Program Technology shall cease to be
Program Technology when, through no fault or omission of either party hereto,
such information becomes (a) disclosed in the published literature; or (b)
generally available to industry; or (c) obtained by one of the parties from a
third party without binder of secrecy, provided, however, that such third party
                                                 -------                       
has no confidentiality obligation to the other party or any of its affiliates
with respect to such information.

                                     - 7 -
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          1.20  "Research Plan" shall mean the Research and Development Plan to
be agreed to by the parties on or before January 8, 1996, a preliminary draft of
which is attached hereto as Exhibit A, and which Plan shall include a specific
schedule for work, milestones and personnel requirements associated with the
development of a drug formulation or formulations that is transported across a
Biological Barrier.

          1.21  "Research Program" shall mean all research, experimentation or
development relating to the product proposed to be conducted or conducted by the
parties hereto under the terms of the Research Plan.

          1.22  "Research Program Period" shall mean the period commencing on
the date hereof and continuing until the Research Program Termination Date.

          1.23  "Research Program Termination Date" shall mean the date of
delivery by Cytogen of the final written research report which summarizes the
data and findings generated during the

"Research Program, which report shall be delivered within thirty (30) days of
the completion of the Research Program, as may be extended pursuant to Section
2.5 hereof.

          1.24  "Supervisory Committee" shall mean the committee as described in
Section 2.4 hereof.

          1.25  "Technology" shall mean a party's discoveries, processes,
instruments, machines, materials, compositions, test procedures, manufacturing
processes, techniques, formulations, methodologies, data, information,
inventions, and trade secrets,

                                     - 8 -
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to the extent that, as of the date of disclosure and/or delivery to the other
party ("receiving party") was not (a) known to the receiving party as evidenced
by written documentation; (b) disclosed in published literature; (c) generally
available to industry; or (d) obtained by the receiving party from a third party
without binder of secrecy, provided, however, that such third party has no
                           --------  -------                              
confidentiality obligations to the party hereto disclosing the information
("disclosing party") or to any of its Affiliates with respect to such subject
matter.  All subject matter which is characterized as Technology shall cease to
be Technology when, through no fault or omission of the receiving party, such
subject matter becomes (a) disclosed in the published literature; or (b)
generally available to industry; or (c) obtained by the receiving party from a
third party without binder of secrecy, provided, however, that such third party
                                       --------  -------                       
has no confidentiality obligations to the disclosing party or any of its
Affiliates with respect to such subject matter.

          1.26  "Territory" shall mean all of the countries in the World.

          1.27  "Valid Claim" shall mean a claim of an issued, unexpired Patent
which has not been abandoned, or held invalid in an unappealed or unappealable
final decision rendered by a court of competent jurisdiction.

     2.   Research Program.
          ---------------- 

          2.1  Research Plan.  Each of the parties hereto shall use all
               -------------                                           
commercially reasonable efforts to undertake the Research

                                     - 9 -
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Program in accordance with the Research Plan.  Each party shall designate up to
six of its employees as scientific members to the Research Program Council who
will have specific responsibilities designated under this Research Plan.  The
Research Plan shall be updated in writing to a revised Research Plan from time-
to-time upon mutual written agreement of the parties.

          2.2  Research Funding.  Elan shall be responsible for providing all
               ----------------                                              
funding necessary for both parties to undertake their respective duties and
obligations under the Research Program and all other costs and expenses related
thereto.  The total cost of the Research Program shall not exceed Three Million
Dollars ($3,000,000) (the "Research Budget"), with aggregate payments for work
performed by Cytogen not to exceed one Million Five Hundred Thousand Dollars
($1,500,000).

          2.3  Payments to Cytogen.  During the term of the Research Program,
               -------------------                                           
Cytogen shall submit monthly invoices to Elan for all work performed by Cytogen
which shall be billed at the rate of $[*] per hour per person of research time,
inclusive of all taxes (the "Research Fee"), and which invoice shall be
accompanied by documentation sufficient to support the Research Fee set forth in
such invoice. During the initial term of this Agreement, Elan shall have no
obligations to pay Cytogen for any additional expenses or costs other than the
Research Fee.  Payment of the Research Fee shall be made by Elan within thirty
(30) days of receipt of an invoice.

* Information omitted and filed separately with the Commission under Rule 24b-2.

                                     - 10 -
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          2.4  Research Management.  Elan and Cytogen shall establish a
               -------------------                                     
Supervisory Committee comprised of a designee of each of Cytogen and Elan, who
shall initially be Thomas J. McKearn and Donal Geaney, or such other members of
senior management as may be appointed by each party and approved by the other.
The Supervisory Committee shall meet periodically and no less than once a
quarter to review the overall conduct and performance of the Research Program.
Each of the parties hereto shall provide to the Supervisory Committee monthly
written reports and data on the status of their work under the Research Program
and such other reports and information as may be requested by the Supervisory
Committee from time to time to perform its duties hereunder.  The Supervisory
Committee may make such changes or modifications to the Research Plan as may be
necessary to achieve the milestones set forth therein.  Within thirty (30) days
of the completion of the Research Program, as determined by the Supervisory
Committee, Cytogen shall prepare and deliver to the Supervisory Committee a
final written report which summarizes the data and findings arising from both
its work and that of Elan under the Research Program.  Elan agrees to cooperate
and provide reasonable assistance to Cytogen in the preparation of such written
report and Elan shall have the opportunity to review the final written report
prior to its submission to the Supervisory Committee.

          2.5  Duration and Extension of Research Program.  The Research Program
               ------------------------------------------                       
shall be conducted for that period of time

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<PAGE>
 
established in the Research Plan.  The parties anticipate that the Research
Program shall commence on or about January 3, 1996, and shall continue for a
period of sixteen (16) months.  At the written request of Elan, such period may
be extended at any time during the Research Program Period for an additional
period not to exceed one (1) year, provided that any and all costs and expenses
incurred in implementing the Research Program during such extended period shall
be included in a modified research budget to be agreed to by the parties and
shall be the sole responsibility of Elan.

     3.   Grant of Licenses.
          ----------------- 

          3.1  Grant by Cytogen to Elan.  Subject to the terms and conditions of
               ------------------------                                         
the option granted pursuant to Section 4.1 hereof and of any License Agreement
between the parties entered into pursuant to Section 4.3 hereof, Cytogen hereby
grants to Elan:

               (a) the exclusive, perpetual, royalty-free right and license
     under the Joint Program Patents and Cytogen Program Patents, with the right
     to sublicense, to make, use, sell, offer for sale, and import Elan Products
     that are covered by one or more claims directed to in vivo drug delivery
     systems or directed to methods for in vivo drug delivery of an application
     or patent within Program Patents that are related to the Elan Patents or
     Elan Technology; and

               (b) the exclusive, perpetual, royalty-free right and license
     under Program Technology, with the right to

                                     - 12 -
<PAGE>
 
     sublicense, to make, use, sell, offer for sale, and import products that
     (i) are contained within Elan Program Technology; or (ii) are produced,
     processed or otherwise manufactured by any method and/or process contained
     within the Elan Program Technology.

          3.2  Grant by Elan to Cytogen.  Subject to the terms
               ------------------------                       

and conditions of the option granted pursuant to Section 4.1 hereof and of any
License Agreement between the parties entered into pursuant to Section 4.3
hereof, Elan hereby grants to Cytogen:

                    (a) the exclusive, perpetual royalty-free right and license
          under the Joint Program Patents and the Elan Program Patents, with the
          right to sublicense, to make, use, sell, offer for sale,  and import
          Cytogen Products that are covered by one or more claims of an
          application or patent within the Program Patents relating to the GDL
          Patents or GDL Technology, that are not directed to in vivo drug
          delivery systems or directed to methods for in vivo drug delivery; and

                    (b) the exclusive, perpetual royalty-free right and license
          under Program Technology, with the right to sublicense, to make, use,
          sell, offer for sale, and import products that (i) are contained
          within Cytogen Program Technology; or (ii) are produced, processed, or
          otherwise manufactured by any method and/or process contained within
          the Cytogen Program

                                     - 13 -
<PAGE>
 
          Technology, that are not directed to in vivo drug delivery systems or
          directed to methods for in vivo drug delivery.

          3.3  No Diligence Obligations.  Elan shall have no obligation to use
               ------------------------                                       
diligence or best efforts to exercise the rights and licenses granted Elan
pursuant to Section 3.1 hereof.  Cytogen shall have no obligation to use
diligence or best efforts to exercise the rights and licenses granted Cytogen
pursuant to Section 3.2 hereof.

          3.4  Exclusion.  Nothing contained herein shall be construed as
               ---------                                                 
granting Elan any right or license under the GDL Patents or GDL Technology,
other than the option right set forth in Section 4.1 hereof.  Subject to the
option granted in Section 4.1, nothing contained herein shall be construed as
hindering Cytogen's right to freely practice and license GDL Patents and GDL
Technology.  Nothing contained herein shall be construed as hindering Elan's
right to freely practice and license Elan Patents and Elan Technology.

          3.5  Other Products.  Subject to Sections 3.1, 3.2, 4.1 and 4.5
               --------------                                            
hereof, for products that are contained within Program Technology and that are
related to both (i) the Elan Patents or Elan Technology, and (ii) the GDL
Patents or GDL Technology; and for products that (a) are covered by one or more
claims, or are produced, processed, or otherwise manufactured by any method
and/or process covered by one or more claims, of an application or patent within
the GDL Patents or of the Program Patents that

                                     - 14 -
<PAGE>
 
relate to the GDL Patents or GDL Technology; and also (b) are covered by one or
more claims, or are produced, processed, or otherwise manufactured by any method
and/or process covered by one or  more claims, of an application or patent
within the Elan Patents or Program Patents that relate to the Elan Patents or
Elan Technology; the parties agree to mutually negotiate in good faith an
agreement regarding the rights to make, use, sell, offer for sale, and import
such products.

     4.   Option Agreement.
          ---------------- 

          4.1  Grant of Option.  In partial consideration for the payments under
               ---------------                                                  
Section 2 hereof, Cytogen hereby grants to Elan an exclusive option to acquire
the exclusive royalty-bearing right and license under the Cytogen Program
Patents, the Cytogen Program Technology, the Joint Program Patents, the Program
Technology, and the GDL Patents and GDL Technology, with the right to grant
sublicenses to others, to make, use, sell, offer for sale, and import Products
and Know-How Products that are orally administered drug formulations that are
transported across the intestinal epithelium, solely for use in the Field in the
Territory.  This option may be exercised at any time during the Option Period.

          4.2  Renewal of Option.  The Option Period may be extended by Elan for
               -----------------                                                
an additional three (3) month period, upon written notice to Cytogen at any time
prior to thirty (30) days before the expiration of the Option Period. In the
event that the parties are engaged in good faith negotiations prior to the

                                     - 15 -
<PAGE>
 
expiration of such renewal period, then, upon a written notice to Cytogen, the
Option Period may further be extended for an additional sixty (60) days.

          4.3  Exercise of Option.  The option may be exercised by Elan by
               ------------------                                         
written notice to Cytogen during the Option Period, as may be extended pursuant
to Section 4.2 hereof, and upon receipt of such written notice the parties
hereto shall commence the good faith negotiations of an exclusive license (the
"License Agreement").  The terms of the License Agreement shall include, among
other things, the following basic terms and conditions:

                    (a) Grant of License to Elan.  Cytogen would grant Elan the
                        ------------------------                               
          exclusive royalty-bearing right and license under the Cytogen Program
          Patents, the Joint Program Patents, and the GDL Patents and GDL
          Technology, the Cytogen Program Technology and the Program Technology,
          with the right to grant sublicenses to others, to make, use, sell,
          offer for sale, and import Products and Know-How Products that are
          orally administered drug formulations that are transported across the
          intestinal epithelium, solely for use in the Field in the Territory.

                    (b) Grant Back to Cytogen.  Regarding any Product, the
                        ---------------------                             
          manufacture, use, sale or importation of which (i) is licensed to Elan
          as set forth in subparagraph (a) directly hereinabove, and (ii) is not
          covered by the Elan Technology or Elan Program

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<PAGE>
 
          Technology or one or more pending claims of an application or Valid
          Claims of a patent within the Elan Patents or Elan Program Patents,
          Cytogen shall have the right to make written inquiry of Elan as to
          whether Elan wishes to terminate its license with respect to such
          Product.  Sixty (60) days subsequent to receipt of such inquiry, if
          Elan has not agreed in writing to continue the license with respect to
          such Product and, accordingly, to continue to use its commercially
          reasonable efforts and diligence to develop, produce and market such a
          Product, Cytogen would have the right upon written notice of the same
          to Elan to terminate the license granted with respect to such Product,
          and, upon such termination, Elan would grant Cytogen the exclusive,
          perpetual royalty-free license under the Program Patents to make, use,
          sell, offer for sale, and import such Product.

                    (c) Exploitation.  Elan would agree that, throughout the
                        ------------                                        
          Term of the License Agreement, it will use its commercially reasonable
          efforts to develop, produce and market Products or Know-How Products
          that are orally administered drug formulations that are transported
          across the intestinal epithelium for use in the Field in the
          Territory.

                                     - 17 -
<PAGE>
 
                    (d) Royalty Payments by Elan to Cytogen.
                        ----------------------------------- 

                        (1) In the event that Elan or its Affiliates shall
          directly market and sell the Products or Know-How Products, annual
          earned royalty payments shall equal [*] percent ([*]%) of all net
          sales of the Products and Know-how Products made by Elan or its
          Affiliates. In the event that the Products or Know-How Products are
          sold by a joint venture of which Elan is a participant, the parties
          shall negotiate in good faith the appropriate royalty structure. In
          the event that Elan appoints a licensee to market and sell the
          Products and Know-How Products, earned royalties shall equal
          [Information omitted and filed separately with the Commission under
          Rule 24b-2.
           
          ]

                        (2) The License Agreement shall provide that in the
          event that the sum of the Licensing Fees

* Information omitted and filed separately with the Commission under
Rule 24b-2.

                                     - 18 -
<PAGE>
 
          received by Elan and Manufacturing Fees received by Elan in any given
          year are less than an amount equal to [*] percent ([*]%) of all net
          sales of the Products and Know-How Products generated by licensees of
          Elan in such year, then the parties will negotiate in good faith an
          appropriate adjustment to the earned royalty for such year, and, in
          the event the parties are unable to reach agreement within one hundred
          twenty (120) days of the end of such year, the determination of the
          appropriate adjustment to earned royalties shall be submitted to
          arbitration pursuant to Section 10.1 hereof.

                    (e) A right of first negotiation extended to Elan for a
          license to make, use, sell, and import Products and Know-How Products
          that are drug formulations that (i) are transported across the
          pulmonary epithelium through a nebulized formulation for use in the
          Field in the Territory; or (ii) are transported across the blood brain
          barrier for use in the Field in the Territory; or (iii) are
          transported across the dermis for use in the Field in the Territory
          (each an "Additional Product") on identical terms as set forth in
          Section 4.5 hereof.

                    (f) Keeping by Elan of books and records relevant to royalty
          payments and by Cytogen relevant to

* Information omitted and filed separately with the Commission under
Rule 24b-2.

                                     - 19 -
<PAGE>
 
          manufacturing costs, if applicable -- standard provisions.

                    (g) Reports and royalty payments by Elan -standard
          provisions.


                    (h) Confidential Information -- standard provisions.

                    (i) Third Party Infringement -- standard provisions.

                    (j) Mutual Indemnifications -- standard provisions.

                    (k) Obtaining of appropriate insurance by Elan, and where
          appropriate, by Cytogen -- standard provisions.

                    (l) Appropriate warranties and limitations on liabilities --
     standard provisions.

                    (m) Patent marking obligations on Elan -- standard 
     provisions.

                    (n) A term of the later of ten (10) years from first 
     commercial sale, or the date of the last applicable patent to expire, with
     appropriate termination provisions.

                    (o) Depending in part upon whether the Product or Know-How
     Product that is an orally administered drug formulation transported across
     the intestinal epithelium for use in the Field in the Territory has a
     biological or chemical formulation base, either Elan or

                                     - 20 -
<PAGE>
 
     Cytogen or a mutually acceptable third party will become the exclusive
     manufacturer of such Product pursuant to a manufacturing agreement which
     will be negotiated and executed on commercially reasonable terms.

                    (p) Ownership of all regulatory approvals and related
     submissions shall reside with Elan -- standard provision.

          4.4  Termination of Option.  In the event that the parties fail to
               ---------------------                                        
execute a License Agreement during the Option Period, then, subject to the
rights granted in Section 3.1 hereof, Elan shall own the Elan Program Patents
and Cytogen shall own the Cytogen Program Patents.

          4.5  Right of First Offer.
               -------------------- 

                    (a) During the Term of this Agreement, Cytogen shall
          promptly notify Elan in writing of its intention to develop or
          commercialize with a third party or on its own behalf any Additional
          Product.  Such notice shall set forth such data and other information
          as in its possession regarding the Additional Product necessary for
          Elan to evaluate the offer.  Within sixty (60) days of such notice,
          Elan shall confirm in writing of its intent to negotiate with Cytogen
          for the rights to an Additional Product.

                    (b) In the event Elan exercises its rights pursuant to this
          Section 4.5, the parties shall negotiate in good faith to determine
          mutually

                                     - 21 -
<PAGE>
 
          acceptable terms and conditions thereto, which terms (including
          financial terms) shall be substantially similar to those contained
          herein or in the License Agreement, provided, however, that the
          financial terms under any future research and development program
          shall be dependent on the nature, scope and risk inherent in each
          particular program.  In the event that Elan does not elect to enter
          into negotiations with Cytogen or if, by the expiration of one hundred
          twenty (120) days from Cytogen's initial notice, the parties cannot
          decide upon mutually agreeable terms and conditions, Cytogen shall be
          free to undertake development or commercialization of an Additional
          Product itself, or through or with one or more third parties provided,
          however, that the terms of any agreement with a third party shall be
          no more favorable to Cytogen than any terms previously offered by Elan
          without first reoffering such new terms to Elan in accordance with
          this Section.

     5.   Inventions and Patent Prosecution.
          --------------------------------- 

          5.1  Notice of Inventions.  Each party shall promptly notify and fully
               --------------------                                             
disclose in writing all ideas and developments, whether or nor patentable,
conceived or reduced to practice by either party in connection with the
performance of the Research Program.  The parties shall consult with each other
to review such development and determine its patentability.

                                     - 22 -
<PAGE>
 
          5.2.  Filing, Prosecution, and Maintenance of Program Patents.
                ------------------------------------------------------- 

                5.2.1    Program Patents Related to the GDL Patents or GDL
                         -------------------------------------------------
Technology.  Throughout the term of this Agreement, Cytogen, at its expense,
----------                                                                  
shall have the right but shall not be obligated to file United States and/or
foreign patent applications covering any patentable invention included within
the Program Patents that (i) is related to the GDL Patents or GDL Technology,
and (ii) is unrelated to the Elan Patents and Elan Technology; to prosecute and
defend such applications against third party oppositions; and upon grant of any
Letters Patent covering such invention, to maintain such Letters Patent in
force.  Cytogen shall have the right to control such filing, prosecution,
defense and maintenance; however, Elan shall be provided with copies of all
documents relating to such filing, prosecution, and defense, in sufficient time
to review such documents and comment thereon, if desired by Elan, prior to
filing.  If Cytogen elects not to file or prosecute such applications or
maintain such Letters Patent, Cytogen shall so notify Elan, in which event Elan
shall have the right to file or prosecute such applications and to maintain such
Letters Patent entirely at its own expense.

                5.2.2    Program Patents Related to the Elan Patents or Elan
                         ---------------------------------------------------
Technology.  Throughout the term of this Agreement, Elan, at its own expense,
----------                                                                   
shall have the right, but shall not be obligated, to file United States and/or
foreign

                                     - 23 -
<PAGE>
 
patent applications covering any patentable invention included within the
Program Patents that (i) is related to the Elan Patents or Elan Technology, and
(ii) is unrelated to the GDL Patents and GDL Technology; to prosecute and defend
such applications against third party oppositions; and upon grant of any Letters
Patent covering such invention, to maintain such Letters Patent in force.  To
the extent permitted by law, such patent applications will be filed initially in
Ireland.  Elan shall have the right to control such filing, prosecution, defense
and maintenance; however, Cytogen shall be provided with copies of all documents
relating to such filing, prosecution, and defense in sufficient time to review
such documents and comment thereon, if desired by Cytogen, prior to filing.  If
Elan elects not to file or prosecute such applications or maintain such Letters
Patent, Elan shall so notify Cytogen, in which event Cytogen shall have the
right to file or prosecute such applications and to maintain such Letters Patent
entirely at its own expense.

                5.2.3    Other Program Patents.  The filing, prosecution and
                         ---------------------                              
defense of applications and maintenance of patents within the Program Patents
that are not covered by Sections 5.2.1 and 5.2.2 above, shall be as follows:

                         (1) Cytogen Program Patents.  For such applications 
                             -----------------------
     and patents that are within Cytogen Program Patents, Cytogen shall have the
     right, but not obligation, at its expense, to file and prosecute and defend
     such patent

                                     - 24 -
<PAGE>
 
     applications, and maintain such patents.  Cytogen shall have the right to
     control such filing, prosecution, defense and maintenance; however, Elan
     shall be provided with copies of all documents relating to such filing,
     prosecution, and defense, in sufficient time to review such documents and
     comment thereon, if desired by Elan, prior to filing.  If Cytogen elects
     not to file or prosecute such applications or maintain such Letters Patent,
     Cytogen shall so notify Elan, in which event Elan shall have the right to
     file or prosecute such applications and to maintain such Letters Patent
     entirely at its own expense.  To the extent permitted by law, such patent
     applications will be filed initially in Ireland.

                         (2) Elan Program Patents.  For such applications and 
                             --------------------
     patents that are within Elan Program Patents, Elan shall have the right,
     but not obligation, at its expense, to file and prosecute and defend such
     patent applications, and maintain such patents. Elan shall have the right
     to control such filing, prosecution, defense and maintenance; however,
     Cytogen shall be provided with copies of all documents relating to such
     filing, prosecution, and defense in sufficient time to review such
     documents and comment thereon, if desired by Cytogen, prior to filing. If
     Elan elects not to file or prosecute such applications or maintain such
     Letters Patent, Elan shall so notify Cytogen, in which event Cytogen shall
     have the right to file or

                                     - 25 -
<PAGE>
 
     prosecute such applications and to maintain such Letters Patent entirely at
     its own expense.  To the extent permitted by law, such patent applications
     will be filed initially in Ireland.

                         (3) Joint Program Patents.  For such applications and
                             ---------------------
     patents that are within Joint Program Patents, the parties shall mutually
     agree as to the filing, prosecution, defense, and maintenance thereof, for
     each such patent and patent application. In the absence of such agreement,
     each party shall be free to proceed with such filing, prosecution, defense,
     and maintenance. To the extent permitted by law, such patent applications
     will be filed initially in Ireland.

                5.2.4    GDL Patent and Elan Patents.  Nothing contained herein
                         ---------------------------                           
shall be construed as imposing on Cytogen any obligations to Elan with respect
to the filing, prosecution and defense of applications and maintenance of
patents within the GDL Patents. Nothing contained herein shall be construed as
imposing on Elan any obligations to Cytogen with respect to the filing,
prosecution and defense of applications and maintenance of patents within the
Elan Patents.

     6.   Ownership.  Ownership of Program Patents and Program Technologies
          ---------                                                        
shall be as follows:

                (a) Cytogen shall wholly own legal title to (i) all Cytogen
     Program Patents, and (ii) all Program Technology conceived or made solely
     by one or more Cytogen employees.

                                     - 26 -
<PAGE>
 
                (b) Elan shall wholly own legal title to (i) all Elan Program
     Patents, and (ii) all Program Technology conceived or made solely by one or
     more Elan employees.

                (c) Cytogen and Elan shall jointly own legal title to (i) all
     Joint Program Patents, and (ii) all Program Technology conceived or made
     jointly by (1) one or more Elan employees; and (2) one or more Cytogen
     employees.

     7.   Representations and Warranties.
          ------------------------------ 
          7.1  By Cytogen.  Cytogen represents and warrants to Elan as follows:
               ----------                                                      

                (a) Cytogen has all necessary corporate power to authorize the
execution and consummation of this Agreement.

                (b) Cytogen either (i) legally and/or beneficially owns the 
patents and patent applications within the GDL Patents; or (ii) has licensed
such patents and patent applications with the right to sublicense, including the
right of Elan to further sublicense.

          7.2  By Elan.  Elan represents and warrants to Cytogen as follows:
               -------                                                      

               (a) Elan has all necessary corporate power to authorize the
execution and consummation of this Agreement.

               (b) Elan either (i) legally and/or beneficially owns the patents
and patent applications within the Elan Patents; or (ii) has licensed such
patents and patent applications with the right to sublicense, including the
right of Elan to further sublicense, including the right of Cytogen to further
sublicense.

                                     - 27 -
<PAGE>
 
     8.   Term, Termination and Breach.
          ---------------------------- 

          8.1  Term.  The term of this Agreement shall begin on the date hereof
               ----                                                            
and, unless terminated earlier under this Section 8, will terminate on the later
of (a) fifteen (15) years from the date hereof, or (b) the last-to-expire of all
patents included within the Program Patents and GDL Patents.  Termination of the
Research Program or Option Period shall not terminate this Agreement, which
shall continue in full force and effect.

          8.2  Material Breach.  Either party may terminate this Agreement upon
               ---------------                                                 
a material breach of any of the terms of this Agreement by the other party if
the terminating party has given a breaching party notice of the breach and the
breaching party has failed to remedy such breach within forty-five (45) days of
the notice of the breach.  For purposes of this Agreement, failure of either
party to materially comply with the Research Plan, including a failure to
achieve milestones, shall constitute a breach.

          8.3  Change of Control.  Upon a change of control in either party, the
               -----------------                                                
other party may terminate this Agreement by providing thirty (30) days notice of
such termination within sixty (60) days of the change of control event.  For
purposes of this Section, change of control shall mean the acquisition of fifty
percent (50%) or more of the issued and outstanding equity securities of the
affected party in either a single transaction, or a series of related
transactions by a non-Affiliate.

                                     - 28 -
<PAGE>
 
          8.4  Insolvency.  This Agreement may be terminated by either Cytogen
               ----------                                                     
or Elan (a) in the event that a case or proceeding shall be commenced and
continue undismissed or unstayed for a period of sixty (60) calendar days
against the other (the "Insolvent Party") or such Insolvent Party shall commence
a voluntary case, in either case seeking relief under the bankruptcy laws or any
other law relating to bankruptcy, insolvency, reorganization, winding up or
composition or adjustment of debts, in each case as now or hereafter in effect,
or (b) the Insolvent Party shall apply for, consent to, or fail to contest, the
appointment of a receiver, liquidator, custodian, trustee or the like for such
party or for all or any part of its property, or (c) the Insolvent Party shall
make a general assignment for the benefit of its creditors, or (d) either party
shall fail to, or admit in writing its inability to, pay, or generally not be
paying, its debts as they become due.

          8.5  License Agreement.  Elan may, at its option, terminate this
               -----------------                                          
Agreement upon thirty (30) days written notice if the parties hereto have failed
to execute the License Agreement within one hundred twenty (120) days after
Elan's written exercise of its option pursuant to Section 4.3 hereof (the
"Optional Termination Date") provided, however, in the event that the parties
continue to negotiate in good faith on the Optional Termination Date, the
Optional Termination Date shall be extended for an additional thirty (30) days
to permit the execution of the License Agreement.

                                     - 29 -
<PAGE>
 
          8.6  Rights Upon Termination.  In the event this Agreement is
               -----------------------                                 
terminated by either party prior to the execution of the License Agreement, then
each of the parties shall promptly return the other's Technology.

     9.   Confidentiality.
          --------------- 
          9.1  Non-Use.
               ------- 

                    (a) All information provided by one party to the other under
          this Agreement shall be regarded as confidential, unless the parties
          have agreed otherwise in writing.  Cytogen and Elan agree for
          themselves and their Affiliates that during the term of this Agreement
          and for five years thereafter, each of them shall keep completely
          confidential and shall not disclose to any third party or publish or
          submit for publication or otherwise divulge or use, any technical
          information furnished to it by the other party, except

                         (i) to consultants, Affiliates, sub-licensees,
               manufacturers and agents who are obligated to maintain it in
               confidence pursuant to written agreements which are at least as
               stringent as the terms of this Section 9;

                        (ii) as necessary to obtain approval from a governmental
               agency in order to market the Product;

                                     - 30 -
<PAGE>
 
                       (iii)  as reasonably may be required in a patent
               application covering the subject matter which is encompassed
               within this Agreement; or

                        (iv) as otherwise may be required by law, regulation or
                    judicial order.

                    (b) Should Elan wish to use a third party to have the
          Product that is an orally administered drug formulation transported
          across the intestinal epithelium for use in the Field manufactured for
          Elan, it may do so only if such third party accepts the
          confidentiality, nondisclosure, and non-use provisions set forth
          herein as binding upon them.

          9.2  Confidential Information.  Excepted from this secrecy obligation
               ------------------------                                        
is such information which as can be established by competent proof:

               (a) was known, other than under binder of secrecy or non-use to
     the receiving party prior to its disclosure to such party;

               (b) has become public other than through acts or omissions
     attributable to the receiving party; or

               (c) was subsequently lawfully obtained from a third party not
     acquiring the information under an obligation of confidentiality from the
     disclosing party.

     10.  Miscellaneous Provisions.
          ------------------------ 

          10.1   [Information omitted and filed separately with the Commission
under Rule 24b-2.

                                     - 31 -
<PAGE>
 
                   Information omitted and filed separately
                     with the Commission under Rule 24b-2.

                                     - 32 -
<PAGE>
 
                                                            ]
          10.2  Remedies.  Each of the parties hereto acknowledges and agrees
                --------                                                     
that in the event of a breach or threatened breach of this Agreement, the other
party has no adequate remedy at law and accordingly shall be entitled to
injunctive and other equitable remedies in addition to any remedy it might have
at law or in equity.

          10.3  Public Communications.  Neither party shall make any press
                ---------------------                                     
release or other similar public disclosure or announcement concerning this
Agreement, without the prior written consent of the non-disclosing party, except
as otherwise required by law.  Consent will be deemed granted if no response is
received from the non-disclosing party within five (5) business days of its
confirmed written request for approval from the disclosing party.
Notwithstanding the foregoing, in the event such disclosure or public
announcement is required to be made on 

                                     - 33 -
<PAGE>
 
a more immediate basis in order to comply with applicable state or federal
securities laws, then approval will be deemed granted if no response is received
from the non-disclosing party within the timeframes required by law; provided,
however, that the disclosing party provides the non-disclosing party with notice
of the legally required timeframe for approval of the disclosure at the time of
providing a copy of the proposed disclosure or announcement.

          10.4  Approval of Publications.  All proposed publications, abstracts
                ------------------------                                       
or oral presentations disclosing research or results obtained in the performance
of the Research Program must be agreed to by both parties and must be submitted
for review at least sixty (60) days in advance of the expected publication or
presentation date.  In the event either party is of the opinion that such
publication, abstract or presentation would constitute the disclosure of subject
matter proprietary to either company or the premature publication of patentable
subject matter, either party shall promptly notify the other in writing, who
should then delay publication or presentation of such article or abstract for a
period of sixty (60) days until either (a) a United States patent application
shall have been filed, or (b) the relevant teaching shall have been sufficiently
deleted from the proposed publication, abstract or presentation in order to
preclude public disclosure of the subject matter.

          10.5  Consents Not Unreasonably Withheld or Delayed. Whenever
                ---------------------------------------------          
provision is made in this Agreement for either party to 

                                     - 34 -
<PAGE>
 
secure the consent or approval of the other, such consent or approval shall not
be unreasonably withheld or delayed.

          10.6  Entire Agreement: Waivers.  This Agreement constitutes the
                -------------------------                                 
entire agreement among the parties hereto pertaining to the subject matter
hereof and supersedes all prior and contemporaneous agreements, understandings,
negotiations and discussions, whether oral or written, of the parties with
respect to such subject matter.  No waiver of any provision of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar).

          10.7  Amendment or Modification.  The parties hereto may not amend or
                -------------------------                                      
modify this Agreement except in such manner as may be agreed upon by a written
instrument executed by both parties.

          10.8  Independent Contractors.  The parties agree that with respect to
                -----------------------                                         
the business arrangement contemplated herein they shall both be acting as
independent contractors and nothing herein contained or contained in this
Agreement shall constitute the parties as entering upon a joint venture nor
shall constitute either party as the agent for the other for any purposes
whatsoever.

          10.9  Survival. Etc.  Sections 3.1 (Grant by Cytogen to Elan), 3.2
                --------------                                                
(Grant by Elan to Cytogen), 3.3 (No Diligence Obligations), 3.4 (Exclusion), 5.2
(Filing, Prosecution, and Maintenance of Program Patents, 6 (Ownership), 9
(Confidentiality), 10.1 (Arbitration) and 10.14 (Governing Law) of this
Agreement shall survive the expiration or termination of 

                                     - 35 -
<PAGE>
 
this Agreement for any reason and shall continue in full force and effect
forever thereafter.

          10.10  Severability.  In the event that any provision hereof would,
                 ------------                                                
under applicable law, be invalid or unenforceable in any respect, such provision
shall (to the extent permitted under applicable law) be construed by modifying
or limiting it so as to be valid and enforceable to the maximum extent
compatible with, and possible under, applicable law.  The provisions hereof are
severable, and in the event any provision hereof should be held invalid or
unenforceable in any respect, it shall not invalidate, render unenforceable or
otherwise affect any other provision hereof.

          10.11  Assignment; Binding Effect.  Neither party shall assign,
                 --------------------------                              
transfer or otherwise dispose of this Agreement in whole or in part to any
individual, firm or corporation without the prior written consent of the other
party, which consent shall not be unreasonably withheld.  Notwithstanding the
foregoing, this Agreement shall be assignable by either party without the
consent of the other to an Affiliate.  All of the terms and provisions of this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective transferees, successors and assigns (each of which
such transferees, successors and assigns shall be deemed to be a party hereto
for all purposes hereof).

          10.12  Notices.  Any notices or other communications required or
                 -------                                                  
permitted hereunder shall be sufficiently given if in 

                                     - 36 -
<PAGE>
 
writing and delivered personally or sent by telecopier, Federal Express (or
similar courier service), or registered or certified mail, postage prepaid,
addressed as follows:

          If to Cytogen, to it at:                           
                                                             
               Cytogen Corporation                                
               600 College Road East                              
               Princeton, NJ 08540-5308                           
               Attention: President                               
               Fax No. (609) 951-9298                              
                                                             
          If to Elan, to it at:                              
                                                             
               Elan Corporation plc                               
               Monksland                                     
               Athlone, County Westmeath                     
               Ireland                                       
               Fax No. 011-353-902-92427                     
                                                             
               Attention: President                            


          Unless otherwise specified herein, such notices or other
communications shall be deemed received (a) on the date delivered, if delivered
personally, (b) three business days after being sent by Federal Express or a
similar overnight courier service, if sent by Federal Express or such similar
courier service, (c) one business day after being delivered, if delivered by
telecopier and (d) five business days after being sent, if sent by registered or
certified mail.  Each of the parties hereto shall be entitled to specify a
different address by giving notice as aforesaid to the other party hereto.

          10.13  Counterparts.  This Agreement may be executed in any number of
                 ------------                                                  
counterparts, each of which shall be deemed an 

                                     - 37 -
<PAGE>
 
original, but all of which together shall constitute but one and the same
instrument.

          10.14  Governing Law.  This Agreement shall be governed by and
                 -------------                                          
construed in accordance with the laws of the State of New Jersey applicable to
contracts executed in and to be performed in that state, without giving effect
to any choice or conflict of law provision or rule that would cause the
application of the laws of any other jurisdiction.

                                     - 38 -
<PAGE>
 
          IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement to be executed, as of the date first above
written by their respective officers thereunto duly authorized.

                                 CYTOGEN CORPORATION

                                 By: /s/ Thomas J. McKearn
                                    -----------------------------

                                 Title: President and CEO



                                 ELAN CORPORATION plc

                                 By: /s/ Thomas Lynch
                                    ----------------------------

                                 Title: Chief Financial Officer and
                                        Executive Vice President



LIST OF SCHEDULES
-----------------

SCHEDULE A     List of United States and Foreign Patent Applications related to
               the GDL technology