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                                                                   Exhibit 10.4



                             EMPLOYMENT AGREEMENT
                   BIODELIVERY SCIENCES INTERNATIONAL, INC.

         THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this 1st day of March 2001, by and between BioDelivery Sciences International,
Inc., an Indiana corporation, (the "Company") and James McNulty ("Employee").

                                   RECITALS:

         WHEREAS, the Company is engaged in the business of developing and
commercializing proprietary and patented cochleate delivery technology;

         WHEREAS, the Company wishes to enter into this Employment Agreement
with Employee, to set forth and govern the terms, conditions and duties of
employment of Employee with the Company, and

         WHEREAS, the Company and the Employee are desirous of setting forth in
this definitive Employment Agreement their respective rights and obligations
with respect to Employee's employment with the Company.

         NOW, THEREFORE, in consideration of the mutual promises in this
Agreement and for additional good and valuable consideration, the receipt and
sufficiency of which is acknowledged by the parties hereto, the Company and the
Employee agree as follows:

         1.       EMPLOYMENT AND TERM. On the terms and subject to the
conditions of this Agreement, the Company agrees to employ the Employee and the
Employee accepts such employment. This Agreement shall commence on the date
hereof (the "Commencement Date") and shall continue in effect for a period of
three years from the date hereof. This Agreement shall terminate at the end of
said three-year period (the "Termination Date") unless earlier terminated
pursuant to Paragraph 6 below.

         2.       DUTIES. Beginning on the Commencement Date, Employee will be
employed by the Company to perform the duties, as specified from time to time
by the Board of Directors and set forth on Exhibit "A" which is attached
hereto, incorporated herein and made a part hereof ("Duties").

         3.       COMPENSATION. During the Term of this Agreement, as
compensation for Employee performing the Duties, the Company shall pay Employee
the compensation, as set forth on Exhibit "B" which is attached hereto,
incorporated herein and made a part hereof ("Compensation").

         4.       TERMINATION OF EMPLOYMENT. Employee may terminate this
Agreement upon 30 days' written notice. Further, upon determination by the
Company's Board of Directors that the continuation of this Agreement is not in
the Company's best interest, the Company may terminate this Agreement upon 30
days' written notice.
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                                                                               2

         5.       NON-COMPETITION. Simultaneously with his execution of this
Agreement, Employee shall execute a Covenant Not to Compete Agreement with the
Company, as set forth as Exhibit "C" which is attached hereto, incorporated
herein and made a part thereof.

         6.       CONFIDENTIALITY/WAIVER OF INTEREST. Simultaneously with the
execution of this Agreement, Employee shall execute a Confidentiality/Waiver of
Interest Agreement with the Company, as set forth on Exhibit "D" which is
attached hereto, incorporated herein and made a part hereof and which shall be
effective from the date of execution.

         7.       NOTICES. Any notice provided for in this Agreement must be in
writing and must be either personally delivered or mailed by certified mail,
return receipt required, to the recipient at the address indicated below:

         TO THE COMPANY:                              TO THE EMPLOYEE:

         BioDelivery Sciences International, Inc.     James McNulty
         Two Huntington Quadrangle                    4419 W. Sevilla
         Melville, New York 11747                     Tampa, Florida 33629

or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.

         8.       SEVERABILITY. In the event that any provision of this
Agreement shall be held to be unreasonable, invalid, or unenforceable for any
reason whatsoever, the parties agree that: (i) such invalidity or
unenforceability shall not affect any other provision of this Agreement and
the remaining covenants, restrictions, and provisions hereof shall remain in
full force and effect, and (ii) any court of competent jurisdiction may so
modify the objectionable provision as to make it valid, reasonable, and
enforceable, and such provision, as so modified, shall be valid and binding as
though the invalid, unreasonable, or unenforceable portion thereof had not been
included herein.

         9.       COMPLETE AGREEMENT. This Agreement contains the entire
agreement of the parties and supersedes and preempts any prior understandings,
agreements or representations between Employee and the Company regarding the
employment of Employee.

         10.      COUNTERPARTS. This Agreement may be simultaneously executed
in two counterparts, each of which shall be an original, and all of which shall
constitute but one and the same instrument.

         11.      CHOICE OF LAW. This Agreement shall be governed by and
construed in accordance with the laws of the state of Indiana.

         12.      ATTORNEY'S FEES. In the event that either party to this
Agreement shall be forced to retain the services of any attorney to enforce any
of the provisions hereof, then the prevailing party in any ensuing litigation
shall be entitled to recover from the non-prevailing party the prevailing
party's reasonable attorney's fees, court costs or other expenses of
litigation, whether incurred at trial or upon appeal.

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                                                                              3


         13.      AMENDMENTS/WAIVERS. This Agreement may only be modified,
amended, or waived by a writing duly authorized and executed by all parties.

         IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first above written.

           THE COMPANY:                               EMPLOYEE
BioDelivery Sciences International, Inc.

By: /s/ illegible signature                           /s/ James McNulty
   -------------------------------------              -------------------------
            Its Chairman & CEO                        James McNulty


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                                  EXHIBIT "A"



                             EMPLOYMENT AGREEMENT
                                    BETWEEN
                   BIODELIVERY SCIENCES INTERNATIONAL, INC.
                                      AND
                                 JAMES MCNULTY



In accordance with Paragraph 2, Employee shall perform the following duties:

         All duties assigned by the Board of Directors.


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                                  EXHIBIT "B"



                             EMPLOYMENT AGREEMENT
               BETWEEN BIODELIVERY SCIENCES INTERNATIONAL, INC.
                                      AND
                                 JAMES MCNULTY


         In accordance with Paragraph 3, Employee shall be paid the following
Compensation payable as set forth below:

         1.       $48,000 annual base salary, payable monthly.


<PAGE>   6


                            COVENANT NOT TO COMPETE
                   BIODELIVERY SCIENCES INTERNATIONAL, INC.

         This Covenant Not to Compete is made and entered into by and between
BioDelivery Sciences International, Inc., an Indiana corporation (hereinafter
referred to as the "Company" and James McNulty (hereinafter referred to as the
"Second Party").

                                   RECITALS:

         WHEREAS, the Company is engaged in the business of developing and
commercializing proprietary and patented cochleate delivery technology (the
Business");

         WHEREAS, Second Party has executed an Employment Agreement with the
Company,

         WHEREAS, Second Party acknowledges that the Company's Business
activities extend throughout the United States;

         WHEREAS, Second Party acknowledges that through such employment he has
and/or may acquire a special knowledge of the Company's Business; and the
clients, accounts, business lists, prospects, records, corporate policies,
operational methods and techniques and other useful information and trade
secrets of the Company (hereinafter all collectively referred to and defined as
"Confidential Information");

         WHEREAS, Second Party acknowledges that the Company's legitimate
business interests include the Confidential Information and the Company's
customer goodwill (hereinafter referred to and defined as the "Company's
Legitimate Business Interests") and that the Company's Legitimate Business
Interests would be harmed if Second Party engaged in competitive activities
with the Company anywhere in the world; and

         WHEREAS, the Company and Second Party, pursuant to the provisions of
this Agreement, wish to enter into an agreement as embodied herein whereby
Second Party will refrain from owning, managing, or in any manner or capacity
working for a business developing and commercializing proprietary and patented
cochleate delivery systems and from soliciting customers of the Company and
employees of the Company for competitive purposes as defined herein during
Second Party's employment with the Company and during the period of five years
after Second Party's cessation of employment with the Company in the
geographical location of anywhere in the world.

         NOW, THEREFORE, in consideration of the premises and the respective
covenants and agreements of the parties herein contained, and for additional
good and valuable consideration the receipt and sufficiency of which is
acknowledged by the parties, including, but not limited to, the Second Party's
employment with the Company and the continuation of the Second Party's
employment with the Company, the parties mutually agree as follows:

         1.       CONFIRMATION OF RECITALS - The foregoing recitals are true
and correct and are hereby ratified and confirmed by the parties and made an
integral part of this Agreement; as such, the recitals shall be used in any
construction of this Agreement, especially as it relates to the intent of the
parties.


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         2.       DEFINITION OF COMPETITION - For purposes of this Agreement
"Competitive Activity" shall mean the development, manufacturing or sale of any
cochleate based delivery system.

         3.       NON-COMPETE - The Second Party will not do, or intend to do,
any of the following either directly or indirectly, during Second Party's
employment with the Company and during the period of five (5) years after
Second Party's cessation of employment with the Company, anywhere in the world:

                  A.       Own, manage, operate, control, consult for, be an
officer or director of, work for, or be employed in any capacity by any company
or any other business, entity, agency or organization which conducts a mail
order specialty pharmacy business; or

                  B.       Solicit prior or current customers of the Company
for any purpose in competition (as defined herein) with the Company, or

                  C.       Solicit any then current employees employed by the
Company without the Company's consent.

                           The Second Party and Company agree that the phrase
"Second Party's cessation of employment with the Company" as used in this
Agreement, refers to any separation of Second Party from his employment at the
Company either voluntarily or involuntarily, either with cause or without
cause, or whether the separation is at the behest of the Company or the Second
Party (hereinafter referred to and defined as "Second Party's Cessation of
Employment").

                           The Employment Agreement between Second Party and
the Company expressly authorizes and permits Second Party to continue in or
enter into employment and ownership relationships with other entities. Entering
into and carrying out such employment and ownership relationships permitted by
the Employment Agreement between the Company and Second Party shall not be
deemed to be a violation of this Covenant Not to Compete provided that such
entities are not engaged in the business of developing and commercializing
proprietary and patented cochleate delivery technology. Furthermore, such
companies, by virtue of an employment or ownership relationship with Second
Party, shall not be deemed to have participated in any violation or breach of
this Agreement.

         4.       INJUNCTION AND DAMAGES - Second Parry agrees that this
Agreement is important, material, confidential, and gravely effects the
effective and successful conduct of the business of the Company, and it effects
its reputation and good will and is necessary to protect the Company's
Legitimate Business Interests. Second Party recognizes and agrees that the
Company will suffer irreparable injury in the event of Second Party's breach of
any covenant or agreement contained herein and cannot be compensated by
monetary damages alone, and Second Party therefore agrees that the Company, in
addition to and without limiting any other remedies or rights that it may have,
either under this Agreement or otherwise, shall have the right to obtain
injunctive relief, both temporary and permanent, against the Second Party from
any court of competent jurisdiction. Second Party further agrees that in the
event of Second Party's breach of any covenant or agreement contained herein,
the Company, in addition to its right to obtain injunctive relief shall further
be entitled to seek damages, including, but not limited to, compensatory,
incidental, consequential, exemplary, and lost profits damages. Second Party
agrees to pay the Company's reasonable attorney's fees and costs for
enforcement of this Agreement, if the Second Party breaches this Agreement.


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         5.       MISCELLANEOUS - Wherever used in this Agreement the phrase
"directly or indirectly" includes, but is not limited to Second Party acting
through Second Party's wife, children, parents, brothers, sisters, or any other
relatives, friends, trustees, agents, associates or entities with which Second
Party is affiliated with in any capacity. The Company may waive a provision of
this Agreement only in a writing signed by a representative of the Board of
Directors of the Company and specifically stating what is waived. The rights of
the Company under this Agreement may be assigned; however, the covenants,
warranties, and obligations of the Second Party cannot be assigned without the
prior written approval of the Company. The title of this Agreement and the
paragraph headings of this Agreement are not substantive parts of this
Agreement and shall not limit or restrict this Agreement in any way. This
Agreement survives after the Second Party's Cessation of Employment. No change,
addition, deletion, or amendment of this Agreement shall be valid or binding
upon Second Party or the Company unless in writing and signed by Second Party
and the Company. In the event a court of competent jurisdiction determines any
covenant set forth herein to be too broad to be enforceable or determines this
Agreement to be unreasonable, then said court may reduce the geographical area
and/or the length of time provisions herein, in order to make this Agreement
enforceable and reasonable. This Agreement shall be governed by Indiana law.
The parties agree that venue for any action brought under this Agreement shall
be in the state of New York. In construing this Agreement, neither of the
parties hereto shall have any term or provision construed against such party
solely by reason of such party having drafted same as each provision of this
Agreement is deemed by the parties to have been jointly drafted by the Company
and Second Party.

         6.       SUPERSEDES PRIOR AGREEMENT - This Covenant Not to Compete
shall commence upon the date hereof. This Agreement shall, upon its
commencement, supersede any prior Covenants Not to Compete between Second Party
and the Company.

         7.       SECOND PARTY ACKNOWLEDGMENT - The Second Party, acknowledges
that he has voluntarily and knowingly entered into this Agreement and that this
Agreement encompasses the full and complete agreement between the parties with
respect to the matters set forth herein.

         Executed on this 1st day of March 2001.

BIODELIVERY SCIENCES INTERNATIONAL, INC.              SECOND PARTY


By: /s/ illegible                                     /s/ James McNulty
   ------------------------------------               -------------------------
                  Its Chairman & CEO                  James McNulty


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                           CONFIDENTIALITY AGREEMENT
                   BIODELIVERY SCIENCES INTERNATIONAL, INC.

         THIS AGREEMENT is made and entered into by and between BioDelivery
Sciences International, Inc. an Indiana corporation (hereinafter referred to
and defined as the "Company) and James McNulty, (hereinafter referred to and
defined as the "Second Party").

         WHEREAS, the Company is in the business of developing and
commercializing proprietary and patented cochleate delivery technology;

         WHEREAS, Second Party is an employee of the Company;

         WHEREAS, Second Party recognizes that by virtue of Second Party's
relationship with the Company, Second Party has or will acquire a special
knowledge of the Company and the clients, accounts, business lists, prospects,
records, corporate policies, operational methods and techniques and other
useful information and trade secrets of the Company (hereinafter all
collectively and referred to and defined as "Confidential Information");

         WHEREAS, Second Party acknowledges that the Company's Confidential
Information represents valuable, special and unique assets of the Company; and

         WHEREAS, Second Party acknowledges that the Company's legitimate
business interests include the Confidential Information and the Company's
customer goodwill (hereinafter referred to and defined as "the Company's
Legitimate Business Interests") and that the Company's Legitimate Business
Interests would be harmed if Second Party would divulge or disclose the
Confidential Information to any third-party while the Second Party is a
stockholder of the Company, or at anytime thereafter.

         NOW, THEREFORE, in consideration of the premises and the respective
covenants and agreements of the parties herein contained, and for additional
good and valuable consideration the receipt and sufficiency of which is
acknowledged by the parties, the parties mutually agree as follows:

         1.       CONFIRMATION OF RECITALS. The foregoing recitals are true and
correct and are hereby ratified and confirmed by the parties and are made an
integral part of this Agreement; as such, the recitals shall be used in any
construction of this Agreement, especially as it relates to the intent of the
parties.

         2.       CONFIDENTIAL INFORMATION. As used in this Agreement,
"Confidential Information" shall mean any information and data, oral, written,
electronic or other media relating to the business of the Company including,
but not by way of limitation, the following sources of supply, contractual
relationships, other advantageous relationships, sales, marketing and
distribution strategies, customers list and information, financial information
and other data which are the property of the Company and which the Company has
not marked "non-confidential".


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         3.       PROTECTION OF CONFIDENTIAL INFORMATION. Second Party shall
maintain, on a confidential basis, all material and information designated as
"confidential" by the Company and not disclose nor divulge same to any third
party, during the term of Second Party's Employment Agreement with the Company
and for a period of two years thereafter, except as otherwise provided below:

                  A.       With advance approval of the Company;

                  B.       Information already in the possession of the third
                           party;

                  C.       Information which is part of the public domain;

                  D.       Information which is disclosed pursuant to a lawful
                           requirement or good faith obligation to a
                           governmental agency;

                  E.       Information which was developed independently by the
                           Second Party; and

                  F.       Information described by requirement of law.

         4.       INJUNCTION AND DAMAGES. Second Party agrees that this
Agreement is important, material and gravely affects the effective and
successful conduct of the business of the Company, and it also affects the
Company's reputation and goodwill, and is necessary to protect the Company's
Legitimate Business Interests. The Second Party further recognizes and agrees
that the Company will suffer irreparable injury in the event of Second Party's
breach of any covenant or agreement contained in this Agreement and cannot be
compensated by monetary damages alone. Accordingly, the Second Party agrees
that, in addition to and without limiting any other remedies or rights that the
Company may have, the Company shall have the right to obtain injunctive relief,
both temporary and permanent, against the Second Party from any court of
competent jurisdiction. In addition to said injunctive relief, the Company
shall also be entitled to seek damages, including, but not limited to,
compensatory, incidental, consequential, exemplary, and lost profits damages,
Second Party agrees to pay the Company's reasonable attorney's fees and costs
for enforcement of this Agreement, if the Second Party breaches this Agreement.

         5.       GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Indiana.

         6.       SURVIVORS. This Agreement survives after Second Party is no
longer a stockholder in the Company.

         7.       MISCELLANEOUS. No change, addition, deletion, or amendment of
this Agreement shall be valid or binding upon Second Party or the Company
unless in writing and signed by Second Party and the Company. The rights of the
Company under this Agreement may be assigned; however, the covenants and
agreements of the Second Party pursuant to this Agreement cannot be assigned.
The title of this Agreement and the paragraph headings of this Agreement are
not substantive parts of this Agreement and shall not limit or restrict the
Agreement in any way. In construing this Agreement, neither of the parties
hereto shall have any term or provision of this Agreement construed against
such party solely by reason of such party having drafted same as each provision
of this Agreement is deemed by the parties to have been jointly drafted by the
Company and Second Party.


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         8.       EXCLUDED ACTIVITIES. The Employment Agreement between Second
Parry and the Company expressly authorizes and permits Second Party to serve in
employment and ownership relationships with other entities which are not
competitive with the Company ("Other Entities"). Neither this Agreement nor the
assignment or relinquishment set forth in this Agreement affect, in any
fashion, the rights of Second Party to serve in an employment, officer or
ownership relationship with Other Entities, nor does it affect or alter the
ownership rights of Other Entities provided Second Party complies with the
terms of this Agreement. This Agreement is not binding on or enforceable
against the Other Entities with which Second Party may be engaged in employment
or other business relationships.

         9.       SECOND PARTY ACKNOWLEDGMENT. The Second Party acknowledges
that Second Party has voluntarily and knowingly entered into this Agreement and
that this Agreement encompasses the full and complete agreement between the
parties with respect to the matters set forth herein.

Executed on this 1st day of March 2001.

BIODELIVERY SCIENCES INTERNATIONAL, INC.              SECOND PARTY


By: /s/ illegible                                     /s/ James McNulty
   ------------------------------------               -------------------------
                 Its Chairman & CEO                   James McNulty