<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


  X               Quarterly report pursuant to Section 13 or 15(d) of the
_____             Securities Exchange Act of 1934. For the quarterly period
                  ended December 31, 1996.

_____             Transition report pursuant to Section 13 or 15(d) of the 
                  Securities Exchange Act of 1934.  For the transition period 
                  from _____ to _____.

                             Commission File Number
                                     0-27410


                                INTERCARDIA, INC.
             (Exact Name of Registrant as Specified in its Charter)


                Delaware                            56-1924222
(State  or  other jurisdiction of       (I.R.S. Employer Identification Number)
incorporation or organization)           

P.O. Box 14287
3200 East Highway 54
Cape Fear Building, Suite 300
Research Triangle Park, NC                                           27709
(Address of Principal Executive Office)                            (Zip Code)

Registrant's Telephone Number, Including Area Code                919-558-8688



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES X        NO

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.


               Class                        Outstanding as of February 11, 1997
Common Stock, par value $.001                      6,742,603 Shares


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                                INTERCARDIA, INC.

                               INDEX TO FORM 10-Q

<TABLE>
<CAPTION>

                                                                                                        PAGE
<S>                                                                                                     <C>
PART I.  FINANCIAL INFORMATION

                  Item 1.           Financial Statements

                  Consolidated Balance Sheets as of December 31, 1996 (unaudited)
                  and September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

                  Consolidated Statements of Operations for the Three Months
                  ended December 31, 1996 and 1995 (unaudited)  . . . . . . . . . . . . . . . . . . . . 4

                  Consolidated Statements of Cash Flows for the Three Months ended
                  December 31, 1996 and 1995 (unaudited)   . . . . . . . . . . . . . . . . . . . . . .  5

                  Notes to Unaudited Consolidated Financial Statements . . . . . . . . . . . . . . . .  6


                  Item 2.           Management's Discussion and Analysis of Financial
                                    Condition and Results of Operations  . . . . . . . . . . . . . . .  8


PART II. OTHER INFORMATION

                  Item 6.           Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . .  11

                  SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>


                                       2

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                                INTERCARDIA, INC.

                           CONSOLIDATED BALANCE SHEETS
                  (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>


                                                                               December 31, September 30,
                                                                                     1996        1996
                                                                                 ----------    --------
                                                                                   (Unaudited)
<S>                                                                                <C>         <C>     
                                                    ASSETS
Current assets:
       Cash and cash equivalents                                                   $ 25,335    $ 21,441
       Marketable securities                                                         13,544      14,084
       Accounts receivable                                                            1,417       1,444
       Prepaids and other current assets                                                 37          98
                                                                                   --------    --------
                    Total current assets                                             40,333      37,067

Marketable securities                                                                  --         1,572
Property and equipment, net                                                             271         299
Other assets                                                                              7           7
                                                                                   ========    ========
                                                                                   $ 40,611    $ 38,945
                                                                                   ========    ========

                                         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
       Accounts payable                                                            $    151    $    168
       Accrued expenses                                                               1,887       1,827
       Current portion of capital lease obligations                                      38          36
                                                                                   --------    --------
                   Total current liabilities                                          2,076       2,031

Long-term portion of capital lease obligations                                           99         109
Long-term notes payable                                                                  15          10

Minority interest                                                                       957         568

Stockholders' equity
       Common stock, $.001 par value per share, 40,000,000 shares authorized,
           6,740,603 and 6,738,603 shares issued and outstanding at December 31,
           1996 and September 30, 1996,
            respectively                                                                  7           7
       Additional paid-in capital                                                    39,710      39,709
       Deferred compensation                                                           (171)       (185)
       Accumulated deficit                                                           (2,082)     (3,304)
                                                                                   --------    --------
                   Total stockholders' equity                                        37,464      36,227
                                                                                   --------    --------
                                                                                   $ 40,611    $ 38,945
                                                                                   ========    ========

</TABLE>





                                       3


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                                INTERCARDIA, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                      (In thousands, except per share data)

<TABLE>
<CAPTION>


                                                                            Three Months Ended
                                                                               December 31,
                                                                -------------------------------------------
                                                                     1996                       1995
                                                                ---------------            ----------------
<S>                                                                <C>                         <C>        
Revenue:
     Contract revenue                                              $     2,149                 $     5,000
     Investment income                                                     516                          30
                                                                ---------------            ----------------
              Total revenue                                              2,665                       5,030
                                                                ---------------            ----------------

Cost and expenses:
     Research and development                                              523                         456
     General and administrative                                            531                         358
                                                                ---------------            ----------------
              Total costs and expenses                                   1,054                         814
                                                                ---------------            ----------------

Income from operations                                                   1,611                       4,216
Minority interest                                                          389                         725
                                                                ---------------            ----------------

Net income                                                         $     1,222                 $     3,491
                                                                ===============            ================

Net income per common share                                        $       0.16                $       0.72
                                                                ===============            ================

Weighted average common shares outstanding                               7,504                       4,874
                                                                ===============            ================
</TABLE>




                                       4


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                                INTERCARDIA, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOW
                                   (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>


                                                                                          Three Months Ended
                                                                                             December 31,
                                                                               -----------------------------------------
                                                                                     1996                      1995
                                                                               -----------------            ------------
<S>                                                                                <C>                          <C>    
Cash flows from operating activities:
       Net income                                                                  $      1,222                 $ 3,491
       Adjustments to reconcile net income to net cash from
           operating activities:
                Depreciation and amortization                                                34                      13
                Amortization of deferred compensation                                        14                       -
                Minority interest in net income of consolidated
                   subsidiary                                                               389                     725
                Change in assets and liabilities:
                   Accounts receivable                                                       27                    (250)
                   Other assets                                                              61                    (367)
                   Accounts payable                                                         (17)                    401
                   Accrued expenses                                                          60                     205
                                                                               -----------------            ------------
Net cash provided by operating activities                                                 1,790                   4,218
                                                                               -----------------            ------------

Cash flows from investing activities:
       Proceeds from maturities and sales of marketable securities                        2,112                       -
       Purchases of property and equipment                                                   (6)                     (2)
                                                                               -----------------            ------------
Net cash provided by (used in) investing activities                                       2,106                      (2)
                                                                               -----------------            ------------

Cash flows from financing activities:
       Net proceeds from issuance of stock                                                     1                       2
       Payments to Interneuron, net                                                           -                     (73)
       Principal payments on capital lease obligations                                        (8)                    (6)
       Proceeds from long-term notes payable                                                   5                      -
                                                                               -----------------            ------------
Net cash used in financing activities                                                         (2)                   (77)
                                                                               -----------------            ------------

Net increase in cash and cash equivalents                                                 3,894                   4,139
Cash and cash equivalents at beginning of period                                         21,441                   1,122
                                                                               =================            ============
Cash and cash equivalents at end of period                                          $    25,335                 $ 5,261
                                                                               =================            ============

</TABLE>

    The accompanying notes are integral part of these unaudited consolidated
                             financial statements.





                                       5


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                                INTERCARDIA, INC.

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



A.       Basis of Presentation

         Intercardia, Inc. was incorporated in Delaware on March 15, 1994, and
is a majority-owned subsidiary of Interneuron Pharmaceuticals, Inc.
("Interneuron"). The "Company" refers to Intercardia, Inc. ("Intercardia") and
its majority-owned subsidiaries, CPEC, Inc., a Nevada corporation ("CPEC"), and
Aeolus Pharmaceuticals, Inc., a Delaware corporation ("Aeolus"). As of December
31, 1996, Intercardia owned 80.1% of CPEC and 65.8% of Aeolus.

         The Company focuses on development of therapeutics for the treatment of
cardiovascular and pulmonary disease. The Company has directed the majority of
its efforts toward the development and clinical trials of bucindolol, a compound
currently in Phase III clinical trials for the treatment of congestive heart
failure. This clinical trial, which commenced in June 1995, is known as the
Beta-blocker Evaluation of Survival Trial (the "BEST Study") and is sponsored by
the National Institutes of Health and the Department of Veterans Affairs.

         The consolidated financial statements include the accounts of
Intercardia and its subsidiaries, CPEC and Aeolus. All significant intercompany
activity has been eliminated. The consolidated financial statements included
herein have been prepared by the Company without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, the accompanying unaudited consolidated financial statements include
all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the consolidated financial position, results of operations and
cash flows of the Company. The consolidated financial statements included herein
should be read in conjunction with the audited consolidated financial statements
and the notes thereto included in the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1996. Results for the interim period are not
necessarily indicative of the results for any other interim period or for the
full fiscal year.

B.       Income Taxes:

         No income tax provision or benefit has been provided for income tax
purposes, as the Company utilized projected expenses for the remainder of the
fiscal year and net operating loss carryforwards to offset the net income
realized during the three months ended December 31, 1996 and 1995.


                                       6

<PAGE>


C.       Agreement:

         In December 1996, the Company executed an agreement ("the Knoll
Collaboration") with Knoll AG ("Knoll") to provide for the development,
manufacture and marketing of bucindolol for all countries with the exception of
the United States and Japan (the "Territory"). The Knoll Collaboration includes
both the twice-daily bucindolol formulation and the once-daily bucindolol
formulation currently under development. Under the terms of the collaboration,
Knoll paid CPEC approximately $2,143,000 in December 1996 and $1,000,000 in
January 1997. Knoll must also pay to CPEC $10,000,000 upon bucindolol regulatory
approval in a major European Community ("EC") member state and $10,000,000 upon
first attainment of $200,000,000 of net sales in the Territory during any
consecutive 12-month period.

         Knoll and the Company will share the development and marketing costs of
bucindolol in the Territory. In general, Knoll shall pay approximately 60% of
the development and marketing costs prior to product launch and the Company
shall pay approximately 40% of such costs, subject to certain maximum dollar
limitations. Knoll shall also bear approximately 60% of once-daily development
costs which relate to development solely for the Territory and approximately
one-third of once-daily development costs which have a worldwide benefit. The
Company is responsible for the remainder of once-daily development costs.

         Upon product launch, Knoll shall pay royalties to CPEC for the use of
the license and trademarks of bucindolol in the Territory. The royalty shall be
equal to 40% of net profits, as defined in the Knoll Collaboration. The Company
would be responsible for, and pay to Knoll, 40% of any net loss, as defined.

         The Knoll Collaboration continues in effect for 15 years after the
first commercial sale with respect to each country in the Territory, subject to
two additional five-year renewals at Knoll's option. Knoll has the right to
terminate the Knoll Collaboration at any time prior to the termination of the
BEST Study and within 60 days after the BEST Study's primary end-point results
are reported in writing to Knoll.


                                       7

<PAGE>


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

Introduction

         Statements in this Form 10-Q that are not descriptions of historical
facts are forward-looking statements that are subject to risks and
uncertainties. Actual results could differ materially from those currently
anticipated due to a number of factors, including those set forth herein and in
the Company's other SEC filings, including, in particular, risks relating to
uncertainties relating to clinical trials, dependence on collaborative partners,
the early stage of products under development, dependence on one product,
government regulations and competition.

         The following discussion should be read in conjunction with the
unaudited Consolidated Financial Statements and Notes thereto appearing
elsewhere in this report. Unless the context indicates otherwise, all references
to the Company include Intercardia, Inc. and its subsidiaries, CPEC, Inc. and
Aeolus Pharmaceuticals, Inc.

         Intercardia was incorporated in March 1994 and had no operations until
September 1994, when Intercardia acquired 80.0% of CPEC. Intercardia acquired an
additional 0.1% of CPEC in September 1996. In January 1996, Interneuron acquired
directly from the former CPEC minority stockholders the remaining outstanding
capital stock of CPEC not owned by Intercardia. CPEC has a worldwide license for
the development, distribution and sale of bucindolol for the treatment of
congestive heart failure and left ventricular dysfunction. The Company is
currently conducting Phase III clinical trials for the treatment of congestive
heart failure.

         Intercardia purchased a majority interest in Aeolus in July 1995, and
as of December 31, 1996, owned 65.8% of the outstanding capital stock of Aeolus.
Aeolus is conducting early stage development on catalytic antioxidant small
molecules as therapeutics for a variety of conditions, including neonatal
respiratory distress syndrome and resulting broncho-pulmonary dysplasia, stroke
and asthma.

Results of Operations

         The Company recognized net income of $1,222,000 and $3,491,000 for the
three months ended December 31, 1996 and 1995, respectively. The realization of
net income in each of these quarters was the result of the receipt of initial
payments associated with the signing of two major collaborative agreements, one
in each of the quarters. During the three months ended December 31, 1996, the
Company signed the Knoll Collaboration and Knoll made initial payments of
approximately $2,143,000, which were recognized as contract revenue. During the
three months ended December 31, 1995, the Company signed a collaborative
agreement with Astra Merck Inc. ("Astra Merck") for the development,
commercialization and marketing in the United States of a twice-daily
formulation of bucindolol for the treatment of congestive heart failure ("Astra
Merck Collaboration") and Astra Merck made an initial payment of $5,000,000,
which was also recognized as contract revenue. The initial payments and contract
revenue associated with the signing of these collaborative agreements are
generally one-time events and not recurring. 


                                       8

<PAGE>


Because the Company is still in the process of developing its first potential
product, it should not be assumed that the Company will be profitable on an
on-going basis over the next few years.

         Revenues were $2,665,000 and $5,030,000 for the three months ended
December 31, 1996 and 1995, respectively. Revenue for the three months ended
December 31, 1996 consisted of the $2,143,000 of initial payments received from
Knoll and $516,000 of investment income. Revenue for the three months ended
December 31, 1995 consisted of the $5,000,000 initial payment from Astra Merck
and $30,000 of investment income.

         Research and development ("R&D") expenses increased $67,000 (15%) to
$523,000 for the three months ended December 31, 1996 from $456,000 for the
three months ended December 31, 1995. This increase is primarily due to an
increase in the size of the R&D staff to advance the Company's R&D programs.

         The Astra Merck Collaboration requires Astra Merck to pay for certain
expenses related to bucindolol development in the United States. During the
three months ended December 31, 1996 and the fiscal year ended September 30,
1996, Astra Merck assumed liabilities on the Company's behalf of $1,095,000 and
$4,301,000, respectively. These amounts did not flow through the Company's
Statements of Operations, as they were offset against related expenses. As of
December 31, 1996, the Company's Balance Sheet included accounts receivables
from Astra Merck of $1,380,000 and accrued expenses of $1,245,000 related to
obligations assumed by Astra Merck.

         General and administrative expenses increased $173,000 (48%) to
$531,000 for the three months ended December 31, 1996 from $358,000 for the
three months ended December 31, 1995. This increase primarily resulted from an
increase in the size of the administrative staff and additional costs associated
with being a public company.

         The minority interest in the December 31, 1996 Consolidated Balance
Sheet and the Consolidated Statements of Operations for the three months ended
December 31, 1996 and 1995 reflects the minority interest in net income earned
by CPEC.

Liquidity and Capital Resources

         As of December 31, 1996, the Company had cash and marketable securities
of $38,879,000, which was $1,782,000 greater than the balance at September 30,
1996, primarily due to the $1,611,000 of income from operations before minority
interest.

         Pursuant to the Astra Merck Collaboration, the Company has agreed to
pay Astra Merck $10,000,000 in December 1997 and up to $11,000,000 for one-third
of product launch costs incurred beginning when the Company files a New Drug
Application ("NDA") with the U.S. Food and Drug Administration (the "FDA") for
the twice-daily formulation of bucindolol and continuing through the first 12
months subsequent to the first commercial sale of the formulation. These amounts
are payable at the option of the Company, and in the event the Company elects
not to make these payments, the royalties payable by Astra Merck to the Company
would be substantially reduced.


                                       9

<PAGE>


         Pursuant to the Knoll Collaboration, the Company is responsible for
approximately 40% of the development and marketing costs of bucindolol in the
Territory, which includes all countries other than the United States and Japan,
subject to certain maximum dollar limitations. The Company's portion of 
development and clinical trial costs for the Territory is estimated to be 
up to $10,000,000 and the Company's portion of marketing costs prior to 
product launch is estimated to be up to $4,000,000. Upon product launch, the 
Company will be responsible for 40% of any net loss incurred in the Territory as
defined. The Company is also responsible for approximately 40% of the once-daily
development costs which relate to development solely for the Territory and
approximately 67% of once-daily development costs which have a worldwide
benefit.

         The Company will incur additional charges to operations relating to the
acquisition of CPEC in the event that certain milestones are achieved in the
development and commercialization of bucindolol. The first milestone payment
will be due if and when an NDA for bucindolol has been accepted for filing by
the FDA, and the second milestone payment will be due if and when the Company
receives an Approvable Letter from the FDA with respect to bucindolol.
Achievement of each of these milestones would require additional payments, each
of 75,000 shares of Interneuron common stock, subject to adjustment based on the
price of Interneuron common stock at the time of issuance. In exchange for
Interneuron providing such shares, the Company will pay Interneuron the value of
such shares, in either cash or Intercardia Common Stock, at Intercardia's
option. Each additional payment would have a minimum and maximum charge to the
Company of $750,000 and $1,875,000, respectively.

         The Company is aware of products in research or development by its 
competitors that address the diseases being targeted by the Company. In 
particular, carvedilol, a non-selective beta-blocker with moderate vasodilating
properties, is owned by Boehringer Mannheim and licensed in the United States
and certain other countries to SmithKline Beecham. In May 1996, the U.S. Food
and Drug Administration ("FDA") Cardiovascular and Renal Drug Advisory 
Committee ("Advisory Panel") met and discussed the use of carvedilol for
treatment of congestive heart failure ("CHF"), but recommended against approval
of carvedilol as a treatment for CHF. The Company believes that SmithKline 
Beecham is continuing to attempt to gain an FDA approval for carvedilol as a
treatment for CHF and another Advisory Panel meeting has been scheduled to
review carvedilol on February 27, 1997. There can be no assurance that 
carvedilol will not be approved for treatment of CHF in the United States.

         The Company expects to incur substantial additional costs and losses
over the next few years. The Company's working capital and capital requirements
will depend upon numerous factors, including: the progress of the development
and clinical trials of bucindolol; the timing and cost of obtaining regulatory
approvals; the effect of competitive drugs on the BEST Study and on
commercialization of bucindolol; and the ability of the Company to establish
additional collaborative arrangements with other companies to provide research
or development funding to the Company and to conduct clinical trials, obtain
regulatory approvals, and manufacture and market certain of the Company's
products. The Company may acquire other products, technologies or businesses
that complement the Company's existing and planned products, although the
Company currently has no understanding, commitment or agreement with respect to
any such acquisitions.


                                       10

<PAGE>


Part II.          OTHER INFORMATION


Item 6.             Exhibits and Reports on Form 8-K

(a)      Exhibits
         11.1     Statement re computation of net income per share
         27       Financial Data Schedule, which is submitted electronically to
                  the Securities and Exchange Commission for information only
                  and not filed.

(b)      No reports on Form 8-K were filed during the period.


                                       11


<PAGE>


                                    SIGNATURE

         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                            INTERCARDIA, INC.



Date: February 13, 1997          By: /s/ Richard W. Reichow
                                    Richard W. Reichow,
                                    Senior Vice President,
                                    Chief Financial Officer and Treasurer
                                    (Principal Financial and Accounting Officer)

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