June 24, 1997



Ms. Nancy C. Broadbent
Vice President and Chief Financial Officer
CollaGenex Pharmaceuticals, Inc.
301 South State Street
Newtown, PA  18901

Dear Nancy:

It is a pleasure  to inform you that  CoreStates  Bank,  N.A.  (the  "Bank") has
approved a $5,000,000 line of credit to support the normal working capital needs
of CollaGenex Pharmaceuticals,  Inc., a Delaware corporation (the "Company") and
its subsidiary.

All borrowings will be subject to the Bank's  continuing  satisfaction  with the
Company's  financial  condition and will be evidenced by the enclosed $5,000,000
Master Promissory Note when it and the enclosed  borrowing  resolution have been
duly executed by the Company.

Interest on all borrowings will be payable at the maturity of each borrowing but
in no event less  frequently  than monthly on the first  business day.  Interest
will be paid by means of a charge to the Company's demand account with the Bank.
Interest  will be  calculated  on the  basis  of a year of 360 days for each day
actually outstanding.

All or any part of the line will be available to the Company using the following
pricing alternatives:

Floating prime rate:
-------------------

Interest  will be  calculated  at a rate  equal to the  prime  rate of  interest
charged from time to time by the Bank.  Said interest rate will change each time
the Bank's prime rate changes, effective on and as of the date of the change.

There will be no minimum  size for  borrowings  bearing  interest  at the Bank's
prime rate, and the Company may repay such  borrowings in full or in part at any
time without notice or penalty.



<PAGE>
Ms. Nancy C. Broadbent
June 24, 1997
Page 2


Adjusted LIBOR-based rates:
--------------------------

Interest will be calculated at a fixed rate of interest for the duration of each
such borrowing.  The Company's  interest  rate(s) will be 2.15% in excess of the
interest rate(s) (adjusted for reserve  requirements,  if any) at which the Bank
is offered dollar deposits in the interbank  Eurodollar market at or about 10:00
a.m. (Eastern Time) two business days prior to a borrowing which is to be priced
using this alternative.

Minimum  borrowings  will be $100,000.  Once agreed to, these may not be prepaid
nor added to prior to their stated maturities.

Collateral
----------

The line of credit will be  unsecured as long as the sum of the  Company's  cash
and investment  balances (the "Liquid Assets")  maintained with the Bank or with
CoreStates  Investment  Advisers  equals or exceeds  $10,000,000.  If the Liquid
Assets fall below $10,000,000,  all advances will be fully secured by the Liquid
Assets.

Other Conditions
----------------

Negative Pledge
---------------

Except for assets having  aggregate  book value not greater than  $100,000,  the
Company  will not  create or  permit  to exist  any  liens on any  assets of the
Company or its Subsidiary without the prior written consent of the Bank.

Negative-Negative Pledge
------------------------

The Company will not give a Negative Pledge to any party other than the Bank.

Primary Depository and Investment Advisor
-----------------------------------------

The Bank will remain the  Company's  primary  operating  and account  bank,  and
CoreStates  Investment  Advisers will remain the Company's  primary  provider of
investment management and custody services.


<PAGE>
Ms. Nancy C. Broadbent
June 24, 1997
Page 3


Reporting
---------

In consideration of the line, the Company will provide the Bank with:

-    its SEC Form 10-K and  consolidated  annual  report,  to be audited by KPMG
     Peat  Marwick  LLP  or  another  independent  Certified  Public  Accountant
     satisfactory to the Bank, to be delivered to the Bank within 90 days of the
     close of the Company's fiscal year;

-    its SEC Form 10-Q and quarterly  consolidated  financial statements,  to be
     prepared in  accordance  with GAAP,  to be  delivered to the Bank within 90
     days of the close of each fiscal quarter;

-    such other financial and operating information as the Bank may from time to
     time reasonably request.

You understand  that this line of credit may be terminated by the Company or the
Bank at any time.

Nancy, we are delighted to support the Company in the manner set forth above and
hope that the Company will find the terms of this credit facility acceptable. If
so, please have the appropriate party so signify in the space provided below and
return this letter to my attention.

At the Bank's  option,  this  letter  will be null and void  unless  accepted in
writing by June 30, 1997.

Very truly yours,

CORESTATES BANK, N.A.




Bruce F. Morgan
Vice President

BFM:bm
Enclosures   (2)

                    [signatures continued on following page]


<PAGE>
Ms. Nancy C. Broadbent
June 24, 1997
Page 4


Agreed to and accepted:

COLLAGENEX PHARMACEUTICALS, INC.

[SEAL]

      /s/ Nancy C. Broadbent, VP&CFO           6/26/97
By:   ------------------------------           -------
           (Name and Title)                    (Date)


<PAGE>

                                     MASTER
                           COMMERCIAL PROMISSORY NOTE

$ 5,000,000.00                                                  June 24, 1997
  ------------                                                  -------------

FOR VALUE RECEIVED, each of the undersigned,  jointly and severally if more than
one (hereinafter collectively referred to as "Borrower"), promises to pay to the
order of CORESTATES BANK, N.A.*, a national banking association (the "Bank"), at
any of its

banking  offices in  Pennsylvania,  the  principal  amount of Five  million  and
00/100--------------Dollars,   in  lawful  money  of  the  United  States,  plus
interest, to be paid as follows:
plus interest on the unpaid principal  balance at a rate mutually agreed upon at
the time a loan is made and shall be payable monthly,  if the loan is payable on
demand,  or the date or dates  agreed  to, if the loan is  payable  on a time or
other basis.  If the rate of interest  agreed to is based upon our "prime rate,"
such term  shall mean and refer to the rate of  interest  for  commercial  loans
established  and  publicly  announced by us from time to time as our prime rate,
and such  rate of  interest  shall  change  each time our  prime  rate  changes,
effective  on the date of change.  Interest  will be  computed on the basis of a
year of 360 days for each day of the  year  actually  elapsed.  The  Undersigned
hereby  authorizes the Bank to charge any account in the name of the Undersigned
for any and all amounts due hereunder. All payments to the Bank of principal and
interest and other amounts, if any, shall be made in U.S. dollars in immediately
available funds.

ADDITIONAL TERMS OF THIS NOTE - Each of the following  provisions shall apply to
this Note,  to any  extension  or  modification  hereof and to the  indebtedness
evidenced  hereby,  except as otherwise  expressly stated above or in a separate
writing signed by Bank and Borrower.

INTEREST - Interest shall be calculated on the basis of a 360-day year and shall
be charged for the actual  number of days  elapsed.  Accrued  interest  shall be
payable  monthly.  Accrued  interest  shall  also be  payable  when  the  entire
principal  balance of this Note  becomes  due and  payable  (whether  by demand,
stated maturity or acceleration) or, if earlier,  when such principal balance is
actually  paid to Bank.  If the rate at which  interest  accrues is based on the
"Prime Rate" that term is defined as the rate of interest for loans  established
by Bank,  from time to time as its prime  rate.  Said per annum rate of interest
shall  change each time Bank's prime rate shall  change,  effective on and as of
the date of the change.  Interest  shall accrue on each  disbursement  hereunder
from the date such disbursement is made by Bank, provided,  however, that to the
extent this Note represents a replacement,  substitution, renewal or refinancing
of existing indebtedness,  interest shall accrue from the date hereof.  Interest
shall accrue on the unpaid  balance hereof at the rate provided for in this Note
until the entire unpaid balance has been paid in full, notwithstanding the entry
of any judgment against Borrower.

PREPAYMENT - If this Note bears  interest at a floating or variable  rate and no
floor or minimum  rate is  specified,  Borrower may prepay all or any portion of
the principal balance of this Note at any time,  without premium or penalty.  If
not  permitted  under  the  preceding  sentence,  any  prepayment  of  principal
(including any principal  repayment as a result of  acceleration by Bank of this
Note) shall require  immediate  payment to Bank of a prepayment fee equal to the
amount, if any, by which the aggregate present value of scheduled  principal and
interest  payments  eliminated by the  prepayment  exceeds the principal  amount
being  prepaid.  Said present  value shall be  calculated  by  application  of a
discount  rate  determined  by  Bank  in  its  reasonable  judgment  to  be  the
yield-to-maturity at the time of prepayment on U.S. Treasury securities having a
maturity  which  most  closely  approximates  the  final  maturity  date  of the
principal balance then outstanding.  Whether or not a prepayment fee is required
hereunder,  prepayments shall be applied to scheduled  installments of principal
in the  inverse  order of their  maturity,  shall be  accompanied  by payment of
accrued interest on the principal amount being prepaid and, unless this Note has
been  accelerated  by Bank,  shall not be  permitted  in an amount less than the
scheduled  principal  installment  immediately  prior to final  maturity  of the
outstanding principal balance.

--------------------------------------------------------------------------------
*CoreStates Bank, N.A. also conducts business as Philadelphia  National Bank, as
CoreStates First Pennsylvania Bank and as CoreStates Hamilton Bank

<PAGE>

EVENTS  OF  DEFAULT  - Each  of the  following  shall  be an  Event  of  Default
hereunder:  (a) the nonpayment when due of any amount payable under this Note or
under any obligation or  indebtedness  to Bank of Borrower or any person liable,
either  absolutely or contingently,  for payment of any  indebtedness  evidenced
hereby,  including  endorsers,  guarantors  and  sureties  (each such  person is
referred  to as an  "Obligor");  (b) if  Borrower  or any  Obligor has failed to
observe or  perform  any other  existing  or future  agreement  with Bank of any
nature whatsoever; (c) if any representation,  warranty, certificate,  financial
statement or other  information made or given by Borrower or any Obligor to Bank
is  materially  incorrect or  misleading;  (d) if Borrower or any Obligor  shall
become  insolvent or make an  assignment  for the benefit of creditors or if any
petition  shall  be  filed by or  against  Borrower  or any  Obligor  under  any
bankruptcy or insolvency law; (e) the entry of any judgment  against Borrower or
any  Obligor  which  remains  unsatisfied  for 15  days or the  issuance  of any
attachment, tax lien, levy or garnishment against any property of material value
in which Borrower or any Obligor has an interest;  (f) if any attachment,  levy,
garnishment  or similar  legal  process  is served  upon Bank as a result of any
claim against Borrower or any Obligor or against any property of Borrower or any
Obligor;  (g) the  dissolution,  merger,  consolidation or change in control (as
control is defined in Rule 12b-2 under the Securities  Exchange Act of 1934), of
any Borrower which is a corporation or  partnership,  or the sale or transfer of
any  substantial  portion of any of Borrower's  assets,  or if any agreement for
such dissolution, merger, or consolidation,  change in control, sale or transfer
is entered into by Borrower,  without the written consent of Bank; (h) the death
of any  Borrower  or Obligor  who is a natural  person;  (i) if Bank  determines
reasonably  and in good faith that an event has  occurred or a condition  exists
which has had, or is likely to have a material  adverse  effect on the financial
condition or  creditworthiness  of Borrower or any Obligor, or on the ability of
Borrower or any Obligor to perform its obligation evidenced by this Note; (j) if
Borrower  shall fail to remit  promptly when due to the  appropriate  government
agency or  authorized  depository,  any amount  collected  or withheld  from any
employee of Borrower  for payroll  taxes,  Social  Security  payments or similar
payroll  deductions;  (k) if any Obligor  shall attempt to terminate or disclaim
such  Obligor's  liability for the  indebtedness  evidenced by this Note; (l) if
Bank shall  reasonably and in good faith  determine and notify Borrower that any
collateral  for  this  Note  or  for  the   indebtedness   evidenced  hereby  is
insufficient  as to quality or quantity;  (m) if Borrower shall fail to pay when
due any material  indebtedness  for borrowed money other than to Bank; or (n) if
Borrower  shall be notified of the failure of Borrower or any Obligor to provide
financial and other information  promptly when reasonably  requested by Bank. If
this Note is payable on demand,  Bank's right to demand payment hereof shall not
be restricted or impaired by the absence,  non-occurrence  or waiver of an Event
of Default,  and it is understood  that if this Note is payable on demand,  Bank
may demand payment at any time.

BANK'S  REMEDIES  - Upon  the  occurrence  of  one or  more  Events  of  Default
(including,  if this Note is payable on demand,  any Event of Default  resulting
from Borrower's failure to make any payment hereunder when demanded) unless Bank
elects  otherwise,  the  entire  unpaid  balance  of this  Note and all  accrued
interest shall be immediately  due and payable without notice to borrower or any
Obligor, and Bank may, immediately or at any time thereafter exercise any or all
of its rights and remedies  hereunder or under any agreement or otherwise  under
applicable  law  against  Borrower,  any Obligor  and any  collateral,  Bank may
exercise its rights and  remedies in any order and may, at its option,  delay in
or  refrain  from  exercising  some or all of its rights  and  remedies  without
prejudice  thereto.  Upon the  occurrence of any such Event of Default or at any
time thereafter;  Bank may, at its option, and upon five days' written notice to
Borrower,  begin  accruing  interest on this Note,  at a rate not to exceed five
percent  (5%) per  annum in excess of the  greater  of (a) the rate of  interest
provided  for above,  or (b) the Prime  Rate in effect  from time to time on the
unpaid  principal  balance  hereof;  provided,  however,  that no interest shall
accrue  hereunder  in excess of the  maximum  rate  permitted  by law.  All such
additional interest shall be payable on demand.

<PAGE>

NOTICE  TO  BORROWER  - Any  notice  required  to be  given  by Bank  under  the
provisions  of this Note shall be effective as to each Borrower and each Obligor
when  addressed to Borrower  and  deposited in the mail,  postage  prepaid,  for
delivery  by first  class mail at  Borrower's  mailing  address as it appears on
Bank's records.

DISBURSEMENTS  AND PAYMENTS - The proceeds of this Note, or any portion thereof,
may be credited by Bank to the deposit account of Borrower,  or disbursed in any
other  manner  requested  by  Borrower  and  approved  by Bank.  If  Borrower so
requests,  Bank may, at its option,  disburse  the proceeds of this Note in more
than one  disbursement on the same or different  dates,  but except as otherwise
agreed by Bank in  writing,  no  action  taken by Bank in  response  to any such
request shall be deemed to create or shall imply the existence of any commitment
or  obligation  to pay or credit  the  undisbursed  portion  of this  Note.  All
payments due under this Note are to be made in immediately  available  funds. If
Bank accepts payment in any other form, such payment shall not be deemed to have
been made until the funds comprising such payment have actually been received by
or made available to Bank. If Borrower is not an individual, Borrower authorizes
Bank (but Bank  shall  have no  obligation)  to charge  any  deposit  account in
Borrower's  name for any and all payments of principal,  interest,  or any other
amounts due under this Note.

PAYMENT OF COSTS - In addition to the principal and interest payable  hereunder,
Borrower  agrees to pay Bank,  on  demand,  all  costs and  expenses  (including
reasonable  attorneys' fees and disbursements)  which may be incurred by Bank in
the  collection  of this Note or the  enforcement  of Bank's rights and remedies
hereunder.

REPRESENTATIONS  BY  BORROWER - If  Borrower  is a  corporation  or a general or
limited  partnership,  Borrower  represents  and  warrants  that  it is  validly
existing  and in good  standing  in the  jurisdiction  under  whose  laws it was
organized.  If Borrower is a corporation,  Borrower represents and warrants that
the  execution,  delivery  and  performance  of this Note are within  Borrower's
corporate  powers,  have  been  duly  authorized  by  all  necessary  action  by
Borrower's  Board of  Directors,  and are not in  contravention  of the terms of
Borrrower's  charter,  by-laws, or any resolution of its Board of Directors.  If
Borrower is a general or limited  partnership,  Borrower represents and warrants
that the  execution,  delivery  and  performance  of this  Note  have  been duly
authorized and are not in conflict with any provision of Borrower's  partnership
agreement or certificate of limited partnership. Borrower further represents and
warrants  that  this  Note has  been  validly  executed  and is  enforceable  in
accordance  with its terms,  that the  execution,  delivery and  performance  by
Borrower of this Note are not in  contravention  of law and do not conflict with
any  indenture,  agreement  or  undertaking  to which  Borrower is a party or is
otherwise bound,  and that no consent or approval of any governmental  authority
or any third party is required in connection  with the  execution,  delivery and
performance of this Note.

WAIVERS, ETC. - Borrower and each Obligor waive presentment, dishonor, notice of
dishonor,  protest and notice of  protest.  Neither the failure nor any delay on
the part of Bank to exercise any right,  remedy,  power or  privilege  hereunder
shall  operate  as a waiver  or  modification  thereof.  No  consent,  waiver or
modification of the terms of this Note shall be effective  unless set forth in a
writing  signed by Bank.  All rights and  remedies  of Bank are  cumulative  and
concurrent  and no single or partial  exercise of any power or  privilege  shall
preclude any other or further exercise of any right, power or privilege.

<PAGE>

MISCELLANEOUS  - This Note is the  unconditional  obligation  of  Borrower,  and
Borrower agrees that Bank shall not be required to exercise any of its rights or
remedies against any collateral in which it holds a lien or security interest or
against which it has a right of setoff or against any  particular  Obligor.  All
representations, warranties and agreements herein are made jointly and severally
by each  Borrower.  If any  provision  of this  Note  shall be held  invalid  or
unenforceable,  such invalidity or  unenforceability  shall not affect any other
provision  hereof.  To the  extent  that this  Note  represents  a  replacement,
substitution, renewal or refinancing of a pre-existing note or other evidence of
indebtedness,  the indebtedness  represented by such  pre-existing note or other
instrument shall not be deemed to have been  extinguished  hereby.  In the event
that any due date specified or otherwise provided for in this Note shall fall on
a day on which Bank is not open for  business,  such due date shall be postponed
until the next banking day, and interest and any fees or similar  charges  shall
continue  to  accrue  during  such  period of  postponement.  This Note has been
delivered in and shall be governed by and construed in accordance  with the laws
of the Commonwealth of Pennsylvania without regard to the law of conflicts. This
Note  shall be  binding  upon each  Borrower  and each  Obligor  and upon  their
personal representatives,  heirs, successors and assigns, and shall benefit Bank
and its successors and assigns.

CONSENT TO JURISDICTION AND VENUE - IN ANY LEGAL PROCEEDING INVOLVING,  DIRECTLY
OR  INDIRECTLY,  ANY  MATTER  ARISING  OUT OF OR  RELATED  TO  THIS  NOTE OR THE
RELATIONSHIP EVIDENCED HEREBY, EACH UNDERSIGNED PARTY HEREBY IRREVOCABLY SUBMITS
TO THE  NONEXCLUSIVE  JURISDICTION  OF ANY STATE OR FEDERAL COURT LOCATED IN ANY
COUNTY OF THE  COMMONWEALTH OF  PENNSYLVANIA  WHERE BANK MAINTAINS AN OFFICE AND
AGREES  NOT TO RAISE ANY  OBJECTION  TO SUCH  JURISDICTION  OR TO THE  LAYING OR
MAINTAINING OF THE VENUE OF ANY SUCH PROCEEDING IN SUCH COUNTY. EACH UNDERSIGNED
PARTY AGREES THAT SERVICE OF PROCESS IN ANY SUCH PROCEEDING MAY BE DULY EFFECTED
UPON IT BY MAILING A COPY THEREOF,  BY REGISTERED MAIL, POSTAGE PREPAID, TO EACH
UNDERSIGNED PARTY.

WAIVER OF JURY TRIAL - EACH  UNDERSIGNED  PARTY HEREBY  WAIVES,  AND BANK BY ITS
ACCEPTANCE  HEREOF  THEREBY  WAIVES,  TRIAL  BY  JURY  IN ANY  LEGAL  PROCEEDING
INVOLVING,  DIRECTLY  OR  INDIRECTLY,  ANY  MATTER  (WHETHER  SOUNDING  IN TORT,
CONTRACT OR  OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS NOTE OR THE
RELATIONSHIP  EVIDENCED HEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR BANK
TO ENTER INTO, ACCEPT OR RELY UPON THIS NOTE.

IN WITNESS  WHEREOF,  Borrower,  intending  this to be a sealed  instrument  and
intending to be legally bound hereby, has executed and delivered this Note as of
the day and year first above written.


<PAGE>

--------------------------------------------------------------------------------
Name of Corporation
or Partnership              COLLAGENEX PHARMACEUTICALS, INC.
--------------------------------------------------------------------------------


By:                                         By:
-----------------------------------         ------------------------------------
(Signature of Authorized Signer)             (Signature of Authorized Signer)


-----------------------------------         ------------------------------------
(Print or Type Name and                      (Print  or  Type  Name and
 Title of Signer Above)                        Title of Signer Above)

                             INDIVIDUALS SIGN BELOW

                                                                            SEAL
-----------------------------------         ------------------------------------
(Signature of Witness)                      (Signature of Individual Borrower)



-----------------------------------         ------------------------------------
(Print or Type Name of Above Witness)       (Print  or  Type  Name of Borrower
                                              Signing Above)


                                                                            SEAL
-----------------------------------         ------------------------------------
(Signature of Witness)                      (Signature of Individual Borrower)



-----------------------------------         ------------------------------------
(Print or Type Name of Above Witness)       (Print  or  Type  Name of Borrower
                                              Signing Above)