<PAGE>

                          LIFE MEDICAL SCIENCES, INC.


                             STOCK OPTION AGREEMENT

             UNDER THE AMENDED AND RESTATED 1992 STOCK OPTION PLAN
                            (INCENTIVE STOCK OPTION)




     AGREEMENT entered into as of the date set forth on the signature page
hereto by and between Life Medical Sciences, Inc., a Delaware corporation, with
a principal place of business at 379 Thornall Street, Edison, New Jersey
(together with its subsidiaries, if any, the "Company"), and the undersigned
(the "Optionee").

     WHEREAS, the Company desires to grant to the Optionee an incentive stock
option under the Company's Amended and Restated 1992 Stock Option Plan (the
"Plan") to acquire shares of the Company's Common Stock, $.001 par value (the
"Shares"); and

     WHEREAS, the Plan provides that each option is to be evidenced by an option
agreement, setting forth the terms and conditions of the option.

     NOW THEREFORE, in consideration of the premises and of the mutual covenants
and agreements contained herein, the Company and the Optionee hereby agree as
follows:

     1.  Grant of Option.
         ---------------

     The Company hereby grants to the Optionee an incentive stock option under
the Plan (the "Option") to purchase all or any part of an aggregate of the
number of Shares set forth on the signature page to this Agreement on the terms
and conditions hereinafter set forth.  The Option shall be treated as an
incentive stock option under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code").

     2.  Purchase Price.
         --------------

     The purchase price ("Purchase Price") for the Shares covered by the Option
shall be the dollar amount per share set forth on the signature page to this
Agreement.

     3.  Time of Vesting and Exercise of Option.
         --------------------------------------

     Subject to Section 4 hereof, the Option shall vest and become exercisable
on the dates and as to the installment amounts set forth on the signature page
to this Agreement.  To the extent the Option (or any portion thereof) is not
exercised by the Optionee when it becomes exercisable, it shall not expire, but
shall be carried forward and shall be exercisable, on a cumulative basis, until
the Expiration Date (as hereinafter defined) or until earlier termination as
hereinafter provided.
<PAGE>

4.  Term; Extent of Exercisability.
    ------------------------------

         a)  Term.

             (i) The Option shall expire as to each installment amount on the
             date set forth next to each such amount on the signature page to
             this Agreement (the "Expiration Date"), subject to earlier
             termination as herein provided.

             (ii) Except as otherwise provided in this Section 4, if the
             Optionee ceases to perform services for the Company, the Option
             shall terminate on the earlier of the last day of the third month
             or ninety days after the date such Optionee ceases to perform
             services for the Company, or on the date on which the Option
             expires by its terms, whichever occurs first.

             (iii) If the Optionee ceases to perform services for the Company
             because of dismissal for cause or because the Optionee is in breach
             of any employment agreement, such Option will terminate on the date
             the Optionee ceases to perform services for the Company.

             (iv) If the Optionee ceases to perform services for the Company
             because the Optionee has become permanently disabled (within the
             meaning of Section 22(e)(3) of the Code), such Option shall
             terminate on the last day of the twelfth month from the date such
             Optionee ceases to perform services for the Company, or on the date
             on which the Option expires by its terms, whichever occurs first.

             (v) In the event of the death of the Optionee, the Option granted
             to such Optionee shall terminate on the last day of the twelfth
             month from the date of death, or on the date on which the Option
             expires by its terms, whichever occurs first.

        (b)  Extent of Exercisability.
             ------------------------

             (i) Except as provided below, if the Optionee ceases to perform
             services for the Company, the Option shall be exercisable only to
             the extent that the right to purchase Shares under such Option has
             accrued and is in effect on the date such Optionee ceases to
             perform services for the Company.

             (ii) If the Optionee ceases to perform services for the Company
             because he or she has become permanently disabled (within the
             meaning of Section 22(e)(3) of the Code), the Option shall be
             exercisable to the full number of Shares covered by such Option.

                                      -2-
<PAGE>

             (iii) In the event of the death of the Optionee, the Option may be
             exercised with respect to the full number of Shares covered thereby
             whether or not under the provisions of Section 3 hereof the
             Optionee was entitled to do so at the date of his or her death, by
             the estate of such Optionee, or by any person or persons who
             acquired the right to exercise such Option by bequest or
             inheritance or by reason of the death of such Optionee.

     5.  Manner of Exercise of Option.
         ----------------------------

          (a) To the extent that the right to exercise the Option has accrued
          and is in effect, the Option may be exercised in full or in part by
          giving written notice to the Company stating the number of Shares as
          to which the Option is being exercised and accompanied by payment in
          full for such Shares. No partial exercise may be made for less than
          one hundred (100) full Shares of Common Stock. Payment shall be made
          in accordance with the terms of the Plan. Upon such exercise, delivery
          of a certificate for paid-up, non-assessable Shares shall be made at
          the principal office of the Company to the person exercising the
          Option, not less than thirty (30) and not more than ninety (90) days
          from the date of receipt of the notice by the Company.


          (b) The Company shall at all times during the term of the Option
          reserve and keep available such number of Shares of its Common Stock
          as will be sufficient to satisfy the requirements of the Option.


     6.  Non-Transferability.
         -------------------

         The right of the Optionee to exercise the Option shall not be
assignable or transferable by the Optionee otherwise than by will or the laws or
descent and distribution or pursuant to a domestic relations order as defined in
the Code or Title 1 of the Employee Retirement Income Security Act or the rules
thereunder, and the Option may be exercised during the lifetime of the Optionee
only by him or her. The Option shall be null and void and without effect upon
the bankruptcy of the Optionee or upon any attempted assignment or transfer,
except as herein provided, including without limitation any purported
assignment, whether voluntary or by operation of law, pledge, hypothecation or
other disposition contrary to the provisions hereof, or levy of execution,
attachment, trustee process or similar process, whether legal or equitable, upon
the Option.

     7.  Representation Letter and Investment Legend.
         -------------------------------------------

         In the event that for any reason the Shares to be issued upon exercise
of the Option shall not be effectively registered under the Securities Act of
1933 (" 1933 Act"), upon any date on which the Option is exercised in whole or
in part, the person exercising the Option shall give a written representation to
the Company in the form attached hereto as Exhibit 1 and the Company shall place
an "investment legend", so-called, as described in Exhibit 1, upon any
certificate for the Shares issued by reason of such exercise.

                                      -3-
<PAGE>

     8.  Adjustments on Changes in Capitalization.
         ----------------------------------------

         Adjustments on changes in capitalization and the like shall be made in
accordance with the Plan, as in effect on the date of this Option.

     9.  No Special Employment Rights.
         ----------------------------

         Nothing contained in the Plan or this Option shall be construed or
deemed by any person under any circumstances to bind the Company to continue the
employment of the Optionee for the period within which this Option may be
exercised. However, during the period of the Optionee's employment, the Optionee
shall render diligently and faithfully the services which are assigned to the
Optionee from time to time by the Board of Directors or by the executive
officers of the Company and shall at no time take any action which directly or
indirectly would be inconsistent with the best interests of the Company.

     10.  Rights as a Stockholder.
          -----------------------

          The Optionee shall have no rights as a stockholder with respect to any
Shares which may be purchased by exercise of this Option unless and until a
certificate or certificates representing such Shares are duly issued and
delivered to the Optionee. Except as otherwise expressly provided in the Plan,
no adjustment shall be made for dividends or other rights for which the record
date is prior to the date such stock certificate is issued.

     11.  Withholding Taxes.
          -----------------

          Whenever Shares are to be issued upon exercise of this Option, the
Company shall have the right to require the Optionee to remit to the Company an
amount sufficient to satisfy all Federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for the
Shares. The Company may agree to permit the Optionee to authorize the Company to
withhold Shares of Common Stock purchased upon exercise of the Option to satisfy
the above-mentioned withholding requirement; provided, however, no such
agreement may be made by an Optionee who is an officer or director within the
meaning of Section 16 of the Securities Exchange Act of 1934, as amended, except
pursuant to a standing election to so withhold Shares of Common Stock purchased
upon exercise of the Option, such election to be made in the form set forth in
Exhibit 2 hereto and to be made not less than six (6) months prior to such
exercise. Such election may be revoked only upon providing six (6) months prior
written notice to the Company.

     12.  Plan Provisions Control.
          -----------------------

          In the event of any inconsistency between the provisions of this
Agreement and the provisions of the Plan, the inconsistent provision(s) of this
Agreement shall be superseded by the Plan provision(s) to the extent necessary
to reconcile the inconsistency.

                                      -4-
<PAGE>

     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed,
and the Optionee has hereunto set his or her hand, all as of the 17th day of
June, 1997.


                                     LIFE MEDICAL SCIENCES, INC.

                                     BY:________________________________
                                             Title:


                                     OPTIONEE:

                                     PRINT NAME:  Donald W. Fallon

                                     SIGNATURE:_________________________

                                     ADDRESS:___________________________

                                     ___________________________________

                                     SOCIAL SECURITY NUMBER:____________


                               OPTION INFORMATION
                               ------------------

TOTAL NUMBER OF SHARES UNDERLYING OPTION: 7,500

PURCHASE PRICE PER SHARE:  $4.00


                         VESTING & EXPIRATION SCHEDULE
                         -----------------------------


     VESTING DATE     NUMBER OF SHARES     EXPIRATION DATE
     ------------     -----------------    ---------------
     June 17, 1998        7,500            June 17, 2003

                                      -5-
<PAGE>

                                    EXHIBIT 1
                            TO STOCK OPTION AGREEMENT
                            -------------------------


Gentlemen:

     In connection with the exercise by me of an option to purchase shares of
Common Stock, $.001 par value, of Life Medical Sciences, Inc. (the "Company"), I
hereby acknowledge that I have been informed as follows:

     1.  The shares of Common Stock of the Company to be issued to me pursuant
to the exercise of said option (the "Shares") have not been registered under the
Securities Act of 1933, as amended (the "Securities Act") and, accordingly, must
be held indefinitely unless the Shares are subsequently registered under the
Securities Act, or an exemption from such registration is available.

     2.  Routine sales of securities made in reliance upon Rule 144 under the
Securities Act can be made only after the holding period provided by that Rule
has been satisfied, and, in any sale to which that Rule is not applicable,
registration or compliance with some other exemption under the Securities Act
will be required.

     3.  The availability of Rule 144 is dependent upon adequate current public
information with respect to the Company being available and, at the time that I
may desire to make a sale pursuant to the Rule, the Company may neither wish nor
be able to comply with such requirement.

     In consideration of the issuance of certificates for the Shares to me, I
hereby represent and warrant that I am acquiring the Shares for my own account
for investment, and that I will not sell, pledge or transfer the Shares in the
absence of an effective registration statement covering the same, except as
permitted by the provisions of Rule 144, if applicable, or some other applicable
exemption under the Securities Act. In view of this representation and warranty,
I agree that there may be affixed to the certificates for the Shares to be
issued to me, and to all certificates issued hereafter representing the Shares
(until in the opinion of counsel, which opinion must be reasonably satisfactory
in form and substance to counsel for the Company, it is no longer necessary or
required) a legend as follows:

     "The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and were acquired by the
registered holder pursuant to a representation and warranty that such holder was
acquiring the Shares for his own account and for investment, with no intention
of transfer or disposition of the same in violation of the registration
requirements of that Act. These securities may not be sold, pledged, or
transferred in the absence of an effective registration statement under such
Act, or an opinion of counsel, which opinion is reasonably satisfactory to
counsel to the Company, to the effect that registration is not required under
such Act."

     I further agree that the Company may place a stop transfer order with its
transfer agent,

                                      -6-
<PAGE>

prohibiting the transfer of the Shares, so long as the legend remains on the
certificates representing the Shares.

                                     Very truly yours,




Dated: _____________

                                      -7-
<PAGE>

                                    EXHIBIT 2
                            TO STOCK OPTION AGREEMENT
                            -------------------------


Gentlemen:

     The undersigned Optionee hereby elects and agrees that, whenever the
undersigned exercises a stock option (including any options which now or may
hereafter be granted), Life Medical Sciences, Inc. (the "Company") shall
withhold from that exercise such number of Shares equal in value to the federal
and state withholding taxes due upon such exercise. The undersigned further
acknowledges and agrees that this election may not be revoked without six (6)
months' prior written notice to the Company.

                                     OPTIONEE:


                                     ---------------------------------------
                                                  (Signature)


                                     ---------------------------------------
                                                  (Print Name)


                                     ---------------------------------------

                                      -8-