<PAGE>

                                                                   Exhibit 10.85

Portions of this exhibit marked [*] are omitted and are requested to be treated
confidentially.

Execution Copy

                        DEVELOPMENT AND OPTION AGREEMENT


                                     BETWEEN


                        ELAN PHARMA INTERNATIONAL LIMITED


                                       AND


                       INCARA PHARMACEUTICALS CORPORATION


                                       AND


                          AEOLUS PHARMACEUTICALS, INC.

<PAGE>

                                      Index

1  -  DEFINITIONS

2  -  RESEARCH AND DEVELOPMENT ACTIVITY

3  -  STEERING COMMITTEE

4  -  NON-COMPETITION

5  -  PAYMENTS

6  -  COMMERCIALISATION OPTION

7  -  DEVELOPER LICENCE AGREEMENTS

8  -  REPORTS

9  -  WARRANTIES

10 -  INDEMNIFICATION

11 -  INTELLECTUAL PROPERTY

12 -  TERM AND TERMINATION

13 -  CONSEQUENCES OF TERMINATION

14 -  CONFIDENTIAL INFORMATION/ANNOUNCEMENTS

15 -  MISCELLANEOUS

SCHEDULE 1 - DEVELOPER PATENTS
SCHEDULE 2 - [*] HEADS OF AGREEMENT
SCHEDULE 3 - TECHNOLOGICAL COMPETITORS OF ELAN
SCHEDULE 4 - DUKE CONSENT
SCHEDULE 5 - NATIONAL JEWISH CONSENT
SCHEDULE 6 - PHASE I REPORT AND PHASE II REPORT

                      [*] Confidential treatment requested;
         certain information omitted and filed separately with the SEC.

                                        2

<PAGE>

THIS AGREEMENT dated 15th May 2002

between:

(1)      ELAN PHARMA INTERNATIONAL LIMITED, a public limited company
         incorporated under the laws of Ireland, and having its registered
         office at WIL House, Shannon Business Park, Shannon, County Clare,
         Ireland ("EPIL");

(2)      INCARA PHARMACEUTICALS CORPORATION, a Delaware corporation, having its
         office at 79 T.W. Alexander Drive, 4401 Research Commons, Suite 200,
         Research Triangle Park, North Carolina 27709; and

(3)      AEOLUS PHARMACEUTICALS, INC., a Delaware corporation, having its office
         at 79 T.W. Alexander Drive, 4401 Research Commons, Suite 200, Research
         Triangle Park, North Carolina 27709


RECITALS:

A        Incara and Aeolus are beneficially entitled to the use of various
         patents, which have been granted or are pending under the International
         Convention in relation to the development and production of drug
         specific dosage forms for pharmaceutical products and processes.

B        Incara, Aeolus and EPIL wish to cooperate in the research, development
         and commercialisation of a series of catalytic antioxidant compounds
         developed and licensed by Aeolus for a number of indications and routes
         of administration.

C Incara and Aeolus have agreed to grant EPIL the option described in Clause 6.

NOW, IT IS HEREBY AGREED AS FOLLOWS in consideration of the mutual covenants
contained herein:

1        DEFINITIONS

         For the purposes of this Agreement, the following terms shall have the
         respective meanings set forth below:

         "Aeolus" shall mean Aeolus Pharmaceuticals, Inc., a Delaware
         corporation.

         "Affiliate" shall mean a corporation or entity controlling, controlled
         by, or under the common control with EPIL or Incara and Aeolus, as the
         case may be, excluding, in the case of EPIL, an Elan JV. For the
         purposes of this Agreement, "control" shall

                                        3

<PAGE>

         mean the direct or indirect ownership of more than 50% of the issued
         voting shares or other voting rights of the subject entity to elect
         directors, or if not meeting the preceding criteria, any entity owned
         or controlled by or owning or controlling at the maximum control or
         ownership right permitted in the country where such entity exists.

         "Albany" shall mean Albany Molecular Research, Inc.

         "Albany Agreement" shall mean a research and manufacturing agreement
         between Aeolus Pharmaceuticals, Inc. and Albany dated 4 August 1995.

         "cGCP, cGMP, cGLP" shall mean respectively current Good Clinical
         Practice, current Good Manufacturing Practice and current Good
         Laboratory Practice as defined in the Federal Food, Drug and Cosmetic
         Act and the regulations promulgated thereunder, as may be amended from
         time to time, and/or equivalent laws and regulations in other countries
         of the Territory, as applicable.

         "Claims" shall mean all and any claims (whether successful or
         otherwise), loss, liability, damages and expenses, including reasonable
         attorneys' fees and expenses and legal costs.

         "Commencement Date" shall have the meaning assigned thereto in Clause
         2.2.

         "Common Stock" shall have the same meaning as defined in the Securities
         Purchase Agreement.

         "Compounds" shall mean AEOL [*] and AEOL [*] and any additional
         catalytic antioxidant compounds and/or related compounds that are
         described by the Developer Patents.

         "Confidential Information" shall mean know-how, trade secrets,
         inventions (including patent applications covering such inventions),
         data, information, and any improvements, modifications, derivations, or
         compilations thereto that is owned, licensed by or controlled by the
         disclosing party, provided however, that Confidential Information shall
         not include any information which is:

         (i)      already known to the receiving party at the time of
                  disclosure, as evidenced by such party's written records,
                  provided such information was not obtained directly or
                  indirectly by the receiving party from the disclosing party
                  pursuant to a confidentiality agreement;

                      [*] Confidential treatment requested;
                      certain information omitted and filed
                            separately with the SEC.

                                        4

<PAGE>

         (ii)     publicly known prior to or after disclosure, through no
                  default of the receiving party;

         (iii)    disclosed in good faith to the receiving party by a third
                  party, lawfully and contractually entitled to make such
                  disclosure; or

         (iv)     is independently discovered without the aid or application of
                  the Confidential Information as shall be evidenced by the
                  written records of the receiving party.

         "Developer" shall mean Incara and Aeolus and any of their respective
         Affiliates.

         "Developer Intellectual Property" shall mean the Developer Patents,
         Developer Know-How and Developer Improvements.

         "Developer Improvements" shall mean any and all improvements to the
         Developer Patents, Developer Know-How and/or Compounds that have been
         conceived, created, developed and/or otherwise invented solely by, or
         by a third party on behalf of, the Developer in the course of the
         Development Plan.

         In addition Developer Improvements shall include improvements to the
         Developer Patents, the Developer Know-How and/or the Compounds
         conceived, created, developed and/or otherwise invented by Developer
         outside the Development Plan, except as limited by agreements with
         third parties.

         If the inclusion of any Developer Improvement in the EPIL Sub-Licence
         is restricted or limited by a third party agreement, Developer shall
         use reasonable commercial efforts to minimize any such restriction or
         limitation.

         "Developer Know-How" shall mean any and all rights owned, licensed or
         controlled by the Developer to any scientific, pharmaceutical or
         technical information, data, discovery, invention (whether patentable
         or not), know-how, substances, techniques, processes, systems,
         formulations, designs and expertise relating to the Compounds which is
         not generally known to the public.

         "Developer Patents" shall mean any and all rights under any and all
         patent applications and/or patents, now existing, currently pending or
         hereafter filed or obtained or licensed by Developer relating to the
         Compounds examples of which are as set forth in Schedule 1, and any
         foreign counterparts thereof and all divisionals, continuations,
         continuations-in-part, any foreign counterparts thereof and all patents
         issuing on any of the foregoing, and any foreign counterparts thereof,
         together with all registrations, reissues, re-examinations,
         supplemental protection certificates, or extensions thereof, and any
         foreign counterparts thereof.

         "Development Plan" shall have the meaning set out in Clause 2.1

                                        5

<PAGE>

         "Developer Licence Agreements" shall mean the First Duke Agreement, the
         Second Duke Agreement, the Third Duke Agreement, the National Jewish
         Agreement and the Albany Agreement.

         "Duke Consent" shall mean the consent of Duke University to the EPIL
         Sub-Licence and certain other matters pursuant to the First Duke
         Agreement and the Second Duke Agreement and the Third Duke Agreement by
         letter of consent of Duke University dated 14 May 2002, and the
         agreement by Duke University to certain amendments to the First Duke
         Agreement and the Second Duke Agreement by way of amendment agreements
         between Duke University and Aeolus each dated 14 May 2002 copies of
         which are attached at Schedule 4.

          "Effective Date" shall mean the date of this Agreement.

         "Elan JV" shall mean an entity that Elan Corporation, plc and a third
         party (i) establish or have established, (ii) take shareholdings in or
         have a right to take shareholdings in, and (iii) grant certain licenses
         in and to certain intellectual property rights for the purpose of
         implementing a strategic alliance.

         "EPIL Improvements" shall mean any and all rights to any scientific,
         pharmaceutical or technical information, data, discovery, invention
         (whether patentable or not), know-how, substances, techniques,
         processes, systems, formulations, designs and expertise generated by,
         or by a third party on behalf of, EPIL or jointly by EPIL and Developer
         in the course of the Development Plan.

         "EPIL Sub-Licence" shall have the meaning set out in Clause 6.1.

         "EU" shall mean the Member States of the European Union, as same may
         change from time to time in terms of Member States.

         "Field" shall mean prevention and treatment of radiation-induced and
         chemotherapy-induced tissue damage.

         "First Duke Agreement" shall mean a licence agreement between Duke
         University and Aeolus dated 21 July 1995 and any amendments thereto.

         "First Phase I Milestone" shall mean the completion of dosing of
         patients for a Phase I clinical trial for the Milestone Compound in the
         Field. Completion of dosing shall mean that an agreed number of
         patients have completed the dosing schedule as outlined in the
         Development Plan and the Steering Committee has approved in writing the
         completion of such dosing.

         "First Phase II Milestone" shall mean the completion of the enrolment
         of the Phase II clinical trial for the Milestone Compound in the Field.
         Enrolment shall mean that an

                                        6

<PAGE>

         agreed number of patients have been enrolled as outlined in the
         Development Plan and the Steering Committee has approved in writing
         such enrolment.

         "IND" shall mean Investigational New Drug Application as set forth in
         the CFR Section 312 and/or its equivalent in the other countries of the
         Territory.

         "IND Milestone" shall mean the occurrence and/or the achievement of all
         of the following:

         (i)      US FDA acceptance of an IND filing with respect to the
                  Milestone Compound; and,

         (ii)     the approval by EPIL of the Phase I plan prepared by Developer
                  with respect to the Milestone Compound; and

         (iii)    an affirmative decision by the Steering Committee to proceed
                  with initiation of dosing in the first Phase I clinical trial
                  for the Milestone Compound in the Field in accordance with the
                  Development Plan.

         "IND Milestone Purchase" shall mean the purchase by EPIL following the
         occurrence of the IND Milestone of US$[*] of shares of Series B
         Preferred Stock from Incara in accordance with and subject to the terms
         of the Securities Purchase Agreement.

         "In Market" shall mean the sale of the Compounds and/or Products in the
         Territory by the Developer or an Affiliate of the Developer, to an
         unaffiliated third party, such as a wholesaler, distributor, managed
         care organisation, hospital or pharmacy which effects the final
         commercial sale to the end-user consumer of the Compounds and/or
         Products, and shall exclude the transfer pricing of such Compounds
         and/or Products by one Developer Affiliate to another Developer
         Affiliate.

         "Milestone" shall mean any of the IND Milestone, First Phase I
         Milestone, Second Phase I Milestone and Second Phase II Milestone.

         "Milestone Compound" shall mean the first of the Compounds in respect
         of which the US FDA accept an IND filing. The Steering Committee may
         substitute another Compound as the Milestone Compound. Any required
         amendments to the Development Plan to accommodate such substitute
         Milestone Compound must be approved in writing in advance by the
         Steering Committee.

         "National Jewish Agreement" shall mean a licence agreement between
         National Jewish Medical and Research Center and Aeolus dated 17
         November 2000 and any amendment thereto.

                  [*] Confidential treatment requested; certain
             information omitted and filed separately with the SEC.

                                        7

<PAGE>

         "National Jewish Consent" shall mean the consent of National Jewish
         Medical and Research Center to the EPIL Sub-Licence and certain other
         matters pursuant to the National Jewish Agreement by letter of consent
         of National Jewish Medical and Research Center dated 14 May 2002, and
         the agreement by National Jewish Medical and Research Center to certain
         amendments to the National Jewish Agreement by way of amendment
         agreement between National Jewish Medical and Research Center and
         Aeolus dated 14 May 2002, copies of which are attached at Schedule 5.

         "Net Sales" shall mean in the case of Compounds and/or Products sold by
         Developer, the aggregate gross In Market sales proceeds billed for
         Compounds and/or Products by Developer in accordance with generally
         accepted accounting principles, less the following:-

              (i)   customs and excise duties or other sales taxes (but (for the
                    avoidance of doubt) not income or corporation tax), directly
                    related to the sale of Compounds and/or Products in the
                    Territory which are actually paid by Developer;

              (ii)  such normal costs as are incurred by Developer in respect of
                    industry standard transport, shipping and insurance costs;
                    and industry standard or mandatory discounts or rebates
                    directly related to the sale of the Compounds and/or
                    Products in the Territory; and

              (iii) amounts repaid or credited by Developer, or by a permitted
                    sub-licensee, as the case may be, consistent with its normal
                    business practices for similar compounds and/or products, by
                    reason of the rejection or return of goods.

         "Net Revenues" shall mean all income received by the Developer in
         respect of the commercialisation of the Compounds and/or Products,
         including, but not limited to the following:

              (i)   any royalties, license grant fees, sub-licence fees,
                    milestone payments;

              (ii)  any R&D funding payments [*];

              (iii) [*];

                  [*] Confidential treatment requested; certain
             information omitted and filed separately with the SEC.

                                        8

<PAGE>

              (iv)  [*].

         For the avoidance of doubt, "Net Revenues" shall exclude any funding
         provided by EPIL by way of capital contribution, subscription for share
         capital or otherwise.

         "Phase I Report" shall mean a report detailing the results and
         conclusions of the Phase I clinical trials for the Milestone Compound
         in the Field and which report shall be referenced to the Development
         Plan and shall include, but shall not be limited to, those matters set
         out in Schedule 6.

         "Phase II Report" shall mean a report detailing the results and
         conclusions of the Phase II clinical trials for the Milestone Compound
         in the Field and which report shall be referenced to the Development
         Plan and shall include, but shall not be limited to, those matters set
         out in Schedule 6.

         "Preliminary Milestone" shall have the same meaning as that term is
         defined in the Securities Purchase Agreement.

         "Products" shall mean any products that include the Compounds, and any
         formulations thereof.

         "Second Duke Agreement" shall mean a licence agreement between Duke
         University and Aeolus dated 25 June 1998.

         "Second Phase I Milestone" shall mean the occurrence and/or the
         achievement of all of the following:

              (i)   the approval by the Steering Committee of the Phase I
                    Report; and

              (ii)  the approval by EPIL of the Phase II plan prepared by
                    Developer with respect to the Milestone Compound; and

              (iii) the affirmative decision of the Steering Committee to
                    proceed with a Phase II clinical trial for the Milestone
                    Compound in the Field in accordance with the Development
                    Plan.

         "Second Phase I Milestone Purchase" shall mean the purchase by EPIL
         following the occurrence of the Second Phase I Milestone of US$[*] of
         shares of Series B Preferred Stock from Incara in accordance with and
         subject to the terms of the Securities Purchase Agreement.

                      [*] Confidential treatment requested;
                      certain information omitted and filed
                            separately with the SEC.

                                        9

<PAGE>

         "Second Phase II Milestone" shall mean the occurrence and/or the
         achievement of the following:

         (i)  completion of a Phase II clinical trial for the Milestone Compound
              in the Field; and

         (ii) the approval by the Steering Committee of the Phase II Report.

         "Second Phase II Milestone Purchase" shall mean the purchase by EPIL
         following the occurrence of the Second Phase II Milestone of US$[*] of
         shares of Series B Preferred Stock from Incara in accordance with and
         subject to the terms of the Securities Purchase Agreement.

         "Securities Purchase Agreement" shall mean the Securities Purchase
         Agreement dated the date of this Agreement between EPIL, Incara and
         Aeolus.

         "Series B Preferred Stock" shall have the same meaning as that term is
         defined in the Securities Purchase Agreement.

         "Technological Competitor of EPIL" shall mean any of those entities
         listed on Schedule 3 attached hereto.

         "Third Duke Agreement" shall mean a licence agreement between Duke
         University and Aeolus dated 7 May 2002.

         "Third Party Sub-Licensee" shall mean any sub-licensee appointed by the
         Developer (other than EPIL) to import, make, use, offer for sale, and
         sell the Compounds and/or Products in the Territory in the Field.

         "Territory" shall mean all countries of the world.

         "US FDA" shall mean the United States Food and Drug Administration or
         any other successor agency whose approval is necessary to market the
         Compounds and/or Product in the USA.

         "US$" shall mean U.S. dollars.

                      [*] Confidential treatment requested;
                      certain information omitted and filed
                            separately with the SEC.

                                       10

<PAGE>

2        RESEARCH AND DEVELOPMENT ACTIVITY

2.1      Within 60 days of the Effective Date, the Steering Committee (as
         defined in Clause 3.1) shall approve a development plan that shall
         contain, among other things, to the extent practicable, the research
         and development objectives, compound specifications, plans for
         preparation of IND filing, clinical indications, preliminary clinical
         trial designs (Phase I and Phase II), development timelines and
         budgeted costs with regard to the development of the Compounds in the
         Field in the Territory (the "Development Plan") and the relative
         responsibilities of Developer and EPIL as it relates to the
         implementation of the Development Plan.

         Each of Developer and EPIL shall use commercially reasonable efforts to
         carry out their respective tasks under the Development Plan within the
         timeframe contained therein.

         Developer shall perform the Development Plan in accordance with cGMP
         and cGLP.

2.2      The Steering Committee, shall agree in writing on a commencement date
         for the Developer's activities under the Development Plan
         ("Commencement Date"), which date shall not be later than July 30,
         2002.

2.3      Developer shall promptly notify the Steering Committee and EPIL of any
         deviations from the Development Plan or delays in the performance of
         the Development Plan.

2.4      Within 5 business days of the Effective Date, the Developer shall
         designate one research employee as technical liaison to handle
         technical matters and communications relating to the Development Plan.
         Such research employee may be substituted by another research employee
         at any time upon written agreement of the Steering Committee.

2.5      The Development Plan to be conducted by Developer shall be completed
         when the Second Phase II Milestone has been achieved.

2.6      During the term of this Agreement:

         2.6.1    each party shall co-operate with the other in good faith
                  particularly with respect to unforeseen events or
                  contingencies; and

         2.6.2    save where the Developer has appointed a sub-contractor in
                  accordance with Clause 15.4, the Developer shall furnish,
                  maintain and preserve suitable and sufficient laboratory
                  facilities, equipment and personnel for the work to be done by
                  it; and

         2.6.3    the Developer shall perform its obligations in good faith
                  hereunder in a commercially reasonable, diligent and
                  workmanlike manner.

                                       11

<PAGE>

2.7      Any amendments to the Development Plan shall require the prior written
         approval of the Steering Committee.

2.8      The Steering Committee shall review the Development Plan following the
         occurrence of each Milestone and make any amendments as the Steering
         Committee deems necessary.

3        STEERING COMMITTEE AND PROJECT MANAGEMENT

3.1      Within 30 days of the Effective Date, the parties will establish a
         steering committee ("Steering Committee"), which shall consist of
         personnel from each party who are appropriately skilled and
         knowledgeable in relation to the Development Plan and who are deemed
         necessary to accomplish and oversee the work of the Development Plan.

         The Steering Committee shall have an equal number of members from each
         of the parties and the total size of the Steering Committee shall not
         exceed 6 people .

3.2      Unless otherwise agreed by the parties:

         3.2.1    the Steering Committee shall meet at least once every two
                  months, such meetings to continue throughout the Term (as
                  defined in Clause 12.1), at such location as the parties may
                  agree or by telephone conference;

         3.2.2    at any such meeting, the presence of two EPIL members and two
                  Developer members shall be required to constitute a quorum
                  and, the unanimous vote of those members present at a meeting
                  at which such a quorum is present shall constitute an action
                  or approval of the Steering Committee;

         3.2.3    meetings shall be chaired alternately by representatives of
                  the parties;

         3.2.4    each party shall be responsible for its own costs in respect
                  of travel and accommodation expenses in attending meetings of
                  the Steering Committee;

         3.2.5    at and between meetings of the Steering Committee, each party
                  shall keep the other fully and regularly informed as to its
                  progress with its respective tasks and obligations under the
                  Development Plan.

         3.2.6    if the Steering Committee is unable to agree on a matter
                  connected with the Development Plan it shall be referred to
                  the CEO of the Developer and a senior executive of EPIL and
                  thereafter, in the event of continued deadlock, the dispute
                  shall be referred to an expert in pharmaceutical product
                  development and marketing (including clinical development and
                  regulatory affairs) jointly selected by the designated senior
                  officers of each of EPIL and the Developer, provided that the
                  decision of such expert will ultimately be non-binding on the
                  parties.

                                       12

<PAGE>

3.3      Developer must submit to all members of the Steering Committee the
         Phase I Report and the Phase II Report as soon as each report becomes
         available. Without prejudice to EPIL's entitlement through its
         representatives on the Steering Committee to approve or not approve the
         Phase I Report or the Phase II Report, an EPIL representative on the
         Steering Committee shall use reasonable efforts to notify the Steering
         Committee within [*] of receipt of such reports if EPIL believe
         any issues or deficiencies arise in relation to such reports.

3.4      The Steering Committee shall, by unanimous agreement, be responsible
         for determining Developer's strategy as regards the conduct of any
         clinical trials with respect to the development of the Compounds and/or
         Products in the Field. Any agreement between Developer and any
         independent third party relating to the conduct of any clinical trial
         in support of the development of the Compounds and/or Products in the
         Field shall require the prior approval of the Steering Committee, which
         approval shall not be unreasonably withheld or delayed.

3.5      Developer shall keep the Steering Committee promptly and fully advised
         of Developer's regulatory activities, progress and procedures.
         Developer shall inform Steering Committee of any dealings it shall have
         with a regulatory authority, and shall furnish EPIL with copies of all
         correspondence relating to the Compounds and/or Products.

         Developer shall provide Steering Committee with reasonable prior notice
         of all meetings between the Developer and any regulatory authority
         relating to the Compounds and/or the Products in the Field and an EPIL
         representative on the Steering Committee shall be entitled to attend
         any such meeting. The Developer shall make available to the Steering
         Committee the minutes of any such meetings.

3.6      The Steering Committee shall be responsible for ensuring that the
         Developer's regulatory activities in relation to the Compounds and/or
         Products in the Field comply in full with the Development Plan and the
         Steering Committee will inform Developer of any proposals it may have
         to ensure full compliance therewith. Developer shall use best efforts
         to comply with and implement any such proposals from the Steering
         Committee.

                      [*] Confidential treatment requested;
                      certain information omitted and filed
                            separately with the SEC.

                                       13

<PAGE>

4        NON-COMPETITION

4.1      During the Option Period (as defined in Clause 6.1) Developer shall not
         research, develop, market or otherwise commercialise the Compounds in
         the Field in the Territory other than in accordance with this
         Agreement.

4.2      Nothing in this Agreement shall prevent the Developer, either alone or
         in association with a co-development partner or sub-licensee, from
         licensing, developing or commercialising any of the Compounds or
         derivatives thereof or Products outside the Field.

         However, in the event of such development or commercialisation,
         Developer shall to the extent that the Developer is not legally
         prohibited from doing so inform EPIL of any information discovered and
         of the progress of such development or commercialisation programmes
         which may have an impact on, or be capable of assisting in, the
         development of the Compounds in the Field.

         Prior to providing any such information to EPIL, Developer shall notify
         EPIL so that it may consult with its patent attorneys prior to any such
         receipt of information to consider any issues that may arise.

5        PAYMENTS

5.1      EPIL shall make purchases of shares of Series B Preferred Stock from
         Incara in accordance with and subject to the terms set out in the
         Securities Purchase Agreement.

5.2      Any income or other taxes on any monies payable to Developer which EPIL
         is required by law to pay or withhold on behalf of Developer, shall be
         deducted by EPIL from such monies due. EPIL shall furnish Developer
         with proof of such payments. Any such tax required to be paid or
         withheld shall be an expense of and borne solely by Developer. EPIL
         shall promptly provide Developer with a certificate or other
         documentary evidence to enable Developer to support a claim for a
         refund or a foreign tax credit with respect to any such tax so withheld
         or deducted by EPIL. At Developer's request, EPIL reasonably cooperate
         to support any claim by Developer for such a refund or credit.

                                       14

<PAGE>

6.       COMMERCIALIZATION OPTION

6.1      From the Effective Date until [*] after the occurrence of the Second
         Phase II Milestone Purchase (the "Option Period"), Developer shall
         grant EPIL an exclusive option (the "Licence Option") to conclude an
         exclusive, sub-licensable sub-licence and supply agreement whereby
         Developer would grant EPIL a sub-licence to the Developer Patents, the
         Developer Know-How and the Developer Improvements to import, make, use,
         offer for sale, and sell the Compounds and/or Products in the Territory
         in the Field on terms to be agreed in good faith on the basis of the
         [*] heads of agreement set out in Schedule 2 (the "EPIL Sub-Licence").

6.2      If EPIL does not exercise the Licence Option, EPIL shall be entitled to
         elect to negotiate in good faith exclusively with the Developer during
         the Option Period an alternate form of collaboration or
         commercialisation agreement such as, but not limited to, a co-promotion
         or co-marketing arrangement for the further development of the
         Compounds in the Field in the Territory.

6.3      For the avoidance of doubt, during the Option Period, Developer will
         not negotiate in any form, directly or indirectly, with any other
         corporation, entity or person in relation to the subject matter of
         Clause 6.1 and Clause 6.2, nor provide any information relating thereto
         to third parties, save with the prior consent in writing of EPIL.

6.4      If, despite good faith negotiations, EPIL and Developer do not reach
         agreement within the Option Period, then Developer shall be free, for a
         period of [*], thereafter to enter into negotiations with a third party
         (other than a Technological Competitor of EPIL) to agree terms upon
         which the third party would commercialise the Compounds in the Field in
         the Territory, provided that such terms when taken as a whole, are not
         more favourable to the third party than the principal terms of the last
         written proposal offered by Developer to EPIL or by EPIL to Developer,
         as the case may be.

         Prior to entering into any such agreement with the third party,
         Developer shall promptly notify EPIL in writing of the principal terms
         of such proposed agreement and shall certify that the third party with
         whom Developer intends to contract is not a Technological Competitor of
         EPIL.

6.5      If Developer has not entered into an agreement with a third party for
         the Compounds within the Field within the [*] period described
         above the Licence Option shall be deemed to have re-commenced upon the
         same terms as set forth herein, after which, if EPIL and Developer have
         not reached an agreement within such recommenced Option Period, the
         Developer shall again have the rights set forth in Clause 6.4.

                      [*] Confidential treatment requested;
                      certain information omitted and filed
                            separately with the SEC.

                                       15

<PAGE>

7.       REPORTS

7.1      Developer shall issue the following full and complete reports to the
         satisfaction of EPIL:

         7.1.1    the Phase I plan;

         7.1.2    report on the completion of dosing of patients for a Phase I
                  clinical trial of the Milestone Compound in the Field;

         7.1.3    the Phase I Report;

         7.1.4    the Phase II plan;

         7.1.5    report on the completion of enrolment of a Phase II clinical
                  trial of the Milestone Compound in the Field;

         7.1.6    report on the completion of dosing of a Phase II clinical
                  trial of the Milestone Compound in the Field;

         7.1.7    the Phase II Report;

         7.1.8    An annual report detailing progress related to all the
                  Compounds in the Field


8        DEVELOPER LICENCE AGREEMENTS

8.1      Developer shall be responsible for payments related to the financial
         provisions and obligations of the Developer Licence Agreements and of
         any third party agreement with respect to the Developer Intellectual
         Property to which it is a party on the Effective Date (including
         amendments thereto) (the "Developer Effective Date Agreements"),
         including without limitation, any royalty or other compensation
         obligations triggered thereunder on the Effective Date, or triggered
         thereunder after the Effective Date.

         For the avoidance of doubt, royalties, milestones or other payments
         which arise from the process of the commercialisation or exploitation
         of Compounds or products that include the Compounds under the Developer
         Effective Date Agreements (for example, a milestone payment payable
         upon successful completion of Phase I or II clinical trials shall be
         payments for which Developer will be responsible under this Clause 8.1.

8.2      If, after the Effective Date, Developer:

         8.2.1    licenses or otherwise acquires from a third party know-how or
                  patent rights relating to the Developer Intellectual Property
                  in the Field in the Territory; or

                                       16

<PAGE>

         8.2.2    acquires or merges with a third party entity that has know-how
                  or patent rights relating to the Developer Intellectual
                  Property in the Field in the Territory;

         ("After Acquired Technology")

         then Developer shall offer to license the After Acquired Technology to
         EPIL (subject to existing contractual obligations) solely to import,
         make, use, offer for sale and sell the Compounds and/or Products in the
         Field in the Territory.

         EPIL shall notify Developer in writing as to whether EPIL wishes to
         license the After Acquired Technology within [*] after the date upon
         which an offer is made by Developer to EPIL hereunder.

         If notice in writing has not been received by Developer from EPIL
         within such [*] period, EPIL shall be deemed to have rejected
         Developer's offer hereunder.

         If EPIL notifies Developer hereunder that it wishes to license the
         After Acquired Technology, the parties shall negotiate the terms of the
         license agreement in good faith on commercially reasonable terms.

         If EPIL does not accept Developer's offer hereunder, Developer agrees
         that it shall not use the After Acquired Technology to research,
         develop, market or otherwise commercialise the Compounds and/or the
         Products in the Field in the Territory.

8.3      During the Term, Developer shall not in any way amend, modify, or waive
         any of its rights under the Developer Licence Agreements, without the
         prior written approval of the Steering Committee.

         For the avoidance of doubt, Developer shall not terminate any of its
         rights under the Developer Licence Agreements without the prior written
         approval of the Steering Committee.

8.4      Developer shall indemnify and hold harmless EPIL against all costs,
         claims and liabilities in respect of any claims or proceedings which
         may be taken by Duke University or National Jewish Medical and Research
         Center or Albany and/or by a third party beneficiary under the
         Developer Licence Agreements against EPIL which arise from the
         performance or non-performance by Developer of any of its obligations
         under the Developer Licence Agreements.

8.5      Developer hereby confirms to EPIL as follows:

                  [*] Confidential treatment requested; certain
             information omitted and filed separately with the SEC.

                                       17

<PAGE>

         8.5.1    EPIL will not require the consent of Developer, Duke
                  University or National Jewish Medical and Research Center or
                  Albany or any other third party in order to assign the EPIL
                  Sub-Licence or to grant a sub-license to any third party under
                  the EPIL Sub-Licence. EPIL will inform the relevant parties 30
                  days in advance of any such proposed assignment, licence or
                  sub-licence.

         8.5.2    In the event of the termination of the Developer Licence
                  Agreements after the exercise by EPIL of the Licence Option,
                  the EPIL Sub-License, and any assignment, license or
                  sub-license granted by EPIL to any third party as described in
                  Clause 8.5.1 shall continue in accordance with the provisions
                  of the Developer Licence Agreements.

         8.5.3    In the event of termination of the Developer Licence
                  Agreements following the grant by Developer of an exclusive,
                  fully paid up (except as provided in Clause 13.1.1)
                  sub-licensable sub-licence to EPIL pursuant to Clause 13.1.1,
                  such sub-licence shall continue in accordance with the terms
                  of the Developer Licence Agreements.

8.6      Without prejudice to the generality of Clause 9, Developer hereby
         further confirms to EPIL as follows:

         8.6.1    Developer has obtained the consent of Duke University to the
                  replacement throughout the First Duke Agreement and the Second
                  Duke Agreement of the term "best efforts" with the term
                  "commercially reasonable efforts" as set out in the Duke
                  Consent.

         8.6.2    Developer has obtained the consent of National Jewish Medical
                  and Research Center to the replacement throughout the National
                  Jewish Agreement of the term "best efforts" with the term
                  "commercially reasonable efforts" as set out in the National
                  Jewish Consent.

         8.6.3    Developer has obtained the consent of Duke University and
                  National Jewish Medical and Research Center to amend Article
                  6.01 of each of the First Duke Agreement, Second Duke
                  Agreement, Third Duke Agreement and National Jewish Agreement
                  and Article 6.02 of each of the First Duke Agreement, Second
                  Duke Agreement and National Jewish Agreement, as set out in
                  the Duke Consent and the National Jewish Consent.

9        WARRANTIES

9.1      Developer (jointly and severally) represents and warrants to EPIL as of
         the Effective Date, as follows:

         9.1.1    Developer has the right to enter into this Agreement;

                                       18

<PAGE>

         9.1.2    Developer has the right to grant the EPIL Sub-Licence and has
                  obtained the Duke Consent and any other consents required
                  including the consent of National Jewish Medical Center and
                  Albany to the extent necessary to enter into this Development
                  and Option Agreement and perform all its obligations set forth
                  herein;

         9.1.3    there are no agreements between Developer and any third party
                  that conflict with this Agreement or with the Developer's
                  right to grant the EPIL Sub-Licence, or that conflict with any
                  rights granted by Developer to EPIL hereunder or any
                  obligations undertaken by Developer to EPIL hereunder;

         9.1.4    for the avoidance of doubt, the National Jewish Agreement does
                  not contain any provisions that conflict with the Developer's
                  right to grant the EPIL Sub-Licence;

         9.1.5    there are no proceedings threatened or pending against
                  Developer in connection with the Developer Intellectual
                  Property in relation to the Field and that to the best of
                  Developer's knowledge, Developer Patents are valid and
                  enforceable or are likely to issue and be valid and
                  enforceable or are likely to issue with regard to claims
                  necessary for performance under this Agreement and such claims
                  are likely to be valid and enforceable and be of sufficient
                  scope to warrant investment in the development of the
                  Compounds and/or Products in the Field as prescription
                  pharmaceuticals;

         9.1.6    to the best of Developer's knowledge, there is no patent or
                  patent application of others which contains claims that
                  dominate the Developer Patents.

9.2      Developer further agrees and represents and warrants to EPIL as
         follows:

         9.2.1    as of the Effective Date, the Developer Licence Agreements are
                  valid and in full force and effect;

         9.2.2    as of the Effective Date, there are no existing or claimed
                  defaults by Developer, and to Developer's best knowledge by
                  Duke University or the National Jewish Medical and Research
                  Center or Albany, under the Developer Licence Agreements and
                  no event, act or omission has occurred which (with or without
                  notice, lapse of time or the happening or occurrence of any
                  other event) would result in a default under the Developer
                  Licence Agreements by Developer, or to Developer's best
                  knowledge by Duke University or the National Jewish Medical
                  and Research Center or Albany;

         9.2.3    during the Term, Developer will fully comply with all of the
                  terms and conditions of the Developer Licence Agreements.
                  Developer, will enforce its rights under the Developer Licence
                  Agreements and Developer will not assign its rights under the
                  Developer Licence Agreements; and

                                       19

<PAGE>

         9.2.4    during the Term, Developer will keep EPIL fully informed with
                  respect to Developer's transactions, arrangements and business
                  under the Developer Licence Agreements that relate to EPIL
                  and/or the transactions contemplated hereunder, and Developer
                  shall provide EPIL with any written notices delivered by
                  Developer and/or Duke University or National Jewish Medical
                  and Research Center or Albany thereunder that relate to EPIL
                  and/or the transactions contemplated hereunder, or that may
                  affect EPIL, including any proposals by Duke University or
                  National Jewish Medical and Research Center to make any
                  publications under the Developer Licence Agreements.

10       INDEMNIFICATION

10.1     In addition to any other indemnities provided for in this Agreement,
         Developer shall indemnify and hold harmless EPIL and its Affiliates and
         their respective employees, agents, officers and directors from and
         against any Claims incurred or sustained by EPIL arising out of or in
         connection with any:

         10.1.1   breach of any representation, covenant, warranty or obligation
                  by Developer hereunder; or

         10.1.2   negligent or wilful act or omission or failure to comply with
                  applicable laws and regulations on the part of Developer or
                  any of its respective employees, agents, officers and
                  directors in the performance of this Agreement.

10.2     Developer shall further indemnify and hold harmless EPIL and its
         Affiliates and their respective employees, agents, officers and
         directors against all Claims made or brought against such a person to
         which the other party may become liable:

         10.2.1   seeking damages for personal injury (including death) and/or
                  for costs of medical treatment, caused or attributed to the
                  Compounds;

         10.2.2   based upon an allegation that the manufacture, importation,
                  use, offer for sale, sale or other commercialisation of the
                  Compounds or Products infringe or misappropriate any third
                  party's intellectual property rights; or

         10.2.3   caused by the use of the Compounds in humans in clinical
                  trials or otherwise.

10.3     In addition to any other indemnities provided for herein, EPIL shall
         indemnify and hold harmless Developer and its Affiliates and their
         respective employees, agents, officers and directors from and against
         any Claims incurred or sustained by Developer arising out of or in
         connection with any:

         10.3.1   breach of any representation, covenant, warranty or obligation
                  by EPIL hereunder; or

                                       20

<PAGE>

     10.3.2 negligent or wilful act or omission on the part of EPIL or any of
            its agents or employees in the performance of this Agreement;

     in each case save to the relative extent that such Claim is attributable to
     Developer's negligence or wilful misconduct.

10.4 The party seeking an indemnity shall:

     10.4.1 fully and promptly notify the other party of any claim or
            proceedings, or threatened claim or proceedings;

     10.4.2 permit the indemnifying party to take full control of such claim or
            proceedings, with counsel of the indemnifying party's choice,
            provided that the indemnifying party shall reasonably and regularly
            consult with the indemnified party in relation to the progress and
            status of such claim or proceedings;

     10.4.3 co-operate in the investigation and defence of such claim or
            proceedings; and

     10.4.4 take all reasonable steps to mitigate any loss or liability in
            respect of any such claim or proceedings.

     Save as aforesaid, neither the indemnifying party nor the party to be
     indemnified shall acknowledge the validity of, compromise or otherwise
     settle any Claim without the prior written consent of the other, which
     shall not be unreasonably withheld.

10.5 NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, ELAN AND
     DEVELOPER SHALL NOT BE LIABLE TO THE OTHER BY REASON OF ANY REPRESENTATION
     OR WARRANTY, CONDITION OR OTHER TERM OR ANY DUTY OF COMMON LAW, OR UNDER
     THE EXPRESS TERMS OF THIS AGREEMENT, FOR ANY CONSEQUENTIAL, SPECIAL OR
     INCIDENTAL OR PUNITIVE LOSS OR DAMAGE (WHETHER FOR LOSS OF CURRENT OR
     FUTURE PROFITS, LOSS OF ENTERPRISE VALUE OR OTHERWISE) AND WHETHER
     OCCASIONED BY THE NEGLIGENCE OF THE RESPECTIVE PARTIES, THEIR EMPLOYEES OR
     AGENTS OR OTHERWISE.

10.6 Developer shall maintain product liability insurance in relation to the
     Compounds, Products and this Agreement of at least US$[*] for the
     duration of this Agreement and for a period of [*] thereafter. Prior to
     commencing any clinical trials in relation to the Compounds and/or Products
     in the Field, Developer shall

                  [*] Confidential treatment requested; certain
             information omitted and filed separately with the SEC.

                                       21

<PAGE>

     increase its product liability insurance (and any other insurances
     necessary in relation to clinical trials) in relation to the Compounds,
     Products and this Agreement and any clinical trials conducted by the
     Developer pursuant to this Agreement to US$[*] for the remaining term of
     this Agreement and for a period of [*] thereafter.

     Developer shall provide EPIL with a certificate from the insurance company
     verifying the above and shall notify the other party in writing at least 30
     days prior to the expiration or termination of such coverage.

11   INTELLECTUAL PROPERTY

11.1 Developer shall remain the owner of the Developer Patents, the Developer
     Know-How and the Developer Improvements.

11.2 EPIL shall be the owner of any EPIL Improvements.

11.3 Each of the parties shall promptly notify the other party in writing of any
     claim or proceedings made against either of them alleging infringement or
     other unauthorised use of the proprietary rights of a third party arising
     from the manufacture, importation, use, offer for sale, sale or other
     commercialisation of the Compounds in the Territory.

11.4 The parties acknowledge the provisions of Clause 10.4.2.

11.5 Developer shall:

     11.5.1 secure the grant of any patent applications within the Developer
            Patents in major markets as agreed to by the Steering Committee but
            which shall not be less than the US, EU, Canada, Mexico, and Japan;

     11.5.2 file and prosecute patent applications on patentable inventions and
            discoveries relating to the same in such countries;

     11.5.3 defend all such applications against third party oppositions in such
            countries; and

     11.5.4 maintain in force any issued letters patent that relate to the same
            in such countries.

                  [*] Confidential treatment requested; certain
             information omitted and filed separately with the SEC.

                                       22

<PAGE>

11.6 Developer shall discuss the filing, defending, and prosecuting strategy for
     any proposed patents and patent application(s) with EPIL and shall
     co-ordinate the filing, defending, and prosecuting of such patent
     application(s) between the two parties in order to protect the intellectual
     property rights of both parties.

11.7 After the exercise of the Licence Option, in the event that Developer
     declines to file, prosecute or maintain an application or patent, EPIL
     shall upon thirty days written notice to the Developer have the right to
     file, prosecute, or maintain such application or patent at its own expense
     at which time such application or patent shall be assigned to EPIL.

     Provided that the ownership rights of any party other than the Developer in
     respect of the subject matter of any such patent application shall not be
     assigned to EPIL but shall remain with the owner on record as of the
     Effective Date where contractual or other legally binding restrictions
     prohibit Developer from assigning such ownership rights to EPIL.

12   TERM AND TERMINATION

12.1 This Agreement shall come into force on the Effective Date and, subject to
     Clause 15.10, shall remain in effect until the expiry of the Option Period
     (the "Term"), unless EPIL has earlier terminated the agreement in
     accordance with Clause 12.2 below.

12.2 EPIL shall be entitled to terminate this Agreement at any time by serving
     [*] written notice on the Developer.

12.3 In addition to the rights of termination provided for elsewhere in this
     Agreement, either party shall be entitled forthwith to terminate this
     Agreement by written notice to the other party if:

     12.3.1 that other party commits any material breach of any of the
            provisions of this Agreement or of the Securities Purchase
            Agreement, and in the case of a breach capable of remedy, fails to
            cure the same within 60 days after receipt of a written notice
            giving full particulars of the breach and requiring it to be cured;
            or

     12.3.2 that other party goes into liquidation (except for the purposes of
            amalgamation or reconstruction and in such manner that the company
            resulting therefrom effectively agrees to be bound by or assume the
            obligations imposed on that other party under this Agreement); or

                  [*] Confidential treatment requested; certain
             information omitted and filed separately with the SEC.

                                       23

<PAGE>

     12.3.3 an encumbrancer takes possession or a receiver is appointed over any
            of the property or assets of that other party ; or

     12.3.4 any proceedings are filed or commenced by that other party under
            bankruptcy, insolvency or debtor relief laws or anything analogous
            to any of the foregoing under the laws of any jurisdiction occurs in
            relation to that other party.

     For the purposes of Clause 12.3.1, a breach will be considered capable of
     being cured if the party in breach can comply with the provision in
     question in all respects other than as to the time of performance (provided
     that time of performance is not of the essence).

13   CONSEQUENCES OF TERMINATION

13.1 If EPIL terminates this Agreement pursuant to Clause 12.3 the following
     shall occur:

     13.1.1 upon EPIL's election, the Developer shall grant to EPIL an
            exclusive, fully paid up (except as provided below), sub-licensable
            sub-licence to the Developer Patents, the Developer Know-How and the
            Developer Improvements to import, make, use, offer for sale, and
            sell the Compounds and/or Products in the Territory in the Field;

            [*] shall be liable to Duke University and National Jewish Medical
            and Research Center and Albany for any and all royalty and milestone
            obligations under the Developer Licence Agreements which may become
            due to such parties [*], the Developer shall be liable for all
            accrued obligations under the Developer Licence Agreements [*] shall
            remit any such royalties to Duke University and National Jewish
            Medical and Research Center and Albany as the case may be;

     13.1.2 in addition to the grant of the sub-licence under clause 13.1.1, if
            the Developer has appointed a Third Party Sub-Licensee outside the
            Field the following shall occur:

            13.1.2.1  if EPIL terminates prior to making the IND Milestone
                      Purchase, Developer shall be obliged to pay to EPIL [*]%
                      of Net Revenues outside the Field;

                  [*] Confidential treatment requested; certain
             information omitted and filed separately with the SEC.

                                       24

<PAGE>

            13.1.2.2  if EPIL terminates after making the IND Milestone Purchase
                      but prior to making the Second Phase I Milestone Purchase,
                      Developer shall be obliged to pay to EPIL [*]% of Net
                      Revenues outside the Field;

            13.1.2.3  if EPIL terminates after making the Second Phase I
                      Milestone Purchase but prior to making the Second Phase II
                      Milestone Purchase, Developer shall be obliged to pay to
                      EPIL [*]% of Net Revenues outside the Field.

     13.1.3 in addition to the grant of the sub-licence under clause 13.1.1, if
            the Developer has not appointed a Third Party Sub-Licensee outside
            the Field the following shall occur:

            13.1.3.1  if EPIL terminates prior to making the IND Milestone
                      Purchase, Developer shall be obliged to pay to EPIL [*]%
                      of Net Sales outside the Field;

            13.1.3.2  if EPIL terminates after making the IND Milestone Purchase
                      but prior to making the Second Phase I Milestone Purchase,
                      Developer shall be obliged to pay to EPIL [*]% of Net
                      Sales outside the Field;

            13.1.3.3  if EPIL terminates after making the Second Phase I
                      Milestone Purchase but prior to making the Second Phase II
                      Milestone Purchase, Developer shall be obliged to pay to
                      EPIL [*]% of Net Sales outside the Field.

13.2 If EPIL terminates this Agreement pursuant to Clause 12.2 and the Developer
     has appointed a Third Party Sub-Licensee, the following shall occur:

     13.2.1 if EPIL terminates prior to making the IND Milestone Purchase,
            Developer shall be obliged to pay to EPIL [*]% of Net Revenues
            inside the Field;

     13.2.2 if EPIL terminates after making the IND Milestone Purchase but prior
            to making the Second Phase I Milestone Purchase, Developer shall be
            obliged to pay to EPIL [*]% of Net Revenues inside the Field;

     13.2.3 if EPIL terminates after making the Second Phase I Milestone
            Purchase but prior to making the Second Phase II Milestone Purchase,
            Developer shall be obliged to pay to EPIL [*]% of Net Revenues
            inside the Field.

                  [*] Confidential treatment requested; certain
             information omitted and filed separately with the SEC.

                                       25

<PAGE>

13.3 If EPIL terminates this Agreement pursuant to Clause 12.2 and the Developer
     has not appointed a Third Party Sub-Licensee, the following shall occur:

          13.3.1  if EPIL terminates prior to making the IND Milestone Purchase,
                  Developer shall be obliged to pay to EPIL [*]% of Net Sales
                  inside the Field;

          13.3.2  if EPIL terminates after making the IND Milestone Purchase but
                  prior to making the Second Phase I Milestone Purchase,
                  Developer shall be obliged to pay to EPIL [*]% of Net Sales
                  inside the Field;

          13.3.3  if EPIL terminates after making the Second Phase I Milestone
                  Purchase but prior to making the Second Phase II Milestone
                  Purchase, Developer shall be obliged to pay to EPIL [*]% of
                  Net Sales inside the Field.

13.4 If Developer terminates this Agreement pursuant to Clause 12.3, the Licence
     Option shall terminate.

14   CONFIDENTIAL INFORMATION/ANNOUNCEMENTS

14.1 Upon execution of this Agreement, and thereafter during the term hereof, at
     such times as the parties shall mutually agree, each party may disclose to
     the others, in confidence Confidential Information necessary or useful to
     the activities contemplated by this Agreement.

     Except as specifically authorised or permitted by this Agreement, each
     party shall, for the term of this Agreement and for [*] after its
     expiration or termination keep confidential and not disclose to others
     (except its Affiliates), and use only as permitted hereunder, all of the
     Confidential Information owned by the other parties.

14.2 Save as otherwise specifically provided herein, each party shall disclose
     Confidential Information of the other parties only to those employees,
     representatives and agents requiring knowledge thereof in connection with
     fulfilling the party's obligations under this Agreement. Each party further
     agrees to (i) inform all such employees, representatives and agents of the
     terms and provisions of this Agreement relating to Confidential Information
     and their duties hereunder, and (ii) obtain their agreement hereto as a
     condition of receiving Confidential Information, provided that such
     agreement shall be deemed given in respect of such employees,
     representatives and agents that, at the time of disclosure, are under
     existing obligations of confidentiality no less onerous than those
     contained herein covering such disclosure. Each party shall exercise the
     same standard of care as it would itself exercise in relation to its own
     confidential information (but in no event less than a reasonable standard
     of care) to protect and preserve the proprietary and confidential nature of
     the Confidential Information disclosed to it by the other parties.

                      [*] Confidential treatment requested;
         certain information omitted and filed separately with the SEC.

                                       26

<PAGE>

14.3 Notwithstanding the provisions of this Clause 14, Confidential Information
     may be:

     14.3.1 published if and to the extent such publication has been approved in
            writing by each of the parties; or

     14.3.2 disclosed to the extent required by applicable laws or regulations
            or as ordered by a court or other regulatory body having competent
            jurisdiction, provided that if a party becomes legally required to
            disclose any Confidential Information of the other party hereunder,
            the receiving party shall give the disclosing party prompt notice of
            such requirement to enable the disclosing party to seek a protective
            order or other appropriate remedy concerning any such disclosure.
            The receiving party shall fully co-operate with the disclosing party
            in connection with the disclosing party's efforts to obtain any such
            order or other remedy. If any such order or other remedy does not
            fully preclude disclosure, the receiving party shall make such
            disclosure only to the extent that such disclosure is legally
            required.

14.4 The parties agree that the obligations of this Clause 14 are necessary and
     reasonable in order to protect the parties' respective businesses, and each
     party agrees that monetary damages would be inadequate to compensate a
     party for any breach by the other party of its covenants and agreements set
     forth herein.

     The parties agree that any such violation or threatened violation shall
     cause irreparable injury to a party and that, in addition to any other
     remedies that may be available, in law and equity or otherwise, each party
     shall be entitled to seek injunctive relief against the threatened breach
     of the provisions of this Clause 14, or a continuation of any such breach
     by the other party, specific performance and other equitable relief to
     redress such breach together with damages and reasonable counsel fees and
     expenses to enforce its rights hereunder.

14.5 Subject to Clause 14.2 and Clause 14.3.2, neither party shall have the
     right to disclose to third parties the existence of this Agreement or any
     of the terms and conditions hereof without the prior written consent of the
     other party. In the event that either party wishes to make an announcement
     concerning the Agreement, that party will seek the consent of the other
     party, which consent shall not be unreasonably withheld or delayed. The
     terms of any such announcement shall be agreed in good faith.

15   MISCELLANEOUS

15.1 This Agreement shall be governed by and construed in accordance with the
     laws of the State of New York and the parties submit to the non-exclusive
     jurisdiction of the Federal and State courts located in New York.

                                       27

<PAGE>

15.2 No waiver of any right under this Agreement shall be deemed effective
     unless contained in a written document signed by the party charged with
     such waiver, and no waiver of any breach or failure to perform shall be
     deemed to be a waiver of any future breach or failure to perform or of any
     other right arising under this Agreement.

15.3 Neither party to this Agreement shall be liable for delay or failure in the
     performance of any of its obligations hereunder to the extent such delay or
     failure results from causes beyond its reasonable control, including,
     without limitation, acts of God, fires, strikes, acts of war, or
     intervention of a government authority, non-availability of raw materials,
     but any such delay or failure shall be remedied by such party as soon as
     practicable.

15.4 This Agreement and, except as otherwise provided for in this Agreement, the
     rights and obligations hereunder, shall not be assigned by any party
     without the prior written consent of the other parties save that:

     15.4.1 any party may assign this Agreement in whole or in part and delegate
            its duties hereunder to its Affiliate or Affiliates without such
            consent provided that such assignment or delegation has no material
            adverse tax implications for the other parties; and

     15.4.2 in the event of a proposed assignment of this Agreement by any party
            to a third party, such consent shall not be unreasonably withheld or
            delayed provided that, without prejudice to the generality of the
            foregoing, the parties acknowledge that it will not be unreasonable
            for EPIL to withhold consent hereunder in the event of a proposed
            assignment of this Agreement by Developer to a Technological
            Competitor of EPIL.

            Any permitted assignee shall assume all obligations of its assignor
            under this Agreement.

            [*]

                      [*] Confidential treatment requested;
         certain information omitted and filed separately with the SEC.

                                       28

<PAGE>

15.5 Nothing contained in this Agreement is intended or is to be construed to
     constitute Developer and EPIL as partners or members of a joint venture or
     any party as an employee of the other. None of the parties hereto shall
     have any express or implied right or authority to assume or create any
     obligations on behalf of or in the name of the other parties or to bind the
     other parties to any contract, agreement or undertaking with any third
     party.

15.6 No amendment, modification or addition hereto shall be effective or binding
     on any party unless set forth in writing and executed by a duly authorised
     representative of each of the parties.

15.7 Any notice to be given under this Agreement shall be sent in writing in
     English by overnight courier, registered airmail or telecopied to:

     EPIL at:

     Elan Pharma International Limited
     C/o Elan International Services Ltd.
     102 St James Court
     Flatts
     Smiths FL04
     Bermuda

     Attention:    Secretary
     Telefax :     +1 441 292 2224

     Incara at:

     Incara Pharmaceuticals Corporation,
     P.O. Box 14287
     79 T.W. Alexander Drive
     4401 Research Commons, Suite 200
     Research Triangle Park, North Carolina 27709

     Attention: Chief Executive Officer
     Telephone:    (919) 558 8688
     Telefax:      (919) 544 1245

     Aoelus at:

     Aeolus Pharmaceuticals Inc
     P.O. Box 14287
     79 T.W. Alexander Drive,

                                       29

<PAGE>

      4401 Research Commons, Suite 200
      Research Triangle Park, North Carolina 27709

      Attention: Chief Executive Officer
      Telephone:     (919) 588-8688
      Telefax:       (919) 544 1245

      or to such other address(es) and telecopier numbers as may from time to
      time be notified by any of the parties to the others hereunder.

      Any notice sent by overnight courier, registered mail or telecopier shall
      be deemed to have been delivered upon receipt by the addressee.

15.8  If any provision in this Agreement is agreed by the parties to be, or is
      deemed to be, or becomes invalid, illegal, void or unenforceable under any
      law that is applicable hereto:-

      15.8.1 such provision will be deemed amended to conform to applicable laws
             so as to be valid and enforceable or, if it cannot be so amended
             without materially altering the intention of the parties, it will
             be deleted, with effect from the date of such agreement or such
             earlier date as the parties may agree; and

      15.8.2 the validity, legality and enforceability of the remaining
             provisions of this Agreement shall not be impaired or affected in
             any way.

15.9  This Agreement sets forth all of the agreements and understandings between
      the parties with respect to the subject matter hereof, and supersedes and
      terminates all prior agreements and understandings between the parties
      with respect to the subject matter hereof. There are no agreements or
      understandings with respect to the subject matter hereof, either oral or
      written, between the parties other than as set forth in this Agreement.

15.10 The provisions of Clauses 1, 8.1, 8.3, 9, 10, 11, 13, 14, and 15 shall
      survive the termination for any reason of this Agreement.

15.11 At the request of any of the party, the other parties shall (and shall use
      reasonable efforts to procure that any other necessary third parties
      shall) execute and do all such documents, acts and things as may
      reasonably be required subsequent to the signing of this Agreement for
      assuring to or vesting in the requesting party the full benefit of the
      terms hereof.

                                       30

<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Agreement.


SIGNED
for and on behalf of
Elan Pharma International Limited

Date


SIGNED
For and on behalf of
Incara Pharmaceuticals Corporation

Date


SIGNED
For and on behalf of
Aeolus Pharmaceuticals, Inc.

Date

                                       31

<PAGE>

                                   Schedule 1

                                Developer Patents

               1) [*]

               Serial Nos.:  U.S. application [*]
                             PCT application [*]

               Docket Numbers:  U.S. #[*]
                                PCT #[*]
                                From Nixon & Vanderhye P.C.
                                Arlington, VA

               INVENTORS:

               [*]
               [*]
               [*]
               [*]

               2) [*]

               Serial Nos.:  U.S. Application #: [*]
                             International application #: [*]

               Foreign equivalents in [*]

               Docket Numbers:  U.S. #:[*]
                             International #s: [*]
                             From Nixon & Vanderhye P.C.
                             Arlington, VA

               INVENTORS:

               [*]
               [*]
               [*]
               [*]

                      [*] Confidential treatment requested;
         certain information omitted and filed separately with the SEC.

                                       32

<PAGE>

               [*]
               [*]
               [*]

               3) [*]

               Serial Nos.:   U.S. application [*]
                              PCT application [*]

               Docket Numbers:    U.S. #[*]
                                  PCT #[*]
                                  From Nixon & Vanderhye P.C.
                                  Arlington, VA

               INVENTORS:

               [*]
               [*]
               [*]
               [*]
               [*]

                      [*] Confidential treatment requested;
         certain information omitted and filed separately with the SEC.

                                       33

<PAGE>

                                   Schedule 2

                 [*] Heads of Agreement for the EPIL Sub-Licence

1. Right granted                     [*]

2. Territory                         [*]

3. Development Work                  [*]

4. Licence Fees                      [*]

5. Royalties                         [*]

                                     [*]

6. Intellectual Property             [*]

                      [*] Confidential treatment requested;
         certain information omitted and filed separately with the SEC.

                                       34

<PAGE>

                                     [*]

7. Term and termination              [*]

                                     (i)  [*]

                                     (ii) [*]

                                     [*]

                                     [*]

                                     [*]

8. Consequences of Termination       [*]

9. Applicable law                    The Agreement will be subject to [*]
                                     law.

                      [*] Confidential treatment requested;
         certain information omitted and filed separately with the SEC.

                                       35

<PAGE>

10. Warranties                       [*]

11. Marketing and Promotion          [*]

12. Regulatory Matters               [*]

   [*] Confidential treatment requested; certain information omitted and filed
                            separately with the SEC.

                                       36

<PAGE>

                                   Schedule 3

                        Technological Competitors of EPIL

[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]
[*]

   [*] Confidential treatment requested; certain information omitted and filed
                            separately with the SEC.

                                       37

<PAGE>

                                   Schedule 4

                                  Duke Consent

                                       38

<PAGE>

May __, 2002

Robert Taber
Office of Science & Technology
Duke University
PO Box 90083
2020 West Main Street, Suite 10
Durham, NC 27705

Dear Mr. Taber:

As you know, we are in the final stages of negotiating a Development and Option
Agreement among Elan Corporation, plc (including its affiliates) ("Elan"),
Incara Pharmaceuticals Corporation and Aeolus Pharmaceuticals, Inc. ("Aeolus")
(the "Elan Agreement") to develop and eventually commercialize in the Field (as
defined in the Elan Agreement) the catalytic antioxidant technology licensed by
Aeolus from Duke University ("Duke").

Under the Agreement, Elan has an option to obtain a sublicensable sublicense
(the "Option Sublicense") of certain of Aeolus' rights under the License
Agreements dated July 21, 1995, June 25, 1998 and May __, 2002 between Duke and
Aeolus (the "License Agreements"), and may be granted such a sublicense under
certain other circumstances described in the Elan Agreement (the "Default
Sublicense" together with the Option Sublicense are collectively the "Elan
Sublicense").

We hereby request: (i) [*] Your timely consent and agreement by designation
below is greatly appreciated.

Sincerely,


Clayton I. Duncan
President and CEO
Aeolus Pharmaceuticals, Inc.

                      [*] Confidential treatment requested;
                      certain information omitted and filed
                            separately with the SEC.

                                       39

<PAGE>

Acknowledged and Agreed:

Duke University

By:_________________________

Name:_______________________

Title:______________________

Date:_______________________

                                       40

<PAGE>

                                   Schedule 5

                             National Jewish Consent

                                       41

<PAGE>

May __, 2002

Mr. Verne Singleton
Chief Operating Officer
National Jewish Medical and Research Center
1400 Jackson Street
Denver, CO 80206

Dear Mr. Singleton:

As you know, we are in the final stages of negotiating a Development and Option
Agreement among Elan Corporation, plc (including its affiliates) ("Elan"),
Incara Pharmaceuticals Corporation and Aeolus Pharmaceuticals, Inc. ("Aeolus")
(the "Elan Agreement") to develop and eventually commercialize in the Field (as
defined in the Elan Agreement) the catalytic antioxidant technology licensed
from National Jewish Medical and Research Center ("National Jewish").

Under the Agreement, Elan has an option to obtain a sublicense (the "Option
Sublicense") of certain of Aeolus' rights under the License Agreement dated
November 17, 2000 between National Jewish and Aeolus (the "License Agreement"),
and may be granted such a sublicense under certain other circumstances described
in the Elan Agreement (the "Default Sublicense" together with the Option
Sublicense, the "Elan Sublicense").

Specifically, but without prejudice to the generality of the rights to be
granted by Aeolus to Elan under the Elan Agreement, we hereby request [*] Your
timely consent and agreement by designation below is greatly appreciated.

Sincerely,



Clayton I. Duncan
President and CEO
Aeolus Pharmaceuticals, Inc.

                      [*] Confidential treatment requested;
                      certain information omitted and filed
                            separately with the SEC.

                                       42

<PAGE>

Acknowledged and Agreed:

National Jewish Medical and Research Center

By:____________________________

Name:__________________________

Title:_________________________

Date:__________________________

                                       43

<PAGE>

                                   Schedule 6

                       Phase I Report and Phase II Report

The information to be included in each of the Phase I Report and the Phase II
Report will be set out in the Development Plan.

Phase I Report

At a minimum, the Phase I Report should contain the following information
relating to the Phase I clinical trial:

  1) [*]

  2) [*]

  3) [*]

  4) [*]

  5) [*]

Phase II Report

At a minimum the Phase II Report should contain the following information
relating to the Phase II clinical trial:

  1) [*]

   [*] Confidential treatment requested; certain information omitted and filed
                            separately with the SEC.

                                       44

<PAGE>

  2) [*]

  3) [*]

  4) [*]

  5) [*]

   [*] Confidential treatment requested; certain information omitted and filed
                            separately with the SEC.

                                       45