<PAGE>   1



                                   EXHIBIT 4.2

                       SECOND LOAN MODIFICATION AGREEMENT


        This Second Loan Modification Agreement ("this Agreement") is made as of
June 30, 1998 between GelTex Pharmaceuticals, Inc., a Delaware corporation (the
"Borrower") and Fleet National Bank (the "Bank"). For good and valuable
consideration, receipt and sufficiency of which are hereby acknowledged, the
Borrower and the Bank act and agree as follows:

        1.     Reference is made to: (i) that certain letter agreement dated May
21, 1997 between the Borrower and the Bank, as amended by Loan Modification
Agreement dated October 31, 1997 (as so amended, the "Letter Agreement"); (ii)
that certain $5,000,000 face principal amount promissory note dated May 21,
1997, as amended by said Loan Modification Agreement (as so amended, the
"Original Facility One Term Note") made by the Borrower and payable to the order
of the Bank; (iii) that certain Security Agreement (Equipment) dated May 21,
1997, as amended by said Loan Modification Agreement (as so amended, the
"Security Agreement") given by the Borrower to the Bank; (iv) that certain
$3,000,000 face principal amount promissory note dated October 31, 1997 (the
"Facility Two Term Note") made by the Borrower and payable to the order of the
Bank; and (v) that certain $5,000,000 face principal amount Amended and Restated
Facility One Term Note (the "Restated Facility One Term Note") dated as of May
21, 1997 made by the Borrower and payable to the order of the Bank. The Letter
Agreement, the Security Agreement, the Restated Facility One Term Note and the
Facility Two Term Note are hereinafter collectively referred to as the
"Financing Documents". The aforesaid Loan Modification Agreement dated October
31, 1997 is hereinafter referred to as the "First Modification".

        2.     The Letter Agreement is hereby amended, effective as of the date
hereof:

        a.     By deleting in its entirety clause (i) of Section 1.1 of the
Letter Agreement and by substituting in its stead the following:

               "(i) that certain Amended and Restated Facility One Term Note
               dated as of May 21, 1997 (the `Facility One Term Note') made by
               the Borrower and payable to the order of the Bank,"

        As a result, all references in the Letter Agreement (as amended by the
First Modification) to a "Facility One Term Note" will be deemed to refer to the
Restated Facility One Term Note.

        b.     By deleting in their entireties the first, second and third
sentences of Section 1.3 of the Letter Agreement and by substituting in their
stead the following:

               "The Borrower shall repay the aggregate amount of principal of
               the Facility One Term Loans in the following installments: (i) 5
               equal consecutive monthly payments of $103,958.40 each, payable
               on the last day of each month during the period January - May
               1998; followed by (ii) 17 equal 






<PAGE>   2

               consecutive quarterly payments of $248,345.06 each, payable on
               the last day of each calendar quarter commencing June 30, 1998
               and continuing through and including June 30, 2002; followed by
               (iii) an 18th and final quarterly payment due on September 30,
               2002 in an amount equal to the then outstanding aggregate
               principal balance of the Facility One Term Loans and all interest
               accrued but unpaid thereon to the date of payment."

        c.     By adding to Section 1.4 of the Letter Agreement, at the end
thereof, the following:

               "The Bank and the Borrower may, in the future, agree to fix the
               interest rate on all or any portion of the then outstanding
               aggregate principal amount of the Facility One Term Loans for the
               period of time commencing at the date of such rate-fix and
               continuing through the maturity date of the Facility One Term
               Loans. Such rate-fix would be accomplished by the Borrower
               entering into a swap contract with the Bank. The fixed rate for
               this purpose would be determined by the Bank, in its sole
               discretion, at the time of entering into the swap contract and
               the documentation would be the Bank's then customary
               documentation for swap transactions. Such documentation will
               include, among other matters, make-whole provisions effective in
               the event that (due to prepayment of all or any portion of the
               Facility One Term Loans or for any other reason) the swap
               transaction described therein is terminated as to any notional
               amount prior to its scheduled expiry date. In the event that the
               Borrower enters into such a swap contract, the Borrower will
               irrevocably elect that as long as the rate-fix is in effect the
               Facility One Term Loans will be treated (subject to ss.1.9 below
               and the other provisions of this letter agreement) as a series of
               LIBOR Loans, the Interest Period for the first of which will
               commence on the date of such rate-fix with a subsequent Interest
               Period to commence immediately following the completion of each
               successive Interest Period."

        d.     By deleting from the penultimate sentence of Section 1.5 of the
Letter Agreement the words "two (2%) percent" and by substituting in their stead
the following:

               "four (4%) percent"

        e.     By adding to Section 1.5C of the Letter Agreement (as inserted by
the First Modification), at the end thereof, the following:

               "The Bank and the Borrower may, in the future, agree to fix the
               interest rate on all or any portion of the then outstanding
               aggregate principal amount of the Facility Two Term Loans for the
               period of time commencing at the date of such rate-fix and
               continuing through the maturity date of the Facility Two Term
               Loans. Such rate-fix would be accomplished by the Borrower
               entering into a swap contract with the Bank. The fixed rate for
               this purpose would be determined by the Bank, in its sole
               discretion, at the time of 



                                      -2-


<PAGE>   3

               entering into the swap contract and the documentation would be
               the Bank's then customary documentation for swap transactions.
               Such documentation will include, among other matters, make-whole
               provisions effective in the event that (due to prepayment of all
               or any portion of the Facility Two Term Loans or for any other
               reason) the swap transaction described therein is terminated as
               to any notional amount prior to its scheduled expiry date. In the
               event that the Borrower enters into such a swap contract, the
               Borrower will irrevocably elect that as long as the rate-fix is
               in effect the Facility Two Term Loans will be treated (subject to
               ss.1.9 below and the other provisions of this letter agreement)
               as a series of LIBOR Loans, the Interest Period for the first of
               which will commence on the date of such rate-fix with a
               subsequent Interest Period to commence immediately following the
               completion of each successive Interest Period."

        f.     By deleting in its entirety Section 1.7 of the Letter Agreement
and by substituting in its stead the following:

               "1.7. PREPAYMENT OF FIXED RATE LOANS. The following provisions of
               this ss.1.7 shall be effective only with respect to Fixed Rate
               Loans: As to any Fixed Rate Loan, the Borrower shall have the
               right (subject to the payment of the yield maintenance fee
               described below) to prepay such Fixed Rate Loan at any time in
               whole or in part; provided that any partial prepayment of any
               Fixed Rate Loan shall be in the amount of $500,000 or an integral
               multiple thereof. If, due to acceleration of any Term Note or due
               to voluntary or mandatory repayment or prepayment or due to any
               other reason, the Bank receives payment of any principal of a
               LIBOR Loan on any date prior to the last day of the relevant
               Interest Period or receives payment of all or any portion of any
               installment of the COF Loan prior to the regularly scheduled due
               date for such installment, or if for any reason a Fixed Rate Loan
               is converted to a Floating Rate Loan (except, as to a LIBOR Loan,
               at the end of the relevant Interest Period), the Borrower shall,
               upon demand and receipt of a Bank Certificate from the Bank with
               respect thereto, pay forthwith to the Bank a yield maintenance
               fee in an amount computed as follows: The current rate for United
               States Treasury securities (bills on a discounted basis shall be
               converted to a bond equivalent) with a maturity date closest to
               the last day of the Interest Period applicable to the affected
               LIBOR Loan (or the regularly scheduled due date of any
               installment of the COF Loan) shall be subtracted from the `cost
               of funds' component (being, for LIBOR Loans, reserve-adjusted
               LIBOR) of the fixed rate in effect at the date of prepayment. If
               the result is zero or a negative number, there shall be no yield
               maintenance fee. If the result is a positive number, then the
               resulting percentage shall be multiplied by the amount of the
               principal balance being prepaid. The resulting amount shall be
               divided by 360 and multiplied by the number of days remaining in
               the relevant Interest Period (or, in the case of prepayment of an
               installment of the COF


                                      -3-


<PAGE>   4

               Loan, days remaining until the regularly scheduled due date
               thereof). Said amount shall be reduced to present value
               calculated by using the number of days remaining in the relevant
               Interest Period (or, in the case of prepayment of an installment
               of the COF Loan, days remaining until the regularly scheduled due
               date thereof) and by using the above-referenced United States
               Treasury security rate as the discount rate. The resulting amount
               shall be the yield maintenance fee due to the Bank upon
               prepayment or conversion of the applicable Fixed Rate Loan. Any
               acceleration of a Fixed Rate Loan due to an Event of Default will
               give rise to a yield maintenance fee calculated with the respect
               to such Fixed Rate Loan on the date of such acceleration in the
               same manner as though the Borrower had exercised a right of
               prepayment at that date, such yield maintenance fee being due and
               payable at that date."

        g.     By deleting from the third sentence of the grammatical third
paragraph of Section 1.10 of the Letter Agreement the words "at its office at 75
State Street, Boston, MA 02109" and by substituting in its stead the following:

               "in lawful currency of the United States, at its offices at One
               Federal Street, Boston, MA 02110"

        h.     By changing the notice address of the Bank, pursuant to Section
6.4 of the Letter Agreement, to the following:

               "Fleet National Bank
               High Technology Division
               Mail Stop:  MA OF DO7A
               One Federal Street
               Boston, MA  02110
               Attention: Kimberly A. Martone, Vice President"

        i.     By inserting into Section 6.5 of the Letter Agreement,
immediately after the third sentence of such Section, the following:

               "Without limitation of the foregoing generality,

               (i) The Bank may at any time pledge all or any portion of its
               rights under the Loan Documents (including any portion of any
               Term Note) to any of the 12 Federal Reserve Banks organized under
               Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No
               such pledge or the enforcement thereof shall release the Bank
               from its obligations under any of the Loan Documents.

               (ii) The Bank shall have the unrestricted right at any time and
               from time to time, and without the consent of or notice to the
               Borrower, to grant to one or more banks or other financial
               institutions (each, a `Participant') 


                                      -4-


<PAGE>   5

               participating interests in the Bank's obligation to lend
               hereunder and/or any or all of the Term Loans held by the Bank
               hereunder. In the event of any such grant by the Bank of a
               participating interest to a Participant, whether or not upon
               notice to the Borrower, the Bank shall remain responsible for the
               performance of its obligations hereunder and the Borrower shall
               continue to deal solely and directly with the Bank in connection
               with the Bank's rights and obligations hereunder. The Bank may
               furnish any information concerning the Borrower in its possession
               from time to time to prospective assignees and Participants;
               provided that the Bank shall require any such prospective
               assignee or Participant to agree in writing to maintain the
               confidentiality of such information to the same extent as the
               Bank would be required to maintain such confidentiality."

        j.     By inserting into Article VI of the Letter Agreement, at the end
of such Article, the following:

               "6.9. REPLACEMENT NOTE. Upon receipt of an affidavit of an
               officer of the Bank as to the loss, theft, destruction or
               mutilation of any Term Note or of any other Loan Document which
               is not of public record and, in the case of any such mutilation,
               upon surrender and cancellation of such Term Note or other Loan
               Document, the Borrower will issue, in lieu thereof, a replacement
               Term Note or other Loan Document in the same principal amount (as
               to a Term Note) and in any event of like tenor.

               6.10. USURY. All agreements between the Borrower and the Bank are
               hereby expressly limited so that in no contingency or event
               whatsoever, whether by reason of acceleration of maturity of any
               Term Note or otherwise, shall the amount paid or agreed to be
               paid to the Bank for the use or the forbearance of the
               Indebtedness represented by any Term Note exceed the maximum
               permissible under applicable law. In this regard, it is expressly
               agreed that it is the intent of the Borrower and the Bank, in the
               execution, delivery and acceptance of the Term Notes, to contract
               in strict compliance with the laws of The Commonwealth of
               Massachusetts. If, under any circumstances whatsoever,
               performance or fulfillment of any provision of any Term Note or
               any of the other Loan Documents at the time such provision is to
               be performed or fulfilled shall involve exceeding the limit of
               validity prescribed by applicable law, then the obligation so to
               be performed or fulfilled shall be reduced automatically to the
               limit of such validity, and if under any circumstances whatsoever
               the Bank should ever receive as interest an amount which would
               exceed the highest lawful rate, such amount which would be
               excessive interest shall be applied to the reduction of the
               principal balance evidenced by the Term Notes and not to the
               payment of interest. The provisions of this ss.6.10 shall control
               every other provision of this letter agreement and of each Term
               Note.




                                      -5-


<PAGE>   6
'
               6.11. WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK HEREBY
               KNOWINGLY, VOLUNTARILY AND INTENTIONALLY MUTUALLY WAIVE THE RIGHT
               TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED HEREON, ARISING
               OUT OF, UNDER OR IN CONNECTION WITH THIS LETTER AGREEMENT, ANY
               TERM NOTE OR ANY OTHER LOAN DOCUMENTS OR OUT OF ANY COURSE OF
               CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN)
               OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL
               INDUCEMENT FOR THE BANK TO ENTER INTO THIS LETTER AGREEMENT AND
               TO MAKE TERM LOANS AS CONTEMPLATED HEREIN."

        k.     By deleting the number "1.75" from the definition of "Eurodollar
Interest Rate" appearing in Section 7.1 of the Letter Agreement and by
substituting in its stead the following:

               "1.55"

As a result, the formula for calculating the Eurodollar Interest Rate will be:

               EIR = LIBOR    
                     --------- + 1.55
                     [1.00-RR]

        l.     By deleting in its entirety the definition of "LIBOR" appearing
in Section 7.1 and by substituting in its stead the following:

               "`LIBOR' - With respect to each Interest Period for a LIBOR Loan,
               that rate per annum (rounded upward, if necessary, to the nearest
               1/32nd of one percent) which represents the offered rate for
               deposits in U.S. Dollars, for a period of time comparable to such
               Interest Period, which appears on the Telerate page 3750 as of
               11:00 a.m. (London time) on that day that is two (2) London
               Banking Days preceding the first day of such Interest Period;
               provided, however, that if the rate described above does not
               appear on the Telerate System on any applicable interest
               determination date, LIBOR for such Interest Period shall be the
               rate (rounded upwards as described above, if necessary) for
               deposits in dollars for a period substantially equal to such
               Interest Period shown on the Reuters Page `LIBO' (or such other
               page as may replace the LIBO Page on that service for the purpose
               of displaying such rates), as of 11:00 a.m. (London Time), on
               that day that is two (2) London Banking Days prior to the
               beginning of such Interest Period. `London Banking Day' shall
               mean any date on which commercial banks are open for business in
               London. If both the Telerate and Reuters systems are unavailable,
               then LIBOR for any Interest Period will be determined on the
               basis of the offered rates for deposits in U.S. Dollars for a
               period of time comparable to such Interest Period which are
               offered by four major banks in the London interbank market at
               approximately 11:00 a.m., London time, on that day that is two
               (2) London Banking Days preceding the first day of such 



                                      -6-


<PAGE>   7

               Interest Period, as selected by the Bank. The principal London
               office of each of four major London banks will be requested to
               provide a quotation of its U.S. Dollar deposit offered rate. If
               at least two such quotations are provided, the rate for that date
               will be the arithmetic mean of the quotations. If fewer than two
               quotations are provided as requested, the rate for that date will
               be determined on the basis of the rates quoted for loans in U.S.
               Dollars to leading European banks for a period of time comparable
               to such Interest Period offered by major banks in New York City
               at approximately 11:00 a.m., New York City time, on that day that
               is two London Banking Days preceding the first day of such
               Interest Period. In the event that the Bank is unable to obtain
               any such quotation as provided above, it will be deemed that
               LIBOR for the proposed Interest Period cannot be determined. The
               Bank shall give prompt notice to the Borrower of LIBOR as
               determined for each LIBOR Loan and such notice shall be
               conclusive and binding, absent manifest error."

        m.     By deleting in its entirety the definition "Prime Rate" appearing
in Section 7.1 of the Letter Agreement and by substituting in its stead the
following:

               "`Prime Rate' - That variable rate of interest per annum
               designated by the Bank from time to time as its prime rate, it
               being understood that such rate is merely a reference rate and
               does not necessarily represent the lowest or best rate being
               charged to any customer."

        3.     Wherever in any Financing Document, or in any certificate or
opinion to be delivered in connection therewith, reference is made to a "letter
agreement" or to the "Letter Agreement", from and after the date hereof same
will be deemed to refer to the Letter Agreement, as hereby amended.

        4.     Simultaneously with the execution and delivery of this Agreement,
the Borrower is executing and delivering to the Bank the Restated Facility One
Term Note in substitution for the Original Facility One Term Note. The Restated
Facility One Term Note is a $5,000,000 promissory note of the Borrower,
substantially in the form attached hereto as Exhibit 1. Wherever in any of the
Financing Documents, or in any certificate or opinion to be delivered in
connection therewith, reference is made to the "Facility One Term Note", from
and after the date hereof same will be deemed to refer to the Restated Facility
One Term Note. The Borrower acknowledges and agrees that any Facility One Term
Loans (as defined in the Letter Agreement) heretofore made under the Letter
Agreement (any such Facility One Term Loans having been heretofore evidenced by
the Original Facility One Term Note), as well as all Facility One Term Loans
made on or after the date hereof, are and will be deemed to be evidenced by the
Restated Facility One Term Note.

        5.     In order to induce the Bank to enter into this Agreement, the
Borrower agrees to pay, on demand, all costs and expenses (including, without
limitation, reasonable fees and expenses of the Bank's attorneys) incurred by
the Bank in connection with this Agreement and/or the transactions contemplated
hereby.



                                      -7-



<PAGE>   8

        6.     In order to induce the Bank to enter into this Agreement, the
Borrower further represents and warrants as follows:

        a.     The execution, delivery and performance of this Agreement and the
Restated Facility One Term Note have been duly authorized by the Borrower by all
necessary corporate and other action, will not require the consent of any third
party and will not conflict with, violate the provisions of, or cause a default
or constitute an event which, with the passage of time or the giving of notice
or both, could cause a default on the part of the Borrower under its charter
documents or by-laws or under any contract, agreement, law, rule, order,
ordinance, franchise, instrument or other document, or result in the imposition
of any lien or encumbrance (except in favor of the Bank) on any property or
assets of the Borrower.

        b.     The Borrower has duly executed and delivered each of this
Agreement and the Restated Facility One Term Note.

        c.     Each of this Agreement and the Restated Facility One Term Note is
the legal, valid and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its respective terms.

        d.     The statements, representations and warranties made in the Letter
Agreement and/or in the Security Agreement continue to be correct as of the date
hereof; except as amended, updated and/or supplemented by the attached
Supplemental Disclosure Schedule.

        e.     The covenants and agreements of the Borrower contained in the
Letter Agreement and/or in the Security Agreement have been complied with on and
as of the date hereof.

        f.     No event which constitutes or which, with notice or lapse of
time, or both, could constitute, an Event of Default (as defined in the Letter
Agreement) has occurred and is continuing.

        g.     No material adverse change has occurred in the financial
condition of the Borrower (other than continuing losses from operations as
heretofore disclosed to the Bank) from that disclosed in the financial
statements of the Borrower dated December 31, 1997, heretofore furnished to the
Bank.

        7.     Except as expressly affected hereby, the Letter Agreement and
each of the other Financing Documents remains in full force and effect as
heretofore.

        8.     Nothing contained herein will be deemed to constitute a waiver or
a release of any provision of any of the Financing Documents. Nothing contained
herein will in any event be deemed to constitute an agreement to give a waiver
or release or to agree to any amendment or modification of any provision of any
of the Financing Documents on any other or future occasion.



                                      -8-



<PAGE>   9

        Executed, as an instrument under seal, as of the day and year first
above written.

                                    GELTEX PHARMACEUTICALS, INC.


                                    By: /s/ Paul J. Mellett, Jr.
                                        --------------------------------------
                                        Name: Paul J. Mellett, Jr.
                                        Title: Vice President, Administration
                                        and Finance

Accepted and agreed:
FLEET NATIONAL BANK


By: /s/ Kimberly Martone
    -----------------------------
    Name: Kimberly Martone
    Title: Vice President













                                      -9-

<PAGE>   10


                                    EXHIBIT 1

                   AMENDED AND RESTATED FACILITY ONE TERM NOTE


$5,000,000.00                                              Boston, Massachusetts
                                                              As of May 21, 1997

        FOR VALUE RECEIVED, the undersigned GelTex Pharmaceuticals, Inc., a
Delaware corporation (the "Borrower") hereby promises to pay to the order of
FLEET NATIONAL BANK (the "Bank") the principal amount of Five Million and 00/100
($5,000,000.00) Dollars or such portion thereof as may be advanced by the Bank
pursuant to ss.1.2 of that certain letter agreement dated May 21, 1997 between
the Bank and the Borrower, as amended (as so amended, the "Letter Agreement")
and remains outstanding from time to time hereunder ("Principal"), with
interest, at the rate hereinafter set forth, on the daily balance of all unpaid
Principal, from the date hereof until payment in full of all Principal and
interest hereunder.

        Interest on all unpaid Principal shall be due and payable monthly in
arrears, on the first day of each month, commencing on the first such date after
the advance of any Principal and continuing on the first day of each month
thereafter and on the date of payment of this note in full, at a fluctuating
rate per annum (computed on the basis of a year of three hundred sixty (360)
days for the actual number of days elapsed) which shall at all times be equal to
the Prime Rate, as in effect from time to time (but in no event in excess of the
maximum rate permitted by then applicable law), with a change in the aforesaid
rate of interest to become effective on the same day on which any change in the
Prime Rate is effective; provided, however, that (A) if a Eurodollar Interest
Rate (as defined in the Letter Agreement) shall have become applicable to all or
any portion of the outstanding Principal for any Interest Period (as defined in
the Letter Agreement), then interest on such Principal or portion thereof shall
accrue at said applicable Eurodollar Interest Rate for such Interest Period and
shall be payable on the Interest Payment Date (as defined in the Letter
Agreement) applicable to such Interest Period, and (B) if a COF Interest Rate
(as defined in the Letter Agreement) shall have become applicable to the
outstanding Principal, then interest on the outstanding Principal shall accrue
at said COF Interest Rate and shall be paid on the first day of each month.
Overdue Principal and, to the extent permitted by law, overdue interest shall
bear interest at a fluctuating rate per annum which at all times shall be equal
to the sum of (i) four (4%) percent per annum plus (ii) the per annum rate
otherwise payable under this note with respect to the Principal which is overdue
(or as to which such interest is overdue) (but in no event in excess of the
maximum rate permitted by then applicable law), compounded monthly and payable
on demand. As used herein, "Prime Rate" means the variable rate of interest per
annum designated by the Bank from time to time as its prime rate, it being
understood that such rate is merely a reference rate and does not necessarily
represent the lowest or best rate being charged to any customer. If the entire
amount of any required Principal and/or interest is not paid within ten (10)
days after the same is due, the Borrower shall pay to the Bank a late fee equal
to five percent (5%) of the required payment, provided that such late fee shall
be reduced to three percent (3%) of any required Principal and interest that is
not paid within fifteen (15) days of the date it is due if this note is secured
by a mortgage on an owner-occupied residence of 1-4 units.



                                      -10-


<PAGE>   11

        The outstanding Principal of this note shall be repaid by the Borrower
to the Bank in the following installments: (i) 5 equal consecutive monthly
payments of $103,958.40 each, payable on the last day of each month during the
period January - May 1998; followed by (ii) 17 equal consecutive quarterly
payments of $248,345.06 each, payable on the last day of each calendar quarter
commencing June 30, 1998 and continuing through and including June 30, 2002;
followed by (iii) an 18th and final quarterly payment due on September 30, 2002
in an amount equal to all then remaining Principal and all interest accrued but
unpaid thereon.

        The Borrower may at any time and from time to time prepay all or any
portion of any Facility One Term Loan (as defined in the Letter Agreement), but,
as to Fixed Rate Loans (as defined in the Letter Agreement), only at the times
and in the manner, and (under certain circumstances) with the additional
payments, provided for in the Letter Agreement. Any prepayment of Principal, in
whole or in part, will be without premium or penalty (but, in the case of Fixed
Rate Loans, may require payment of additional amounts, as provided for in the
Letter Agreement). Each Principal prepayment shall be accompanied by payment of
all interest on the prepaid amount accrued but unpaid to the date of payment.
Any partial prepayment of Principal will be applied against Principal
installments in inverse order of normal maturity.

        Payments of both Principal and interest shall be made, in lawful money
of the United States in immediately available funds, at the office of the Bank
located at One Federal Street, Boston, Massachusetts 02110, or at such other
address as the Bank may from time to time designate.

        The undersigned Borrower irrevocably authorizes the Bank to make or
cause to be made, on a schedule attached to this note or on the books of the
Bank, at or following the time of making any Facility One Term Loan and of
receiving any payment of Principal, an appropriate notation reflecting such
transaction (including date, amount and maturity) and the then aggregate unpaid
balance of Principal. Failure of the Bank to make any such notation shall not,
however, affect any obligation of the Borrower hereunder or under the Letter
Agreement. The unpaid Principal amount of this note, as recorded by the Bank
from time to time on such schedule or on such books, shall constitute
presumptive evidence of the aggregate unpaid principal amount of the Facility
One Term Loans.

        The Borrower hereby (a) waives notice of and consents to any and all
advances, settlements, compromises, favors and indulgences (including, without
limitation, any extension or postponement of the time for payment), any and all
receipts, substitutions, additions, exchanges and releases of collateral, and
any and all additions, substitutions and releases of any person primarily or
secondarily liable, (b) waives presentment, demand, notice, protest and all
other demands and notices generally in connection with the delivery, acceptance,
performance, default or enforcement of or under this note, and (c) agrees to
pay, to the extent permitted by law, all reasonable costs and expenses,
including, without limitation, reasonable attorneys' fees, incurred or paid by
the Bank in enforcing this note and any collateral or security therefor, all
whether or not litigation is commenced.




                                      -11-


<PAGE>   12

        This note is the Facility One Term Note referred to in the Letter
Agreement. This note is subject to prepayment as set forth in the Letter
Agreement. The maturity of this note may be accelerated upon the occurrence of
an Event of Default, as provided in the Letter Agreement.

        THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE
RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED ON THIS NOTE OR ARISING
OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY RELATED DOCUMENTS OR OUT OF
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN)
OR ACTIONS OF ANY PERSON. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE
BANK TO ACCEPT THIS NOTE AND TO MAKE THE FACILITY ONE TERM LOANS AS CONTEMPLATED
IN THE LETTER AGREEMENT.

        Executed, as an instrument under seal, as of the day and year first
above written.


CORPORATE SEAL                      GELTEX PHARMACEUTICALS, INC.

ATTEST:

                                    By: 
---------------------------             ----------------------------------
Secretary                               Name: Paul J. Mellett, Jr.
                                        Title: Vice President, Administration
                                                 and Finance





                                      -12-
<PAGE>   13



                        SUPPLEMENTAL DISCLOSURE SCHEDULE
  (Note: This Supplemental Disclosure Schedule is intended to update, but not
 replace the disclosure schedule attached to the Letter Agreement dated May 21,
  1997 and the disclosure schedule attached to the Loan Modification Agreement
     dated October 31, 1997. Items not referenced in this supplement remain
                unchanged from the original disclosure schedule)

SECTION 2.1(b)

Persons known to Borrower to hold more than 5% of the outstanding shares of
Borrower's capital stock:

-     The Equitable Companies Incorporated(1)
-     West Highland Capital, Inc.(2)
-     Amerindo Investment Advisors



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

(1)  Includes shares held by The Equitable Life Assurance Society of the United
     States ("ELAS") and Alliance Capital Management L.P. ("ACM"). ELAS and ACM
     are subsidiaries of The Equitable Companies Incorporated. This information
     is based on a Schedule 13G dated February 6, 1997 filed with the Securities
     and Exchange Commission for the aforementioned entities.
(2)  Includes shares held by West Highland Capital, Inc. ("WHC"), Estero
     Partners, LLC ("EP"), West Highland Partners, L.P.("WHP") and Buttonwood
     Partners, L.P. ("BP"). Lang H. Gerhard is the sole director and executive
     officer of WHC and the sole manager of EP. WHC, EP and Mr. Gerhard are the
     general partners of WHP and BP which are investment limited partnerships,
     and have voting and dispositive authority over shares held by WHP and BP.
     WHC has voting and dispositive authority over shares held by its various
     investment advisory clients. This information is based on a Schedule 13D
     dated January 9, 1997 filed with the Securities and Exchange Commission for
     the aforementioned entities and person.


SECTION 2.1(i)

The Borrower references the unaudited financial statements of the Borrower for
the period ended March 31, 1998, heretofore delivered to the Bank, and the
liabilities referenced in such financial statements.

Reference is made to the attached lists of Exhibits filed with the Securities
and Exchange Commission after December 31, 1997, as disclosure of the material
agreements entered into by the Borrower. In addition, on June 26, 1998, the
Borrower entered into a Letter of Intent pursuant to which the Borrower has
agreed to purchase approximately 8.9 acres of land together with the
improvements thereon containing approximately 80,000 square feet of building
area for a total purchase price of $11 million.

SECTION 2.1(j)

In May 1998, the Borrower subleased approximately 7,000 square feet of office
space located at 78 Fourth Avenue, Waltham, Massachusetts. The Borrower's
employees in the manufacturing, clinical and regulatory departments have
relocated to this building and certain records associated with those departments
reside in that building.