<PAGE>   1
                                                                 EXHIBIT 10.96





                          ASSIGNMENT AND ASSUMPTION AND

                                ROYALTY AGREEMENT


                                     between


                                INTERCARDIA, INC.


                                       and


                        INTERNEURON PHARMACEUTICALS, INC.






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                                TABLE OF CONTENTS
                                -----------------

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ARTICLE I

         DEFINITIONS................................................................. 1
         1.1      "Closing Date"..................................................... 1
         1.2      "Common Stock"..................................................... 1
         1.3      Defined Terms Appearing in Merck Agreement......................... 2
         1.4      "Earned Payment"................................................... 2
         1.5      "Fair Market Value"................................................ 2
         1.6      "Merck"............................................................ 2
         1.7      "Merck Agreement".................................................. 2
         1.8      "Party"............................................................ 2
         1.9      "Princeton License Agreement"...................................... 3
         1.10     "Princeton Sponsored Research Agreements".......................... 3
         1.11     "Product".......................................................... 3
         1.12     "Securities Act"................................................... 3
         1.13     "Side Agreement"................................................... 3

ARTICLE II

         ASSIGNMENT AND ASSUMPTION; GUARANTY AGREEMENT............................... 3
         2.1      Assignment and Assumption.......................................... 3
         2.2      Guaranty Agreement................................................. 3
         2.3      Consents or Approvals.............................................. 3

ARTICLE III

         EARNED PAYMENT; ROYALTIES AND REPORTS....................................... 4
         3.1      Earned Payment and Royalties....................................... 4
         3.2      Reports; Payment of Royalty; Adjustments........................... 5
         3.3      Audits............................................................. 5
         3.4      Payment Exchange Rate.............................................. 6
         3.5      Tax Withholding.................................................... 6
         3.6      Representations and Warranties of Interneuron...................... 6
         3.7      Representations and Warranties of Intercardia...................... 8

ARTICLE IV

         TERM AND TERMINATION........................................................ 9
         4.1      Term and Expiration................................................ 9
         4.2      Effect of Expiration or Termination................................ 9

</TABLE>


                                       (i)

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<TABLE>
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<S>               <C>                                                                <C>
ARTICLE V

         MISCELLANEOUS............................................................... 9
         5.1      Assignment......................................................... 9
         5.2      Severability....................................................... 9
         5.3      Notices........................................................... 10
         5.4      Applicable Law.................................................... 11
         5.5      Dispute Resolution................................................ 11
         5.6      Entire Agreement.................................................. 11
         5.7      No Authority...................................................... 11
         5.8      Waiver............................................................ 11
         5.9      Counterparts...................................................... 12


APPENDIX A        ASSIGNED AGREEMENTS
APPENDIX 1.2      MERCK AGREEMENT
APPENDIX 2.2      GUARANTIES


</TABLE>

                                      (ii)


<PAGE>   4

                          ASSIGNMENT AND ASSUMPTION AND
                                ROYALTY AGREEMENT


         THIS AGREEMENT effective as of May 8, 1998, (the "Effective Date")
between Intercardia, Inc., a corporation organized and existing under the laws
of Delaware and having its principal office at 3200 East Highway 54, Cape Fear
Building, Suite 300, Research Triangle Park, North Carolina 27709
("Intercardia") and Interneuron Pharmaceuticals, Inc., a corporation organized
and existing under the laws of Delaware and having its principal office at 99
Hayden Avenue, Lexington MA 02173 ("Interneuron").


                              W I T N E S S E T H:


         WHEREAS, in connection with an Agreement and Plan of Merger entered
into on the Effective Date (the "Merger Agreement"), Intercardia has agreed to
acquire from Interneuron all of the capital stock (the "Stock") of Transcell
Technologies, Inc. ("Transcell") owned by Interneuron under the terms and
conditions contained therein; and

         WHEREAS, Interneuron has agreed to assign (the "Assignment") to
Intercardia Interneuron's rights, benefits and interests under the agreements
set forth on Appendix A hereto (the "Assigned Agreements") and to continue to
guaranty certain lease obligations of Transcell under certain conditions (the
"Guaranty Agreement") effective upon the closing of the merger (the "Merger")
contemplated by the Merger Agreement; and

         WHEREAS, as consideration for the Assignment and the Guaranty
Agreement, Intercardia has agreed to pay to Interneuron royalties on Net Sales
of Products (each as defined herein), upon the terms and conditions set forth
herein;

         NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, the parties hereby agree as follows:


                                    ARTICLE I

                                   DEFINITIONS
                                   -----------

         Unless specifically set forth to the contrary herein, the following
terms, where used in the singular or plural, shall have the respective meanings
set forth below:


1.1      "Closing Date" shall mean the closing date of the Merger.

1.2      "Common Stock" shall mean the common stock, $.001 par value, of
         Intercardia.





<PAGE>   5



1.3      Defined Terms Appearing in Merck Agreement. The following terms shall
         have the respective meanings set forth in the Merck Agreement:

         (a)      Affiliate;

         (b)      Calendar Quarter;

         (c)      Calendar Year;

         (d)      First Commercial Sale;

         (e)      Net Sales.

1.4      "Earned Payment" shall mean the $3,000,000 payment made by Intercardia
         in Common Stock to Interneuron on the Closing Date.

1.5      "Fair Market Value" shall mean, on any applicable payment date, (a) the
         average of the high and low sales price of the Common Stock on the five
         (5) most recent trading days, ending two (2) business days immediately
         prior to the applicable payment date, in which the trading volume of
         the Common Stock was at least 1500 shares, or, if no such sales take
         place on any such date, the average of the closing bid and asked prices
         of the Common Stock on such date, in each case as officially reported
         on the Nasdaq National Market or any other national securities exchange
         on which the Common Stock is then listed, or (b) if the Common Stock is
         not then listed or admitted to trading on the Nasdaq National Market or
         any other national securities exchange, the average of the reported
         closing bid and asked prices of the Common Stock on the five (5)
         trading days ending on such date as shown by Nasdaq or (c) if the
         Common Stock is not then listed on any exchange or shown by Nasdaq, the
         higher of (x) the book value thereof as determined by any firm of
         independent public accountants of recognized standing selected by the
         Board of Directors of Intercardia as at the last day of any month
         ending within 60 days preceding the date as of which the determination
         is to be made or (y) the fair value thereof determined in good faith by
         an independent valuation firm jointly selected by the parties as of a
         date which is within 15 days of the date as of which the determination
         is to be made.

1.6      "Merck" shall mean Merck & Co., Inc.

1.7      "Merck Agreement" shall mean the Research Collaboration and License
         Agreement by and among Merck & Co., Inc., Transcell and Interneuron
         effective as of June 30, 1997, a copy of which is attached hereto as
         Appendix 1.2.

1.8      "Party" shall mean Intercardia or Interneuron.




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1.9      "Princeton License Agreement" shall mean the License Agreement between
         the Trustees of Princeton University ("Princeton") and Interneuron
         entered into on April 15, 1998, effective as of June 30, 1997.

1.10     "Princeton Sponsored Research Agreements" shall mean the Research
         Agreements between Princeton and Interneuron dated April 29, 1997
         relating to Research Proposals titled "Construction of a Vancomycin
         Library" and "Towards a Map of the Active Site of MurG."

1.11     "Product" shall mean a product defined in the Merck Agreement as a
         Licensed Product.

1.12     "Securities Act" shall mean the Securities Act of 1933, as amended, and
         all rules and regulations promulgated thereunder.

1.13     "Side Agreement" shall mean the Side Agreement effective as of June 30,
         1997 by and among Merck, Princeton, Interneuron and Transcell.


                                   ARTICLE II

                  ASSIGNMENT AND ASSUMPTION; GUARANTY AGREEMENT
                  ---------------------------------------------

2.1      Assignment and Assumption. Interneuron hereby assigns to Intercardia
         all of its rights, benefits and interests under each of the Assigned
         Agreements. Intercardia hereby assumes and agrees to pay, perform,
         discharge and carry out all of the obligations and liabilities of
         Interneuron under each of the Assigned Agreements.

2.2      Guaranty Agreement. Interneuron hereby agrees to continue its
         respective guaranties set forth on Appendix 2.2 hereof (the
         "Guaranties") until such time as the respective guaranty can be
         terminated or transferred to Intercardia. Intercardia hereby agrees to
         (i) use its best efforts to terminate or remove Interneuron from each
         of the Guaranties and (ii) pay, perform, discharge and carry out all
         the obligations and liabilities under the leases subject to the
         Guaranties; provided, however, that promptly after the Closing Date,
         Intercardia shall submit a written request to terminate or remove
         Interneuron from such Guaranties and shall negotiate in good faith to
         do so; further provided that, in the event that Intercardia shall be
         unsuccessful in terminating or removing Interneuron from such
         Guaranties at such time, Intercardia hereby covenants to submit a
         similar request on an annual basis, or promptly following the closing
         of any capital raising transaction of Intercardia, whichever is sooner,
         until such Guaranties are terminated. Interneuron may participate in or
         initiate any discussions relating to the termination of, or removal of
         Interneuron from, such Guaranties.

2.3      Consents or Approvals. To the extent that any consent or approval is
         required to permit the assignment to Intercardia of any Assigned
         Agreement or any agreement, commitment



                                       -3-

<PAGE>   7



         or other contractual right thereof, contemplated hereunder to be
         assigned to Intercardia and such consent or approval is not obtained,
         this Agreement shall not constitute an assignment thereof. However,
         Interneuron and Intercardia shall cooperate in any reasonable
         arrangements designed to provide for Intercardia all of the benefits
         (and to assure that Interneuron will be effectively relieved from
         related liabilities) under such agreement or commitment; provided,
         however, that neither Interneuron nor Intercardia shall be required to
         enter into any arrangement which, in the reasonable opinion of its
         counsel, violates the provisions of any contract, law or regulation to
         which such Party is a party or by which such Party is bound.
         Intercardia agrees that, so long as it is a party to any such agreement
         or commitment Intercardia will fully perform all of Interneuron 's
         obligations thereunder which arise following the Effective Date.


                                   ARTICLE III

                      EARNED PAYMENT; ROYALTIES AND REPORTS
                      -------------------------------------

3.1      Earned Payment and Royalties. In consideration for Interneuron's
         agreements hereunder, Intercardia shall make the following payments to
         Interneuron:

         3.1.1    Earned Payment. Intercardia shall pay the Earned Payment to
                  Interneuron on the Closing Date. The Earned Payment shall be
                  non-refundable and shall be paid in shares of Intercardia
                  Common Stock calculated by dividing $3,000,000 by the Per
                  Share Price. The Per Share Price shall equal the Fair Market
                  Value of Intercardia Common Stock determined as of the Closing
                  Date; provided, however, that if the Fair Market Value of
                  Intercardia Common Stock determined as of the Closing Date is
                  (i) less than $15.00 then the Per Share Price shall equal
                  $15.00 and (ii) more than $29.00, the Per Share Price shall
                  equal $29.00.

         3.1.2    Royalties

                  (a)      Subject to the terms and conditions of this
                           Agreement, Intercardia shall pay to Interneuron
                           royalties based on cumulative annual Net Sales of
                           Products by Merck, Intercardia, their Affiliates or
                           sublicensees in the percentages set forth below:

                           Cumulative Annual Net Sales                 Royalty
                           ---------------------------                 -------
                           Less than or equal to $500,000,000              1%
                           Greater than $500,000,000                     1.5%

                  (b)      Royalties at the rates set forth above shall be
                           effective as of the date of First Commercial Sale of
                           a Product and shall continue until Merck, or its
                           successor in interest to the Merck Agreement, no
                           longer has an obligation to pay royalties pursuant to
                           the Merck Agreement, on any Product;



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                           provided, however, that payment of royalties shall
                           not be due until cumulative net sales of Products
                           equal $300,000,000 (the "Initial Payment Event").

3.2      Reports; Payment of Royalty; Adjustments.

         (a)      Following the First Commercial Sale of a Product and during
                  the term of the Agreement, Intercardia shall furnish to
                  Interneuron a copy of the written report received by
                  Intercardia under Section 5.5 of the Merck Agreement for each
                  Calendar Quarter of a Calendar Year showing the sales of all
                  Products subject to royalties sold by Merck, Intercardia,
                  their Affiliates and sublicensees during the reporting period
                  (and a reconciliation to Net Sales) together with a report
                  showing the royalties accrued under this Agreement
                  (collectively, the "Accrual Reports"). Accrual Reports shall
                  be due on the thirty-fifth (35th) day following the close of
                  each Calendar Quarter. Royalties shown to have accrued as of
                  the Initial Payment Event shall be due and payable on the
                  thirty-fifth (35th) day following the Initial Payment Event.
                  After the Initial Payment Event, royalties shown to have
                  accrued by each Accrual Report shall be due and payable within
                  ten (10) days after the date that the Accrual Report for such
                  Calendar Quarter is due.

                  Intercardia shall keep complete and accurate records,
                  including copies of any reports forwarded by Merck to
                  Intercardia pursuant to the Merck Agreement, in sufficient
                  detail to enable the royalties hereunder to be determined.
                  Such Accrual Reports will include information in the local
                  currency and as converted into United States dollars based on
                  the average exchange rate on the first and last day of each
                  month (determined in accordance with the Merck Agreement).

         (b)      Royalties shall be paid through the issuance by Intercardia to
                  Interneuron of shares (the "Royalty Shares") of Common Stock,
                  unless Interneuron and Intercardia agree that royalties may be
                  paid in cash. The number of Royalty Shares to be issued shall
                  be equal to the amount of royalties due hereunder divided by
                  the Fair Market Value determined as of each Accrual Report
                  date. Interneuron shall have the registration rights with
                  respect to the resale of the Royalty Shares as set forth in a
                  Registration Rights Agreement to be entered into as of the
                  Closing Date.

3.3      Audits.

         (a)      Upon the request of Interneuron, Intercardia shall permit an
                  independent certified public accounting firm of nationally
                  recognized standing selected by Interneuron, to have access
                  during normal business hours to such of the records of
                  Intercardia as may be reasonably necessary to verify the
                  accuracy of the Accrual Reports hereunder for any year ending
                  not more than thirty-six (36) months prior to the date of such
                  request.



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         (b)      If such accounting firm correctly concludes that additional
                  royalties were owed during such period, Intercardia shall pay
                  the additional royalties within thirty (30) days of the date
                  Interneuron delivers to Intercardia such accounting firm's
                  written report so concluding. The fees and expenses charged by
                  such accounting firm shall be paid by Interneuron; provided,
                  however, that if an error in favor of Interneuron in the
                  payment of royalties of more than 10% of the royalties due
                  hereunder for the period being reviewed is discovered, then
                  the fees and expenses of such accounting firm shall be borne
                  by Intercardia.

         (c)      Upon the expiration of thirty-six (36) months following the
                  end of any year the calculation of royalties payable with
                  respect to such year shall be binding and conclusive upon
                  Interneuron, and Intercardia shall be released from any
                  liability or accountability with respect to royalties for such
                  year.

3.4      Payment Exchange Rate. All calculations of royalties payable to
         Interneuron under this Agreement shall be made in United States
         dollars. In the case of sales outside the United States, the rate of
         exchange to be used in computing the amount of currency equivalent in
         United States dollars shall be calculated in accordance with Section
         5.7 of the Merck Agreement.

3.5      Tax Withholding. If laws, rules or regulations require withholding of
         income taxes or other taxes imposed upon payments set forth in this
         Article III, Intercardia shall make such withholding payments as
         required and subtract such withholding payments from the calculation of
         royalties and number of Royalty Shares issuable pursuant to this
         Article III. Intercardia shall submit appropriate proof of payment of
         the withholding taxes to Interneuron within a reasonable period of
         time. Intercardia will use efforts consistent with its usual business
         practices to ensure that any withholding taxes imposed are reduced as
         far as possible under the provisions of the current or any future
         double taxation treaties or agreements between foreign countries, and
         the Parties shall cooperate with each other with respect thereto, with
         the appropriate Party under the circumstance providing the
         documentation required under such treaty or agreement to claim benefits
         thereunder.

3.6      Representations and Warranties of Interneuron. Interneuron represents
         and warrants to Intercardia that:

         (a)      the Royalty Shares payable to Interneuron pursuant to the
                  terms hereof will be acquired for investment for its own
                  account, without any view to the unregistered public
                  distribution or resale thereof, all without prejudice,
                  however, to the right of Interneuron at any time lawfully to
                  sell or otherwise to dispose of all or any part of the Royalty
                  Shares pursuant to registration or any exemption therefrom
                  under the Securities Act and applicable state securities laws;




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<PAGE>   10



         (b)      Interneuron understands that the Royalty Shares to be received
                  by it pursuant to the terms hereof are characterized as
                  "restricted securities" under the federal securities laws
                  inasmuch as they will be acquired from Intercardia in a
                  transaction not involving a public offering and that under
                  such laws and applicable regulations such securities may be
                  resold without registration under the Securities Act only in
                  certain limited circumstances;

         (c)      Interneuron is an "accredited investor" within the meaning of
                  Rule 501 of Regulation D under the Securities Act. Interneuron
                  has the capacity to evaluate the merits and high risks of an
                  investment in the Royalty Shares and is able to bear the
                  economic risk of this investment. Interneuron understands that
                  an investment in Royalty Shares is highly speculative and
                  involves a high degree of risk. Interneuron has been provided
                  access to all information requested by it in order to evaluate
                  the merits and risks of an investment in the Royalty Shares;

         (d)      Interneuron acknowledges that the certificates evidencing the
                  Royalty Shares shall bear a legend substantially as follows:

         "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
         ACT OF 1933, AS AMENDED.  THEY MAY NOT BE SOLD, OFFERED FOR SALE,
         PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
         STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH
         ACT OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT."

                  The foregoing legend shall be removed by Intercardia from any
                  certificate at such time as the holder of the Royalty Shares
                  represented by the certificate delivers an opinion of counsel
                  reasonably satisfactory to Intercardia to the effect that such
                  legend is not required in order to establish compliance with
                  any provisions of the Securities Act, or at such time as the
                  holder of such Royalty Shares satisfies the requirements of
                  Rule 144(k) under the Securities Act (provided that Rule
                  144(k) as then in effect does not differ substantially from
                  Rule 144(k) as in effect as of the date of this Agreement),
                  and provided further that Intercardia has received from the
                  holder a written representation that such holder satisfies the
                  requirements of Rule 144(k) as then in effect with respect to
                  such Royalty Shares;

         (e)      Interneuron is a duly organized and validly existing
                  corporation under the laws of the State of Delaware, and has
                  taken all required corporate action to authorize the
                  execution, delivery and performance of this Agreement; it has
                  the full corporate right, power and authority to enter into
                  this Agreement and to perform all of its obligations
                  hereunder; the execution and delivery of this Agreement and
                  the consummation of the transactions contemplated herein do
                  not violate, conflict with, or constitute a default under its
                  certificate of incorporation, by-laws or the terms or
                  provisions of any material agreement to which it is a party or
                  by which it is bound, or any order, award, judgment or decree
                  to which it is a party, except in



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<PAGE>   11



                  each case, for such violations, conflicts or defaults which
                  would not have a material adverse effect (a "Material Adverse
                  Effect") on the assets, results of operations, business or
                  financial condition of Interneuron and its subsidiaries, taken
                  as a whole; and (assuming this Agreement constitutes the valid
                  and binding obligation of Intercardia), upon execution and
                  delivery, this Agreement will constitute the legal, valid and
                  binding obligation of Interneuron;

         (f)      The Assigned Agreements were, as of their respective effective
                  dates and, to Interneuron's knowledge, the Assigned Agreements
                  are, in each case, with respect to Interneuron, in full force
                  and effect and enforceable against Interneuron in accordance
                  with their respective terms, except (a) as limited by
                  applicable bankruptcy, insolvency, reorganization, moratorium
                  or other laws of general application affecting enforcement of
                  creditors' rights, (b) as limited by laws relating to the
                  availability of specific performance, injunctive relief or
                  other equitable remedies, and (c) to the extent the
                  enforceability of any indemnification provisions contained in
                  the Assigned Agreements may be limited by applicable laws;

         (g)      Interneuron has not previously assigned, transferred, conveyed
                  or otherwise encumbered its right, title and interest in the
                  Assigned Agreements, except pursuant to the Merck Agreement;

         (h)      to Interneuron's knowledge, there are no claims, judgments or
                  settlements against or owed by Interneuron or pending or
                  threatened claims or litigation to which Interneuron is a
                  party, in each case relating to the Assigned Agreements; and

         (i)      Interneuron has obtained consents, if any, required in order
                  to assign the Assigned Agreements to Intercardia.

3.7      Representations and Warranties of Intercardia. Intercardia represents
         and warrants to Interneuron that:

         (a)      Intercardia is a duly organized and validly existing
                  corporation under the laws of the State of Delaware, and has
                  taken all required corporate action to authorize the
                  execution, delivery and performance of this Agreement; it has
                  the full corporate right, power and authority to enter into
                  this Agreement and to perform all of its obligations
                  hereunder; the execution and delivery of this Agreement and
                  the consummation of the transactions contemplated herein do
                  not violate, conflict with, or constitute a default under its
                  certificate of incorporation, by-laws or the terms or
                  provisions of any material agreement to which it is a party or
                  by which it is bound, or any order, award, judgment or decree
                  to which it is a party, except in each case, for such
                  violations, conflicts or defaults which would not have a
                  Material Adverse Effect on the assets, results of operations,
                  business or financial condition of Intercardia and its
                  subsidiaries, taken as a whole; and (assuming this



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<PAGE>   12



                  Agreement constitutes the valid and binding obligation of
                  Interneuron) upon execution and delivery, this Agreement will
                  constitute the legal, valid and binding obligation of
                  Intercardia;

         (b)      the Royalty Shares issuable pursuant to this Agreement have
                  been duly authorized and, when issued and delivered pursuant
                  to the terms of this Agreement will be duly and validly
                  issued, fully paid and non-assessable and free of any
                  preemptive rights and of restrictions on transfer except under
                  applicable federal and state securities laws; Intercardia will
                  use its best efforts during the term of this Agreement to
                  maintain, authorize and reserve for issuance a sufficient
                  number of shares of authorized Common Stock for the issuance
                  of Royalty Shares pursuant to this Agreement, including, if
                  necessary, amending its Certificate of Incorporation.


                                   ARTICLE IV

                              TERM AND TERMINATION
                              --------------------

4.1      Term and Expiration. This Agreement shall be effective as of the
         Effective Date and shall continue in effect until expiration of all
         royalty obligations hereunder.

4.2      Effect of Expiration or Termination. Expiration or termination of this
         Agreement shall not relieve the Parties of any obligation accruing
         prior to such expiration or termination. Any expiration or early
         termination of this Agreement shall be without prejudice to the rights
         of any Party against the other accrued or accruing under this Agreement
         prior to termination, including the obligation to make royalty payments
         for Product(s) sold prior to such termination.


                                    ARTICLE V

                                  MISCELLANEOUS
                                  -------------

5.1      Assignment. This Agreement shall be binding upon and inure to the
         benefit of the Parties and their respective successors and permitted
         assigns. Nothing in this Agreement shall create or be deemed to create
         any third party beneficiary rights in any person who is not a Party. No
         assignment of this Agreement or of any rights or obligations hereunder
         may be made by Intercardia (by operation of law or otherwise) without
         Interneuron's written consent. Interneuron may assign all or a portion
         of its benefits pursuant to this Agreement.

5.2      Severability. In the event that any of the provisions contained in this
         Agreement are held invalid, illegal or unenforceable in any respect,
         the validity, legality and enforceability of



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<PAGE>   13



         the remaining provisions contained herein shall not in any way be
         affected or impaired thereby, unless the absence of the invalidated
         provision(s) adversely affect the substantive rights of the parties.
         The Parties shall replace the invalid, illegal or unenforceable
         provision(s) with valid, legal and enforceable provision(s) which,
         insofar as practical, implement the purposes of this Agreement.

5.3      Notices. All notices or other communications which are required or
         permitted hereunder shall be in writing and sufficient if delivered
         personally, sent by facsimile (and promptly confirmed by personal
         delivery, registered or certified mail or overnight courier), sent by
         nationally-recognized overnight courier or sent by registered or
         certified mail, postage prepaid, return receipt requested, addressed as
         follows:

                  if to Interneuron to:     Interneuron Pharmaceuticals, Inc.
                                            99 Hayden Avenue
                                            Lexington, MA 02173
                                            Attention: President
                                            Fax No.: 781-862-3859

                  with a copy to:           Bachner, Tally, Polevoy  Misher LLP
                                            380 Madison Avenue
                                            18th Floor
                                            New York, NY 10017
                                            Attention:  Jill M.  Cohen, Esq.
                                            Fax No.:  212-682-5729

                  if to Intercardia to:     Intercardia, Inc.
                                            P.O. Box 14287
                                            3200 East Highway 54
                                            Cape Fear Building, Suite 300
                                            Research Triangle Park, NC  27709
                                            Attention: President
                                            Fax No.: 919-544-1245

                  with a copy to:           Wyrick Robbins Yates & Ponton LLP
                                            4101 Lake Boone Trail
                                            Suite 300
                                            Raleigh, NC  27607
                                            Attention: Larry Robbins, Esq.
                                            Fax No.: 919-781-4865

         or to such other address as the Party to whom notice is to be given may
         have furnished to the other Parties in writing in accordance herewith.
         Any such communication shall be deemed to have been given when
         delivered if personally delivered or sent by facsimile on



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         a business day, on the business day after patch if sent by
         nationally-recognized overnight courier and on the third business day
         following the date of mailing if sent by mail.

5.4      Applicable Law. The Agreement shall be governed by and construed in
         accordance with the laws of the State of Delaware and the United States
         without reference to any rules of conflict of laws.

5.5      Dispute Resolution. The Parties agree to attempt initially to solve all
         claims, disputes, or controversies arising under, out of, or in
         connection with this Agreement by conducting good faith negotiations.
         If the Parties are unable to settle the matter between themselves, the
         matter shall thereafter be resolved by alternative dispute resolution,
         starting with mediation and including, if necessary, a final and
         binding arbitration. Whenever a Party shall decide to institute
         arbitration proceedings, it shall give written notice to that effect to
         the other Party. The Party giving such notice shall refrain from
         instituting the arbitration proceedings for a period of sixty (60) days
         following such notice. During such period, the Parties shall make good
         faith efforts to amicably resolve the dispute without arbitration. Any
         arbitration hereunder shall be conducted under the rules of the
         American Arbitration Association. Each such arbitration shall be
         conducted by a panel of three arbitrators: one arbitrator shall be
         appointed by each of Interneuron and Intercardia and the third shall be
         appointed by the American Arbitration Association. Any such arbitration
         shall be held in Wilmington, Delaware. The arbitrators shall have the
         authority to grant specific performance. Judgment upon the award so
         rendered may be entered in any court having jurisdiction or application
         may be made to such court for judicial acceptance of any award and an
         order of enforcement, as the case may be. In no event shall a demand
         for arbitration be made after the date when institution of a legal or
         equitable proceeding based on such claim, dispute or other matter in
         question would be barred by the applicable statute of limitations.

5.6      Entire Agreement. This Agreement, together with the Merger Agreement
         and the exhibits thereto, contains the entire understanding of the
         Parties with respect to the subject matter hereof. All express or
         implied agreements and understandings, either oral or written, relating
         to the subject matter hereof, heretofore made are expressly merged in
         and made a part of this Agreement. This Agreement may be amended, or
         any term hereof modified, only by a written instrument duly executed by
         all Parties hereto. To the extent this Agreement refers to or
         incorporates sections of the Merck Agreement, the consent of
         Interneuron shall be required in connection with the amendment or
         modification of any of such sections of the Merck Agreement.

5.7      No Authority. Except as specifically set forth herein, no Party shall
         have the authority to make any statements, representations or
         commitments of any kind, or to take any action, which shall be binding
         on any other Party, without the prior consent of such other Party.

5.8      Waiver. The waiver by a Party hereto of any right hereunder or the
         failure to perform or of a breach by another Party shall not be deemed
         a waiver of any other right hereunder or of any other breach or failure
         by said other Party whether of a similar nature or other:
         wise.



                                      -11-

<PAGE>   15



5.9      Counterparts. The Agreement may be executed in two or more
         counterparts, each of which shall be deemed an original, but all of
         which together shall constitute one and the same instrument.


         IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first set forth above.

                                   INTERCARDIA, INC.


                                   By: /s/ Clayton Duncan
                                       --------------------------------------
                                       Name:    Clayton Duncan
                                       Title:   President and Chief Executive
                                                Officer

                                   INTERNEURON PHARMACEUTICALS, INC.


                                   By: /s/ Glenn L. Cooper, M.D.
                                       --------------------------------------
                                       Name:    Glenn L. Cooper, M.D.
                                       Title:   President and Chief Executive
                                                Officer



                                      -12-

<PAGE>   16



                                   APPENDIX A
                                   ----------


                               ASSIGNED AGREEMENTS


Merck Agreement
Princeton License Agreement
Princeton Sponsored Research Agreements
Side Agreement





<PAGE>   17



                                  APPENDIX 1.2
                                  ------------


                                 MERCK AGREEMENT





<PAGE>   18



                                  APPENDIX 2.2
                                  ------------

                                   GUARANTIES


Guaranty to Lease between Transcell and Cedar Brook Corporate Center, L.P.,
dated September 19, 1996.

Guaranty to Master Equipment Lease between Transcell and Phoenix Leasing
Incorporated.