<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-Q
                                ---------------

[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2000, or

[_]    TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ___________ to _____________

                          Commission File No. 0-18728

                       INTERNEURON PHARMACEUTICALS, INC.
            (exact name of registrant as specified in its charter)


Delaware                                       04-3047911
(State or other jurisdiction of                (I.R.S. Employer Identification
incorporation or organization)                 Number)

One Ledgemont Center, 99 Hayden Avenue         02421
Lexington, Massachusetts                       (Zip Code)
(Address of principal executive offices)

Registrant's telephone number, including area code (781) 861-8444

(Former name, former address and former fiscal year, if changed since last
report): Not Applicable

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

       Yes     X                  No ____
             -----

Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.

Class:                                         Outstanding at February 13, 2001:
Common Stock $.001 par value                   42,780,492  shares
<PAGE>

                       INTERNEURON PHARMACEUTICALS, INC.

                              INDEX TO FORM 10-Q




PART I.  FINANCIAL INFORMATION                                         PAGE

Item 1. Financial Statements

Consolidated Balance Sheets as of December 31, 2000
  and September 30, 2000..............................................    3

Consolidated Statements of Operations for the Three Months
  ended December 31, 2000 and 1999....................................    4

Consolidated Statements of Cash Flows for the Three Months
  ended December 31, 2000 and 1999....................................    5

Notes to Unaudited Consolidated Financial Statements..................    6

Item 2. Management's Discussion and Analysis of Financial
  Condition and Results of Operations.................................    9

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings............................................   14

Item 6.  Exhibits and Reports on Form 8-K.............................   16

SIGNATURES............................................................   17

                                      -2-
<PAGE>

Item 1.  Financial Statements

                        INTERNEURON PHARMACEUTICALS, INC.
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
                    (Amounts in thousands except share data)
<TABLE>
<CAPTION>
                                                                                    December 31,  September 30,
                                                                                        2000          2000
                                                                                   ------------   ------------
<S>                                                                                <C>            <C>
                                     ASSETS
Current assets:
      Cash and cash equivalents                                                      $   22,563     $  24,871
      Marketable securities                                                               8,893         8,880
      Accounts receivable                                                                   360            --
      Insurance claim receivable                                                          9,716         8,435
      Settlement deposit receivable                                                          --         1,757
      Prepaids and other current assets                                                   1,022         1,110
                                                                                     ----------     ---------
           Total current assets                                                          42,554        45,053

Investment in Incara                                                                      1,024         1,627
Property and equipment, net                                                                 121           146
                                                                                     ----------     ---------
                                                                                     $   43,699     $  46,826
                                                                                     ==========     =========
                                   LIABILITIES

Current liabilities:
      Accounts payable                                                               $       --     $     122
      Accrued expenses                                                                   14,815        15,604
      Deferred revenue                                                                    3,000         3,000
      Current portion of capital lease obligations                                           --             2
                                                                                     ----------     ---------
           Total current liabilities                                                     17,815        18,728

Minority interest                                                                           332           332

                              STOCKHOLDERS' EQUITY

Preferred stock; $.001 par value, 5,000,000 shares authorized; Series B, 239,425
      shares issued and outstanding at December 31 and September 30, 2000,
      respectively (liquidation preference at December 31, 2000 $3,034)                   3,000         3,000
      Series C, 5,000 shares issued and outstanding at December 31 and
      September 30, 2000, respectively (liquidation preference at December 31,
      2000 $503)                                                                            500           500
Common stock; $.001 par value, 80,000,000 shares authorized; 42,780,492 shares
      issued and outstanding at December 31 and September 30, 2000, respectively             43            43
Additional paid-in capital                                                              274,248       274,011
Accumulated deficit                                                                    (251,659)     (249,802)
Accumulated other comprehensive income                                                     (580)           14
                                                                                     -----------    ---------
      Total stockholders' equity                                                         25,552        27,766
                                                                                     ----------     ---------
                                                                                     $   43,699     $  46,826
                                                                                     ==========     =========
</TABLE>

        The accompanying notes are an integral part of these unaudited
                      consolidated financial statements.

                                      -3-
<PAGE>

                       INTERNEURON PHARMACEUTICALS, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
             For the three months ended December 31, 2000 and 1999
                                  (Unaudited)
                 (Amounts in thousands except per share data)

<TABLE>
<CAPTION>
                                                                 Three Months Ended December 31,
                                                                 --------------------------------
                                                                       2000              1999
                                                                 ---------------      -----------
<S>                                                               <C>                 <C>
Revenues:
   Royalty revenue                                                $     360           $      --
   Contract and license fee revenue                                      --              23,751
                                                                  ---------           ---------
     Total revenues                                                     360              23,751

Costs and expenses:
   Cost of revenues                                                      72               2,050
   Research and development                                           1,041               2,660
   General and administrative                                         1,611               2,473
                                                                  ---------           ---------
     Total costs and expenses                                         2,724               7,183

Income (loss) from operations                                        (2,364)             16,568

Investment income, net                                                  507                 291
                                                                  ---------           ---------

Net income (loss)                                                 $  (1,857)          $  16,859
                                                                  ==========          =========

Net income (loss) per common share:
    Basic                                                         $   (0.04)          $    0.40
    Diluted                                                       $   (0.04)          $    0.39

Weighted average common shares outstanding:
    Basic                                                            42,780              42,031
                                                                  =========           =========
    Diluted                                                          42,780              43,345
                                                                  =========           =========
</TABLE>

        The accompanying notes are an integral part of these unaudited
                      consolidated financial statements.

                                      -4-
<PAGE>

                       INTERNEURON PHARMACEUTICALS, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
             For the three months ended December 31, 2000 and 1999
                                  (Unaudited)
                            (Amounts in thousands)
<TABLE>
<CAPTION>
                                                                               Three months ended December 31,
                                                                               -------------------------------
                                                                                   2000                1999
                                                                               ------------       ------------
<S>                                                                            <C>                <C>
Cash flows from operating activities:
     Net income (loss)                                                            $ (1,857)          $ 16,859
     Adjustments to reconcile net income (loss) to net cash provided
        (used) by operating activities:
        Depreciation and amortization                                                   28                 59
        Noncash compensation                                                           246                506
     Change in assets and liabilities:
        Accounts receivable                                                           (360)              (939)
        Insurance claim receivable                                                  (1,281)                --
        Settlement deposit receivable                                                1,757                 --
        Prepaid and other assets                                                        88                 33
        Accounts payable                                                              (122)                18
        Deferred revenue                                                                --              3,000
        Accrued expenses and other liabilities                                        (798)              (883)
                                                                                  --------           --------
Net cash provided (used) by operating activities                                    (2,299)            18,653
                                                                                  --------           --------

Cash flows from investing activities:
     Capital expenditures                                                               (3)                --
     Purchases of marketable securities                                               (981)            (4,915)
     Proceeds from maturities and sales of marketable securities                       977              3,892
                                                                                  --------           --------
Net cash (used) by investing activities                                                 (7)            (1,023)
                                                                                  --------           --------

Cash flows from financing activities:
     Principal payments of capital lease obligations                                    (2)               (21)
                                                                                  --------           --------

Net change in cash and cash equivalents                                             (2,308)            17,609
Cash and cash equivalents at beginning of period                                    24,871             19,354
                                                                                  --------           --------

Cash and cash equivalents at end of period                                        $ 22,563           $ 36,963
                                                                                  ========           ========
</TABLE>

        The accompanying notes are an integral part of these unaudited
                      consolidated financial statements.

                                      -5-
<PAGE>

                       INTERNEURON PHARMACEUTICALS, INC.

             NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


A.  Basis of Presentation
    ---------------------

     The consolidated financial statements included herein have been prepared by
Interneuron Pharmaceuticals, Inc. ("Interneuron" or the "Company") without
audit, pursuant to the rules and regulations of the U.S. Securities and Exchange
Commission ("SEC"). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the accompanying unaudited
consolidated financial statements include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the consolidated
financial position, results of operations and cash flows of the Company. The
unaudited consolidated financial statements included herein should be read in
conjunction with the audited consolidated financial statements and the notes
thereto included in the Company's Form 10-K for the fiscal year ended September
30, 2000.

     Interneuron is a biopharmaceutical company engaged in the development and
commercialization of a diversified portfolio of product candidates, including
multiple compounds in late-stage clinical development.

B.  Basic and Diluted Income (Loss) Per Share
    -----------------------------------------

The following table sets forth the computation of basic and diluted income
(loss) per common share:

                                                Three Months Ended December 31,
                                               ---------------------------------
                                                       2000           1999
                                               ---------------------------------
Numerator for basic and diluted
 income (loss) per share:
   Net income (loss)                              $  (1,857,000)   $16,859,000
                                                  =============    ===========

Denominator for basic income (loss)
 per share:
   Weighted average shares outstanding               42,780,000     42,031,000
                                                  =============    ===========

Denominator for diluted income (loss)
 per share:
   Weighted average shares outstanding               42,780,000     42,031,000
   Dilutive effect of:
   Shares issuable in connection with
     stock option plans                                      --         39,000
   Shares issued or issuable in connection
     with restricted stock awards                            --        653,000
   Shares issuable in connection with
     convertible preferred stock                             --        622,000
                                                  -------------    -----------
   Weighted average shares outstanding -
     diluted                                         42,780,000     43,345,000
                                                  =============    ===========

Net income (loss) per common share -
   Basic                                          $       (0.04)   $      0.40
                                                  =============    ===========
   Diluted                                        $       (0.04)   $      0.39
                                                  =============    ===========

                                      -6-
<PAGE>

     During the three month period ended December 31, 2000, securities not
included in the computation of diluted earnings per share, because their
exercise price exceeded the average market price during the period, were as
follows: (i) options to purchase 9,551,143 shares of Common Stock at prices
ranging from $1.88 to $20.13 with expiration dates ranging up to August 14,
2010; and (ii) warrants to purchase 750,000 shares of Common Stock with exercise
prices ranging from $5.00 to $10.00 and with expiration dates ranging up to July
17, 2006. Additionally, during the three month period ended December 31, 2000,
securities not included in the computation of diluted earnings per share,
because they would have an antidilutive effect due to the net loss for the
period, were as follows: (i) options to purchase 75,000 shares of Common Stock
at an exercise price of $1.53 and with an expiration date of September 15, 2006;
Series B and C preferred stock convertible into 622,222 shares of Common Stock;
and (iii) unvested Restricted Stock Awards of 450,000 shares of Common Stock
granted pursuant to the Company's 1997 Equity Incentive Plan.

     During the three month period ended December 31, 1999, securities not
included in the computation of diluted earnings per share, because their
exercise price exceeded the average market price during the period, were as
follows: (i) options to purchase 6,405,084 shares of Common Stock at prices
ranging from $3.13 to $20.13 with expiration dates ranging up to March 17, 2009;
(ii) warrants to purchase 812,500 shares of Common Stock with exercise prices
ranging from $5.00 to $12.77 and with expiration dates ranging up to July 17,
2006; and (iii) call options sold by the Company for 2,000,000 shares of Common
Stock with an exercise price of $36.00 and expiration dates ranging to December
31, 1999.

C.  Comprehensive Income (Loss)
    ---------------------------

Comprehensive income (loss) for the three month period ended December 31, 2000
and 1999, respectively, is as follows:

                                              Three Months Ended December 31,
                                            ------------------------------------
                                                   2000                1999
                                            -----------------      -------------

         Net income (loss)                      $(1,857,000)       $ 16,859,000
         Change in unrealized net
           gain on marketable and
           equity securities                       (594,000)            239,000
                                                -----------        ------------
         Comprehensive income (loss)            $(2,451,000)       $ 17,098,000
                                                ===========        ============

D.  Withdrawal of Redux(TM), Legal Proceedings, and Related Contingencies
    ---------------------------------------------------------------------

     On September 15, 1997, the Company and American Home Products Corp. ("AHP")
announced a market withdrawal of the weight loss medication Redux, which was
launched in June 1996. Interneuron has been named, together with other
pharmaceutical companies, as a defendant in approximately 3,200 product
liability legal actions, many of which purport to be class actions, in federal
and state courts involving the use of Redux and other weight loss drugs.
Following the dismissal and the anticipated dismissal of Interneuron as a
defendant in certain cases, the Company estimates that there will be
approximately 2,200 active cases. The existence of such litigation, including
the time and expenses associated with the litigation, may materially adversely
affect the Company's business, including its ability to obtain sufficient
financing to fund operations. Although the Company is unable to predict its
expense, or the outcome of, any such litigation, such expense or outcome may
materially adversely affect the Company's future business, results of operations
and financial condition.



                                      -7-
<PAGE>

     In connection with the market withdrawal of Redux, the Company recorded as
of September 30, 1997 certain charges aggregating approximately $10,800,000.
Total expenses relating to the market withdrawal of Redux may exceed these
amounts, which are estimates and do not include provisions for liability, if
any, arising out of Redux-related litigation or other related costs.

     In October 2000, the U.S. District Court for the Eastern District of
Pennsylvania (the "District Court") returned $1,757,000 to the Company from the
initial payment the Company made to the District Court pursuant to a proposed
settlement which was rejected by the District Court. The Company reflected this
amount at September 30, 2000 as a receivable.

     On November 23, 1999, the District Court preliminarily approved a proposed
nationwide settlement of AHP's product liability litigation related to Redux and
Pondimin. The Company is not a released party under this settlement.

     In fiscal 1999, the Company's three product liability insurers filed
actions against Les Laboratoires Servier ("Servier") and the Company in the
District Court, pursuant to the federal interpleader statute. The aggregate
limits of the three commercial excess insurance policies issued by the insurers
to the Company is $40,000,000. The insurers alleged that the Company asserted
claims against these policies, a substantial portion of which has been used in
the Company's defense of the litigation, and Servier, as an additional insured
under these policies, asserted its right to claim against these policies. The
insurers deposited the available proceeds up to the limits of their policies
(the "Deposited Funds"), which are subject to ongoing claims by the Company and
Servier, into the registry of the District Court. In October 2000, the District
Court dismissed the interpleader actions and the Deposited Funds were
subsequently returned to the insurance companies. In January 2001, the Company
was reimbursed for litigation expenses previously paid by the Company.

     Reflected in insurance claim receivable at December 31, 2000 of $9,716,000
is $8,143,000 which the Company paid through December 31, 2000 to the group of
law firms defending the Company in the Redux-related product liability
litigation and an additional $1,573,000 which the Company has accrued for
services rendered by such law firms through December 31, 2000. In January 2001,
the Company received an $8,419,000 payment of insurance claims. The Company
currently intends to continue paying such fees and file claims for reimbursement
from the insurance companies. The Company expects to be reimbursed for its
ongoing insurance claims until the aggregate limits of its commercial excess
insurance policies are paid.

     In January 2000, the Company announced it has filed a complaint against AHP
in the Superior Court of the Commonwealth of Massachusetts. The complaint seeks
unspecified but substantial damages and attorneys' fees pursuant to common and
statutory law for AHP's knowing and willful deceptive acts and practices, fraud
and misrepresentations and breach of contract. The Company cannot predict its
costs relative to this litigation or the duration or outcome of the proceedings.

E.   Agreements
     ----------

     In January 2001, the Company exercised its option and entered into an
agreement to license IP 501, an orally-administered anti-fibrotic purified
phospholipid compound in Phase 3 development for the treatment and prevention of
liver diseases, including alcohol and Hepatitis C-induced cirrhosis. In exchange
for future milestone payments and royalties on net sales, the license agreement
gives the Company rights to develop and commercialize IP 501 in the United
States, Canada, Japan, Korea, and, under certain circumstances, Europe and other
markets. The Company is responsible for all remaining clinical and regulatory
development, manufacturing, and marketing of the compound.

                                      -8-
<PAGE>

Item 2.  Management's Discussion and Analysis of Financial Conditions and
         ----------------------------------------------------------------
         Results of Operations:
         ---------------------

     Statements in this Form 10-Q that are not statements or descriptions of
historical facts are "forward- looking" statements under Section 21E of the
Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995 and are subject to numerous risks and
uncertainties. These forward-looking statements and other forward-looking
statements made by the Company or its representatives include, without
limitation, statements regarding the Redux-related litigation, the Company's
ability to successfully develop, obtain regulatory approval for and
commercialize any products, to enter into corporate collaborations or obtain
sufficient additional capital to fund operations, and are based on a number of
assumptions. The words "believe," "expect," "anticipate," "intend," "plan,"
"estimate" or other expressions which are predictions of or indicate future
events and trends and do not relate to historical matters identify forward-
looking statements. Readers are cautioned not to place undue reliance on these
forward-looking statements as they involve risks and uncertainties, and actual
results could differ materially from those currently anticipated due to a number
of factors, including those set forth under "Risk Factors" and elsewhere in, or
incorporated by reference into, the Company's Form 10-K for its fiscal year
ended September 30, 2000. These factors include, but are not limited to, risks
relating to the Redux-related litigation; uncertainties relating to clinical
trials, regulatory approval and commercialization of the Company's products; the
early stage of products under development; need for additional funds and
corporate partners; history of operating losses and expectation of future
losses; product liability; dependence on third parties for manufacturing and
marketing; competition; government regulation; risks associated with contractual
arrangements; limited patents and proprietary rights; dependence on key
personnel; uncertainty regarding pharmaceutical pricing and reimbursement and
other risks. The forward-looking statements represent the Company's judgment and
expectations as of the date of this Report. The Company assumes no obligation to
update any such forward-looking statements.

     The following discussion should be read in conjunction with the Company's
unaudited consolidated financial statements and notes thereto appearing
elsewhere in this report and audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 2000. Unless the context indicates otherwise, "Interneuron"
or the "Company" refer to Interneuron Pharmaceuticals, Inc.

General
-------

   Description of Company

     Interneuron is a biopharmaceutical company engaged in the development and
commercialization of a diversified portfolio of product candidates, including
multiple compounds in late-stage clinical development. The Company is currently
developing or has certain rights to five compounds in clinical development:
pagoclone for panic and generalized anxiety disorders, trospium for overactive
bladder, IP 501 for cirrhosis of the liver, citicoline for ischemic stroke, and
PRO 2000 for the prevention of sexually transmitted diseases and human
immunodeficiency virus ("HIV") infection. In addition, the Company has other
compounds in earlier stages of development, including PACAP (pituitary adenylate
cyclase activating polypeptide) for respiratory disease, diabetes, stroke and
other neurodegenerative diseases.

                                      -9-
<PAGE>

   Pagoclone

     In December 1999, the Company entered into an agreement with Pfizer, Inc.
("Pfizer") (the "Pfizer Agreement"), under which it licensed to Pfizer
exclusive, worldwide rights to develop and commercialize pagoclone. Under the
Pfizer Agreement, Pfizer is responsible for conducting and funding all further
clinical development, regulatory review, manufacturing and marketing of
pagoclone on a worldwide basis. Under the Company's agreement with Aventis, S.A.
("Aventis"), Aventis is entitled to receive a portion of certain of the payments
to be received by the Company from Pfizer. In January 2001, the Company
announced the initiation by Pfizer of Phase 2 testing of pagoclone for
generalized anxiety disorder. In August 2000, Pfizer initiated Phase 3 testing
of pagoclone for panic disorder.

   Trospium

     In November 1999, the Company obtained an exclusive U.S. license to
trospium, a prescription drug product currently marketed as a treatment for
overactive bladder in Europe. Based on conversations with the FDA, the Company
intends to conduct a standardized electrocardiograpic safety study which is
recommended by the FDA for drugs in the pharmacological class of trospium.
Additionally, based upon those discussions with the FDA, the Company believes
that, in combination with the existing efficacy and safety data on trospium, a
single, successful 300-400 patient Phase 3 trial will be necessary and
sufficient for submission of an NDA. On December 12, 2000, the Company filed an
Investigational New Drug Application for trospium and expects to conduct the
safety study in the second quarter of fiscal 2001. Assuming positive results
from this study, the Company expects to begin the Phase 3 trial in fiscal 2001.

   IP 501

   In January 2001, the Company exercised its option and entered into an
agreement to license IP 501, an orally-administered anti-fibrotic purified
phospholipid compound in Phase 3 development for the treatment and prevention of
liver diseases, including alcohol and Hepatitis C-induced cirrhosis. In exchange
for future milestone payments and royalties on net sales, the license agreement
gives the Company rights to develop and commercialize IP 501 in the United
States, Canada, Japan, Korea, and, under certain circumstances, Europe and other
markets. The Company is responsible for all remaining clinical and regulatory
development, manufacturing, and marketing of the compound.

     IP 501 is currently being studied in an 800-patient Phase 3 clinical trial
sponsored by the Veterans Administration. Data analysis being performed by the
Veterans Administration is ongoing and the Company intends to announce the
results of the trial when they become available to the Company. In January 2001,
the Company announced the start of a 250-patient government-funded Phase 3 trial
designed to evaluate the safety and effectiveness of IP 501 in treating patients
with Hepatitis C-associated cirrhosis.

   Citicoline

     In December 1999, the Company entered into an agreement with Takeda
Chemical Industries Ltd. ("Takeda") (the Takeda Agreement"), subsequently
amended, under which the Company licensed to Takeda exclusive U.S. and Canadian
commercialization rights to citicoline. In December 2000, Takeda notified the
Company of its decision not to participate in the further development of
citicoline, thereby terminating the Takeda Agreement. Therefore, the Company has
reacquired all rights to this compound. The Company does not intend to further
develop citicoline unless it is able to find another partner to participate in
such development. Takeda has also indicated that it will exercise its option
under the Takeda Agreement to negotiate a license of another one of the
Company's compounds, excluding trospium. Takeda has the

                                      -10-
<PAGE>

right until April 1, 2001 to negotiate a license for a chosen compound and an
additional six month period during which the Company may not offer the compound
selected by Takeda to any other party on terms more favorable than those offered
to Takeda without first re-offering such compound to Takeda on such new terms.

   PRO 2000

     In June 2000, the Company licensed exclusive, worldwide rights from
HeavenlyDoor.com, Inc., formerly Procept, Inc., to develop and market PRO 2000,
a candidate topical microbicide to prevent infection by HIV and other sexually
transmitted pathogens. In October 2000, dosing and follow-up for a Phase 1/Phase
2 clinical trial of PRO 2000 was completed by the National Institutes of Health
at sites in the U.S. and South Africa. No serious adverse events were reported,
and a full analysis of the data is ongoing. Additional government funded
clinical testing is planned for 2001.

   Sarafem(TM)

     In June 1997, the Company licensed to Eli Lilly and Company ("Lilly")
worldwide, exclusive rights to Interneuron's patent covering the use of
fluoxetine to treat certain conditions and symptoms associated with premenstrual
syndrome. Lilly has received approval for fluoxetine to treat premenstrual
dysphoric disorder and is marketing the drug under the trade name Sarafem. The
agreement provides for milestone payments and royalties based on net sales in
the United States. In January 2001, the Company received from Lilly a royalty
payment of $360,000 for sales during the three month period ended September 30,
2000 and recorded this payment as royalty revenue in the three month period
ended December 31, 2000. The maximum aggregate royalty payments to Interneuron
in any calendar year ranges from three to five million dollars and are
conditioned upon the achievement of net sales in the United States above an
annually escalating baseline. Royalties to the Company will terminate at the end
of the first two consecutive quarters in which 70% or less of total Prozac
prescriptions are "dispensed as written." Based on a recent federal court of
appeals ruling, Lilly's composition of matter patent on fluoxetine will expire
in the summer of 2001. Lilly has appealed the decision. If Lilly's appeal is not
successful, potential royalty payments to the Company under this agreement may
expire in early 2002.

   Redux

     Product Liability Litigation: On September 15, 1997, the Company announced
a market withdrawal of its first prescription product, the weight loss
medication Redux (dexfenfluramine hydrochloride capsules) C-IV, which had been
launched by AHP, the Company's licensee, in June 1996. Since the withdrawal of
Redux, Interneuron has been named, together with other pharmaceutical companies,
as a defendant in approximately 3,200 product liability legal actions, some of
which purport to be class actions, in federal and state courts involving the use
of Redux and other weight loss drugs. To date, there have been no judgments
against the Company, nor has Interneuron paid any amounts in settlement of any
of these claims. Following the dismissal and the anticipated dismissal of
Interneuron as a defendant in certain cases, the Company estimates that there
will be approximately 2,200 active cases. See "Liquidity and Capital Resources -
Analysis of Cash Flows" and "PART II. Item 1. Legal Proceedings."

                                      -11-
<PAGE>

Results of Operations
---------------------

     Total revenues decreased to $360,000 in the three month period ended
December 31, 2000 from $23,751,000 in the three month period ended December 31,
1999. Fiscal 2001 revenue consisted of royalty revenue received from Lilly on
sales of Sarafem and fiscal 2000 revenue consisted of $23,751,000 in contract
and license fee revenue, $13,750,000 of which was received from Pfizer pursuant
to the Pfizer Agreement and $10,000,000 from Takeda pursuant to the Takeda
Agreement.

     Cost of revenues of $72,000 in the three month period ended December 31,
2000 relates to the amount due to Massachusetts Institute of Technology for
their portion of the Sarafem royalty revenue and cost of revenues of $2,050,000
in the three month period ended December 31, 1999 consists of $2,050,000 paid to
Aventis for their portion of the initial payment received by the Company from
Pfizer.

     Research and development expense decreased $1,619,000, or 61%, to
$1,041,000 in the three month period ended December 31, 2000 compared to
$2,660,000 in the three month period ended December 31, 1999. This decrease was
primarily due to the absence in fiscal 2001 of expenses relating to the
citicoline Phase 3 trial which completed in January 2000 and reduced payroll and
related costs due to employee reductions in fiscal 2000 partially offset by
development costs for two new products under development by the Company,
trospium and PRO 2000.

     General and administrative expense decreased $862,000, or 35%, to
$1,611,000 in the three month period ended December 31, 2000 from $2,473,000 in
the three month period ended December 31, 1999. This decrease was primarily due
to reduced payroll and related costs due to the decrease in personnel and
reduced facilities costs partially offset by increased legal fees relating to
the Company's suit against AHP.

     Investment income, net increased $216,000, or 74%, to $507,000 in the three
month period ended December 31, 2000 from $291,000 in the three month period
ended December 31, 1999. This increase is primarily due to higher average
invested balances in the three month period ended December 31, 2000.

     For the three month period ended December 31, 2000, the Company had a net
loss of ($1,857,000), or ($0.04) per share, diluted, compared to net income of
$16,859,000, or $0.39 per share, diluted, for the three month period ended
December 31, 1999. This substantial change from net income to net loss is
primarily the result of $23,750,000 of contract and license fee revenue from the
Pfizer and Takeda Agreements recorded in the three month period ended December
31, 1999, partially offset by the royalty revenue from Lilly and reduced costs
and expenses incurred in the three month period ended December 31, 2000. The
Company expects to report losses for its consolidated operations in fiscal 2001.

Liquidity and Capital Resources
-------------------------------
     Cash, Cash Equivalents and Marketable Securities

     At December 31, 2000, the Company had consolidated cash, cash equivalents
and marketable securities of $31,456,000 compared to $33,751,000 at September
30, 2000. This decrease of $2,295,000 is primarily due to funding of the net
loss of $1,857,000 and payments of approximately $1,925,000 to the group of law
firms defending the Company in the Redux-related product liability litigation,
which is included in insurance claim receivable, partially offset by the
$1,757,000 settlement deposit collected by the Company. In January 2001, the
Company received an $8,419,000 payment of insurance claims. See "Analysis of
Cash Flows" and "Part II, Item 1. Legal Proceedings."

                                      -12-
<PAGE>

     While the Company believes it has sufficient cash for currently planned
expenditures through fiscal 2001 based on certain assumptions relating to
operations and other factors, excluding any settlements of the Redux-related
litigation by and against the Company, it will require additional funds after
such time. The Company does not currently have sufficient funds to fully-develop
and commercialize any of its current products and product candidates and will
require additional funds or corporate collaborations for the development and
commercialization of its compounds in development, as well as any new
businesses, products or technologies acquired or developed in the future. The
Company has no commitments or arrangements to obtain such funds. If such funds
are not available, the Company will be required to further reduce its operations
and delay development and regulatory efforts. As a result of the uncertainties
and costs associated with the Redux-related litigation, including the fact that
no settlement agreements exist or are pending and the stays of pending and
future product liability litigation and claims against the Company have been
vacated by the court, market conditions and other factors generally affecting
the Company's ability to raise capital, there can be no assurance that the
Company will be able to obtain additional financing to satisfy future cash
requirements or that any financing will be available on terms favorable or
acceptable, or at all.

      Product Development

     The Company expects to continue to expend substantial additional amounts
for the development of its products and expects to increase expenditures for the
development of trospium and PRO 2000 in the coming fiscal quarters. There can be
no assurance that results of any on-going current or future pre-clinical or
clinical trials will be successful, that additional trials will not be required,
that any drug or product under development will receive FDA approval in a timely
manner or at all, or that such drug or product could be successfully
manufactured in accordance with current Good Manufacturing Practices or
successfully marketed in a timely manner, or at all, or that the Company will
have sufficient funds to commercialize any of its products.

      Analysis of Cash Flows

     Cash used by operating activities during the three month period ended
December 31, 2000 of $2,299,000 consisted primarily of a net loss of $1,857,000
and payments of $1,925,000 relating to the Company's temporary funding of
Redux-related product liability defense costs (discussed below), partially
offset by receipt of the $1,757,000 settlement deposit.

     Reflected in insurance claim receivable at December 31, 2000 of $9,716,000
is $8,143,000 which the Company paid through December 31, 2000 to the group of
law firms defending the Company in the Redux-related product liability
litigation and an additional $1,573,000 which the Company owes to such law firms
for services rendered through December 31, 2000 (see Part II, Item 1. Legal
Proceedings). In January 2001, the Company received an $8,419,000 payment of
insurance claims. The Company is currently paying these law firms' fees at the
rate of approximately $2,000,000 per quarter and expects to be reimbursed for
its ongoing insurance claims, until the maximum aggregate limits of the
Company's commercial excess insurance policies are paid.

                                      -13-
<PAGE>

Other
-----

     Recent Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. SFAS No.
133 requires companies to recognize all derivatives as either assets or
liabilities, with the instruments measured at fair value. The accounting for
changes in fair value, gains or losses, depends on the intended use of the
derivative and its resulting designation. In June 1999, the FASB issued SFAS No.
137 which deferred the effective date of adoption of SFAS No. 133 to fiscal
years beginning after June 15, 2000. The Company adopted SFAS 133 in the fiscal
quarter ended December 31, 2000 and the adoption did not have an impact on the
Company's financial statements.

     In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"), which clarifies the
SEC's views related to revenue recognition and disclosure. In June 2000, the SEC
issued SAB 101B which delays the implementation date of SAB 101. The Company
will adopt SAB 101 in the fourth quarter of fiscal 2001 and is presently
determining the effect it will have on its financial statements.

PART II - Other Information

Item 1.  Legal Proceedings
         -----------------

     Product Liability Litigation: Subsequent to the market withdrawal of Redux
in September 1997, the Company has been named, together with other
pharmaceutical companies, as a defendant in approximately 3,200 legal actions,
many of which purport to be class actions, in federal and state courts relating
to the use of Redux. The actions generally have been brought by individuals in
their own right or on behalf of putative classes of persons who claim to have
suffered injury or who claim that they may suffer injury in the future due to
use of one or more weight loss drugs including Pondimin (fenfluramine),
phentermine and Redux. Plaintiffs' allegations of liability are based on various
theories of recovery, including, but not limited to, product liability, strict
liability, negligence, various breaches of warranty, conspiracy, fraud,
misrepresentation and deceit. These lawsuits typically allege that the short or
long-term use of Pondimin and/or Redux, independently or in combination
(including the combination of Pondimin and phentermine popularly known as
"fen-phen"), causes, among other things, primary pulmonary hypertension,
valvular heart disease and/or neurological dysfunction. In addition, some
lawsuits allege emotional distress caused by the purported increased risk of
injury in the future. Plaintiffs typically seek relief in the form of monetary
damages (including economic losses, medical care and monitoring expenses, loss
of earnings and earnings capacity, other compensatory damages and punitive
damages), generally in unspecified amounts, on behalf of the individual or the
class. In addition, some actions seeking class certification ask for certain
types of purportedly equitable relief, including, but not limited to,
declaratory judgments and the establishment of a research program or medical
surveillance fund. On December 10, 1997, the federal Judicial Panel on
Multidistrict Litigation issued an Order allowing for the transfer or potential
transfer of the federal actions to the Eastern District of Pennsylvania for
coordinated or consolidated pretrial proceedings. To date, there have been no
judgments against the Company, nor has Interneuron paid any amounts in
settlement of any of these claims. Following the dismissal and the anticipated
dismissal of Interneuron as a defendant in certain cases, the Company estimates
that there will be approximately 2,200 active cases.

     Rejected Settlement: On September 27, 1999, the Company announced that the
District Court rejected

                                      -14-
<PAGE>

a proposed agreement among the Company and the Plaintiffs Management Committee
in the Multidistrict Litigation to settle all product liability litigation and
claims against the Company related to Redux. The District Court found that the
proposed settlement did not meet the requirements for limited fund class
actions, as described by the Supreme Court in its June 23, 1999 decision in
Ortiz v. Fibreboard Corp. The District Court also vacated the stays of pending
and future litigation that were previously in effect. The Company filed a
petition with the U.S. Court of Appeals for the Third Circuit on October 12,
1999, seeking review of the District Court's ruling and on April 13, 2000 moved
to dismiss such petition. The motion was granted on April 25, 2000. As a result
of the District Court's rejection of the proposed settlement agreement, the
ongoing Redux-related litigation is proceeding against the Company.

     On November 23, 1999, the District Court preliminarily approved a proposed
nationwide settlement of AHP product liability litigation related to Redux and
Pondimin. The Company is not a released party under this settlement.

     Interpleader Litigation and Funding of Product Liability Litigation Costs:
On November 20, 1998, December 30, 1998 and February 5, 1999, the Company's
three product liability insurers filed actions against Servier and the Company
in the District Court, pursuant to the federal interpleader statute. The
aggregate limits of the three commercial excess insurance policies issued by the
insurers to the Company is $40,000,000 in tiers of $20,000,000, $5,000,000 in
excess of $20,000,000, and $15,000,000 in excess of $25,000,000. The insurers
alleged that the Company asserted claims against these policies, a substantial
portion of which has been used in the Company's defense of the litigation, and
Servier, as an additional insured under these policies, asserted its right to
claim against these policies. The insurers deposited the available proceeds up
to the limits of their policies (the "Deposited Funds"), which are subject to
ongoing claims by the Company and Servier, into the registry of the District
Court. On May 3, 2000, the Company moved to dismiss such actions as moot in
light of the District Court's rejection of the Company's proposed settlement and
the dismissal of the Company's petition to appeal from such order. In October
2000, the District Court dismissed the interpleader actions and the Deposited
Funds were subsequently returned to the insurance companies. In January 2001,
the Company was reimbursed for litigation expenses previously incurred by the
Company. See "Liquidity and Capital Resources--Analysis of Cash Flows."

    Complaint Against AHP: On January 24, 2000, the Company announced it has
filed a complaint against AHP in the Superior Court of the Commonwealth of
Massachusetts. The complaint seeks unspecified but substantial damages and
attorneys' fees pursuant to common and statutory law for AHP's knowing and
willful deceptive acts and practices, fraud and misrepresentations and breach of
contract. AHP filed an answer to such complaint. The Company cannot predict its
costs relative to this litigation or the duration or the outcome of the
proceedings.

    General: Pursuant to agreements between the parties, under certain
circumstances, the Company may be required to indemnify Servier, Boehringer
Ingelheim Pharmaceuticals, Inc. and AHP, and the Company may be entitled to
indemnification by AHP, against certain claims, damages or liabilities incurred
in connection with Redux. The cross indemnification between the Company and AHP
generally relates to the activities and responsibilities of each company.

    Although the Company maintains certain product liability and director and
officer liability insurance and intends to defend these and similar actions
vigorously, the Company has been required and may continue to be required to
devote significant management time and resources to these legal actions. In the
absence of a settlement and in the event of successful uninsured or
insufficiently insured claims, or in the event a successful indemnification
claim were made against the Company, the Company's business, financial condition
and results of operations could be materially adversely affected. Even if a
settlement is reached, the terms of such settlement may include cash and/or the
issuance of the Company's securities, which may

                                      -15-
<PAGE>

materially adversely affect the Company's financial condition and results of
operations and result in dilution to the Company's stockholders. The
uncertainties and costs associated with these legal actions have had, and may
continue to have, an adverse effect on the market price of the Company's Common
Stock and on the Company's ability to obtain corporate collaborations or
additional financing to satisfy cash requirements, to retain and attract
qualified personnel, to develop and commercialize products on a timely and
adequate basis, to acquire rights to additional products, or to obtain product
liability insurance for other products at costs acceptable to the Company, or at
all, any or all of which may materially adversely affect the Company's business,
financial condition and results of operations.

    Item 6.       Exhibits and Reports on Form 8-K
                  ---------------------------------

    (a)  Exhibits

         10.119  - License Agreement by and between Charles S. Lieber, M.D. and
                    Interneuron Pharmaceuticals, Inc. dated December 26, 2000(1)
--------------------------------------
    (1)     Confidential treatment requested.

 (b)     Reports on Form 8-K

         The Company did not file any reports on Form 8-K during the three month
         period ended December 31, 2000.

                                      -16-
<PAGE>

                                  SIGNATURES

  Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                   INTERNEURON PHARMACEUTICALS, INC.

Date: February 14, 2001            By: /s/ Glenn L. Cooper
                                      __________________________________
                                   Glenn L. Cooper, M.D., President, Chairman
                                   and Chief Executive Officer
                                   (Principal Executive Officer)

Date: February 14, 2001            By: /s/ Michael W. Rogers
                                      __________________________________
                                   Michael W. Rogers, Executive Vice President,
                                   Chief Financial Officer and Treasurer
                                   (Principal Financial Officer)

Date: February 14, 2001            By: /s/ Dale Ritter
                                      __________________________________
                                   Dale Ritter, Senior Vice President, Finance
                                   (Principal Accounting Officer)

                                      -17-