<PAGE>

Confidential Treatment Requested. Confidential portions of this document have
been redacted and have been filed separately with the Commission.





                               LICENSE AGREEMENT

                                by and between

                            CHARLES S. LIEBER, M.D.

                                      and

                       INTERNEURON PHARMACEUTICALS, INC

                                     dated

                               December 26, 2000
<PAGE>

     THIS LICENSE AGREEMENT effective as of December 26, 2000 ("Effective
Date"), by and between Charles S. Lieber, M.D., an individual having his
principal office at 6 Johnsons Avenue, Englewood Cliffs, New Jersey 07632
("LIEBER") and Interneuron Pharmaceuticals, Inc., a corporation organized and
existing under the laws of the State of Delaware and having its principal office
at 99 Hayden Avenue, Suite 200, Lexington, Massachusetts 02421 ("Interneuron").

W I T N E S S E T H:

     WHEREAS, LIEBER is the owner of the Patent Assets, as defined herein;

     WHEREAS, pursuant to an Option Agreement dated as of March 9, 1997 (the
"Option Agreement"), LIEBER granted Interneuron the exclusive option (the
"Option") to obtain a license under the Patent Assets, subject to certain terms
and conditions;

     WHEREAS, Interneuron desires to exercise the Option and obtain license
rights, with a right to grant sublicenses, under the Patent Assets, and LIEBER
desires to grant such license to Interneuron, upon the terms and conditions set
forth herein; and

     NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, 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.  "Affiliate" shall mean (i) any corporation or business entity of which
       ---------
      more than fifty percent (50%) of the securities or other ownership
      interests representing the equity, the voting stock or general partnership
      interest are owned, controlled or held, directly or indirectly, by a
      Party; (ii) any corporation or business entity which, directly or
      indirectly, owns, controls or holds more than fifty percent (50%) (or the
      maximum ownership interest permitted by law) of the securities or other
      ownership interests representing the equity, voting stock or general
      partnership interest of a Party or (iii) any corporation or business
      entity of which a Party has the right to acquire, directly or indirectly,
      at least fifty percent (50%) of the securities or other ownership
      interests representing the equity, voting stock or general partnership
      interest thereof.

1.2.  "Alcoholic Cirrhosis Study" shall mean the ongoing Phase 3 double-blind
       -------------------------
      placebo-controlled clinical studies evaluating the use of Compound to
      treat and prevent alcoholic cirrhosis and fibrosis of the liver that are
      being sponsored in part by the Veterans Administration.

                                       2
<PAGE>

1.3.  "Business Day(s)" means any day that is not a Saturday or a Sunday or a
       ---------------
      day on which the New York Stock Exchange is closed.

1.4.  "Calendar Quarter" shall mean the respective periods of three (3)
       ----------------
      consecutive calendar months ending on March 31, June 30, September 30 and
      December 31.

1.5.  "Calendar Year" shall mean each successive period of twelve (12) months
       -------------
      commencing on January 1 and ending on December 31.

1.6.  "Compound" shall mean dilinoleoylphosphatidylcholine (DLPC), any
       --------
      derivative, homolog, or analog thereof, and any isomer, salt, hydrate,
      solvate, amide, prodrug and esters thereof, and any pharmaceutical
      composition containing any of the foregoing in any pharmaceutically
      acceptable form.

1.7.  "Data Delivery Date" shall mean the date on which the final results of the
       ------------------
      Alcoholic Cirrhosis Study are available to Interneuron.

1.8.  "Effective Date" shall mean the date first above written.
       --------------

1.9.  "Europe" shall mean all countries under the regulatory jurisdiction of the
       ------
      European Medicines Evaluation Authority (or any successor agency having
      substantially the same functions).

1.10. "Exclusive Territory" shall mean the United States of America, including
       -------------------
      the territories and possessions of the United States of America (including
      the District of Columbia, Puerto Rico and U.S. Virgin Islands), Canada,
      Japan and the Republic of Korea.

1.11. "FDA" shall mean the United States Food and Drug Administration and any
       ---
      successor agency having substantially the same functions.

1.12. "First Commercial Sale" shall mean the first sale of Product by
       ---------------------
      Interneuron, its Affiliate or its sublicensee(s), for end use or
      consumption, after all required approvals have been granted by the
      governing health authority of such country or where regulatory approval is
      not required, the first sale in that country in connection with the
      nationwide introduction of Product in such country.

1.13. "GAAP" means generally accepted accounting principles in the United
       ----
      States.

1.14. "Hepatitis C Study" shall mean a clinical trial evaluating the use of
       -----------------
      Compound in patients with liver disease and hepatitis C that is to be
      sponsored in part by the NIH.

1.15. "Improvement" shall mean any enhancement in the manufacture, formulation,
       -----------
      ingredients, means of delivery or administration, dosage, indication or
      use of Compound or Product which could have application in the prevention
      or treatment of fibrosis or cirrhosis of the liver.

1.16. "IND" shall mean an FDA investigational new drug application, and any
       ---
      supplements and additions thereto, relating to the use of Product.



*Confidential Treatment Requested.

                                       3
<PAGE>

1.17.  "NDA" shall mean a new drug application filed with the FDA for marketing
        ---
       authorization of a Product in the United States.

1.18.  "Net Sales" shall mean the actual gross amount invoiced for the sale of
        ---------
       Product (except as provided in Section 5.2.3), commencing upon the date
       of First Commercial Sale, after deducting, in accordance with GAAP, the
       following :

               (i)    trade, cash and quantity discounts;

               (ii)   recalls and credits on account of returned or rejected
                      Product;

               (iii)  rebates and chargebacks;

               (iv)   retroactive price reductions;

               (v)    sales or excise taxes, VAT or other taxes, and
                      transportation and insurance charges and additional
                      special transportation, custom duties, and other
                      governmental charges; and

               (vi)   write-offs for bad debts or allowances.



1.19.  "NIH" shall mean the United States National Institutes of Health, or any
        ---
       successor agency having substantially the same functions.

1.20.  "Party" shall mean LIEBER or Interneuron.
        -----

1.21.  "Patent Assets" shall mean the patent and applications listed on Schedule
        -------------
       1.21 hereto, and further including (a) any divisions, continuations,
       continuations-in-part, reissues, renewals, extensions, supplementary
       protection certificates or the like relating to those patent and
       applications on Schedule 1.21 and (b) any patents or patent applications
       covering any Improvements made by LIEBER which as of the Effective Date
       or at any time during the term of this Agreement are owned or controlled
       by LIEBER or which LIEBER through license or otherwise has or acquires
       rights (and is not prohibited from sublicensing to third parties).

1.22.  "Positive Results" shall mean the final results of the Alcoholic
        ----------------
       Cirrhosis Study, delivered to Interneuron in the form of the SAS original
       data listings that, in Interneuron's judgment, are supportive and
       sufficient to submit an NDA to the FDA without any additional clinical
       testing of Compound.

1.23.  "Positive Interim Results" shall mean the interim data of the Hepatitis C
        ------------------------
       Study, delivered to Interneuron, that result in a decision to continue
       the study and are deemed by Interneuron to be positive.



*Confidential Treatment Requested.

                                       4
<PAGE>

1.24.  "Product" shall mean any product in final form for commercial sale by
        -------
       prescription, over-the-counter, or by any other method, which contains
       Compound in any dosage form as an active ingredient.

1.25.  "Proprietary Information" shall mean any and all scientific, clinical,
        -----------------------
       regulatory, marketing, financial and commercial information or data,
       whether communicated in writing, orally or by any other means, which is
       provided by one Party to the other Party in connection with this
       Agreement.

1.26.  "Royalty Year" shall mean each successive twelve (12) month period
        ------------
       commencing with the first day of the first month in which occurs the
       First Commercial Sale.

1.27.  "Semi-exclusive License" shall mean a non-exclusive license for the Semi-
        ----------------------
       exclusive Territory, provided, however, that LIEBER may grant only one
       other non-exclusive license within the Semi-exclusive Territory, and
       subject to the provisions of Section 2.1 of this Agreement.

1.28.  "Semi-exclusive Territory" shall mean all of the countries in the
        ------------------------
       Territory except those in the Exclusive Territory and those in Europe
       subject to the previously granted exclusive option from LIEBER to Dr.
       Falk Pharma GmbH, of Freiburg, Germany ("Falk").

1.29.  "Territory" shall mean all of the countries in the world.
        ---------

1.30.  "Third Party(ies)" shall mean a person or entity who or which is neither
        ----------------
       a Party nor an Affiliate of a Party.

1.31.  "Valid Claim" means a claim of an issued and unexpired patent included
        -----------
       within the Patent Assets, which has not been revoked or held
       unenforceable or invalid by a decision of a court or other governmental
       agency of competent jurisdiction, unappealable or for which an appeal has
       not been filed within the time allowed for appeal, and which has not been
       disclaimed, denied or admitted to be invalid or unenforceable through
       reissue or disclaimer or otherwise.



ARTICLE II
LICENSE; SUBLICENSES

2.1.  License Grant. LIEBER hereby grants to Interneuron a license under the
      -------------
      Patent Assets, including the right to grant sublicenses, to develop, make,
      have made, use, import, offer for sale, market and sell and otherwise
      dispose of Product, including any Improvements made by LIEBER. The
      foregoing license shall be an exclusive (even as to LIEBER) license in the
      Exclusive Territory and a Semi-exclusive License in the Semi-exclusive
      Territory, except that in the event Interneuron exercises its Exclusive
      Option, as defined and under Section 2.2 hereof, the foregoing license
      shall be an exclusive license in the Territory, effective as of the date
      Interneuron elects to exercise such Exclusive Option. Notwithstanding the
      foregoing, no provision in this Agreement shall be construed to prevent
      LIEBER from conducting research.



*Confidential Treatment Requested.

                                       5
<PAGE>

2.2.  Option to License. In the event LIEBER does not enter into a license
      -----------------
      agreement with Falk in Europe within six (6) months after the Data
      Delivery Date, then Interneuron shall have an exclusive option (the
      "Exclusive Option"), exercisable for a period of three (3) months
      commencing upon the expiration of such six (6) month period, to obtain
      from LIEBER an exclusive license, identical to the license granted by
      LIEBER to Interneuron under the first sentence of Section 2.1 of this
      Agreement, in Europe. Until expiration of Interneuron's Exclusive Option
      period, LIEBER shall not grant any rights to Third Parties that are
      inconsistent with Interneuron's rights under this Section 2.2. In the
      event Interneuron exercises the Exclusive Option:

          (a)  it shall provide written notice of such election to LIEBER prior
               to expiration of the three (3) month Exclusive Option period;

          (b)  the license granted by LIEBER to Interneuron under this Agreement
               shall automatically become an exclusive license in the Territory,
               effective upon the date of such election; and

          (c)  subject to the terms and conditions contained in this Agreement
               and in consideration of the rights granted by LIEBER to
               Interneuron under this Agreement, Interneuron shall make the
               additional payments applicable to the Exclusive Option and the
               license obtained upon exercise of the Exclusive Option.

2.3.  Improvements by Interneuron. Title to any Improvement developed or
      ---------------------------
      discovered by Interneuron in connection with the license granted under
      Section 2.1 above shall be vested solely in Interneuron.

2.4.  Sublicenses.
      ------------

          (a)  Interneuron shall have the right to grant sublicenses to
               Affiliates or any Third Party to develop, make, have made, use,
               import, market, sell, have sold, offer to sell and import
               Product. Each such sublicense shall include a provision that the
               sublicensee's obligations to Interneuron under the sublicense
               shall become obligations to LIEBER upon termination of this
               Agreement and assignment of the sublicense to LIEBER pursuant to
               Section 2.4(b).

          (b)  Upon termination of this Agreement by Interneuron, LIEBER shall
               accept assignment of sublicenses, provided that:

               (ii)   the sublicensee is not in breach of its sublicense
                      agreement at the time of termination of this Agreement;
                      and

               (iii)  the sublicensee acquires no rights from or obligations on
                      the part of LIEBER, other than those that are specifically
                      granted in this Agreement, and the sublicensee assumes all
                      obligations to LIEBER required of Interneuron by this
                      Agreement.



*Confidential Treatment Requested.

                                       6
<PAGE>

ARTICLE III
DEVELOPMENT AND COMMERCIALIZATION

3.1.  Exchange of Information. During the term of this Agreement, LIEBER shall
      -----------------------
      promptly disclose to Interneuron in writing on an ongoing basis any
      development regarding the Patent Assets, the Compound or the Product and
      shall disclose to Interneuron in writing within 10 Business Days of his
      receipt of any final data or interim results of each of the Alcoholic
      Cirrhosis Study and the Hepatitis C Study, subject to the provisions of
      Article IV hereunder. Assuming the sufficiency of the final data of the
      Alcoholic Cirrhosis Study, Interneuron shall be responsible for compiling
      such data into a format suitable for inclusion in a Good Clinical Practice
      ("GCP") statement of compliance to be completed by Interneuron at its
      expense.

3.2.  Diligence; Development and Commercialization. Interneuron shall use
      --------------------------------------------
      commercially reasonable efforts to develop and commercialize Product,
      including the preparation and filing of regulatory submissions. As used
      herein, "commercially reasonable efforts" shall mean efforts and resources
      normally used by Interneuron for a product owned by it or to which it has
      exclusive rights, which is of similar market potential at a similar stage
      in its development or product life, taking into account issues of safety
      and efficacy, product profile, the competitiveness of the marketplace, the
      proprietary position of the compound or product, the regulatory and
      reimbursement structure involved, the profitability of the applicable
      products, and other relevant factors.

3.3.  Regulatory Matters.
      ------------------

          (a)  Interneuron shall own, control and retain primary legal
               responsibility for the preparation, filing and prosecution of all
               filings and regulatory applications required to obtain
               authorization to commercially develop, sell and use Product in
               each country of the Exclusive Territory, the Semi-Exclusive
               Territory and, if Interneuron exercises the Exclusive Option, the
               Territory. Interneuron shall promptly notify LIEBER upon the
               receipt of regulatory approvals and of the date of First
               Commercial Sale.

          (b)  LIEBER shall transfer to Interneuron as soon as practicable after
               the Effective Date any IND or other regulatory filings relating
               to Compound or Product owned or controlled by LIEBER, and LIEBER
               shall allow Interneuron to cross reference any other IND or Drug
               Master File relating to Compound or Product to the extent (a)
               LIEBER is legally able to do so and (b) such transfer does not
               impair LIEBER's ability to conduct ongoing research. Such
               transfer will occur within 30 days of satisfaction of the
               milestone payment of section 5.1(a) hereunder. LIEBER shall add a
               representative designated by Interneuron as a member of the
               Executive Committee managing the Hepatitis C Study. Interneuron's
               initial designee to such Executive Committee shall be Bobby W.
               Sandage, Jr. Ph.D. Upon



*Confidential Treatment Requested.

                                       7
<PAGE>

               Interneuron's request, LIEBER shall consult and cooperate with
               Interneuron in connection with obtaining regulatory approval of
               Product.

3.4.  Trademark. Interneuron shall select, own and maintain trademarks for
      ---------
      Product.

3.5.  Manufacturing. Interneuron shall be solely responsible for manufacture of
      -------------
      the Compound and Product in the Exclusive Territory and the Semi-exclusive
      Territory and, if Interneuron exercises the Exclusive Option, the
      Territory.

3.6.  Adverse Events. LIEBER shall promptly furnish to Interneuron all
      --------------
      information concerning safety or utility of Compound or Product, such as
      adverse or unexpected side effects, injury or other events associated with
      uses, studies, investigations or tests of Compound or Product, whether or
      not LIEBER is required to report such information to any regulatory
      authority and whether or not such event is determined to be attributable
      to Compound or Product.

3.7.  Third Party Agreements and Study Payments. Interneuron shall not be
      -----------------------------------------
      responsible for any contractual obligations incurred prior to the
      Effective Date in connection with either the Alcoholic Cirrhosis Study or
      the Hepatitis C Study. Interneuron shall be responsible for contracting
      with, and shall pay directly to, the supplier the following costs of
      supply and distribution of Compound for the Hepatitis C Study:

          (a)  $[*], plus any transportation, customs, and incidental costs,
               payable within ten Business Days of execution of this Agreement
               to cover the cost of the Product for the Hepatitis C Study; and

          (b)  $[*], plus any transportation, customs, and incidental costs to
               replace defective Product intended for use in the Hepatitis C
               Study, payable within ten Business Days of notification by
               LIEBER.

      In addition, provided that Interneuron has received Positive Interim
      Results, Interneuron shall pay (i) up to $[*] three years from the
      Effective Date; and (ii) up to $[*] four years from the Effective Date,
      each payment in an amount necessary to defray costs of the Hepatitis C
      Study and payable to the Kingsbridge Research Foundation or any successor
      to it responsible for the Hepatitis C Study, provided that such costs are
      set forth in a budget that Interneuron has had an opportunity to review
      and approve.



ARTICLE IV
CONFIDENTIALITY AND PUBLICITY

4.1.  Non-Disclosure and Non-Use Obligations. All Proprietary Information
      --------------------------------------
      disclosed by one Party to the other Party hereunder shall be maintained in
      confidence and shall not be disclosed to any Third Party or used for any
      purpose except as expressly permitted herein without the prior written
      consent of the Party that disclosed the Proprietary Information to the
      other Party. The foregoing non-disclosure and non-use obligations shall
      not apply to the extent that such Proprietary Information:

*Confidential Treatment Requested

                                       8
<PAGE>

          (c)  is known by the receiving Party at the time of its receipt, and
               not through a prior disclosure by the disclosing Party, as
               documented by business records;

          (d)  is properly in the public domain or knowledge;

          (e)  is subsequently disclosed to a receiving Party by a Third Party
               who may lawfully do so and is not under an obligation of
               confidentiality to the disclosing Party; or

          (f)  is developed by the receiving Party independently of Proprietary
               Information received from the other Party, as documented by
               research and development records.

4.2.  Permitted Disclosure of Proprietary Information. Notwithstanding Section
      -----------------------------------------------
      4.1, a Party receiving Proprietary Information of another Party may
      disclose such Proprietary Information:

          (a)  to governmental or other regulatory agencies in order to obtain
               patents pursuant to this Agreement, or to gain approval to
               conduct clinical trials or to market Product, but such disclosure
               may be only to the extent reasonably necessary to obtain such
               patents or authorizations;

          (a)  by each of Interneuron or LIEBER to its respective agents,
               consultants, Affiliates, Interneuron's sublicensees and/or other
               Third Parties for the research and development, manufacturing
               and/or marketing of the Compound and/or Product (or for such
               parties to determine their interests in performing such
               activities) on the condition that such Third Parties agree to be
               bound by the confidentiality obligations contained in this
               Agreement; or

          (b)  if required to be disclosed by law or court order, provided that
               notice is promptly delivered to the non-disclosing Party in order
               to provide an opportunity to challenge or limit the disclosure
               obligations; provided, however, without limiting any of the
               foregoing, it is understood that Interneuron or its Affiliates
               may make disclosure of this Agreement and the terms hereof in any
               filings required by the Securities and Exchange Commission
               ("SEC"), may file this Agreement as an exhibit to any filing with
               the SEC and may distribute any such filing in the ordinary course
               of its business.

          (c)  Neither Party shall use the name of the other Party in any
               publicity or advertising without the prior written approval of
               the other Party. Upon execution of this Agreement, either Party
               may issue a press release in the form to be attached as Appendix
               4.2.

4.3  Publication  Both Parties acknowledge the mutual interest in publishing
     -----------
     results relating to Product and obtaining valid patent protection.
     Consequently, in the event LIEBER or

                                       9
<PAGE>

      Interneuron or any of their Affiliates wishes to make a publication
      relating to Compound or Product, the party seeking to publish shall
      deliver to the other a copy of the proposed publication or an outline of
      the oral disclosure at least thirty (30) Business Days prior to submission
      or presentation, such that any issue of patent protection can be resolved.

ARTICLE V
PAYMENTS; ROYALTIES AND REPORTS

5.1.  Milestone Payments. Subject to the terms and conditions contained in this
      ------------------
      Agreement, and in consideration of the rights granted by LIEBER hereunder,
      Interneuron shall pay LIEBER the following milestone payments, contingent
      upon occurrence of the specified event, with each milestone payment to be
      made no more than once with respect to the achievement of such milestone
      (but payable the first time such milestone is achieved) for Compound or
      Product, as applicable:

          (a)  $[*] upon receipt by Interneuron of Positive Results of the
               Alcoholic Cirrhosis Study;

          (b)  $[*] upon the earlier of obtaining regulatory approval for
               marketing of Product in the United States or Japan;

          (c)  in the event Interneuron has exercised its Exclusive Option under
               Section 2.2 hereof, $[*] upon obtaining regulatory approval in
               Europe;

          (d)  $[*] upon the earlier of First Commercial Sale in the United
               States or Japan; and

          (e)  in the event Interneuron has exercised its Exclusive Option under
               Section 2.2 hereof, $[*] upon First Commercial Sale in Europe.

      Interneuron shall notify LIEBER in writing within thirty (30) days after
      the achievement of each milestone, and such notice shall be accompanied by
      payment of the appropriate milestone payment.

5.2.  Royalties and Other Payments.
      -----------------------------

      5.2.1.  Royalties Payable By Interneuron.

              (i)  Subject to the terms and conditions of this Agreement, and in
                   consideration of the rights granted by LIEBER hereunder,
                   Interneuron shall pay to LIEBER royalties in an amount equal
                   to the following percentages of Net Sales in each Royalty
                   Year by Interneuron or its Affiliates in each country in the
                   Exclusive Territory where the manufacture, use or sale of
                   such Product would, absent the license granted hereunder,
                   infringe one or more Valid Claims of the Patent Assets in
                   such country:

                     Amount of Net Sales                    Royalty Rate
                     -------------------                    ------------



*Confidential Treatment Requested.

                                      10
<PAGE>

               Up to $[*] million                                [*]%

               Over $[*] million and up to $[*] million          [*]%

               More than $[*] million                            [*]%



     (ii)   Subject to the terms and conditions of this Agreement, and in
            consideration of the rights granted by LIEBER hereunder, Interneuron
            shall pay to LIEBER royalties in an amount equal to the following
            percentages of Net Sales in each Royalty Year by Interneuron or its
            Affiliates in each country in the Semi-Exclusive Territory where the
            manufacture, use or sale of such Product would, absent the license
            granted hereunder, infringe one or more Valid Claims of the Patent
            Assets in such country:

               Amount of Net Sales                           Royalty Rate
               -------------------                           ------------

               Up to $[*] million                                [*]%

               Over $[*] million and up to $[*] million          [*]%

               More than $[*] million                            [*]%

     (iii)  In the event Interneuron exercises its Exclusive Option under
            Section 2.2 of this Agreement, then subject to the terms and
            conditions of this Agreement, and in consideration of the rights
            granted by LIEBER hereunder, Interneuron shall pay to LIEBER
            royalties in an amount equal to the following percentages of Net
            Sales in each Royalty Year by Interneuron or its Affiliates in each
            country in Europe where the manufacture, use or sale of such Product
            would, absent the license granted hereunder, infringe one or more
            Valid Claims of the Patent Assets in such country:

               Amount of Net Sales                           Royalty Rate
               -------------------                           ------------

               Up to $[*] million                                [*]%

               Over $[*] million and up to $[*] million          [*]%

               More than $[*] million                            [*]%



*Confidential Treatment Requested.

                                      11
<PAGE>

       (iv)  Royalties on Net Sales at the rates set forth in (i), (ii) and, if
       applicable, (iii) above shall accrue as of the date of First Commercial
       Sale of Product in the applicable country and shall continue and accrue
       on Net Sales on a country-by-country basis until (a) for Net Sales in the
       United States, the expiration of U.S. Patent No. 5,284,835 and (b) for
       Net Sales in any country outside the United States, the expiration in
       such country of any foreign patent that is the counterpart to U.S. Patent
       No. 5,284,835. Thereafter, Interneuron shall be relieved of any royalty
       payment under this Section 5.2.

       (v)   The payment of royalties set forth above shall be subject to the
             following conditions:

             (A)  only one payment shall be due with respect to the same unit of
                  Product;

             (B)  no royalties shall accrue on the disposition of Product by
                  Interneuron, Affiliates or sublicensees as samples (promotion
                  or otherwise) or as donations (for example, to non-profit
                  institutions or government agencies); and

             (C)  LIEBER shall be responsible for payment of any royalties owed
                  by LIEBER to any Third Party in connection with LIEBER's
                  research relating to Compound or Product.

5.2.2. Sublicenses. In the event that Interneuron enters into a sublicense with
       -----------
       a Third Party or Third Parties, any compensation received by Interneuron
       from the Third Party or Third Parties shall belong to Interneuron except
       that, with respect to sales of Product by the sublicensee(s), in lieu of
       royalty payments set forth in Section 5.2.1, Interneuron shall pay LIEBER
       [*] percent ([*]%) of sublicensing royalties received by Interneuron from
       such sublicensee(s) on net sales of Product(s) by such sublicensee(s).

5.2.3. Minimum Annual Payment. On the fifth Business Day of each Calendar Year
       ----------------------
       (the "Payment Date") during the term of this Agreement, commencing in
       2003, Interneuron shall make to LIEBER an annual non-refundable payment,
       as set forth below, for such Calendar Year (the "Minimum Annual
       Payment"); provided, however, that, Interneuron may credit the Minimum
       Annual Payment against any other payments payable to LIEBER for that
       Calendar Year. The Minimum Annual Payments shall be as follows:

             (1)  $[*] per Calendar Year until expiration of United States
Patent No. 5,284,835;

             (2)  an additional $[*] per Calendar Year if the Japanese patent
application included in the Patent Assets is pending (and has not been
abandoned), which amount shall increase to $[*] per Calendar Year if the
Japanese patent application under the Patent Assets has issued as a patent in
Japan; and



*Confidential Treatment Requested.

                                      12
<PAGE>

             (3)  in the event Interneuron exercises its Exclusive Option under
Section 2.2 hereof and a patent under the Patent Assets has issued in Europe, an
additional $[*] per Calendar Year.

       For example, if:
       (A)  as of the 2003 Payment Date, Interneuron has exercised its Exclusive
            Option and the patent under the Patent Assets has issued in Europe,
            the patent application under the Patent Assets for Japan is pending
            but has not issued as a patent in Japan, the Minimum Annual Payment
            shall be $[*]; however, if Interneuron is obligated to make for the
            Calendar Year ending on December 31, 2003 a payment or payments to
            LIEBER under this Agreement aggregating at least $[*], the Minimum
            Annual Payment shall be credited against any such payments; and

       (B)  as of the 2004 Payment Date, Interneuron has exercised its Exclusive
            Option and the patent under the Patent Assets has issued in Europe,
            the patent application under the Patent Assets for Japan has issued
            as a patent in Japan, the Minimum Annual Payment shall be $[*];
            however, if Interneuron is obligated to make for the Calendar Year
            ending on December 31, 2004 a payment or payments to LIEBER under
            this Agreement aggregating at least $[*], the Minimum Annual Payment
            shall be credited against any such payments.

5.2.4. Royalties for Bulk Compound and Affiliate Sales. Interneuron may sell
       -----------------------------------------------
       bulk Compound to be incorporated into Product, rather than a Product. In
       such event, if Interneuron is unable to determine Net Sales, royalties
       shall be calculated as if the bulk Compound is deemed to be Product. In
       the event that Interneuron transfers Compound (for conversion to Product)
       or Product to one of its Affiliates, there shall be no royalty due at the
       time of transfer. Subsequent sales of any Product by the Affiliate for
       end use shall be reported as Net Sales hereunder by Interneuron.

5.2.5. Compulsory Licenses. If a compulsory license is granted to a Third Party
       -------------------
       with respect to Product in any country in the Territory with a royalty
       rate lower than the royalty rate provided by Section 5.2.1, then the
       royalty rate to be paid by Interneuron on Net Sales in that country under
       Section 5.2.1 shall be reduced to the rate paid by the compulsory Third
       Party licensee.

5.2.6. Third Party Licenses. If one or more licenses from a Third Party or Third
       --------------------
       Parties are obtained by Interneuron in order to develop, make, have made,
       use, sell or import Compound or Product in a particular country, fifty
       percent (50%) of any royalties or other payments paid under such Third
       Party patent licenses by Interneuron in such country for such Calendar
       Quarter shall be creditable against the royalty or other payments payable
       to LIEBER by Interneuron in such country.

5.3. Reports; Payment of Royalty. During the term of the Agreement for so long
     ---------------------------
     as royalty payments are due, Interneuron shall furnish to LIEBER a
     quarterly written report for the Calendar Quarter showing the sales of all
     Products subject to royalty payments sold by


*Confidential Treatment Requested.      13
<PAGE>

     Interneuron, its Affiliates and its sublicensees during the reporting
     period and the royalties payable under this Agreement. Reports shall be due
     on the ninetieth (90/th/) day following the close of each Calendar Quarter.
     Royalties shown to have accrued by each royalty report, if any, shall be
     due and payable on the date such royalty report is due. Interneuron shall
     keep complete and accurate records in sufficient detail to enable the
     royalties hereunder to be determined.

5.4. Audits. Upon the written request of LIEBER and not more than once in each
     ------
     Calendar Year, Interneuron shall permit an independent certified public
     accounting firm selected by LIEBER and reasonably acceptable to Interneuron
     to have access during normal business hours, upon ten-day notice to
     Interneuron, to such of the records of Interneuron as may be reasonably
     necessary to verify the accuracy of the royalty reports hereunder for any
     year ending not more than twenty-four (24) months prior to the date of such
     request. The accounting firm shall disclose to LIEBER only whether the
     royalty reports are correct or incorrect and the specific details
     concerning any discrepancies.

       5.4.1. If such accounting firm concludes that additional royalties were
              owed during such period, Interneuron shall pay the additional
              royalties within sixty (60) days of the date LIEBER delivers to
              Interneuron such accounting firm's written report so concluding;
              provided however, that, in the event that Interneuron shall not be
              in agreement with the conclusion of such report (a) Interneuron
              shall not be required to pay such additional royalties and (b)
              such matter shall be resolved pursuant to the provisions of
              Section 9.5 herein. In the event such accounting firm concludes
              that amounts were overpaid by Interneuron during such period,
              Interneuron shall have a credit against future royalties payable
              to LIEBER in the amount of such overpayment. The fees charged by
              such accounting firm shall be paid by LIEBER; provided, however,
                                                            --------  -------
              that if an error in favor of LIEBER of more than the lesser of (i)
              $50,000 or (ii) seven percent (7%) of the royalties due hereunder
              for the period being reviewed is discovered, then the fees and
              expenses of the accounting firm shall be paid by Interneuron.

       5.4.2. Upon the expiration of twenty-four (24) months following the end
              of any Royalty Year the calculation of royalties payable with
              respect to such year shall be binding and conclusive upon LIEBER,
              and Interneuron and its sublicensees shall be released from any
              liability or accountability with respect to royalties for such
              year.

       5.4.3. LIEBER and Interneuron shall treat all financial information
              subject to review under this Section 5.4 or under any sublicense
              agreement in accordance with the confidentiality provisions of
              this Agreement.

5.5. Payment Exchange Rate. All payments to LIEBER 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 due LIEBER shall be calculated monthly
     in accordance with GAAP and based on the average of the conversion rates on
     the first and last Business Day of each

                                      14
<PAGE>

     month during each Calendar Quarter published in the Wall Street Journal,
     Eastern edition.

5.6. Tax Withholding. If laws, rules or regulations require withholding of
     ---------------
     income taxes or other taxes imposed upon payments set forth in this Article
     V, LIEBER shall provide Interneuron at Interneuron's expense, prior to any
     such payment, annually or more frequently if required, with all forms or
     documentation required by any applicable taxation laws, treaties or
     agreements to such withholding or as necessary to claim a benefit
     thereunder (including, but not limited to, Form 1001, Form W-8BEN or any
     successor form) and Interneuron shall make such withholding payments as
     required and subtract such withholding payments from the payments set forth
     in this Article V. Interneuron shall submit appropriate proof to LIEBER of
     payment of the withholding taxes within a reasonable period of time.
     Interneuron will use commercially reasonable 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 taxation treaties or agreements between foreign countries, and
     LIEBER shall cooperate with such efforts.

5.7. Exchange Controls. Notwithstanding any other provision of this Agreement,
     -----------------
     if at any time legal restrictions prevent the prompt remittance of part or
     all of the royalties with respect to Net Sales in any country, payment
     shall be made through such lawful means or methods as Interneuron may
     determine. When in any country the law or regulations prohibit both the
     transmittal and deposit of royalties on sales in such a country, royalty
     payments shall be suspended for as long as such prohibition is in effect
     (and such suspended payments shall not accrue interest), and promptly after
     such prohibition ceases to be in effect, all royalties that Interneuron or
     its Affiliates or sublicensees would have been obligated to transmit or
     deposit, but for the prohibition, shall be deposited or transmitted, as the
     case may be, to the extent allowable (with any interest earned on such
     suspended royalties which were placed in an interest-bearing bank account
     in that country, less any transactional costs). If the royalty rate
     specified in this Agreement should exceed the permissible rate established
     in any country, the royalty rate for sales in such country shall be
     adjusted to the highest legally permissible or government-approved rate.

ARTICLE VI
REPRESENTATIONS AND WARRANTIES

6.1. LIEBER Representations and Warranties. LIEBER represents and warrants to
     -------------------------------------
     Interneuron that as of the Effective Date:

          (a)  To the best of his knowledge, LIEBER is unaware of any reason
               that the presumption of validity would not apply to the issued
               patents included in the Patent Assets or that a court of
               competent jurisdiction would, upon investigation, find such
               patents invalid or unenforceable;

                                      15
<PAGE>

          (b)  this Agreement has been duly executed and delivered by him and
               constitutes legal, valid, and binding obligations enforceable
               against him in accordance with its terms;

          (c)  to the best of his knowledge, no approval, authorization,
               consent, or other order or action of or filing with any court,
               administrative agency or other governmental authority is required
               for the execution and delivery by him of this Agreement or the
               consummation by him of the transactions contemplated hereby;

          (d)  he has the full right, power and authority to enter into and
               deliver this Agreement, to perform and to grant the licenses
               granted under Article II hereof and to consummate the
               transactions contemplated hereby;

          (e)  he has not previously assigned, transferred, conveyed or
               otherwise encumbered his right, title and interest in the Patent
               Assets or entered into any agreement with any Third Party which
               is in conflict with the rights granted to Interneuron pursuant to
               this Agreement;

          (f)  he is the sole and exclusive owner under the Patent Assets, all
               of which are free and clear of any liens, charges and
               encumbrances, and no other person, corporate or other private
               entity, or governmental or university entity or subdivision
               thereof (including, without limitation, the NIH, the Veterans
               Administration, Bronx Veterans Affairs Medical Center or the
               Mount Sinai School of Medicine) has any claim of ownership with
               respect to the Patent Assets, whatsoever;

          (g)  to the best of LIEBER's knowledge, the development, manufacture,
               use and sale of Compound and Products do not infringe any patent
               rights owned or possessed by any Third Party;

          (h)  Schedule 1.21 is a complete and accurate list of all patents and
               patent applications in the Territory relating to Compound or
               Product owned by LIEBER or to which LIEBER has the right to
               license;

          (i)  there are no claims, judgments or settlements against or owed by
               LIEBER or pending or, to the best of his knowledge, threatened
               claims or litigation relating to the Patent Assets;

          (j)  to the best of LIEBER's knowledge, he has disclosed to
               Interneuron all relevant information known by him regarding the
               Patent Assets reasonably related to the activities contemplated
               under this Agreement;

          (k)  to his knowledge, no contract research organization, corporation,
               business entity or individual which have been involved in any
               studies conducted for the purpose of obtaining regulatory
               approvals have been debarred individuals or entities within the
               meaning of 21 U.S.C. section 335(a) or (b); and

                                      16
<PAGE>

          (l)  to his knowledge, in connection with development of Product,
               LIEBER has complied in all material respects with applicable U.S.
               laws and regulations.


6.2.  Interneuron Representations and Warranties. Interneuron represents and
      ------------------------------------------
      warrants to LIEBER that as of the Effective Date:

          (a)  this Agreement has been duly executed and delivered by it and
               constitutes legal, valid, and binding obligations enforceable
               against it in accordance with its terms;

          (b)  it has full corporate power and authority to execute and deliver
               this Agreement and to consummate the transactions contemplated
               hereby. All corporate acts and other proceedings required to be
               taken to authorize such execution, delivery, and consummation
               have been duly and properly taken and obtained;

          (c)  no approval, authorization, consent, or other order or action of
               or filing with any court, administrative agency or other
               governmental authority is required for the execution and delivery
               by it of this Agreement or the consummation by it of the
               transactions contemplated hereby.

ARTICLE VII
PATENT MATTERS

7.1.  Filing, Prosecution and Maintenance of Patent Applications or Patents.
      ---------------------------------------------------------------------
      Interneuron shall file, prosecute, and maintain the Patent Assets in
      LIEBER's name and, upon Interneuron's request, LIEBER shall reasonably
      cooperate in the filing, prosecution, or maintenance of such patent
      application or patent. Interneuron shall be responsible for the payment of
      all patent costs in the Exclusive Territory incurred after the date of the
      Option Agreement and, in the event Interneuron exercises its Exclusive
      Option, for the payment of all patent costs in the Territory incurred
      after the date it exercises the Exclusive Option. LIEBER shall be
      responsible for the payment of all other patent costs. If Interneuron
      elects not to file, prosecute or maintain a patent application or patent
      included in the Patent Assets, it shall provide LIEBER with written
      advance notice sufficient to avoid any loss or forfeiture, and LIEBER
      shall have the right, at his sole expense, to file, prosecute, or maintain
      such patent application or patent and, upon LIEBER's request, Interneuron
      shall reasonably cooperate in the filing, prosecution, or maintenance of
      such patent application or patent. Any such election by Interneuron shall,
      at LIEBER's option, convert each and every exclusive license hereunder to
      a non-exclusive license solely in the country in which the particular
      patent or patent application relates.

7.2.  Patent Office Proceedings. Each Party shall inform the other Party of any
      -------------------------
      request for, filing, or declaration of any proceeding before a patent
      office seeking to protest, oppose,

                                      17
<PAGE>

      cancel, reexamine, declare an interference proceeding, initiate a
      conflicts proceeding, or analogous process involving a patent application
      or patent included in the Patent Assets. Each Party thereafter shall
      cooperate fully with the other with respect to any such patent office
      proceeding. Each Party will provide the other with any information or
      assistance that is reasonable.

7.3.  Enforcement and Defense.
      -----------------------

          (a)  Each Party shall promptly give the other Party notice of any
               infringement in the Territory of any patent application or patent
               included in the Patent Assets that comes to such Party's
               attention. The Parties will thereafter consult and cooperate
               fully to determine a course of action, including, without
               limitation, the commencement of legal action by any Party.
               However, Interneuron shall have the first right to initiate and
               prosecute such legal action at its own expense and in the name of
               LIEBER and Interneuron, or to control the defense of any
               declaratory judgment action relating to Patent Assets.
               Interneuron shall promptly inform LIEBER if Interneuron elects
               not to exercise such first right, and LIEBER thereafter shall
               have the right either to initiate and prosecute such action or to
               control the defense of such declaratory judgment action in the
               name of LIEBER and, if necessary, Interneuron. In no event shall
               LIEBER be obligated to enforce or defend any of the Patent
               Assets.

          (b)  If Interneuron elects not to initiate and prosecute an
               infringement or defend a declaratory judgment action in any
               country in the Exclusive Territory as provided in Subsection
               7.3(a), and LIEBER elects to do so, the cost of any agreed-upon
               course of action, including the costs of any legal action
               commenced or any declaratory judgment action defended, shall be
               borne solely by LIEBER.

          (c)  For any such legal action or defense, in the event that any Party
               is unable to initiate, prosecute, or defend such action solely in
               its own name, the other Party will join such action voluntarily
               and will execute all documents necessary for the Party to
               prosecute, defend and maintain such action. In connection with
               any such action, the Parties will cooperate fully and will
               provide each other with any information or assistance that either
               reasonably may request.

          (d)  Any recovery obtained by Interneuron or LIEBER shall be shared as
               follows:

               (i)  the Party that initiated and prosecuted, or maintained the
                    defense of, the action shall recoup all of its costs and
                    expenses (including reasonable attorneys' fees) incurred in
                    connection with the action, whether the recovery is by
                    settlement or otherwise;

                                      18
<PAGE>

               (ii)   the other Party then shall, to the extent possible,
                      recover its costs and expenses (including reasonable
                      attorneys' fees) incurred in connection with the action;

               (iii)  if LIEBER initiated and prosecuted, or maintained the
                      defense of, the action, the amount of any recovery
                      remaining then shall be retained by LIEBER; and

               (iv)   if Interneuron initiated and prosecuted, or maintained the
                      defense of, the action, the amount of any recovery
                      remaining shall be retained by Interneuron, except that
                      LIEBER shall receive a portion equivalent to the royalties
                      or other payments he would have received in accordance
                      with the terms of this Agreement if the infringing sales
                      had been made by Interneuron or its sublicensee(s).

          (e)  LIEBER shall inform Interneuron of any certification regarding
               any Patent Assets it has received pursuant to either 21 U.S.C.
               (S)(S) 355(b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) or under Canada's
               Patented Medicines (Notice of Compliance) Regulations Article 5
               and shall provide Interneuron with a copy of such certification
               within five (5) days of receipt. LIEBER`s and Interneuron's
               rights with respect to the initiation and prosecution, or
               defense, of any legal action as a result of such certification or
               any recovery obtained as a result of such legal action shall be
               allocated as defined in Subsections 7.3(a) through (d); provided,
                                                                       ---------
               however, that Interneuron shall exercise the first right to
               --------
               initiate and prosecute, or defend, any action and shall inform
               LIEBER of such decision within fifteen (15) days of receipt of
               the certification, after which time, if Interneuron has not
               advised LIEBER of its intention to initiate and prosecute, or
               defend, such action, LIEBER shall have the right to initiate and
               prosecute, or defend, such action.

7.4.  Patent Term Extensions and Supplemental Protection Certificates. The
      ---------------------------------------------------------------
      Parties shall cooperate in obtaining patent term extensions or
      supplemental protection certificates or their equivalents in any country
      in the Territory where applicable and where desired by Interneuron. If
      elections with respect to obtaining such extension or supplemental
      protection certificates are to be made, Interneuron shall have the right
      to make the election and LIEBER shall abide by such election.

ARTICLE VIII
TERM AND TERMINATION

8.1.  Term and Expiration. This Agreement shall be effective as of the Effective
      -------------------
      Date and unless terminated earlier pursuant to Section 8.2 and 8.3 below,
      the term of this Agreement shall continue in effect until expiration of
      all royalty obligations hereunder.

                                      19
<PAGE>

8.2.  Termination by Notice. Notwithstanding anything contained herein to the
      ---------------------
      contrary, Interneuron shall have the right to terminate this Agreement at
      any time by giving thirty (30) days advance written notice to LIEBER.
      Except as set forth in this Agreement, in the event of such termination,
      (i) the rights and obligations hereunder, excluding any payment obligation
      that has accrued as of the termination date, shall terminate immediately,
      (ii) Interneuron shall have no further rights with respect to the Patent
      Assets, and (iii) the provisions of Section 8.4 shall be applicable.

8.3.  Termination.
      -----------

      8.3.1  Termination for Cause. Either Party may terminate this Agreement by
             ---------------------
             notice to the other Party at any time during the term of this
             Agreement as follows:

             (a)  if the other Party is in breach of any material obligation
                  hereunder (including, without limitation, payments due under
                  Article V) by causes and reasons within its control, or has
                  breached, in any material respect, any representations or
                  warranties set forth in Article VI, and has not cured such
                  breach within ninety (90) days after notice requesting cure of
                  the breach, provided, however, that if the breach is not
                  capable of being cured within ninety (90) days of such written
                  notice, the Agreement may not be terminated so long as the
                  breaching Party commences and is taking commercially
                  reasonable actions to cure such breach as promptly as
                  practicable; or

             (b)  upon the filing or institution of bankruptcy, reorganization,
                  liquidation or receivership proceedings, or upon an assignment
                  of a substantial portion of the assets for the benefit of
                  creditors by the other Party; provided, however, in the case
                                                ------------------
                  of any involuntary bankruptcy, reorganization, liquidation,
                  receivership or assignment proceeding such right to terminate
                  shall only become effective if the Party consents to the
                  involuntary proceeding or such proceeding is not dismissed
                  within ninety (90) days after the filing thereof.

      8.3.2  Licensee Rights Not Affected.
             ----------------------------

             (a)  In the event Interneuron terminates this Agreement under
                  Section 8.3.1(b), or this Agreement is otherwise terminated
                  under Section 8.3.1(b), or LIEBER is a debtor in a bankruptcy
                  proceeding, whether voluntary or involuntary, all rights and
                  licenses granted pursuant to this Agreement are, and shall
                  otherwise be deemed to be, for purposes of Section 365(n) of
                  11 U.S.C. (S)101 et seq. (the "Bankruptcy Code"), licenses of
                  rights to "intellectual property" as defined under Section
                  101(35A) of the Bankruptcy Code. The Parties agree that
                  Interneuron and LIEBER shall retain and may fully exercise all
                  of their respective rights, remedies and elections under the
                  Bankruptcy Code. The Parties further agree that, in the event
                  of the commencement of a bankruptcy proceeding by or against
                  LIEBER under the Bankruptcy Code, Interneuron shall be
                  entitled to all

                                      20
<PAGE>

               applicable rights under Section 365 of the Bankruptcy Code,
               including but not limited to, entitled to a complete duplicate of
               (or complete access to, as appropriate) any such intellectual
               property and all embodiments of such intellectual property upon
               written request therefor by Interneuron.

          (b)  In the event Interneuron is a debtor in a bankruptcy proceeding,
               whether voluntary or involuntary, all rights and licenses granted
               pursuant to this Agreement are, and shall otherwise be deemed to
               be, for purposes of Section 365 of the Bankruptcy Code, executory
               contracts. The Parties agree that applicable law does not excuse
               LIEBER from accepting performance by, or rendering performance
               under this Agreement and all rights and licenses granted
               hereunder to, a person or entity other than Interneuron.



8.4.  Effect of Expiration or Termination.
      -----------------------------------

          (a)  Expiration or termination of this Agreement shall not relieve the
               Parties of any obligation accruing prior to such expiration or
               termination. In addition to any other provisions of this
               Agreement which by their terms continue after the expiration of
               this Agreement, the provisions of Article IV shall survive the
               expiration or termination of this Agreement and shall continue in
               effect for five (5) years from the date of 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.

          (b)  Except as otherwise provided in this Section 8, in the event of
               termination by Interneuron pursuant to Section 8.2, and if
               requested by LIEBER, Interneuron and LIEBER shall negotiate in
               good faith the commercially reasonable terms of an exclusive
               license from Interneuron to LIEBER of all information, materials,
               Improvements, processes, formulas, data, inventions, know-how,
               trademarks, patent applications, patents, regulatory approvals
               and intellectual property rights which relate to Compound or
               Product and which are in Interneuron's possession or control and
               as to which Interneuron has the right to license or sublicense to
               LIEBER without compensation to any third party.

ARTICLE IX
MISCELLANEOUS

9.1.  Force Majeure. Neither Party shall be held liable or responsible to the
      -------------
      other Party nor be deemed to have defaulted under or breached the
      Agreement for failure or delay in fulfilling or performing any term of the
      Agreement during the period of time when such failure or delay is caused
      by or results from causes beyond the reasonable control of the affected
      Party including, but not limited to, fire, flood, embargo, war, acts of
      war

                                       21
<PAGE>

      (whether war be declared or not), insurrection, riot, civil commotion,
      strike, lockout or other labor disturbance, act of God or act, omission or
      delay in acting by any governmental authority or the other Party. The
      affected Party shall notify the other Party of such force majeure
       circumstances as soon as reasonably practicable.

9.2.  Assignment. The Agreement may not be assigned or otherwise transferred;
      ----------
      provided, however, that (i) Interneuron may assign this Agreement to an
      Affiliate or in connection with the transfer or sale of all or
      substantially all of its assets related to Compound or Product or its
      business or in the event of its merger or consolidation and (ii) LIEBER
      may assign this Agreement in connection with the transfer or sale of the
      Patent Assets with the prior consent of Interneuron. Any permitted
      assignee/transferee shall assume, in writing and prior to any
      assignment/transfer, all obligations of its assignor/transferor under this
      Agreement.

9.3.  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 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. In such event, 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.

9.4.  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, Suite 200
               Lexington, MA 02421
               Attention: President
               Fax No.: 781-862-3859

          if to LIEBER to:

               Charles S. LIEBER, M.D.
               6 Johnsons Avenue
               Englewood Cliffs, NJ 07632
               Fax No.: 201-567-2593

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 a Business Day,

                                       22
<PAGE>

upon confirmed delivery by nationally-recognized overnight courier if so
delivered and on the third Business Day following the date of mailing if sent by
registered or certified mail.

9.5.  Applicable Law and Dispute Resolution. The Agreement shall be governed by
      -------------------------------------
      and construed in accordance with the laws of the United States of America
      and State of New York without reference to any rules of conflict of laws.
      If the Parties are unable to settle the matter between themselves within
      forty-five (45) days, either Party may initiate mediation upon written
      notice to the other Party. If the Parties have not reached a settlement
      within forty-five (45) days of the initiation of the mediation, then
      either Party may initiate the dispute resolution process described in this
      section 9.5, below. Whenever a Party shall decide to institute such
      dispute resolution process, it shall give written notice to that effect to
      the other Party. The Party giving such notice shall refrain from
      instituting the dispute resolution process for a period of sixty (60) days
      following such notice. During such period, the Parties shall continue to
      make good faith efforts to amicably resolve the dispute without the
      dispute resolution process. If the parties are still unable to resolve
      their disputes by the end of the sixty (60) day period, the Parties
      establish the following expedited dispute resolution process. In no event
      shall a demand for dispute resolution 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. Each resolution hereunder shall be final and
      binding on the Parties and shall be enforceable in any court. Except as
      otherwise provided herein:

      (i)    the dispute shall be set forth in writing by the asserting Party;
      (ii)   the Parties shall negotiate in good faith for an additional 20
             Business Days to resolve the dispute;
      (iii)  the retained attorneys will select an independent individual
             experienced in the subject matter relating to the dispute as the
             decision maker, and the three will reach an agreed-upon fee to be
             charged by the decision maker;
      (iv)   the respective positions will be presented to the decision maker by
             the retained attorneys in written briefs within ten Business Days
             of selection and in oral argument within twenty Business Days of
             selection;
      (v)    based on the presentations, the decision maker will declare, in
             writing and within seven Business Days of the oral argument, the
             winning party, the losing party, the relief and the amount of
             payment due the winning party from the losing party (if
             appropriate);
      (vi)   the losing party will, within ten Business Days, abide by the
             decision and pay the amount awarded by the decision maker and the
             agreed-upon fee to the decision maker, with each party to be
             responsible for their own costs, provided, however, that any
             amounts required by this decision to be paid by LIEBER to
             Interneuron shall not exceed, in the aggregate, fifty percent (50%)
             of all payments made to LIEBER pursuant to this Agreement; and
      (vii)  the decision maker has the power and authority to grant injunctive
             relief and to order a party to take certain affirmative action.

                                       23
<PAGE>

9.6.  Entire Agreement. This Agreement 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, 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.

9.7.  Independent Contractors. It is expressly agreed that the Parties shall be
      -----------------------
      independent contractors and that the relationship between the Parties
      shall not constitute a partnership, joint venture or agency. Neither 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
      the other Party, without the prior consent of such other Party.

9.8.  Indemnification. Interneuron shall defend, indemnify and hold harmless
      ----------------
      LIEBER from any and all costs or damages resulting from claims or causes
      of action relating in any way to, or arising in any way out of, any
      activity of Interneuron under this Agreement, including without limitation
      the development, making, having made, use, importation, offer for sale,
      marketing, sale and/or other disposition of Product and/or Compound or
      relate to the Patent Assets except to the extent such Losses are
      determined to have resulted from the negligence or willful misconduct of
      or a breach of this Agreement by LIEBER or relate to the Patent Assets.

9.9.  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 otherwise.

9.10. Headings. The captions to the several Articles and Sections hereof are not
      --------
      a part of the Agreement, but are merely guides or labels to assist in
      locating and reading the several Articles and Sections hereof.

9.11. 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.

                                       24
<PAGE>

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


/s/ Charles S. Lieber
-------------------------------
CHARLES S. LIEBER, M.D.


INTERNEURON PHARMACEUTICALS, INC.


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

                                       25
<PAGE>

                                 SCHEDULE 1.21
                                 -------------

                                 PATENT ASSETS

1. U.S. Patent No. 5,284,835

2. Canadian Patent Application No. 2,141,432

3. Japanese Patent Application No. 6-505,480

4. European Patent Application No. 93918554.2

                                       26
<PAGE>

                                 APPENDIX 4.2
                                 ------------


                             FORM OF PRESS RELEASE


                             FOR IMMEDIATE RELEASE


Contact, at (781) 861-8444:
     Glenn L. Cooper, M.D.                 Michael W. Rogers
     President and CEO                     Exec. VP and Chief Financial Officer

                 INTERNEURON LICENSES PHASE 3 COMPOUND FOR THE

                   TREATMENT AND PREVENTION OF LIVER DISEASE



LEXINGTON, MA, January 10, 2001 - Interneuron Pharmaceuticals, Inc. (NASDAQ:
IPIC) today announced that it has 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. The license
agreement gives Interneuron rights to develop and commercialize the drug in
several major markets, including the United States and Japan. In addition, the
Company announced the initiation of a government-funded Phase 3 clinical trial
evaluating IP 501 in Hepatitis C.

IP 501 is the subject of a recently completed Phase 3 clinical trial funded by
the government to evaluate the compound in alcoholic cirrhosis. The primary
endpoint of the study is reduction in the progression of cirrhosis among drug-
treated pre-cirrhotic patients compared with placebo patients, as measured by
serial liver biopsies. The Company expects to receive a preliminary analysis of
the data in the first quarter of this year.

In addition to this trial, IP 501 is also being studied in another government-
funded, multi-center, Phase 3 clinical trial. This recently initiated, multi-
year trial is designed to evaluate the safety and effectiveness of IP 501 in
treating patients with Hepatitis C-associated cirrhosis.

Under the terms of the license agreement, the Company has acquired rights to
develop and commercialize IP 501 in the United States, Canada, Japan, Korea,
and, under certain circumstances, Europe and other markets. Interneuron is
responsible for all remaining clinical and regulatory development,
manufacturing, and marketing of the compound.


                                    -MORE-

                                       27
<PAGE>

Interneuron Pharmaceuticals 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.

Except for the descriptions of historical facts contained herein, this press
release contains forward-looking statements that involve risks and uncertainties
that could cause the Company's actual results and financial condition to differ
materially from those anticipated by the forward looking statements. These risks
and uncertainties are set forth in the Company's filings under the Securities
Act of 1933 and the Securities Exchange Act of 1934 under "Risk Factors" and
elsewhere, and 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.

                                       28