<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 March 31, 2000

[ ]  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 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 May 12, 2000:
Common Stock $.001 par value                   42,688,695 shares
<PAGE>

                       INTERNEURON PHARMACEUTICALS, INC.

                              INDEX TO FORM 10-Q


PART I.  FINANCIAL INFORMATION                                       PAGE

Item 1. Financial Statements

Consolidated Balance Sheets as of March 31, 2000
  and September 30, 1999.............................................  3

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

Consolidated Statements of Cash Flows for the Six Months
  ended March 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................................ 10


PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings........................................... 17

Item 4.  Submission of Matters to a Vote of Security Holders......... 19

Item 6.  Exhibits and Reports on Form 8-K............................ 19

SIGNATURES........................................................... 21


                                      -2-
<PAGE>

Item 1.  Financial Statements

                       INTERNEURON PHARMACEUTICALS, INC.
                          CONSOLIDATED BALANCE SHEETS
                                  (Unaudited)
                   (Amounts in thousands except share data)
<TABLE>
<CAPTION>
                                                                          March 31,     September 30,
                                                                           2000             1999
                                                                         ----------    -------------
<S>                                                                    <C>           <C>
                                    ASSETS
Current assets:
  Cash and cash equivalents                                             $    33,510   $      19,354
  Marketable securities                                                         999           2,457
  Accounts receivable                                                           685             785
  Insurance claim receivable                                                  2,459              --
  Prepaids and other current assets                                           1,695           1,812
                                                                        -----------   -------------
      Total current assets                                                   39,348          24,408

Marketable securities                                                         1,000              --
Investment in equity securities                                               2,772           1,827
Property and equipment, net                                                     283             403
                                                                        -----------   -------------
                                                                        $    43,403    $     26,638
                                                                        ===========   =============

                                  LIABILITIES

Current liabilities:
  Accounts payable                                                      $       --     $       157
  Accrued expenses                                                          14,374          20,100
  Deferred revenue                                                           3,000              --
  Current portion of capital lease obligations                                  27             68
                                                                       -----------    ------------
      Total current liabilities                                             17,401          20,325

Long-term portion of notes payable and capital
  lease obligations                                                             --               2
Minority interest                                                              189             189


                             STOCKHOLDERS' EQUITY

Preferred stock; $.001 par value, 5,000,000 shares authorized;
  Series B, 239,425 shares issued and outstanding at March 31, 2000
  and September 30, 1999, respectively (liquidation preference at
  March 31, 2000 $3,041)                                                     3,000           3,000
  Series C, 5,000 shares issued and outstanding at March 31, 2000 and
  September 30, 1999, respectively (liquidation preference at March 31,
  2000 $504)                                                                   500            500
Common stock; $.001 par value, 80,000,000 shares authorized;
  42,688,695 and 42,019,426 shares issued and outstanding at March 31,
  2000 and September 30, 1999, respectively                                     43             42
Additional paid-in capital                                                 273,733        272,337
Accumulated deficit                                                       (252,617)      (269,758)
Accumulated other comprehensive income                                       1,154              1
                                                                        ----------     ----------
  Total stockholders' equity                                                25,813          6,122
                                                                        ----------     ----------
                                                                        $   43,403     $   26,638
                                                                        ==========     ==========
</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 and six months ended March 31, 2000 and 1999
                                  (Unaudited)
                 (Amounts in thousands except per share data)
<TABLE>
<CAPTION>

                                                Three Months Ended March 31,            Six Months Ended March 31,
                                               ------------------------------           ---------------------------
<S>                                           <C>              <C>                     <C>            <C>
                                                 2000                 1999                2000              1999
                                               -------               -------            -------            -------

Contract and license fee revenues              $     --           $      209            $  23,751      $       900

Costs and expenses:
Cost of revenues                                     --                   --                2,051               --
Research and development                           (384)              11,046                2,276           22,699
Selling, general and administrative               2,154                3,364                4,626            6,609
                                               --------           ----------            ---------      -----------
    Total costs and expenses                      1,770               14,410                8,953           29,308

Income (loss) from operations                    (1,770)             (14,201)              14,798          (28,408)

Investment income, net                              502                  556                  793            1,333
Gain on sales of investment securities            1,550                   --                1,550               --
Minority interest                                    --                2,411                   --            4,756
                                               --------           ----------            ---------      -----------

Net income (loss)                              $    282           $  (11,234)           $  17,141      $   (22,319)
                                               ========           ==========            =========      ===========

Net income (loss) per common share:
Basic                                          $   0.01           $    (0.27)           $    0.41      $     (0.53)
Diluted                                        $   0.01           $    (0.27)           $    0.40      $     (0.53)

Weighted average common shares outstanding:
Basic                                            42,414               41,890               42,221           41,853
                                               ========           ==========            =========      ===========
Diluted                                          43,371               41,890               43,333           41,853
                                               ========           ==========            =========      ===========
</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 six months ended March 31, 2000 and 1999
                                  (Unaudited)
                             (Amounts in thousands)
<TABLE>
<CAPTION>

                                                                      Six months ended March 31,
                                                                     -----------------------------
<S>                                                                  <C>              <C>
                                                                        2000              1999
                                                                     ---------          ----------
Cash flows from operating activities:
  Net income (loss)                                                  $   17,141        $   (22,319)
  Adjustments to reconcile net income (loss) to net cash provided
    (used) by operating activities:
    Depreciation and amortization                                           114                571
    Gain on sales of investment securities                               (1,550)                --
    Gain on sales of property and equipment                                 (35)                --
    Minority interest in net loss of consolidated subsidiaries               --             (4,756)
    Noncash compensation                                                    936              2,867
  Change in assets and liabilities:
    Accounts receivable                                                     100              1,130
    Insurance claim receivable                                           (2,459)                --
    Prepaid and other assets                                                117               (804)
    Accounts payable                                                       (157)                34
    Deferred revenue                                                      3,000                 --
    Accrued expenses and other liabilities                               (5,743)              (892)
                                                                     ----------        -----------
Net cash provided (used) by operating activities                         11,464            (24,169)
                                                                     ----------        -----------

Cash flows from investing activities:
  Capital expenditures                                                       --               (278)
  Proceeds from sales of property and equipment                              40                 --
  Proceeds from sales of investment securities                            1,756                 --
  Purchases of marketable securities                                     (6,914)            (2,520)
  Proceeds from maturities and sales of marketable securities             7,374             25,036
                                                                     ----------        -----------
Net cash provided by investing activities                                 2,256             22,238
                                                                     ----------        -----------

Cash flows from financing activities:
  Net proceeds from issuance of common stock                                478                 14
  Net proceeds from issuance of stock by subsidiaries                        --                166
  Principal payments of capital lease obligations                           (42)              (194)
  Principal payments of notes payable                                        --                (93)
                                                                     ----------        -----------
Net cash provided (used) by financing activities                            436               (107)
                                                                     ----------        -----------

Net change in cash and cash equivalents                                  14,156             (2,038)
Cash and cash equivalents at beginning of period                         19,354             39,330
                                                                     ----------        -----------
Cash and cash equivalents at end of period                           $   33,510        $    37,292
                                                                     ==========        ===========
 </TABLE>

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

                                      -5-
<PAGE>

              INTERNEURON PHARMACEUTICALS, INC. AND SUBSIDIARIES

             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 Securities and Exchange
Commission. 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, 1999.

   Interneuron is a biopharmaceutical company engaged in the development and
commercialization of a portfolio of products and product candidates primarily
for central nervous system and other disorders.

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

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

<TABLE>
<CAPTION>

                                               Three Months Ended March 31,           Six Months Ended March 31,
                                          -------------------------------------       ---------------------------
                                              2000                 1999                 2000            1999
                                          -----------            ----------          ---------        --------
<S>                                       <C>               <C>                      <C>          <C>
Numerator for basic and diluted
 income (loss) per share:
   Net income (loss)                      $   282,000          $ (11,234,000)        $ 17,141,000  $(22,319,000)
                                          ===========          =============         ============  ============

Denominator for basic income (loss)
per share:
   Weighted average shares outstanding     42,414,000             41,890,000           42,221,000    41,853,000
                                          ===========          =============         ============   ===========

Denominator for diluted income (loss)
per share:
   Weighted average shares outstanding     42,414,000             41,890,000           42,221,000    41,853,000
   Dilutive effect of:
   Shares issuable in connection with
      stock option plans                       46,000                     --               42,000            --
   Shares issuable in connection with
      restricted stock awards                 289,000                     --              448,000            --
   Shares issuable in connection with
      convertible preferred stock             622,000                     --              622,000            --
                                          -----------          -------------         ------------   -----------
   Weighted average shares outstanding -
      diluted                              43,371,000             41,890,000           43,333,000    41,853,000
                                          ===========          =============         ============   ===========

Net income (loss) per common share -
   Basic                                  $      0.01          $       (0.27)        $       0.41   $     (0.53)
                                          ===========          =============         ============   ===========
   Diluted                                $      0.01          $       (0.27)        $       0.40   $     (0.53)
                                          ===========          =============         ============   ===========
</TABLE>

                                      -6-
<PAGE>

     During the three month period ended March 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 6,081,288 shares of Common Stock at prices ranging from $3.75 to
$20.13 with expiration dates ranging up to March 9, 2010; and (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.

     During the three month period ended March 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 4,400,773 shares of Common Stock at prices ranging from $4.38 to
$20.13 with expiration dates ranging up to December 18, 2006; (ii) warrants to
purchase 812,500 shares of Common Stock with exercise prices ranging from $5.00
to $12.66 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 up to December 31, 1999.
Additionally, during the three month period ended March 31, 1999, 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 2,735,801 shares of Common Stock at prices ranging from
$0.83 to $4.16 with expiration dates ranging up to March 17, 2009; (ii) Series B
and C preferred stock convertible into 622,222 shares of Common Stock; and (iii)
unvested Restricted Stock Awards of 743,310 shares of Common Stock granted
pursuant to the Company's 1997 Equity Incentive Plan.

     During the six month period ended March 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 6,314,072 shares of Common Stock at prices ranging from $3.56 to
$20.13 with expiration dates ranging up to March 9, 2010; (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 up to December 31, 1999.

     During the six month period ended March 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 6,995,174 shares of Common Stock at prices ranging from $3.75 to
$20.13 with expiration dates ranging up to March 3, 2008; (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 up to December 31, 1999.
Additionally, during the six month period ended March 31, 1999, 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 141,400 shares of Common Stock at prices ranging from
$0.83 to $3.63 with expiration dates ranging up to March 17, 2009; (ii) Series B
and C preferred stock convertible into 622,222 shares of Common Stock; and (iii)
unvested Restricted Stock Awards of 743,310 shares of Common Stock granted
pursuant to the Company's 1997 Equity Incentive Plan.

     Certain of the securities listed above contain anti-dilution provisions.

                                      -7-
<PAGE>

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

Comprehensive income (loss) for the three and six month periods ended March 31,
2000 and 1999, respectively, is as follows:
<TABLE>
<CAPTION>

                                    Three Months Ended March 31,                Six Months Ended March 31,
                                    -----------------------------               --------------------------
                                         2000           1999                         2000          1999
                                     ----------      ------------               -----------   ------------
<S>                                 <C>           <C>                          <C>           <C>
     Net income (loss)               $   282,000    $ (11,234,000)              $ 17,141,000  $(22,319,000)
     Change in unrealized net
      gain on investments                914,000          (11,000)                 1,153,000       (32,000)
                                      ----------    -------------               ------------  ------------
     Comprehensive income (loss)      $1,196,000    $ (11,245,000)              $ 18,294,000  $(22,351,000)
                                      ==========    =============               ============  ============
</TABLE>
D. Withdrawal of Redux (TM), Legal Proceedings, and Related Contingencies
   ----------------------------------------------------------------------

   On September 27, 1999, the Company announced that the U.S. District Court for
the Eastern District of Pennsylvania (the "District Court") rejected a proposed
agreement among the Company and the Plaintiffs' Management Committee ("PMC") 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.  ("Ortiz").
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 the Company moved to dismiss such
petition.  Such motion was granted on April 25, 2000.

   Interneuron is named, together with other pharmaceutical companies, as a
defendant in approximately 2,290 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. As a result of the District Court's rejection
of the proposed settlement agreement, the ongoing Redux-related litigation is
proceeding against the Company. 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 outcome may materially
adversely affect the Company's future business, results of operations and
financial condition.

   On November 20, 1998, December 30, 1998 and February 5, 1999, the Company's
three product liability insurers filed interpleader actions against Les
Laboratoires Servier ("Servier") and the Company in the District Court.
Insurance policies issued by the insurers to the Company have an aggregate limit
of $40,000,000 in three tiers: a primary level of $20,000,000, then $5,000,000
in excess of $20,000,000 and a third tier of $15,000,000 in excess of
$25,000,000.  The insurers allege that both the Company and Servier have
asserted claims against these policies, a substantial portion of which has been
used in the Company's defense of the litigation.  The insurers have deposited
the available proceeds up to the limits of their policies, which is 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. If the
District Court dismisses the interpleader actions, the insurance proceeds
deposited by the insurers into the District Court should be returned to the
insurers.

   Reflected in insurance claim receivable at March 31, 2000 is $2,459,000
which the Company paid during the three months ended March 31, 2000 to the group
of law firms defending the Company in the Redux-related product liability
litigation (see "Part II, Item 1. Legal Proceedings"). The Company is paying a
portion of these law firms' fees while the proceeds from the Company's product
liability insurance policies,

                                      -8-
<PAGE>

which are used for the Company's legal defense, are being held by the District
Court. The Company intends to pay such fees until the Company can be reimbursed
out of the insurance proceeds once they are returned to the insurance companies
subsequent to the District Court's dismissal of the interpleader actions. The
Company expects to be reimbursed by the insurance companies for these advances.

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

   On January 24, 2000, the Company announced it filed a complaint against AHP
in the Superior Court of the Commonwealth of Massachusetts. The complaint seeks
unspecified but substantial damages and attorney's 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 has 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.

   The Company and certain present or former directors and/or officers of the
Company were named as defendants in several lawsuits, purporting to be class
actions, filed in the United States District Court for the District of
Massachusetts (the "Massachusetts Federal Court") by alleged purchasers of the
Company's Common Stock, claiming violation of the federal securities laws.  On
February 2, 2000, the Massachusetts Federal Court entered an Order Of Final
Settlement Approval And Final Judgment Of Dismissal (the "Final Judgment"),
which, among other things, granted final judgment to and an approval of the
settlement of the lawsuits on a class-wide basis, covering a class period of
March 24, 1997 to July 8, 1997.  No appeal was taken from the Final Judgment.
The settlement amount was entirely funded by insurance proceeds.

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

   In November 1999, the Company licensed exclusive U.S. rights from Madaus AG
("Madaus") to develop and market  trospium, an orally-administered prescription
drug product currently marketed as a treatment for overactive bladder (urinary
incontinence)  in several European countries.  In exchange, the Company has
agreed to pay Madaus regulatory milestone, royalty and sales milestone payments.
The Company will be responsible for all clinical development and regulatory
activities and costs related to the compound in the U.S.

   In December 1999, the Company entered into an agreement with Takeda Chemical
Industries, Ltd. ("Takeda") under which the Company licensed to Takeda exclusive
U.S. and Canadian commercialization rights to citicoline (the "Takeda
Agreement") in exchange for $13,000,000 in licensing and other guaranteed
payments, of which approximately $12,600,000 has been received to date, up to
$60,000,000 in payments contingent upon the achievement of future regulatory
milestones in the U.S. and Canada, and royalties on net sales.  Takeda also
agreed to fulfill the royalty payment obligations of Interneuron to Ferrer
Internacional, S.A. ("Ferrer"), pursuant to Interneuron's agreement with Ferrer,
and to fund any future Phase 4 studies of citicoline in stroke and Phase 3
studies for additional indications.  The Takeda Agreement also provides an
option to Takeda to negotiate a license for any one alternative Interneuron
compound, excluding pagoclone, in the event Takeda decides to terminate the
citicoline license following a review of the results of the 899-person Phase 3
clinical trial.  In the six months ended March 31, 2000, the Company recognized
$10,000,000 of the Takeda payments as license fee revenue and $3,000,000 related
to the technology option as deferred revenue.

                                      -9-
<PAGE>

   In December 1999, the Company entered into an agreement with Warner-Lambert
Company ("Warner-Lambert"), under which it licensed to Warner-Lambert exclusive
worldwide rights to commercialize pagoclone (the "Warner-Lambert Agreement").
Under the Warner-Lambert Agreement, in December 1999 the Company received
$13,750,000 which was recognized as license fee revenue in the six months ended
March 31, 2000, and the Company is entitled to receive up to $60,000,000 in
additional payments contingent upon the achievement of clinical and regulatory
milestones.  Warner-Lambert also agreed to pay Interneuron royalties on net
sales.  Under the Warner-Lambert Agreement, Warner-Lambert is responsible for
conducting and funding all further clinical development, regulatory review,
manufacturing and marketing of pagoclone for all indications on a worldwide
basis.  Under the Company's agreement with Rhone-Poulenc Rorer ("RPR"), the
Company paid to RPR in January 2000 approximately $2,050,000 of the payment
received by the Company from Warner-Lambert which was reflected as cost of
revenue in the six months ended March 31, 2000.

F.  Other:
    -----

   Call options held by Swiss Bank Corporation, London Branch for the purchase
of 1,000,000 shares of the Company's Common Stock at an exercise price of $36.00
per share on each of December 30 and 31, 1999 expired without exercise.

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," "estimate"
or other expressions which are predictions of, or indicate, future events and
trends and which 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, 1999.  These risk factors include, but are not limited to,
risks relating to the Redux-related litigation by and against the Company,
uncertainties relating to clinical trials, regulatory approval and
commercialization of any products; need for additional funds and corporate
partners; substantial losses from operations and expected future losses; minimal
revenues; product liability; dependence on third parties for manufacturing and
marketing; competition; government regulation; contractual arrangements; 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, 1999. Unless the context indicates otherwise, all references
to the Company include Interneuron and its subsidiaries.

                                      -10-
<PAGE>

General
-------

Redux

   On September 27, 1999, the Company announced that the District Court rejected
a proposed agreement among the Company and the Plaintiffs' Management Committee
("PMC") 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. 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. Such motion was granted on
April 25, 2000.

   Interneuron is named, together with other pharmaceutical companies, as a
defendant in approximately 2,290 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. As a result of the District Court's rejection
of the proposed settlement agreement, the ongoing Redux-related litigation is
proceeding against the Company. 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 the
outcome of any such litigation, such outcome may materially adversely affect the
Company's future business, results of operations and financial condition.

   On November 20, 1998, December 30, 1998 and February 5, 1999, the Company's
three product liability insurers filed interpleader actions against Servier and
the Company in the District Court.  Product liability insurance policies issued
by the insurers to the Company have an aggregate limit of $40,000,000 in three
tiers: a primary level of $20,000,000, then $5,000,000 in excess of $20,000,000
and a third tier of $15,000,000 in excess of $25,000,000.  The insurers allege
that both the Company and Servier have asserted claims against these policies, a
substantial portion of which has been used in the Company's defense of the
litigation.  The insurers have deposited the available proceeds, up to the
limits of their policies, which is 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. If the District Court dismisses
the interpleader actions, the insurance proceeds deposited by the insurers into
the District Court should be returned to the insurers.

   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.

   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 attorney's 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 has filed an answer
to such complaint.  The Company cannot predict its costs relative to this
complaint or  the duration or the outcome of the proceedings.

   The Company and certain present or former directors and/or officers of the
Company were named as defendants in several lawsuits, purporting to be class
actions, filed in the Massachusetts Federal Court by alleged purchasers of the
Company's Common Stock, claiming violation of the federal securities laws.  On

                                      -11-
<PAGE>

February 2, 2000, the Massachusetts Federal Court entered the Final Judgment,
which, among other things, granted final judgment to and an approval of the
settlement of the lawsuits on a class-wide basis, covering a class period of
March 24, 1997 to July 8, 1997.  No appeal was taken from the Final Judgment.
The settlement amount was entirely funded by insurance proceeds.

   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 devote
significant management  time and resources to these legal actions 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.  In addition, 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 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 or obtain rights to additional products, to enter
into certain corporate partnerships, or to obtain product liability insurance
for other products at costs acceptable to the Company, or at all, any or all of
which may adversely affect the Company's business and financial condition.

Citicoline

   On January 10, 2000 the Company announced that a preliminary analysis of the
899-patient Phase 3 clinical trial with citicoline failed to meet its primary
endpoint, a measure of improvement in neurological function among patients
suffering from moderate to severe ischemic stroke. The pre-specified, primary
outcome measurement of the trial was the comparison of the percentages of
patients treated with citicoline or placebo who achieved at least a 7-point
improvement on the National Institutes of Health Stroke Scale ("NIHSS") scores
from enrollment through the combined 12-week treatment and follow-up period.
Secondary outcomes included additional comparisons of neurological function and
infarct volume measurements among citicoline and placebo patients at the end of
the study.

   Although improvement in the primary outcome measurement was not achieved,
certain secondary endpoints were positive.  At the end of the 12-week trial
period, a statistically significantly higher proportion of citicoline-treated
patients achieved complete or near-complete recovery of neurological function
compared to placebo-treated  patients, as measured by the Rankin Scale.
Likewise, at the same time point, NIHSS scores indicated a strongly positive
trend in the number of citicoline-treated patients who achieved full
neurological recovery.  Although not statistically significant, a higher
percentage of citicoline-treated patients achieved reduction in the size of
their cerebral infarct compared to placebo-treated patients. In addition,
preliminary review of findings from this study indicates that there were no
significant adverse safety issues associated with citicoline.

   In December 1999, the Company entered into the Takeda Agreement under which
the Company licensed to Takeda exclusive U.S. and Canadian commercialization
rights to citicoline in exchange for $13,000,000 in licensing and other
guaranteed payments, of which approximately $12,600,000 has been received to
date, up to $60,000,000 in payments contingent upon the achievement of future
regulatory milestones in the U.S. and Canada, and royalties on net sales.
Takeda also agreed to fulfill the royalty payment obligations of Interneuron to
Ferrer, pursuant to Interneuron's agreement with Ferrer, and to fund any future
Phase 4 studies of citicoline in stroke and Phase 3 studies for additional
indications.

   The Takeda Agreement also provides an exclusive option to Takeda to negotiate
a license for any one alternative Interneuron compound, excluding pagoclone, in
the event Takeda decides to terminate the citicoline license following a review
of the results of the 899-person Phase 3 clinical trial.  Takeda originally

                                      -12-
<PAGE>

had until April 30, 2000 to exercise its option and ten months from the date of
exercise of the option to negotiate the license for the chosen compound.
However, Takeda has requested an extension of the option exercise date and the
Company is currently negotiating the terms of a potential extension with Takeda.
In the event Takeda and the Company are unable to negotiate a license agreement
by the end of such ten-month period, there will be an additional six month
period during which the Company must provide Takeda with a right of first
refusal for any licensing arrangement the Company may wish to offer a third
party. If Takeda exercises its option, all rights to citicoline will be returned
to the Company and no further payments will be received from Takeda.

   In the six month period ended March  31, 2000, the Company recognized
$10,000,000 as license fee revenue from Takeda and $3,000,000 related to the
option as deferred revenue.

Pagoclone

   In December 1999, the Company entered into the Warner-Lambert Agreement,
under which it licensed to Warner-Lambert exclusive worldwide rights to develop
and commercialize pagoclone. Pursuant to the Warner-Lambert Agreement, in
December 1999 the Company received $13,750,000 and the Company is entitled to
receive up to $60,000,000 in additional payments contingent upon the achievement
of clinical and regulatory milestones. Warner-Lambert also agreed to pay
Interneuron royalties on net sales. Under the Warner-Lambert Agreement, Warner-
Lambert is responsible for conducting and funding all further clinical
development, regulatory review, manufacturing and marketing of pagoclone for all
indications on a worldwide basis. Under the Company's agreement with RPR, RPR is
entitled to receive a portion of certain of the payments to be received by the
Company from Warner-Lambert. In the six months ended March 31, 2000, the Company
recognized $13,750,000 received from Warner-Lambert in December 1999 as contract
and license fee revenue and $2,050,000 paid to RPR in January 2000 as cost of
revenues.

Trospium

   In November 1999, the Company licensed exclusive U.S. rights from Madaus to
trospium, an orally administered prescription drug product for treatment for
overactive bladder (urinary incontinence) in several European countries.  In
exchange, the Company has agreed to pay Madaus regulatory milestone, royalty and
sales milestone payments.  The Company will be responsible for all clinical
development and regulatory activities and costs related to the compound in the
U.S.  The Company currently intends to file an Investigative New Drug
Application ("IND") in 2000.  The Company does not have adequate current funds
to fully develop and market trospium and will require additional capital and/or
a collaborative partner for the development and marketing of trospium.

IP501

   The Company has an exclusive option to negotiate a license to a compound
designated as IP501 for the treatment and prevention of liver diseases,
following the Company's review of data from an ongoing Phase 3 clinical trial of
this compound sponsored by the Veterans Administration.  The most recent
progress update from this government-sponsored  study indicates that, while the
study is expected to end in mid 2000, results will be available toward the end
of 2000.  The primary endpoint of the study is improvement in liver histology,
or condition, among drug-treated pre-cirrhotic patients compared with placebo
patients, as measured by serial liver biopsies.

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

  For the three and six month periods ended March 31, 2000, the Company had net
income of $282,000

                                      -13-
<PAGE>

and $17,141,000, respectively, compared to net losses of $11,234,000 and
$22,319,000 in the three and six month periods ended March 31, 1999,
respectively. This substantial change from net losses to net income is primarily
the result of $23,750,000 of contract and license fee revenue from the Takeda
and Warner-Lambert Agreements entered into in December 1999 and the absence in
fiscal 2000 of the results of operations of Incara Pharmaceuticals Corp.
("Incara") which resulted in net losses in the fiscal 1999 periods. In July
1999, the Company exchanged its majority position in Incara for a majority
position in CPEC LLC, after which the Company no longer consolidates the results
of Incara's operations. Additionally, in the three month period ended March 31,
2000, the Company recorded a gain on the sale of investment securities and a
credit to research and development expenses for costs previously accrued
relative to the Phase 3 citicoline clinical trial that ended in January 2000
which in the final analysis were determined to be unnecessary. The Company
expects the results of its consolidated operations to result in losses for the
balance of fiscal 2000.

   The Company had no contract and license fee revenue in the three month period
ended March 31, 2000 compared to $209,000 in the three month period ended March
31, 1999 and $23,751,000 in contract and license fee revenue in the six month
period ended March 31, 2000 compared to $900,000 of contract and license fee
revenue the six month period ended  March 31, 1999. Contract and license fee
revenue in fiscal 2000 included $10,000,000 received from Takeda pursuant to the
Takeda Agreement and $13,750,000 received from Warner-Lambert pursuant to the
Warner-Lambert Agreement. Contract and license fee revenue in fiscal 1999
consisted primarily of a milestone payment received by the Company from Eli
Lilly and Company ("Lilly") relating to the development of Lilly's drug,
Prozac(R) for the treatment of premenstrual syndrome and contract revenue at
Incara.

   Cost of revenues of $2,051,000 in the six month period ended March 31, 2000
consists of the amount paid to RPR in January 2000, and accrued at December 31,
1999, for their portion of the initial payment received by the Company from
Warner-Lambert.

   Research and development expense was negative $384,000 in the three month
period ended March 31, 2000 compared to $11,046,000 in the three month period
ended March 31, 1999 and decreased $20,423,000, or 90%, to $ 2,276,000 in the
six month period ended March 31, 2000 from $22,699,000 in the six month period
ended March 31, 1999. These decreases were substantially due to the absence in
fiscal 2000 of Incara expenses.  Also, in the fiscal 2000 periods the Company
incurred less expense related to citicoline due to the completion of the 899-
person Phase 3 citicoline clinical trial at the end of the first quarter of
fiscal 2000 and reduced expenses related to pagoclone as the Company curtailed
pagoclone development while pursuing a collaborative development and marketing
partner. The negative amount of research and development expense in the three
month period ended March 31, 2000 (and contributing to the decrease in research
and development expense in the six month period)  was due primarily to credits
to research and development expenses of approximately $1,350,000 recorded in
such period reflecting the reversal of costs accrued relative to the Phase 3
citicoline clinical trial which in the final analysis were determined to be
unnecessary and for the reversal of costs accrued related to pagoclone
development which was  determined to be unnecessary subsequent to entering into
the Warner-Lambert Agreement.

   Selling, general and administrative expense decreased $1,210,000, or 36%, to
$2,154,000 in the three month period ended March 31, 2000 from $3,364,000 in the
three month period ended March 31, 1999 and decreased $1,983,000, or 30%, to
$4,626,000 in the six month period ended March 31, 2000 from $6,609,000 in the
six month period ended March 31, 1999. This decrease was primarily due to the
absence in fiscal 2000 of Incara expenses.

   Investment income, net decreased $54,000, or 10%, to $502,000 in the three
month period ended March 31, 2000 from $556,000 in the three month period ended
March  31, 1999 and decreased $540,000, or 41%,

                                      -14-
<PAGE>

to $793,000 in the six month period ended March 31, 2000 from $1,333,000 in the
six month period ended March 31, 1999. The decrease in the three month period is
primarily due to the absence in fiscal 2000 of Incara investment income, net as
Interneuron's invested balances were similar over the fiscal 2000 and fiscal
1999 three month periods. The decrease in the six month period is primarily due
to the absence in fiscal 2000 of Incara investment income, net, and lower
average invested balances at Interneuron.

   Gain on sales of investment securities  of $1,550,000 in the three and six
month periods ended March 31, 2000 resulted from the Company's sale of 288,000
shares of Incara stock.

   Minority interest in fiscal 1999 was attributed to the consolidation of
Incara.  As described above, Incara's results of operations are  not
consolidated with the Company's in fiscal 2000.

Liquidity and Capital Resources
-------------------------------

   Cash, Cash Equivalents and Marketable Securities

   At March 31, 2000, the Company had consolidated cash, cash equivalents and
marketable securities of $35,509,000 compared to $21,811,000 at September 30,
1999.  This increase is primarily due to approximately $25,250,000 received from
Takeda and Warner-Lambert  pursuant to the Takeda and Warner-Lambert Agreements
less net amounts used to fund operations in the six month period ended March 31,
2000.

   While the Company believes it has sufficient cash for currently planned
expenditures through calendar 2000 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 is evaluating its ongoing business strategy,
investigating other potential business opportunities, and reducing its overhead
and expenditures. In February 2000, the Company reduced its workforce by 11
people. This reduction and additional attrition has brought the Company's
workforce to 20 employees as of March 31, 2000. The Company will require
additional funds for the development and commercialization of trospium and its
other compounds and technologies, 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 to the Company.

   Product Development

   There can be no assurance that results of any on-going current or future
preclinical or clinical trials will be successful, that additional trials will
not be required, that any drug under development will receive FDA approval in a
timely manner or at all, or that such drug could be successfully manufactured in
accordance with cGMP or successfully marketed in a timely manner, or at all, or
that the Company will have sufficient funds to commercialize any of its
products, any of which events could materially adversely affect the Company.

                                      -15-
<PAGE>

   Analysis of Cash Flows

   Cash provided from operating activities during the six months ended March 31,
2000 of $11,464,000 consisted primarily of net income and an increase in
deferred revenue offset by payments relating to the Company's temporary funding
of Redux-related product liability defense costs (discussed below) and a
reduction of accrued expenses and other liabilities from payments of and
adjustments to clinical development costs and payment of the Company's
obligation to RPR relating to the Warner-Lambert Agreement.

   Cash provided by investing activities during the six months ended March 31,
2000 of $2,256,000 consisted primarily of proceeds from the sale of Incara stock
and net proceeds from maturities and sales of marketable securities.

   Included  in accounts receivable and accrued expenses at March 31, 2000 is
approximately $400,000 relating to obligations of the Company to vendors which
supplied services to the Company related to the 899-person citicoline phase 3
clinical trial and which Takeda agreed to pay on behalf of the Company pursuant
to the Takeda Agreement.  These balances will be reduced as Takeda makes such
payments.

   Reflected in insurance claim receivable at March 31, 2000 is $2,459,000 which
the Company paid during the three months ended March 31, 2000 to the group of
law firms defending the Company in the Redux-related product liability
litigation (see "Part II, Item 1. Legal Proceedings"). The Company is paying a
portion of these law firms' fees while the proceeds from the Company's product
liability insurance policies, which are used for the Company's legal defense,
are being held by the District Court. Such proceeds should be returned to the
insurance companies subsequent to the District Court's dismissal of the
interpleader actions. The Company may pay additional such amounts which, for
costs incurred through April 30, 2000, are currently estimated to be
approximately $3,500,000. The Company expects to be reimbursed by the insurance
companies for these advances.

   Other
   -----

   Year 2000 Compliance

   The Company's Year 2000 compliance programs were completed on time.  The
Company's business has not been adversely affected due to the failure of key
third parties to successfully complete the Year 2000 conversion.  Although there
can be no assurance that all of the Company's material third-party relationships
had successful conversion programs, management does not expect that any such
failure would have a material  adverse effect on the financial position, results
of operations or liquidity of the Company.  The costs of the Company's Year 2000
program to date have not been material, and the Company knows of no further
required modifications to its information technology or embedded technology
systems that would have a material impact on its financial position, results of
operations or liquidity.

   Investment in Incara

   In March 2000, the Company received from Incara approximately 488,000 shares
of Incara common stock valued at approximately $1,600,000 as the third and final
installment for the sale of Transcell Technologies, Inc. to Incara in May 1998.
As of March 31, 2000, the Company owned 482,000 shares of Inara common stock.
The Company's investment in Incara at March 31, 2000 is valued at $2,772,000
using Incara's fair market value as of the close of business on March 31, 2000
of $5.75 per share. As of the close of business on May 11, 2000, the fair market
value of Incara's common stock was approximately $2.88 per share.


                                      -16-
<PAGE>

   Other

   In November 1998, pursuant to an agreement with Servier to resolve a
withholding tax issue on Redux-related payments to Servier, the Company paid to
the U.S. Internal Revenue Service approximately $1,700,000 for withholding tax
and interest. Servier agreed to reimburse the Company for a portion of the
withholding taxes upon Servier's receipt of a related tax refund from the French
tax authorities. The Company is unable to predict with certainty whether or when
this reimbursement will be obtained.

   Call options held by Swiss Bank Corporation, London Branch for the purchase
of 1,000,000 shares of the Company's Common Stock at an exercise price of $36.00
per share on each of December 30 and 31, 1999 expired without exercise.

   General

   The Company's current business strategy includes evaluation of various
technologies, product or company acquisitions, licensing and/or financing
opportunities and Interneuron engages from time to time in discussions relating
to such opportunities. The Company is evaluating and exploring  new strategic
business opportunities which would result in a reallocation of management and
financial resources. Any such initiatives may involve the issuance of
securities, which would dilute existing stockholders, and/or financial
commitments for licensing fees and/or to fund product development or debt
financing, any of which may adversely affect the Company's consolidated
financial condition or results of operations. The Company's in-licensing
agreements generally require the Company to undertake general or specific
development efforts or risk the loss of the license and/or incur penalties.

   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 2,290 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 ("PPH"), 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.

                                      -17-
<PAGE>

   On September 25, 1998, the District Court preliminarily approved the
Settlement Agreement relating to a proposed settlement of all product liability
litigation and claims against Interneuron related to Redux, which was later
rejected by the District Court as described below. The District Court also
conditionally certified a limited fund class action and, thereafter, issued
stays halting all Redux product liability litigation against the Company,
pending and future, in federal and state courts. The District Court conducted a
fairness hearing in the second quarter of fiscal 1999 regarding the proposed
settlement agreement.

   Following a decision from the Supreme Court overturning a putative "limited
fund" class action settlement relating to asbestos litigation in Ortiz, the
District Court, on September 27, 1999, rejected the settlement agreement,
finding that it did not meet the requirements for limited fund class actions
described by the Supreme Court . 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.   On April 13, 2000, the
Company moved to dismiss such petition and such motion was granted on April 25,
2000.

   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.

   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 attorney's 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 has filed an answer to
such complaint. The Company cannot predict its costs relative to this complaint,
or the duration or the outcome of the proceedings.

   Interpleader Litigation: On November 20, 1998, December 30, 1998 and
February 5, 1999, the Company's three product liability insurers filed
interpleader 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 allege that both the Company
and Servier have asserted claims against these policies, a substantial portion
of which has been used in the Company's defense of the litigation. The insurers
have deposited the available proceeds up to the limits of their policies, which
is 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 from such order.

   Securities Litigation: The Company and certain present or former directors
and/or officers of the Company were named as defendants in several lawsuits,
purporting to be class actions, filed in Massachusetts Federal Court by alleged
purchasers of the Company's Common Stock, claiming violation of the federal
securities laws.  On February 2, 2000, the Massachusetts Federal Court entered
the Final Judgment, which, among other things, granted final judgment to and an
approval of the settlement of the lawsuits on a class-wide basis, covering a
class period of March 24, 1997 to July 8, 1997.  No appeal was taken from the
Final Judgment.  The settlement amount was entirely funded by insurance
proceeds.

   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

                                      -18-
<PAGE>

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 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations,"  and Note D of Notes to Consolidated
Financial Statements.

   Item 4.  Submission of Matters to a Vote of Security Holders
            ---------------------------------------------------

   The Company's annual meeting of stockholders was held on March  8, 2000. At
the meeting (i) all seven director nominees were elected; (ii) the amendment to
the Company's 1995 Employee Stock Purchase Plan, as amended, to increase the
number of shares subject thereto from 100,000 to 250,000 was approved; (iii) the
Company's 2000 Stock Option Plan was approved; and (iv) the appointment of
PricewaterhouseCoopers  LLP as the independent auditors was ratified.

   (i) The following Directors were elected for a one-year term by the votes
indicated:

   Glenn L. Cooper, M.D., 34,463,328 for, 402,401 against; Harry J. Gray,
34,458,298 for, 407,431 against; Alexander M. Haig, Jr., 34,439,110 for, 426,619
against; Malcolm Morville, Ph.D., 34,463,098 for, 402,631 against; Lindsay A.
Rosenwald, M.D., 34,449,834 for, 415,895 against; Lee J. Schroeder, 34,462,478
for, 403,251 against; and David B. Sharrock, 34,462,568 for, 403,161 against.

   (ii) The amendment to the Company's 1995 Employee Stock Purchase Plan, as
amended, to increase the number of shares subject thereto from 100,000 to
250,000 was approved by a vote of 16,691,301 for, 688,860 against, and 99,261
abstaining.

   (iii) The Company's 2000 Stock Option Plan was approved by a vote of
15,297,326 for, 2,063,686 against, and 118,410 abstaining.

   (iv) The appointment of PricewaterhouseCoopers LLP was ratified by a vote of
34,741,151 for, 74,188 against, and 50,390 abstaining.

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

   (a)     Exhibits

                                      -19-
<PAGE>

           27 -  Financial Data Schedule

   (b)     Reports on Form 8-K

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

                                      -20-
<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: May 15, 2000               By: /s/ Glenn L. Cooper, M.D.
                                         -------------------------------
                                         Glenn L. Cooper, M.D., President,
                                         Chairman and Chief Executive Officer
                                         (Principal Executive Officer)

     Date: May 15, 2000               By: /s/ Michael W. Rogers
                                         -------------------------------
                                         Michael W. Rogers,
                                         Executive Vice President,
                                         Chief Financial Officer and Treasurer
                                         (Principal Financial Officer)

     Date: May 15, 2000               By: /s/ Dale Ritter
                                         -------------------------------
                                         Dale Ritter, Senior Vice President,
                                           Finance
                                         (Principal Accounting Officer)

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