<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, 2001, or

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

For the transition period from ___________ to _____________

                          Commission File No. 0-18728

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

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

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

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

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

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

     Yes     X             No
           -----               -----

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

Class:                               Outstanding at May 11, 2001:
Common Stock $.001 par value         42,800,118 shares
<PAGE>

                       INTERNEURON PHARMACEUTICALS, INC.

                              INDEX TO FORM 10-Q

<TABLE>
<CAPTION>

PART I.  FINANCIAL INFORMATION                                        PAGE
                                                                      ----
<S>                                                                   <C>
Item 1. Financial Statements

Consolidated Balance Sheets as of March 31, 2001
  and September 30, 2000............................................     3

Consolidated Statements of Operations for the Three and Six Months
  ended March 31, 2001 and 2000.....................................     4

Consolidated Statements of Cash Flows for the Six Months
  ended March 31, 2001 and 2000.....................................     5

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

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

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings..........................................    15

Item 4.  Submission of Matters to a Vote of Security Holders........    17

Item 6.  Exhibits and Reports on Form 8-K...........................    17

SIGNATURES..........................................................    18
</TABLE>

                                      -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,
                                                          2001         2000
                                                          ----         ----
<S>                                                  <C>          <C>

               ASSETS

Current assets:
  Cash and cash equivalents                           $  29,113    $  24,871
  Marketable securities                                   8,406        8,880
  Insurance claim receivable                              2,706        8,435
  Settlement deposit receivable                              --        1,757
  Prepaids and other current assets                         565        1,110
                                                      ---------    ---------
      Total current assets                               40,790       45,053

Investment in Incara                                        838        1,627
Marketable securities                                       500           --
Property and equipment, net                                  95          146
                                                      ---------    ---------
                                                      $  42,223    $  46,826
                                                      =========    =========

            LIABILITIES

Current liabilities:
  Accounts payable                                    $     169    $     122
  Accrued expenses                                       14,766       15,604
  Deferred revenue                                        3,000        3,000
  Current portion of capital lease obligations               --            2
                                                      ---------    ---------
      Total current liabilities                          17,935       18,728

Minority interest                                           341          332

       STOCKHOLDERS' EQUITY

Preferred stock; $.001 par value, 5,000,000 shares
  authorized;
    Series B, 239,425 shares issued and outstanding
    at March 31, 2001 and September 30, 2000,
    respectively (liquidation preference at
    March 31, 2001 $3,041)                                3,000        3,000
    Series C, 5,000 shares issued and outstanding at
    March 31, 2001 and September 30, 2000,
    respectively (liquidation preference at March 31,
    2001 $504)                                              500          500
Common stock; $.001 par value, 80,000,000 shares
  authorized; 42,788,307 and 42,780,492 shares issued
  and outstanding at March 31, 2001 and September 30,
  2000, respectively                                         43           43
Additional paid-in capital                              274,595      274,011
Accumulated deficit                                    (253,544)    (249,802)
Accumulated other comprehensive income (loss)              (647)          14
                                                      ---------    ---------
      Total stockholders' equity                         23,947       27,766
                                                      ---------    ---------
                                                      $  42,223    $  46,826
                                                      =========    =========

</TABLE>
             The accompanying notes are an integral part of these
                 unaudited consolidated financial statements.

                                      -3-
<PAGE>

                       INTERNEURON PHARMACEUTICALS, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
          For the three and six months ended March 31, 2001 and 2000
                                  (Unaudited)
                 (Amounts in thousands except per share data)
<TABLE>
<CAPTION>

                                                         Three months ended              Six months ended
                                                              March 31,                      March 31,
                                                      ----------------------        -----------------------
                                                         2001           2000           2001            2000
                                                      -------        -------        -------         -------
<S>                                                  <C>            <C>            <C>             <C>

Revenues:
Royalty revenue                                       $   285        $    --        $   645         $    --
Contract and license fee revenue                           --             --             --          23,751
                                                      -------        -------        -------         -------
  Total revenues                                          285             --            645          23,751

Costs and expenses:
Cost of  revenues                                          58             --            130           2,051
Research and development                                1,157           (384)         2,198           2,276
General and administrative                              2,087          2,154          3,698           4,626
Product withdrawal                                       (618)            --           (618)             --
                                                      -------        -------        -------         -------
  Total costs and expenses                              2,684          1,770          5,408           8,953

Income (loss) from operations                          (2,399)        (1,770)        (4,763)         14,798

Investment income, net                                    566            502          1,073             793
Gain (loss) on investment securities                      (43)         1,550            (43)          1,550
Minority interest                                          (9)            --             (9)             --
                                                      -------        -------        -------         -------

Net income (loss)                                     $(1,885)       $   282        $(3,742)        $17,141
                                                      =======        =======        =======         =======

Net income (loss) per common share:
Basic                                                 $ (0.04)       $  0.01        $ (0.09)        $  0.41
Diluted                                               $ (0.04)       $  0.01        $ (0.09)        $  0.40

Weighted average common shares outstanding:
Basic                                                  42,781         42,414         42,781          42,221
                                                      =======        =======        =======         =======
Diluted                                                42,781         43,371         42,781          43,333
                                                      =======        =======        =======         =======

</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, 2001 and 2000
                                  (Unaudited)
                            (Amounts in thousands)
<TABLE>
<CAPTION>

                                                      Six months ended March 31,
                                                      --------------------------
                                                         2001              2000
                                                      -------           -------
<S>                                                   <C>               <C>
Cash flows from operating activities:
  Net income (loss)                                   $(3,742)          $17,141
  Adjustments to reconcile net income (loss) to
   net cash provided by operating activities:
    Depreciation and amortization                          54               114
    (Gain) loss on investment securities                   43            (1,550)
    Gain on sales of property and equipment                --               (35)
    Minority interest in net loss of consolidated
     subsidiaries                                           9                --
    Noncash compensation                                  583               936
  Change in assets and liabilities:
    Accounts receivable                                    --               100
    Insurance claim receivable                          5,729            (2,459)
    Settlement deposit receivable                       1,757                --
    Prepaid and other assets                              545               117
    Accounts payable                                       47              (157)
    Deferred revenue                                       --             3,000
    Accrued expenses and other liabilities               (783)           (5,743)
                                                      -------           -------
Net cash provided by operating activities               4,242            11,464
                                                      -------           -------

Cash flows from investing activities:
  Capital expenditures                                     (3)               --
  Proceeds from sales of property and equipment            --                40
  Proceeds from sales of investment securities             --             1,756
  Purchases of marketable securities                   (3,982)           (6,914)
  Proceeds from maturities and sales of marketable
   securities                                           3,968             7,374
                                                      -------           -------
Net cash provided (used) by investing activities          (17)            2,256
                                                      -------           -------

Cash flows from financing activities:
  Net proceeds from issuance of common stock               19               478
  Principal payments of capital lease obligations          (2)              (42)
                                                      -------           -------
Net cash provided  by financing activities                 17               436
                                                      -------           -------

Net change in cash and cash equivalents                 4,242            14,156
Cash and cash equivalents at beginning of period       24,871            19,354
                                                      -------           -------

Cash and cash equivalents at end of period            $29,113           $33,510
                                                      =======           =======

</TABLE>

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

                                      -5-
<PAGE>

                       INTERNEURON PHARMACEUTICALS, INC.

             NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


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

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

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

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

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


                                               Three months ended         Six months ended
                                                    March 31,                March 31,
                                          -------------------------  --------------------------
                                              2001          2000         2001            2000
                                          -----------   -----------  ------------   -----------
<S>                                       <C>           <C>          <C>            <C>
Numerator for basic and diluted
income (loss) per share:
 Net income (loss)                        $(1,885,000)  $   282,000  $ (3,742,000)  $17,141,000
                                          ===========   ===========  ============   ===========

Denominator for basic income (loss)
per share:
 Weighted average shares outstanding       42,781,000    42,414,000    42,781,000    42,221,000
                                          ===========   ===========  ============   ===========

Denominator for diluted income (loss)
per share:
 Weighted average shares outstanding       42,781,000    42,414,000    42,781,000    42,221,000
 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                                 42,781,000    43,371,000    42,781,000    43,333,000
                                          ===========   ===========  ============   ===========

Net income (loss) per common share -
 Basic                                         ($0.04)  $      0.01        ($0.09)  $      0.41
                                          ===========   ===========  ============   ===========
 Diluted                                       ($0.04)  $      0.01        ($0.09)  $      0.40
                                          ===========   ===========  ============   ===========

</TABLE>

                                      -6-
<PAGE>

   During the three month period ended March 31, 2001, 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 5,907,790 shares of Common Stock at prices ranging from $3.13 to
$20.13 with expiration dates ranging up to March 8, 2011; and (ii) warrants to
purchase 750,000 shares of Common Stock with exercise prices ranging from $5.00
to $10.00 and with expiration dates ranging up to July 17, 2006.   Additionally,
during the three month period ended March 31, 2001, 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 3,781,750 shares of Common Stock at prices ranging from
$1.47 to $2.38 with expiration dates ranging up to August 14, 2010; (ii) Series
B and C preferred stock convertible into 622,222 shares of Common Stock; and
(iii) unvested Restricted Stock Awards of 450,000 shares of Common Stock granted
pursuant to the Company's 1997 Equity Incentive Plan.

   During the three month period ended 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 six month period ended March 31, 2001, securities not included in
the computation of diluted earnings per share, because their exercise price
exceeded the average market price during the period were as follows: (i) options
to purchase 9,145,790 shares of Common Stock at prices ranging from $2.38 to
$20.13 with expiration dates ranging up to March 8, 2011; and (ii) warrants to
purchase 750,000 shares of Common Stock with exercise prices ranging from $5.00
to $10.00 and with expiration dates ranging up to July 17, 2006.  Additionally,
during the six month period ended March 31, 2001, 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 543,750 shares of Common Stock at prices ranging from
$1.47 to $2.06 with expiration dates ranging up to August 14, 2010;
(ii) Series B and C preferred stock convertible into 622,222 shares of Common
Stock; and (iii) unvested Restricted Stock Awards of 450,000 shares of Common
Stock granted pursuant to the Company's 1997 Equity Incentive Plan.

   During the 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.

                                      -7-
<PAGE>

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

Comprehensive income (loss) for the three and six month periods ended March 31,
2001 and 2000, respectively, is as follows:
<TABLE>
<CAPTION>

                                      Three Months Ended March 31,           Six Months Ended March 31,
                                      ----------------------------         ------------------------------
                                          2001             2000                2001               2000
                                      -----------       ----------         -----------        -----------
<S>                                   <C>               <C>                <C>                <C>
Net income (loss)                     $(1,885,000)      $  282,000         $(3,742,000)       $17,141,000
Change in unrealized net
 gain or loss on marketable and
 equity securities                        (67,000)         914,000            (661,000)         1,153,000
                                      -----------       ----------         -----------        -----------
Comprehensive income (loss)           $(1,952,000)      $1,196,000         $(4,403,000)       $18,294,000
                                      ===========       ==========         ===========        ===========
</TABLE>

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

  On September 15, 1997, the Company and American Home Products Corp. ("AHP")
announced a market withdrawal of the weight loss medication Redux, which was
launched in June 1996.  Interneuron has been named, together with other
pharmaceutical companies, as a defendant in approximately 3,200 product
liability legal actions, many of which purport to be class actions, in federal
and state courts involving the use of Redux and other weight loss drugs.
Following the dismissal and the anticipated dismissal of Interneuron as a
defendant in certain cases, the Company estimates that there will be fewer than
2,000 remaining cases.  The existence of such litigation, including the time and
expenses associated with the litigation, may materially adversely affect the
Company's business, including its ability to obtain sufficient financing to fund
operations. Although the Company is unable to predict its expense, or the
outcome, of any such litigation, such expense or outcome may materially
adversely affect the Company's future business, results of operations and
financial condition.

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

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

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

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

                                      -8-
<PAGE>

  In January 2001, the Company was reimbursed $8,419,000 for litigation expenses
previously paid by the Company and for other Redux-related costs . Of this
amount, $618,000 of other Redux-related costs are reflected  in the Company's
Statements of Operations for the three and six month periods ended March 31,
2001 as a credit under product withdrawal.  Reflected in insurance claim
receivable at March 31, 2001 of $2,706,000 is $1,441,000 which the Company paid
through March 31, 2001 to the group of law firms defending the Company in the
Redux-related product liability litigation and an additional $1,265,000 which
the Company has accrued for services rendered by such law firms through March
31, 2001. The Company currently intends to continue paying such fees and to file
claims for reimbursement from the insurance companies.  The Company expects to
be reimbursed for its ongoing insurance claims until the aggregate limits of its
commercial excess insurance policies are paid.

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

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

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

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

  Statements in this Form 10-Q that are not statements or descriptions of
historical facts are "forward-looking" statements under Section 21E of the
Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995 and are subject to numerous risks and
uncertainties. These forward-looking statements and other forward-looking
statements made by the Company or its representatives include, without
limitation, statements regarding the Redux-related litigation, the Company's
ability to successfully develop, obtain regulatory approval for and
commercialize any products, to enter into corporate collaborations or obtain
sufficient additional capital to fund operations, and are based on a number of
assumptions. The words "believe," "expect," "anticipate," "intend," "plan,"
"estimate" or other expressions which are predictions of or indicate future
events and trends and do not relate to historical matters identify forward-
looking statements. Readers are cautioned not to place undue reliance on these
forward-looking statements as they involve risks and uncertainties, and actual
results could differ materially from those currently anticipated due to a number
of factors, including those set forth under "Risk Factors" and elsewhere in, or
incorporated by reference into, the Company's Form 10-K for its fiscal year
ended September 30, 2000. These factors include, but are not limited to, risks
relating to the Redux-related litigation; uncertainties relating to clinical
trials, regulatory approval and commercialization of the Company's products; the
early stage of products under development; need for additional funds and
corporate partners; history of operating losses and expectation of future
losses; product liability; dependence on third

                                      -9-
<PAGE>

parties for manufacturing and marketing; competition; government regulation;
risks associated with contractual arrangements; limited patents and proprietary
rights; dependence on key personnel; uncertainty regarding pharmaceutical
pricing and reimbursement and other risks. The forward-looking statements
represent the Company's judgment and expectations as of the date of this Report.
The Company assumes no obligation to update any such forward-looking statements.

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

General
-------

 Description of Company

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

 Pagoclone

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

 Trospium

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

                                      -10-
<PAGE>

 IP 501

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

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

  In April 2001, Takeda Chemical Industries Ltd. ("Takeda") exercised a
previously granted option to negotiate a license to one of the Company's
compounds ( see "Citicoline").  Takeda has designated IP 501 as such compound.
Takeda will have a six month period during which the Company may not offer the
compound selected by Takeda to any other party on terms more favorable than
those offered to Takeda without first re-offering such compound to Takeda on
such new terms.  Upon the expiration of such six month period, in the event the
Company has not entered into an agreement with Takeda, Takeda will have no
further rights to IP 501.

 PRO 2000

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

 Sarafem TM

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

                                      -11-
<PAGE>

 Citicoline

  In December 1999, the Company entered into an agreement with Takeda (the
"Takeda Agreement"), subsequently amended, under which the Company licensed to
Takeda exclusive U.S. and Canadian commercialization rights to citicoline.  In
December 2000, Takeda notified the Company of its decision not to participate in
the further development of citicoline, thereby terminating the Takeda Agreement.
Therefore, the Company has reacquired all rights to this compound. The Company
does not intend to further develop citicoline unless it is able to find another
partner to participate in such development. Takeda has exercised its option
under the Takeda Agreement to negotiate a license of another one of the
Company's compounds and has selected IP 501 as such compound.

 Redux

  Product Liability Litigation: On September 15, 1997, the Company announced a
market withdrawal of its first prescription product, the weight loss medication
Redux (dexfenfluramine hydrochloride capsules) C-IV, which had been launched by
American Home Products Corp. ("AHP"), the Company's licensee, in June 1996.
Since the withdrawal of Redux, Interneuron has been named, together with other
pharmaceutical companies, as a defendant in approximately 3,200 product
liability legal actions, some of which purport to be class actions, in federal
and state courts involving the use of Redux and other weight loss drugs. To
date, there have been no judgments against the Company. Following the dismissal
and the anticipated dismissal of Interneuron as a defendant in certain cases,
the Company estimates that there will be fewer than 2,000 remaining cases. See
"Liquidity and Capital Resources -Analysis of Cash Flows" and " PART II. Item 1.
Legal Proceedings."


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

  Fiscal 2001 revenues consisted of $285,000 and $645,000 of royalty revenue
received from Lilly on sales of Sarafem in the three and six month periods ended
March 31, 2001, respectively.  Fiscal 2000 revenue in the six month period ended
March 31, 2000 consisted of $23,751,000 in contract and license fee revenue,
$13,750,000 of which was received from Pfizer pursuant to the Pfizer Agreement
and $10,000,000 from Takeda pursuant to the Takeda Agreement. The Company
reported no revenue in the three month period ended March 31, 2000.

  Cost of revenues of $58,000 and $130,000 in the three and six month periods
ended March 31, 2001, respectively, consists primarily of amounts due or paid to
Massachusetts Institute of Technology for its portion of the Sarafem royalty
revenue. Cost of revenues of $2,051,000 in the six month period ended March 31,
2000 reflect payments to Aventis for its portion of the initial license payment
received by the Company from Pfizer.

  Research and development expense increased $1,541,000 to $1,157,000  in the
three month period ended March 31, 2001 from a negative $384,000 in the three
month period ended March 31, 2000 and decreased $78,000, or 3%, to $2,198,000 in
the six month period ended March 31, 2001 from $2,276,000 in the six month
period ended March 31, 2000.  The negative amount of research and development
expense in the three month period ended March 31, 2000 (and contributing to a
relative increase in research and development expense in the three and six month
fiscal 2001 periods) was due primarily to credits to research and development
expenses of approximately $1,350,000 included in the three and six month fiscal
2000 periods reflecting the reversal of costs accrued relative to the Phase 3
citicoline clinical trial which were

                                      -12-
<PAGE>

determined to be unnecessary and for a reversal of accrued expense related to
pagoclone development which was determined to be unnecessary subsequent to
entering into the Pfizer Agreement. Additionally affecting the increase in
research and development expense in the three month period are expenses for the
development of trospium and PRO 2000, partially offset by reduced payroll and
employee-related expenses resulting from reductions in staffing. Additionally
affecting the decrease in research and development expenses in the six month
period are the absence of citicoline-related expenses and reduced payroll and
employee-related expenses resulting from reductions in staffing in fiscal 2001,
partially offset by increased expenses for the development of trospium and PRO
2000 in fiscal 2001.

  General and administrative expense decreased $67,000, or 3%, to $2,087,000 in
the three month period ended March 31, 2001 from $2,154,000 in the three month
period ended March 31, 2000 and decreased $928,000, or 20%, to $3,698,000 in the
six month period ended March 31, 2001 from $4,626,000 in the six month period
ended March 31, 2000. These decreases were primarily due to reduced expense
related to restricted stock awards granted pursuant to the Company's 1997 Equity
Incentive Plan and reduced payroll and employee-related expenses resulting from
reductions in staffing, partially offset by increased legal and consulting costs
related to the Company's lawsuit against AHP. Additionally, the six month period
reflected a reduction from tax expense recorded in fiscal 2000 period related
the net income resulting from the license fees received from Takeda and Pfizer.

  The product withdrawal credit of $618,000 reflected in the three and six
month periods ended March 31, 2001 relates to the insurance reimbursement of
certain Redux-related costs included in the insurance claim payment received by
the Company in January 2001.

  Investment income, net increased $64,000, or 13%, to $566,000 in the three
month period ended March 31, 2001 from $502,000 in the three month period ended
March 31, 2000 and increased $280,000, or 35%, to $1,073,000 in the six month
period ended March 31, 2001 from $793,000 in the six month period ended March
31, 2000.  The increase in the three month period is primarily due  to higher
yields on slightly lower average invested balances. The increase in the six
month period is primarily due to higher yields on higher average invested
balances.

  Gain on  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 Pharmaceuticals Corporation ("Incara") stock and the loss on
investment securities of $43,000 in the three and six month periods ended March
31, 2001 related to Incara stock.

  For the three month period ended March 31, 2001, the Company had a net loss of
($1,885,000), or ($0.04) per share, diluted, compared to net income of $282,000,
or $0.01 per share, diluted, for the three month period ended March 31, 2000.
For the six month period ended March 31, 2001, the Company had a net loss of
($3,742,000), or ($0.09) per share, diluted, compared to net income of
$17,141,000, or $0.40 per share, diluted, for the six month period ended March
31, 2000. These changes from net income to net loss were primarily the result of
the items discussed above.  The major factor for the change in the six month
period is the absence of contract and license fee revenue from Takeda and Pfizer
reflected in the fiscal 2000 six month period. The Company currently expects to
incur loses for its consolidated operations in fiscal 2001.

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

    Cash, Cash Equivalents and Marketable Securities

  At March 31, 2001, the Company had consolidated cash, cash equivalents and
marketable securities of $38,019,000 compared to $33,751,000 at September 30,
2000. This increase of $4,268,000 is primarily due to the receipt of $8,419,000

                                      -13-
<PAGE>

in January 2001 of insurance claims, net of approximately $3,000,000 of
payments, relating to the group of legal firms representing the Company in its
product liability litigation, and $1,757,000 returned to the Company from the
District Court and reflected at September 31, 2000 as settlement deposit
receivable, partially offset by the funding of the Company's net loss of
($3,742,000) and operations for the six month period ended March 31, 2001.  See
"Analysis of Cash Flows" and "Part II, Item 1. Legal Proceedings."

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


     Product Development

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


     Analysis of Cash Flows

  Reflected in insurance claim receivable at March 31, 2001 of $2,706,000 is
$1,441,000 which the Company paid to the group of law firms defending the
Company in the Redux-related product liability litigation and an additional
$1,265,000 which the Company owes to such law firms for services rendered
through March 31, 2001 (see "Part II, Item 1. Legal Proceedings"). In January
2001, the Company received an $8,419,000 payment of insurance claims.  The
Company is currently paying these law firms' fees at the rate of approximately
$1,600,000 per quarter and expects to be reimbursed for its ongoing insurance
claims, until the maximum aggregate limits of the Company's commercial excess
insurance policies are paid.

                                      -14-
<PAGE>

Other
-----

Recent Accounting Pronouncements

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

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

PART II - Other Information

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

  Product Liability Litigation: Subsequent to the market withdrawal of Redux in
September 1997, the Company has been named, together with other pharmaceutical
companies, as a defendant in approximately 3,200 legal actions, many of which
purport to be class actions, in federal and state courts relating to the use of
Redux. The actions generally have been brought by individuals in their own right
or on behalf of putative classes of persons who claim to have suffered injury or
who claim that they may suffer injury in the future due to use of one or more
weight loss drugs including Pondimin (fenfluramine), phentermine and Redux.
Plaintiffs' allegations of liability are based on various theories of recovery,
including, but not limited to, product liability, strict liability, negligence,
various breaches of warranty, conspiracy, fraud, misrepresentation and deceit.
These lawsuits typically allege that the short or long-term use of Pondimin
and/or Redux, independently or in combination (including the combination of
Pondimin and phentermine popularly known as "fen-phen"), causes, among other
things, primary pulmonary hypertension, valvular heart disease and/or
neurological dysfunction. In addition, some lawsuits allege emotional distress
caused by the purported increased risk of injury in the future. Plaintiffs
typically seek relief in the form of monetary damages (including economic
losses, medical care and monitoring expenses, loss of earnings and earnings
capacity, other compensatory damages and punitive damages), generally in
unspecified amounts, on behalf of the individual or the class. In addition, some
actions seeking class certification ask for certain types of purportedly
equitable relief, including, but not limited to, declaratory judgments and the
establishment of a research program or medical surveillance fund. On December
10, 1997, the Federal Judicial Panel on Multidistrict Litigation issued an Order
allowing for the transfer or potential transfer of the federal actions to the
Eastern District of Pennsylvania for coordinated or consolidated pretrial
proceedings. To date, there have been no judgments against the Company.
Following the dismissal and the anticipated dismissal of Interneuron as a
defendant in certain cases, the Company estimates that there will be fewer than
2,000 remaining cases.

                                      -15-
<PAGE>

  Rejected Settlement: On September 27, 1999, the Company announced that the
District Court rejected a proposed agreement among the Company and the
Plaintiffs' Management Committee in the Multidistrict Litigation to settle all
product liability litigation and claims against the Company related to Redux.
The District Court found that the proposed settlement did not meet the
requirements for limited fund class actions, as described by the Supreme Court
in its June 23, 1999 decision in Ortiz v. Fibreboard Corp. The District Court
also vacated the stays of pending and future litigation that were previously in
effect. The Company filed a petition with the U.S. Court of Appeals for the
Third Circuit on October 12, 1999, seeking review of the District Court's ruling
and on April 13, 2000 moved to dismiss such petition. The motion was granted on
April 25, 2000. As a result of the District Court's rejection of the proposed
settlement agreement, the ongoing Redux-related litigation is proceeding against
the Company.

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

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

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

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

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

                                      -16-
<PAGE>

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


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

  The Company's annual meeting of stockholders was held on March 7, 2001. At the
meeting (i) all seven director nominees were elected; and (ii) 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., 33,666,012 for, 319,936 against; Harry J. Gray,
33,665,912 for, 320,036 against; Alexander M. Haig, Jr., 33,665,112 for, 320,836
against; Malcolm Morville, Ph.D., 33,665,312 for, 320,636 against; Lindsay A.
Rosenwald, M.D., 33,666,012 for, 319,936 against; Lee J. Schroeder, 33,666,012
for, 319,936 against; and David B. Sharrock, 33,666,012 for, 319,936 against.

  (ii) The appointment of PricewaterhouseCoopers  LLP was ratified by a vote of
33,903,276 for, 41,535 against, and 41,137 abstaining.

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

(b)  Reports on Form 8-K

     The Company did not file any reports on Form 8-K for the three month period
 ended March 31, 2001.

                                      -17-
<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, 2001             By: /s/ Glenn L. Cooper
                                  --------------------------------
                                   Glenn L. Cooper, M.D., President, Chairman
                                   and Chief Executive Officer
                                   (Principal Executive Officer)


Date: May 15, 2001             By: /s/ Michael W. Rogers
                                  --------------------------------
                                   Michael W. Rogers, Executive Vice President,
                                   Chief Financial Officer and Treasurer
                                   (Principal Financial Officer)


Date: May 15, 2001             By: /s/ Dale Ritter
                                  --------------------------------
                                   Dale Ritter, Senior Vice President, Finance
                                   (Principal Accounting Officer)

                                      -18-