<PAGE>   1
                       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 quarter ended June 30, 1998

[ ]    TRANSACTION 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 periods 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 August 14, 1998:
Common Stock $.001 par value                     41,809,719 shares


                                       -1-

<PAGE>   2





                        INTERNEURON PHARMACEUTICALS, INC.

                               INDEX TO FORM 10-Q







PART I.  FINANCIAL INFORMATION                                        PAGE

Item 1. Financial Statements

Consolidated Balance Sheets as of June 30, 1998
  and September 30, 1997..............................................   3

Consolidated Statements of Operations for the Three and Nine Months
  ended June 30, 1998 and 1997........................................   4

Consolidated Statements of Cash Flows for the Nine Months
  ended June 30, 1998 and 1997........................................   5

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

Item 2. Management's Discussion and Analysis of Financial
  Condition and Results of Operations.................................   11

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings............................................   23

Item 5.  Other Information............................................   24

Item 6.  Exhibits and Reports on Form 8-K.............................   24

SIGNATURES............................................................   25


 
                                                       
<PAGE>   3



Item 1.  Financial Statements

                        INTERNEURON PHARMACEUTICALS, INC.
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
                    (Amounts in thousands except share data)


<TABLE>
<CAPTION>

                                                                                    June 30,    September 30,
                                                                                    --------    -------------
                                                                                      1998           1997
                                                                                      ----           ----

                                                    ASSETS
<S>                                                                                <C>          <C>  
Current assets:
     Cash and cash equivalents                                                         $29,062        $ 55,820
     Marketable securities                                                              46,731          64,549
     Accounts receivable                                                                 1,976           1,297
     Inventories                                                                           831             735
     Prepaids and other current assets                                                   1,702           2,137
                                                                                   -----------    ------------
             Total current assets                                                       80,302         124,538

Marketable securities                                                                    4,733          19,683
Investment in unconsolidated subsidiary                                                  1,167           4,040
Property and equipment, net                                                              4,150           4,669
                                                                                   -----------    ------------
                                                                                       $90,352        $152,930
                                                                                   ===========    ============

                                                 LIABILITIES
Current liabilities:
     Accounts payable                                                                   $1,667          $1,615
     Accrued expenses                                                                   26,866          39,153
     Deferred revenue                                                                      106             750
     Current portion of notes payable and capital lease obligations                        716             710
                                                                                   -----------    ------------
             Total current liabilities                                                  29,355          42,228

Long-term portion of notes payable and capital lease obligations                         1,561           1,734

Minority interest                                                                        7,997          12,959

Commitments and contingencies

                                             STOCKHOLDERS' EQUITY

Preferred stock; $.001 par value, 5,000,000 shares authorized; 
     Series B, 239,425 shares issued and outstanding at June 30, 1998
     and September 30, 1997 (liquidation preference at June 30, 1998 $3,019)             3,000           3,000
     Series C, 5,000 shares issued and outstanding at June 30, 1998
     and September 30, 1997  (liquidation preference at June 30, 1998  $500)               500             500
Common stock; $.001 par value, 80,000,000 shares authorized; 41,809,719 shares
     issued and outstanding at June 30, 1998 and
     41,266,293 shares issued at September 30, 1997                                         42              41
Additional paid-in capital                                                             267,177         255,693
Accumulated deficit                                                                   (219,290)       (162,034)
Unrealized net gain on marketable securities                                                10              85
Treasury stock; at cost, no shares at June 30, 1998 and 70,483 shares
     at September 30, 1997                                                                   -          (1,276)
                                                                                   -----------    ------------
     Total stockholders' equity                                                         51,439          96,009
                                                                                   -----------    ------------
                                                                                       $90,352        $152,930
                                                                                   ===========    ============

</TABLE>





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



                                       -3-

<PAGE>   4



                        INTERNEURON PHARMACEUTICALS, INC.
                    CONSOLIDATED STATEMENTS OF OPERATIONS
           For the three and nine months ended June 30, 1998 and 1997
                                   (Unaudited)
                  (Amounts in thousands except per share data)



<TABLE>
<CAPTION>

                                                  Three Months Ended June 30,            Nine Months Ended June 30,
                                                  ---------------------------            --------------------------
                                                    1998               1997                1998               1997
                                                    ----               ----                ----               ----
<S>                                             <C>                 <C>                 <C>               <C>      
Revenues:
Product revenue                                 $     996           $  15,012           $   2,666         $  46,200
Contract and license fees                             697               2,383               2,024             8,661
                                                ---------           ---------           ---------         ---------
   Total revenues                                   1,693              17,395               4,690            54,861

Costs and expenses:
Cost of product revenue                               357               9,144               1,026            31,047
Research and development                            9,043              10,500              29,399            27,984
Selling, general and administrative                 8,932               7,372              35,794            18,716
Purchase of in-process research and development         -                 286                 500             2,547
                                                ---------           ---------           ---------         ---------

     Total costs and expenses                      18,332              27,302              66,719            80,294
                                                ---------           ---------           ---------         ---------
Net loss from operations                          (16,639)             (9,907)            (62,029)          (25,433)

Investment income, net                              1,209               2,191               4,445             6,788
Equity in net loss of unconsolidated subsidiary    (1,002)                 --              (2,873)               --
Minority interest                                   1,677                 542               3,201               690
                                                ---------           ---------           ---------         ---------

Net loss                                        $ (14,755)          $  (7,174)          $ (57,256)        $ (17,955)
                                                =========           =========           =========         =========

Net loss per common share - basic               $   (0.35)          $   (0.17)          $   (1.38)        $   (0.44)
                                                =========           =========           =========         =========

Net loss per common share - diluted             $   (0.35)          $   (0.17)          $   (1.38)        $   (0.44)
                                                =========           =========           =========         =========

Weighted average common shares outstanding         41,613              41,048              41,353            41,055
                                                =========           =========           =========         =========







</TABLE>









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



                                     -4- 

<PAGE>   5






                        INTERNEURON PHARMACEUTICALS, INC.
                    CONSOLIDATED STATEMENTS OF CASH FLOWS 
                For the nine months ended June 30, 1998 and 1997
                                   (Unaudited)
                             (Amounts in thousands)


<TABLE>
<CAPTION>
                                                                                   Nine Months Ended June 30,
                                                                                   --------------------------
                                                                                     1998               1997
                                                                                     ----               ----
<S>                                                                              <C>                 <C>
Cash flows from operating activities:
     Net loss                                                                     $ (57,256)         $ (17,955)
     Adjustments to reconcile net loss to net cash
          (used) by operating activities:
         Depreciation and amortization                                                1,973              1,025
         Loss on disposal of fixed assets                                                 -                  7
         Minority interest in net income/loss of consolidated subsidiaries           (3,201)              (690)
         Purchase of in-process research and development                                  -              2,147
         Noncash compensation                                                        10,417                262
         Equity in net loss of unconsolidated subsidiary                              2,873                 --
     Change in assets and liabilities:
         Accounts receivable                                                           (680)             1,179
         Prepaid and other assets                                                       436             (7,134)
         Inventories                                                                    (96)             4,227
         Accounts payable                                                                51                652
         Deferred revenue                                                              (644)               214
         Accrued expenses and other liabilities                                     (12,104)             6,273
                                                                                  ---------          ---------
Net cash (used) by operating activities                                             (58,231)            (9,793)
                                                                                  ---------          ---------

Cash flows from investing activities:
     Capital expenditures                                                              (915)            (3,258)
     Purchase of marketable securities                                              (26,855)           (79,381)
     Proceeds from maturities and sales of marketable securities                     59,548             12,390
     Purchases of Intercardia stock                                                       -             (2,837)
                                                                                  ---------          ---------
Net cash provided (used) by investing activities                                     31,778            (73,086)
                                                                                  ---------          ---------

Cash flows from financing activities:
     Net proceeds from issuance of common and treasury stock                            223              1,317
     Net proceeds from issuance of stock by subsidiaries                                177                276
     Purchases of treasury stock                                                          -             (3,978)
     Proceeds from sale/leaseback transactions                                            -              1,050
     Principal payments of capital lease obligations                                   (663)              (625)
     Principal payments of notes payable                                                (42)                --
                                                                                  ---------          ---------
Net cash (used) by financing activities                                                (305)            (1,960)
                                                                                  ---------          ---------

Net change in cash and cash equivalents                                             (26,758)           (84,839)
Cash and cash equivalents at beginning of period                                     55,820            145,901
                                                                                  ---------          ---------

Cash and cash equivalents at end of period                                        $  29,062          $  61,062
                                                                                  =========          =========


</TABLE>



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

              


                                      -5-



<PAGE>   6



               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. 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, 1997.

     The consolidated financial statements include the accounts of Interneuron
Pharmaceuticals, Inc. ("Interneuron" or the "Company") and its majority-owned
subsidiaries, Intercardia, Inc. ("Intercardia") and InterNutria, Inc.
("InterNutria") and, for the periods ended June 30, 1997, Progenitor, Inc.
("Progenitor") and through May 8, 1998, Transcell Technologies, Inc.
("Transcell") (the "Subsidiaries"). Progenitor, which as of August 1997 is less
than majority but greater than 20% owned, is accounted for using the equity
method of accounting for all periods subsequent to August 1997. On May 8, 1998,
the merger of Transcell into Intercardia was completed (see Note D). All
significant intercompany activity has been eliminated.

B.       Significant Accounting Policies

     SFAS 128:

     In Fiscal 1998, the Company adopted Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 replaced the previously
reported primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants and convertible securities.
All earnings per share amounts for all periods have been presented to conform to
SFAS No. 128 requirements. There was no effect on the earnings per share
disclosures as a result of adoption of SFAS No. 128 due to the antidilutive
effect of the Company's outstanding options, warrants and convertible
securities.

The following table sets forth the computation of basic and diluted earnings per
share:

<TABLE>
<CAPTION>
                                                 Three Months  Ended June 30,             Nine Months Ended June 30,
                                                 ----------------------------             --------------------------
                                                 1998                    1997               1998              1997
                                                 ----                    ----               ----              ----
<S>                                           <C>                   <C>                <C>                <C> 
Numerator for basic and diluted:
     Net loss                                 $(14,755,000)         $(7,174,000)       $(57,256,000)      $(17,955,000)
                                              ============          ===========        ============      =============

Denominator for basic and diluted:
     weighted average shares outstanding        41,613,000           41,048,000          41,353,000         41,055,000
                                              ============          ===========        ============      =============

Net loss per common share - basic                  $ (0.35)              $(0.17)             $(1.38)           $ (0.44)
                                              ============          ===========        ============      =============

Net loss per common share - diluted                $ (0.35)             $ (0.17)             $(1.38)           $ (0.44)
                                              ============          ===========        ============      =============


</TABLE>

                                       -6-

<PAGE>   7



     During the three month period ended June 30, 1998, 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 3,464,776 shares of Common Stock at prices ranging from $7.00 to
$32.00 with expiration dates ranging up to March 3, 2008; (ii) warrants to
purchase 727,500 shares of Common Stock with exercise prices ranging from $7.88
to $23.25 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 June 30, 1998, 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 3,515,400 shares of Common Stock at prices ranging from
$0.83 to $6.50 with expiration dates ranging up to May 5, 2008; (ii) warrants to
purchase 95,000 shares of Common Stock with exercise prices ranging from $2.75
to $5.13 and with expiration dates ranging up to February 3, 2005; (iii) Series
B and C preferred stock convertible into 622,222 shares of Common Stock; and
(iv) unvested Restricted Stock Awards to acquire 805,146 shares of Common Stock
granted pursuant to the Company's 1997 Equity Incentive Plan.

     During the three month period ended June 30, 1997, 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 1,882,600 shares of Common Stock at prices ranging from $18.63 to
$32.00 with expiration dates ranging up to June 30, 2007; (ii) warrants to
purchase 105,000 shares of Common Stock with exercise prices ranging from $18.25
to $23.25 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 $40.30 and expiration dates ranging up to May 24, 1999.
Additionally, during the three month period ended June 30, 1997, 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 3,282,674 shares of Common Stock at prices ranging from
$0.83 to $16.25 with expiration dates ranging up to May 19, 2007; (ii) warrants
to purchase 776,157 shares of Common Stock with exercise prices ranging from
$2.75 to $14.00 and with expiration dates ranging up to February 3, 2005; and
(iii) Series B and C preferred stock convertible into 622,222 shares of Common
Stock.

     During the nine month period ended June 30, 1998, 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 2,027,603 shares of Common Stock at prices ranging from $9.50 to
$32.00 with expiration dates ranging up to January 21, 2008; (ii) warrants to
purchase 667,500 shares of Common Stock with exercise prices ranging from $10.00
to $23.25 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 nine month period ended June 30, 1998, 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 4,952,573 shares of Common Stock at prices ranging from
$0.83 to $8.75 with expiration dates ranging up to May 5, 2008; (ii) warrants to
purchase 155,000 shares of Common Stock with exercise prices ranging from $2.75
to $9.00 and with expiration dates ranging up to February 3, 2005; (iii) Series
B and C preferred stock convertible into 622,222 shares of Common Stock; and
(iv) unvested Restricted Stock Awards of 805,146 shares of Common Stock granted
pursuant to the Company's 1997 Equity Incentive Plan.

     During the nine month period ended June 30, 1997, 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 581,800 shares of Common Stock at prices ranging from $23.25 to
$32.00 with expiration dates ranging up to March 7, 2007; (ii) warrants to
purchase 80,000 shares of 


                                      -7-

<PAGE>   8




Common Stock with an exercise price of $23.25 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 $40.30 and expiration dates
ranging up to May 24, 1999. Additionally, during the nine month period ended
June 30, 1997, 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 4,583,474 shares of
Common Stock at prices ranging from $0.83 to $20.25 with expiration dates
ranging up to June 30, 2007; (ii) warrants to purchase 801,157 shares of Common
Stock with exercise prices ranging from $2.75 to $18.25 and with expiration
dates ranging up to February 3, 2005; and (iii) Series B and C preferred stock
convertible into 622,222 shares of Common Stock.

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

Redux(TM) Revenue:

     The Company's revenue recognition policy is to record and recognize as
product revenue royalties from licensed products when the amount of and basis
for such royalties are reported to the Company in accurate and appropriate form
and in accordance with the related license agreements. Due to the market
withdrawal of Redux in September 1997 and related events, the Company did not
receive any royalties relating to the sales of Redux for any period commencing
July 1, 1997 and the Company did not record product revenue relating to Redux
thereafter.

Recent Accounting Pronouncements:

     The Company will adopt SFAS No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"), in the fiscal year ending September 30, 1999. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements.
Management has not determined the effect of adopting SFAS No. 130.

     The Company will adopt SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"), in the fiscal year ending
September 30, 1999. SFAS No. 131 specifies revised guidelines for determining an
entity's operating segments and the type and level of financial information to
be disclosed. Management has not determined the effect of adopting SFAS No. 131.

     The Company will adopt SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), by October 1, 1999.  SFAS 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 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.  Management has not determined the effect of adopting SFAS 133.

C.       Inventories

    Inventories consisted of the following:


                                                June 30,    September 30,
                                                  1998          1997
                                                  ----          ----
     Raw materials                              $222,000      $221,000
     Finished goods                              609,000       514,000
                                                --------      --------
                                                $831,000      $735,000
                                                ========      ========

     At June 30, 1998 and September 30, 1997, inventories consisted primarily of
PMS Escape(TM). At June 30, 1998 and September 30, 1997, the Company had fully
reserved all Redux-related inventories in connection with the market withdrawal
of Redux.

                                      -8-


<PAGE>   9


D.   Subsidiaries

     In January 1998, Interneuron sold, subject to repurchase rights expiring in
April 1999, an aggregate of 10% of its InterNutria common stock to four
executive officers of Interneuron for the par value of the InterNutria shares
($.001 per share) which approximated fair market value of these shares at the
time of the transaction.

     On May 8, 1998, the merger of Transcell with and into Intercardia and the
acquisition by Intercardia of certain related technology rights owned by
Interneuron was completed and, simultaneously, Interneuron contributed to
Transcell's capital all of Transcell's indebtedness to Interneuron (the
"Transcell Acquisition"). Consideration given by Intercardia  consisted of (i)
Intercardia common stock payable to the Transcell stockholders, including
Interneuron, in three installments with an aggregate market value at closing of
approximately $14,200,000, of which $3,000,000 was payable at closing as an
initial payment to Interneuron for certain of its technology rights and
continued guarantees of certain Transcell leases (the "Technology/Guarantee
Payment"), and (ii) the issuance of options and warrants to purchase
approximately 260,000 shares of Intercardia common stock to Transcell employees
and consultants in exchange for their options and warrants to purchase Transcell
capital stock. Accordingly, in connection with the first installment of the
merger consideration due at the closing of the merger, Intercardia issued an
aggregate of approximately 320,000 shares of common stock, of which
approximately 191,000 shares were issued to Interneuron. In addition,
Intercardia issued approximately 175,000 shares to Interneuron for the
Technology/Guarantee Payment. Intercardia's acquisition of the minority
shareholders' interest in Transcell resulted in Intercardia recording a charge
to operations for the three and nine month periods ended June 30, 1998 for the
purchase of in-process research and development of approximately $5,300,000.
This charge is eliminated in consolidation and is not reflected in the Company's
results of operations because the Company did not acquire any incremental
interest in Trancell's net assets as a result of the transaction.  In connection
with this transaction, the Company also recorded a credit to additional paid-in
capital of approximately $2,200,000 to reflect adjustments to minority interest
resulting from the Transcell Acquisition and the book value of the Intercardia
shares received by the Company for the Technology/Guarantee Payment.
Interneuron owned approximately 61% and 62% of the outstanding capital stock of
Intercardia before and immediately after the closing of the Transcell
Acquisition, respectively. As a result of the Transcell Acquisition, put
protection rights that could have caused the Company to issue up to 232,000
additional shares (assuming Interneuron's Common Stock was $2.00 per share or
less) of Interneuron Common Stock expired.

E.  Commitments and Contingencies

     In connection with the September 15, 1997 market withdrawal of Redux,
Interneuron has been named, together with other pharmaceutical companies,
including American Home Products Corp. ("AHP"), as a defendant in approximately
580 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. 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. The Company and certain directors and/or officers of the Company
have also been named as a defendant in several lawsuits filed by alleged
purchasers of the Company's Common Stock, purporting to be class actions,
claiming violation of the federal securities laws. It is not possible for the
Company to determine its costs related to its defense in these or potential
future legal actions, monetary or other damages which may result from such legal
actions, or the effect on the future operations of the Company. The withdrawal
of Redux and related events may materially adversely affect the Company and its
financial condition.

F.  Equity

     As an integral component of a management and employee retention program
designed to motivate, retain and provide incentive to the Company's management
and other employees, the Company's Board of Directors adopted the 1997 Equity
Incentive Plan during the three month period ended December 31,

                                      -9-

<PAGE>   10





1997 (the "1997 Plan"). The 1997 Plan provides for the grant of restricted stock
awards which entitle the plan participants to receive up to an aggregate of
1,750,000 shares of the Company's Common Stock upon satisfaction of specified
vesting periods. As of June 30, 1998, restricted stock awards to acquire an
aggregate of 1,306,334 shares had been granted, net of forfeitures, to all
employees of the Company in consideration of services rendered by the employee
to the Company and payment of the par value of the shares. The number of shares
subject to each employee's award were based primarily on the employee's base
compensation. The shares subject to the awards have been registered under the
Securities Act of 1933 on a registration statement on Form S-8 and, accordingly,
may be sold by the plan participants immediately upon vesting of the shares. In
accordance with the provisions of the 1997 Plan for automatic extension of
vesting during Black-Out Periods, as defined in the 1997 Plan, vesting of the
shares commenced in April 1998 and through June 30, 1998, 501,188 shares have
vested and been issued by the Company under the 1997 Plan. Vesting continues
through May 2000 on the remaining 805,146 shares subject to awards at June 30,
1998.

     The Company has incurred and will continue to incur compensation expense
from the date of grant of awards through the vesting period of shares subject to
restricted stock awards. The charges relating to the restricted stock awards to
acquire 1,306,334 shares are expected to aggregate approximately $15,500,000,
the fair market value of the shares at the time of grant, of which approximately
$11,000,000 is expected to be incurred in the fiscal year ending September 30,
1998 and the remainder through the final vesting periods in fiscal 2000.
Approximately $1,600,000 and $9,400,000 of such expense was recognized during
the three and nine month periods ended June 30, 1998, respectively, and
allocated to research and development and selling, general and administrative
expense.

     In fiscal 1997, the Company purchased in a private transaction capped call
options in exchange for the issuance by the Company of call options and the
receipt by the Company of $500,000. Call options on an aggregate of 620,000
shares of Common Stock, maturing on December 31, 1997 and June 9, 1998, expired
without exercise.

     In January 1998, the Company's Board of Directors adopted, and in March
1998 the Company's stockholders approved, the 1998 Employee Stock Option Plan
(the "1998 Plan"). Under the 1998 Plan, options to purchase up to 1,500,000
shares of the Company's Common Stock may be granted to employees, directors and
consultants except persons who were executive officers or directors of the
Company as of the date of adoption of the 1998 Plan. The duration of the 1998
Plan is ten years and the term of options granted thereunder cannot exceed seven
years.

     In May 1998, the Company's Board of Directors authorized the Company to
offer (the "Exchange Offer") holders of outstanding options issued primarily
pursuant to Interneuron's stock option plans, and certain warrants, to purchase
the Company's Common Stock, which have exercise prices of $10.00 per share or
greater, the right to exchange such options and warrants for new options and
warrants (the "Exchanged Options and Warrants") to purchase the same number of
shares represented by the original options and warrants at an exercise price of
$6.1875 per share, the fair market value of the Company's Common Stock
determined as of May 5, 1998. The Exchanged Options and Warrants generally vest
in six equal installments commencing six months from the date the Board
authorized the Exchange Offer. The term of each Exchanged Option or Warrant is
the same as the remaining term of the respective original option or warrant.
Approximately 4,200,000 options and warrants have been or are expected to be
exchanged pursuant to the Exchange Offer.

                                      -10-


<PAGE>   11

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

     Statements in this Form 10-Q that are not descriptions of historical facts
are forward-looking statements that are subject to risks and uncertainties.
Actual results could differ materially from those currently anticipated due to a
number of factors, including those set forth in the Company's filings under the
Securities Act of 1933 and under the Securities Exchange Act of 1934 under "Risk
Factors" and elsewhere including, in particular, risks relating to withdrawal of
Redux and Redux-related litigation; uncertainties relating to CerAxon(TM),
pagoclone, and other products under development; uncertainties relating to
regulatory approvals and clinical trials; continued losses from operations, need
for additional funds and risks relating to funding requirements; product
liability; manufacturing and supply and marketing risks; risks related to
contractual obligations; risks relating to product launches and managing growth;
limited revenues and revenue fluctuations; government regulation; the early
stage of products under development; patent risks; dependence on third parties;
dependence on key personnel; competition; and uncertainties regarding
pharmaceutical prices and reimbursements.

     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, 1997. Unless the context indicates otherwise, all references
to the Company include Interneuron and its Subsidiaries.

General

     CerAxon

     In April 1998, the Company announced that based upon a preliminary
analysis, a 100-patient Phase 3 trial with CerAxon (cytidine-5'-diphosphate
choline, sodium or citicoline), the Company's product under development to treat
ischemic stroke, failed to meet its primary and the principal secondary
endpoints and the Company withdrew the New Drug Application ("NDA") submitted to
the U.S. Food and Drug Administration ("FDA") for CerAxon in December 1997. With
respect to the primary endpoint, no statistically significant difference was
detected in the reduction of infarct size among patients with ischemic stroke
who received 500 milligrams per day of CerAxon as compared with patients who
received placebo. With respect to the principal secondary endpoint, the trial
did not show an improvement in neurological function among drug-treated patients
as compared with patients who received placebo. A placebo response rate
unexpectedly higher than that previously reported in the literature may have
accounted for the inability to detect a difference in infarct size reduction and
neurological function among drug-treated patients, as compared with patients who
received placebo.

     The CerAxon NDA had been accepted for filing and assigned priority and
fast-track review status. A priority review status reflects the FDA's commitment
to review the NDA within six months following submission and a fast-track
designation indicates that the FDA has determined a drug is intended to treat a
serious or life-threatening condition that currently has an unmet medical need
and that the FDA can take actions to expedite the development and review of the
drug. Data in the NDA included the results of two Phase 3 clinical trials
conducted by Interneuron in the U.S., a Japanese Phase 3 clinical trial
conducted by Takeda Chemical Industries, Ltd. and supportive clinical and
post-marketing data from more than 20 countries where citicoline has already
been approved. As a result of the preliminary analysis and considering statutory
requirements that would have mandated an FDA action by June 1998, the Company
withdrew its NDA for CerAxon in April 1998.

                                      -11-

    
<PAGE>   12

                                           
     The Company is proceeding with the development of CerAxon and commenced in
June 1998 a Phase 3 clinical trial which will compare the neurological function
at 12 weeks following ischemic stroke of CerAxon-treated patients with that of
patients who received placebo. Patients will be treated with 2000 milligrams of
CerAxon daily for six weeks with a six week follow-up period. It is anticipated
that this clinical trial will be completed in late 1999. The 2000 milligram dose
level is higher than the dose used in the Company's two most recent CerAxon
clinical trials but was used in the Company's first Phase 3 trial in which
patients treated with this dose achieved the primary endpoint of improved
neurological function. Depending upon the evaluation of the results from this
trial, the Company will determine whether to resubmit the NDA for CerAxon to the
FDA. Even if the Company does re-submit the NDA, as to which there is no
assurance, the Company is unable to predict whether or when the FDA would grant
authorization to market CerAxon in the U.S. Upon resubmission of the NDA, a new
review period would commence.

     As of June 30, 1998, the remaining expenditures of all currently planned
clinical trials and related studies and NDA preparation for CerAxon are
estimated, based upon current trial protocols, to aggregate approximately
$33,000,000. The Company is unable to predict the costs of any related or
additional clinical studies which will depend upon the results of the on-going
trial and upon FDA requirements.

     The Company is dependent upon third party suppliers of citicoline bulk
compound, finished product and packaging for manufacturing in accordance with
the Company's requirements and current U.S. Good Manufacturing Practices
("cGMP") regulations as well as on third party arrangements for the distribution
of CerAxon. Supplies of citicoline finished product used for clinical purposes
have been produced on a contract basis by a third party manufacturer. The
Company does not have arrangements with a manufacturer for supply of commercial
quantities of finished product and there can be no assurance such agreement can
be obtained on terms favorable to the Company or at all, which could adversely
affect the Company's ability to commercialize CerAxon on a timely and
cost-effective basis. The Company is subject to an agreement with Ferrer
Internacional S.A. ("Ferrer"), a Spanish pharmaceutical company which licensed
certain patent rights relating to citicoline to the Company, requiring the
Company to purchase citicoline bulk compound for commercial purposes at fixed
prices, subject to certain conditions. There can be no assurance the Company can
or will establish on a timely basis, or maintain, manufacturing capabilities of
bulk compound and finished product required to obtain regulatory approval of
CerAxon, or that any facilities used to produce citicoline will have complied,
or will be able to maintain compliance, with cGMP, or that such suppliers will
be able to meet manufacturing requirements on a timely basis or at all.

     In June 1998, the Company amended its agreement with Ferrer to extend to
January 31, 2002 the date upon which Ferrer may terminate the citicoline license
agreement if FDA approval of citicoline is not obtained. The agreement provides
for such date to be extended for up to two years if the Company provides
information to Ferrer which tends to establish that the Company has carried out
the steps for obtaining such approval and if such approval has not been obtained
for reasons beyond the Company's control.

     In June 1998, the Company also entered into an agreement with Ferrer
whereby the Company licensed to Ferrer, worldwide except for the U.S. and
Canada, the use of Interneuron's patent rights relating to the use of citicoline
in the protection of brain tissue from cerebral infarction following ischemic
stroke. In exchange for the license to Ferrer, Interneuron will be entitled to
royalties from Ferrer on certain exports to, and sales of, the solid form of
citicoline in certain countries upon its approval in each relevant country.

     As a result of the Company's withdrawal of its NDA and the resulting
additional time and expense for product development, the Company is reexamining
a variety of CerAxon commercialization 


                                      -12-


<PAGE>   13



strategies. Significant additional funds will be required for development,
manufacturing, distribution, marketing and selling efforts, the amount of which
will depend upon whether the Company markets CerAxon itself or enters into a
corporate collaboration.

     Redux

         Withdrawal

     On September 15, 1997, the Company announced the withdrawal of the weight
loss medication Redux. On September 12, 1997, the FDA provided the Company and
Wyeth-Ayerst Laboratories, a division of American Home Products Corp. ("AHP")
and manufacturers and marketers of phentermine with new, preliminary and summary
information, subsequently updated and revised by the FDA, concerning potential
abnormal echocardiogram findings in patients using these drugs. These patients
had been treated with Pondimin or Redux for up to 24 months, most often in
combination with phentermine. Redux was launched in June 1996.

     These observations presented by the FDA reflected a preliminary analysis of
pooled information rather than results of a formal clinical investigation, and
are difficult to evaluate because of the absence of matched controls and
pretreatment baseline data for these patients. Nevertheless, the Company
believes it was prudent, in light of this information, to have withdrawn Redux
from the market.

     As reported in the original preliminary information provided by the FDA,
abnormal echocardiogram findings were reported in 92 of 291 subjects evaluated.
As originally reported, 271 of the 291 patients had taken fenfluramine (also
called Pondimin) in combination with phentermine (commonly referred to as the
"fen/phen" combination), 11 had taken Redux alone and nine had taken a
combination of Redux and phentermine. As originally reported, of the 11 who had
taken Redux alone, two had abnormal echocardiograms and, of the nine who had
taken a combination of Redux and phentermine, four had abnormal echocardiograms.

     The FDA has continued to evaluate the data from the original 291 cases. In
a subsequent update, the FDA has reported to the Company that, revising the
originally reported data, of the 291 cases, 15 patients had taken Redux alone
and 21 had taken a combination of Redux and phentermine. Of the 15 who had taken
Redux alone, two patients had abnormal echocardiograms and of the 21 who had
taken a combination of Redux and phentermine, 13 patients had abnormal
echocardiograms. The FDA-approved prescribing information (the label) for Redux
recommended against using Redux in combination with other appetite suppressants.
The Company believes, based on industry data, that over 90% of prescriptions
written for Redux were for Redux alone (without a combination with another
appetite suppressant).

     Additional adverse event reports of abnormal echocardiogram findings in
patients that have used Redux alone or in combination with other weight loss
agents continue to be received by Interneuron, Wyeth- Ayerst, and the FDA.

     On November 13, 1997, the U.S. Department of Health and Human Services
("HHS") issued preliminary recommendations for the medical management of people
who took Pondimin or Redux. HHS recommended, until more complete information is
available, that patients who took either drug should see their physicians to
determine whether there are signs or symptoms of heart or lung disease and that
if a person has signs or symptoms of heart or lung disease, such as a new heart
murmur or shortness of breath, an echocardiogram should be performed upon that
person. HHS also recommended that physicians strongly consider performing an
echocardiogram before a patient who has taken either drug has any invasive
procedure for which antibiotic prophylactic treatment is recommended to prevent
the development of bacterial endocarditis.

                                      -13-


<PAGE>   14


        Subsequent Studies

     Additional echocardiogram studies are being conducted to compare patients
who had taken either Redux or the "fen/phen" combination with a matched group of
obese patients who did not receive any anti-obesity drugs. These studies are
being conducted and will be analyzed by independent panels of cardiologists to
compare the incidence of significant heart valve abnormalities in treated
compared to non-treated groups. Patients are selected and assigned to these
groups randomly. Readings of patient echocardiograms are made on a blinded basis
by cardiologists who do not know from which group individual echocardiograms
were taken.

     Findings from one such placebo-controlled, blinded study were presented at
the 47th Annual Scientific Session of the American College of Cardiology in
March 1998. The findings involved three groups totaling 1,072 patients who
received drug or placebo for up to four months: one group received the
twice-daily formulation of Redux which was marketed until its withdrawal, one
group received a sustained-release formulation of Redux which was previously
under development and never marketed, and a third group received placebo. The
study was conducted independently at Georgetown University Medical Center.
Financial support for the study was provided by AHP. Echocardiogram readings
were made by one core laboratory using consistent definitions of cardiac valve
abnormalities. Investigators reported no statistically significant difference
between the prevalence of cardiac valve abnormalities, as defined by the FDA,
among patients who took Redux and placebo-treated patients. It was also reported
that the prevalence of such abnormalities among Redux patients was significantly
less than previously reported estimates. Treated patients took Redux alone for
2-3 months, which the Company believes reflects the duration of treatment for an
estimated 75-80% of patients who took Redux while it was marketed, based on
market research.

     In addition, Interneuron has initiated a separate study which will also be
analyzed by an independent blinded panel of cardiologists, comparing
echocardiograms of patients who took Redux alone for at least three months to
echocardiograms of a control group of patients who did not take any anti-obesity
medication to measure the prevalence and severity of abnormal echocardiogram
observations among the two sets of patients. Approximately 400 patients are
expected to be included in the Company-supported study, the remaining
expenditures for which are estimated to be up to approximately $1,000,000.
Results of this study are anticipated to become available in 1998. A number of
other clinical studies relating to the prevalence of abnormal echocardiogram
findings in patients who took Redux and other anti-obesity agents, including the
phen/fen combination, have been and may be conducted by Wyeth-Ayerst and/or
others.

         Legal Actions

     Interneuron has been named, together with other pharmaceutical companies,
including AHP, as a defendant in approximately 580 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. 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. The Company
and certain directors and/or officers of the Company have also been named as
defendants in several lawsuits filed by alleged purchasers of the Company's
common stock, purporting to be class actions, claiming violation of the federal
securities laws. See "Legal Proceedings."

     Under certain circumstances, the Company may be required to indemnify Les
Laboratoires Servier ("Servier"), Boehringer Ingelheim Pharmaceuticals, Inc.
("Boehringer") (the contract manufacturer of Redux capsules) and AHP, and the
Company may be entitled to indemnification by AHP and Boehringer against certain
claims, damages or liabilities incurred in connection with Redux. The cross
indemnification


                                      -14-



<PAGE>   15


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 may be required 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 was 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
commercialize products on a timely and adequate basis, to acquire or obtain
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 and financial
condition.

     Through September 1997, a significant portion of Interneuron's revenues had
been derived from Redux sales. Due to the market withdrawal of Redux in
September 1997 and related events, the Company did not record product revenue
relating to Redux in any fiscal 1998 periods. The Company does not expect to
realize any future revenues related to Redux. See Note B of Notes to Unaudited
Consolidated Financial Statements.

     Pagoclone

     The Company is incurring substantial costs to develop pagoclone for the
treatment of panic disorders and anxiety. The results from a Phase 2/3 trial
which commenced in November 1996 are expected shortly. The Company designates a
trial as Phase 2/3 if it is a well-controlled trial which the Company may
utilize, depending upon results, as either a pivotal or supporting trial in an
NDA submission. After completion of this Phase 2/3 trial, the Company expects to
commence additional pivotal trials which will be necessary to be included in an
NDA submission for pagoclone. The Company currently estimates the total costs of
these and other clinical studies related to pagoclone, license fees to
Rhone-Poulenc Rorer Pharmaceuticals, Inc. ("RPR"), and NDA preparation for
pagoclone to be approximately $49,000,000, which if all of such activities are
undertaken, would be incurred over approximately the next three years. The
Company is unable to predict with certainty the costs of any related or
additional studies which may be required by the FDA and there can be assurance,
assuming such trials are conducted, that any such clinical trials will be
successful or result in FDA approval of the product. The Company expects to
explore various funding and commercialization strategies for pagoclone which may
include corporate partnering arrangements. In the event the Company markets
pagoclone directly, significant additional funds would be required for
manufacturing, distribution and selling efforts. In the event pagoclone is
successfully developed and receives FDA authorization for marketing, RPR would
be entitled to royalties based on net sales.

Liquidity and Capital Resources

     Cash, Cash Equivalents and Marketable Securities

     At June 30, 1998, the Company had consolidated cash, cash equivalents and
marketable securities aggregating $80,526,000 (of which approximately
$22,441,000 was held by Intercardia and is not available to Interneuron)
compared to $140,052,000 at September 30, 1997. This decrease is primarily due
to approximately $58,000,000 used to fund operations, including $10,000,000 paid
by CPEC, Inc. ("CPEC"), a majority-owned subsidiary of Intercardia, to Astra
Merck, Inc. ("Astra Merck") (all of which was accrued at September 30, 1997). A
portion of this payment to Astra Merck was funded by Interneuron, which owns


                                      -15-

<PAGE>   16


                                                                                
directly approximately 20% of CPEC.

     Product Development

     The Company expects to continue expending substantial amounts for the
development of CerAxon and pagoclone as described above. In the event the
Company does not have sufficient funds in the future, the Company may be
required to delay certain clinical trials which would adversely affect
development of the Company's products. See "CerAxon" and "Pagoclone" above and
"Other" below.

     In April 1998, the Company licensed from Tulane University exclusive
world-wide rights to a U.S. patent and U.S. and foreign patent applications
owned by Tulane relating to a novel neuropeptide, known as PACAP (pituitary
adenylate cyclase activating peptide). Preclinical data suggests PACAP may have
potential as a treatment for stroke, either alone or in combination with
CerAxon, and other neurodegenerative diseases in humans. Consideration to Tulane
for the license includes an upfront fee, research funding, potential milestone
payments and royalties from products developed from this program.
The Company has initiated pre-clinical development of PACAP.

     The Company is continuing pre-clinical development of LidodexNS, a product
for the acute intra-nasal treatment of migraine headaches, being developed
pursuant to a collaborative agreement with Algos Pharmaceutical Corporation. The
development of this product and other products, including those which may be
acquired by the Company in the future will require substantial additional funds.

     In July 1998, the Company received FDA authorization for the marketing in
the U.S. of a medical device called the AnatoMark(TM) Non-Invasive Head
Reference System ("AnatoMark") designed to provide reproducible anatomical
markers non-invasively for brain imaging. The Company is currently finalizing
its marketing strategy and plans for AnatoMark, which is expected to be
commercially introduced in fiscal 1999.

     During 1997, the Company obtained an exclusive option to license a product
for the treatment and prevention of liver diseases. The option grants
Interneuron the right to license, on specified terms, North American and Asian
marketing rights to an issued U.S. patent and pending international patents,
following Interneuron's review of future clinical data. This orally-administered
compound is being studied in a large U.S. government-sponsored Phase 3 clinical
trial. Several hundred patients have been enrolled in the study, which is
expected to be completed in approximately two years. The study is designed to
have periodic interim analysis which could lead to earlier termination if a
significant positive drug effect is identified.

     Consistent with its corporate strategy, the Company continually seeks to
identify technology and product candidates for in-licensing and development. 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.

     There can be no assurance that results of any on-going current or future
preclinical or clinical trial 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 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.

                                 
                                      -16-




<PAGE>   17


    Analysis of Cash Flows

     Cash used by operating activities during the nine months of fiscal 1998 of
$58,231,000 consisted primarily of a net loss of $57,256,000 and $10,000,000
paid by CPEC in December 1997 to Astra Merck for CPEC's contractual liability
pursuant to the Astra Merck Collaboration recorded as of September 30, 1997,
partially offset by noncash compensation charges of $10,417,000 consisting
primarily of compensation expense relating to grants of restricted stock awards
under the Company's 1997 Equity Incentive Plan and $2,873,000 of equity in the
net loss of the unconsolidated subsidiary, Progenitor.

     Accrued expenses decreased $12,287,000 to $26,866,000 at June 30, 1998 from
$39,153,000 at September 30, 1997 primarily due to CPEC's $10,000,000 payment to
Astra Merck in December 1997, partially funded by Interneuron as a result of
Interneuron's approximately 20% direct ownership of CPEC. Included in accrued
expenses at June 30, 1998 and September 30, 1997 were liabilities relating to
clinical trials and sponsored research as well as the Redux withdrawal and
related events. These amounts are reduced when paid.

       Cash provided by investing activities of $31,778,000 during the first
nine months of fiscal 1998 consisted primarily of net proceeds from maturities
and sales of marketable securities of $32,693,000.

     Other

     The Company's business strategy includes evaluation of various
technologies, product or company acquisitions, licensing and/or financing
opportunities (including private placements and initial and follow-on equity
offerings), and the Company and certain of its Subsidiaries engage from time to
time in discussions relating to such opportunities. Any such initiatives may
involve the issuance of securities of Interneuron or its subsidiaries and/or
financial commitments and would result in increased expenses.

     While the Company believes it has sufficient cash for currently planned
expenditures through June 1999, based on certain assumptions relating to
operations, subsidiary expenditures, legal actions and other factors, it will
require additional funds after such time and intends to seek additional funds
prior to such time. The Company will require additional funds for the
development and regulatory review of CerAxon, pagoclone and its other compounds
and technologies as well as any new products acquired in the future and it has
no commitments or arrangements to obtain such funds. If such funds are not
available, the Company will be required to delay product development and
regulatory efforts. As a result of the uncertainties and costs associated with
the Redux-related litigation 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,
if at all. See "General -- Redux -- Legal Actions."

     In connection with the royalty and license payments made by the Company to
Servier, a pharmaceutical company based in France, the Company was required to
have withheld certain taxes which were required to have been paid by Servier.
Based on advice from an external tax advisor, the Company did not withhold or
pay these taxes. Reduced withholding rates are applicable under certain
conditions. If Servier does not pay the required withholding taxes, the Company
may be required to pay the amount of such withholding taxes plus applicable
interest and penalties, all or a portion of which may be recoverable. The
Company is currently unable to predict or estimate the actual or net amounts
that may be paid or recovered by the Company.

  
    
                                      -17-

                               
 
<PAGE>   18
                                                
Subsidiaries

     Interneuron is currently funding the operations of InterNutria and funded
the operations of Transcell until May 8, 1998, when the merger of Transcell into
Intercardia was completed (see "Intercardia" below). After this merger, the
costs of the operations previously conducted by Transcell are being funded by
Intercardia (as a division of Intercardia known as Intercardia Research
Laboratories ("IRL")). Accordingly, such operations continue to be reflected in
the Company's consolidated financial statements. Expenses of the Subsidiaries
continue to constitute a significant part of the Company's overall expenses. The
Subsidiaries' portion of consolidated research and development and selling,
general, and administrative expenses was approximately 55% and 47%,
respectively, for the three and nine month periods ended June 30, 1998, not
including Progenitor, which is not consolidated for fiscal 1998.

     Although Interneuron may acquire additional equity in subsidiaries through
participation in financings, purchases from third parties, including open market
purchases and conversion of intercompany debt, equity financings by a subsidiary
will likely reduce Interneuron's percentage ownership of that subsidiary and
funds held by the subsidiaries will not be available to Interneuron. The
Company's goal is for its subsidiaries to establish independent operations and
financing through corporate alliances, third-party financings, mergers or other
business combinations, with Interneuron generally retaining an ongoing equity
interest. The nature of any such transaction and percentage of such equity
interest is expected to vary depending on the business and capital needs of each
subsidiary and the state of development of their respective technologies or
products.

     Intercardia

     Pursuant to the Astra Merck Collaboration, CPEC paid Astra Merck
$10,000,000 in December 1997 and CPEC, an approximately 80%-owned subsidiary of
Intercardia, or Intercardia has agreed to pay Astra Merck up to $11,000,000 for
one-third of product launch costs for BEXTRA(R). In the event Intercardia or
CPEC elects not to make any required product launch payments to Astra Merck, the
royalties payable by Astra Merck to Intercardia would be substantially reduced.
There can be no assurance of the success of the Beta-blocker Evaluation of
Survival Trial (the "BEST Study") or that BEXTRA will be successfully
commercialized. To date, a substantial portion of the BEXTRA development costs
have been assumed or paid by the National Institutes of Health, the Department
of Veterans Affairs, Astra Merck and/or BASF Pharma/Knoll AG ("Knoll"),
Intercardia's partner for the development and commercialization of BEXTRA in
Europe.

     The Astra Merck Collaboration provides that Astra Merck shall be
responsible for the expenses incurred in development and commercialization of
the twice-daily formulation of bucindolol in the United States, and Astra Merck
committed an amount up to $15,000,000 to be expended in connection with such
development. Astra Merck has advised Intercardia that Astra Merck had expended
$15,000,000 as of April 30, 1998. Intercardia and Astra Merck are discussing
Astra Merck's contractual responsibility to fund such expenses above $15,000,000
while Astra Merck has continued to fund such expenses. Intercardia believes that
in the event Astra Merck does not fund such expenses, Astra Merck would be in
breach of the Astra Merck Collaboration. The Astra Merck Collaboration provides
for arbitration of any disputes, and Astra Merck has notified Intercardia that
Astra Merck intends to institute arbitration proceedings to resolve the dispute.
Under the Astra Merck Collaboration, the parties are required to attempt to
resolve disputes prior to the actual institution of arbitration proceedings.
There can be no assurance as to the cost or results of any arbitration. In the
event that Intercardia or CPEC funds such expenses or a portion of such expenses
in excess of $15,000,000, the results of operations and financial position of
Intercardia and the Company may be materially adversely affected.

     
                                      -18-

<PAGE>   19


     On July 1, 1998, the business of Astra Merck was combined with that of
Astra AB's wholly owned subsidiary, Astra USA, Inc. into a new limited
partnership, Astra Pharmaceuticals, L.P. ("Astra Pharmaceuticals"), and Astra
Pharmaceuticals has succeeded to the rights and obligations of Astra Merck under
the Astra Merck Collaboration. In August 1998, Intercardia notified Astra
Pharmaceuticals that Intercardia believes Astra Pharmaceuticals has breached
certain non-competition provisions of the Astra Merck Collaboration. Intercardia
and Astra Pharmaceuticals are in discussions to resolve the conflict or
terminate the collaboration. Astra Pharmaceuticals has informed Intercardia it
does not believe it is in violation of the Astra Merck Collaboration. If the
Astra Merck Collaboration is terminated because of Astra Pharmaceuticals'
breach, the Astra Merck Collaboration provides for return of all rights,
material and information relating to BEXTRA and a payment to Intercardia and
CPEC which would then be responsible for all remaining costs to develop BEXTRA
in the U.S.

     Pursuant to the Knoll Collaboration, Intercardia is responsible for
approximately 40% of the development and marketing costs of bucindolol in the
Knoll Territory, which includes all countries other than the United States and
Japan, subject to certain maximum dollar limitations. Intercardia's portion of
development and clinical trial costs for the Knoll Territory is estimated to be
up to $10,000,000 over the next several years. Intercardia is also responsible
for approximately 40% of the once-a-day development costs which relate to
development solely for the Knoll Territory and approximately 67% of once-a-day
development costs which have a worldwide benefit.

     Intercardia will require additional financing to fund its operations, the
amount and timing of which will depend upon many factors, including in
particular the status of the Astra Merck Collaboration and resolution of
proposed arbitration proceedings and outstanding issues under the collaboration,
on clinical trial results and other regulatory requirements and on the ability
of Intercardia to establish additional corporate collaborations. Assuming the
continuation of the Astra Merck Collaboration, Intercardia's funding
requirements include $11,000,000 in payments for U.S. product launch expenses to
Astra Merck. In the event of termination of the Astra Merck Collaboration,
Intercardia would assume financial responsibility for the remaining estimated
$15,000,000 to $20,000,000 of BEXTRA U.S. development and NDA preparation costs.
Interneuron may fund 20% of such costs in order to maintain its approximately
20% ownership interest in CPEC. There is no assurance that Intercardia or the
Company will have sufficient resources to complete the U.S. development of
BEXTRA. Intercardia's other funding requirements include payments to its other
collaborative partners, including 40% of development and marketing costs of
bucindolol in the Knoll Territory pursuant to the Knoll Collaboration, the
operations of IRL previously conducted by Transcell, which merged into
Intercardia in May 1998, and new technology and product development. Intercardia
intends to seek to raise additional funds through equity and/or debt financings,
although there can be no assurance such funds will be available on terms
acceptable or favorable to Intercardia, or at all.

     In July 1998, Intercardia licensed worldwide rights (except for Japan and
South Korea) to OP2000 from Opocrin S.p.A., of Modena, Italy. Intercardia
intends to investigate the use of OP2000 as a drug for the treatment of
inflammatory bowel disease. Intercardia will be responsible for conducting
clinical trials for OP2000 and made a $1,000,000 payment to Opocrin upon
execution of the license agreement. Intercardia will make additional payments to
Opocrin upon achievement of certain milestones.

     On May 8, 1998, the merger of Transcell with and into Intercardia and the
acquisition by Intercardia of certain related technology rights owned by
Interneuron was completed and, simultaneously, Interneuron contributed to
Transcell's capital all of Transcell's indebtedness to Interneuron (the
"Transcell Acquisition"). Consideration given by Intercardia  consisted of (i)
Intercardia common stock payable to the Transcell stockholders, including
Interneuron, in three installments with an aggregate market value at closing of
approximately $14,200,000, of which $3,000,000 was payable at closing as an
initial payment to Interneuron for certain of its technology rights and
continued guarantees of certain Transcell leases (the "Technology/Guarantee
Payment"), and (ii) the issuance of options and 



                                      -19-



<PAGE>   20


warrants to purchase approximately 260,000 shares of Intercardia common stock to
Transcell employees and consultants in exchange for their options and warrants
to purchase Transcell capital stock. Accordingly, in connection with the first
installment of the merger consideration due at the closing of the merger,
Intercardia issued an aggregate of approximately 320,000 shares of common stock,
of which approximately 191,000 shares were issued to Interneuron. In addition,
Intercardia issued approximately 175,000 shares to Interneuron for the
Technology/Guarantee Payment. Intercardia's acquisition of the minority
shareholders' interest in Transcell resulted in Intercardia recording a charge
to operations for the three and nine month periods ended June 30, 1998 for the
purchase of in-process research and development of approximately $5,300,000.
This charge is eliminated in consolidation and is not reflected in the Company's
results of operations because the Company did not acquire any incremental
interest in Trancell's net assets as a result of the transaction.  In connection
with this transaction, the Company also recorded a credit to additional paid-in
capital of approximately $2,212,000 to reflect adjustments to minority interest
resulting from the Transcell Acquisition and the book value of the Intercardia
shares received by the Company for the Technology/Guarantee Payment. Interneuron
owned approximately 61% and 62% of the outstanding capital stock of Intercardia
before and immediately after the closing of the Transcell Acquisition,
respectively. As a result of the Transcell Acquisition, put protection rights
that could have caused the Company to issue up to 232,000 additional shares
(assuming Interneuron's Common Stock was $2.00 per share or less) of Interneuron
Common Stock expired.

     InterNutria

     InterNutria commenced a national launch of PMS Escape in September 1997,
resulting in product revenue of approximately $2,700,000 and selling and
marketing costs of approximately $15,000,000 in the nine month period ended June
30, 1998. Additional selling and marketing costs associated with this product
are estimated to be approximately $3,000,000 through the remainder of fiscal
1998 assuming no external funding of InterNutria. To date, InterNutria's
operations have been funded primarily by Interneuron. InterNutria is exploring
strategic alternatives which may include third-party financing, collaborations,
and/or business combinations, to reduce or eliminate Interneuron's funding of
InterNutria, although there can be no assurance such funding will be available.
If external funding is not obtained by InterNutria, Interneuron may reduce
funding InterNutria and may incur charges relating to the reduction in
InterNutria's operations. InterNutria has not generated sufficient revenues from
PMS Escape or its other products to offset related costs. See "Results of
Operations". InterNutria has ceased utilization of a contract sales force and no
longer has the utilization of the Interneuron sales force of approximately 25
persons whose employment was terminated effective May 8, 1998 as a result of the
postponement of the launch of CerAxon in connection with the Company's
withdrawal of its NDA for CerAxon.

  Progenitor

     In August 1997, Progenitor completed an initial public offering and
simultaneous acquisition of Mercator Genetics, Inc. resulting in Interneuron's
ownership in Progenitor's outstanding capital stock decreasing to approximately
37%. Consequently thereafter, the Company ceased consolidating the financial
statements of Progenitor. The Company's consolidated financial statements for
the three and nine month periods ended June 30, 1998 and Consolidated Balance
Sheet at September 30, 1997 include Progenitor using the equity method of
accounting, whereas the Company's Consolidated Statements of Operations for the
three and nine month periods ended June 30, 1997 and Statement of Cash Flows for
the nine month period ended June 30, 1997 reflect Progenitor on a consolidated
basis. See "Results of Operations".

Recent Accounting Pronouncements

     The Company will adopt SFAS No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"), in the fiscal year ending September 30, 1999. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements.
Management has not determined the effect of adopting SFAS No. 130.

                                 
                                      -20-

    
<PAGE>   21



     The Company will adopt SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"), in the fiscal year ending
September 30, 1999. SFAS No. 131 specifies revised guidelines for determining an
entity's operating segments and the type and level of financial information to
be disclosed. Management has not determined the effect of adopting SFAS No. 131.

     The Company will adopt SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"), by October 1, 1999.  SFAS 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 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.  Management has not determined the effect of adopting SFAS 133.

Year 2000 Software Issues

     The Company has commenced review of its computer systems to identify the
systems that could be affected by the "Year 2000" issue and will develop an
implementation plan to resolve any problems. The Year 2000 problem is the result
of computer programs being written using two digits rather than four to define
the applicable year. Software programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a major system failure or miscalculations. The Company believes
there will not be material operational and monetary impact from resolving any
problems to currently used software.

Results of Operations

     Total revenues decreased substantially to $1,693,000 and $4,690,000 in the
three and nine month periods ended June 30, 1998, respectively, from $17,395,000
and $54,861,000 in the three and nine month periods ended June 30, 1997,
respectively, primarily reflecting the $14,016,000 and $43,534,000 decrease in
product revenue over the respective periods. The Company did not recognize any
Redux-related product revenue in the fiscal 1998 periods (see "Redux" above)
compared to approximately $14,886,000 and $45,796,000 of Redux-related product
revenue recognized in the three month and nine month periods ended June 30,
1997, respectively. Product revenue of $996,000 and $2,666,000 in the three
month and nine month periods ended June 30, 1998 consists primarily of sales of
PMS Escape by InterNutria.

     Contract and license fee revenue decreased $1,686,000, or 71%, to $697,000
for the three month period ended June 30, 1998 from $2,383,000 for the three
month period ended June 30, 1997 and decreased $6,637,000, or 77%, to $2,024,000
for the nine month period ended June 30, 1998 from $8,661,000 for the nine month
period ended June 30, 1997. The fiscal 1997 three and nine month periods
included revenue recognized by the Company pursuant to its Copromotion Agreement
with Wyeth-Ayerst and contract revenue recognized by Progenitor, whose financial
statements were consolidated with the Company's during the 1997 fiscal periods.
The fiscal 1997 nine month period included revenue recognized by Intercardia
pursuant to a collaboration agreement with Knoll. Contract revenue in the fiscal
1998 periods consists primarily of revenue recognized by the Company and
Transcell pursuant to the Merck Agreement and by Intercardia pursuant to the
Astra Merck Collaboration.


     Cost of product revenue decreased $8,787,000 to $357,000 in the three month
period ended June 30, 1998 from $9,144,000 in the three month period ended June
30, 1997 and decreased $30,021,000 to $1,026,000 in the nine month period ended
June 30, 1998 from $31,047,000 in the nine month period ended June 30, 1997 due
to the absence of any Redux-related product revenue. Cost of product revenue in
the fiscal 1998 periods relates primarily to sales of PMS Escape by InterNutria.

     Research and development expenses decreased $1,457,000, or 14%, to
$9,043,000 for the three month period ended June 30,1998 from $10,500,000 for
the three month period ended June 30, 1997 and increased $1,415,000, or 5%, to
$29,399,000 for the nine month period ended June 30, 1998 from $27,984,000 for
the nine month period ended June 30, 1997. The changes in the three and nine
month periods primarily reflect increases in the fiscal 1998 periods resulting
from an allocation to research and development of the noncash compensation
expense associated with the Company's 1997 Equity Incentive Plan and
Intercardia's

                                       
                                      -21-

<PAGE>   22



increased spending related to its expanding research and development programs,
offset by decreases resulting from the absence of expense from Progenitor, whose
results of operations were not consolidated with the Company's in the fiscal
1998 periods, and decreases in expenses relating to Redux and CerAxon. Expenses
for the development of CerAxon will increase in future periods reflecting the
June 1998 commencement of an approximately 900 patient Phase 3 clinical trial
expected to end in late 1999. See "Liquidity and Capital Resources -- Product
Development."

     Selling, general and administrative expenses increased $1,560,000, or 21%,
to $8,932,000 for the three month period ended June 30, 1998 from $7,372,000 for
the three month period ended June 30, 1997 and increased $17,078,000, or 91%, to
$35,794,000 for the nine month period ended June 30, 1998 from $18,716,000 for
the nine month period ended June 30, 1997. These increases primarily reflect
approximately $2,000,000 and $12,000,000 of incremental expenditures in the
three and nine month periods ended June 30, 1998, respectively, for selling and
marketing activities relating to the national launch of PMS Escape which
commenced in September 1997, an allocation to selling, general and
administrative expenses of the noncash compensation expense relating to the
Company's 1997 Equity Incentive Plan and, for the nine month period,
pre-marketing activities relating to the potential launch of CerAxon which have
ceased since the NDA withdrawal in April 1998. These incremental fiscal 1998
expenses were partially offset in the 1998 three and nine month periods by the
absence of expense from Progenitor, whose results of operations were not
consolidated with the Company's in the fiscal 1998 periods.

     Investment income, net of interest expense, decreased $982,000, or 45%, to
$1,209,000 in the three month period ended June 30, 1998 from $2,191,000 in the
three month period ended June 30, 1997 and $2,343,000, or 35%, to $4,445,000 in
the nine month period ended June 30, 1998 from $6,788,000 in the nine month
period ended June 30, 1997 primarily as a result of a decrease in cash available
for investment and used in the operations of the Company.

     Equity in net loss of unconsolidated subsidiary of $1,002,000 and
$2,873,000 in the three and nine month periods ended June 30, 1998 represents
the Company's share of Progenitor's net loss for the respective periods. The
results of Progenitor's operations were reflected in the Company's financial
statements on a consolidated basis until Progenitor's IPO in August 1997 after
which Progenitor was included in the Company's financial statements using the
equity method of accounting. Progenitor's operations resulted in a net loss of
approximately $1,402,000 and $3,941,000, respectively, which was included in the
Company's Consolidated Statements of Operations for the three and nine month
periods ended June 30, 1997.

     Net loss increased $7,581,000 to $14,755,000 in the three month period
ended June 30, 1998 from $7,174,000 in the three month period ended June 30,
1997 and increased $39,301,000 to $57,256,000 in the nine month period ended
June 30, 1998 from $17,955,000 in the nine month period ended June 30, 1997
primarily due to the lack of revenues and related gross profits from Redux and
reduced contract revenue, the expenses associated with the launch of PMS Escape,
and noncash expenses relating to the Company's 1997 Equity Incentive Plan .

     The Company expects to recognize approximately $11,000,000 of noncash
expense in fiscal 1998 as a result of grants of Restricted Stock Awards under
the Company's 1997 Equity Incentive Plan, of which approximately $1,604,000 and
$9,446,000 was recognized in the three and nine month periods ended June 30,
1998, respectively.

     The Company from time to time explores various technology, product or
company acquisitions and/or business combinations or financing opportunities and
is currently engaged in discussions relating to such

                                      
                                      -22-

<PAGE>   23



opportunities. Any such initiatives may involve the issuance of shares of
Interneuron's Common Stock or other securities and/or cash and financial
commitments for licensing fees and/or to fund product development, either of
which may adversely affect the Company's consolidated financial condition or
results of operations.

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

     The Company has been named, together with other pharmaceutical companies,
including AHP, as a defendant in approximately 580 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.

     On January 23, 1998, the Court entered an order consolidating all of these
actions for pretrial purposes. The plaintiffs subsequently filed a first amended
and consolidated complaint [Corrected Version] (the "Complaint") containing
substantially similar substantive allegations and alleging a class period of
December 19, 1996 through September 15, 1997. On May 11, 1998, the defendants
moved to dismiss the Complaint, which motion is still pending. A case management
conference is scheduled for September 23, 1998.

     The Company and certain directors and/or officers of the Company have also
been named as defendants in several lawsuits filed in the United States District
for the District of Massachusetts (the "Court") by alleged purchasers of the
Company's Common Stock, purporting to be class actions, claiming among other
things that the Company publicly disseminated materially false and misleading
statements concerning the prospects and safety of Redux, resulting in the
artificial inflation of the Company's Common Stock price during various alleged
class periods, the earliest commencing December 16, 1996 through September 17,
1997, in violation of the federal securities laws.

     Under certain circumstances, the Company may be required to indemnify
Servier, Boehringer and AHP, and the Company may be entitled to indemnification
by AHP and Boehringer, 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 may be required 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 was made against the Company, the Company's business, financial condition
and results of operations could be materially adversely affected. In addition,
the costs and

                                         
                                      -23-

<PAGE>   24



uncertainties 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, on
the Company's ability to obtain additional financing to satisfy cash
requirements, to retain and attract qualified personnel, to commercialize
products on a timely and adequate basis, to acquire or obtain 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 and financial condition.


Item 5.  Other Information

     In May 1998, the Company's Board of Directors authorized the Company to
offer (the "Exchange Offer") holders of outstanding options issued primarily
pursuant to Interneuron's stock option plans, and certain warrants, to purchase
the Company's Common Stock, which have exercise prices of $10.00 per share or
greater, the right to exchange such options and warrants for new options and
warrants (the "Exchanged Options and Warrants") to purchase the same number of
shares represented by the original options and warrants at an exercise price of
$6.1875 per share, the fair market value of the Company's Common Stock
determined as of May 5, 1998. The Exchanged Options and Warrants generally vest
in six equal installments commencing six months from the date the Board
authorized the Exchange Offer. The term of each Exchanged Option or Warrant is
the same as the remaining term of the respective original option and warrant.
Approximately 4,200,000 options and warrants have been or are expected to be
exchanged pursuant to the Exchange Offer.

     In July 1998, Thomas F. Farb, Interneuron's Executive Vice President,
Treasurer and Chief Financial Officer, resigned from the Company effective as of
August 18, 1998. In connection with Mr. Farb's resignation and in consideration
of certain commitments by Mr. Farb, options to purchase an aggregate of 585,000
shares of Common Stock  will terminate, options to purchase 205,000 shares of
Common Stock (granted under the Company's 1994 Long-Term Incentive Plan in
exchange for cancellation of options to purchase 205,000 shares granted under
the Company's 1989 Stock Option Plan) will be exercisable for six months from
the effective resignation date, and restricted stock awards to acquire 100,000
shares of Common Stock will terminate. Dale Ritter, who previously served as the
Company's Vice President, Corporate Controller and Chief Accounting Officer, was
named Senior Vice President, Finance and, as of the effective resignation date,
Acting Chief Financial Officer and Treasurer.

Item 6.  Exhibits and Reports on Form 8-K

            (a)   Exhibits

10.22(b)          Addendum and Second Amendment to License Agreement between
                  Interneuron Pharmaceuticals, Inc. and Ferrer Internacional
                  S.A. dated June 1, 1998

10.96             Assignment and Assumption and Royalty Agreement between
                  Intercardia, Inc. and Interneuron Pharmaceuticals, Inc. dated
                  May 8, 1998

10.97             License Agreement between Interneuron Pharmaceuticals, Inc.
                  and the Administrators of the Tulane Educational Fund dated
                  April 29, 1998.

27                Financial Data Schedule

           (b)    Reports on Form 8-K


The Company filed a report on Form 8-K reporting information under "Item 5" on
April 21, 1998.


                                     
                                      -24-
<PAGE>   25



                                   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:  August 14, 1998               By: /s/ Glenn L. Cooper
                                     --------------------------------
                                     Glenn L. Cooper, M.D., President
                                     and Chief Executive Officer
                                     (Principal Executive Officer)



Date:  August 14, 1998               By: /s/ Dale Ritter
                                     --------------------------------
                                     Dale Ritter, Senior Vice President, Finance
                                     (Principal Accounting Officer)




                                    
                                      -25-