SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

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

For the quarter ended December 31, 1996

[ ]      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          02173
Lexington, Massachusetts                        (Zip Code)
(Address of principal executive offices)

Registrant's telephone number, including area code (617) 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 February 12, 1997:
Common Stock $.001 par value                  41,075,797 shares












                        INTERNEURON PHARMACEUTICALS, INC.

                               INDEX TO FORM 10-Q
<TABLE>
<CAPTION>


PART I.  FINANCIAL INFORMATION                                                                      PAGE


<S>                                                                                                <C>                      
Item 1.   Financial Statements

Consolidated Balance Sheets as of December 31, 1996
         and September 30, 1996.......................................................................3

Consolidated Statements of Operations for the Three Months
         ended December 31, 1996 and 1995.............................................................4

Consolidated Statements of Cash Flows for the Three Months ended
         December 31, 1996 and 1995 ..................................................................5

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

Item 2.  Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................................................7

PART II.  OTHER INFORMATION

Item 5.   Other Information .........................................................................16

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

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

</TABLE>



                                        2







                        INTERNEURON PHARMACEUTICALS, INC.
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
               (Dollar amounts in thousands except per share data)
<TABLE>
<CAPTION>


                                                                                 December 31,        September 30,
                                                                                     1996                 1996
                                                                                 ------------        -------------
                                                          ASSETS
<S>                                                                            <C>                   <C>
Current assets:
     Cash and cash equivalents                                                         $127,620            $145,901
     Marketable securities                                                               19,192              17,068
     Accounts receivable                                                                  3,001               4,338
     Inventories                                                                          7,483               8,376
     Prepaids and other current assets                                                    1,859               1,324
                                                                                    -----------        ------------
             Total current assets                                                       159,155             177,007

Marketable securities                                                                    22,791               6,639
Property and equipment, net                                                               2,808               2,689
Other assets                                                                                125                 103
                                                                                   ------------       -------------
                                                                                       $184,879            $186,438
                                                                                   ============       =============

                                                        LIABILITIES

Current liabilities:
     Accounts payable                                                                 $   1,894           $   2,575
     Accrued expenses                                                                    11,852              11,604
     Deferred revenue                                                                     8,333               6,921
     Current portion of capital lease obligations                                           663                 661
                                                                                     ----------       -------------
             Total current liabilities                                                   22,742              21,761

Long-term portion of capital lease obligations                                              357                 526
Other long-term liabilities                                                                  21                  16

Minority interest                                                                        19,695              19,373


                                                   STOCKHOLDERS' EQUITY

Preferred stock; $.001 par value, authorized 5,000,000 shares: Series B, 239,425
     shares issued and  outstanding at December 31, 1996 and September 30, 1996,
     (liquidation preference at December  31, 1996 $3,034)                                3,000               3,000
     Series C, 5,000 shares issued and outstanding at December 31, 1996
     and September 30, 1996  (liquidation preference at
     December  31, 1996  $503)                                                              500                 500
Common stock,$.001 par value, 60,000,000 shares authorized;
     41,073,297 and 41,015,969 shares issued and outstanding at
     December  31, 1996 and September 30, 1996, respectively                                 41                  41
Additional paid-in capital                                                              248,232             247,999
Accumulated deficit                                                                    (109,709)           (106,778)
                                                                                     ----------       -------------
     Total stockholders' equity                                                         142,064             144,762
                                                                                     ----------       -------------
                                                                                       $184,879            $186,438
                                                                                   ============       =============

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

</TABLE>
                                        3









                        INTERNEURON PHARMACEUTICALS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              For the three months ended December 31, 1996 and 1995
                                   (Unaudited)
                  (Amounts in thousands except per share data)

<TABLE>
<CAPTION>

                                                              Three months ended December 31,
                                                         ---------------------------------------
                                                            1996                          1995
                                                         ---------                     ---------

<S>                                                     <C>                         <C>              <C>
Revenues:
Product revenue                                            $13,711                    $        -
Contract and license fees                                    3,981                         5,344
                                                         ---------                         -----
    Total revenues                                          17,692                         5,344

Costs and expenses:
Cost of product revenue                                      9,904                             -
Research and development                                     7,518                         3,126
Selling, general and administrative                          5,517                         2,711
Purchase of in-process research and development                  -                         2,150
                                                         ---------                      --------
     Total costs and expenses                               22,939                         7,987

Net loss from operations                                    (5,247)                       (2,643)

Investment income, net                                       2,589                           434

Minority interest                                             (273)                         (974)
                                                         ----------                     ---------

Net loss                                                   ($2,931)                      ($3,183)
                                                          =========                     =========

Net loss per common share                                   ($0.07)                       ($0.09)
                                                          =========                     =========

Weighted average common
shares outstanding                                          41,020                        33,524
                                                          =========                     =========


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

</TABLE>


                                        4







                        INTERNEURON PHARMACEUTICALS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the three months ended December 31, 1996 and 1995
                                   (Unaudited)
                             (Dollars in thousands)
<TABLE>
<CAPTION>

                                                                   Three months ended December 31,
                                                                 ---------------------------------
                                                                    1996                 1995
                                                                 ------------        -------------
<S>                                                              <C>                 <C>
Cash flows from operating activities:
     Net loss                                                      ($2,931)            ($3,183)
     Adjustments to reconcile net loss to net cash
         (used) provided  by operating activities:
         Depreciation and amortization                                 318                 190
         Loss on disposal of fixed assets                                -                   2
         Minority interest in net income/loss of
            consolidated subsidiaries                                  273                 974
         Purchase of in-process research and development                 -               2,082
         Noncash compensation                                          171                 283
     Change in assets and liabilities:
             Accounts receivable                                     1,337                  (9)
             Other assets                                             (557)             (1,266)
             Inventories                                               893                   -
             Accounts payable                                         (681)                436
             Deferred revenue                                        1,412                   -
             Accrued expenses and other liabilities                    354                 259
                                                                 ---------          -----------
Net cash provided (used) by operating activities                       589                (232)
                                                                 ---------          -----------

Cash flows from investing activities:
     Capital expenditures                                             (438)               ( 77)
     Purchase of marketable securities                             (23,124)            (16,462)
     Proceeds from maturities and sales of
        marketable securities                                        4,849              16,947
     Proceeds from disposal of fixed assets                              -                   9
                                                                 ---------          -----------
Net cash provided (used)  by investing activities                  (18,713)                417
                                                                 ---------          -----------

Cash flows from financing activities:
     Net proceeds from issuance of stock and other
       equity transactions                                              10               1,303
     Principal payments of capital lease obligations                  (167)               ( 75)
                                                                -----------        ------------
Net cash provided (used) by financing activities                      (157)              1,228
                                                                -----------           ---------

Net change in cash and cash equivalents                            (18,281)              1,413
Cash and cash equivalents at beginning of period                   145,901              16,781
                                                                 ---------          -----------

Cash and cash equivalents at end of period                        $127,620             $18,194
                                                                 =========          ===========



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


</TABLE>
                                        5






               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 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 10K for the fiscal year
ended September 30, 1996.

     The consolidated  financial  statements include the accounts of Interneuron
Pharmaceuticals, Inc. ("Interneuron" or the "Company") and its subsidiaries (the
"Subsidiaries"),  Progenitor, Inc. ("Progenitor"),  Transcell Technologies, Inc.
("Transcell"),   Intercardia,   Inc.  ("Intercardia"),   and  InterNutria,  Inc.
("InterNutria"). All significant intercompany activity has been eliminated.

B.   Significant Accounting Policies:

     Certain  prior year amounts have been  reclassified  to conform with fiscal
1997 classifications.

C.   Agreements:

     In December 1996,  Progenitor  entered into an agreement  with Amgen,  Inc.
("Amgen") (the "Amgen  Agreement") , granting Amgen certain exclusive rights for
the  development and  commercialization  of products using  Progenitor's  leptin
receptor  technology.  Amgen paid  Progenitor a $500,000  initial license fee in
January  1997,  which was  reflected  in contract and license fee revenue in the
three month period ended December 31, 1996.  Progenitor may also receive certain
development and regulatory  milestone payments and potential royalties on sales.
Amgen  also  agreed  to  purchase  Progenitor  Common  Stock  in the  event of a
Progenitor initial public offering.

     In December 1996,  Intercardia executed an agreement with BASF Pharma/Knoll
AG  ("Knoll")  ("the  Knoll  Collaboration")  to  provide  for the  development,
manufacture  and marketing of bucindolol in all countries  with the exception of
the United States and Japan (the "Territory").  The Knoll Collaboration  relates
to both the twice-daily  bucindolol  formulation  and the once-daily  bucindolol
formulation   currently  under  development.   Under  the  terms  of  the  Knoll
Collaboration,   Knoll  made  a  $2,143,000   payment  to  CPEC,  Inc.  ("CPEC",
Intercardia's  majority-owned subsidiary, of which Interneuron owns the minority
portion) in December  1996,  which was  recognized  as contract  and license fee
revenue in the three month  period ended  December  31,  1996,  and a $1,000,000
payment


                                        6






due to CPEC in January  1997.  Knoll will make future  payments to CPEC upon the
achievement of product approval and sales milestones.

     Knoll and  Intercardia  will share the  development  and marketing costs of
bucindolol in the Territory.  In general,  Knoll shall pay  approximately 60% of
the  development  and marketing  costs prior to product  launch and  Intercardia
shall pay  approximately  40% of such costs,  subject to certain  maximum dollar
limitations.  CPEC will be entitled to a royalty equal to 40% of net profits, as
defined in the Knoll  Collaboration,  and would be  responsible  for, and pay to
Knoll, 40% of any net loss, as defined.


D.  Inventories

     Inventories consisted of:           December 31,       September 30,
                                            1996                 1996
                                       --------------     --------------

     Raw materials                       $4,244,000          $5,420,000
     Finished goods                       3,239,000           2,956,000
                                         ----------          ----------
                                         $7,483,000          $8,376,000
                                         ==========          ==========


     Raw  materials  consist  primarily of  dexfenfluramine  drug  substance and
finished goods consist primarily of finished Redux(TM).

E.   Subsequent Events

     In February  1997,  the Company  announced  that its Board of Directors has
authorized it to purchase from time to time through open market  transactions up
to 200,000 shares of the common stock of  Intercardia.  As of February 13, 1997,
the Company owned 59.6% of Intercardia's  6,743,000 outstanding shares of common
stock.  A  purchase  of  Intercardia  shares  will  result  in a  charge  to the
consolidated results of operations of Interneuron.


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



                                       7





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 SEC filings under "Risk
Factors",  including,  in particular risks relating to the  commercialization of
Redux,  such as marketing,  competition,  safety,  regulatory,  patent,  product
liability,  supply and other risks;  uncertainties  relating to clinical trials;
manufacturing  and supply risks; the early stage of products under  development;
risks relating to product launches and managing growth;  government  regulation,
patent risks, dependence on third parties and competition.

     The following  discussion  should be read in conjunction with the unaudited
Consolidated  Financial Statements and Notes thereto appearing elsewhere in this
report.  Unless the context indicates  otherwise,  all references to the Company
include Interneuron and its Subsidiaries.

Redux

     On April 29,  1996,  the  Company's  first  pharmaceutical  product,  Redux
(dexfenfluramine  hydrochloride  capsules)  C-IV received  clearance by the U.S.
Food and Drug Administration ("FDA") for marketing as a twice-daily prescription
therapy to treat  obesity.  The approved  indication  is for the  management  of
obesity,  including  weight loss and maintenance of weight loss in patients on a
reduced calorie diet who have a body mass index ("BMI") of greater than or equal
to 30 kg/m2 or greater  than or equal to 27 kg/m2 in the  presence of other risk
factors, such as hypertension,  diabetes and elevated cholesterol. Under license
and co-promotion agreements, Redux is being marketed in the U.S. by Wyeth-Ayerst
Laboratories  ("Wyeth-  Ayerst"),  a division of American Home  Products  Corp.,
("AHP"), and co-promoted by the Company.

     The Company's  revenues  relating to Redux are currently  primarily derived
from:  (1) royalties  paid by AHP to the Company based on the net sales of Redux
capsules  by AHP to  distributors  (2)  sales of Redux  capsules  to AHP and (3)
financial support of the Company's sales force provided by AHP.

     The  Company's  license  agreement  with AHP provides for  royalties to the
Company  consisting of (i) "base"  royalties  equal to 11.5% of AHP's net sales,
(an  amount  equal to the  royalty  required  to be paid by the  Company  to Les
Laboratoires Servier ("Servier"), a French pharmaceutical company from which the
Company obtained U.S. rights to Redux to treat abnormal carbohydrate craving and
obesity,) and (ii)  "additional"  royalties  based on net sales of Redux by AHP.
The percentage of "additional" royalties varies depending upon (x) the status of
Redux as a  scheduled  or  descheduled  drug and (y)  whether or not the Company
supplies the finished  dosage  formulation  of Redux to AHP.  Redux is currently
scheduled as a controlled  substance,  and the Company manufactures the finished
dosage  formulation  of the drug.  The Company  recognizes  royalty  revenue and
associated  expense in the fiscal quarter when AHP reports to Interneuron  AHP's
shipments to distributors.  Accordingly, such revenue is reported by the Company
in the quarter following actual shipments by AHP.




                                       8





     The following sets forth the currently  applicable  additional royalties on
net sales payable to the Company,  on an annual contract basis, based on (i) the
status of  dexfenfluramine  as a scheduled  drug and (ii) the Company  supplying
Redux to AHP:


         First $50,000,000                               5.0%
         Next $100,000,000                               8.0%
         Over $150,000,000                              10.0%


Royalty rates are subject to a 50% reduction if generic drug competition exceeds
a 10% market share in two consecutive quarters.


     Under a co-promotion agreement with Wyeth-Ayerst, the Company's sales force
is promoting Redux to selected  specialists,  in return for financial support of
the sales force and a percentage of resulting  revenues  less certain  expenses.
The  copromotion  agreement  with AHP calls for a  reduction  of the Redux sales
force  costs paid by AHP to  Interneuron  from 100% during the first year of the
agreement to 50% during the second year of the agreement. Total maximum payments
from AHP will be reduced to approximately $1,650,000 for the twelve month period
beginning  June 1997 from  approximately  $3,300,000 for the twelve month period
which commenced in June 1996. Under the agreement, total payments to the Company
in  connection  with sales  force  support  and profit  sharing  will not exceed
$10,000,000 per year. The  copromotion  agreement is cancellable by Wyeth-Ayerst
under certain conditions.


     The  Company  has  a  manufacturing  agreement  with  Boehringer  Ingelheim
Pharmaceuticals,   Inc.   ("Boehringer")  under  which  Boehringer  manufactures
finished dosage  formulation of Redux capsules on behalf of the Company for sale
to AHP.  This  agreement  obligates  Boehringer  to provide,  and the Company to
purchase,  manufactured  Redux  capsules to the extent defined in the agreement,
through the  current  contract  expiration  date of December  31,  1998.  At the
expiration or termination  of the  agreement,  the Company would be obligated to
purchase from Boehringer any unused manufacturing materials, work in process, or
finished product and to assume any unfilled Boehringer purchase commitments that
could not be canceled  prior to the  expiration or termination of the agreement.
The Company  recognizes  revenue from the sale of these capsules upon acceptance
by AHP, typically 45 days after shipment.


     Included in the  FDA-approved  labeling for Redux are references to certain
risks that may be associated  with  dexfenfluramine  and which were  highlighted
during the FDA's review of the drug.  One issue  relates to whether  there is an
association between appetite suppressants,  including  dexfenfluramine,  and the
development of primary pulmonary  hypertension  ("PPH"), a rare but serious lung
disorder  estimated to occur in the general  population  at one to two cases per
million  adults per year. An  epidemiologic  study  conducted in Europe known as
IPPHS (International Primary Pulmonary Hypertension Study) examined risk factors
for PPH and showed that among other factors,  weight reduction drugs,  including
dexfenfluramine,  and obesity itself were  associated with a higher risk of PPH.
In the final report of IPPHS,  published in the New England  Journal of Medicine
(August 29, 1996), the authors  estimated yearly  occurrence of PPH for patients
taking  appetite  suppressants  for  greater  than three  months  duration to be
between 23 and 46 cases per million  patients per year. The revised labeling for
Redux discloses this revised estimate.



                                       9




     The FDA-approved  labeling for Redux also includes discussion as to whether
dexfenfluramine is associated with certain  neurochemical  changes in the brain.
Certain studies conducted by third parties related to this issue purport to show
that very high doses of dexfenfluramine  cause prolonged  serotonin depletion in
certain   animals,   which  some   researchers   believe  is  an  indication  of
neurotoxicity.   The  Company  has  presented  data  relating  to  the  lack  of
neurocognitive effects in patients taking Redux to the FDA and believes that, as
demonstrated in human trials, these animal studies are clinically  irrelevant to
humans because of  pharmacokinetic  differences  between  animals and humans and
because  of the  high  dosages  used in the  animal  studies.  The  Company  and
Wyeth-Ayerst  have agreed with the FDA to conduct a Phase 4, or post  marketing,
study of Redux.  Approximately  50% of the costs of the Phase 4 study,  which is
expected to be conducted  over an  approximately  two to three year  period,  is
expected to be paid by AHP.


     The use patent on dexfenfluramine expires in mid 2000. The Company believes
it is  entitled  under the  Waxman-Hatch  Act to a minimum  three year period of
exclusivity,  during which applications for generic versions of the drug may not
be  approved.  Although  the  Company  has  applied  for a five  year  period of
exclusivity  and for patent  extension,  there can be no assurance of receipt of
such exclusivity or extension or of a timely  decision.  Redux may be subject to
substantial competition.  AHP also sells Pondimin to treat obesity. In addition,
other  drugs,  including  sibutramine,  for  which  an NDA has been  filed,  and
technologies are under regulatory review or development to treat obesity.


     Inventories  of  $7,483,000  at December  31,  1996  consist  primarily  of
dexfenfluramine  drug substance and finished Redux  capsules.  Inventory  levels
depend to a large extent on sales forecasts provided by AHP, production planning
by the Company,  and  production  capabilities  of  Boehringer.  There can be no
assurance  that  Boehringer  will be able to  manufacture  product  in  adequate
quantities or on a timely basis, or that AHP's sales forecasts and the Company's
production planning will be accurate, which may result in higher inventory costs
to the Company or inadequate or excessive supplies of the product.  In addition,
there can be no assurance that the manufacture of the capsules and their sale to
AHP will result in profits to  Interneuron.  There may be potential  seasonality
associated  with  Redux  inventories  and  revenues  which  the  Company  is not
currently  able to  determine.  AHP pays the  Company  for  certain  portions of
dexfenfluramine drug substance prior to its incorporation into the manufacturing
process.  Such payments are included in, and are the primary  components of, the
deferred revenue balance of $8,333,000 at December 31, 1996.


     Results of Operations

         Product revenue of $13,711,000 in the three month period ended December
31,1996 consists  primarily of royalty revenue of approximately  $6,800,000 from
AHP based upon AHP-reported net sales of Redux and  approximately  $6,800,000 of
revenue from the Company's sale of Redux capsules to AHP. The Company recognizes
Redux royalty  revenue when net sales are reported to the Company by AHP,  which
occurs in the quarter after AHP shipments of Redux to distributors.


         Contract and license fee revenue  decreased  $1,363,000,  or 26%,  from
$5,344,000  for the three month period ended December 31, 1995 to $3,981,000 for
the three month period  ended  December  31,1996.  During the three month period
ended December 31, 1996,  contract revenue consisted  primarily of approximately
$2,100,000  Intercardia  received from an initial payment  pursuant to the Knoll
Collaboration,  $500,000 due to Progenitor  pursuant to the Amgen  Agreement and
$825,000 Interneuron  received pursuant to the Copromotion  Agreement with Wyeth
Ayerst to support  the  Interneuron  Redux



                                       10






sales force. During the three month period ended December 31,1995,  contract and
license fee revenue consisted primarily of $5,000,000  Intercardia received from
an initial payment pursuant to the Development and Marketing  Collaboration  and
License Agreement between Astra Merck Inc.("Astra  Merck"),  Intercardia,  Inc.,
and CPEC, Inc. (" the Astra Merck Collaboration").


         Total  costs  and  expenses  increased   $14,952,000,   or  187%,  from
$7,987,000 for the three month period ended December  31,1995 to $22,939,000 for
the three month period ended December 31,1996. Of this increase,  $9,904,000, or
66% consists of cost of product  revenue  which did not exist in the  comparable
period of the prior fiscal year. Cost of product revenue is comprised  primarily
of the cost of Redux capsules and dexfenfluramine drug substance sold to AHP and
royalties  paid to Servier based upon AHP's  reported net sales of Redux.  Total
costs and  expenses  during the three  month  period  ended  December  31,  1995
included a charge of $2,150,000 for InterNutria's  acquisition of technology and
know-how  related to PMS  Escape(TM)  which would be paid for by the issuance of
the Company's  Common Stock. In December 1996, the Company issued  approximately
55,000  shares of Common Stock as the first of two  payments  for  InterNutria's
acquisition of this technology.  The second $1,200,000  installment will be paid
in December 1997 through an additional issuance of the Company's Common Stock.


         Research and development expenses increased  $4,392,000,  or 140%, from
$3,126,000 for the three month period ended  December  31,1995 to $7,518,000 for
the three month period ended  December  31,1996.  This increase is primarily the
result of expenses  relating  to two  pivotal  Phase 3  citicoline  trials,  the
initiation   of  a  pivotal  Phase  2/3  pagoclone   clinical   trial,   certain
post-approval  clinical expenses  relating to Redux and additional  staffing and
related expenses at the Subsidiaries.  Research and development expenses include
only a relatively  small amount for  bucindolol as a substantial  portion of the
non-government  sponsored  development  expenses of bucindolol have been assumed
and are being paid by Astra Merck.


         Selling,  general and administrative expenses increased $2,806,000,  or
104%,  from  $2,711,000  for the three month  period ended  December  31,1995 to
$5,517,000  for the three  month  period  ended  December  31,1996.  The largest
portion of the increase is due to approximately $1,843,000 of the Company's cost
for its Redux sales force and promotional  expenses  incurred by the Company for
Melzone,  a low-dose  form of  melatonin  as a dietary  supplement  for  normal,
restful sleep,  and by InterNutria  for its products.  Also  contributing to the
increase  in  fiscal  1997  are  costs  resulting  from   additional   staffing,
consultants and insurance relating to the Company's growth.

         Investment income, net of interest expense,  increased  $2,155,000,  or
497%,  from  $434,000  for the three month  period  ended  December  31, 1995 to
$2,589,000 for the three month period ended December  31,1996.  This increase is
due to  significantly  higher invested  balances of cash,  cash  equivalents and
marketable  securities  resulting  primarily  from funds  received  from  public
offerings in fiscal 1996 by Interneuron and Intercardia.

         Primarily as a result of the foregoing, the Company incurred a net loss
of ($2,931,000),  or ($.07) per share, for the three month period ended December
31, 1996 compared to a net loss of  ($3,183,000),  or ($.09) per share,  for the
three month period  ended  December 31, 1995.  Weighted  average  common  shares
increased  in  the  three  month  period  ended  December  31,  1996  reflecting
additional equity issuances.



                                       11




         The Company from time to time explores various  technology,  product or
company acquisitions and/or financing  opportunities and is currently engaged in
discussions relating to such opportunities. Any such initiatives may involve the
issuance of shares of Interneuron's Common Stock and/or financial commitments to
fund product  development,  either of which may  adversely  affect the Company's
consolidated financial condition or results of operations.

Liquidity and Capital Resources

         Cash, Cash Equivalents and Marketable Securities:

         At  December  31,  1996,  the Company had cash,  cash  equivalents  and
marketable  securities  aggregating  $169,603,000,  compared to  $169,608,000 at
September 30, 1996.  Cash, cash equivalents and marketable  securities  remained
constant  primarily due to the  $2,931,000 net loss incurred in the three months
ended  December 31, 1996  adjusted for certain  noncash  expenses and cash being
provided  by a decrease  in  accounts  receivable  and an  increase  in deferred
revenue resulting primarily from payments by AHP.

         Clinical Studies:

         The  Company  is  incurring   substantial   expenditures   for  product
development and clinical trials, including expenses required under collaborative
agreements.  In  particular,  the  Company is  performing  two  pivotal  Phase 3
clinical  trials  of  citicoline  (along  with  other  supportive  trials),  for
treatment of stroke,  one of which is expected to extend into fiscal  1998.  The
costs of the clinical  trials and related studies and the preparation of the NDA
are estimated,  based upon current trial protocols,  to aggregate  approximately
$17,500,000,  of which  approximately  $2,500,000 has been paid through December
31,  1996.  The  Company is unable to predict  with  certainty  the costs of any
related or additional studies which will depend upon FDA requirements.  Further,
in the event the Company markets  citicoline  directly,  significant  additional
funds would be required for manufacturing, distribution, and selling efforts.

         The Company has begun to incur  substantial  costs to develop pagoclone
for which a Phase  2/3  trial  commenced  in  November  1996.  The  Company  has
estimated the total costs of all currently  planned  clinical  studies,  license
fees to  Rhone-Poulenc  Rorer  Pharmaceuticals,  Inc., and NDA  preparation  for
pagoclone to be approximately $33,000,000,  which will be incurred over the next
several  years.  This  amount  does not  include  funds that will be required to
manufacture and market pagoclone.

         In December  1996,  the Company  entered into an  agreement  with Algos
Pharmaceutical    Corporation   to   collaborate   in   the    development   and
commercialization of LidodexNS[TM],  which combines two drugs that are currently
marketed for other  indications.  This  combination  product is in  pre-clinical
development  for the acute  intra-nasal  treatment  of migraine  headaches.  The
development of this and other products, including those which may be acquired by
the Company in the future will require substantial additional funds.

         There can be no assurance that results of ongoing  current  preclinical
or  clinical  trials  will be  successful,  that  additional  trials will not be
required,  that any drug under development will receive FDA approval in a timely
manner



                                       12





or at all, or that such drug could be successfully manufactured or in accordance
with good manufacturing  practice regulations marketed in a timely manner, or at
all, any of which could materially adversely affect the Company.




         Subsidiaries:

         Intercardia
         -----------

         Pursuant to the Astra Merck  Collaboration,  Intercardia  has agreed to
pay Astra Merck $10,000,000 in December 1997 and up to $11,000,000 for one-third
of product launch costs for bucindolol incurred beginning when Intercardia files
an NDA with the FDA for the twice-daily formulation of bucindolol and continuing
through  the first 12 months  subsequent  to the  first  commercial  sale of the
formulation.  In the event  Intercardia  elects not to make these payments,  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  bucindolol  will be  successfully
commercialized.  A substantial  portion of the bucindolol  development costs are
being assumed and paid by the National  Institutes of Health,  the Department of
Veterans Affairs and Astra Merck.


         Pursuant to the Knoll  Collaboration  (see Note C of Notes to Unaudited
Consolidated Financial Statements), Intercardia is responsible for approximately
40% of the development and marketing costs of bucindolol in the Territory, which
includes  all  countries  other  than the United  States  and Japan,  subject to
certain  maximum dollar  limitations.  The Company's  portion of development and
clinical  trial costs for the  Territory is  estimated to be up to  $10,000,000.
Intercardia  is  also  responsible  for  approximately  40%  of  the  once-daily
development  costs which  relate to  development  solely for the  Territory  and
approximately  67% of  once-daily  development  costs  which  have  a  worldwide
benefit.


         In May 1996,  an FDA advisory  committee  met and  discussed the use of
carvedilol,  a competitive  drug being  developed by SmithKline  Beecham for the
treatment of  congestive  heart failure  ("CHF"),  but  recommended  against its
approval. Another advisory panel meeting has been scheduled to review carvedilol
on February 27, 1997 and there can be no assurance that  carvedilol  will not be
approved for treatment of CHF in the United States.

         Progenitor
         ----------




                                       13





        
         In December  1996,  Progenitor  entered into an  agreement  with Amgen,
granting   Amgen   certain    exclusive   rights   for   the   development   and
commercialization  of products using  Progenitor's  leptin receptor  technology.
Amgen paid Progenitor a $500,000  initial license fee in January 1997, which was
reflected  in contract  and license fee revenue in the three month  period ended
December  31,  1996.   Progenitor  may  also  receive  certain  development  and
regulatory  milestone  payments and  potential  royalties  on sales.  Amgen also
agreed to purchase  Progenitor Common Stock in the event of a Progenitor initial
public offering.

         General
         -------

         Interneuron is currently  funding  operations of Progenitor,  Transcell
and InterNutria.  Expenses of the  Subsidiaries,  including those required under
collaboration agreements, constitute a significant part of the Company's overall
expenses.
  
         In February 1997, the Company announced that its Board of Directors has
authorized it to purchase from time to time through open market  transactions up
to 200,000 shares of the common stock of  Intercardia.  As of February 13, 1997,
the Company-owned 59.6% of Intercardia's  6,743,000 outstanding shares of common
stock.  Based upon  Intercardia's  closing price of $18.00 on February 12, 1997,
the Company  could  expend up to  $3,600,000  if it were to purchase all 200,000
shares.  A  purchase  of  Intercardia  shares  will  result  in a charge  to the
consolidated  results of operations of Interneuron.

         Accounts  receivable  of  $3,001,000  at  December  31,  1996  consists
primarily of Intercardia's receivable from Astra Merck relating to Astra Merck's
funding of certain costs of the BEST Study,  the Company's  receivable  from AHP
and Progenitor's receivable from Amgen.

         Accrued expenses of $11,852,000 at December 31, 1996 consist  primarily
of obligations  related to clinical trials and sponsored  research,  consultants
and other service providers, compensation and other items.

         The  Company's  strategy  includes  evaluation  of various  technology,
product or company acquisition and/or financing opportunities (including private
placements  and  initial and  follow-on  equity  offerings)  and the Company and
certain of its  subsidiaries  are currently  engaged 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 for research and development, on a consolidated basis.

         While the Company believes it has sufficient cash for currently planned
expenditures in fiscal 1997, it may seek  additional  funds through other equity
and/or debt finances and corporate  collaborations 



                                       14





to provide working capital financing and funding for new business  opportunities
and future  growth.  In addition,  certain  subsidiaries  are exploring  various
financings  (including issuances of securities of the subsidiaries,  possibly in
combination  with  securities  of  Interneuron,  in public  offerings or private
placements),  collaborations or business  combinations.  If such efforts are not
successful, certain activities at these subsidiaries may be reduced.

         Although  Interneuron  may acquire  additional  equity in  subsidiaries
through  participation  in financings,  purchases from third parties,  including
open market purchases and conversion of inter-company debt, equity financings by
a  subsidiary  will likely  reduce  Interneuron's  percentage  ownership of that
subsidiary and funds held by the subsidiaries will generally 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 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.



                                       15





PART II - OTHER INFORMATION

Item 5.       Other Information

              On February  12, 1997, a  registration  statement  relating to the
              resale by certain  stockholders  of Interneuron of an aggregate of
              1,555,422 shares of Interneuron's  Common Stock (including 500,000
              shares  underlying   warrants)  was  declared   effective  by  the
              Securities and Exchange Commission.

Item 6.       Exhibits and Reports on Form 8-K

(a)           Exhibits

10.87         -       Lease dated February 5, 1997 between Registrant and 
                      Ledgemont Realty Trust
27            -       Financial Data Schedule

(b)  Reports on Form 8-K

     In January 1997,  the Company filed a report on Form 8-K dated December 19,
1996 reporting information under Item 5 thereof.






                                       16






                                   SIGNATURES


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


                        INTERNEURON PHARMACEUTICALS, INC.



Date: February   14, 1997                By: /s/ Glenn L. Cooper
                                            ------------------------------------
                                         Glenn L. Cooper, M.D., President
                                         and Chief Executive Officer
                                         (Principal Executive Officer)


Date: February   14, 1997                By: /s/ Thomas F. Farb
                                            ------------------------------------
                                         Thomas F. Farb,
                                         Executive Vice President, Finance
                                         Chief Financial Officer and Treasurer


Date: February   14, 1997                By: /s/ Dale Ritter
                                            ------------------------------------
                                         Dale Ritter
                                         Vice President, Corporate Controller
                                         (Principal Accounting Officer)





                                       17