UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


                                    FORM 10-Q


     (X)  QUARTERLY  REPORT  PURSUANT  TO SECTION 13 OR 15(d) OF THE  SECURITIES
          EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996

                                       OR

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


          Commission File Number:                    0-21022


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


                      Delaware                        94-3095806
           (State or other jurisdiction of         (I.R.S. Employer
            incorporation of organization)      Identification Number)

                 213 East Grand Avenue, 
            South San Francisco, California               94080
           (Address of principal executive offices)     (ZIP Code)


Registrant's telephone number, including area code:  415-952-7070


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

                          Yes      X               No

     Number of  shares of Common  Stock,  $.001  par  value,  outstanding  as of
October 31, 1996: 13,789,534


<PAGE>



                          SHAMAN PHARMACEUTICALS, INC.

                               INDEX FOR FORM 10-Q

                               September 30, 1996
<TABLE>
<CAPTION>

                                                                           PAGE
                                                                          NUMBER

PART I         FINANCIAL INFORMATION
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Item 1.        Financial Statements and Notes

               Condensed Balance Sheets as of September 30, 1996 and           3
               December 31, 1995

               Condensed Statements of Operations for the                      4
               three and nine months ended September 30, 1996 and 
               September 30, 1995
               
               Condensed Statements of Cash Flows for the three and            5
               nine months ended September 30, 1996 and September 30, 1995

               Notes to Condensed Financial Statements                         6

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


PART II        OTHER INFORMATION

Item 1.        Legal Proceedings                                              16

Item 2.        Changes in Securities                                          16

Item 3.        Defaults in Senior Securities                                  16

Item 4.        Submission of Matters to a Vote of Security Holders            16

Item 5.        Other Information                                              16

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


 SIGNATURES                                                                   18

</TABLE>


<PAGE>


PART I   FINANCIAL INFORMATION

         Item 1.  Financial Statements and Notes

<TABLE>
<CAPTION>
                          SHAMAN PHARMACEUTICALS, INC.
                            CONDENSED BALANCE SHEETS

<S>                                                  <C>                   <C> 
                                             September 30,      December 31, 
                                                 1996              1995
                                          -------------------------------------                                  
                                              (Unaudited)          (Note)
ASSETS

Current assets:
   Cash and cash equivalents                 $ 17,853,525      $  9,210,123
   Short-term investments                       2,551,486        17,454,778
   Prepaid expenses and other
   current assets                               1,036,473           858,724
                                             ------------      ------------

Total current assets                           21,441,484        27,523,625
                                             ------------      ------------

Property and equipment, net                     5,083,591         6,158,056
                                             ------------      ------------

Other assets                                      128,080           128,080
                                             ------------      ------------
Total assets                                 $ 26,653,155      $ 33,809,761
                                             ============      ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable and other
      accrued expenses                       $    834,542      $    668,078
   Accrued clinical trial costs                   986,275         1,016,573
   Accrued professional fees                      470,078           705,374
   Accrued compensation                           441,958           383,089
   Advances - contract research                 2,758,605           789,855
   Current installments of long-term
      obligations                               2,340,801         1,111,128
                                             ------------      ------------

Total current liabilities                       7,832,259         4,674,097

Long-term obligations, excluding
      current installments                      3,156,721         4,930,263

Stockholders' equity:
   Series A preferred stock                           400              --
   Common stock                                    13,788            13,258
   Additional paid-in capital                  94,531,379        88,170,926
   Deferred compensation and
      other adjustments                           (82,523)         (146,956)
   Accumulated deficit                        (78,798,869)      (63,831,827)
                                              ------------      ------------

Total stockholders' equity                     15,664,175        24,205,401
                                             ------------      ------------

Total liabilities and stockholders'
      equity                                 $ 26,653,155      $ 33,809,761
                                             ============      ============
</TABLE>

     NOTE:  The balance  sheet at December  31, 1995 has been  derived  from the
     audited  financial  statements at that date but does not include all of the
     information  and  footnotes  required  by  generally  accepted   accounting
     principles for complete financial statements.

     See notes to condensed financial statements.


<PAGE>

                          SHAMAN PHARMACEUTICALS, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>


                        Three Months Ended             Nine Months Ended
                           September 30,                  September 30,
                    --------------------------    ---------------------------

                        1996          1995           1996          1995
                    ------------  ------------   ------------   -----------
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Revenue from           
collaborative
agreement             $531,251     $500,001       $1,531,252    $1,710,146

Operating expenses:
  Research and       
  development        4,754,440    4,274,153       14,225,376    12,570,304
 
  General and         
  administrative       862,477      890,762        2,634,951     2,759,917 
                   -----------  -----------     ------------  ------------ 

Total operating       
expenses             5,616,917    5,164,915       16,860,327    15,330,221 
                   -----------  -----------      -----------   ----------- 

Loss from      
operations          (5,085,666)  (4,664,914)     (15,329,075)  (13,620,075)   

Other income (expense):

  Interest income      246,159      425,390          833,917     1,303,675
  Interest expense    (145,876)    (132,280)        (471,884)     (418,676)
                    ----------- ------------      -----------  ------------

Net Loss           $(4,985,383) $(4,371,804)    $(14,967,042) $(12,735,076)
                   ============  ============    ============  ============

Net loss 
  per share             $(0.37)      $(0.33)          $(1.11)       $(0.97)

                   ============ ============     ============  ============
  

Shares used in
calculation of
net loss per            
share               13,448,000   13,194,000      13,381,000    13,134,000
                   ===========  ===========     ===========   ===========
  
</TABLE>





     See notes to condensed financial statements.



<PAGE>

<TABLE>
<CAPTION>

                          SHAMAN PHARMACEUTICALS, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                Increase (Decrease) in Cash and Cash Equivalents
                                   (Unaudited)

                         Three Months Ended               Nine Months Ended
                            September 30,                   September 30,
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                     ---------------------------   -----------------------------

                         1996           1995            1996            1995
                        ------         ------          ------          ------
                     

Operating activities:

Net loss            $(4,985,383   $(4,371,804)    $(14,967,042)   $(12,735,076)

Adjustments to
reconcile net
loss to net
cash used in
operating activities:

  Depreciation
  and amortization      557,564       708,150        1,847,177       2,048,170

  Changes in operating
  assets and liabilities:

  Prepaid expenses,
  other current assets
  and other assets      (28,819)      (37,512)        (177,749)        339,926

  Accounts payable,
  accrued expenses
  and contract
  research advances   1,304,357       (71,798)       1,950,989         283,919

                     ----------     ----------      ----------      ----------

Net cash used
in operating
activities           (3,152,281)   (3,772,964)     (11,346,625)    (10,063,061)
                     ----------    ----------       ----------      ----------

Investing activities:

  Purchases of
  available-for-
  sale investments          --     (5,042,338)     (10,951,386)    (15,063,354)

  Sales of
  available-for-
  sale investments    1,494,000           --         1,494,000             --

  Maturities of
  available-for-
  sale investments    6,467,620     6,080,500       24,300,934      24,389,000

  Capital
  expenditures          (32,178)     (228,491)        (684,468)       (370,986)
                      ----------    ----------      ----------      ----------



Net cash provided
by investing
activities            7,929,442       809,671       14,159,080       8,954,660

Financing activities:

  Proceeds from
  issuance of
  preferred stock,
  net                 3,060,160           --         3,060,160             --

  Proceeds from
  issuance of
  common stock,
  net                 3,024,718        16,800        3,337,156         343,586

  Proceeds from
  long-term
  obligations               --            --           600,000             --
<PAGE>

  Principal payments
  on long-term
  obligations          (474,673)     (189,903)      (1,166,369)       (592,761)
                      ----------    ----------       ----------      ----------

Net cash provided by
(used in)financing
activities            5,610,205      (173,103)       5,830,947        (249,175)


Net increase
(decrease) in
cash and cash
equivalents          10,387,366    (3,136,396)       8,643,402      (1,357,576)

Cash and cash
equivalents at
beginning of
period                7,466,159    10,555,402        9,210,123       8,776,582
                     ----------    ----------       ----------      ----------


Cash and cash
equivalents at
end of period       $17,853,525    $7,419,006      $17,853,525      $7,419,006
                    ===========    ==========       ==========      ==========

</TABLE>


See notes to condensed financial statements.


<PAGE>

                          SHAMAN PHARMACEUTICALS, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS

                               September 30, 1996

                                   (Unaudited)


1.   Basis of Presentation

     Shaman  Pharmaceuticals,  Inc.  ("Shaman" or the  "Company")  discovers and
develops  novel  pharmaceutical  products for major human  diseases by isolating
active  compounds  from  tropical  plants.  The Company has three  compounds  in
clinical  development:  Provir(TM),  an oral product for the treatment of watery
diarrhea;  Virend(R),  a topical  antiviral  for the  treatment  of herpes;  and
nikkomycin Z, an oral  antifungal for the treatment of endemic  mycoses.  Shaman
has collaborations  for the development of diabetes drugs with Lipha,  Lyonnaise
Industrielle  Pharmaceutique S.A. ("Lipha"),  a wholly owned subsidiary of Merck
KGaA, Darmstadt, Germany and with Ono Pharmaceutical Co., Ltd. ("Ono") of Osaka,
Japan.

     The  accompanying   unaudited  condensed  financial  statements  have  been
prepared in accordance with generally accepted accounting principles for interim
financial  information and in accordance with the  instructions to Form 10-Q and
Rule  10-01 of  Regulation  S-X.  Accordingly,  they do not  include  all of the
information and footnotes required by generally accepted  accounting  principles
for complete financial statements. In the opinion of management, all adjustments
(consisting only of normal  recurring  adjustments)  considered  necessary for a
fair presentation have been included.  The results of operations for the interim
periods shown herein are not necessarily indicative of operating results for the
entire year.

     This  unaudited  financial  data  should  be read in  conjunction  with the
audited financial  statements and notes thereto included in the Company's Annual
Report  on Form  10-K for the year  ended  December  31,  1995,  filed  with the
Securities and Exchange Commission on April 1, 1996.

     Operating   expenses for  1995  have  been  reclassified  to  conform  to  
1996 presentation.


2.   Collaborative Agreement

     In  September  1996,  the Company  entered  into a five-year  collaborative
agreement  with Lipha to jointly  develop  antidiabetic  drugs.  In exchange for
development and marketing rights in all countries except Japan, South Korea, and
Taiwan (which are covered under an earlier  agreement  between  Shaman and Ono),
Lipha will provide up to $9.5 million in research payments and up to $10 million

<PAGE>

in equity  investments  priced at a 20% premium to the average market price
of the Company's common stock at the time of purchase. Complete research funding
under the  collaboration  is dependent  upon the  initiation  of human  clinical
trials of at least one  compound by  September  23,  1998.  The  agreement  also
provides  for  additional  preclinical  and clinical  milestone  payments to the
Company  in  excess of $10  million  per  compound  for each  antidiabetic  drug
developed  and  commercialized.  Lipha  will  bear all  pre-clinical,  clinical,
regulatory and other development expenses associated with the compounds selected
under the agreement.  In addition,  as products are commercialized,  Shaman will
receive  royalties on all product  sales outside the United States and up to 50%
of the profits (if the Company  exercises its co-promotion  rights) or royalties
on all product  sales in the United States.  Certain of the milestone  payments
will be credited  against  future royalty  payments,  if any, due to the Company
from sales of products developed pursuant to the agreement.

     Upon signing the collaboration, the Company received an annual research fee
of $1.5 million which will be amortized  over twelve months.  Shaman  recognized
$31,250 in revenue  from the Lipha  collaboration  at September  30,  1996.  The
Company  also  received $3 million for 388,918  shares of common stock priced at
$7.71 per share, representing a 20% premium to the weighted average price of the
Company's stock at the time of purchase.


3.   Preferred Equity Financing

     In July 1996, the Company closed a private placement pursuant to Regulation
S  under  the  Securities  Act  of  1933,  as  amended,  in  which  it  received
approximately $3.3 million for 400,000 shares of Series A Convertible  Preferred
Stock  ("Preferred  Stock") priced at $8.147 per share and a six-year warrant to
purchase  550,000  shares of the Company's  common stock at an exercise price of
$10.184 per share. The Preferred Stock does not carry a dividend  obligation and
is convertible  into common stock at the earlier of (a) the  investor's  option,
(b)  immediately  following  any 60 trading  day  period in which the  Company's
common stock has consistently  traded higher than $8.147,  or (c) July 23, 1999.
If the Preferred  Stock converts  prior to July 23, 1999,  the conversion  ratio
will be one share of common stock for each share of preferred.  If the Preferred
Stock converts on July 23, 1999, the conversion rate will be the higher of $6.00
or a  weighted  average  price  of the  Company's  common  stock  at the time of
conversion.  In  either  case,  appropriate  adjustments  will be made for stock
dividends, splits or other adjustments.

      In  addition to the  initial  sale of  Preferred  Stock and  warrant,  the
Company  has the right,  from time to time during the period  beginning  January
1997 and ending July 2000, to sell up to 1,200,000 shares of common stock to the
investor at a premium over an average of the Company's  market price at the time
of sale. As the Company  exercises its rights under the agreement,  the investor
has the option to increase the shares purchased by up to 577,500 shares.


4.   Term Loan

     The  Company's  unsecured  term  loan  provided  for  the  acceleration  of
principal  if the Company did not achieve  certain  financing  or  collaborative
objectives by May 15, 1996. The Company achieved the specified  milestone in the
third  quarter  rather  than by May 15,  1996,  and the lender  accelerated  the
amortization  schedule.  The  acceleration  provisions  require  that  principal
amortization  be shortened  from 30 months to 24 months,  with the first monthly
payment due May 15, 1996  instead of April 30,  1997.  Accordingly,  to date the
Company has made six  principal  payments  totaling  $625,000  and  reclassified
$1,250,000 of its term debt to current liabilities as of September 30, 1996. The
interest rate on the loan was approximately 7.1% at September 30, 1996.




<PAGE>

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

Overview

     Shaman  Pharmaceuticals,  Inc.  ("Shaman" or the  "Company")  discovers and
develops  novel  pharmaceutical  products for major human  diseases by isolating
active  compounds  from  tropical  plants.  The Company has three  compounds  in
clinical development: Provir(TM), an oral product for the treatment of secretory
diarrhea;  Virend(R),  a topical  antiviral  for the  treatment  of herpes;  and
nikkomycin Z, an oral  antifungal for the treatment of endemic  mycoses.  Shaman
has collaborations  for the development of diabetes drugs with Lipha,  Lyonnaise
Industrielle  Pharmaceutique S.A. ("Lipha"),  a wholly owned subsidiary of Merck
KGaA, Darmstadt, Germany and with Ono Pharmaceutical Co., Ltd. ("Ono") of Osaka,
Japan.

     The Company began  operations  in March 1990. To date,  Shaman has not sold
any  products  and does not  anticipate  receiving  product  revenue in the near
future.   The  Company's   accumulated   deficit  at  September  30,  1996,  was
approximately  $79  million.  Shaman  expects to continue  to incur  substantial
losses over the next several years,  due primarily to the expense of preclinical
studies,  clinical trials and its on-going research program. The Company expects
that losses will  fluctuate  from quarter to quarter and that such  fluctuations
could  be  substantial.  Shaman  has  financed  its  research,  development  and
administrative  activities  through  various  private  placements  of its equity
securities,  an initial  public  offering  of common  stock in January  1993,  a
secondary  offering in December  1993,  collaborative  agreements  with research
partners,  and, to a lesser extent,  through equipment and leasehold improvement
financings.

     In November 1996,  Shaman  completed a successful Phase II trial of Provir,
an oral agent for the  treatment  of  secretory  diarrhea.  The open label trial
tested Provir in 75 patients afflicted with acute diarrhea, including traveler's
diarrhea and non-specific  diarrhea of unknown etiology.  Overall, 89% of the 75
patients treated with Provir returned to normal bowel function after 48 hours of
treatment.  Moreover,  of the 71 patients available for follow up, no recurrence
was  experienced  during  the  post-treatment  period.  No  significant  adverse
reactions  were  reported.   The  Company  plans  to  initiate  a  500  patient,
randomized, multi-dose, placebo-controlled study early in 1997.

     Shaman  obtained an initial  indication  of efficacy for Virend,  a topical
agent  for the  treatment  of  genital  herpes,  in  late  1995.  Focusing  on a
two-pronged  strategy for development and  commercialization of the product, the
Company intended to conduct a Phase III trial in late 1996 in  immunocompromised
patients  followed by a  combination  trial with the standard of  treatment  for
genital herpes  (acyclovir),  in order to outlicense  Virend for development and
commercialization  in the  immunocompetent  patient  population.  As a result of
discussions with potential  partners and consideration of the market opportunity
in the  immunocompetent  patient  population,  Shaman has  decided to initiate a
combination  study  prior to a Phase III trial in the AIDS  patient  population.
Because of differing mechanisms of action,  Shaman believes that Virend may have
an additive or  synergistic  benefit when used in  combination  with  acyclovir.

<PAGE>

Successful  results  from a  combination  trial  could  lead to more  attractive
partnering  opportunities  with better market potential than that anticipated by
the original strategy.

     Shaman plans to enter a Phase I human  clinical  trial of  nikkomycin Z, an
oral  treatment  for endemic  mycoses.  The trial,  designed to  determine  that
nikkomycin Z is safe, is scheduled to begin in the fourth quarter of 1996.

     In  September  1996,  the Company  entered  into a five-year  collaborative
agreement  with Lipha to jointly  develop  antidiabetic  drugs.  In exchange for
development and marketing rights in all countries except Japan, South Korea, and
Taiwan (which are covered under an earlier  agreement  between  Shaman and Ono),
Lipha will provide up to $9.5 million in research payments and up to $10 million
in equity investments priced at a 20% premium to the average market price of the
Company's common stock at the time of purchase.  Complete research funding under
the  collaboration  is dependent upon the initiation of human clinical trials of
at least one compound by September  23, 1998.  The  agreement  also provides for
additional  preclinical and clinical milestone payments to the Company in excess
of  $10  million  per  compound  for  each   antidiabetic   drug  developed  and
commercialized. To date, Shaman has identified ten orally active compounds which
show preclinical  activity as treatments for Type II diabetes.  Lipha will bear
all pre-clinical, clinical, regulatory and other development expenses associated
with the compounds  selected under the agreement.  In addition,  as products are
commercialized,  Shaman will receive  royalties on all product sales outside the
United  States  and up to 50% of the  profits  (if  the  Company  exercises  its
co-promotion  rights) or  royalties on all product  sales in the United  States.
Certain of the  milestone  payments  will be  credited  against  future  royalty
payments,  if any, due to the Company from sales of products  developed pursuant
to the agreement.

     Upon signing the collaboration, the Company received an annual research fee
of $1.5 million  which will be amortized  over twelve  months.  The Company also
received  $3 million  for  388,918  shares of common  stock  priced at $7.71 per
share, representing a 20% premium to the weighted average price of the Company's
stock at the time of purchase.

     In July 1996, the Company closed a private placement pursuant to Regulation
S under the Securities Act of 1933, as amended,  in which it sold 400,000 shares
of Series A Convertible Preferred Stock ("Preferred Stock") at a price per share
of $8.147 and a six-year  warrant to purchase  550,000  shares of the  Company's
common stock at a price of $10.184 per share. The Preferred Stock does not carry
a dividend  obligation and will convert into common stock no later than July 23,
1999 at a price per share  between $6 and $8.147,  depending on the market value
of the Company's common stock during the period prior to conversion. In addition
to the sale of Preferred Stock and warrant, the Company has the right, from time
to time during the period  beginning  January 1997 and ending July 2000, to sell
up to 1,200,000  additional  shares of common stock to the investor at a premium
over an average of the Company's  market price at the time of sale. The investor
has the option to increase the shares purchased by up to 577,500 shares.


<PAGE>



Results of Operations

Three Months and Nine Months Ended September 30, 1996 and September 30, 1995

     The  Company  recorded  revenues of $0.5  million for each of the  quarters
ended  September  30, 1996 and 1995,  and had  revenues of $1.5 million and $1.7
million  for  the  nine  month  periods  ended  September  30,  1996  and  1995,
respectively.  Revenues  for both the three month and nine month  periods  ended
September 30, 1996 resulted from collaborations for the research and development
rights of Shaman's  diabetes  compounds,  including  revenue  from the  recently
announced  collaboration  with  Lipha,  as well as  ongoing  revenues  from Ono.
Collaborative  revenues in 1995 resulted solely from the Company's  relationship
with Ono and included a one-time access fee associated with the  commencement of
that collaboration.

     Research and  development  expenses  were $4.8 million and $4.3 million for
the quarters ended September 30, 1996 and 1995, respectively. Increased spending
during the current quarter was primarily  attributable to costs incurred for the
Phase II Provir trial for secretory  diarrhea and start-up costs associated with
the Virend  clinical  trial expected to begin early in 1997. For the nine months
ended September 30, 1996, research and development  expenses were $14.2 million,
representing  a $1.6  million  increase  over  the  same  period  in  1995.  The
year-to-date  increase is primarily  attributable  to the  Company's  additional
pre-clinical  activities with respect to nikkomycin Z and further development of
the  compounds  identified  in  its  diabetes  research  effort.   Research  and
development  expenses are likely to increase in upcoming quarters as the Company
continues research and development activities for various product candidates.

     General  and  administrative  expenses  were $0.9  million  for each of the
quarters  ended  September 30, 1996 and 1995,  and $2.6 million and $2.8 million
for the nine month  periods  ended  September  30, 1996 and 1995,  respectively.
Current general and administrative  expenses are in line with the Company's plan
and are not expected to increase  substantially  because the Company's  expanded
research  and  clinical  activities  are not  expected  to require  commensurate
increases in general and administrative support.

     Interest  income was $.25 million and $.43  million for the quarters  ended
September 30, 1996 and 1995, respectively, and $.83 million and $1.3 million for
the nine months ended September 30, 1996 and 1995, respectively. Interest income
decreased  for the periods ended  September 30, 1996,  compared with the periods
ended  September 30, 1995, due to lower average cash and investment  balances as
the Company continues to fund its operations.  The increases in interest expense
for the three and  nine-month  periods  ending  September 30, 1996 over the same
periods in 1995 resulted from higher  average debt balances in 1996,  the impact
of which was partially  offset by a lower average  interest rate on Company debt
during 1996.


<PAGE>




Liquidity and Capital Resources

     As of  September  30, 1996,  the  Company's  cash,  cash  equivalents,  and
investments totaled approximately $20.4 million,  compared with $26.7 million at
December 31, 1995, with an average investment maturity of four and a half months
at both dates.  The Company  invests  excess cash  according  to its  investment
policy which provides  guidelines with regard to liquidity,  type of investment,
credit rating, and concentration limits.

     During  the  quarter  ended  September  30,  1996,  the  Company   received
approximately  $7.75  million from its first  research  payment  under the Lipha
collaboration,  from the Lipha equity investment and from a private placement of
preferred stock. Looking forward, the two transactions closed during the quarter
provide  on-going funding  capability for the Company through equity  financings
and research  funding.  Additional cash was generated during the quarter through
sales and maturities in the Company's investment portfolio.

     Lipha has committed an additional  $15.0 million to the Company in the form
of periodic  research  funding and annual  purchases  of  premium-priced  common
stock. Complete funding under the collaboration is dependent upon the initiation
of human clinical  trials of at least one compound  within two years.  The Lipha
agreement  also  provides for  additional  preclinical  and  clinical  milestone
payments  in excess of $10  million  per  compound  for each  antidiabetic  drug
developed  and  commercialized,  part of  which  may be  offset  against  future
royalties, if any. Further, Lipha will bear the preclinical,  clinical trial and
other development  expenses  associated with any antidiabetic  compound which it
selects. Shaman will receive royalties on antidiabetic product sales outside the
United  States  and up to 50% of the  profits  (if  the  Company  exercises  its
co-promotion  rights) or royalties on all product  sales in the United  States.

     In July 1996,  the Company  received gross proceeds of $3.3 million for
400,000 shares of Series A Convertible Preferred Stock and a six-year warrant to
purchase  550,000 shares of the Company's  common stock at a price of $10.84 per
share. In addition to the initial sale of the Preferred  Stock and warrant,  the
Company  has the right,  from time to time during the period  beginning  January
1997 and ending July 2000, to sell up to 1,200,000  additional  shares of common
stock the investor at a premium over an average of the Company's market price at
the time of sale. As the Company  exercises its rights under the agreement,  the
investor  has the  option to  increase  the  shares  purchased  by up to 577,500
shares.

     The Company expects to incur  substantial  additional costs relating to the
continued  clinical  development of its products,  its research and  development
programs,  preclinical and clinical testing, and regulatory  activities.  At its
current burn rate, the Company  anticipates  that its cash, cash equivalents and
investment  balances of  approximately  $20.4 million at September 30, 1996, the
collaborative revenue committed by Lipha and Ono, Lipha's commitment to purchase
additional  equity and Shaman's  additional  rights to sell common stock through
its private placement will be adequate to fund operations through 1997.


<PAGE>

     Recognizing  the need for additional  financing,  the Company  continues to
actively  consider a variety of  financing  alternatives,  including  public and
private  equity  financings,  licensing  arrangements  for its  other  products,
capital  equipment  financing,  and term  debt.  To the  extent  the  Company is
successful in closing such  transactions  and creating such  partnerships,  cash
balances would be enhanced through equity  investments and fees. There can be no
assurance that any of these sources of funds will be available to the Company on
acceptable terms, if at all.

Future Outlook

     In addition to historical  information,  this report contains  predictions,
estimates and other forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities  Exchange Act of
1934.  Actual  results  could  differ  materially  from any  future  performance
suggested  in this report as a result of the risk  factors set forth below under
the caption  "Risk  Factors" and  elsewhere in this report and in the  Company's
Annual Report on Form 10-K filed with the Securities and Exchange  Commission on
April 1, 1996.




                                      
<PAGE>

Risk Factors

     History  of  Operating  Losses;  Products  Still  in  Development;   Future
Profitability  Uncertain.  Shaman's  potential  products  are  in  research  and
development.  In order to generate  revenues or profits,  the Company,  alone or
with others,  must successfully  develop,  test, obtain regulatory  approval and
market its  potential  products.  No assurance  can be given that these  product
development efforts will be successful,  that required regulatory approvals will
be  obtained,  or that  the  products,  if  developed  and  introduced,  will be
successfully marketed or achieve market acceptance.

     Additional Financing  Requirements and Uncertain Access to Capital Markets.
The Company has significant  long-term  capital  requirements  and, in the event
Shaman  receives  regulatory  approval  for any of its  products,  it will incur
substantial   expenditures  to  develop   manufacturing,   sales  and  marketing
capabilities. The Company will need to raise additional funds for these purposes
through  additional equity or debt financings,  collaborative  arrangements with
corporate  partners or from other  sources.  No assurance can be given that such
additional  funds will be available to the Company to finance its development on
acceptable terms, if at all.

     No  Assurance of FDA Approval for  Marketing;  Government  Regulation.  The
Company's activities with respect to research, preclinical development, clinical
trials, manufacturing and marketing in the United States and other countries are
subject to extensive regulation by numerous governmental  authorities including,
but not limited  to, the Food and Drug  Administration  ("FDA").  The process of
obtaining FDA and other  required  regulatory  approvals is lengthy and requires
the expenditure of substantial resources. Success cannot be assured. In order to
obtain FDA approval,  the Company must perform  clinical tests to demonstrate to
the FDA's  satisfaction  that a product is safe and  effective  for its intended
uses.  The Company may encounter  problems in clinical  trials which could cause
the FDA or the Company to delay or suspend clinical trials. Further, the Company
must  demonstrate  that it is  capable  of  manufacturing  bulk  product  to the
relevant  standards.  There can be no assurance that any of the Company's future
studies will demonstrate their intended result, that the Company's products will
not have  undesirable  side effects  that may prevent or limit their  commercial
use, or that the FDA will otherwise approve any of the Company's products.

     Dependence on Sources of Supply.  The Company  currently imports all of the
plant  materials from which its products are derived from countries in South and
Latin America, Africa and Southeast Asia. To the extent that its products cannot
be economically  synthesized or otherwise produced, the Company will continue to
be dependent upon a supply of raw plant  material.  While Shaman believes it has
good  relationships  with the local  governments  and  suppliers  of these plant
materials,  the Company does not have formal agreements in place with all of its
suppliers.

     Limited  Manufacturing and Marketing  Experience and Capacity.  The Company
currently produces products only in quantities necessary for clinical trials and
partner  requirements,  and does not  currently  have  the  staff or  facilities
necessary to manufacture  products in commercial  quantities.  As a result,  the
Company  may  rely  on  collaborative  partners  or  third-party   manufacturing

<PAGE>

facilities, which may not be available on commercially acceptable terms adequate
for Shaman's  long-term needs.  The Company  currently has no marketing or sales
staff.  To the  extent  that the  Company  does not or is unable  to enter  into
co-promotion  agreements  or to  arrange  for third  party  distribution  of its
products,  significant  additional  resources  will be  required  to  develop  a
marketing and sales force.

     Rapid Technological Change and Substantial Competition.  The pharmaceutical
industry is subject to rapid and substantial technological change. Technological
competition  from   pharmaceutical   companies,   biotechnology   companies  and
universities  is intense.  Many of these  entities  have  significantly  greater
research  and  development  capabilities,  as  well  as  substantial  marketing,
manufacturing,  financial and managerial  resources,  and represent  significant
competition  for the Company.  There can be no assurance  that  developments  by
others will not render the Company's products or technologies  noncompetitive or
that the Company will be able to keep pace with technological developments.

     Uncertainty Regarding Patents and Proprietary Rights. The Company's success
depends in part on its ability to obtain patent  protection for its products and
to preserve  its trade  secrets.  No assurance  can be given that the  Company's
patent applications will be approved,  that any patents will provide the Company
with  competitive  advantages  for  its  products  or  that  they  will  not  be
successfully  challenged  or  circumvented  by  the  Company's  competitors.  In
addition,  patents do not necessarily prevent others from developing competitive
products.  The Company has not  conducted  an  exhaustive  patent  search and no
assurance  can be given that  patents  do not exist or could not be filed  which
would have an adverse effect on the Company's ability to market its products.

     Uncertainty of Health Care  Reimbursement  and Reform.  Shaman's ability to
successfully  commercialize  its  products  may  depend in part on the extent to
which reimbursement for the cost of such products and related treatments will be
available from  government  health  administration  authorities,  private health
insurers  and  other  organizations.  Significant  uncertainty  exists as to the
pricing, availability of distribution channels and reimbursement status of newly
approved healthcare products.

     Possible  Volatility  of Stock  Price.  The market  price of the  Company's
common stock,  like the stock prices of many publicly traded  biotechnology  and
smaller  pharmaceutical  companies,  has  been  and may  continue  to be  highly
volatile.

     Environmental  Regulation.  In connection with its research and development
activities  and its periodic  manufacturing  of clinical  trial  materials,  the
Company is subject to federal,  state and local  laws,  rules,  regulations  and
policies  governing the use,  generation,  manufacture,  storage,  air emission,
effluent  discharge,  handling  and  disposal of certain  materials  and wastes.
Although  the  Company  believes  that  it has  complied  with  these  laws  and
regulations  in all  material  respects  and has not been  required  to take any
action to correct any noncompliance,  there can be no assurance that the Company
will not be required to incur significant costs to comply with environmental and
health and safety regulations in the future.



<PAGE>


PART II  OTHER INFORMATION

Item 1.  Legal Proceedings

         None.

Item 2.  Changes in Securities

         None.

Item 3.  Defaults in Senior Securities

         None.

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

         None.

Item 5.  Other Information

         None.

Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits

         Exhibit No.       Description

         10.50+            Joint Research and Product Development and
                           Commercialization Agreement Between Lipha, Lyonnaise 
                           Industrielle Pharmaceutique s.a. and Shaman  
                           Pharmaceuticals, Inc.  dated September 23, 1996.

         10.51+            Stock Purchase Agreement between Lipha, Lyonnaise
                           Industrielle Pharmaceutique s.a. and Shaman
                           Pharmaceuticals, Inc. dated September 23, 1996.

         27                Financial Data Schedule.

 (b)     Reports on Form 8-K

         A Current Report on Form 8-K dated July 26, 1996 was filed in the 
quarter ended September 30, 1996, with disclosure in Items 5 and 7 thereto.  No
financial statements were filed in conjunction therewith.




--------------------------------------

+ Confidential  treatment  pursuant to Rule 24b-2 under the Securities  Exchange
Act of 1934,  as  amended,  has been  requested  for  certain  portions  of this
agreement.


<PAGE>





                                   SIGNATURES



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

Dated:  November 13, 1996


                          Shaman Pharmaceuticals, Inc.
                           (Registrant)


                           /s/ Lisa A. Conte
                           -----------------------------------
                           Lisa A. Conte
                           President and Chief Executive Officer
                          (principal executive officer)


                           /s/ Barbara J. Goodrich
                           -----------------------------------
                           Barbara J. Goodrich
                           Vice President and Chief Financial Officer
                           (principal financial and accounting officer)







<PAGE>
                                 
                                  EXHIBIT 10.50

                     JOINT RESEARCH AND PRODUCT DEVELOPMENT
                         AND COMMERCIALIZATION AGREEMENT

                                     BETWEEN

                LIPHA, LYONNAISE INDUSTRIELLE PHARMACEUTIQUE s.a.

                                       AND

                          SHAMAN PHARMACEUTICALS, INC.


<PAGE>






                                       

                                TABLE OF CONTENTS

                                                                 Page


1.    DEFINITIONS...............................................  1

2.    RESEARCH PROGRAM AND COLLABORATION; RESEARCH PERIOD.......  6

3.    DEVELOPMENT PHASE; MANAGEMENT; DEVELOPMENT PLAN;
      REGULATORY MATTERS.......................................  11

4.    PAYMENT................................................... 13

5.    COMMERCIALIZATION......................................... 16

6.    MANUFACTURE AND SUPPLY OF PRODUCTS........................ 18

7.    POST-LAUNCH TESTING AND REPORTING; PRODUCT RECALLS........ 20

8.    LICENSES OF TECHNOLOGY; ROYALTIES......................... 20

9.    GLOBAL RELATIONSHIP....................................... 24

10.   DISPUTE RESOLUTION AND ARBITRATION........................ 24

11.   CONFIDENTIALITY, DISCLOSURE AND PUBLICATION............... 25

12.   INDEMNIFICATION........................................... 27

13.   INDEPENDENT CONTRACTORS................................... 28

14.   NO SOLICITATION OF EMPLOYEES.............................. 28

15.   TERM...................................................... 28

16.   TERMINATION OF AGREEMENT.................................. 28

17.   PUBLIC ANNOUNCEMENT OF AGREEMENT.......................... 29

18.   PATENT MATTERS............................................ 30

19.   RESEARCH EXPENSES......................................... 33


<PAGE>

20.   REPRESENTATIONS AND WARRANTIES............................ 33

21.   SURVIVAL OF RIGHTS, DUTIES AND OBLIGATIONS................ 35

22.   ASSIGNMENT................................................ 35

23.   FURTHER ASSURANCES........................................ 35

24.   LANGUAGE.................................................. 35

25.   GOVERNING LAW............................................. 35

26.   NOTICES................................................... 36

27.   ENTIRE AGREEMENT.......................................... 37

28.   NONWAIVER OF RIGHTS....................................... 37

29.   SEVERABILITY.............................................. 37

30.   FORCE MAJEURE............................................. 37

31.   COUNTERPARTS.............................................. 37



<PAGE>



                                 

          JOINT RESEARCH AND PRODUCT DEVELOPMENT AGREEMENT


           This  Agreement is made  effective  as of the 23rd day of  September,
1996 (the  "Effective  Date") by and between  Shaman  Pharmaceuticals,  Inc.,  a
corporation organized and existing pursuant to the laws of the State of Delaware
with its  principal  office  at 213 East  Grand  Avenue,  South  San  Francisco,
California,  U.S.A. ("Shaman") and Lipha, Lyonnaise Industrielle  Pharmaceutique
s.a., a corporation  organized and existing  pursuant to the laws of France with
its principal office at 34, rue  Saint-Romain,  F-69379 Lyon,  cedex-08,  France
("LIPHA").

                                    RECITALS

           WHEREAS, Shaman has identified compounds from plants having potential
for  the  treatment  of  diabetes  mellitus  and  its  complications  and  other
pathologies related to the Insulin Resistance Metabolic Syndrome; and

           WHEREAS, LIPHA possesses expertise with respect to the development of
therapeutic   products  for  the   treatment   of  diabetes   mellitus  and  its
complications and other pathologies related to the Insulin Resistance  Metabolic
Syndrome and is interested in the development of additional therapeutic products
for  the  treatment  of  diabetes  mellitus  and  its  complications  and  other
pathologies related to the Insulin Resistance  Metabolic Syndrome based upon the
Shaman compounds; and

           WHEREAS,  the  parties  desire  to  collaborate  in  the
development and commercialization of such therapeutic products.

           NOW  THEREFORE,  in  consideration  of the  premises  and the  mutual
covenants  and  agreements  set  forth  herein,  and  other  good  and  valuable
consideration,  the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:

      1.  DEFINITIONS.

           As  used in this  Agreement,  the  following  terms  shall  have  the
meanings set forth below:

           1.1  "Affiliates"  means,  with respect to any  specified  Person,  a
Person that is controlled  by,  controlling  or under common  control with,  the
Person specified;  provided,  that in the case of each Party,  "Affiliate" shall
not include the other Party. For the purposes of this  definition,  control of a
corporation  or other  business  entity means (i) direct or indirect  beneficial
ownership of greater than fifty  percent  (50%) of the voting stock or a greater
than fifty percent  (50%)  interest in the income of such  corporation  or other
business  entity  or (ii) the power to  direct  or cause  the  direction  of the
management of policies of such corporation or other business entity.


<PAGE> 

           1.2  "Agreement"    means   this   Agreement   and   all
amendments and modifications thereto.

           1.3  "Chemical  Class" means a set or family of compounds linked by a
common structure based on the scientific nomenclature of the International Union
of Pure and Applied Chemistry  ("IUPAC") and/or a family of naturally  occurring
related  metabolites and their synthetic analogs built around a natural nucleus.
A chemical  class will include each Compound  covered by the same patent and all
continuations-in-part  or  divisions of such patent but  excluding  any Compound
described by a separate  patent which does not infringe or require  reference to
the original patent.

           1.4  "Chemical  Modification" means a process or activity of deriving
alternative chemical structures (such as analogs) belonging to the same Chemical
Class as a Compound presented by Shaman, e.g. chemical synthesis.

           1.5  "Collaboration"  means the joint  collaboration  of the Parties 
under the terms of this Agreement.

           1.6  "Commercialization  Costs"  means,  with respect to any Product,
the sum of (i) all product launch costs (i.e. market research reports,  training
of sales force and development of promotional  materials),  (ii) direct selling,
marketing  and  other  costs  (including  associated   overhead),   specifically
identifiable to sales of the Product and (iii) Product registration costs.

           1.7  "Compound"  means a molecule that is (a)  patentable or patented
or the use of which is  patentable  or  patented  and (b)  derived,  isolated or
synthesized  at any time from a plant source or extract  identified by Shaman to
LIPHA prior to the  termination of this  Agreement as an orally active  compound
for  the  treatment  of  diabetes  mellitus  and  its  complications  and  other
pathologies related to the Insulin Resistance Metabolic Syndrome.

           1.8  "Development  Plan"  means  the plan  set  forth in
Section 3.2.1.

           1.9  "Dollars" means United States dollars.

           1.10 "Evaluation  Period"  has the  meaning set forth in
Section 2.3.3.

           1.11 "FDA"  means  the  United   States  Food  and  Drug
Administration.

           1.12 "FD&C  Act"  means the  United  States  Federal  Food,  Drug and
Cosmetic Act and applicable regulations promulgated thereunder,  as amended from
time to time.


<PAGE>

           1.13 "First  Commercial Sale" means the first sale of the Product for
use,  consumption or resale to any third party  customer in the Territory  after
all required Regulatory Approvals have been obtained.

           1.14 "Field"  means the diagnosis and treatment of diabetes  mellitus
and its complications and other  pathologies  related to the Insulin  Resistance
Metabolic Syndrome.

           1.15  "Improvements"  means all  inventions or  discoveries  or other
technology conceived or reduced to practice during the term of this Agreement by
employees  or  others  acting  on  behalf  of  either  of the  Parties  or their
respective  Affiliates,  licensees  or  sublicensees,  or to which either of the
Parties  or their  respective  Affiliates,  licensees  or  sublicensees  acquire
rights, which constitute an improvement to the Shaman Technical Information, the
LIPHA Technical  Information,  the Shaman Patents,  the LIPHA Patents, the Joint
Patents or to a Product or Compound.

           1.16   "Initial  Chemical  Classes"  means  those  Chemical  Classes,
containing at least one  Compound,  which are listed in Exhibit A hereto and are
presented by Shaman at the initial meeting of the Joint Research and Development
Steering Committee.

           1.17 "Joint  Inventions"  has the  meaning  set forth in
Section 18.1.

           1.18 "Joint  Clinical  Development  Committee"  means  the  Committee
established  pursuant to Section 2.5 among Shaman and LIPHA and, as  applicable,
Ono to manage the clinical development of Products.

           1.19 "Joint  Patent"  means (i) all  issued  patents,  including  any
extension,  registration,   confirmation,  reissue,  re-examination  or  renewal
thereof and (ii) all pending patent  applications,  including any  continuation,
division or  continuation-in-part,  which patent(s)  contain claims covering any
Joint Invention.

           1.20 "Joint  Research and Development  Steering Committee" means that
committee established pursuant to Section 2.5.

           1.21 "Lead  Compound"  has  the  meaning  set  forth  in
Section 2.3.1.

           1.22 "Lien"  means,  with respect to any asset,  any mortgage,  lien,
pledge, charge,  security interest or encumbrance of any kind in respect to such
asset.  For the purposes of this  Agreement,  Shaman or any of its  Subsidiaries
shall be deemed to own subject to a Lien any asset that it has acquired or holds
subject  to the  interest  of a vendor or  lessor  under  any  conditional  sale
agreement,  capital lease or other title  retention  agreement  relating to such
asset.

           1.23 "LIPHA  Patents"  means (i) all issued  patents,  including  any
extension,  registration,   confirmation,  reissue,  re-examination  or  renewal
thereof and (ii) all pending patent  applications,  including any  continuation,

<PAGE>

division or  continuation-in-part,  which patent is owned or controlled by LIPHA
or its  Affiliates  and which patent covers an invention made as a result of the
Collaboration,  including  LIPHA's  interest in any patents owned jointly by the
Parties.

           1.24 "LIPHA  Technical  Information"  means all products,  Compounds,
uses of Compounds,  modifications  of  Compounds,  inventions  (including  LIPHA
Patents   resulting   therefrom),    discoveries,   know-how,   trade   secrets,
improvements,  information,  technical  data,  formulas,  procedures  or results
(including, without limitation,  physical, chemical, biological,  toxicological,
pharmacological, pre-clinical and clinical data, product forms and formulations,
and know-how relating to methods, processes or techniques for the manufacture or
use of Products including, without limitation, preparation, recovery, packaging,
and sterilization processes and techniques,  dosage regimens, control assays and
specifications),  that are rightfully held by LIPHA or its Affiliates with right
to license or sublicense as of the Effective  Date or are acquired by LIPHA as a
result of the  Collaboration  during the period  beginning on the Effective Date
and ending upon the  termination of this  Agreement  pursuant to Section 16, and
which  Technical  Information  is  useful  or  necessary  for the  registration,
manufacture, use or sale of a Product, including the in vitro and in vivo assays
and physiology models provided by LIPHA to identify Compounds.

           1.25 "Major  Market   Country"  means  any  of  Belgium,
France, Germany, Italy, Sweden or the United Kingdom.

           1.26 "Net  Sales" means with respect to any  Product,  the  aggregate
amount  invoiced  by  a  Party  (including  by  its  Affiliates,  licensees  and
sublicensees)  for or on account of any sale to a  non-affiliated  purchaser  of
such Product,  less (i) normal and customary trade  discounts  (i.e.  consistent
with customary practice for a situation in which the Product is the only product
being transferred  between seller and purchaser) allowed and taken, (ii) rebates
to  wholesalers,  (iii) returns,  (iv) amounts for  transportation  and shipping
charges to purchasers if invoiced  separately,  and (v) taxes (not including any
taxes on income) and duties levied on such sale. Any commercial use or sale of a
Product at a reduced or promotional  price by a Party (including its Affiliates,
licensees and sublicensees)  shall be consistent with customary trade practices.
In the case of sales of a Product containing a combination of a Compound and one
or more other therapeutically active ingredients (a "Combination Product"), "Net
Sales"  shall be  calculated  retrospectively  as follows:  (i) if either of the
active  ingredients  is already on the  market,  then the ratio of the net sales
price  of  the  commercialized  ingredient  during  the  measurement  period  as
determined  in  Section  8.4.2 to the total net sales  price of the  Combination
Product shall be used to establish the relative contribution of each ingredient,
and Net Sales shall be multiplied by a fraction which  represents the proportion
of total net sales price which the Compound bears to the Combination Product, or
(ii) if neither  ingredient is then being  marketed,  then the proportion of Net
Sales  represented  by such  Compound  shall be  determined in good faith by the
Joint  Research  and  Development   Steering  Committee  on  the  basis  of  the
therapeutic value to the patient of the Compound to the therapeutic value of the
Combination Product.


<PAGE>

           1.27 "Party"  shall mean either Shaman or LIPHA and  "Parties"  means
both Shaman and LIPHA.

           1.28 "Patent  Matters"  means  all  matters  related  to  evaluating,
drafting, filing, prosecuting (which shall include, without limitation,  actions
concerning interference  proceedings in the United States and the abandonment of
patents and patent applications), defending, maintaining and enforcing of patent
applications and patents related to the Shaman Patents,  LIPHA Patents and Joint
Patents.

           1.29 "Person" means an individual, a partnership,  a joint venture, a
corporation,  a trust, an estate, an unincorporated  organization,  or any other
entity.

           1.30 "Product"  means  any  finished  human  therapeutic  composition
(whether in bulk or final  product  form),  intended for use in the Field,  that
contains  a  Compound  as an  active  ingredient  or  which is  derived  from an
Improvement  to a Compound  for which LIPHA has made the  payments  specified in
Section 4.

           1.31 "Regulatory  Approval" means the granting of all governmental or
regulatory  approvals  required,  if any,  for the sale of a Product  in a given
country or jurisdiction within the Territory, including, if any, the approval by
any national  authority  for  inclusion  of such Product in the National  Health
Insurance Scheme.

           1.32 "Research  Period"  has the  meaning  set  forth in
Section 2.1.

           1.33 "Ono"   means  Ono  Pharmaceutical   Co.,  Ltd.,  a  corporation
organized and existing under the laws of Japan.

           1.34 "Ono Territory"  means the nations of Japan,  South
Korea and Taiwan.

           1.35 "Selection  Criteria" means, with respect to any Compound,  that
the Compound (i) can be administered by the oral route and that it is capable of
resulting in a  statistically  significant  fall in blood  glucose  levels by at
least * * * of the initial  glycemia  value (as observed  prior to treatment) in
mouse  models  of  NIDDM  and  at  least  * * * in rat  models  of  NIDDM  (high
fructose-low  STZ model or other  predictive  NIDDM  rat  models),  without  any
increase in plasma  triglyceride  levels, with doses equal to or less than * * *
of oral  administration;  (ii) is covered by the claims of a patent application;
and (iii) is produced by  synthesis  or  extraction  according  to  synthesis or
extraction  processes fully and properly  described.  [* INDICATES THAT MATERIAL
HAS BEEN OMITTED AND  CONFIDENTIAL  TREATMENT HAS BEEN REQUESTED  THEREFOR.  ALL
SUCH OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION  PURSUANT TO
RULE 24b-2.]

           1.36 "Shaman  Patents"  means (i) all issued  patents,  including any
extension,  registration,   confirmation,  reissue,  re-examination  or  renewal
thereof and (ii) all pending patent  applications,  including any  continuation,

<PAGE>

division or continuation-in-part,  which covers a method, material, manufacture,
use, treatment,  process, compound,  composition or product-by-process necessary
to  make,  use or sell a  Compound  or a  Product,  which  patent  is  owned  or
controlled by Shaman,  including  Shaman's interest in any patents owned jointly
by the Parties.

           1.37 "Shaman  Technical  Information" means all Products,  Compounds,
uses of Compounds,  modifications  of Compounds,  inventions  (including  Shaman
Patents   resulting   therefrom),    discoveries,   know-how,   trade   secrets,
improvements,  information,  experience, technical data, formulas, procedures or
results  (including,   without  limitation,   physical,  chemical,   biological,
toxicological,  pharmacological,  pre-clinical and clinical data,  product forms
and formulations,  and know-how relating to methods, processes or techniques for
the manufacture or use of Products including,  without limitation,  preparation,
recovery,   packaging,  and  sterilization  processes  and  techniques,   dosage
regimens, control assays and specifications), that are rightfully held by Shaman
or its  Affiliates  (including  information  received  from Ono)  with  right to
license or sublicense  as of the  Effective  Date or are acquired by Shaman as a
result of the  Collaboration  during the period  beginning on the Effective Date
and ending upon the  termination of this  Agreement  pursuant to Section 16, and
which  Technical  Information  is  useful  or  necessary  for the  registration,
manufacture, use or sale of a Product, including the in vivo and in vitro assays
and physiology models provided by Shaman.

           1.38 "Stage II(a)" means the completion of those activities set forth
on Exhibit A.

           1.39 "Subsidiary"  means, with respect to any Person, any corporation
or other entity of which securities or other ownership interests having ordinary
voting  power to elect a majority  of the board of  directors  or other  persons
performing  similar  functions are at the time  directly or indirectly  owned by
such Person.

           1.40 "Technical  Information" means, as the context requires,  either
the Shaman Technical Information, the LIPHA Technical Information or both.

           1.41 "Territory"  means all of the  nations of the world,  other than
those nations included in the Ono Territory.

      2    RESEARCH PROGRAM AND COLLABORATION; RESEARCH PERIOD.

           2.1  Research Period. During a period beginning on the Effective Date
through and including the fifth anniversary thereof (the "Research Period"), the
Parties will  collaborate in identifying  potential  Products for use within the
Field.


<PAGE>

           2.2  Obligations of Shaman.

               2.2.1  Collection  and  Screening  of  Plants.  Unless  otherwise
decided by the Joint Research and Development  Steering  Committee,  during each
year of the Research  Period,  (the annual  accounting  period for this activity
will begin on May 24, 1996 to coordinate  with the Ono accounting  cycle) Shaman
shall (i)  collect and screen in vivo for oral  administration  a minimum of one
hundred (100) plants;  (ii) provide the resources to move each Compound  through
the  completion of Stage II(a)  Development;  (iii) use such assays as a tool in
the  purification  and  identification  of the active Compounds to generate Lead
Compounds;  (iv)  allocate  at least  twenty (20) full time  equivalent  ("FTE")
scientists  in the first three years under this  Agreement  and at least  thirty
(30) FTE  scientists in the fourth and fifth years to carry out the  obligations
of Shaman  under  this  Agreement;  and (v)  operate  and  expend  resources  in
accordance with achieving Stage II(a) activities.

               2.2.2 Presentation of Compounds. When Shaman discovers during the
Research  Period a Chemical  Class  containing a Compound or Compounds that have
completed  Stage II(a)  activities,  Shaman shall present such Chemical Class to
LIPHA at the succeeding  meeting of the Joint Research and Development  Steering
Committee,  and provide  LIPHA with the  following  concerning  such Compound or
Compounds  from  such  Chemical  Class:  (i)  structure,   including   structure
elucidation  data, (ii) patent filing  documents,  (iii)  biological  data, (iv)
synthesization  process,  if any, (v) the complete  ethnobotany and conservation
dossier  developed  by Shaman  through the date of  presentation  including  all
clinical  assessment  information  collected by Shaman on the traditional use of
such Compound in the Field, and (vi) any relevant information provided to Shaman
by Ono. At the first  meeting of the Joint  Research  and  Development  Steering
Committee, to be scheduled within thirty (30) days following the Effective Date,
Shaman shall deliver to LIPHA its Technical  Information on the Initial Chemical
Classes.  Shaman  will,  upon  LIPHA's  request  deliver  to  LIPHA  information
regarding any Compound sooner than the completion of Stage II(a) activities (but
not  earlier  than  Shaman's  ability to  determine  the  patentability  of such
Compound).

          2.3  Obligations of LIPHA.

               2.3.1   Acceptance  of  Compounds.  LIPHA  will  determine  which
presented  Compound or Compounds  merit selection as a "Lead Compound" and shall
do so not later than sixty (60) days following the meeting of the Joint Research
and Development  Steering  Committee at which a Compound having  completed Stage
II(a)  activities  and meeting the  Selection  Criteria was presented by Shaman.
Such selection shall be communicated to Shaman in writing within such sixty (60)
day period and the selected  Compound(s) shall thereafter be referred to as Lead
Compounds.  LIPHA may,  however,  select a  Compound  as a Lead  Compound  at an
earlier  time if it so chooses.  Notwithstanding  the  foregoing,  if Shaman has
presented  more  than one  Compound  at a given  time,  LIPHA  shall be given an
additional sixty (60) days for each additional  Compound,  i.e. LIPHA would need
to select a first Compound within sixty (60) days but could wait one-hundred and
twenty  (120) days before  selecting  the second  Compound and  one-hundred  and
eighty (180) days for the third Compound, etc.


<PAGE>

               2.3.2  Prioritization  of Efforts.  During the  Research  Period,
LIPHA  shall use its  commercially  reasonable  efforts to perform  its  product
development  obligations  under this  Agreement in a fashion which is consistent
with the commercial potential of the Products in the Field and in the Territory,
and shall cooperate with Shaman in doing so.

               2.3.3  Development  and Selection  Obligations;  Lead  Compounds.
LIPHA  shall  have a period  of * * * from the date on which it first  selects a
Compound as a Lead Compound (the "Evaluation  Period") during which it must make
further Compound selection  determinations.  Such  determinations  shall be made
together with the appropriate  milestone payments as set forth in Section 4.2.1.
During the Evaluation Period LIPHA may conduct such other preclinical studies as
LIPHA reasonably  considers  necessary to determine  whether to pursue such Lead
Compound(s) or Chemical Class for development under this Agreement. By selection
of a Lead Compound LIPHA shall be deemed to have selected all other Compounds or
analogs   contained  in  the  same  Chemical   Class  as  such  Lead   Compound.
Consequently,  LIPHA may conduct  studies with respect to the Lead Compound,  or
analog or derivative  within the same Chemical Class as such Lead Compound,  but
only so long as all  payments  prescribed  in Section  4.2.1 have been made in a
timely  manner.  If LIPHA  develops an analog or derivative  within the selected
Chemical  Class  which it chooses to develop  further  and which  derivative  or
analog meets the Selection Criteria,  then LIPHA shall promptly so notify Shaman
and such  notification  shall reset the starting  point for the * * * Evaluation
Period  and for  further  milestone  payments  which  may be due as set forth in
Section  4.2  hereinafter.  Any  milestone  payment  previously  made during the
Evaluation  Period for that  Chemical  Class will be  credited  against any such
payment due with respect to the  substituted  Lead  Compound.  All rights to any
Chemical  Class  that is not  selected  by  LIPHA  for  development  or which is
abandoned  by  virtue  of  LIPHA's  failing  to make the  appropriate  milestone
payments as set forth in Section 4.2.1,  within the relevant  Evaluation  Period
shall revert to Shaman, subject to Sections 2.3.4, 2.3.5 and 2.3.6. [* INDICATES
THAT MATERIAL HAS BEEN OMITTED AND  CONFIDENTIAL  TREATMENT  HAS BEEN  REQUESTED
THEREFOR.  ALL  SUCH  OMITTED  MATERIAL  HAS  BEEN  FILED  SEPARATELY  WITH  THE
COMMISSION PURSUANT TO RULE 24b-2.]

               2.3.4  First Right to Reverted Chemical  Classes.  If, during the
term of this Agreement,  a Compound  contained  within a Chemical Class that has
reverted to Shaman  pursuant to Section 2.3.3 is the subject of an IND filing or
equivalent for the initiation of human  clinical  trials,  Shaman shall promptly
inform LIPHA in writing and deliver to LIPHA a summary of the  preclinical  data
generated for such Compound. LIPHA shall thereafter have the option, exercisable
for a period  of * * * days  following  the  delivery  of such  information,  to
designate  such Compound as a Lead Compound  subject to the terms and conditions
of this  Agreement,  in exchange for the payment to Shaman of a lump sum in cash
equal to (i) Two  Million  Seven  Hundred  Thousand  dollars  ($2,700,000)  (the
aggregate pre-clinical  milestones payments that would have otherwise become due
and payable under Section 4.2.1 below),  plus (ii) any clinical  milestones  due
pursuant  to  Section  4.2.3;  reduced  in each case by any  milestone  payments
already  made by LIPHA  with  respect to the same  Chemical  Class  pursuant  to
Section  4.2. In the event LIPHA fails to exercise  its option  within the * * *
day period prescribed  above,  Shaman shall thereafter be free to itself develop
Compound(s) within such Chemical Class or license to a third party the rights to

<PAGE>

commercialize  Compound(s) within such Chemical Class in the Territory,  subject
only to Sections  2.3.5 and 2.3.6  below.  [* INDICATES  THAT  MATERIAL HAS BEEN
OMITTED AND CONFIDENTIAL TREATMENT HAS BEEN REQUESTED THEREFOR. ALL SUCH OMITTED
MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24b-2.]

                2.3.5 Second Right to Reverted Chemical Classes . If, during the
term of this Agreement,  a Compound  contained  within a Chemical Class that has
reverted to Shaman  pursuant to Section  2.3.3 has  received  clearance  for the
initiation  of human  clinical  trials,  Shaman shall  promptly  inform LIPHA in
writing and deliver to LIPHA a summary of the  preclinical  data  generated  for
such Compound.  LIPHA,  in turn,  shall have the right to conduct  limited human
clinical testing of such Compound  pursuant to a protocol approved in writing by
both  Parties.  If LIPHA  notifies  Shaman in  writing of  LIPHA's  interest  in
incorporating  such Compound and its Chemical Class in the Collaboration  within
one year of the  notification  by Shaman to LIPHA of the  clearance  to initiate
clinical  trials of such  Compound,  then LIPHA shall be entitled to incorporate
such Compound and its Chemical Class in this  Collaboration by making a lump sum
cash payment to Shaman equal to (i) Three Million Nine Hundred  Thousand dollars
($3,900,000) plus (ii) any clinical milestones that may have become due pursuant
to Section 4.2.3; reduced in each case by any milestone payments already made by
LIPHA  with  respect  to the  same  Chemical  Class  pursuant  to  Section  4.2.
Notwithstanding  the foregoing,  this second right to reverted  Compounds  shall
only be available to LIPHA if LIPHA has  purchased  (or  committed in connection
with its receipt of the option set forth in this  Section  2.3.5 to purchase) at
least  $3,500,000  in equity  value (or 350,000  shares,  as adjusted  for stock
splits and recapitalizations, whichever is less) in the next public offering, if
any, conducted by Shaman after the date of this Agreement.

               2.3.6  Final Right to Reverted Chemical Classes . With respect to
any reverted  Chemical  Class, if following the expiration of the rights granted
in subsections  2.3.4 and 2.3.5 above,  Shaman desires to enter into a corporate
licensing arrangement and outlicense any Compound,  Shaman shall so notify LIPHA
in writing and then  Shaman  will allow LIPHA * * * ( * ) days after  receipt of
such written  notice to negotiate in good faith a license to such  Compound with
Shaman. If during such * * * ( * ) day period,  the Parties have failed to reach
full agreement on the license terms for such agreement,  Shaman shall be free to
conclude  an  agreement  with a third  party  for such  Compound  on  terms  not
materially more favorable,  as a whole, to such third party,  than those refused
by LIPHA. [* INDICATES THAT MATERIAL HAS BEEN OMITTED AND CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED THEREFOR. ALL SUCH OMITTED MATERIAL HAS BEEN FILED SEPARATELY
WITH THE COMMISSION PURSUANT TO RULE 24b-2.]

           2.4  Joint  Obligations.  During the Research  Period and  thereafter
during the term of this Agreement,  LIPHA and Shaman shall inform each other, to
the  extent  they  have not  already  done so,  of  their  respective  Technical

<PAGE>

Information  that is  necessary  or useful for the other  Party to carry out its
obligations  under this Agreement,  to achieve the goals of the Collaboration or
to develop, manufacture,  register, market and sell Products. During the term of
this  Agreement,  each Party will  permit  access at  reasonable  times and with
reasonable  frequency to the relevant  scientific,  manufacturing,  preclinical,
clinical,  regulatory and other  appropriate  personnel of the other Party. Each
Party will, not less  frequently  than at each meeting of the Joint Research and
Development  Steering  Committee,  (i)  provide  the other party with a progress
report on its  efforts  and  results on the  Collaboration,  and (ii) inform the
other  Party  of any  Technical  Information  (including  all  pre-clinical  and
clinical results  relating to the Products)  obtained by them to the extent such
results are necessary or useful for the other Party to carry out its obligations
under this Agreement,  to achieve the goals of the  Collaboration or to develop,
manufacture, register, market and sell Products.

           2.5  Joint  Research and  Development  Steering  Committee  and Joint
Clinical  Development  Committee.  Promptly following the Effective Date, Shaman
and LIPHA shall each  appoint two (2)  representatives  to a Joint  Research and
Development  Steering Committee.  Upon the commencement of human clinical trials
with  respect  to any  Product,  the  Party  initiating  such  trials  shall  be
responsible  for  creating  a two (2) party or a three (3) party  (depending  on
whether Ono is also  developing  the same  Compound in  clinical  trials)  Joint
Clinical Development  Committee and Shaman, LIPHA and Ono, as applicable,  shall
each  appoint  two  (2)  representatives  to  such  Joint  Clinical  Development
Committee.  Together,  the Joint Research and Development Steering Committee and
the  Joint  Clinical   Development   Committee  shall  be  referred  to  as  the
"Committees."  All members of the Committees shall be senior executive  officers
of the relevant Party,  vested with final decision making authority with respect
to the Collaboration. Subject to the foregoing, each Party may change any of its
representatives at any time and from time to time by written notice to the other
Party prior to appointing a new representative to the applicable Committee.  The
memberships  of  the  Committees  may  include   individuals   serving  on  both
Committees.

           2.6  Meetings  of the  Committees.  The  Committees  shall meet every
three (3) months,  unless otherwise mutually agreed. The Chief Executive Officer
of each of the  Parties  shall  attend  together  one  (1)  meeting  each of the
Committees  each year.  Such  meetings  shall take place at sites which shall be
designated by each of the Parties in alternating sequence.  Each Party shall pay
its own costs in attending Committee meetings. Executive officers from Shaman or
LIPHA may attend such  meetings  with the consent of the relevant  Committee.  A
hosting  Party shall  designate  a member to act as  Chairman  of the  Committee
meetings.  Each such Chairman shall be responsible  for developing an agenda and
supporting  materials for the meeting, and shall distribute such agenda no later
than  fourteen  (14) days prior to the  scheduled  meeting.  The Chairman  shall
promptly,  after each meeting,  prepare and  distribute  to the members  minutes
reflecting the  discussions of the Committee,  which minutes shall be subject to
the review and  approval of such  Committee  at the next  meeting  thereof.  All
meetings  shall be  conducted  and records  kept in  English.  In the event that
either Committee is unable to resolve any  disagreement,  either Party shall use
commercially  reasonable and diligent  efforts to resolve the dispute  amicably.

<PAGE>

Any dispute  that the  Parties  are unable to resolve by good faith  negotiation
shall be subject to the dispute resolution mechanism prescribed in Section 10.

      3    DEVELOPMENT PHASE; MANAGEMENT; DEVELOPMENT PLAN;  REGULATORY MATTERS.

           3.1  Development  Collaboration.  Each Product will be developed  for
use in the  Field  pursuant  to this  Section  3. The role of each  Party in the
development program for each Product shall be determined by this Section 3, with
each Party having the authority  described in Section 3.2 and providing advisory
services  with respect to each phase of the process in which such Party does not
have primary responsibility.

           3.2  Development Plan.

               3.2.1  Within * * * months from the date a Lead Compound is first
selected, LIPHA shall establish and present to Shaman for its review and comment
a development plan including  budgeting  information for each Lead Compound with
respect to the preclinical and clinical  development and regulatory  approval of
such Lead Compound for use in the Field (the "Development  Plan").  Depending on
the state of  development  of the Lead  Compound,  the  Development  Plan  shall
describe  fully the  proposed  program of  development  for each Lead  Compound,
including pre-clinical testing, formulation, process development, manufacture of
pilot and clinical trial lots,  clinical  studies and regulatory plans and other
key  elements of obtaining  Regulatory  Approval in the  Territory.  LIPHA shall
update the  Development  Plan  annually,  and  oversee  its  implementation.  
[* INDICATES  THAT  MATERIAL HAS BEEN OMITTED AND  CONFIDENTIAL  TREATMENT HAS 
BEEN REQUESTED THEREFOR. ALL SUCH OMITTED MATERIAL HAS BEEN FILED SEPARATELY 
WITH THE COMMISSION PURSUANT TO RULE 24b-2.]

               3.2.2 In the event  that the  Parties  are  unable to agree on a
specific  protocol  or the need to conduct  specific  clinical  or  pre-clinical
studies,  LIPHA's  decisions  shall control  clinical and  pre-clinical  studies
(including their protocols) for filing in the Territory (provided, however, that
in the U.S.  LIPHA shall  consult  with Shaman as to  preclinical  and  clinical
studies), and, as between the Parties, Shaman's decisions shall control clinical
and  pre-clinical  studies  (including  their  protocols)  for filing in the Ono
Territory;  provided,  that in no event will  either  Party take any action that
will  impair the other  Party's  efforts  to have a Lead  Compound  achieve  the
relevant  Regulatory  Approvals.  The Parties shall use their diligent  efforts,
through the two Committees, to coordinate their respective development plans and
to create and maintain a single worldwide safety and adverse events database and
shall share the results of the  Parties'  respective  preclinical  and  clinical
trials in order to facilitate such development by both Parties,  including, when
feasible,  elimination  of  duplicate  development  efforts.  Each  Party  shall
immediately  inform  the  other  at  such  time  as it  receives  notice  of any
Regulatory Approvals.


<PAGE>

           3.3  Development Efforts. Once a Compound has been selected as a Lead
Compound,  LIPHA shall use its commercially  reasonable  efforts to (i) develop,
test and, where  applicable,  manufacture a Product based on such Lead Compound,
including without limitation, pre-clinical and clinical development, (ii) obtain
Regulatory  Approvals in the  Territory  (it being  understood  that LIPHA would
intend to first prepare a registration dossier for and initially seek Regulatory
Approvals in the United States or one or more of the Major Market Countries) and
(iii)  subject  to  Section  5.2  below,  market  and  sell the  Product  in the
Territory.  LIPHA  shall  provide  Shaman with  reports of its  progress at each
meeting  of  either  Committee,  or more  frequently  as Shaman  may  reasonably
request.

           3.4  Pre-Clinical   and  Clinical  Matters.   LIPHA  shall  take  all
reasonable  action and bear all costs to conduct the  pre-clinical  and clinical
testing,  regulatory  applications  and the  development  of all Lead  Compounds
within  the  Territory.  As  reasonably  requested  by Shaman,  certain  studies
containing  pre-clinical  data  suitable  for  publication  or use in  countries
outside the  Territory  shall be prepared and delivered to Shaman in the English
language;  provided, Shaman shall bear the sole responsibility to formulate such
data and as may be necessary to submit such data for  publication  or use in the
countries outside the Territory.  However,  prior to any such submission of data
for publication, Shaman shall submit to LIPHA for LIPHA's prior written approval
(which  approval  will not be  unreasonably  withheld) the complete text of such
planned publication and its translation into English. Likewise, any pre-clinical
studies  performed by or on behalf of Shaman or information  with regard to such
studies  provided to Shaman by Ono on all Lead Compounds  shall also be provided
to LIPHA together with its  translation in the English  language free of charge.
Each Party shall provide one (1) copy to the other of all regulatory submissions
as soon as such  submissions  are prepared and LIPHA shall  provide the original
dossier and the text of any addendum or variation  of such  original  dossier to
Shaman in English as soon as possible.

           3.5  Availability  of Employees.  Each Party shall make its employees
engaged in activities  relating to this  Agreement  available,  upon  reasonable
notice during normal business hours, at their respective places of employment to
consult  with the other  party on issues  arising  during the term hereof and in
connection with any request from any regulatory  agency,  including  regulatory,
scientific, technical and clinical testing issues.

           3.6  Visits of Facilities. Representatives of each Party may, at such
party's  own  expense  and  upon  reasonable  notice  and  at  times  reasonably
acceptable to the other Party,  (i) visit the facilities  where the  development
program  with respect to any Compound or Lead  Compound is being  conducted  and
(ii) consult informally,  during such visits and by telephone, with personnel of
the other Party performing work on such  development  program and (iii) with the
other Party's prior approval, which approval shall not be unreasonably withheld,
visit the sites of any clinical trials or other  experiments  being conducted by
such other Party in connection with such  development  program,  but only to the
extent  in  each  case  as such  trials  or  other  experiments  relate  to such

<PAGE>

development  program.  Shaman  shall use its  reasonable  efforts to  facilitate
visits by LIPHA to Ono's facilities as requested from time to time.

      4    PAYMENT.

           4.1  Research Funding.

               4.1.1 Stock Purchases.  On the Effective Date, LIPHA will make an
up-front  Research  payment to Shaman of $1,500,000 in shares of Shaman's Common
Stock (at a 20% premium to the volume weighted * * * trading day average closing
price of such shares prior to the purchase date, the "* * * Average Price").  In
addition,  for years one  through  five of this  Agreement,  LIPHA  shall pay to
Shaman each year one-half of that year's total  research  payment in the form of
an equity  purchase.  Consequently,  on the Effective  Date,  LIPHA shall pay to
Shaman a second  $1,500,000  in the form of a purchase  by LIPHA from  Shaman of
shares of Shaman's  Common  Stock (at a 20%  premium to the * * * Average  Price
prior  to the  purchase  date).  On the  first  and  second  anniversary  of the
Effective Date, LIPHA shall make further stock purchases of $1,500,000 each at a
20%  premium  to  the * * *  Average  Price  preceding  such  first  and  second
anniversary  dates. On the third and fourth  anniversary  dates LIPHA shall make
further stock purchases of $2,250,000 each at a 20% premium to the * * * Average
Price  preceding  such  third  and  fourth  anniversary  dates.  All such  stock
purchases  shall be made on the terms and subject to the  conditions  of a Stock
Purchase  Agreement of even date herewith  between Shaman and LIPHA, in the form
attached hereto as Exhibit B (the "Stock Purchase Agreement"). [* INDICATES THAT
MATERIAL  HAS  BEEN  OMITTED  AND  CONFIDENTIAL  TREATMENT  HAS  BEEN  REQUESTED
THEREFOR.  ALL  SUCH  OMITTED  MATERIAL  HAS  BEEN  FILED  SEPARATELY  WITH  THE
COMMISSION PURSUANT TO RULE 24b-2.]

               4.1.2  Periodic Research  Payments.  On the Effective Date, LIPHA
will also make an initial cash payment in the amount of  $1,500,000 to Shaman as
the second half of its initial research funding payment. Thereafter, LIPHA shall
make  quarterly  payments  to Shaman  as  follows:  (i) on or  before  the first
anniversary  of the  Effective  Date a payment of $375,000 and (ii) on or before
the  expiration  of each  successive  three month period  thereafter,  a further
payment of $375,000.  In years four and five of this Agreement,  starting on the
third  anniversary  of the Effective  Date,  such  quarterly  payments  shall be
increased  to an amount of  $562,500.  In sum,  the cash  payments to be made by
LIPHA under this Section 4.1.2 will equal $1,500,000 in years one, two and three
and $2,250,000 in years four and five.

           4.2  Milestone  Payments.  LIPHA  shall  pay to  Shaman  each  of the
amounts set forth below, payable in the manner set forth in this Section 4.2, at
or before the end of each period set forth below.


<PAGE>

               4.2.1 Pre-clinical Milestones. For each Chemical Class containing
a Compound or Compounds:

      PRE-CLINICAL MILESTONE                                       PAYMENT
                                                                              
 .1   *months after  selection of such  Chemical  Class*          $0.8 million 
 .2   *months after  selection of such  Chemical  Class*          $0.9 million 
 .3   *months after  selection of such  Chemical  Class*          $1.0 million

[* INDICATES THAT MATERIAL HAS BEEN OMITTED AND CONFIDENTIAL TREATMENT HAS BEEN 
REQUESTED THEREFOR.  ALL SUCH OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH 
THE COMMISSION PURSUANT TO RULE 24b-2.]

           In the  event  that  LIPHA  shall,  pursuant  to  applicable  law and
regulation,  administer  any  Lead  Compound  to a human  in the  course  of its
preclinical  studies,  then all  Pre-clinical  Milestones  shall be paid in full
immediately.

               4.2.2 Supply of Compound during Pre-clinical Period. Shaman shall
supply LIPHA with the following  quantities of a Compound or Compounds  within a
Chemical Class during the Evaluation Period with respect to such Chemical Class:
(i) 2.5 grams upon selection of a Lead  Compound;  (ii) at least 30 grams within
the first twelve  months (which shall be supplied (A) as rapidly as possible and
(B) at a rate which at least  equals 10 grams for each four month  period and if
not supplied at such rate, the 12 month period shall be correspondingly extended
as described below in this Section and (iii) at least another 250 grams provided
ratably  over  months  13-30.  In the  case of (ii) and  (iii) in the  foregoing
sentence,  Shaman shall use its commercially  reasonable efforts to provide such
additional  quantities  of each Compound as requested by LIPHA as soon as Shaman
is able and all  quantities  of material  supplied  after the initial 32.5 grams
shall be supplied at Shaman's direct cost for such  materials,  the initial 32.5
grams being supplied as part of the research payments made by LIPHA, and without
further charge to LIPHA.  For synthetic  Compounds,  Shaman will supply only the
first  32.5  grams.  In the event that  LIPHA  requests  and Shaman is unable to
supply  sufficient  quantities  of  such  Compound  or raw  plant  material  for
extraction  thereof  during such  periods or LIPHA is unable  despite good faith
efforts to synthesize the specified quantities of Compound,  then the applicable
milestone  time  lines  under  paragraph  4.2.1  above  shall be  extended  on a
month-by-month  basis during any period such supply  requirements cannot be met,


 
 ----------  
* Payment  will be due in each case only if LIPHA is then still pursiuing the  
development  of a Compound  within the same Chemical Class a that first  
presented.  Failure to make such  payment  shall be deemed a decision  by
LIPHA not to pursue such  Chemical  Class  further and all rights  therein shall
revert to Shaman subject only to the reversion rights set forth in Sections 
2.3.4, 2.3.5 and 2.3.6.


<PAGE>

thereby  extending  the  Evaluation  Period.  LIPHA  shall  provide  Shaman with
reasonable lead time, considering Shaman's plant collection effort, with respect
to any request hereunder for the delivery of any Compound, or raw plant material
for extraction thereof, during the respective periods.
            
                 4.2.3 Clinical  Milestones.  For each Lead  Compound being 
developed for an indication within the Field:

      CLINICAL MILESTONE                                           PAYMENT

      .1   Upon commencement of Phase II Clinical Studies        $1.5 million

      .2   Upon commencement of Phase III Clinical Studies       $1.8 million

      .3   Upon the first filing of an NDA in the United States 
           or equivalent filing in any Major Market Country      $2.0 million

      .4   Upon the first Regulatory Approval in the United States
           or equivalent approval in any Major Market Country    $2.5 million

                4.2.4 Additionally, with respect to the  milestones set forth in
this Section 4.2, the following shall apply:

      .1   The milestones set forth in subsections 4.2.1.1,  4.2.1.2 and 4.2.1.3
           and 4.2.3.1 shall be nonrefundable and nonrecoverable.

      .2   The milestones set forth in subsections 4.2.3.2, 4.2.3.3, and 4.2.3.4
           shall be creditable  against  royalties owing to Shaman from LIPHA on
           account of sales of any Product in all  countries in the Territory in
           years  2, 3 and 4 after  initial  commercialization,  with  one-third
           (1/3rd) of the aggregate  creditable  milestone amount being credited
           in each such year (in the event the  amount of a credit  exceeds  the
           amount of royalties  payable  over such three year period,  then such
           excess  shall be carried  forward into future years until it is fully
           recovered out of royalties).

      .3   With respect to any  Chemical  Class as to which LIPHA pays Shaman at
           least one milestone  pursuant to this section 4.2, if the development
           of  such  Chemical  Class  is  subsequently   discontinued  prior  to
           commercialization  solely as a result of the  inability  of Shaman or
           LIPHA to obtain patent  protection in the U.S. or in any of the Major
           Market   Countries  for  such  Chemical   Class  for  its  use  as  a
           therapeutic, then LIPHA shall be entitled to credit such milestone(s)
           against the  milestones  owing to Shaman on the next  Chemical  Class
           chosen for development by LIPHA.


<PAGE>

      .4   Each  milestone  payment may only be  credited  once  against  future
           liabilities owing from LIPHA to Shaman.

      .5   In addition,  there shall be cap of $7.8 Million, on the crediting of
           milestones against any individual Product royalty amount.

           4.3 Payment Terms. All payments under this Agreement shall be by wire
transfer of immediately  available funds to a bank account  designated by Shaman
at the time payment is due, or within  forty-five days after receipt by LIPHA of
the  corresponding  invoices  for  such  payment  from  Shaman.  Any tax paid or
required  to be  withheld  by LIPHA for the  benefit  of Shaman  on  account  of
royalties  payable  to Shaman  under  this  Agreement  shall be  deductible  and
deducted from the amount otherwise due. LIPHA shall secure and deliver to Shaman
proof of any such taxes  required to be withheld and actually  paid by LIPHA for
the benefit of Shaman and shall,  at  Shaman's  request  provide all  reasonable
assistance  to Shaman in  recovering  or  obtaining  credit for such  taxes,  if
possible.

      5.   COMMERCIALIZATION.

           5.1  Product  Launch.  Subject to  Section  5.2  below,  LIPHA  shall
initiate  distribution  or sales of Product in each country in the  Territory as
soon as reasonably possible following Regulatory Approval, but in no event later
than one hundred and eighty (180) days following Regulatory Approval. Within one
(1) year following the submission of the definitive  application  for Regulatory
Approval  for each  Product in the  Territory,  LIPHA  shall  submit to Shaman a
global  marketing  plan for such Product for the  Territory.  This plan shall be
updated annually by LIPHA.

           5.2  Co-Promotion.

                5.2.1  Shaman  shall  have  the  right  to  share in up to fifty
percent  (50%)  of the  profits  of  each  Product  in the  United  States  (the
"Co-Promotion  Territory").  Upon Shaman's  decision to  co-promote,  Shaman and
LIPHA shall jointly establish a Marketing Committee and a Management  Committee.
The Marketing  Committee  shall be responsible for the development of the sales,
marketing,  manufacturing,  and distribution strategy, as well as the pricing of
and the tactics and  forecasts for each Product to be  co-promoted  in the U.S.,
including the coordination of Shaman's sales and marketing activities with those
of LIPHA.  The  Management  Committee  determines  the financial  aspects of the
co-promotion  according to the strategy  determined by the Marketing  Committee,
including,  without  limitation,  required  reimbursement  by Shaman to LIPHA of
Pre-Approval  Costs and determination of Operating Profit (as defined in Section
5.2.4 below). Each Committee will have equal  representation from each Party and
will meet every two (2) months. Any unresolved disputes shall be handled in good
faith,  first  between  the chief  executive  officers  of the  Parties and then
through   arbitration.   All  issues   regarding   Product   sales,   marketing,
manufacturing,  distribution  and pricing  shall be  reviewed  by the  Marketing

<PAGE>

Committee, however LIPHA shall have the right to make the final determination on
any decision before the Marketing Committee.

                5.2.2 Subject to subsections 5.2.3 and 5.2.4 below, Shaman shall
have the right,  but not the  obligation,  to field up to fifty percent (50%) of
the  combined   field  sales  force  deployed  for  each  Product  only  in  the
Co-Promotion  Territory  and to pay to LIPHA a  co-promotion  payment equal to a
matching  percentage of LIPHA  "Pre-Approval  Costs" as defined  below,  as such
costs are  approved by the  Management  Committee.  Shaman must notify  LIPHA in
writing  of its  decision  to  co-promote  a Product  and must at such time also
notify  LIPHA of the  percentage  of  participation  it is choosing to make (the
"Co-Promotion Involvement Percentage," which percentage shall apply for the life
of this Agreement once selected),  all not later than one (1) year following the
submission of the definitive  application (i.e. an NDA) for Regulatory  Approval
of a  Product  in  the  Co-Promotion  Territory.  Shaman's  contribution  to any
co-promotion  efforts in the  United  States  may  consist  of either  sales and
marketing personnel, cash contributions to such expenses, or both.

                5.2.3 Upon Shaman's  decision to co-promote,  LIPHA shall submit
to the Management  Committee an overall  summary of the (i) marketing and launch
costs  previously  incurred with respect to such Product in the U.S.  (including
costs  associated  with market  analyses  and the hiring and training of a field
sales force) ("Pre-Approval Costs") and (ii) Commercialization Costs expected to
be incurred prior to Regulatory Approval and forecasted Operating Profits in the
U.S. in the three (3) year period  immediately  following  the First  Commercial
Sale of the Product in the U.S.

                5.2.4 Not later  than  ninety  (90) days after the  decision  to
co-promote  a Product,  Shaman shall pay to LIPHA the  Co-Promotion  Involvement
Percentage of the  Pre-Approval  Costs in the U.S. for the Product.  Thereafter,
LIPHA  shall  credit  Shaman  for the amount  actually  funded by Shaman for the
Co-Promotion  according to the Co-Promotion  Involvement  Percentage selected by
Shaman in accordance with Section 5.2.2 above and LIPHA shall then credit Shaman
with that same  Co-Promotion  Involvement  Percentage of any  Operating  Profits
resulting from the marketing of any Product in the  Co-Promotion  Territory,  or
charge Shaman the same Co-Promotion Involvement Percentage of any Operating Loss
resulting  from the marketing of any Product in the  Co-Promotion  Territory (as
used herein,  Operating Profit or Loss means the Net Sales of the Product in the
relevant   country   less  (i)  the  cost  of  goods  sold  and  (ii)  the  U.S.
Commercialization  Costs  associated  therewith).  All  payments  to be  made on
account of such  charges or credits  shall be made in  accordance  with  Section
5.2.5 below. If LIPHA determines to license its rights and responsibilities to a
third party, the co-promotion rights of Shaman must also be licensed.

                5.2.5 Within thirty (30) days  following the  conclusion of each
calendar quarter following  Shaman's  decision to Co-Promote,  the Parties shall
deliver  to  the  Management  Committee  for  the  Co-Promotion   Territory  all

<PAGE>

information   reasonably  necessary  to  permit  such  Management  Committee  to
determine the Operating  Profits  (Losses)  realized by the Parties  during such
quarter in such Co-Promotion  Territory. On or before the 45th day following the
conclusion of each calendar quarter,  the Management  Committee shall deliver to
each Party a statement of  accounting  in  reasonable  detail for the  Operating
Profits  (Losses)  realized by the Parties  during such  quarter in the U.S. and
prescribing  the amount of any payment owed by one Party to the other Party with
respect thereto consistent with the Co-Promotion Involvement Percentage.  Within
five  (5)  business  days  following  the  date  of the  Management  Committee's
statement,  the Party that is deemed  therein to owe  payment to the other Party
shall make such payment in full,  by wire  transfer of funds to the bank account
specified in writing by the receiving Party.

           5.3  Promotion and Marketing Obligations.

                5.3.1 Marketing  Efforts. In  addition to the  undertakings  set
forth in Section 5.1, LIPHA agrees to use its commercially reasonable efforts to
promote the sale,  marketing and distribution of Product for use in the Field in
the Territory,  consistent with applicable legal  requirements and with accepted
business practices,  devoting the same level of efforts as it devotes to its own
high-priority products.

                5.3.2 General  Conduct. LIPHA hereby covenants that it will not,
without the prior written authorization of Shaman,  solicit sale of any Products
or advertise,  or keep a stock of any Product,  outside of the Territory.  LIPHA
shall not, directly or indirectly, without prior written notification to Shaman,
contact any  federal,  state or local  regulatory  agency or entity  outside the
Territory about any Product, except as required to do so by law or regulation.

                5.3.3 Trademarks.  LIPHA  will   select  and  own  one  or  more
trademarks for use in connection  with the promotion,  marketing and sale of the
Product for use in the Field in the Territory; and LIPHA shall have the right to
designate and will be  responsible  for the filing,  prosecution  and defense of
such trademark in all countries in the Territory.  The Product will be promoted,
marketed  and  sold  for use in the  Field  in the  Territory  only  under  such
trademark(s) until the expiration of the last patent covering such Product.

                5.3.4 Packaging. All packaging for the Product shall comply with
applicable  government rules and regulations.  In addition,  and as permitted by
law,  packaging  for the Product  shall  indicate  (i) LIPHA as the owner of the
Product's trademark(s), (ii) the holder of the patent(s) under which the Product
is licensed, and (iii) the name of any third-party  manufacturer of the Product.
Notwithstanding  the  foregoing,  Shaman  shall be  entitled  to add its name to
product  labels in the U.S.  in a manner  jointly  agreed to by the  Parties and
approved by the appropriate regulatory authorities.


<PAGE>

      6.   MANUFACTURE AND SUPPLY OF PRODUCTS.

           6.1 Supply of Product. Subject to the terms of this Agreement, if the
Product is  synthesized  or  synthesizable,  LIPHA shall supply,  or cause to be
supplied,  the Parties'  requirements of finished  Product for  pre-clinical and
clinical  trials and  commercial  sale.  If the  Product is not  synthesized  or
synthesizable,  Shaman  shall  supply  or cause  to be  supplied  all raw  plant
material  and  bulk  drug   necessary  for  the   manufacture  of  the  Parties'
requirements  of  finished  Product for  pre-clinical  and  clinical  trials and
commercial  sale.  All  Product  supplied  hereunder  shall be supplied at cost,
including  shipping,  handling and insurance costs;  provided,  that LIPHA shall
provide research  quantities of synthesized Product free of charge to Shaman for
studies  agreed to by the Joint  Research and  Development  Steering  Committee.
Subject to the foregoing, Product for commercial sale may be supplied by a third
party supplier,  identified by the Party  responsible for supply and agreed upon
by the Marketing or Joint Clinical Development  Committee,  pursuant to a supply
agreement to be negotiated  and entered into between the Party  responsible  for
supply and such third party supplier (the "Commercial  Supply  Agreement").  The
material  terms  of the  Commercial  Supply  Agreement,  and any  amendments  or
subsequent agreements relating thereto,  shall be promptly reviewed and approved
by  the  Joint  Clinical  Development   Committee,   such  approval  not  to  be
unreasonably  withheld.  The  terms of the  Commercial  Supply  Agreement  shall
provide for the  qualification  of such supplier and the filing of a Drug Master
File for such Product by such supplier.  The Party  responsible  for supply will
have  primary  responsibility  for working  with the third party  supplier  with
respect to qualification and the filing of the Drug Master File.

           6.2 Risk of  Non-Supply.  If either Party or its third party supplier
under the  Commercial  Supply  Agreement  is unable,  for any reason,  to supply
sufficient quantities of Product to the other Party or Parties, the Parties will
work together to promptly identify and qualify a new third party supplier.

           6.3 Supply Forecasts.  LIPHA and Shaman shall work together,  through
the Joint Clinical Development Committee and Marketing Committee, to develop, in
a timely manner,  any and all short- and long-term supply forecasts which may be
required pursuant to the Commercial Supply Agreement.

           6.4 Orders.  Product for commercial  supply shall be ordered pursuant
to written purchase orders which shall be received in such time as to reasonably
allow the Party  responsible for supply to meet the lead time  requirements  set
forth in the Commercial Supply Agreement.

           6.5  Product  Specifications;   Regulatory  Compliance.  All  Product
manufactured  and  supplied  under this  Agreement  (i) will  conform to product
specifications to be established by LIPHA and set forth in the Commercial Supply
Agreement;  (ii) will be manufactured in accordance with applicable current Good
Manufacturing  Practices  ("GMP")  standards  promulgated  by the  FDA  and  the

<PAGE>

national  health  administration  having  jurisdiction in any country where such
Product is to be sold; (iii) will be manufactured in a facility  registered with
and approved for such purpose by the relevant  national  health  administration;
(iv) for Products sold in the U.S. will not be adulterated or misbranded  within
the meaning of the FD&C Act; and (v) for Products  sold in the U.S.  will not be
an  article  that may not be  introduced  into  interstate  commerce  under  the
provisions of Sections 404 or 505 of the FD&C Act.

           6.6  Packaging  Specifications.   Subject  to  Section  5.3.4  above,
packaging  and  labeling of all Product  manufactured  and  supplied  under this
Agreement for commercial supply shall conform to packaging  specifications to be
established by LIPHA and set forth in the Commercial Supply Agreement.

      7.   POST-LAUNCH TESTING AND REPORTING; PRODUCT RECALLS.

           7.1  Post-Launch  Testing and Reporting.  If, after the date of First
Commercial Sale, adverse events or other issues arise with respect to any safety
or efficacy of any Product which  jeopardize  the Product's  performance  or are
deemed by the parties to potentially limit its approved indications, the Parties
shall  consult with each other with respect to such events or other  issues.  If
the Parties determine that the situation requires  post-launch clinical testing,
modifications  to the NDA or other  communication  with the FDA,  LIPHA shall be
responsible for the design and implementation of any such testing, modifications
or  communication,  in  consultation  with Shaman.  Each Party shall  maintain a
record  of  all  complaints,   adverse  reaction  reports  and  similar  notices
("Complaints")  which it receives  with respect to any Product.  If either Party
receives a  Complaint  involving  a serious  life-threatening  or  unanticipated
event,  such Party shall notify the other Party of such  Complaint  immediately.
All other  complaints shall be communicated to the other party in a manner to be
agreed to by the Parties.  In any event,  either Party shall promptly notify the
other of any  complaint  received  by such  Party in  sufficient  detail  and in
sufficient  time to  allow  the  responsible  party to  comply  with any and all
regulatory requirements imposed upon it with regard to such complaint.

           7.2  Product  Recall.  LIPHA and Shaman  each shall  notify the other
promptly if any unit of Product is the subject of a recall, market withdrawal or
correction,  and the Parties shall  cooperate in the handling and disposition of
such recall,  market withdrawal or correction.  LIPHA shall bear the cost of all
recalls, market withdrawal or corrections of any Product in all countries in the
Territory other than the Co-Promotion  Territory, in which Shaman shall bear its
Co-Promotion  Involvement  Percentage  share of such  expenses,  subject  to any
rights of recovery against the third party supplier under the Commercial  Supply
Agreement.  LIPHA and Shaman shall maintain  records of all sales of Product and
customers  sufficient to adequately  administer a recall,  market  withdrawal or
correction  for  such  period  as  may  be  required  by  applicable  rules  and
regulations.


<PAGE>

          7.3  Reports.  Each Party shall keep the other fully  informed of all
governmental  activities and plans which potentially or actually affect the sale
of Product for use in the Field in the Territory.

      8.   LICENSES OF TECHNOLOGY; ROYALTIES.

           8.1  License to LIPHA.

               8.1.1 Shaman hereby grants to LIPHA a perpetual license under the
Shaman Patents, the Joint Patents and the Shaman Technical  Information to make,
have  made,  use and sell  Products  in the  Territory.  This  license  shall be
exclusive with respect to all Products for the Territory.  Such license shall be
subject to the royalty  contained  in Section 8.4 herein.  For  purposes of this
Section 8.1.1, the term "exclusive" shall mean that the license grant under this
Section 8.1.1 is granted to LIPHA within the Territory,  to the exclusion of all
other  parties,  subject only to Shaman's right to co-promote any Product in the
Co-Promotion Territory pursuant to Section 5.2 above.

               8.1.2 LIPHA shall have the right to grant licenses or sublicenses
to  develop,  market and sell  Product  in the  Territory  consistent  with this
Agreement; provided, (i) that the grant of any such license or sublicense in the
Co-Promotion  Territory  shall be consistent  with the provisions of Section 5.2
hereof  and  subject to the  approval  of Shaman,  which  shall not be  withheld
unreasonably,  and (ii) that such licensees or sublicensees  agree in writing to
be bound by the terms of this  Agreement.  LIPHA  shall be  responsible  for the
operations  and  activities  of  its  licensees  and  sublicensees  as  if  such
operations and activities were carried out by LIPHA, and LIPHA shall hold Shaman
harmless from and against any and all damages,  costs and expenses  arising from
or related to the  operations  or activities  of such  Affiliates,  licensees or
sublicensees.  LIPHA further  agrees to deliver to Shaman  notification  of each
sublicense  granted by LIPHA and termination  thereof,  within fifteen (15) days
after  execution or  termination,  setting forth the name of the sublicensee and
the territory as to which the sublicense is effective.

           8.2  License to Shaman.

                8.2.1 LIPHA hereby  grants to Shaman a  perpetual,  royalty-free
exclusive license under the Joint Patents and the LIPHA Technical Information to
make, have made, use and sell Products but no other products,  with the right to
sublicense,  with respect to all Products for the Ono Territory. For purposes of
this Section 8.2.1, the term "exclusive" shall mean that the license grant under
this Section are granted to Shaman in the Ono Territory, to the exclusion of all
other parties, including LIPHA.

                8.2.2 Subject to Section 8.3 hereof, Shaman shall have the right
to grant licenses or sublicenses to develop, market and sell all Products in the
Ono Territory  consistent with this  Agreement.  Shaman shall be responsible for
the  operations  and  activities of its licensees  and  sublicensees  as if such
operations  and  activities  were  carried out by Shaman,  and Shaman shall hold

<PAGE>

LIPHA harmless from and against any and all damages,  costs and expenses arising
from or related to the operations or activities of such Affiliates, licensees or
sublicensees.

           8.3  Improvements.  Any  modification or Improvement to the Compounds
and/or  Products  or to the LIPHA  Technical  Information  or  Shaman  Technical
Information  licensed  under  this  Agreement  made by Ono or Shaman  before the
termination  of this  Agreement  shall  be  included  in each of the  license(s)
granted under this Section 8 without  additional  charge to the licensed  Party.
The  Parties  agree to  promptly  disclose  in  writing  all  modifications  and
Improvements.

           8.4 Royalty  Payments;  Reports.  LIPHA  shall,  with respect to each
Product in each country of the  Territory  until the later of (i) ten (10) years
after  the  date  such  Product  is  first  commercialized;  or (ii) the date of
expiration  of the last valid patent  covering the  manufacture,  sale or use of
such  Product in such  country,  pay to Shaman a royalty in U.S.  dollars at the
rate of: (i) with respect to annual Net Sales in all  countries of the Territory
of less than * * * U.S.; * * * percent ( * %) of Net Sales of the  Product;  and
(ii) with respect to annual Net Sales in all countries of the Territory of * * *
U.S. or more;  * * * percent ( * %) of Net Sales of the Product  exceeding * * *
and * % on the amounts below * * *, such  royalties to be calculated and paid on
aggregate  sales but accounted for on a  country-by-country  basis.  LIPHA shall
remain  liable  for  all  royalties  payable  by its  Affiliates,  licensees  or
sublicensees.  In the case that Shaman elects to co-promote such Products in the
Co-Promotion Territory,  sales in such country will be excluded from the royalty
calculation.  In the event that LIPHA grants any third party or parties licenses
to market, sell or distribute such Product,  the royalty payable by LIPHA on Net
Sales of such Product  pursuant to this Section 8.4 in the country in which such
third  party  license was  granted,  shall not be greater in any year than * * *
percent ( * %) of the net profit for LIPHA (and its  Affiliates) in such country
in such year,  including only royalty  payments on such Product and gross margin
on supply of Product to such licensees  received by LIPHA (and its  Affiliates).
In no event shall Shaman  receive an amount less than that which would equal a *
* * percent ( * %) royalty  on Net Sales of such  Product.  Notwithstanding  the
foregoing,  if LIPHA  receives  material  non-cash  consideration  from any such
licensee,  the twenty  percent  limitation  shall not apply.  [* INDICATES  THAT
MATERIAL  HAS  BEEN  OMITTED  AND  CONFIDENTIAL  TREATMENT  HAS  BEEN  REQUESTED
THEREFOR.  ALL  SUCH  OMITTED  MATERIAL  HAS  BEEN  FILED  SEPARATELY  WITH  THE
COMMISSION PURSUANT TO RULE 24b-2.]

                8.4.1 In the event that during the applicable royalty term for a
Product,  such Product on a country by country basis is (i) no longer covered by
a valid  Shaman  Patent,  LIPHA  Patent or Joint  Patent  or in any  other  case
contemplated  by  Section  18.4.3  hereinafter  and (ii)  there  exists  generic
competition  to such Product from a product or products  which contains the same
active  ingredient,  then the otherwise  applicable royalty shall be adjusted as
follows:  (A) if the  number of  prescriptions  represented  by the  competitive
products  in  such  country  is  less  than  or  equal  to 20%  of the  combined

<PAGE>

prescriptions  for the  generic  products  and  the  Product,  then  no  royalty
adjustment shall be made; (B) if the number of prescriptions  represented by the
competitive  products in such country is greater than 20% but less than or equal
to 50% of the combined  prescriptions  for the generic products and the Product,
then the applicable royalty in such country for such Product shall be reduced to
75% of the  amounts  set  forth  in  Section  8.4;  and  (C)  if the  number  of
prescriptions represented by the competitive products in such country is greater
than 50% of the combined prescriptions for the generic products and the Product,
then the applicable royalty in such country for such Product shall be reduced to
50% of the amounts set forth in Section 8.4.

                8.4.2 LIPHA shall provide a royalty report and, if applicable, a
royalty  payment to Shaman  every  three (3)  months.  The  report  and  payment
relating to Net Sales shall be provided  within  forty-five  (45) days after the
end of March,  June,  September  and December of each calendar  year,  and shall
include  all  sales of  Products  by LIPHA  and its  Affiliates,  licensees  and
sublicensees.  To the  extent  that the  applicable  currency  control  laws and
regulations in any country in the Territory prohibit or limit LIPHA's ability to
export funds from such country to discharge  its royalty  obligation  hereunder,
LIPHA shall pay to Shaman in U.S. dollars to an account  designated by Shaman at
the time payment is due, all royalties  that would  otherwise have been due with
respect to Net Sales in such country.

                8.4.3 LIPHA  shall keep, and require any Affiliate, licensee and
sublicensee to keep, for a period of not less than seven (7) years, complete and
accurate records of all Net Sales of each Product.  Shaman shall have the right,
at Shaman's  sole  expense,  through a certified  public  accountant  reasonably
acceptable to LIPHA, and following  reasonable  notice,  to examine such records
during  regular  business  hours during the life of the LIPHA  obligation to pay
royalties on Product,  provided however,  that such examination shall not (i) be
of records for more than the prior  three (3) years,  (ii) take place more often
than once a year,  and (iii) shall not cover any records which date prior to the
date of the last examination,  and provided further that, such accountants shall
report to Shaman only as to the accuracy of the royalty statements and payments.
Copies of such  reports  shall be  supplied  to LIPHA.  In the event the  report
demonstrates that LIPHA has underpaid royalties,  LIPHA shall pay such royalties
immediately upon request of Shaman. If LIPHA has overpaid  royalties,  LIPHA may
deduct such overpayments from future royalties owed to Shaman.

                8.4.4 Any  tax paid or required  to be withheld by LIPHA for the
benefit of Shaman on account of royalties payable to Shaman under this Agreement
shall be  deductible  and deducted from the amount of royalties  otherwise  due.
LIPHA shall secure and send to Shaman proof of any such taxes  withheld and paid
by LIPHA for the  benefit of Shaman  and shall,  at  Shaman's  request,  provide
reasonable  assistance  to Shaman in  recovering  or  obtaining  credit for said
taxes, if possible.


<PAGE>

                8.4.5 For the purpose of computing royalty-bearing Net Sales for
Products  sold in a currency  other than United  States  Dollars,  such currency
shall be converted into United States Dollars in accordance  with the applicable
exchange  rate as  quoted in The Wall  Street  Journal  on the date the  royalty
report and payment is required pursuant to Section 8.4.2 above.

               8.4.6 In the event LIPHA grants licenses or sublicenses to others
to make or sell Products in the Territory,  such licenses or  sublicenses  shall
include an obligation  for the licensee or sublicensee to account for and report
its Net Sales of such Products on the same basis as if such sales were Net Sales
by LIPHA,  and LIPHA  shall pay  royalties  to Shaman as if the Net Sales of the
licensee or sublicensee were Net Sales of LIPHA.

      9.   GLOBAL RELATIONSHIP.

           9.1  Overall  Relationship.  Shaman  has  previously  entered  into a
relationship with Ono to develop  therapeutic  products for the Field in the Ono
Territory. LIPHA hereby agrees that it shall, together with Shaman and Ono enter
into a global collaboration on the terms set forth below.

           9.2 Transfer of Information;  License Obligations. During the term of
this  Agreement,  subject to  reciprocity  by Ono,  Shaman and LIPHA  shall make
available, without charge, to Ono all of the LIPHA Technical Information and the
Shaman  Technical  Information  which is useful or necessary  for  registration,
manufacture, use or sale of a Mutual Product, in whatever form is best suited to
fully deliver such information,  including,  but not limited to, the transfer of
copies of all issued patents,  patent  applications,  technical  information and
data  relating to Mutual  Products  (defined in Section 9.3 below).  Each of the
parties shall also provide the other parties with reports of its progress.

           9.3 Global Development Plan; Coordination.  In the event that Ono and
LIPHA have each chosen to develop a  therapeutic  product for the Field  derived
from the same Compound in development and having substantially the same identity
for marketing, sales or regulatory purposes (a "Mutual Product"),  LIPHA, Shaman
and Ono shall use their  commercially  reasonable and diligent efforts in mutual
cooperation with one another to establish a Joint Clinical Development Committee
pursuant to Section 2.5 and a  development  plan for such  Mutual  Product  with
respect to the  pre-clinical  and clinical  studies of such Mutual  Product (the
"Global  Development  Plan").  Each party may use such study data for regulatory
filing and approval  purposes in their respective  territory.  In the event that
the three  parties  are  unable to agree on a specific  protocol  or the need to
conduct  specific  clinical or  pre-clinical  studies,  LIPHA's  decisions shall
control clinical and pre-clinical studies (including their protocols) for filing
in the Territory,  and Ono's decisions shall control  clinical and  pre-clinical
studies  (including their protocols) for filing in the Ono Territory;  provided,
that to the extent  possible  neither party will take an action that will impair
the others'  efforts to have a Mutual  Product  achieve the relevant  Regulatory

<PAGE>

Approvals.  In addition,  the three  parties  shall create and maintain a single
worldwide  database  regarding  safety and adverse clinical events and any other
clinical data as may be required by the  appropriate  regulatory  agencies,  and
shall  promptly  share with each other the  results of the  parties'  respective
pre-clinical and clinical studies.

      10.  DISPUTE RESOLUTION AND ARBITRATION.

           10.1  Initial  Resolution  Mechanisms.  The  Parties  recognize  that
disputes as to certain  matters  may from time to time arise  during the term of
this  Agreement  which  relate  to  either  Party's  rights  and/or  obligations
hereunder.  It is the  objective  of the  Parties  to  establish  procedures  to
facilitate  the  resolution  of  disputes  arising  under this  Agreement  in an
expedient  manner by mutual  cooperation  and without resort to  litigation.  To
accomplish this objective,  the Parties agree to follow the procedures set forth
in this  Section 10, if and when a dispute  arises under this  Agreement,  which
dispute cannot be resolved as set forth in Section 2.6 above. If the Parties are
unable to resolve such a dispute  within thirty (30) days,  either Party may, by
written  notice to the other,  have such  dispute  referred to their  respective
chief executive  officers,  for attempted  resolution by good faith negotiations
within  fourteen  (14) days  after  such  notice is  received.  In the event the
designated executive officers are not able to resolve such dispute, either Party
may at anytime  after the  fourteen  (14) day period  invoke the  provisions  of
Section 10.2.

           10.2 Arbitration.  The parties agree that any dispute, controversy or
claim (except as to any issue relating to  intellectual  property owned in whole
or in part by Shaman or LIPHA) arising out of or relating to this Agreement,  or
the  breach,  termination  or  invalidity  thereof,  shall be  resolved  through
negotiation and/or binding arbitration. If a dispute arises between the parties,
and if said dispute  cannot be resolved  pursuant to Section  10.1,  the Parties
agree to resolve  by binding  arbitration  in  accordance  with the rules of the
International Chamber of Commerce ("I.C.C."),  except as modified herein. Shaman
and LIPHA shall each select one arbitrator  and the two  arbitrators so selected
shall choose a third arbitrator to resolve the dispute. The arbitration shall be
held in New York City, New York, and the decision shall be rendered within three
(3)  months  of  conclusion  of  arbitration  and  shall be  binding  and not be
appealable to any court in any jurisdiction. The arbitration shall determine the
share of the cost of the arbitration filing and hearing fees and the cost of the
arbitrators.  Each party must bear its own attorney's fees and associated  costs
and expenses.

           10.3  Jurisdiction.  For the purposes of this Section 10, the Parties
agree to accept the  jurisdiction  of the federal courts located in the Southern
District  (New York City) of New York for the  purposes of entering the decision
rendered by any arbitration  panel and enforcing awards entered pursuant to, and
for enforcing the agreements reflected in, this Article.

           10.4  Determination of Patents and Other Intellectual  Property.  Any
dispute relating to the  determination of validity of a Party's Patents or other

<PAGE>

issues  relating  solely to a Party's  intellectual  property shall be submitted
exclusively  to the federal or  national  court  located in the  location of the
defendant,  and the Parties hereby consent to the jurisdiction and venue of such
court.

      11.  CONFIDENTIALITY, DISCLOSURE AND PUBLICATION.

           11.1 Prior  Agreements.  This  Agreement  supersedes any
and all previous  agreements  and  understandings,  whether oral or
written,   between  the  Parties   regarding   the   treatment   of
confidential information.

           11.2   Confidentiality.   During  the  term  of  this  Agreement  and
thereafter,  each  Party  shall  maintain  in  confidence  all  information  and
materials  disclosed by the other Party and marked as confidential or which such
Party  knows  or has  reason  to know  are or  contain  trade  secrets  or other
proprietary information of the other, including without limitation,  information
relating to the Technical  Information of the other Party,  Joint Inventions and
inventions  of the other  Party,  and the  business  plans of the  other  Party,
including  information  provided by either  Party to the other Party prior to or
after the Effective  Date, and shall not use such trade secrets,  information or
materials for any purpose  except as permitted by this Agreement or disclose the
same to anyone  other than  those of its  Affiliates,  sublicensees,  employees,
consultants,  agents or  subcontractors as are necessary in connection with such
Party's activities as contemplated in this Agreement.  Each Party shall obtain a
written  agreement from any  sublicensees,  employees,  consultants,  agents and
subcontractors,  prior to disclosure,  to hold in confidence and not make use of
such trade secrets or proprietary  information  for any purpose other than those
permitted by this Agreement.

           11.3 Exceptions.

                11.3.1  The  obligation  of  confidentiality  contained  in this
Agreement shall not apply to the extent that (a) either Party (the  "Recipient")
is required to disclose  information  by order or regulation  of a  governmental
agency or a court of competent  jurisdiction,  provided that the Recipient shall
not make any such  disclosure  (other than a filing of  information or materials
with (i) the U.S. Securities and Exchange  Commission;  (ii) a similar filing of
information or materials with the National Association of Securities Dealers; or
(iii) state  securities  regulations  or a filing of  information  or  materials
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
and the rules and regulations thereunder,  as amended; or (iv) a filing with the
Commission des Operations de Bourse and other corresponding  French or German or
other European  agencies)  without first  notifying the other Party and allowing
the other Party a  reasonable  opportunity  to seek  injunctive  relief from (or
protective  order with respect to) the obligation to make such disclosure or (b)
the Recipient can demonstrate that (i) the disclosed information was at the time
of such disclosure to the Recipient already in (or thereafter enters) the public
domain  other  than as a result of  actions of the  Recipient,  its  Affiliates,
employees,  sublicensees, agents or subcontractors in violation hereof; (ii) the
disclosed  information  was rightfully  known by the Recipient or its Affiliates

<PAGE>

(as  shown  by its  written  records)  prior to the  date of  disclosure  to the
Recipient in connection with the  negotiation,  execution or performance of this
Agreement;  or (iii) the disclosed  information was received by the Recipient or
its Affiliates on an unrestricted  basis from a source unrelated to any Party to
this Agreement and not under a duty of confidentiality to the other Party or (c)
disclosure  is made to a government  regulatory  agency as Part of such agency's
product license approval process.

                11.3.2 In the event that Ono  chooses  to develop a product  for
the treatment of Diabetes based on a Compound that has been selected by LIPHA as
a Lead Compound, the obligation of confidentiality shall be waived by LIPHA with
respect to all  pre-clinical  and clinical  data with  respect to such  Compound
generated  by LIPHA in the  course  of its  product  development  efforts.  As a
condition   to  such   disclosure,   Shaman  has  required  Ono  to  enter  into
confidentiality  provisions  equivalent  to those set forth in this  Section 11.
Shaman's  agreement  with Ono  contains  a  provision  equivalent  in  substance
requiring Ono to disclose to LIPHA  pre-clinical  and clinical data generated by
Ono.

           11.4  Publications.  Prior to public  disclosure  or  submission  for
publication  of a  manuscript  describing  the  results  of  any  aspect  of the
Collaboration or other scientific or clinical activity or collaboration  between
LIPHA and Shaman or their Affiliates,  the Party disclosing or submitting such a
manuscript  ("Disclosing Party") shall send the other Party ("Responding Party")
a copy of the  manuscript to be submitted and shall allow the  Responding  Party
not less than  sixty  (60) days in which to  determine  whether  the  manuscript
contains  subject matter for which patent  protection  should be sought prior to
publication  of such  manuscript  for the purpose of  protecting an invention of
commercial  value to the Responding  Party,  or whether the manuscript  contains
confidential information belonging to the Responding Party. After the expiration
of such sixty (60) day period,  if the  Responding  Party has not objected,  the
Disclosing  Party may submit  such  manuscript  for  publication  and publish or
otherwise disclose to the public such research results.  If the Responding Party
believes the subject matter of the manuscript contains confidential  information
or a patentable  invention of commercial  value to the  Responding  Party,  then
prior to the  expiration  of such sixty (60) day period,  the  Responding  Party
shall notify the Disclosing Party in writing of its determination.  Upon receipt
of such written notice from the  Responding  Party,  the Disclosing  Party shall
delay public  disclosure of such information or submission of the manuscript for
an additional  period of thirty (30) days to permit  preparation and filing of a
patent  application on the disclosed subject matter.  The Disclosing Party shall
thereafter  be free to publish or  disclose  such  information,  except that the
Disclosing Party may not disclose any confidential information of the Responding
Party in violation of this Section 11 without the prior  written  consent of the
Responding  Party.  Determination of authorship for any paper or patent shall be
in  accordance  with  accepted  scientific  practice.  Should any  questions  on
authorship arise, this will be determined by good faith consultation between the
members of the Joint Research and Development Steering Committee as appropriate.


<PAGE>

      12. INDEMNIFICATION. Each Party shall defend, indemnify and hold the other
Party,  any  officer,  director  or  employee  of such other Party or any of its
Affiliates  (individually,  an "Exculpated Party") harmless from and against any
damage,  loss, liability or expense (including,  without limitation,  reasonable
attorneys'  fees,  settlement  costs,  litigation  costs  and  costs  on  appeal
regardless of outcome)  incurred or suffered by any Exculpated Party arising out
of (i) any  misrepresentation  or breach of warranty made by such Party pursuant
to this  Agreement or (ii) any claim arising from the  negligence or intentional
misconduct of any of such Party's  employees or agents and  specifically for any
claim of any kind whatsoever arising from the testing,  manufacture,  use, sale,
consumption,  distribution  or  advertising  of any of the Products which may be
developed as a result of this Agreement.

           12.1 Each  Party  shall  advise the other in  writing  promptly  upon
becoming aware of any adverse event(s) arising out of any use of the Compound or
the Products, whether for commercial or noncommercial use.

           12.2 Either Party (the  "Notifying  Party") shall promptly notify the
other  Party (the  "Indemnifying  Party") of the  existence  of any third  party
claim, demand or other action giving rise to a claim for  indemnification  under
this Agreement (a "Third Party Claim") and shall give the  Indemnifying  Party a
reasonable  opportunity  to defend the same at its own  expense and with its own
counsel,  provided that the Notifying Party shall at all times have the right to
participate  in such defense at its own expense.  If,  within a reasonable  time
after  receipt of notice of a Third Party Claim,  the  Indemnifying  Party shall
fail to undertake to so defend,  the Notifying  Party shall have the right,  but
not the obligation, to defend and to compromise or settle (exercising reasonable
business  judgment)  the Third  Party  Claim for the account and at the risk and
expense of the Indemnifying  Party. Each Party shall make available to the other
at the  other's  expense  such  information  and  assistance  as the other shall
reasonably request in connection with the defense of a Third Party Claim.

      13. INDEPENDENT CONTRACTORS.  Both Parties shall act solely as independent
contractors  and nothing in this  Agreement  shall be  construed  to give either
Party the power or  authority to act on behalf of the other and each party shall
hold the other party  harmless  against any claim based on a  representation  of
authority in excess of that provided  herein,  provided  that the  indemnitor is
given prompt  notice of any such claim,  loss or liability  and has the right to
participate in, and at its own option control, any proceeding arising therefrom.

      14. NO  SOLICITATION  OF EMPLOYEES.  During the term of this Agreement and
for two (2) years thereafter,  neither Party shall solicit the other's employees
without the prior written  approval of the other Party.  This provision will not
preclude any Party from hiring any such  employees if they  independently  apply
for a job  without  solicitation  or  pursuant  to a  general  solicitation  not
specifically directed at such employee.


<PAGE>

      15. TERM. This Agreement  shall become  effective as of the Effective Date
first written above and, unless sooner terminated  pursuant to the provisions of
Section  16 below,  shall  remain in full  force and effect for so long as LIPHA
shall be obligated to make royalty  payments to Shaman  pursuant to Section 8.4.
LIPHA shall after the expiration of this Agreement  (other than any  termination
by Shaman under Section 16) have the right to manufacture  and sell any Products
as to which royalty  obligations  have expired in  accordance  with Section 8.4,
i.e.  later of ten years  after  commercialization  or  expiration  of  patents,
without any further obligation of paying royalties.

      16.  TERMINATION OF AGREEMENT.

                16.1 This  Agreement  shall be  terminable  in its  entirety  by
mutual written agreement of both Parties.

                16.2 This Agreement  shall be terminable at the option of either
Party upon  written  notice to the other,  if such  other  Party is in  material
breach or default  with respect to any  material  term or  provision  hereof and
fails to cure the same  within  sixty  (60) days  after  written  notice of said
breach or default.  Such  termination  rights shall be in addition to and not in
substitution  of any other  remedies  that may be available to the Party serving
such notice against the Party in default.  Termination  pursuant to this Section
16.2 shall not relieve the Party in default  from  liability  and damages to the
other Party for breach of this Agreement.

                16.3 This Agreement  shall be terminable at the option of either
Party  upon  written  notice  to the  other,  if such  other  Party is  adjudged
bankrupt,  files or has filed  against  it any  petition  under any  bankruptcy,
insolvency or similar law,  which  petition is not  dismissed  within sixty (60)
days, has a receiver appointed for its business or property,  or makes a general
assignment for the benefit of its creditors.

                16.4  LIPHA  shall have the right,  at its sole  discretion,  to
terminate this Agreement if within two (2) years  following the Effective  Date,
no human clinical studies have been commenced for any Compound for an indication
in the Field.  Such right of termination  shall be exercised  within a period of
ninety (90) days following the second  anniversary of the Effective Date, and by
LIPHA  giving  to  Shaman  sixty  (60)  days  advance  written  notice  of  such
termination. In the event of such termination, LIPHA shall have no obligation to
make any  further  payments  to Shaman  under  this  Agreement  (or to  purchase
additional  shares under the Stock  Purchase  Agreement,  it being  nevertheless
understood that the Registration Rights Agreement shall continue to apply to any
and all  shares  of Common  Stock  already  purchased,  at that  date,  by LIPHA
pursuant to the Stock Purchase  Agreement),  nor shall Shaman be entitled to any
indemnity,  damages or other payment,  it being understood that LIPHA shall then
have no further rights  hereunder,  whether to Compounds  already  selected,  in
development, or otherwise.


<PAGE>

                16.5 In the event of any  acquisition  or merger of Shaman by or
with a third party in which Shaman is not the  surviving  entity,  if such third
party is a direct  competitor of LIPHA in the Field,  LIPHA shall be entitled to
terminate  this  Agreement as a result of such merger or  acquisition,  provided
that LIPHA  shall have the right to retain all  Product  and  technology  rights
licensed  to LIPHA at the time of such  termination  subject  to all  applicable
milestone  and royalty  payments  and other LIPHA  obligations  relating to such
licensed rights.

      17. PUBLIC  ANNOUNCEMENT  OF AGREEMENT.  Except as required to comply with
U.S.  and other  foreign  securities  laws,  any order of a court or  government
agency of any country of the Territory,  and except as provided  below,  neither
Party shall release information  concerning this Agreement or the subject matter
hereof to the news media, or other media,  without first sending the other Party
by express mail or  facsimile,  a copy of the  information  to be disclosed  and
allowing  the other Party a  reasonable  time (not to exceed  three (3) business
days from the date of  receipt) in which to comment on the  information.  If the
other  Party  objects  to the  information  to be  disclosed  and  prior  to the
expiration of the three (3) business day period, the other Party shall so notify
the disclosing  Party who shall then delay public  disclosure of the information
and make  reasonable  efforts to  accommodate  any request for  revisions by the
other Party.  If no  notification  is received during the three (3) business day
period,   the  Party  proposing   disclosure  shall  be  free  to  disclose  the
information.  The Parties  designate  the following  individuals  to receive and
approve announcements under this provision: Shaman, its Chief Executive Officer;
LIPHA, its Chairman and Chief Executive  Officer.  The Parties agree that Shaman
may discuss the general terms of the Agreement  with Ono without  disclosing any
Confidential Information of LIPHA or LIPHA Technical Information without LIPHA's
prior written  consent;  and that the parties will  cooperate in good faith with
one  another  to  formulate  a form of  announcement  that  Shaman and LIPHA may
release as soon as practicable after the Effective Date.

      18.  PATENT MATTERS.  The ownership rights and other matters regarding   
patents developed pursuant to the Collaboration pursuant to this Agreement shall
be as follows:

           18.1 Inventions; Joint Inventions and Patents.

                18.1.1  Ownership of all  inventions  arising during the term of
the  Research  Period  and for a period  of five (5) years  thereafter  that are
either (i) related to  Compounds  or any  modification  or  improvement  of such
Compounds,  or (ii)  substantially  similar in  structure or site of activity to
Compounds or any  modification  or improvement  of such Compounds  (except those
that LIPHA can  clearly  demonstrate  are  independently  developed  by LIPHA as
evidenced by written  records),  whether  patented or not, which are invented by
LIPHA or its Affiliates or a person contractually  required to assign or license
patent rights  covering such  inventions  to LIPHA,  shall be vested  jointly in
Shaman  and LIPHA or their  respective  Affiliates  consistent  with the  United
States laws  pertaining  to joint  ownership of patents and  inventions  ("Joint
Inventions").


<PAGE>

                18.1.2 In the event that during the term of the Research  Period
and the  period  of five  (5)  years  thereafter,  Shaman  becomes  aware  of an
invention that it believes  should be treated as a Joint  Invention  pursuant to
Section 18.1.1 and is not being treated as such by LIPHA,  Shaman shall have the
opportunity to receive a reasonably detailed scientific presentation by LIPHA on
such  invention  to determine in good faith  whether  such  invention  should be
treated as a Joint  Invention.  Shaman and LIPHA shall retain full  ownership to
all Joint Inventions and any Patents  resulting  therefrom,  with full ownership
rights in any field and subject only to the licenses  granted in Section 8, with
the full right by either party to transfer  joint  ownership in or to sublicense
any such Joint  Invention  or Patent  without the consent of the other party and
without  accounting to the other party for any consideration  received from such
transfer of joint  ownership or  sublicense.  The laws of the United States with
respect to joint ownership of inventions  shall, to the extent not  inconsistent
with the foregoing sentence,  apply in all jurisdictions giving force and effect
to this  Agreement.  All  information  provided by either party in the course of
such a  presentation  shall be  subject  to the  confidentiality  provisions  of
Section 11 hereof.

                18.1.3   Except  as  otherwise   expressly  set  forth  in  this
Agreement,  ownership  of all sole  inventions  of either  Party hereto shall be
vested solely in that Party.

           18.2 General Provisions Relating to Prosecution and Maintenance. Both
Parties shall jointly file patent  applications for Joint Inventions made by the
Parties.  Joint  applications  shall be filed  initially  in the United  States,
unless the Joint Research and Development  Steering  Committee  determines for a
compelling business reason that the application should first be filed in another
jurisdiction.

           18.3 Payments; Disputes. With respect to Shaman Patents, Shaman shall
bear all costs and  expenses for fees or other  payments  required to submit and
maintain their own applications and patents in the whole world.  With respect to
LIPHA  Patents,  LIPHA  shall  bear all  costs  and  expenses  for fees or other
payments  required to submit and maintain their own  applications and patents in
the whole world. With respect to Joint Patent  application  filings,  Shaman and
LIPHA shall share all costs and expenses for fees or other payments  required to
submit and maintain  joint  applications  and patents in the  Territory.  In the
event there is a dispute as to whether a particular invention was developed by a
Party individually or by the Parties jointly, the issue shall be resolved by the
Joint Research and Development Steering Committee.

           18.4  Infringement  by a Third  Party.  If at any time  either  Party
hereto shall become aware of any  infringement  or threatened  infringement by a
third party in the Territory of any or all of the Shaman Patents,  LIPHA Patents
or Joint  Patents to which the Party  having  the  knowledge  thereof  claims an
interest  pursuant to this  Agreement,  the Party having the  knowledge  thereof
shall forthwith give notice thereof to the other Party.  Upon notice of any such
infringement,  the Parties shall  promptly  consult with one another with a view
toward reaching agreement on a course of action to be pursued.


<PAGE>

                18.4.1 Shaman shall have the first right but not the  obligation
to bring an enforcement  action or to take any other  reasonable steps to defend
Shaman Patents and Joint Patents  against  infringement  and LIPHA shall in such
event give all reasonable  assistance to Shaman with respect to patent and legal
questions.  The costs of such patent  enforcement  shall be borne by Shaman.  If
Shaman does not commence a particular  infringement  action  within  ninety (90)
days after it has received notice of such  infringement,  LIPHA, after notifying
Shaman in writing,  shall be entitled to bring such infringement action or other
appropriate action or claim at its own expense but shall request in writing that
Shaman  fund 50% of such  expenses.  The  party  conducting  such  action  shall
consider  in good  faith the  comments  of the other  party  with  regard to the
conduct of such  action.  If Shaman  declines  to pursue such action or fails to
respond to LIPHA within 60 days after receipt of LIPHA's  notice that it will do
so and LIPHA undertakes such action, then LIPHA shall be entitled to 100% of all
recoveries  and LIPHA shall no longer be required to pay royalties to Shaman for
any Product  covered by such  patent(s)  in the country in which such action was
prosecuted.  Recovery from any  settlement or judgement  from any such action in
the Territory  either pursued by Shaman or co-funded by Shaman shall go first to
reimburse the expenses of the parties and the  remainder  shall be shared by the
parties on a 50%/50%  basis.  Notwithstanding  the  foregoing,  if the  monetary
recovery  is  less  than  the  out-of-pocket   expenses  of  Shaman  and  LIPHA,
reimbursement  shall be on a pro rata basis,  based upon cost  incurred.  In any
event, Shaman and LIPHA shall assist one another and reasonably cooperate in any
such litigation at the other's request without expense to the requesting party.

                18.4.2  LIPHA shall have the first right but not the  obligation
to bring an enforcement  action or to take any other  reasonable steps to defend
LIPHA  Patents  against  infringement  and  Shaman  shall in such event give all
reasonable  assistance to LIPHA with respect to patent and legal questions.  The
costs of such patent  enforcement  shall be borne by LIPHA but Shaman shall have
the  right to  co-fund  50% of the  expenses.  If  LIPHA  does  not  commence  a
particular  infringement  action  within  ninety (90) days after it has received
notice of such infringement,  Shaman, after notifying LIPHA in writing, shall be
entitled to bring such infringement  action or other appropriate action or claim
at its own  expense  but shall  request in  writing  that LIPHA fund 50% of such
expenses.  The party  conducting  such action  shall  consider in good faith the
comments of the other party with regard to the conduct of such action.  If LIPHA
declines  to pursue  such  action or fails to respond  to Shaman  within 60 days
after  receipt of Shaman's  notice that it will do so,  Shaman  undertakes  such
action and LIPHA fails to fund 50% of Shaman's expenses in pursuing such action,
then  Shaman  shall be  entitled to 100% of all  recoveries.  If LIPHA  notifies
Shaman that it will  pursue and does  pursue such action and Shaman  declines to
co-fund  the same or fails to notify to LIPHA  within 60 days  after  receipt of
LIPHA's  notice that it will pursue the action,  then LIPHA shall be entitled to
100% of all recoveries and LIPHA shall no longer be required to pay royalties to
Shaman for any Product  covered by such  patent(s)  in the country in which such
action was  prosecuted.  Recovery from any settlement or judgement from any such
action in the Territory co-funded by the parties shall go first to reimburse the
expenses of the parties  and the  remainder  shall be shared by the parties on a
50%/50% basis.  Notwithstanding the foregoing,  if the monetary recovery is less
than the out-of-pocket expenses of Shaman and LIPHA, reimbursement shall be on a
pro rata basis, based upon cost incurred.  In any event,  Shaman and LIPHA shall

<PAGE>

assist one  another  and  reasonably  cooperate  in any such  litigation  at the
other's request without expense to the requesting party.

                18.4.3 If Shaman and LIPHA,  after consultation with each other,
elect not to bring suit,  individually or jointly, or if Shaman and/or LIPHA, as
the case  may be,  are/is  not  able to stop  such  infringing  activities,  the
applicable royalty shall be adjusted as set forth in Section 8.4.1, if at all.

           18.5 Alleged  Infringement by Products.  In the event of
dispute   concerning  a  third   party's   patent   rights  in  the
Territory, Shaman and LIPHA will proceed as follows:

                18.5.1  While  a  dispute  concerning  infringement  of a  third
party's  patent  rights  is in  progress,  the Party  which had a claim  brought
against it by a third party (the "Defendant Party") will use its best efforts to
defend against the infringement claim and resolve the dispute;  and both parties
shall share all costs, fees and expenses  associated with the resolution of this
dispute.  Additionally,  the other Party will assist and use its best efforts to
help the Defendant  Party resolve the dispute on favorable  terms,  also sharing
all such costs and expenses.

                18.5.2 In the event  the  dispute  is  resolved  against  Shaman
and/or LIPHA,  with a finding of an  infringement,  then the Parties shall share
all damages;  and provided further that if any royalties are required to be paid
to a third party as a result of such  infringement or any negotiated  settlement
approved jointly by the Parties, then LIPHA shall make such payment and shall be
entitled to deduct fifty  percent  (50%) of such payment  against any  royalties
owing to Shaman under this Agreement.

      19.  RESEARCH   EXPENSES.   Except  as  otherwise   expressly
provided  by  this  Agreement,   each  Party  shall  bear  its  own
internal research, development and regulatory costs.

      20.  REPRESENTATIONS  AND  WARRANTIES.  Shaman and LIPHA each
represent and warrant to the other as set forth below:

           20.1 Representations  and  Warranties of Shaman.  Shaman
represents and warrants that:

                20.1.1 The execution, delivery and performance of this Agreement
by Shaman will not, with or without notice,  the passage of time or both, result
in any  violation  of, be in conflict  with,  or  constitute a default under any
material  contract,  obligation  or  commitment to which Shaman is a party or by
which it is bound, or to Shaman's knowledge,  any statute,  rule or governmental
regulation applicable to Shaman.

                20.1.2  Shaman has all requisite  legal and corporate  power and
authority to enter into this  Agreement,  to grant the licenses to be granted by

<PAGE>

Shaman hereunder and to carry out and perform its obligations under the terms of
this  Agreement.  All corporate  action on the part of Shaman,  its officers and
directors  necessary  for  the  grants  of  licenses  pursuant  hereto  and  the
performance  of Shaman's  obligations  hereunder has been taken.  This Agreement
constitutes a valid and binding obligation of Shaman,  enforceable in accordance
with  its  terms,  except  (i)  the  enforceability  hereof  may be  limited  by
bankruptcy,  insolvency,  moratorium  or  other  similar  law as  affecting  the
enforcement of creditors' rights  generally,  (ii) the availability of equitable
remedies (e.g.,  specific  performance,  injunctive  relief, and other equitable
remedies) may be limited by equitable principles or general applicability, (iii)
to the extent the indemnification  provisions contained in this Agreement may be
limited  by  applicable  federal  or state  securities  law;  and  (iv)  that no
representation  is made  regarding the effect of laws  relating to  competition,
antitrust  or  patent  misuse  or  the  effect  of  LIPHA's  or  third  parties'
intellectual property rights.

                20.1.3 All  employees of Shaman who are expected to  participate
in the Collaboration have signed agreements  regarding  proprietary  information
and  inventions  with Shaman in a form  reasonably  considered by Shaman and its
counsel  to assure  Shaman's  title to any Joint  Inventions,  Shaman  Technical
Information  or Shaman  Patents that may arise or be developed by such employees
hereunder.  Such agreements are legal,  valid and binding  obligations of Shaman
and its employees and are enforceable in accordance with their terms,  except as
limited by  applicable  bankruptcy  laws and other  similar laws  affecting  the
creditors' rights and remedies  generally and except insofar as the availability
of equitable remedies may be limited.

           20.2 Representations  and  Warranties  of  LIPHA.  LIPHA
represents and warrants that:

                20.2.1 The execution, delivery and performance of this Agreement
by LIPHA will not, with or without notice,  the passage of time or both,  result
in any  violation  of, be in conflict  with,  or  constitute a default under any
material  contract,  obligation  or  commitment  to which LIPHA is a party or by
which it is bound, or to LIPHA's  knowledge,  any statute,  rule or governmental
regulation applicable to LIPHA.

                20.2.2 LIPHA has all  requisite  legal and  corporate  power and
authority  to enter into this  Agreement  to grant the licenses to be granted by
LIPHA hereunder and to carry out and perform its obligations  under the terms of
this Agreement.  All corporate  action on the part of LIPHA and its officers and
directors  necessary  for  the  grants  of  licenses  pursuant  hereto  and  the
performance  of LIPHA's  obligations  hereunder has been taken.  This  Agreement
constitutes a valid and binding  obligation of LIPHA,  enforceable in accordance
with its  terms,  except as (i) the  enforceability  hereof  may be  limited  by
bankruptcy,  insolvency,  moratorium  or  other  similar  law as  affecting  the
enforcement of creditors' rights  generally,  (ii) the availability of equitable
remedies (e.g.,  specific  performance,  injunctive  relief, and other equitable
remedies) may be limited by equitable principles or general applicability, (iii)
to the extent the indemnification  provisions contained in this Agreement may be
limited by applicable law and (iv) and that no  representation is made regarding

<PAGE>

the effect of laws  relating to  competition,  antitrust or patent misuse or the
effect of Shaman's or third parties' intellectual property rights.

                20.2.3 All employees of LIPHA who are expected to participate in
the Collaboration have signed agreements regarding  proprietary  information and
inventions with LIPHA in a form  reasonably  considered by LIPHA and its counsel
to assure LIPHA's title to any Joint  Inventions or LIPHA Technical  Information
that may arise or be developed by such employees hereunder.  Such agreements are
legal,  valid  and  binding  obligations  of  LIPHA  and its  employees  and are
enforceable  in  accordance  with their terms,  except as limited by  applicable
bankruptcy  laws and other  similar laws  affecting  the  creditors'  rights and
remedies  generally and except insofar as the availability of equitable remedies
may be limited.

           20.3  EXCEPT AS  OTHERWISE  EXPRESSLY  SET  FORTH IN THIS  AGREEMENT,
SHAMAN AND LIPHA MAKE NO  REPRESENTATIONS  AND EXTEND NO WARRANTIES OF ANY KIND,
EITHER  EXPRESS  OR  IMPLIED.  THERE ARE NO EXPRESS  OR  IMPLIED  WARRANTIES  OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

      21.  SURVIVAL  OF RIGHTS,  DUTIES  AND  OBLIGATIONS.  Termination  of this
Agreement for any cause shall not release a Party from any  liability,  which at
the  time of  termination  has  already  accrued  to  another  Party,  or  which
thereafter  may  accrue  in  respect  of  any  act or  omission  prior  to  such
termination.  The obligations and rights  established in Sections 8, 10, 11, 12,
14, 17, 18, 22 and 23 shall survive the  termination  of this  Agreement for any
reason.

      22. ASSIGNMENT.  This Agreement shall be binding on the Parties hereto and
their respective successors and assigns.  Neither of the Parties hereto shall be
entitled to assign this Agreement or any of its rights or obligations  hereunder
without  the consent of the other.  Notwithstanding  the  foregoing,  each Party
shall be entitled to assign this  Agreement to an Affiliate of such Party unless
the other  Party  reasonably  objects  to such  assignment  for  valid  business
purposes. If either Party is acquired or merged with another entity, that entity
shall succeed to all of the rights and  obligations of the  disappearing  Party;
provided in the event either  Party is acquired or merged with  another  entity,
such acquiring or successor entity shall expressly assume in writing the due and
punctual  performance and observance of all obligations  under this Agreement of
the Party it has  acquired or with which it has merged,  with the same effect as
if such entity had originally been such Party hereunder; and further provided if
such  acquiring or successor  entity does not so assume the  obligations  of the
Party it has acquired or with which it has merged, the other Party may terminate
this  Agreement  pursuant to Section 16 hereof.  Notwithstanding  the foregoing,
nothing  contained in this Section 22 shall be  construed as  preventing  either
Party from sublicensing its rights to any Products granted hereunder.


<PAGE>

      23. FURTHER  ASSURANCES.  Shaman and LIPHA shall cooperate with each other
and execute and deliver to each other such other  instruments  and documents and
take such other  actions  as may be  reasonably  requested  from time to time in
order to carry out,  evidence  and confirm the rights and  intended  purposes of
this Agreement.

      24.  LANGUAGE.   This   Agreement  is  entered  into  in  the
English  language.  All  meetings  and  correspondence  between the
Parties  are  to be  in  English.  In  the  event  of  any  dispute
concerning  the   construction   or  meaning  of  this   Agreement,
reference  shall  be made  only to this  Agreement  as  written  in
English and not to any translation into any other language.

      25.  GOVERNING LAW.  Disputes  arising out of or based upon this Agreement
shall be governed by and construed in  accordance  with the laws of the State of
California,  United States of America, as applied to agreements among California
residents  entered into and to be performed  entirely within  California.  LIPHA
hereby submits to the  non-exclusive  personal  jurisdiction  and to service and
venue in any U.S.  state or federal  court located in the State of California in
connection with any claim arising hereunder or in connection  herewith.  Shaman,
in turn hereby submits to the non-exclusive personal jurisdiction and to service
and venue in any French court in connection with any claim arising  hereunder or
in connection herewith.

      26.  NOTICES.   Notices,  demands  or  other  communications  required  or
permitted  to be  given or made  hereunder  shall be in  writing  and  delivered
personally or sent by private overnight mail delivery, with recorded delivery or
by legible telefax addressed to the intended  recipient at its address set forth
below in this  Section or to such other  address or telefax  number as any Party
may from  time to time duly  notify to the  other.  Any such  notice,  demand or
communication  shall, unless the contrary is proved, be deemed to have been duly
served (if given or made by telefax) on the next  following  business day at the
place of receipt or (if given or made by  overnight  private  mail)  forty-eight
(48) hours  after  posting and in proving the same,  it shall be  sufficient  to
show,  in the case of a letter,  that the  envelope  contained  the same as duly
addressed,  correctly stamped and posted and in the case of a telefax, that such
telefax  was duly  dispatched  to a current  telefax  number  of the  addressee.
Correspondence to Shaman shall be addressed to:

           President and Chief Executive Officer
           Shaman Pharmaceuticals, Inc.
           213 East Grand Avenue
           South San Francisco, California  94080 U.S.A.
           Telefax number:  (415) 873-8367


<PAGE>

with a copy to:

           Brobeck, Phleger & Harrison LLP
           Two Embarcadero Place
           2200 Geng Road
           Palo Alto, California  94303 U.S.A.
           Attn: J. Stephan Dolezalek
           Telefax number:  (415) 496-2736

Correspondence to LIPHA shall be addressed to:

           Chairman and Chief Executive Officer
           LIPHA, Lyonnaise Industrielle Pharmaceutique s.a.
           34 rue Saint-Romain
           F-69379 Lyon, cedex 08
           France
           Telefax  number:  33/78  75  39 05  or  
           after  10/18/96:  33/04 78 75 39 05

      27.  ENTIRE  AGREEMENT.  This  Agreement,  together with the schedules and
appendices  hereto,  constitutes the entire  agreement  between the Parties with
respect to the subject matter hereof and save as otherwise expressly provided no
modification,  amendment or waiver of any of the  provisions  of this  Agreement
shall  be  effective  unless  made in  writing  specifically  referring  to this
Agreement and duly signed and delivered by the Parties hereto.  Whenever in this
Agreement  a Party's  approval  or  signature  is  required,  such  approval  or
signature may not be unreasonably withheld.

      28.  NONWAIVER  OF  RIGHTS.  No  failure or delay on the part of Shaman or
LIPHA in exercising any right under this  Agreement,  irrespective of the length
of time for which such failure or delay shall continue, will operate as a waiver
of, or impair,  any such right. No single or partial  exercise of any such right
will preclude any other or further exercise thereof or the exercise of any other
right.  No waiver of any such right will be  effective  unless given in a signed
writing.  No waiver of any such right will be deemed a waiver of any other right
hereunder or thereunder.

      29.  SEVERABILITY.  In case  any  provision  of this  Agreement  shall  be
invalid,  illegal,  or  unenforceable,  it shall to the extent  practicable,  be
modified so as to make it valid,  legal and  enforceable and to retain as nearly
as  practicable  the intent of the  Parties,  and the  validity,  legality,  and
enforceability  of the remaining  provisions shall not in any way be affected or
impaired thereby.

      30. FORCE  MAJEURE.  Neither Party shall be held liable or  responsible to
the other Party nor be deemed to have defaulted under or breached this Agreement
for failure or delay in  fulfilling or  performing  any terms of this  Agreement
when  such  failure  or  delay is  caused  by or  results  from  fires,  floods,
embargoes,  government regulations or administrative  guidance,  prohibitions or

<PAGE>

interventions, war, acts of war (whether war be declared or not), insurrections,
riots,  civil  commotions,  strikes,  lockouts,  acts of God, or any other cause
beyond their respective reasonable control, but they shall make every reasonable
effort to remove any such cause of their failure or delay as soon as possible.

      31.  COUNTERPARTS.   This  Agreement  may  be  executed  in  two  or  more
counterparts,  each of  which  shall be  deemed  an  original,  but all of which
together shall constitute one and the same  instrument.  This Agreement shall be
deemed for all purposes to be executed and effective upon receipt of an executed
signature  page,  either an  original  or telefax  copy  thereof,  from the duly
authorized officer of each of LIPHA and Shaman.


<PAGE>



           IN WITNESS  WHEREOF,  the Parties have executed this  Agreement as of
the Effective Date written above.


SHAMAN PHARMACEUTICALS, INC.               LIPHA, LYONNAISE INDUSTRIELLE
                                                PHARMACEUTIQUE s.a.



By:  /s/ Lisa A. Conte                       By:  /s/ Jean-Noel Treilles
      Lisa A. Conte                                Jean-Noel Treilles
      President and Chief Executive                Chairman and Chief Executive
      Officer                                      Officer










<PAGE>


                                    EXHIBIT A

                                DEVELOPMENT PLAN


              Primary               In-depth
            Evaluation             Evaluation                   Development

     Active    -->       Lead          -->       Development       -->       IND
     Compds.            Compds.                   Candidates

             Stage IIa              Stage IIb                    Stage III



     o Establish plant sourcing plan 
     o Plant collections 
     o Establish rat model & test compounds
     o Address bioavailability issues 
     o General pharmacology


<PAGE>


                                STAGE II a UPDATE
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>

================================================================================

                      
                         Data                      Pharmacology       Med. Chem.
  Compound        Mouse        Rat      Human     Screen     Patent   Synthesis
================================================================================

SP-134101          *           *          *           *          *          *
================================================================================

SP-49701           *           *          *           *          *          *
================================================================================

SP-910255          *           *          *           *          *          *
================================================================================

SP-910235          *           *          *           *          *          *
================================================================================

SP-4003            *           *          *           *          *          *
================================================================================

SP-18904           *           *          *           *          *          *
================================================================================

SP-67004           *           *          *           *          *          *
================================================================================

SP-66904           *           *          *           *          *          *
================================================================================

SP-82001           *           *          *           *          *          *
================================================================================

SP-18908           *           *          *           *          *          *
================================================================================
</TABLE>

[* INDICATES THAT MATERIAL HAS BEEN OMITTED AND CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED THEREFOR.  ALL SUCH OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH
THE COMMISSION PURSUANT TO RULE 24b-2.]





<PAGE>
                                 EXHIBIT 10.51

                                    EXHIBIT B

                            STOCK PURCHASE AGREEMENT

                                     BETWEEN

                LIPHA, LYONNAISE INDUSTRIELLE PHARMACEUTIQUE s.a.

                                       AND

                          SHAMAN PHARMACEUTICALS, INC.






<PAGE>






                             






                            STOCK PURCHASE AGREEMENT


         THIS STOCK PURCHASE  AGREEMENT is made and entered into as of this 23rd
day of September,  1996 (the "Effective Date"),  between Shaman  Pharmaceuticals
Inc., a Delaware corporation (the "Company"),  and LIPHA, Lyonnaise Industrielle
Pharmaceutique s.a., a French corporation ("Buyer").

         WHEREAS,  the Company and Buyer have entered  into that  certain  Joint
Research and Product  Development and  Commercialization  Agreement of even date
herewith (the "Development Agreement"),  pursuant to which the Company and Buyer
have agreed to develop jointly  products for the treatment of diabetes  mellitus
and its complications; and

         WHEREAS,   in  connection  with  the  execution  and  delivery  of  the
Development  Agreement  and the  completion  of the  collaboration  contemplated
therein,  the Company intends to sell, and Buyer intends to purchase,  shares of
the Company's Common Stock,  par value $.001 per share (the "Common Stock"),  on
the terms and subject to the conditions set forth herein.


         NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:

         1.    Purchase and Sale of Shares.


              a.  Purchase  and Sale.  Subject to the terms and  conditions  set
forth in this Agreement, on each Closing Date (as defined  herein),  the Company
agrees to sell to Buyer, and Buyer  agrees to purchase  from the  Company,  that
number of shares of the Company's  Common Stock as is determined by dividing (i)
$3,000,000 with respect to the Initial  Closing, $1,500,000 with respect to each
Subsequent  Closing and  $2,250,000 with respect to each  Extension  Closing (as
defined  herein)  by (ii) a price  per share of Common  Stock  which is a twenty
percent (20%) premium to the volume  weighted average of the closing  prices per
share for the Common Stock as quoted on the Nasdaq National Market (or any other
national  securities  exchange on which the Common Stock is then traded) for the
* *  *  (  * )  consecutive  trading  days  ending on  the  second  trading  day
immediately  preceding such Closing  Date.  [* INDICATES  THAT MATERIAL HAS BEEN
OMITTED  AND  CONFIDENTIAL  TREATMENT  HAS  BEEN  REQUESTED  THEREFOR.  ALL SUCH
OMITTED  MATERIAL  HAS BEEN FILED  SEPARATELY  WITH THE  COMMISSION  PURSUANT TO
RULE 24b-2.]

              b.  Closings.   Subject  to  the  terms  and  conditions  of  this
Agreement,  the consummation of (i) the initial closing of the purchase and sale
of shares of Common Stock under this Agreement (the "Initial  Closing") shall be
held on the date of this Agreement, (ii) subsequent closings (each a "Subsequent
Closing")  shall  be held on first  and  second  anniversary  of the date of the
Initial Closing and (iii) extension closings (each an "Extension Closing") shall

<PAGE>

be held on the  third and  fourth  anniversaries  of the  Initial  Closing.  The
Initial Closing, the Subsequent Closings and the Extension Closings are referred
to herein collectively as the "Closings."

              c. Location.  All Closings shall be held at 8:30 a.m.  (California
time) at the offices of Brobeck,  Phleger & Harrison at Two  Embarcadero  Place,
2200 Geng Road, Palo Alto,  California or at such other place as the Company and
Buyer may agree in  writing  and such  closings  may occur via  facsimile,  mail
delivery  or other  delivery  service  without  the need for the  parties  to be
physically present.

              d. Trading Day; Fractional Shares. For purposes of this Agreement,
the term  "trading  day" does not include any day on which no closing  price per
share of Common  Stock is reported.  As  prescribed  in Section 1(a) above,  the
number of shares of Common  Stock to be  purchased  by Buyer on any Closing Date
shall equal the aggregate  purchase  price to be paid for such shares divided by
the applicable  per share price;  provided,  however,  that the Company will not
issue any fractional  shares of Common Stock. Any such fractional shares will be
rounded to the nearest whole share.

         2.  Delivery.  Subject  to the  terms  and  conditions  of this
Agreement, at all Closings the Company will deliver to Buyer, stock certificates
representing the number of shares subject to purchase  hereunder against payment
of the purchase price therefor by wire transfer in immediately  available United
States  dollars to such  account of the  Company as the  Company  may specify to
Buyer not less than three (3) business days prior to the applicable Closing.

         3.    Conditions to Obligations.

              a.   Buyer's  Conditions  to Initial  Closing.  The obligation  of
Buyer to purchase and pay for the shares of Common  Stock at the Initial Closing
shall  be  subject  to the  satisfaction  of  each  of the  following conditions
precedent, any one or more of which may be waived by Buyer:

                  i.    Representations    and    Warranties.    Each    of  the
representations  and  warranties  of the Company set forth in Section 4 shall be
true and correct as if made at the Initial Closing.

                  ii.   Performance.   The  Company  shall  have  performed  and
complied  with all  agreements,  obligations  and  conditions  contained in this
Agreement  that are required to be performed or complied with by it on or before
the Initial Closing.

                  iii.  Compliance  Certificate.  The Chief Executive Officer of
the  Company  shall  deliver  to  Buyer  at the  Initial  Closing  a certificate
certifying  that  the  conditions  set  forth  in this  Section  3(a) have  been
fulfilled.


<PAGE>

                  iv.  Opinion  of  Counsel  to the  Company.  Buyer  shall have
received from Brobeck,  Phleger & Harrison,  counsel for the Company, an opinion
dated as of the Initial Closing, in form and substance reasonably  acceptable to
the Buyer and its counsel.

                  v.  Consents.  The Company and Buyer shall have  obtained  all
consents  (including  all  governmental  and regulatory  consents,  approvals or
authorizations  required in connection  with the valid execution and delivery of
this Agreement),  permits and waivers  necessary or appropriate for consummation
of the transactions contemplated by the Initial Purchase under this Agreement.

                  vi.  Proceedings  and  Documents.   All  corporate  and  other
proceedings  in connection  with the  transactions  contemplated  at the Initial
Closing and all documents  incident thereto shall be reasonably  satisfactory in
form and  substance to Buyer and Buyer's  counsel,  and they shall have received
all such counterpart original and certified or other copies of such documents as
they may reasonably request.

              b.  Buyer's  Conditions  to  Subsequent   Closings  and  Extension
Closings.  The  obligation of Buyer to purchase and pay for the shares of Common
Stock at each Subsequent Closing and each Extension Closing, as the case may be,
is subject to the  satisfaction or Buyer's waiver,  on or prior to such Closing,
of each of the following conditions:

                  i.  Representations  and Warranties.  The  representations and
warranties  made by the Company in Sections  4(a),  (b), (c), (d), (e), (f), (g)
and (h) shall be true and  correct  on the date of such  Closing,  with the same
force  and  effect  as if they  had been  made on and as of each of such  dates,
provided,  however,  that with respect to Section 4(f) the Company shall only be
required to notify Buyer as to the existence of any subsidiaries,  the existence
of which at the time of such future  closing  shall not  constitute  a breach of
representation or warranty.

                  ii.  Performance.   The  Company  shall  have   performed  all
covenants, obligations and conditions required to be performed or observed by it
on or prior to such Closing.

                  iii. Compliance  Certificate.  The Chief Executive  Officer of
the Company shall deliver to Buyer at such Closing a certificate certifying that
the conditions set forth in this Section 3(b) have been fulfilled.
                  
                  iv.  Opinion  of  Counsel  to the  Company.  Buyer  shall have
received from Brobeck,  Phleger & Harrison,  counsel for the Company, an opinion
dated as of such  Closing,  in form and substance  reasonably  acceptable to the
Buyer and its counsel.

                  v.  Consents.  The Company and Buyer shall have  obtained  all
consents  (including  all  governmental  or  regulatory  consents,  approvals or
authorizations  required in connection  with the valid execution and delivery of

<PAGE>

this Agreement),  permits and waivers  necessary or appropriate for consummation
of the transactions at such Closing, as the case may be, under this Agreement.

                  vi.  Proceedings  and  Documents.   All  corporate  and  other
proceedings in connection with the transactions contemplated at each Closing and
all documents  incident  thereto shall be  reasonably  satisfactory  in form and
substance to Buyer and Buyer's  counsel,  and they shall have  received all such
counterpart original and certified or other copies of such documents as they may
reasonably request.

              c.   Company's Conditions to Initial  Closing.  The obligations of
the Company to Buyer under this  Agreement are subject to the  fulfillment on or
before the Initial  Closing of each of the following  conditions  precedent, any
one or more of which may be waived by the Company:

                  i.    Representations    and    Warranties.    Each    of  the
representations and warranties of Buyer set forth in Section 5 shall be true and
correct as if made at the Initial Closing.

                  ii.   Payment of Purchase  Price.  Buyer  shall have delivered
payment in the amount of $3,000,000 in accordance with Section 2 above.

                  iii.  Performance.  Buyer  shall have  performed  and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with on or before such Initial Closing.

                  iv.  Consents.  The Company and Buyer shall have  obtained all
consents  (including  all  governmental  and regulatory  consents,  approvals or
authorizations  required in connection  with the valid execution and delivery of
this Agreement),  permits and waivers  necessary or appropriate for consummation
of the transactions at the Initial Closing under this Agreement.

                  v.   Proceedings  and  Documents.   All  corporate  and  other
proceedings  in connection  with the  transactions  contemplated  at the Initial
Closing and all documents  incident  thereto shall be  satisfactory  in form and
substance to the Company and the Company's counsel, and they shall have received
all such counterpart original and certified or other copies of such documents as
they may reasonably request.

              d.  Company's  Conditions  to  Subsequent  Closings and  Extension
Closings.  The  obligation  of the  Company to sell and issue the shares at each
Subsequent Closing and each Extension Closing, as the case may be, is subject to
the satisfaction or the Company's waiver,  on or prior to such Closing,  of each
of the following conditions:


<PAGE>

                 i.  Representations  and Warranties.  The  representations and
warranties  made by Buyer in Section 5 shall be true and  correct on the date of
such Closing,  with the same force and effect as if they had been made on and as
of each of such dates.

                  ii.   Payment.  Buyer  shall  have  delivered  payment  in the
amount prescribed in Section 1 above with respect to such Closing, in accordance
with Section 2 above.

                  iii.  Performance. Buyer shall have  performed  all covenants,
obligations  and  conditions  required  to be performed  or observed by it on or
prior to such Closing.

                  iv.  Consents.  The Company and Buyer shall have  obtained all
consents  (including  all  governmental  or  regulatory  consents,  approvals or
authorizations  required in connection  with the valid execution and delivery of
this Agreement),  permits and waivers  necessary or appropriate for consummation
of the transactions at such Closing, under this Agreement.

     4.      Representations  and Warranties of the Company.  The Company hereby
represents and warrants to Buyer as follows:

              a. Corporate  Power.  The Company is a corporation duly organized,
validly  existing and in good  standing  under the laws of the State of Delaware
and is qualified to do business as a foreign  corporation  in each  jurisdiction
where failure to qualify would have a material adverse effect on the business or
properties  of the Company.  The Company has full power and authority to own its
property,  to carry on its business as presently  conducted and to carry out the
transactions contemplated hereby.

              b. Authorization.  The Company has full power to execute,  deliver
and perform  this  Agreement,  and this  Agreement  has been duly  executed  and
delivered by the Company and is the legal,  valid and, assuming due execution by
Buyer,  binding  obligation of the Company,  enforceable in accordance  with its
terms, subject to applicable bankruptcy, insolvency, moratorium,  reorganization
or similar laws affecting creditors' rights generally,  and to general equitable
principles. The execution, delivery and performance of this Agreement, including
the sale, issuance and delivery of the Common Stock, has been duly authorized by
all necessary corporate action of the Company.

              c. Valid  Issuance  of Common  Stock.  The shares of Common  Stock
being  purchased  by  Buyer  hereunder,  when  issued,  sold  and  delivered  in
accordance with the terms hereof for the consideration expressed herein, will be
duly and validly issued, and, based in part upon the representations of Buyer in
this  Agreement,  will be issued in compliance  with all applicable  federal and
state  securities  laws and such  shares of Common  Stock will be fully paid and
non-assessable.


<PAGE>

              d. Governmental  Approvals.  Based in part on the  representations
made by  Buyer in  Section  5, no  authorization,  consent,  approval,  license,
exemption  of  or  filing  or  registration   with  any  court  or  governmental
department,  commission,  board, bureau, agency or instrumentality,  domestic or
foreign, under any applicable laws, rules or regulations presently in effect, is
or will be necessary  for, or in connection  with,  the offer,  issuance,  sale,
execution and delivery by the Company of the Common Stock or for the performance
by the Company of its obligations under this Agreement, except for filings under
applicable  securities  laws  which  will  be  made by the  Company  within  the
prescribed periods.

              e.   Litigation.   There  is   no   litigation   or   governmental
proceeding  or  investigation  pending  or,  to the  knowledge of  the  Company,
threatened  against the Company which would  materially and adversely affect the
execution and delivery of this  Agreement or the  performance  by the Company of
its obligations hereunder.

              f.  Subsidiaries;  Charter  Documents.  The  Company has no active
subsidiaries  and does not otherwise  directly or  indirectly  control any other
business  entity.  The Company has furnished Buyer with certified  copies of its
Restated  Certificate of Incorporation and Bylaws,  together with any amendments
thereto as of the date hereof.

              g. Filings. The Company has timely filed all reports, registration
statements  and other  documents  required to be filed by it with the Securities
and Exchange  Commissioner  under the  Securities  Act of 1933,  as amended (the
"1933  Act"),  or the  Securities  Exchange  Act of 1934,  as amended (the "1934
Act"),  including,  without  limitation,  the Company's Quarterly Report on Form
10-Q for the quarter  ended March 31, 1996 (the  "10-Q"),  Annual Report on Form
10-K for the year ended  December 31, 1995 (the  "10-K"),  and Annual  Report to
Stockholders for the fiscal year ended December 31, 1995 (the "Annual  Report").
As of its  filing  date,  no such  report  or  statement  contained  any  untrue
statement of a material fact or omitted to state any material fact  necessary in
order to make the  statements  made therein,  in the light of the  circumstances
under which they were made, not misleading.

              h. Non-Contravention.  The execution,  delivery and performance by
the Company of this  Agreement  does not and will not (i) contravene or conflict
with the Restated Certificate of Incorporation or Bylaws of the Company, or (ii)
contravene  or conflict  with or  constitute a violation of any provision of any
law,  regulation,   judgment,  injunction,  order  or  decree  binding  upon  or
applicable  to the Company in any manner which would  materially  and  adversely
affect  Buyer's  rights or their ability to realize the intended  benefits under
this Agreement.

         5.    Representations  and  Warranties  of  BuyerRepresentations   and
Warranties  of Buyer.  Buyer  hereby  represents  and warrants to the Company as
follows:


<PAGE>

              a.  Investment  Experience.  Buyer  Investment  Experience.  Buyer
is an  "accredited  investor" within the meaning of Rule 501 under the 1933 Act,
and was not  organized for the specific  purpose of acquiring  the Common Stock.
Buyer has sufficient  knowledge and experience in investing in companies similar
to the Company in terms of the Company's  stage of  development so as to be able
to evaluate the risks and merits of its investment in the Company and it is able
financially to bear the risks thereof.

              b.  Purchase for Own Account.  Buyer is acquiring the Common Stock
for  investment  for its own  account and not with the view to, or for resale in
connection with, any  distribution  thereof.  Buyer has no present  intention of
selling,  granting any  participation  in, or otherwise  distributing  the same.
Buyer does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer, or grant participations to such person or to any third
person,  with respect to any of the Common  Stock.  Buyer  understands  that the
shares of Common Stock have not been registered  under the 1933 Act by reason of
an exemption  from the  registration  provisions  of the 1933 Act which  depends
upon,  among  other  things,  the bona fide nature of its  investment  intent as
expressed herein.

              c. Restricted Securities.  Buyer understands that the Common Stock
may not be sold,  transferred,  or  otherwise  disposed of without  registration
under the 1933 Act,  or an  exemption  therefrom,  and that in the absence of an
effective  registration  statement  covering the Common  Stock,  or an available
exemption  from  registration  under the 1933 Act, the Common Stock must be held
indefinitely.  In the  absence  of an  effective  registration  statement  or an
exemption  from  registration  covering  the  Common  Stock,  Buyer  will  sell,
transfer,  or otherwise  dispose of the Common Stock only in a manner consistent
with its representations and agreements set forth herein.

              d.  Information.  Buyer  acknowledges that it has received all the
information  it has  requested  from the  Company  and  considers  necessary  or
appropriate for deciding whether to purchase the Common Stock.  Buyer represents
that it has had an  opportunity  to ask questions  and receive  answers from the
Company  regarding the Company and the terms and conditions of the Common Stock,
and to obtain any additional information necessary to verify the accuracy of the
information given Buyer.

              e.   Legend.  It is  understood  that the certificates  evidencing
the Common Stock may bear substantially the following legend:

                  i.  THESE  SECURITIES  HAVE  NOT  BEEN  REGISTERED  UNDER  THE
SECURITIES  ACT OF 1933.  THEY MAY NOT BE SOLD,  OFFERED  FOR SALE,  PLEDGED  OR
HYPOTHECATED  IN THE ABSENCE OF A REGISTRATION  STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES  UNDER SUCH ACT OR AN OPINION OF COUNSEL  SATISFACTORY  TO THE
COMPANY THAT SUCH  REGISTRATION  IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE
144 OF SUCH ACT; OR


<PAGE>

                  ii.   Any  legend   required  by  the  laws  of  the  State of
California or any other applicable jurisdiction.

         6.    Registration  of  Shares.  Buyer shall  have the right to request
registration  of all or a portion  of the  shares acquired  by Buyer  under this
Agreement as provided in the  Registration  Rights Agreement  attached hereto as
Exhibit A.

         7.    Miscellaneous.

              a. No Waiver; Cumulative Remedies. No failure or delay on the part
of Buyer or the Company in exercising any right, power or remedy hereunder shall
operate as a waiver  thereof;  nor shall any single or partial  exercise  of any
such right,  power or remedy preclude any other or further  exercise  thereof or
the exercise of any other right, power or remedy hereunder.  The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.

              b. Amendments, Waivers and Consents. Except as otherwise expressly
provided in this  Agreement,  changes in or additions to this  Agreement  may be
made, and compliance with any covenant or provision  herein or therein set forth
may be omitted or waived,  so long as all of the  parties to this  Agreement  so
agree in writing.  Any waiver or consent may be given subject to satisfaction of
conditions  stated  therein and any waiver or consent shall be effective only to
the extent expressly set forth therein.

              c. Addresses for Notices. All notices, requests, demands and other
communications  provided  for  hereunder to be sent to Buyer shall be in writing
(including telegraphic communication) and mailed or telegraphed or telecopied or
delivered  at the address  indicated  on the  signature  page  hereto.  Any such
notices,  requests, demands or other communications to the Company shall be sent
to:

              Shaman Pharmaceuticals, Inc.
              213 East Grand Avenue
              South San Francisco, California  94080 U.S.A.
              Attn:     Lisa A. Conte
                        President and Chief Executive Officer
              Telefax:  (415) 873-8367

with a copy to:

              Brobeck, Phleger & Harrison LLP
              Two Embarcadero Place
              2200 Geng Road
              Palo Alto, California  94303 U.S.A.
              Attn:      J. Stephan Dolezalek, Esq.
              Telefax:  (415) 496-2736


<PAGE>

Either party to this  Agreement may change its address by written  notice to the
other party  complying  as to delivery  with the terms of this  Section.  Unless
otherwise provided, any notice,  request, demand or other communication required
or permitted  under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or delivery
to such party by either  international  courier  service or through  the federal
postal  system of the country of the sender by  registered  or  certified  mail,
postage  prepaid  and  addressed  to the  party to be  notified  at the  address
indicated for such party above or on the signature  page hereto or at such other
address as such party may designate by ten (10) days advance  written  notice to
the other parties.

              d. Fees, Costs and Expenses.  Each party hereto shall bear its own
legal costs and expenses incurred in connection with the preparation,  execution
and delivery of this  Agreement  and the other  instruments  and documents to be
delivered  hereunder.  The Company shall pay any and all stamp and other similar
taxes payable or  determined to be payable in connection  with the execution and
delivery  of this  Agreement,  the Common  Stock and the other  instruments  and
documents  to be  delivered  hereunder  or  thereunder  and agrees to save Buyer
harmless from and against any and all  liabilities  with respect to or resulting
from any delay in paying or omission to pay such taxes and filing fees.

              e. Binding Effect;  Assignment.  Except as otherwise  specifically
provided for herein,  the terms and conditions of this Agreement  shall inure to
the benefit of and be binding upon the respective  successors and assigns of the
parties (including transferees of any of the shares sold hereunder).  Nothing in
this Agreement,  express or implied,  is intended to confer upon any party other
than the parties hereto or their  respective  successors and assigns any rights,
remedies,  obligations,  or  liabilities  under or by reason of this  Agreement,
except as expressly provided in this Agreement.

              f.   Prior  Agreements.   This  Agreement constitutes  the  entire
agreement  between  the  parties  and  supersedes  any  prior  understandings or
agreements concerning the subject matter hereof.

              g.   Severability.   The  invalidity  or  unenforceability  of any
provision  hereof  shall in no way affect the validity or enforceability  of any
other provision.

              h.  Public  Disclosure.   Neither  party  shall  make  any  public
disclosure  concerning  the  transactions   contemplated  hereby  without  prior
consultation with the other party; provided,  however, that nothing herein shall
preclude  either party from making such  disclosure as is required by applicable
laws  binding on it as long as the  disclosing  party has  exercised  good faith
efforts under the  circumstances  to consult with the other party as provided in
this Section 7(h).


<PAGE>

              i.   Governing  Law.  This  Agreement shall  be  governed  by  and
construed  in  accordance  with,  the laws of the  State of  California, without
giving effect to principles of conflict of laws.

              j.   Headings. Section and  subsection  headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.

              k.   Counterparts.  This Agreement  may be  executed in any number
of  counterparts,  all of which taken together shall constitute one and the same
instrument,  and either of the  parties  hereto may  execute  this Agreement  by
signing any such counterpart.

              l.  Attorney's  Fees. If any action at law or in equity is brought
for a breach of  representation  or warranty made herein or necessary to enforce
or interpret the terms of this Agreement, the prevailing party shall be entitled
to reasonable attorney's fees, costs and necessary  disbursements in addition to
any other relief to which such party may be entitled.

         IN WITNESS WHEREOF, the Company and Buyer have caused this Agreement to
be executed by their respective  officers  thereunto duly authorized,  as of the
date first above written.

                          SHAMAN PHARMACEUTICALS, INC.



                       By:  /s/ Lisa A. Conte
                            Lisa A. Conte, President and Chief
                            Executive Officer


                          LIPHA, LYONNAISE INDUSTRIELLE
                               PHARMACEUTIQUE s.a.


                             Address: 34 rue Saint-Romain
                             F-69379 Lyon, cedex 08
                             France
                             Telefax: 33/78 75 39 05 or
                             after 10/18/96: 33/04 78 75 39 05



                        By:  /s/ Jean-Noel Treilles
                             Jean-Noel Treilles, Chairman and Chief
                             Executive Officer





<PAGE>
                             

                          EXHIBIT A

                REGISTRATION RIGHTS AGREEMENT


     This Registration  Rights Agreement (the "Agreement") is entered into as of
the 23rd day of  September,  1996 by and among Shaman  Pharmaceuticals,  Inc., a
Delaware  corporation  (the  "Company"),   and  LIPHA,   Lyonnaise  Industrielle
Pharmaceutique s.a. ("LIPHA").

                          RECITALS

     A.  WHEREAS,  the Company  proposes  to sell shares of its Common  Stock to
LIPHA  pursuant  to a Stock  Purchase  Agreement  of even  date  (the  "Purchase
Agreement").

     B.  WHEREAS, by this Agreement, the Company and LIPHA desire to provide for
certain registration rights as set forth herein.

                          AGREEMENT

     NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:


     1.   Registration Rights.


         1.1.  Definitions.  For purposes of this Section 1:

              1.1.1. The term "register", "registered", and "registration" refer
to a registration  effected by preparing and filing a registration  statement in
compliance  with the Securities Act of 1933 (the "Act"),  and the declaration or
ordering of effectiveness of such registration statement;

              1.1.2. The term  "Registrable  Securities"  means the Common Stock
purchased by LIPHA  pursuant to the Purchase  Agreement  and any Common Stock of
the Company  issued as a dividend or other  distribution  with respect to, or in
exchange for, such Common Stock;

              1.1.3.  The term  "Form  S-3" means such form under the Act or any
successor  thereto  adopted by the  Securities and Exchange  Commission  ("SEC")
which permits  incorporation  of  substantial  information by reference to other
documents filed by the Company with the SEC.


<PAGE>

         1.2.  Requested Registration of Defined Sale 

              1.2.1.  If the Company,  at any time after September 23, 1998 (the
"Lockup Expiration Date") receives a written request from LIPHA that the Company
file a  registration  statement  under the Act covering the  registration  of at
least twenty-five percent (25%) of the Registrable  Securities then outstanding,
then the Company  shall,  subject to the  limitations  of  subsection  1.2.2 and
Section 1.6, effect as soon as practicable,  and in any event shall use its best
efforts  to  effect  within  90  days  of  the  receipt  of  such  request,  the
registration under the Act of all Registrable Securities which LIPHA requests to
be registered.

              1.2.2.  The  Company  is  obligated  to  effect  only one (1) such
registration  pursuant to this Section 1.2, and shall not be obligated to effect
such  registration  during the  period  starting  thirty  (30) days prior to the
Company's  estimated  filing  of,  and  ending  four (4)  months  following  the
effective date of, any other registration statement of the Company.

              1.2.3.  All  expenses  other  than   underwriting   discounts  and
commissions  incurred  in  connection  with the single  registration,  filing or
qualification  permitted  pursuant  to  this  Section  1.2,  including  (without
limitation)  all  registration,  filing and  qualification  fees,  printer's and
accounting  fees,  fees and  disbursements  of counsel for the Company,  and the
reasonable fees and disbursements of one counsel for LIPHA shall be borne by the
Company;  provided,  however,  that the Company shall not be required to pay for
any expenses of any  registration  proceeding begun pursuant to this Section 1.2
if the  registration  request is subsequently  withdrawn at the request of LIPHA
(in which case LIPHA shall bear such expenses).

         1.3. Shelf Registration on Form S-3. If the Company, at any time after 
the Lockup Expiration Date,  receives from LIPHA, a written request that the
Company effect a shelf  registration  on Form S-3 with  respect  to all or a
part of the Registrable Securities owned by LIPHA, the Company will:

              1.3.1. As soon as practicable,  effect such  registration as would
permit or facilitate the sale and distribution of all or such portion of LIPHA's
Registrable Securities as are specified in such request; provided, however, that
the  Company   shall  not  be  obligated   to  effect  any  such   registration,
qualification  or  compliance,  pursuant to this section 1.3: (i) if Form S-3 is
not  available  for such  offering  by  LIPHA;  (ii) if LIPHA  proposes  to sell
Registrable  Securities and such other securities (if any) at an aggregate price
to the public of less than $500,000; (iii) if the Company has, within the twelve
(12) month  period  preceding  the date of such  request,  already  effected one
registration  on Form S-3 for LIPHA pursuant to this Section 1.3; or (iv) in any
particular  jurisdiction in which the Company would be required to qualify to do
business or to execute a general consent to service of process in effecting such
registration, qualification or compliance.


<PAGE>

              1.3.2.  Subject  to  the  foregoing,  the  Company  shall  file  a
registration  statement covering the Registrable Securities and other securities
so  requested  to be  registered  as soon as  practicable  after  receipt of the
request of LIPHA.  All expenses  incurred in  connection  with any  registration
requested  pursuant  to  Section  1.3,   including   (without   limitation)  all
registration,  filing,  qualification,  printer's  and  accounting  fees and the
reasonable  fees and  disbursements  of counsel  for LIPHA and  counsel  for the
Company,  but excluding any  underwriters'  discounts or commissions  associated
with Registrable Securities,  shall be borne by Company.  Registrations effected
pursuant to this Section 1.3 shall not be counted as demands for registration or
registrations effected pursuant to Sections 1.2.

     1.4.  Participation  in Company  Registrations.  If the Company proposes to
register any of its stock or other  securities  under the Act in connection with
the  public  offering  of such  securities  solely  for cash  (other  than (i) a
registration  pursuant  to  a  demand  registration  right  held  by  any  other
stockholder of the Company;  (ii) a registration  relating solely to the sale of
securities to  participants  in a Company stock plan; or (iii) a registration on
any form which does not include  substantially  the same information as would be
required to be included in a  registration  statement  covering  the sale of the
Registrable  Securities),  the Company shall, at such time,  promptly give LIPHA
written  notice of such  registration.  Upon the written  request of LIPHA given
within twenty (20) days after mailing of such notice by the Company, the Company
shall,  subject to the provisions of Section 1.5,  cause to be registered  under
the Act  all of the  Registrable  Securities  that  LIPHA  has  requested  to be
registered.

         1.5.  Underwriting  Requirements.   In  connection  with  any  offering
involving an underwriting of shares of the Company's  capital stock, the Company
shall not be required under Section 1.4 to include any of LIPHA's  securities in
such  underwriting  unless LIPHA accepts the terms of the underwriting as agreed
upon  between  the  Company  and the  underwriters  selected  by it (or by other
persons entitled to select the underwriters),  and then only in such quantity as
the  underwriters  determine in their sole  discretion  will not  jeopardize the
success of the  offering  by the  Company.  If the total  amount of  securities,
including  Registrable  Securities,  requested by shareholders to be included in
such offering  exceeds the amount of  securities  sold other than by the Company
that the underwriters  determine in their sole discretion is compatible with the
success of the  offering,  then the Company  shall be required to include in the
offering only that number of such securities,  including Registrable Securities,
which the  underwriters  determine in their sole  discretion will not jeopardize
the success of the offering (the  securities so included to be  apportioned  pro
rata among the selling shareholders  according to the total amount of securities
entitled to be included  therein  owned by each selling  shareholder  or in such
other proportions as shall mutually be agreed to by such selling shareholders).

     1.6.  Right to Defer.  Notwithstanding  Sections 1.2 and 1.3 above,  if the
Company  shall  furnish to LIPHA a  certificate  signed by the  President of the

<PAGE>

Company stating that in the good faith judgment of the Board of Directors of the
Company,  it would be seriously  detrimental to the Company and its shareholders
for either form of such  registration  statement to be filed and it is therefore
essential to defer the filing of such registration statement,  the Company shall
have the right to defer  taking  action with respect to such filing for a period
of not more than 90 days after receipt of LIPHA's  request;  provided,  however,
that the Company may not utilize  this right more than once in any twelve  month
period.

     1.7. Obligations of the Company.  Whenever required under this Section 1 to
effect the  registration  of any Registrable  Securities,  the Company shall, as
expeditiously as reasonably possible:

              1.7.1. Prepare and file with the SEC a registration statement with
respect to such  Registrable  Securities  and use its best efforts to cause such
registration statement to become effective, and, upon the request of LIPHA, keep
such registration statement effective for up to one hundred twenty (120) days.

              1.7.2.   Prepare  and  file  with  the  SEC  such  amendments  and
supplements to such registration statement and the prospectus used in connection
with  such  registration  statement  as may be  necessary  to  comply  with  the
provisions of the Act with respect to the disposition of all securities  covered
by such registration statement.

              1.7.3.  Furnish to LIPHA such  numbers of copies of a  prospectus,
including a preliminary  prospectus,  in conformity with the requirements of the
Act,  and  such  other  documents  as it may  reasonably  request  in  order  to
facilitate the disposition of Registrable Securities owned by it.

              1.7.4. Use its best efforts to register and qualify the securities
covered by such registration  statement under such other securities laws of such
jurisdictions  as shall be  reasonably  requested  by LIPHA,  provided  that the
Company shall not be required in connection  therewith or as a condition thereto
to qualify to do business or to file a general  consent to service of process in
any such states or jurisdictions.

     1.8.  Furnish  Information.  It  shall  be a  condition  precedent  to  the
obligations  of the Company to take any action  pursuant to this  Section 1 with
respect to the  Registrable  Securities of LIPHA that LIPHA shall furnish to the
Company such information  regarding itself,  the Registrable  Securities held by
it,  and the  intended  method of  disposition  of such  securities  as shall be
required to effect the registration of LIPHA's Registrable Securities.

     1.9. Indemnification.  In the event any Registrable Securities are included
in a registration statement under this Section 1:


<PAGE>

              1.9.1. To the extent  permitted by law, the Company will indemnify
and hold harmless  LIPHA and each person,  if any, who controls LIPHA within the
meaning of the Act or the Securities Exchange Act of 1934, as amended (the "1934
Act"), against any losses, claims, damages, or liabilities (joint or several) to
which  they may become  subject  under the Act,  or other  federal or state law,
insofar as such losses,  claims,  damages, or liabilities (or actions in respect
thereof)  arise  out of or are  based  upon  any  of the  following  statements,
omissions or violations  (collectively a "Violation"):  (i) any untrue statement
or alleged untrue  statement of a material fact  contained in such  registration
statement,  including any preliminary  prospectus or final prospectus  contained
therein or any amendments or supplements  thereto;  (ii) the omission or alleged
omission to state  therein a material  fact  required to be stated  therein,  or
necessary to make the statements therein not misleading;  or (iii) any violation
or  alleged  violation  by the  Company  of the Act,  the 1934  Act,  any  state
securities law or any rule or regulation promulgated under the Act, or any state
securities law. The Company will pay to LIPHA or controlling person any legal or
other expenses  reasonably incurred by them (such payment to be made as incurred
by such persons) in connection  with  investigating  or defending any such loss,
claim,  damage,  liability,  or action;  provided,  however,  that the indemnity
agreement  contained in this subsection 1.9.1 shall not apply to amounts paid in
settlement  of any such  loss,  claim,  damage,  liability,  or  action  if such
settlement is effected  without the consent of the Company  (which consent shall
not be unreasonably withheld),  nor shall the Company be liable in any such case
for any such loss,  claim,  damage,  liability,  or action to the extent that it
arises out of or is based upon a Violation  which occurs in reliance upon and in
conformity with written  information  furnished  expressly for use in connection
with such registration by LIPHA or controlling person.

              1.9.2.  To the extent  permitted by law,  LIPHA will indemnify and
hold harmless the Company,  each of its directors,  each of its officers who has
signed the  registration  statement,  and each person,  if any, who controls the
Company within the meaning of the Act, against any losses,  claims,  damages, or
liabilities  (joint or several) to which any of the foregoing persons may become
subject,  under the Act, or other federal or state law,  insofar as such losses,
claims,  damages, or liabilities (or actions in respect thereto) arise out of or
are  based  upon any  Violation,  in each  case to the  extent  (and only to the
extent)  that such  Violation  occurs in reliance  upon and in  conformity  with
written information furnished by LIPHA expressly for use in connection with such
registration; and LIPHA will pay any legal or other expenses reasonably incurred
by any person intended to be indemnified pursuant to this subsection 1.9.2 (such
payment  to  be  made  as  incurred  by  such  persons),   in  connection   with
investigating or defending any such loss, claim, damage,  liability,  or action;
provided,  however,  that the indemnity  agreement  contained in this subsection
1.9.2 shall not apply to amounts  paid in  settlement  of any such loss,  claim,
damage,  liability or action if such settlement is effected  without the consent
of LIPHA, which consent shall not be unreasonably withheld;  provided that in no
event shall any indemnity under this subsection  1.9.2 exceed the gross proceeds
from the offering received by LIPHA, unless such Violation by LIPHA is wilful.


<PAGE>

              1.9.3.  Promptly after receipt by an indemnified  party under this
Section  1.9  of  notice  of  the  commencement  of any  action  (including  any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying  party under this Section 1.9, deliver to
the  indemnifying  party a written  notice of the  commencement  thereof and the
indemnifying  party shall have the right to  participate  in, and, to the extent
the indemnifying  party so desires,  jointly with any other  indemnifying  party
similarly  noticed,   to  assume  the  defense  thereof  with  counsel  mutually
satisfactory  to the  parties;  provided,  however,  that an  indemnified  party
(together with all other  indemnified  parties which may be represented  without
conflict by one counsel)  shall have the right to retain one  separate  counsel,
with  the  fees  and  expenses  to  be  paid  by  the  indemnifying   party,  if
representation  of  such  indemnified  party  by  the  counsel  retained  by the
indemnifying  party would be inappropriate due to actual or potential  differing
interests between such indemnified party and any other party represented by such
counsel  in such  proceeding.  The  failure  to  deliver  written  notice to the
indemnifying  party within a  reasonable  time of the  commencement  of any such
action, if prejudicial to its ability to defend such action,  shall relieve such
indemnifying  party of any liability to the indemnified party under this Section
1.9, but the omission so to deliver  written  notice to the  indemnifying  party
will not relieve it of any liability that it may have to any  indemnified  party
otherwise than under this Section 1.9.

     1.10. Reports Under Securities Exchange Act of 1934. With a view to making
available  to LIPHA the benefits of Rule 144  promulgated  under the Act and any
other rule or  regulation  of the SEC that may at any time permit  LIPHA to sell
securities of the Company to the public  without  registration  or pursuant to a
registration on Form S-3, the Company agrees to:

              1.10.1. Make and keep public information available, as those terms
are  understood and defined in SEC Rule 144, at all times after ninety (90) days
after  the  effective  date of the  first  registration  statement  filed by the
Company for the offering of its securities to the general public;

              1.10.2. Take such action,  including the voluntary registration of
its Common  Stock under  Section 12 of the 1934 Act, as is  necessary  to enable
LIPHA to utilize Form S-3 for the sale of its Registrable Securities; and

              1.10.3. File with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act.

     1.11. Amendment of Registration Rights. Any provision of this Agreement may
be amended and the observance  thereof may be waived  (either  generally or in a
particular  instance and either  retroactively or prospectively),  only with the
written consent of the Company and LIPHA.


<PAGE>

     1.12.  Limitation of  Registration  Rights. LIPHA shall not be entitled to
exercise any right  provided  for in Sections  1.2, 1.3 or 1.4 if, at such time,
LIPHA is entitled to sell all of the shares of Company Common Stock then held by
it without restriction or further registration.

     2.   Miscellaneous.

     2.1.     Governing Law.   This Agreement shall be governed in all respects
by the laws of the State of California as applied to transactions taking place
between California residents and wholly within the State of California.

     2.2.     Successors and Assigns.  Except as otherwise provided herein, the
Provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.

     2.3.     Entire Agreement.  This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof, and no party shall be liable or bound to any other party in any manner
by any warranties, representations or covenants except as specifically set forth
herein.

     2.4. Notices.  Unless otherwise provided,  any notice required or permitted
under this Agreement  shall be given in writing and shall be deemed  effectively
given upon  personal  delivery  to the party to be  notified or delivery to such
party by either  international  courier  service or through the  federal  postal
system of the country of the sender by  registered  or certified  mail,  postage
prepaid and  addressed to the party to be notified at the address  indicated for
such party on the signature page hereof,  or at such other address as such party
may designate by ten (10) days advance written notice to the other parties.

     2.5.     Counterparts.  This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.

     2.6.     Titles and Subtitles.  The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.



<PAGE>


     The  foregoing  agreement  is hereby  executed  as of the date first  above
written.


                          SHAMAN PHARMACEUTICALS, INC.



                              By: /s/ Lisa A. Conte
                                   Lisa A. Conte, President and
                                   Chief Executive Officer

                                   Address: 213 East Grand Avenue
                                   South San Francisco, CA 94080
                                   U.S.A.
                                   Telefax: (415) 873-8367


                          LIPHA, LYONNAISE INDUSTRIELLE
                               PHARMACEUTIQUE s.a.



                              By: /s/ Jean-Noel Treilles
                                   Jean-Noel Treilles, Chairman and Chief
                                   Executive Officer

                                   Address:  34 rue Saint-Romain
                                   F-69379 Lyon, cedex 08
                                   France
                                   Telefax:  33/78 75 39 05 or
                                   after 10/18/96: 33/04 78 75 39 05