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Exhibit 10.25                               ***TEXT OMITTED AND FILED SEPARATELY
                                            CONFIDENTIAL TREATMENT REQUESTED
                                            UNDER 17 C.F.R. SECTIONS
                                            200.80(B)(4), 200.83 AND 240.24B-2


                         SECURITIES PURCHASE AGREEMENT

SECURITIES PURCHASE AGREEMENT, dated as of October 18, 1999 between Elan
International Services, Ltd., a Bermuda exempted limited liability company
incorporated under the laws of Bermuda ("EIS"), and Sheffield Pharmaceuticals,
Inc., a Delaware corporation (the "Company").

                               R E C I T A L S:

               A.   The Company desires to issue and sell to EIS, and EIS
desires to purchase from the Company, for aggregate consideration of $12,015,000
(the "Original Series D Issue Price"), 12,015 shares of a newly-created series
of cumulative convertible exchangeable preferred stock, par value $0.01 per
share, of the Company (the "Series D Preferred Stock"), which shall be issued to
EIS pursuant to a Certificate of Designations in the form attached hereto as
Exhibit A (the "Series D Certificate of Designations"), at a per share purchase
price of $1,000.

               B.   The Company desires to issue and sell to EIS, and EIS
desires to purchase from the Company, for aggregate consideration that shall not
exceed $4,005,000 (the "Original Series E Issue Price"), up to 4,005 shares of a
newly-created series of cumulative convertible non-exchangeable preferred stock,
par value $0.01 per share, of the Company (the "Series E Preferred Stock"),
which, if issued, shall be issued to EIS pursuant to a Certificate of
Designations in the form attached hereto as Exhibit B (the "Series E Certificate
of Designations"), at a per share purchase price of $1,000.

               C.   The Company desires to issue and sell to EIS, and EIS
desires to purchase from the Company, for aggregate consideration of $5,000,000
(the "Original Series F Issue Price"), (i) 5,000 shares of a newly-created
series of the Company's convertible, non-exchangeable preferred stock, par value
$0.01 per share, of the Company (the "Series F Preferred Stock"), which shall be
issued to EIS pursuant to a Certificate of Designations in the form attached
hereto as Exhibit C (the "Series F Certificate of Designations", and together
with the Series D Certificate of Designations and the Series E Certificate of
Designations, the "Certificates of Designations") and (ii) a warrant to acquire
150,000 shares (subject to adjustment) of the common stock, par value $0.01 per
share, of the Company (the "Sheffield Common Stock"), at an exercise price of
$6.00 per share, pursuant to a warrant certificate in the form attached hereto
as Exhibit D (the "Warrant", and together with the Series D Preferred Stock, the
Series E Preferred Stock and the Series F Preferred, collectively, the
"Securities").

               D.   The Company has previously caused to be formed Sheffield
Newco, Ltd., a Bermuda exempted limited liability company incorporated under the
laws of Bermuda ("Newco"). The Company will acquire from Newco, for an aggregate
purchase price of $12,015,000, (i) 12,000 shares of Newco's voting common stock
(the "Newco Common Stock"), representing 100% of the outstanding shares of such
class of stock, and (ii) 7,224 shares of Newco's non-voting, convertible
preferred stock (the "Newco Preferred Stock"), representing, on a fully diluted
basis, 30.1% of the outstanding shares of such class of stock. EIS will acquire
from Newco, for an aggregate purchase price of $2,985,000, 4,776 shares of Newco
Preferred Stock, representing, on a fully diluted basis, 19.9% of the
outstanding shares of such class of stock. Newco has entered into license
arrangements (the "License Arrangements") with Elan Pharma International
Limited, an Irish private company ("EPIL"), and with the Company for the purpose
of developing and commercializing certain medical products as set forth in the
documents that evidence the License Arrangements.
<PAGE>

               E.   The parties intend, as provided herein, that all of the
proceeds from the sale of (i) the Series D Preferred Stock shall be applied by
the Company solely to fund the Company's initial investment in Newco and (ii)
the Series E Preferred Stock shall be applied by the Company solely to fund the
Company's subsequent development funding obligations in connection with Newco,
in each case, as provided herein and as set forth in the Subscription, Joint
Development and Operating Agreement, dated as of the date hereof, by and between
Newco, Elan Pharma International Limited, EIS and the Company (the "Development
Agreement").

               F.   The Company and EIS are executing and delivering on the date
hereof a Registration Rights Agreement (the "Sheffield Registration Rights
Agreements") in respect of the purchase of the Series D Preferred Stock, Series
E Preferred Stock, Series F Preferred Stock and the Sheffield Common Stock
underlying the Securities and any other shares of Sheffield capital stock
(including shares of preferred stock issued as dividends upon the Series D
Preferred Stock or Series E Preferred Stock) that may, at any time, be acquired
or owned by EIS or its affiliates.

               G.   The Company, EIS and Newco are executing and delivering on
the date hereof a Registration Rights Agreement (the "Newco Registration Rights
Agreements"), in respect of the purchase of Newco Common Stock and Newco
Preferred Stock by the Company and EIS. This Agreement, the Securities, the
Certificates of Designations, the Development Agreement, the Sheffield
Registration Rights Agreements, the Newco Registration Rights Agreements, the
Dividend Notes (as defined below) and each other document, promissory notes or
instrument executed and delivered, or to be executed and delivered as
contemplated hereby or thereby, in connection with the transactions contemplated
hereby, (the "Transaction Documents").

                              A G R E E M E N T:

          The parties agree as follows:

               SECTION 1.  Closings. (a) Time and Place. The closing of the
transactions contemplated hereby (the "Closing") shall occur on the date hereof
(the "Closing Date") at such place as the parties may agree.

               (b)  Issuance of Securities. At the Closing, (x) the Company
shall issue and sell to EIS, and EIS shall purchase from the Company (i) 12,015
shares of Series D Preferred Stock for an aggregate purchase price of
$12,015,000 and (ii) 5,000 shares of Series F Preferred Stock and the Warrant
for an aggregate purchase price of $4,397,500 and the surrender and cancellation
of the Promissory Note, dated September 30, 1999, issued by the Company to EIS
in the principal amount of $600,000.

               (c)  Delivery. At the Closing, EIS shall pay the purchase price
for the Series D Preferred Stock, the Series F Preferred Stock and the Warrant
by wire transfer to an account or accounts designated by the Company and the
parties hereto shall execute and deliver to each other, as applicable: (i) a
certificate or certificates for the shares of Series D Preferred Stock; (ii) the
Warrant; (iii) a certificate or certificates for the shares of the Series F
Preferred Stock; (iv) certificates as to the incumbency of the officers
executing this Agreement; and (v) each of the other documents or instruments
executed in connection herewith. In addition, at the Closing, the Company shall
cause to be delivered to EIS an opinion of counsel in form and substance
satisfactory to EIS.

               (d)  Additional Closings - Series E Preferred Stock. EIS shall be
obligated, subject to the conditions set forth in Section 6, during the first 36
months immediately after the Closing Date, to purchase from the Company all or a
portion of 4,005 shares of the Series E Preferred Stock for a purchase price per
share of $1,000, in accordance with Section 6 hereof.

               (e)  Exemption from Registration. The Securities will be issued
under an exemption or exemptions from registration under the Securities Act of
1933, as amended (the "Securities Act"); accordingly, the certificate or
certificates evidencing the Securities, and any shares of Sheffield Common
Stock, Newco Common

                                      -2-
<PAGE>

Stock or Newco Preferred Stock issuable upon the exercise, exchange or
conversion of any of the Securities shall, upon issuance, contain the following
legend:

         THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
         UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND
         MAY NOT UNDER ANY CIRCUMSTANCES BE TRANSFERRED WITHOUT AN
         EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER
         THE ACT OF AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
         OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT
         REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR APPLICABLE
         STATE SECURITIES LAWS.

               (f)  Registration Rights Agreement. On the date hereof, the
Company and EIS shall execute and deliver (i) the Sheffield Registration Rights
Agreement, covering the resale by EIS of the Sheffield Common Stock issuable
upon conversion, exercise or exchange of any of the Securities and (ii) the
Newco Registration Rights Agreement, covering the resale by EIS and the Company
of the Newco Common Stock issuable, directly or indirectly, upon exchange of any
of the Securities.

               SECTION 2.  Representations and Warranties of the Company. (a)
Organization. The Company is duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to own and lease its properties, to carry on its business as
presently conducted and as proposed to be conducted and to consummate the
transactions contemplated hereby. As of the date hereof, the Company is
qualified and in good standing to do business in jurisdictions set forth on
Schedule 2(a), which constitute all of the jurisdictions in which the nature of
the business conducted or the property owned by it requires such qualification,
except where the failure to so qualify would not have a material adverse effect
on the business, prospects, properties or condition (financial or otherwise) of
the Company (a "Material Adverse Effect").

               (b)   Capitalization. As of the date hereof, (i) the authorized
capital stock of the Company consists of (A) 60,000,000 shares of Sheffield
Common Stock, par value $0.01 per share and (B) 3,000,000 shares of Preferred
Stock, par value $0.01 per share, (w) 23,000 shares of which have been
designated as Series C Cumulative Preferred Stock, par value $0.01 per share
("Series C Preferred Stock"), (x) 21,000 shares of which have been designated
Series D Preferred Stock, (y) 9,000 shares of which have been designated as
Series E Preferred Stock and (z) 5,000 shares of which have been designated as
Series F Preferred Stock. As of the date hereof, 27,296,346 shares of Sheffield
Common Stock were issued and outstanding; 12,556 shares of Series C Preferred
Stock were issued and outstanding; and no shares of Series D Preferred Stock,
Series E Preferred Stock or Series F Preferred Stock were issued and
outstanding.

               (ii)  Except as listed in Schedule 2(b), as of the date hereof,
there are no options, warrants or other rights outstanding to purchase or
otherwise acquire, or any securities convertible into, any of the Company's
authorized capital stock. Other than as set forth in this Agreement and as
described in Schedule 2(b), there are no agreements, arrangements or
understandings concerning the voting, acquisition or disposition of any of the
Company's outstanding securities to which the Company is a party or of which it
is otherwise aware entered into since June 30, 1998. Other than as set forth in
Schedule 2(b) or in the Registration Rights Agreements, since June 30, 1998 the
Company has not entered into any agreement to register any of the Company's
outstanding securities under the U.S. federal securities laws relating to
securities that have not already been registered under the Securities Act.

               (iii) All of the outstanding shares of capital stock of the
Company have been issued in accordance with applicable state, federal and
foreign laws and regulations governing the sale and purchase of securities, all
of such shares have been duly and validly issued and all such shares are fully
paid and non-assessable, and none of such shares carries preemptive or similar
rights.

                                      -3-
<PAGE>

               (c)  Authorization of Transaction Documents. The Company has full
corporate power and authority to execute and deliver this Agreement and each of
the other Transaction Documents, and to perform its obligations hereunder and
thereunder. The execution, delivery and performance by the Company of the
Transaction Documents (including the issuance and sale of the Securities) have
been authorized by all requisite corporate actions by the Company; and the
Transaction Documents, including the issuance and sale of the Securities, have
been duly executed and delivered by the Company and are the valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms.

               (d)  No Violation. The execution, delivery and performance by the
Company of the Transaction Documents (including the issuance and sale of the
Securities and the issuance of all securities issuable upon the conversion,
exchange or exercise of any of the Securities), and compliance with the
provisions thereof, will not (i) violate any provision of applicable law,
statute, rule or regulation applicable to the Company or any ruling, writ,
injunction, order, judgment or decree of any court, arbitrator, administrative
agency or other governmental body applicable to the Company or any of their
respective properties or assets or (ii) conflict with or result in a breach of
any of the terms, conditions or provisions of, or constitute (with notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, or result in the creation of, any
Encumbrance (as defined below) upon any of the properties or assets of the
Company under its Certificate of Incorporation, as amended, its Certificates of
Designations (in the various forms to be filed as provided herein) or By-laws,
or any material contract to which the Company is a party, except where such
violation, conflict or breach would not, individually or in the aggregate, have
a Material Adverse Effect. As used herein, "Encumbrance" shall mean any liens,
charges, encumbrances, equities, claims, options, proxies, pledges, security
interests, or other similar rights of any nature, except for such conflicts,
breaches or defaults which would not, individually or in the aggregate, have a
Material Adverse Effect.

               (e)  Approvals. Except as set forth on Schedule 2(e), no material
permit, authorization, consent or approval of or by, or any notification of or
filing with, any person or entity (governmental or otherwise) is required in
connection with the execution, delivery or performance of the Transaction
Documents, including the issuance and sale of the Securities and the securities
issuable upon the conversion, exchange or exercise of any of the Securities, by
the Company. Except as set forth on Schedule 2(e), there is no approval of the
Company's stockholders required under any applicable statute, rule or regulation
in connection with the execution and delivery the Transaction Documents or the
consummation of the transactions contemplated thereby, including the filing of
the Certificates of Designations, the issuance of the Securities and the
securities issuable upon the conversion, exchange or exercise of any of the
Securities and the listing of the shares of Sheffield Common Stock issuable upon
the conversion, exercise or exchange of any of the Securities on the American
Stock Exchange.

               (f)  Filings, Taxes and Financial Statements. (i) The Company has
filed its annual report on Form 10-K for the year ended December 31, 1998 (the
"Annual Report"), its related proxy materials and the quarterly report on Form
10-Q for the quarter ended June 30, 1999 (the "Quarterly Report," together with
the Annual Report, including all exhibits and schedules required to be filed in
connection therewith, the "SEC Filings") with the Securities and Exchange
Commission, the American Stock Exchange, Inc., and any other required person or
entity (governmental or otherwise) in a timely manner and as otherwise required
by applicable laws and regulations, including the federal securities laws. The
audited financial statements of the Company for the fiscal year ended December
31, 1998 included in the Annual Report (the "Audited Financial Statements"), and
the Company's unaudited balance sheet for the period ending June 30, 1999,
together with the accompanying statements of operations and cash flows including
the notes thereto in the Quarterly Report (the "June Financial Statements";
collectively, with the Audited Financial Statements, the "Financial Statements")
are accurate and complete in all material respects and fairly present the
financial condition of the Company as at the dates thereof and have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated (except as may be otherwise
indicated in such financial statements or the notes thereto), subject, in the
case of the June Financial Statements, to normal year-end audit adjustments
(which shall not be material in the aggregate) and the absence of footnote
disclosures.

                                      -4-
<PAGE>

               (ii)  The Company has filed in a timely manner all material
federal, state, local and foreign tax returns, reports and filings
(collectively, "Returns"), including income, franchise, property and other
taxes, and has paid or accrued the appropriate amounts reflected on such
Returns. None of the Returns have been, or as of the date hereof and to the
knowledge of the Company, are currently being, audited or challenged, nor has
the Company received any notice of challenge nor have any of the amounts or
other data included in the Returns been challenged or reviewed by any
governmental authority.

               (iii) Except as disclosed in the SEC Filings or listed in
Schedule 2(f), which sets forth a true and accurate list and description of any
employee benefit plans maintained or sponsored by the Company or to which the
Company is required to make contributions, the Company does not maintain,
sponsor, and is not required to make contributions to or otherwise have any
liability with respect to any pension, profit sharing, thrift or other
retirement plan, employee stock ownership plan, deferred compensation, stock
ownership, stock purchase, performance share, bonus or other incentive plan,
severance plan, health or group insurance plan, welfare plan, or other similar
plan, agreement, policy or understanding (whether written or oral), whether or
not such plan is intended to be qualified under Section 401(a) of the Code,
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended, which plan covers any employee or former employee of
the Company.

               (g)   Absence of Changes. Except as set forth on Schedule 2(g),
since June 30, 1999 there has not been (a) any material adverse change in the
business, properties, condition (financial or otherwise), operations or
prospects of the Company; (b) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the business,
properties, condition (financial or otherwise), operations or prospects of the
Company; (c) any declaration, setting aside or payment of any dividend or other
distribution or payment (whether in cash, stock or property) in respect of the
capital stock of the Company (other than in respect of the Company's outstanding
Series C Preferred Stock), or any redemption or other acquisition of such stock
by the Company; (d) any disposal or lapse of any trade secret, invention,
patent, trademark, trademark registration, service mark, service mark
registration, copyright, copyright registration, or any application therefor or
filing in respect thereof that had a Material Adverse Effect; (e) loss of the
services of any of the key officers or key employees of the Company that had a
Material Adverse Effect; (f) other than with EIS, its subsidiaries and
affiliates, any incurrence of or entry into any liability, mortgage, lien,
commitment or transaction, including without limitation, any borrowing (or
assumption or guarantee thereof) or guarantee of a third party's obligations, or
capital expenditure (or lease in the nature of a conditional purchase of capital
equipment) in excess of $100,000; or (g) any material change by the Company in
accounting methods or principles or (h) any change in the assets, liabilities,
condition (financial or otherwise), results or operations or prospects of the
Company from those reflected on the Quarterly Report, except changes in the
ordinary course of business that have not, individually or in the aggregate, had
a Material Adverse Effect.

               (h)   No Liabilities. Except as set forth in the Quarterly Report
attached hereto, the Company has not incurred or suffered any liability or
obligation, matured or unmatured, contingent or otherwise, except in the
ordinary course of business that have individually or in the aggregate, had a
Material Adverse Effect.

               (i)   Properties and Assets; Etc. (i) The SEC Filings disclose
all patents and other intellectual property material to the business and
operations of the Company and all applications therefore and licenses,
sublicenses or agreements in respect thereof which the Company owns or has the
right to use or to which the Company is a party (the "Proprietary Rights"). The
Proprietary Rights are adequate for the conduct of the Company's business.
Except as set forth in the SEC Filings, the agreements evidencing the License
Arrangements, the licenses of Proprietary Rights to or from Systemic Pulmonary
Delivery, Ltd. or where the absence of which would not have a Material Adverse
Effect, (A) the Company is the sole and exclusive owner of all rights, title and
interest to all Proprietary Rights free and clear of all liens, claims, charges,
equities, rights of use, encumbrances and restrictions whatsoever, (B) the
Company does not have knowledge of any basis for any claim of infringement or
misappropriation contesting the validity or Company's right to use any
Proprietary Rights; (C) all of such patents, trademark registrations, service
mark registrations, trade name registrations and copyrights and copyright
registrations, whether foreign or domestic, have been duly issued and have not
been canceled, abandoned, or otherwise terminated; and (D) all of the Company's
patent applications, trademark applications,

                                      -5-
<PAGE>

service mark applications, trade name applications and copyright applications
have been duly filed.

               (ii)  Each of the contracts listed as an exhibit to the Company's
SEC Filings is a legal and valid agreement binding upon each of the parties
thereto and is in full force and effect except where the expiration or
termination have not, individually or in the aggregate, had a Material Adverse
Effect. To the best knowledge of the Company, there is no breach or default by
any party thereunder that had a Material Adverse Effect. Such contracts
constitute all material agreements, arrangements or understandings required to
be included as an exhibit in such reports under Item 601 of the Securities and
Exchange Commission Regulations.

               (iii) The Company has and maintains adequate and sufficient
insurance, including liability, casualty and products liability insurance,
covering risks associated with its business, properties and assets, including
insurance that is customary for companies similarly situated.

               (iv)  The Company, its business and properties and assets are in
compliance, in all material respects, with all applicable laws and regulations,
including without limitation, those relating to (a) health, safety and employee
relations, (b) environmental matters, including the discharge of any hazardous
or potentially hazardous materials into the environment, and (c) the
development, commercialization and sale of pharmaceutical and biotechnology
products, including all applicable regulations of the U.S. Food and Drug
Administration and comparable foreign regulatory authorities.

               (j)   Legal Proceedings, etc. Except as set forth on Schedule
2(j), there is no legal, administrative, arbitration or other action or
proceeding or governmental investigation pending or, to the Company's best
knowledge, threatened against the Company, or any director, officer or employee
of the Company, which is required to be described in the SEC Filings and is not
so described. The Company is not in violation of, or default under, any material
laws, judgments, injunctions, orders or decrees of any court, governmental
department, commission, agency, instrumentality or arbitrator applicable to its
business.

               (k)   Disclosure. The Company's SEC Filings and periodic reports
subsequently filed under Section 13 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the representations and warranties set forth
herein and the Transaction Documents, when viewed collectively, do not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements contained herein and therein not misleading in
light of circumstances in which they were made.

               (l)   Brokers or Finders. The Company has not retained any
investment banker, broker or finder in connection with the transactions
contemplated by the Transaction Documents, other than Tucker Anthony Cleary
Gull, the fee of which are payable solely by the Company.

               SECTION 3.  Representation and Warranties of EIS. EIS hereby
represents and warrants to the Company as follows:

               (a)   Organization. EIS is a corporation duly organized, validly
existing and in good standing under the laws of Bermuda and has all requisite
corporate power and authority to own and lease its properties, to carry on its
business as presently conducted and as proposed to be conducted and to
consummate the transactions contemplated hereby. EIS is qualified and in good
standing to do business in each jurisdiction in which the nature of the business
conducted or the property owned by it requires such qualification, except where
the failure to so qualify would not reasonably be expected to have a material
adverse effect on the business or condition (financial or otherwise) of EIS.

               (b)   Authorization of Agreement. EIS has full legal right, power
and authority to enter into this Agreement and perform its obligations
hereunder, which have been duly authorized by all requisite corporate action.
This Agreement and the purchase of the Securities are the valid and binding
obligations of EIS, enforceable against them in accordance with their terms.

                                      -6-
<PAGE>

               (c)   No Conflicts. The execution, delivery and performance by
EIS of this Agreement, the purchase and acceptance of the Securities and
compliance with provisions hereof by EIS, will not (i) violate any provisions of
applicable law, statute, rule or regulation applicable to EIS or any ruling,
writ, injunction, order, judgment or decree of any court, arbitration,
administrative agency or other governmental body applicable to EIS or any of its
properties or assets or (ii) conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute (with notice or lapse of time
to both) a default (or give rise to any right of termination, cancellation or
acceleration) under, or result in the creation of any Encumbrance upon any of
the properties or assets of EIS under its Certificate of Incorporation or By-
laws or any material contract to which EIS is party, except where such
violation, conflict or breach would not, individually or in the aggregate, have
a material adverse effect on EIS.

               (d)   Approvals. No permit, authorization, consents or approval
of or by, or any notification of or filing with, any person or entity
(governmental or otherwise) is required in connection with the execution,
delivery or performance of this Agreement (including the funding and acceptance
thereof) by EIS.

               (e)   Investment Representations. (i) EIS is an "accredited
investor" as defined in Rule 501(a) of Regulation D. EIS is sophisticated in
transactions of this type and capable of evaluating the merits and risks of the
transactions described herein and in the other Transaction Documents, has the
capacity to protect its own interests, has reviewed the SEC Filings, and is
aware of the risk factors relating to an investment in the Company as disclosed
in such filings. EIS has not been formed solely for the purpose of entering into
the transactions described herein and therein and is acquiring the Securities
for investment for its own account, not as a nominee or agent, and not with the
view to distribute or sell any part thereof; provided, that EIS shall be
permitted to convert, exchange or exercise such Securities and/or transfer them
as permitted herein and under applicable law. EIS has been afforded the
opportunity to ask questions of, and receive information about, the Company and
its business and prospects, from management and representatives of the Company,
and has relied on its own independent judgment in making a judgment about an
investment in the Securities.

               (ii)  Nothing contained in this Section 3(e) shall limit any of
the Company's representations or warranties or limit EIS's recourse in respect
thereof.

               (iii) EIS has not retained any investment banker, broker or
finder in connection with the transactions contemplated by the Transaction
Documents.

               SECTION 4. Covenants of the Company. (a) Non-disclosure. From and
after the date hereof, neither the Company nor EIS shall disclose to any person
or entity (other than its directors, officers and agents who need to know such
information in connection with the transactions described herein and the other
Transaction Documents, each of whom shall be informed of this confidentiality
provision and in respect of whose breaches the Company shall be responsible) the
content of this Agreement or any of the other Transaction Documents or the
substance of the transactions described herein, without the prior written
consent of the other party (which consent shall not be unreasonably withheld or
delayed), except to the extent required by applicable laws, regulations or
administrative or judicial processes in respect of press releases, periodic
reports or other public disclosure prepared in good faith by the Company or EIS;
provided, that EIS and the Company shall each provide the other with a
reasonable opportunity to review such releases or reports prior to release. This
Section 4(a) shall not be construed to prohibit disclosure of any information
which has not been previously determined to be confidential by EIS or the
Company, or which shall have become publicly disclosed (other than by breach
obligations of the Company or EIS hereunder).

               (b)   Fully-diluted Stock Ownership. (i) Notwithstanding any
other provision of this Agreement, in the event that EIS shall have determined
that at any time it (together with its affiliates, if applicable) holds or has
the right to receive Sheffield Common Stock (or securities or rights, options or
warrants exercisable, exchangeable or convertible for or into Sheffield Common
Stock) representing in the aggregate in excess of 19.9% of the outstanding
Sheffield Common Stock (assuming any such exercise, exchange or conversion, but
not the exercise, exchange or conversion of any other similar securities) or EIS
has otherwise determined that Elan would be required to equity account for its
investment in Sheffield, EIS shall have the right (but not the obligation), in
its sole discretion, rather than acquiring such securities from the Company, to
exchange such number of securities as are

                                      -7-
<PAGE>

necessary so that Elan shall not have to equity account, for non-voting,
convertible, liquidation preferred stock of the Company on terms mutually
acceptable to the Company and EIS such that EIS will not be required to account
for its investments under the equity method. In the event that EIS shall
undertake to exercise such right, EIS shall retain the additional right to
assign all or a portion of such convertible securities (including Sheffield
Common Stock issuable upon conversion thereof) to its affiliates. Each of EIS
and the Company shall use commercially reasonable efforts to effect such
transactions and any required subsequent conversions or adjustments to EIS's
securities position, on a quarterly basis, within 15 business days of the end of
each of EIS's fiscal quarter.

               (ii)  In the event that, after the first anniversary of the date
hereof, the payment to EIS of any dividend in kind upon the Series D Preferred
Stock or the Series E Preferred Stock would result in EIS's fully-diluted
ownership of Sheffield Common Stock to exceed 49.9%, such excess dividends
(I.E., dividends paid in kind, the payment of which would result in EIS's fully-
diluted ownership of Sheffield Common Stock exceeding 49.9%) shall be paid to
EIS through the issuance by the Company to EIS, in lieu of dividends, of
promissory notes with an aggregate principal amount equal to the amount of such
excess dividend that would otherwise be paid in kind (collectively, the
"Dividend Notes"). The Dividend Notes shall (i) bear interest of 7.0% per annum,
compounded semi-annually, compounding to commence six months after issuance,
which shall be payable through the issuance of additional Notes of like tenor
and (ii) mature and become immediately due and payable in full in cash on the
sixth anniversary of the date thereof.

               (c)   Certain Preemptive Rights. For a period of four years from
and after the date hereof, EIS shall be entitled to participate in any
convertible or exchangeable debt, equity, warrant or convertible securities
financing (the "Preemptive Right") undertaken by the Company (each, a "Capital
Raising"), in order that EIS may maintain its then current PRO RATA percentage
equity ownership interest (on a fully diluted basis) of the Company.
Notwithstanding the foregoing, the Preemptive Right shall terminate and be of no
further force and effect at such time as equity ownership interest of EIS and
its affiliates in the Company falls below 5%, on a fully-diluted basis. Such
participation by EIS shall be on terms no less attractive to EIS than those
offered to any other potential investor in a Capital Raising financing;
provided, that such Preemptive Right shall not apply to (i) any BONA FIDE
offering to the public pursuant to the Securities Act, or (ii) an offering of
securities solely in connection with (A) an acquisition of assets, merger,
consolidation or similar transaction with an unaffiliated third party, or (B) an
employee stock option plan.

               (d)   Use of Proceeds. The Company shall use all of the aggregate
proceeds of the sale of the Series D Preferred Stock and the Series E Preferred
Stock solely for the purpose of meeting its capitalization and funding
commitments to Newco.

               SECTION 5. Additional Covenants of the Parties. (a) Right of
Conversion. (i) EIS may, pursuant to the Series D Certificate of Designations,
after the second anniversary of the date hereof and prior to the sixth
anniversary of the date hereof, convert the Series D Preferred Stock into
Sheffield Common Stock as set forth in the Series D Certificate of Designations
(the "Series D Conversion Right").

               (ii)  EIS may, pursuant to the Series E Certificate of
Designations, after the second anniversary of the date hereof and prior to the
sixth anniversary of the date hereof, convert the Series E Preferred Stock into
Sheffield Common Stock as set forth in the Series E Certificate of Designations
(the "Series E Conversion Right", and together with the Series D Conversion
Right, collectively, the "Conversion Rights").

               (b)   Rights of Exchange. (i) NEWCO EQUITY EXCHANGE RIGHT. (A)
EIS may, at its option and in accordance with the Series D Certificate of
Designations, exchange in whole the originally issued shares of Series D
Preferred Stock, any Series D Preferred Stock issued as a dividend upon
outstanding Series D Preferred Stock, and all outstanding Dividend Notes held by
EIS, its subsidiaries and affiliates, for all shares of Newco Preferred Stock
issued by Newco to the Company pursuant to the Development Agreement, thereby
increasing EIS's fully-diluted ownership of outstanding Newco Common Stock to
50%, on a fully converted basis, assuming the conversion of such exchanged
shares of Newco Preferred Stock and all shares of Newco Preferred Stock
previously issued to EIS as described in Recital D above (the "Equity Exchange
Right"). After the exercise of the

                                      -8-
<PAGE>

Equity Exchange Right and the receipt by EIS of Newco Preferred Stock
convertible, together with all shares of Newco Preferred Stock previously issued
to EIS, into 50% of the outstanding Newco Common Stock, (I) the shares of Series
D Preferred Stock exchanged shall be cancelled and no longer entitle the holder
thereof to any rights with respect to the Company, and (II) all Dividend Notes
shall be immediately cancelled.

                     (B) The Equity Exchange Right shall terminate upon the
earlier of (x) exercise of the Series D Conversion Right by EIS and (y) the
sixth anniversary of the date hereof.

                     (C) If EIS exercises the Equity Exchange Right, EIS shall,
at its option, either (i) cause to be paid to the Company within thirty days of
the consummation of such equity exchange an amount equal to 30.1% of the
aggregate amount provided to Newco (by or on behalf of the Company and EIS and
their respective affiliates and subsidiaries) to fund the agreed upon initial
research and development budget of Newco (the "Development Funding") from and
after the Closing Date and prior to the date of exercise of the Equity Exchange
Right, (ii) surrender to the Company for cancellation shares of the Series E
Preferred Stock with an aggregate liquidation preference equal to 30.1% of
the aggregate amount of Development Funding provided to Newco (by or on behalf
of the Company and EIS and their respective affiliates and subsidiaries) from
and after the Closing Date and prior to the date of exercise of the Equity
Exchange Right, or (iii) elect to satisfy such obligation with a combination of
the payment methods set forth in clauses (i) and (ii) above.

               (ii)  SHEFFIELD DEBT EXCHANGE. All shares of Series D Preferred
Stock (including all shares issued as dividends thereon), all shares of Series E
Preferred (including all shares issued as dividends thereon) and all outstanding
Dividend Notes shall be exchanged by the Company for one or more promissory
notes with an aggregate principal amount equal to the sum of (A) the aggregate
principal amount of all outstanding Dividend Notes and all accrued and unpaid
interest thereon, (B) the aggregate liquidation preference of all shares of
Series D Preferred Stock (including all shares issued as dividends thereon and
all accrued but unpaid dividends thereon) and (C) the aggregate liquidation
preference of all shares of Series E Preferred Stock (including all shares
issued as dividends thereon and all accrued but unpaid dividends thereon) (the
"Debt Exchange"), unless on or before the first anniversary of the Closing Date,
the Company has provided to EIS (and any permitted transferee of EIS) written
evidence that (I) the issuance of the Series D Preferred Stock and the Series E
Preferred Stock and the issuance and listing upon the American Stock Exchange
("AMEX") of the shares of Sheffield Common Stock to be issued upon the
conversion of the Series D Preferred Stock and the Series E Preferred Stock has
been approved or ratified by the stockholders of the Company in accordance with
the General Corporation Law of the State of Delaware and the rules and
regulations of the AMEX or (II) that such approval or ratification is not
required by the applicable rules of the AMEX. The promissory notes to be issued
upon the consummation of the Debt Exchange shall be in the form attached to the
Series D Certificate of Designations, the Series E Certificate of Designations
and the Dividend Notes.

               (c)   Further Assurances. From and after the date hereof, each of
the parties hereto agree to do or cause to be done such further acts and things
and deliver or cause to be delivered to each other such additional assignments,
agreements, powers and instruments, as each may reasonably require or deem
advisable, to carry into effect the purposes of this Agreement and the other
Transaction Documents or to better to assure and confirm unto each other their
respective rights, powers and remedies hereunder and thereunder.

                                      -9-
<PAGE>

               SECTION 6. Series E Preferred Stock. (a) Issuance. (i) As of the
date hereof and until the date which is the 36 month anniversary of the date
hereof, EIS shall be required, at the Company's option as exercised by written
notice to EIS, to purchase shares of Series E Preferred Stock, to be issued
pursuant to the Series E Certificate of Designations, for aggregate
consideration of up to $4,005,000, at a price per share of $1,000 and
[REDACTED].

               (b)  Conditions to the Purchase of Series E Preferred Stock. It
shall be a condition to EIS's obligation to purchase the Series E Preferred
Stock that (A) each of the representations and warranties set forth in Section 2
of this Agreement shall be true and correct in all material respects as if the
date hereof were the proposed funding date thereof; provided, that any reference
to the Quarterly Report shall refer to the most recent quarterly report on Form
10-Q and/or any report filed pursuant to Section 13 of the Exchange Act,
required to be filed by the Company under applicable law immediately prior to
such funding date and SEC Filings shall refer to all filings required to be made
by the Company under applicable law on or prior to such date, (B) there shall be
no default or breach in any material respect by the Company or Newco of a
material obligation under any of the Transaction Documents or any other
agreement between the Company or Newco or any of its affiliates, on the one
hand, and EIS or any of their affiliates, on the other hand, and [REDACTED].

               SECTION 7. Survival and Indemnification. (a) Survival Period. The
representations and warranties of the Company and EIS contained herein shall
survive for a period of one year from and after the date hereof.

               (b)  Indemnification. In addition to all rights and remedies
available to the parties hereunder at law or in equity, each party hereto (in
such capacity, an "Indemnifying Party") shall indemnify each other party hereto,
and its respective affiliates, and its respective affiliates' stockholders,
officers, directors, employees, agents, representatives, successors and assigns
(collectively, the "Indemnified Person"), and save and hold each Indemnified
Person harmless from and against and pay on behalf of or reimburse each such
Indemnified Person, as and when incurred, for any and all loss, liability,
demand, claim, action, cause of action, cost, damage, deficiency, tax, penalty,
fine or expense, whether or not arising out of any claims by or on behalf of
such Indemnified Person or any third party, including interest, penalties,
reasonable attorneys' fees and expenses and all amounts paid in investigation,
defense or settlement of any of the foregoing (collectively, "Losses"), that any
such Indemnified Person may suffer, sustain, incur or become subject to, as a
result of, in connection with, relating, or incidental, to or by virtue of:

               (i)  any misrepresentation or breach of warranty on the part of
the Indemnifying Party under Section 2 or 3 of this Agreement; or

               (ii) any nonfulfillment, default or breach of any covenant or
agreement on the part of the Indemnifying Party under Section 4, 5 or 6 of this
Agreement.

               (c)  Maximum Recovery. Notwithstanding anything in this Agreement
to the contrary, in no event shall the Company be liable for indemnification
under this Section 7, the Transaction Documents, or otherwise, in an amount in
excess of [REDACTED] in the aggregate. No Indemnified Party shall assert any
such claim unless Losses in respect thereof incurred by any Indemnified Party,
when aggregated with all previous Losses hereunder, equal or exceed $50,000; and
after the $50,000 threshold is reached, each Indemnified Person shall be
entitled to be indemnified for the amount of all claims arising hereunder in
excess of $50,000.

               (d)  Exception. Notwithstanding the foregoing, and subject to the
following sentence, upon judicial determination that is final and no longer
appealable that the act or omission giving rise to the indemnification set forth
above resulted primarily out of or was based primarily upon the Indemnified
Person's negligence (unless such Indemnified Person's negligence was based upon
the Indemnified Person's reliance in good faith upon any of the representations,
warranties, covenants or promises made by the Indemnifying Party herein) the
Indemnifying Party shall not be responsible for any Losses sought to be
indemnified in connection therewith, and the Indemnifying Party shall be
entitled to recover from the Indemnified Person all amounts previously paid in
full or partial satisfaction of such indemnity, together with all costs and
expenses (including reasonable attorney's fees)

                                      -10-
<PAGE>

of the Indemnifying Party reasonably incurred in connection with the Indemnified
Party's claim for indemnity, together with interest at the rate per annum
publicly announced by Morgan Guaranty Trust Company as its prime rate from the
time of payment of such amounts to the Indemnified Person until repayment to the
Indemnifying Party.

               (e)  Investigation. All indemnification rights hereunder shall
survive the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby to the extent provided in Section 7(b) above,
irrespective of any investigation, inquiry or examination made for or on behalf
of the Indemnified Person or the acceptance of any certificate or opinion.

               (f)  Contribution. If the indemnity provided for in this Section
7 is in whole or in part unavailable to any Indemnified Person due to Section
7(b) being declared unenforceable by a court of competent jurisdiction based
upon reasons of public policy, so that Section 7(b) shall be insufficient to
hold each such Indemnified Person harmless from Losses which would otherwise be
indemnified hereunder, then the Indemnifying Party and the Indemnified Person
shall each contribute to the amount paid or payable for such Loss in such
proportion as is appropriate to reflect not only the relative benefits received
by the Indemnifying Party on the one hand and the Indemnified Person on the
other, but also the relative fault of the Indemnifying Party and be in addition
to any liability that the Indemnifying Party may otherwise have. Subject to
Section 7(g) hereunder, the indemnity, contribution and expense reimbursement
obligations that the Indemnifying Party has under this Section 7 shall survive
the expiration of the Transaction Documents. The parties hereto further agree
that the indemnification and reimbursement commitments set forth in this
Agreement shall apply whether or not the Indemnified Person is a formal party to
any such lawsuit, claims or other proceedings.

               (g)  Limitation. No claim shall be brought by an Indemnified
Person in respect of any misrepresentation or breach of warranty under this
Agreement after one year from and after the date hereof; and any claim for
nonfulfillment, default or breach of any covenant shall be brought within one
year of the date that such Indemnified Person became aware or should have become
aware of the nonfulfillment, default or breach. Except as set forth in the
previous sentence and in Section 7(c) above, this Section 7 is not intended to
limit the rights or remedies otherwise available to any party hereto with
respect to this Agreement or the other Transaction Documents.

               SECTION 8. Notices. All notices, demands and requests of any kind
to be delivered to any party in connection with this Agreement shall be in
writing and shall be deemed to have been duly given if personally or hand
delivered or if sent by an internationally-recognized overnight delivery service
or by registered or certified airmail, return receipt requested and postage
prepaid, addressed as follows:

                         (i)  if to the Company:

                                Sheffield Pharmaceuticals, Inc.
                                South Winton Court
                                3136 Winton Road South
                                Suite 306
                                Rochester, NY 14623
                                Attention: Chairman

                         and

                                Sheffield Pharmaceuticals, Inc.
                                425 South Woodsmill Road
                                St. Louis, Missouri 63017-3441
                                Attention: Chief Executive Officer
                                with a copy to:

                                Olshan Grundman Frome, Rosenzweig & Wolosky LLP
                                505 Park Avenue
                                New York, NY 10022
                                Attention: Daniel J. Gallagher

                                      -11-
<PAGE>

                         (ii)  if to EIS:

                                 Elan International Services, Ltd.
                                 Flatts, Smiths Parish
                                 Bermuda, FL04
                                 Attention: Director

                                 with a copy to:

                                 Brock Silverstein LLC
                                 800 Third Avenue, 21st Floor
                                 New York, New York 10022
                                 Attention: Scott Rosenblatt

or to such other address as the party to whom notice is to be given may have
furnished to the other party hereto in writing in accordance with provisions of
this Section 8. Any such notice or communication shall be deemed to have been
received (i) in the case of personal or hand delivery, on the date of such
delivery, (ii) in the case of an internationally-recognized overnight delivery
service, on the second business day after the date when sent and (iii) in the
case of mailing, on the fifth business day following that day on which the piece
of mail containing such communication is posted. Notice hereunder may be given
on behalf of the parties by their respective attorneys.

               SECTION 9.  Entire Agreement. This Agreement and the other
Transaction Documents contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto.

               SECTION 10. Amendments. This Agreement may not be modified or
amended, or any of the provisions hereof waived, except by written agreement of
the Company and EIS.

               SECTION 11. Counterparts and Facsimile. The Transaction Documents
may be executed in any number of counterparts, and each such counterpart hereof
shall be deemed to be an original instrument, but all such counterparts together
shall constitute one agreement. Each of the Transaction Documents may be signed
and delivered to the other party by facsimile transmission.

               SECTION 12. Headings.  The section and paragraph headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of the Agreement.

               SECTION 13. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
giving effect to principles of conflicts of laws. Each of the parties hereby
irrevocably submits to the jurisdiction of any New York State or United States
Federal court sitting in the county, city and state of New York over any action
or proceeding arising out of or relating to this Agreement or the other
Transaction Documents; and each hereby waives the defense of an inconvenient
forum for the maintenance of such an action.

               SECTION 14. Expenses. Each of the parties hereto shall be
responsible for its own costs and expenses incurred in connection with the
transactions contemplated hereby and by the other Transaction Documents.

               SECTION 15. Public Releases; Etc. The parties shall reasonably
agree upon the contents of any press release or releases and other public
disclosure in respect of the transactions contemplated hereby, and except as may
otherwise be required by applicable law or judicial or administrative process or
which the Company concludes in good faith is required by applicable securities
laws and regulations.

                                      -12-
<PAGE>

               SECTION 16. Schedules, etc. All statements contained in any
exhibit or schedule delivered by or on behalf of the parties hereto, or in
connection with the transactions contemplated hereby, are an integral part of
this Agreement and shall be deemed representations and warranties hereunder.

               SECTION 17. Assignments. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, subject to compliance with
the representations and warranties contained in Section 3(e) of this Agreement.
This Agreement, the Transaction Documents, and the Securities may be assigned by
EIS to its affiliates and subsidiaries.

               SECTION 18. Currency. All references to "$" or dollars herein
shall mean United States dollars.

                                      -13-
<PAGE>

               IN WITNESS WHEREOF, each of the undersigned has duly executed
this Securities Purchase Agreement as of the date first written above.


                               SHEFFIELD PHARMACEUTICALS, INC.

                               By: /s/ Loren G. Peterson
                                   -------------------------
                                  Name:
                                  Title:


                               ELAN INTERNATIONAL SERVICES, LTD.

                               By:/s/ Kevin Insley
                                  ---------------------------
                                  Name:
                                  Title: