Document:

<PAGE>   1
                                                                    EXHIBIT 10.1

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

             SUBSCRIPTION, JOINT DEVELOPMENT AND OPERATING AGREEMENT

                              ELAN CORPORATION, PLC
         (ACTING THROUGH ITS DIVISION ELAN PHARMACEUTICAL TECHNOLOGIES)

                                       AND

                        ELAN INTERNATIONAL SERVICES, LTD.

                                       AND

                        ELAN PHARMA INTERNATIONAL LIMITED

                                       AND

                           ISIS PHARMACEUTICALS, INC.

                                       AND

                                 HEPASENSE LTD.

                                JANUARY 14, 2000

                                       1
<PAGE>   2

                                      INDEX

<TABLE>
<S>         <C>
CLAUSE 1    DEFINITIONS

CLAUSE 2    HEPASENSE'S BUSINESS

CLAUSE 3    REPRESENTATIONS AND WARRANTIES

CLAUSE 4    AUTHORIZATION AND CLOSING

CLAUSE 5    DIRECTORS; MANAGEMENT AND R&D COMMITTEES

CLAUSE 6    THE BUSINESS PLAN AND REVIEWS

CLAUSE 7    RESEARCH AND DEVELOPMENT

CLAUSE 8    COMMERCIALIZATION

CLAUSE 9    OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS/NONCOMPETITION

CLAUSE 10   SUBLICENSE AND ASSIGNMENT RIGHTS

CLAUSE 11   INTELLECTUAL PROPERTY RIGHTS

CLAUSE 12   CROSS LICENSING/EXPLOITATION OF PRODUCTS OUTSIDE FIELD

CLAUSE 13   REGULATORY

CLAUSE 14   MANUFACTURING

CLAUSE 15   TECHNICAL SERVICES AND ASSISTANCE

CLAUSE 16   AUDITORS, BANKERS, REGISTERED OFFICE,
            ACCOUNTING REFERENCE DATE; SECRETARY; COUNSEL

CLAUSE 17   TRANSFER OF SHARES; RIGHTS OF FIRST OFFER; TAG ALONG RIGHTS

CLAUSE 18   MATTERS REQUIRING STOCKHOLDERS' APPROVAL
</TABLE>

                                       2
<PAGE>   3

<TABLE>
<S>         <C>
CLAUSE 19   DISPUTES

CLAUSE 20   TERMINATION

CLAUSE 21   SHARE RIGHTS

CLAUSE 22   CONFIDENTIALITY

CLAUSE 23   COSTS

CLAUSE 24   GENERAL
</TABLE>

                                       3
<PAGE>   4

THIS SUBSCRIPTION, JOINT DEVELOPMENT AND OPERATING AGREEMENT made this 14th day
of January, 2000

BETWEEN:

(1)  ELAN CORPORATION, PLC, a public limited company incorporated under the laws
     of Ireland, acting through its division ELAN PHARMACEUTICAL TECHNOLOGIES
     and having its registered office at Lincoln House, Lincoln Place, Dublin 2,
     Ireland ("ELAN, PLC");

(2)  ELAN INTERNATIONAL SERVICES, LTD., a Bermuda exempted limited liability
     company incorporated under the laws of Bermuda, and having its registered
     office at Clarendon House, 2 Church St., Hamilton, Bermuda ("EIS");

(3)  ELAN PHARMA INTERNATIONAL LIMITED, a private limited company incorporated
     under the laws of Ireland, and having its registered office at WIL House,
     Shannon Business Park, Shannon, County Clare, Ireland ("EPIL");

(4)  ISIS PHARMACEUTICALS, INC. a corporation duly incorporated and validly
     existing under the laws of Delaware and having its principal place of
     business at 2292 Faraday Avenue, Carlsbad, CA 92008, United States of
     America ("ISIS"); and

(5)  HEPASENSE LTD., a Bermuda exempted limited liability company incorporated
     under the laws of Bermuda, and having its registered office at Clarendon
     House, 2 Church St., Hamilton, Bermuda ("HEPASENSE").

RECITALS:

A.   HepaSense desires to issue and sell to the Shareholders (as defined below),
     and the Shareholders desire to purchase from HepaSense, for aggregate
     consideration of fifteen million United States Dollars (US$15,000,000),
     apportioned between them as set forth herein, shares of HepaSense's common
     shares, par value $1.00 per share (the "COMMON SHARES") and shares of
     HepaSense's preferred shares, par value $1.00 per share (the "PREFERRED
     SHARES").

B.   As of the date hereof, Elan Pharmaceutical Technologies, a division of Elan
     ("EPT") and EPIL have entered into a license agreement with HepaSense, and
     Isis has entered into a license agreement with HepaSense, in connection
     with the license to HepaSense of the Elan Intellectual Property and the
     Isis Intellectual Property, respectively (each as defined below).

                                       4
<PAGE>   5

C.   Elan and Isis have agreed to co-operate in the research, development and
     commercialization of the Products (as defined below) based on their
     respective technologies.

D.   Elan and Isis have agreed to enter into this Agreement for the purpose of
     recording the terms and conditions regulating their relationship with each
     other, with respect to the Licensed Technologies and with HepaSense.

NOW IT IS HEREBY AGREED AS FOLLOWS:

                                    CLAUSE 1

                                   DEFINITIONS

1.1     In this Agreement, the following terms shall, where not inconsistent
        with the context, have the following meanings respectively.

        "ADDITIONAL PRODUCTS" shall mean the pharmaceutical formulation
        incorporating an Additional Oligonucleotide and incorporated within or
        packaged with the System.

        "ADDITIONAL OLIGONUCLEOTIDES" shall mean another Oligonucleotide from
        the Isis portfolio of Oligonucleotides nominated by Isis and accepted by
        Elan to be incorporated within or packaged with the System for
        commercialization. For the avoidance of doubt, the Parties acknowledge
        that any Additional Oligonucleotide shall be at least at the same stage
        of development as the Designated Oligonucleotide, i.e., shall be ready
        for clinical testing.

        "AFFILIATE" of any Person (in the case of a legal entity) shall mean any
        other Person controlling, controlled or under the common control of such
        first Person, as the case may be. For the purposes of this definition,
        "control" shall mean direct or indirect ownership of fifty percent (50%)
        or more of the stock or shares entitled to vote for the election of
        directors or capital interests representing at least 50% of the equity
        thereof and "controlling" and "controlled" shall be construed
        accordingly. HepaSense is not an Affiliate of Elan or EIS.

        "AGREEMENT" shall mean this agreement (which expression shall be deemed
        to include the Recitals and the Schedules hereto).

        "BOARD" shall mean the board of directors of HepaSense.

        "BUSINESS" shall mean the business specified in the Business Plan.

                                       5
<PAGE>   6

        "BUSINESS PLAN" shall mean the business plan and program of development
        to be agreed by Elan and Isis pursuant to Clause 6, with respect to the
        research, development, and commercialization of the Products that shall
        contain, among other things, to the extent practicable, the research and
        development objectives, desired Product specifications, clinical
        indications, preliminary clinical trial designs (Phase I/II),
        development timelines, budgeted costs and the relative responsibilities
        of Isis and Elan as it relates to the implementation of the Business
        Plan.

        "CLOSING DATE" shall mean the date upon which the Definitive Documents
        are executed and delivered by the Parties and the transactions effected
        thereby are closed.

        "COMMON SHARES EQUIVALENTS" shall mean any options, warrants, rights or
        any other securities convertible, exercisable or exchangeable, in whole
        or in part, for or into Common Shares.

        "CERTIFICATE OF DESIGNATIONS" shall mean that certain certificate of
        designations, preferences and rights of Series B Preferred Shares of
        Isis issued on the date hereof.

        "CHANGE OF CONTROL" shall mean, with respect to a Party, the acquisition
        of fifty percent (50%) or more of its voting securities, the ability, by
        contract or otherwise, to control the board of directors or management
        of any such entity, or a sale of all or substantially all of the
        business of such Party to which the Transaction Documents relate,
        whether by merger, sale of stock, sale of assets or otherwise.

        "CONVERTIBLE NOTE" shall mean that certain convertible promissory note,
        of even date herewith, by and between Isis and EIS.

        "DEFINITIVE DOCUMENTS" shall mean this Agreement, the Funding Agreement,
        the Elan License Agreement, the Isis License Agreement, the Convertible
        Note, the Isis Securities Purchase Agreement, the Registration Rights
        Agreements, the Certificate of Designations and associated documentation
        of even date herewith, by and between Isis, Elan, EIS and HepaSense, as
        applicable.

        "DESIGNATED OLIGONUCLEOTIDE" shall mean Isis 14803.

        "DIRECTORS" shall mean, at any time, the directors of HepaSense.

        "EIS DIRECTOR" has the meaning set forth in Clause 5.

        "ELAN" shall mean Elan, plc and EPIL.

                                       6
<PAGE>   7

        "ELAN IMPROVEMENTS" has the meaning assigned thereto in the Elan License
        Agreement.

        "ELAN INTELLECTUAL PROPERTY" has the meaning assigned thereto in the
        Elan License Agreement.

        "ELAN KNOW-HOW" has the meaning assigned thereto in the Elan License
        Agreement.

        "ELAN LICENSE AGREEMENT" shall mean the license agreement between Elan
        and HepaSense, of even date herewith, attached hereto in Schedule 1.

        "ELAN PATENT RIGHTS" has the meaning assigned thereto in the Elan
        License Agreement.

        "ELAN RIGHT OF FIRST NEGOTIATION" shall have the meaning provided in
        Clause 8.3 hereof.

        "ENCUMBRANCE" shall mean any liens, charges, encumbrances, equities,
        claims, options, proxies, pledges, security interests, or other similar
        rights of any nature.

        "EXCHANGE RIGHT" has the meaning assigned to such term in the
        Certificate of Designations in effect on the date hereof.

        "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
        amended.

        "FDA" shall mean the United States Food and Drug Administration or any
        successors or agency the approval of which is necessary to market a
        product in the United States of America.

        "FIELD" shall mean the administration of the Designated Oligonucleotide
        by all routes of administration. Upon nomination by Isis and acceptance
        by Elan of an Additional Oligonucleotide, the parties shall amend the
        definition of the Field to include the administration of the Additional
        Oligonucleotide by such means of administration as agreed to by the
        parties.

        Notwithstanding the foregoing, the Parties acknowledge and agree that,
        pursuant to existing agreement among Elan, Isis and Orasense Ltd, both
        Isis and Elan and their Affiliates may be subject to certain
        restrictions concerning the development and commercialization of
        products comprised upon the Oral administration of any Oligonucleotide.

        "FINANCIAL YEAR" shall mean each year commencing on January 1 (or in the
        case of the first Financial Year, the date hereof) and expiring on
        December 31 of each year.

                                       7
<PAGE>   8

        "FULLY DILUTED COMMON SHARES" shall mean all of the issued and
        outstanding Common Shares, assuming the conversion, exercise or exchange
        of all outstanding Common Shares Equivalents.

        "FUNDING AGREEMENT" shall mean the Funding Agreement, dated as of the
        date hereof, between EIS and Isis.

        "HCV" shall mean the hepatitis C virus.

        "HEPASENSE BYE-LAWS" shall mean the Memorandum of Association and
        Bye-Laws of HepaSense Ltd.

        "HEPASENSE INTELLECTUAL PROPERTY" shall mean HepaSense Patents and
        HepaSense Know How. In addition to the foregoing, any enhancement or
        improvement relating to both the System and the Isis Know-How or Isis
        Patents developed by any of the Parties individually or jointly pursuant
        to the Project or by a third party (under contract with HepaSense)
        pursuant to the Project shall, except as limited by agreements with
        third parties, be deemed to be HepaSense Intellectual Property.

        "HEPASENSE KNOW-HOW" shall mean any and all rights owned, licensed or
        controlled by HepaSense to any scientific, pharmaceutical or technical
        information, data, discovery, invention (whether patentable or not),
        technique, process, procedure, system, formulation or design that is not
        generally known to the public arising out of the conduct of the Project
        by any person that does not constitute Elan Improvements or Isis
        Improvements.

        "HEPASENSE PATENTS" shall mean any and all patents and patent
        applications arising out of the conduct of the Project by any person
        that does not constitute Elan Improvements or Isis Improvements and all
        rights therein, and including all extensions, continuations,
        continuations-in-part, divisionals, patents-of-additions,
        re-examinations, re-issues, supplementary protection certificates and
        foreign counterparts thereto owned or licensed to HepaSense.

        "ISIS DIRECTORS" has the meaning set forth in Clause 5.

        "ISIS FIELD" has the meaning assigned thereto in the Isis License
        Agreement.

        "ISIS IMPROVEMENTS" has the meaning assigned thereto in the Isis License
        Agreement.

        "ISIS INTELLECTUAL PROPERTY" has the meaning assigned thereto in the
        Isis License Agreement.

                                       8
<PAGE>   9

        "ISIS KNOW-HOW" has the meaning assigned thereto in the Isis License
        Agreement.

        "ISIS LICENSE AGREEMENT" shall mean the license agreement between Isis
        and HepaSense, of even date herewith, attached hereto in Schedule 2.

        "ISIS PATENT RIGHTS" has the meaning assigned thereto in the Isis
        License Agreement.

        "ISIS SECURITIES PURCHASE AGREEMENT" shall mean that certain securities
        purchase agreement, of even date herewith, by and between Isis and EIS.

        "ISIS 14803" shall mean the Oligonucleotide described in Exhibit A to
        the Isis License Agreement.

        "LICENSE AGREEMENTS" shall mean the Elan License Agreement and the Isis
        License Agreement.

        "LICENSED TECHNOLOGIES" shall mean, collectively, the Elan Intellectual
        Property and the Isis Intellectual Property.

        "OLIGONUCLEOTIDE" shall mean any single stranded, [ * ] oligonucleotide
        including those [ * ] used as a human therapeutic and/or prophylactic
        compound containing between [ * ] nucleotides and/or nucleosides
        including oligonucleotide analogs which may include [ * ]. For purposes
        of this agreement, Oligonucleotide shall specifically exclude
        oligonucleotides used in gene therapy except [ * ] an oligonucleotide,
        oligonucleotides used as [ * ] or oligonucleotides used as adjuvants.
        Oligonucleotide shall also specifically exclude polymers in which the
        linkages are amide based, such as peptides and proteins and shall also
        exclude [ * ].

        "ORAL" shall mean administration by way of the mouth for the purpose of
        topical or systemic delivery by way of the alimentary canal.

        "PARTICIPANT" shall mean Isis or Elan, as the case may be, and
        "PARTICIPANTS" shall mean both of the Participants together.

        "PARTY" shall mean Elan, Isis, or HepaSense, as the case may be, and
        "PARTIES" shall mean all three together.

                                               *CONFIDENTIAL TREATMENT REQUESTED

                                       9
<PAGE>   10

        "PERSON" shall mean an individual, partnership, corporation, limited
        liability company, business trust, joint stock company, trust,
        unincorporated association, joint venture, governmental entity or
        authority or other entity of whatever nature.

        "PERMITTED TRANSFEREE" shall mean any Affiliate or subsidiary of Elan,
        EIS or Isis, to whom this Agreement may be assigned, in whole or in
        part, pursuant to the terms hereof or in the case of Elan/EIS, a special
        purpose financing entity created by Elan or EIS or their respective
        affiliates.

        "PRODUCT" shall mean the pharmaceutical formulation incorporating the
        Designated Oligonucleotide for [ * ] within the Field, including,
        without limitation, the incorporation of the Designated Oligonucleotide
        within or packaged with the System.

        "PROJECT" shall mean all activity as undertaken by or on behalf of
        HepaSense in order to develop the Products in accordance with the
        Business Plan.

        "REGISTRATION RIGHTS AGREEMENTS" shall mean the Registration Rights
        Agreements of even date herewith relating to HepaSense and Isis,
        respectively.

        "REGULATORY APPLICATION" shall mean any regulatory application or any
        other application for marketing approval for a Product, which HepaSense
        will file in any country of the Territory, including any supplements or
        amendments thereto.

        "REGULATORY APPROVAL" shall mean the final approval to market a Product
        in any country of the Territory, and any other approval which is
        required to launch the Product in the normal course of business. "RHA"
        shall mean any relevant government health authority (or successor agency
        thereof) in any country of the Territory whose approval is necessary to
        market a Product in the relevant country of the Territory.

        "RESEARCH AND DEVELOPMENT TERM" shall mean shall mean the period
        commencing on the Closing Date and continuing for a period of [ * ]
        thereafter.

        "SECURITIES ACT" shall mean the Securities Act of 1933, as amended.

        "SHARES" shall mean the shares of Common Shares and shares of Preferred
        Shares of HepaSense.

        "SHAREHOLDER" shall mean any of EIS, Isis, any Permitted Transferee or
        any other Person who subsequently becomes bound by this Agreement as a
        holder of the Shares, and "SHAREHOLDERS" shall mean all of the
        Shareholders together.

                                               *CONFIDENTIAL TREATMENT REQUESTED

                                       10
<PAGE>   11

        "SUBSIDIARY" shall mean any company that is a subsidiary of HepaSense
        within the meaning of applicable laws.

        "SUBSTITUTE OLIGONUCLEOTIDE" shall have the meaning set forth in Clause
        8 hereof.

        "SYSTEM" shall mean an ambulatory drug delivery system for direct
        attachment to the body of a patient having a flexible diaphragm drug
        reservoir, which is capable of delivering factory pre-programmed
        continuous amounts of drug upon activation as disclosed and described in
        the Elan Patents set forth in Schedule 1 to the Elan License Agreement.

        "TECHNOLOGICAL COMPETITOR OF ELAN" shall mean any entity which has a
        significant program for the development of drug delivery systems and
        which is active in promoting and contracting the use of such drug
        delivery systems to third parties, a listing of which is contained on
        Schedule 2B to the Elan License Agreement, as the same shall be updated
        and revised on an annual basis by mutual consent of the Parties.

        "TECHNOLOGICAL COMPETITOR OF ISIS" shall mean any entity which has a
        significant program for the discovery and development of antisense
        drugs, a listing of which is contained on Schedule 2 to the Elan License
        Agreement, as the same shall be updated and revised on an annual basis
        by mutual consent of the Parties.

        "TERM" shall mean the term of this Agreement.

        "TERRITORY" shall mean all of the countries of the world.

        "UNITED STATES DOLLAR" and "US$" and "$" shall mean the lawful currency
        of the United States of America.

1.2     In addition, the following definitions have the meanings in the Clauses
        corresponding thereto, as set forth below.

<TABLE>
<CAPTION>
     DEFINITION                            CLAUSE
     ----------                            ------
<S>                                        <C>
     "AAA"                                 20.6
     "Buyout Option"                       20.7
     "Closing"                             4.2
     "Common Shares"                       Recital
     "Confidential Information"            22.1
     "Co-sale Notice"                      17.4
     "Elan Valuation"                      20.8
</TABLE>

                                       11
<PAGE>   12

<TABLE>
<S>                                        <C>
     "Expert"                              19.3
     "Isis Employee Director"              5.1.4
     "Isis Valuation"                      20.8
     "Management Committee"                5.2.1
     "Notice of Exercise"                  17.3
     "Notice of Intention"                 17.3
     "Offered Shares"                      17.3
     "Offering Price"                      17.3
     "Preferred Shares"                    Recital
     "Purchase Price"                      20.8
     "R&D Committee"                       5.2.2
     "Remaining Shareholders"              17.4
     "Relevant Event"                      20.2
     "Selling Shareholder"                 17.3
     "Tag-Along Right"                     17.4
     "Transaction Proposal"                17.3
     "Transfer"                            17.1
     "Transferee Terms"                    17.4
     "Transferring Shareholder"            17.4
</TABLE>

1.3     Words importing the singular shall include the plural and vice versa.

1.4     Unless the context otherwise requires, reference to a recital, article,
        paragraph, provision, clause or schedule is to a recital, article,
        paragraph, provision, clause or schedule of or to this Agreement.

1.5     Reference to a statute or statutory provision includes a reference to it
        as from time to time amended, extended or re-enacted.

1.6     The headings in this Agreement are inserted for convenience only and do
        not affect its construction.

1.7     Unless the context or subject otherwise requires, references to words in
        one gender include references to the other genders.

1.8     Capitalized terms used but not defined herein shall have the meanings
        ascribed in the Definitive Documents, if defined therein.

                                    CLAUSE 2

                                    BUSINESS

2.1     The primary objective of the Agreement is to regulate the business of
        the development, testing, registration, manufacture, commercialization
        and licensing of Products in the Territory and to achieve the other
        objectives set out in this

                                       12
<PAGE>   13

        Agreement. The focus of the Business will be to develop the Products
        using the Elan Intellectual Property, the Isis Intellectual Property and
        the HepaSense Intellectual Property to agreed-upon specifications and
        timelines.

2.2     The central management and control of HepaSense shall be exercised in
        Bermuda and shall be vested in the Directors and such Persons as they
        may delegate the exercise of their powers in accordance with the
        HepaSense Bye-Laws. The Participants agree to conduct the Business in
        such a manner as to ensure that HepaSense is liable to taxation in
        Bermuda and not in any other jurisdiction. The Participants shall use
        their best endeavours to ensure that to the extent required the sole
        residence of HepaSense in Bermuda, all meetings of the Directors are
        held in Bermuda or other jurisdictions outside the United States and
        generally to ensure that HepaSense is treated as resident for taxation
        purposes in Bermuda.

                                    CLAUSE 3

                         REPRESENTATIONS AND WARRANTIES

3.1     REPRESENTATIONS AND WARRANTIES OF HEPASENSE: HepaSense hereby represents
        and warrants to each of the Shareholders as follows, as of the date
        hereof:

        3.1.1   ORGANIZATION: HepaSense is an exempted company duly organized,
                validly existing and in good standing under the laws of Bermuda,
                and has all the 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.

        3.1.2   CAPITALIZATION: As of the date hereof, the authorized capital
                stock of HepaSense consists of 6,001 Common Shares and 6,000
                Preferred Shares. Prior to the date hereof, no shares of capital
                stock of HepaSense have been issued.

        3.1.3   AUTHORIZATION: The execution, delivery and performance by
                HepaSense of this Agreement, including the issuance of the
                Shares, have been duly authorized by all requisite corporate
                actions; this Agreement has been duly executed and delivered by
                HepaSense and is the valid and binding obligation of HepaSense,
                enforceable against it in accordance with its terms except as
                limited by applicable bankruptcy, insolvency, reorganization,
                moratorium and other laws of general application affecting the
                enforcement of creditors' rights generally, and except as
                enforcement of rights to indemnity and contribution hereunder
                may be limited by United States federal or state securities laws
                or principles of public policy. The Shares, when issued as
                contemplated hereby, will be validly issued and outstanding,
                fully paid and non-assessable and not subject to preemptive or
                any other similar rights of the Shareholders or others.

                                       13
<PAGE>   14

        3.1.4   NO CONFLICTS: The execution, delivery and performance by
                HepaSense of this Agreement, the issuance, sale and delivery of
                the Shares, and compliance with the provisions hereof by
                HepaSense, will not:

                (i)     violate any provision of applicable law, statute, rule
                        or regulation applicable to HepaSense or any ruling,
                        writ, injunction, order, judgement or decree of any
                        court, arbitrator, administrative agency or other
                        governmental body applicable to HepaSense or any of its
                        properties or assets;

                (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 or both) a default (or give rise
                        to any right of termination, cancellation or
                        acceleration) under its charter or organizational
                        documents or any material contract to which HepaSense is
                        a party, except where such violation, conflict or breach
                        would not, individually or in the aggregate, have a
                        material adverse effect on HepaSense; or

                (iii)   result in the creation of, any Encumbrance upon any of
                        the properties or assets of HepaSense.

        3.1.5   APPROVALS: As of the date hereof, no permit, authorization,
                consent or approval of or by, or any notification of or filing
                with, any Person is required in connection with the execution,
                delivery or performance of this Agreement by HepaSense.
                HepaSense has full authority to conduct its business as
                contemplated in the Business Plan and the Definitive Documents.

        3.1.6   DISCLOSURE: This Agreement does not contain any untrue statement
                of a material fact or omit to state any material fact necessary
                to make the statements contained herein not misleading.
                HepaSense is not aware of any material contingency, event or
                circumstance relating to its business or prospects, which could
                have a material adverse effect thereon, in order for the
                disclosure herein relating to HepaSense not to be misleading in
                any material respect.

        3.1.7   NO BUSINESS; NO LIABILITIES: HepaSense has not conducted any
                business or incurred any liabilities or obligations prior to the
                date hereof, except solely in connection with its organization
                and formation.

3.2     REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS: Each of the
        Shareholders hereby severally represents and warrants to HepaSense as
        follows as of the date hereof:

                                       14
<PAGE>   15

        3.2.1   ORGANIZATION: Such Shareholder is a corporation duly organized
                and validly existing under the laws of its jurisdiction of
                organization and has all the requisite corporate power and
                authority to own and lease its respective properties, to carry
                on its respective business as presently conducted and as
                proposed to be conducted and to carry out the transactions
                contemplated hereby.

        3.2.2   AUTHORITY: Such Shareholder has full legal right, power and
                authority to enter into this Agreement and to perform its
                obligations hereunder, which have been duly authorized by all
                requisite corporate action. This Agreement is the valid and
                binding obligation of such Shareholder, enforceable against it
                in accordance with its terms except as limited by applicable
                bankruptcy, insolvency, reorganization, moratorium and other
                laws of general application affecting the enforcement of
                creditors' rights generally, and except as enforcement of rights
                to indemnity and contribution hereunder may be limited by United
                States federal or state securities laws or principles of public
                policy.

        3.2.3   NO CONFLICTS: The execution, delivery and performance by such
                Shareholder of this Agreement, purchase of the Shares, and
                compliance with the provisions hereof by such Shareholder will
                not:

                (i)     violate any provision of applicable law, statute, rule
                        or regulation known by and applicable to such
                        Shareholder or any ruling, writ, injunction, order,
                        judgement or decree of any court, arbitrator,
                        administrative agency or other governmental body
                        applicable to such Shareholder or any of its properties
                        or assets;

                (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 or both) a default (or give rise
                        to any right of termination, cancellation or
                        acceleration) under the charter or organizational
                        documents of such Shareholder or any material contract
                        to which such Shareholder is a party, except where such
                        violation, conflict or breach would not, individually or
                        in the aggregate, have a material adverse effect on such
                        Shareholder; or

                (iii)   result in the creation of, any Encumbrance upon any of
                        the properties or assets of such Shareholder.

        3.2.4   APPROVALS: As of the date hereof, no permit, authorization,
                consent or approval of or by, or any notification of or filing
                with, any Person is required in connection with the execution,
                delivery or performance of this Agreement by such Shareholder.

                                       15
<PAGE>   16

        3.2.5   INVESTMENT REPRESENTATIONS: Such Shareholder is sophisticated in
                transactions of this type and capable of evaluating the merits
                and risks of its investment in HepaSense. Such Shareholder has
                not been formed solely for the purpose of making this investment
                and such Shareholder is acquiring the Common Shares and
                Preferred Shares for investment for its own account, not as a
                nominee or agent, and not with the view to, or for resale in
                connection with, any distribution of any part thereof. Such
                Shareholder understands that the Shares have not been registered
                under the Securities Act or applicable state and foreign
                securities laws by reason of a specific exemption from the
                registration provisions of the Securities Act and applicable
                state and foreign securities laws, the availability of which
                depends upon, among other things, the bona fide nature of the
                investment intent and the accuracy of such Shareholders'
                representations as expressed herein. Such Shareholder
                understands that no public market now exists for any of the
                Shares and that there is no assurance that a public market will
                ever exist for such Shares.

                                    CLAUSE 4

                            AUTHORIZATION AND CLOSING

4.1     HepaSense has authorized the issuance to (i) EIS of 2,388 Preferred
        Shares and (ii) Isis of 6,001 Common Shares and 3,612 Preferred Shares,
        issuable as provided in Clause 4.3 hereof.

4.2     Isis and EIS hereby subscribe for the number of Shares set forth in
        Clause 4.1 and shall pay to HepaSense in consideration therefore, by
        wire transfer of immediately available funds (to a bank account
        established by HepaSense in connection with Completion) the subscription
        amounts each as provided in Clause 4.4.1.

4.3     The closing (the "CLOSING") shall take place at the offices of Brock
        Silverstein LLC at 800 Third Avenue, New York, New York 10022 on the
        date hereof or such other places if any, as the Parties may agree and
        shall occur contemporaneously with the closing under the Isis Securities
        Purchase Agreement.

4.4     At the Closing, each of the Shareholders shall take or (to the extent
        within its powers) cause to be taken the following steps at directors
        and shareholder meetings of HepaSense, or such other meetings or
        locations, as appropriate:

        4.4.1   HepaSense shall issue and sell to EIS, and EIS shall purchase
                from HepaSense, upon the terms and subject to the conditions set
                forth herein, 2,388 Preferred Shares for an aggregate purchase
                price of US$2,985,000.

                                       16
<PAGE>   17

                HepaSense shall issue and sell to Isis, and Isis shall purchase
                from HepaSense, upon the terms and conditions set forth herein,
                (i) 6,001 Common Shares for an aggregate purchase price of
                US$7,500,000 and (ii) 3,612 Preferred Shares for an aggregate
                purchase price of US$4,515,000;

        4.4.2   the Parties shall execute and deliver to each other, as
                applicable, certificates in respect of the Common Shares and
                Preferred Shares described above and any other certificates,
                resolutions or documents which the Parties shall reasonably
                require;

        4.4.3   the adoption by HepaSense of HepaSense Bye-Laws;

        4.4.4   the appointment of Kevin Insley, B. Lynne Parshall, F. Andrew
                Dorr, M.D., Dawn Griffiths and Stephen Rossiter as Directors of
                HepaSense;

        4.4.5   the resignation of all directors and the secretary of HepaSense
                holding office prior to the execution of this Agreement and
                delivery of written confirmation under seal by each Person so
                resigning that he has no claim or right of action against
                HepaSense and that HepaSense is not in any way obligated or
                indebted to him; and

        4.4.6   the transfer to HepaSense of the share register.

4.5     EXEMPTION FROM REGISTRATION:

        The Shares will be issued under an exemption or exemptions from
        registration under the Securities Act. Accordingly, the certificates
        evidencing the Shares shall, upon issuance, contain the following
        legend:

        THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
        SECURITIES ACT OF 1933, AS AMENDED, OR ANY SECURITIES LAWS OF A STATE OR
        OTHER JURISDICTION AND MAY NOT UNDER ANY CIRCUMSTANCES BE SOLD,
        TRANSFERRED, OR OTHERWISE DISPOSED OF (OTHER THAN TO AN AFFILIATE OF THE
        ORIGINAL HOLDER OR AS OTHERWISE PERMITTED IN THE AGREEMENT PURSUANT TO
        WHICH THEY WERE ISSUED) EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION
        STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES
        OR BLUE SKY LAWS, OR (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE
        SECURITIES ACT (OR ANY SIMILAR RULE UNDER THE SECURITIES ACT RELATING TO
        THE DISPOSITION OF SECURITIES) TOGETHER WITH AN OPINION OF COUNSEL

                                       17
<PAGE>   18

        REASONABLY SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT
        REQUIRED UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAWS.

4.6     HepaSense shall use reasonable efforts to file any documents that
        require filing with the Registrar of Companies in Bermuda within the
        prescribed time limits. EIS and Isis shall provide all reasonable
        co-operation to HepaSense in relation to the matters set forth in this
        Clause 4.6.

4.7.    In the event that EIS exercises the Exchange Right, HepaSense shall,
        immediately upon such exercise, take all necessary steps to ensure that
        EIS is duly and validly issued and has full legal right, title and
        interest in and to the Preferred Shares exchanged therefor. The Parties
        acknowledge that such Preferred Shares have been pledged to EIS pursuant
        to the Isis Securities Purchase Agreement and that EIS has physical
        possession of such Preferred Shares; upon such exercise, EIS shall be
        entitled to keep and retain such Preferred Shares, which shall be owned
        by EIS as provided above. In connection with the foregoing, HepaSense
        and the Participants shall take all necessary or appropriate steps to
        ensure such ownership by EIS.

                                    CLAUSE 5

                    DIRECTORS; MANAGEMENT AND R&D COMMITTEES

5.1.    DIRECTORS:

        5.1.1   Prior to the exercise of the Exchange Right, the Board shall be
                composed of five Directors.

                Isis shall have the right to nominate four directors of
                HepaSense, provided that two such directors are residents of
                Bermuda, ("ISIS DIRECTORS") and EIS shall have the right to
                nominate one Director of HepaSense ("EIS DIRECTOR") which
                Director, save as further provided herein, shall only be
                entitled to 15% of the votes of the Board.

                In the event that the Exchange Right is exercised by EIS within
                2 years following the Closing Date, the EIS Director shall only
                be entitled to 15% of the votes of the Board until the expiry of
                2 years from the Closing Date.

                In the event that the Exchange Right is exercised by EIS at any
                time after two years following the Closing Date or upon the
                expiry of 2 years following the Closing Date where the Exchange
                Right has been exercised by EIS within 2 years following the
                Closing Date, each of Isis, and EIS shall cause the Board to be
                reconfigured so that an equal number of Directors are designated
                by EIS and Isis and that each of the Directors has equal voting
                power.

                                       18
<PAGE>   19

        5.1.2   If EIS removes the EIS Director, or Isis removes any of the Isis
                Directors, EIS or Isis, as the case may be, shall indemnify the
                other Shareholder against any claim by such removed Director
                arising from such removal.

        5.1.3   The Directors shall meet not less than three times in each
                Financial Year and all Board meetings shall be held in Bermuda
                or otherwise by teleconference in accordance with the HepaSense
                Bye Laws or as otherwise required by to the laws of Bermuda and
                to ensure the sole residence of HepaSense in Bermuda.

        5.1.4   At any such meeting, the presence of the EIS Director and at
                least one Isis Director who at the time of the meeting is an
                employee of Isis (an "Isis Employee Director") shall be required
                to constitute a quorum and, subject to Clause 17 hereof, the
                affirmative vote of a majority of the Directors present at a
                meeting at which such a quorum is present shall constitute an
                action of the Directors; provided, however, that the EIS
                Director and Isis Employee Director also vote in favor of such
                action. In the event of any meeting being inquorate, the meeting
                shall be adjourned for a period of seven days. A notice shall be
                sent to the EIS Director and the Isis Directors specifying the
                date, time and place where such adjourned meeting is to be held
                and reconvened.

        5.1.5   On the Closing Date, Isis may appoint one of the Isis Directors
                to be the chairman of HepaSense. The chairman of HepaSense shall
                hold office until:

                (i)     the first meeting of the Board following the exercise by
                        EIS of the Exchange Right, where the Exchange Right has
                        been exercised by EIS after two years following the
                        Closing Date; or

                (ii)    the first meeting of the Board following the expiry of 2
                        years following the Closing Date where the Exchange
                        Right has been exercised by EIS within 2 years following
                        the Closing Date

                        (in each case the "CHAIRMAN STATUS BOARD MEETING")

                After the Chairman Status Board Meeting, each of EIS and Isis,
                beginning with EIS at the Chairman Status Board Meeting, shall
                have the right, exercisable alternatively, of nominating one
                Director to be chairman of HepaSense for a term of one year.

                If the chairman is unable to attend any meeting of the Board
                held prior to the Chairman Status Board Meeting, the Isis
                Directors shall be entitled to appoint another Isis Director to
                act as chairman in his place at the meeting.

                If the chairman of HepaSense is unable to attend any meeting of
                the Board

                                       19
<PAGE>   20

                held after the Chairman Status Board Meeting, the Directors
                shall be entitled to appoint another Director to act as chairman
                of HepaSense in his place at the meeting.

        5.1.6   In case of an equality of votes at a meeting of the Board, the
                chairman of HepaSense shall not be entitled to a second or
                casting vote. In the event of continued deadlock, the Board
                shall resolve the deadlock pursuant to the provisions set forth
                in Clause 18.

5.2     MANAGEMENT AND R&D COMMITTEES:

        5.2.1   The Directors shall appoint a management committee (the
                "MANAGEMENT COMMITTEE") to perform certain operational
                functions, such delegation to be consistent with the Directors'
                right to delegate powers pursuant to the HepaSense Memorandum of
                Association of Bye-Laws. The Management Committee shall
                initially consist of four members, two of whom will be nominated
                by EIS and two of whom will be nominated by Isis, and each of
                whom shall be entitled to one vote, whether or not present at
                any Management Committee meeting during which such operational
                functions are discussed. Except as otherwise provided herein or
                in the License Agreements, decisions of the Management Committee
                shall require approval by at least one EIS nominee on the
                Management Committee and one Isis nominee on the Management
                Committee. Each of EIS and Isis shall be entitled to remove any
                of their nominees to the Management Committee and appoint a
                replacement in place of any nominees so removed.

        5.2.2   The Management Committee shall appoint a research and
                development committee (the "R&D COMMITTEE") which shall
                initially be comprised of four members, two of whom will be
                nominated by Elan and two of whom will be nominated by Isis, and
                each of whom shall have one vote, whether or not present at an
                R&D Committee meeting during which research and development
                issues are discussed. Decisions of the R&D Committee shall
                require approval by at least one Elan nominee on the R&D
                Committee and one Isis nominee on the R&D Committee. Each of
                Elan and Isis shall be entitled to remove any of their nominees
                to the R&D Committee and appoint a replacement in place of any
                nominees so removed.

        5.2.3   The Management Committee shall be responsible for, inter alia,
                devising, implementing and reviewing strategy for the business
                of HepaSense, and the operation of HepaSense, and in particular,
                devising HepaSense's strategy for research and development and
                to monitor and supervise the implementation of HepaSense's
                strategy for research and development.

        5.2.4   The R&D Committee shall be responsible for:

                                       20
<PAGE>   21

                5.2.4.1 designing that portion of the Business Plan that relates
                        to the Project for consideration by the Management
                        Committee;

                5.2.4.2 establishing a joint Project team consisting of an equal
                        number of team members from Elan and Isis, including one
                        Project leader from each of Elan and Isis; and

                5.2.4.3 implementing such portion of the Business Plan that
                        relates to the Project, as approved by the Management
                        Committee.

        5.2.5   In the event of any dispute amongst the R&D Committee, the R&D
                Committee shall refer such dispute to the Management Committee
                whose decision on the dispute shall be binding on the R&D
                Committee. If the Management Committee cannot resolve the matter
                after 15 days or such other period as may be agreed by the
                Management Committee, the dispute will be referred to a
                designated senior officer of each of Elan and Isis, and
                thereafter, in the event of continued deadlock, pursuant to the
                deadlock provisions to be set forth in Clause 19, involving
                inter alia, the referral of the dispute to an expert, whose
                decision, however, will ultimately be non-binding on the
                Participants. This process shall also apply to any dispute
                within the Management Committee.

                                    CLAUSE 6

                          THE BUSINESS PLAN AND REVIEWS

6.1      The Directors shall meet together as soon as reasonably practicable
         after the Closing Date hereof and shall agree upon and approve the
         Business Plan for the current Financial Year within 60 days of the
         Closing Date.

6.2.     The Business Plan shall be subject to ongoing review by the Directors
         and the approval of the EIS Director and the Isis Directors on a
         quarterly basis.

6.3.     Neither Participant shall be obliged to provide funding to HepaSense in
         the absence of quarterly approval of the Business Plan and a
         determination by each Participant, in its sole discretion, that
         Subsequent Funding (as such term is defined in the Funding Agreement)
         shall be provided for the development of the Products.

                                    CLAUSE 7

                          RESEARCH AND DEVELOPMENT WORK

7.1     During the Research Term, HepaSense will diligently pursue the research
        and development of the Elan Intellectual Property, Isis Intellectual
        Property and

                                       21
<PAGE>   22

        HepaSense Intellectual in accordance with the Research and Development
        Program. The "RESEARCH AND DEVELOPMENT PROGRAM" will be the program the
        development of the Product in the Field, including without limitation,
        in vivo toxicology, stability, formulation, optimization, clinical and
        regulatory activities. Such work shall be agreed to and conducted by
        Elan, Isis and/or a third party Isis under contract with HepaSense as
        provided in the Business Plan.

7.2     Subject to the provisions of Clause 6.3, Isis and Elan shall provide at
        their discretion respective such research and development services as is
        requested by HepaSense in accordance with the provisions in the License
        Agreements; provided, however, that HepaSense shall not perform any
        pre-clinical research or development work. HepaSense shall pay Isis and
        Elan for any development work carried out by them on behalf of HepaSense
        at the end of each month during the Research and Development Program,
        subject to the proper vouching of research and development work and
        expenses. An invoice shall be issued to HepaSense by Isis or Elan, as
        applicable, by the 15th day of the month following the month in which
        work was performed. The payments by HepaSense to Isis or Elan shall be
        calculated by reference to the fully burdened actual costs incurred by
        Isis and Elan [ * ] in carrying out such research and development work,
        on a fully allocated basis. Research and development activities that are
        outsourced to third party providers shall be charged to HepaSense at [ *
        ].

7.3     Elan and Isis shall permit HepaSense or its duly authorized
        representative on reasonable notice and at any reasonable time during
        normal business hours to have access to inspect and audit the accounts
        and records of Elan or Isis and any other book, record, voucher, receipt
        or invoice relating to the calculation or the cost of the Research and
        Development Program and to the accuracy of the reports which accompanied
        them. Any such inspection of Elan's or Isis's records, as the case may
        be, shall be at the expense of HepaSense, except that if such inspection
        reveals an overpayment in the amount paid to Elan or Isis, as the case
        may be, for the Research and Development Program hereunder in any
        Financial Year of 5% or more of the amount due to Elan or Isis, as the
        case may be, then the expense of such inspection shall be borne solely
        by Elan or Isis, as the case may be, instead of by HepaSense. Any
        surplus over the sum properly payable by HepaSense to Elan or Isis, as
        the case may be, shall be paid promptly by Elan or Isis, as the case may
        be, to HepaSense. If such inspection reveals a deficit in the amount of
        the sum properly payable to Elan or Isis, as the case may be, by
        HepaSense, HepaSense shall pay the deficit to Elan or Isis, as the case
        may be.

7.4     Should HepaSense determine that the Designated Oligonucleotide is not
        suitable for administration via the System, HepaSense, at its option may
        either (i) further develop and commercialize the Designated
        Oligonucleotide in a Product via another route of administration within
        the Field or (ii) request Isis to designate a substitute
        Oligonucleotide. In the event HepaSense requests that Isis designate a

                                               *CONFIDENTIAL TREATMENT REQUESTED

                                       22
<PAGE>   23

        substitute Oligonucleotide, the Parties shall review in good faith and
        designate for in-licensing to HepaSense, subject to then existing
        contractual obligations, another Oligonucleotide from the Isis portfolio
        of Oligonucleotides with comparable commercial potential, or designate
        an Oligonucleotide for in-licensing or acquisition of the rights from
        one or more third parties to such Oligonucleotide (the "SUBSTITUTE
        OLIGONUCLEOTIDE"). In either case, the Parties shall promptly negotiate
        in good faith such amendments as are required to this Agreement, such as
        amending the provisions regulating non-competition under Clause 4 of the
        License Agreements, and to the research and development budgeted costs
        for the Project.

7.5     Except as otherwise provided herein and as provided in the Isis License
        Agreement, upon designation of an Isis Oligonucleotide as a Substitute
        Oligonucleotide, (i) all rights to ISIS 14803 shall revert to Isis and
        (ii) all provisions contained herein and in the Isis License Agreement
        other than in the preceding clause (i) relating to the ISIS 14803 shall
        be deemed to apply to the Substitute Oligonucleotide as if it were the
        Designated Oligonucleotide, unless otherwise amended in accordance with
        Clause 7.4.

                                    CLAUSE 8

                                COMMERCIALIZATION

8.1     HepaSense shall diligently pursue the research, development, prosecution
        and commercialization of the Product as provided in the Business Plan.
        During the Research Term, Elan and Isis shall meet to discuss the
        commercial strategy for HepaSense commercialization of the Product and
        the further exploitation of the HepaSense Intellectual Property. For
        example, Isis and Elan shall discuss strategy and terms relating to
        product and clinical development, corporate partnering, licensing and
        supply agreements. It is contemplated that Isis, through its
        representatives on the Management Committee, shall locate and negotiate
        with independent third party marketing partners for Product. In the
        course of such representation, Isis shall keep HepaSense and Elan fully
        informed of its efforts and progress with respect to the foregoing.

8.2      In the event HepaSense successfully commercializes the Product, Isis
         may, from time to time nominate, subject to Elan's consent, from the
         Isis portfolio of Oligonucleotides additional Oligonucleotides to be
         designated as Additional Oligonucleotides for incorporation in
         Additional Products. It is contemplated that Isis shall locate and
         negotiate with independent third party marketing partners for Isis
         Products. Isis shall keep HepaSense and Elan apprised of its efforts
         and progress with respect to the foregoing; provided, however, that any
         such information shall be kept confidential and shall not be disclosed
         to the Elan

                                       23
<PAGE>   24

        Pharmaceuticals division of Elan, plc (excluding senior executive
        personnel of Elan).

8.3     Notwithstanding anything set forth herein, at such time as HepaSense
        intends to commercialize the Product, Elan shall have the right of first
        negotiation with respect to the world-wide commercialization of the
        Product (the "ELAN FIRST RIGHT OF NEGOTIATION"). Such right of first
        negotiation shall be exercised as follows:

        8.3.1   If HepaSense intends to commercialize or enter into an agreement
                with an independent third party to commercialize the Product,
                then HepaSense immediately shall notify Elan in writing that
                Elan may elect to enter into negotiations referred to in this
                Clause 8.3. Elan shall indicate its desire to enter into such
                negotiations pursuant to this Clause 8.3 by delivering written
                notice to HepaSense within forty-five (45) days of Elan's
                receipt of the written notification from HepaSense to Elan. If
                Elan elects to enter into such negotiations, the Parties shall
                negotiate in good faith the terms of an applicable agreement.

        8.3.2   If, despite such good faith negotiations, Elan and HepaSense do
                not reach agreement on the terms of such an agreement within six
                (6) months from the notification in writing by HepaSense to
                Elan, then HepaSense shall be free to offer a third party (other
                than a Technological Competitor of Elan unless consented to by
                Elan which consent may be withheld for any reason and otherwise
                subject to the terms and conditions of this Agreement) terms to
                commercialize the Product in the Territory, which terms when
                taken as a whole, are more favorable to HepaSense than the
                principal terms of the last written proposal offered to
                HepaSense by Elan, or by HepaSense to Elan, as the case may be;
                provided, however, that in the event the stage of development or
                data available in connection with the Product shall change
                materially, the Elan Right of First Negotiation shall be
                revived.

8.4     Subject to the rights of Elan with respect to the Product, HepaSense
        shall not be permitted to contract the commercialization of the Product
        or any other Product without the prior written consent of Elan and Isis,
        which consent will not be unreasonably withheld or delayed; provided
        that such reasonableness standard, in the case of Elan, shall not be
        applicable in the case of a proposed sublicense to any Technological
        Competitor of Elan and in the case of Isis, shall not be applicable in
        the case of a proposed sublicense to any Technological Competitor of
        Isis.

                                    CLAUSE 9

            OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS/NON-COMPETITION

                                       24
<PAGE>   25

9.1     The Parties acknowledge and agree to be bound by the provisions of
        Clause 3 of the Elan License Agreement and Clause 3 of the Isis License
        Agreement set forth the agreement between the parties thereto in
        relation to the ownership of the Elan Intellectual Property, the Isis
        Intellectual Property and the HepaSense Intellectual property
        respectively.

9.2     The Parties acknowledge and agree to be bound by the provisions the
        provisions of Clause 4 of the Elan License Agreement and the provisions
        of Clause 4 of the Isis License Agreement which set forth the agreement
        between the parties thereto in relation to the non-competition
        obligations of Elan and Isis, respectively.

                                    CLAUSE 10

                        SUBLICENSE AND ASSIGNMENT RIGHTS

10.1    HepaSense shall not assign any of its rights under the HepaSense
        Intellectual Property without the prior written consent of Elan and
        Isis.

10.2    HepaSense shall not sublicense any of its rights under the License
        Agreements for the Licensed Technologies and/or the HepaSense
        Intellectual Property without the prior written consent of Elan and
        Isis, which consent shall not be unreasonably withheld or delayed;
        provided, however, that the consent of Elan may be withheld in Elan's
        sole discretion in the case of a proposed sublicense of such rights to a
        Technological Competitor of Elan.

                                    CLAUSE 11

                          INTELLECTUAL PROPERTY RIGHTS

11.1    Elan, at its expense and sole discretion may (i) secure the grant of any
        patent applications within the Elan Patents that relate to the Field;
        (ii) file and prosecute patent applications on patentable inventions and
        discoveries within the Elan Improvements that relate to the Field; (iii)
        defend all such applications against third party oppositions; and (iv)
        maintain in force any issued letters patent within the Elan Patents that
        relate to the Field (including any letters patent that may issue
        covering any such Elan Improvements that relate to the Field). Elan
        shall have the right in its sole discretion to control such filing,
        prosecution, defense and maintenance provided that HepaSense and Isis at
        their request shall be provided with copies of all documents relating to
        such filing, prosecution, defense and maintenance in sufficient time to
        review such documents and comment thereon prior to filing.

11.2    Isis, at its expense and sole discretion, may (i) secure the grant of
        any patent applications within the Isis Patents that relate to the
        Field; (ii) file and prosecute

                                       25
<PAGE>   26

        patent applications on patentable inventions and discoveries within the
        Isis Improvements that relate to the Field; (iii) defend all such
        applications against third party oppositions; and (iv) maintain in force
        any issued letters patent within the Isis Patents that relate to the
        Field (including any letters patent that may issue covering any such
        Isis Improvements that relate to the Field). Isis shall have the right
        in its sole discretion to control such filing, prosecution, defense and
        maintenance provided that Elan and HepaSense at their request shall be
        provided with copies of all documents relating to such filing,
        prosecution, defense and maintenance in sufficient time to review such
        documents and comment thereon prior to filing.

11.3    In the event that Elan does not intend to file for patent protection on
        patentable inventions or discoveries within the Elan Intellectual
        Property that relates to the Field in one or more countries in the
        Territory after providing written notice to HepaSense and Isis,
        HepaSense shall have the option at HepaSense's expense, upon the prior
        written approval of Elan which approval shall not be unreasonably
        withheld, to request Elan to file and prosecute such patent
        application(s). Upon such written request from HepaSense, Elan shall be
        responsible for preparing and prosecuting and otherwise seeking patent
        protection for such Elan Intellectual Property described in this Clause
        11.3. Any such Elan Intellectual Property shall be owned by Elan but
        Elan shall grant a royalty free exclusive license to HepaSense for such
        Elan Intellectual Property in the Field. Such license shall be subject
        to the other terms and conditions set forth in this Agreement and the
        Elan License Agreement to HepaSense. The Parties shall have the right to
        remove their confidential information from any such patent application.

11.4    In the event that Isis does not intend to file for patent protection on
        patentable inventions or discoveries within the Isis Intellectual
        Property that relates to the Field in one or more countries in the
        Territory after providing written notice to HepaSense and Elan,
        HepaSense shall have the option at HepaSense's expense, upon the prior
        written approval of Isis which approval shall not be unreasonably
        withheld, to request Isis to file and prosecute such patent
        application(s). Upon such written request from HepaSense, Isis shall be
        responsible for preparing and prosecuting and otherwise seeking patent
        protection for such Isis Intellectual Property described in this Clause
        11.4. Any such Isis Intellectual Property shall be owned by Isis but
        Isis shall grant a royalty free exclusive license to HepaSense such Isis
        Intellectual Property in the Field. Such license shall be subject to the
        other terms and conditions set forth in this Agreement and the Isis
        License Agreement to HepaSense. The Parties shall have the right to
        remove their confidential information from any such patent application.

11.5    HepaSense at its expense shall have the right but shall not be obligated
        (i) to file and prosecute patent applications on patentable inventions
        and discoveries within the HepaSense Intellectual Property; (ii) to
        defend all such applications against third party oppositions; and (iii)
        to maintain in force any issued letters patent within the HepaSense
        Patents (including any patents that issue on patentable

                                       26
<PAGE>   27

        inventions and discoveries within the HepaSense Intellectual Property).
        HepaSense shall have the right to control such filing, prosecution,
        defense and maintenance provided that the other Parties shall be
        provided with copies of all documents relating to such filing,
        prosecution, defense, and maintenance in sufficient time to review such
        documents and comment thereon prior to filing. The Parties shall have
        the right to remove their confidential information from any such patent
        application.

11.6    In the event that HepaSense informs both Elan and Isis that it does not
        intend to file an application on the HepaSense Intellectual Property in
        or outside the Field, Elan shall have the right to file and prosecute
        such patent applications on inventions that Elan invents solely or which
        relate predominantly to the Elan Intellectual Property, and Isis shall
        have the right to file and prosecute such patent applications on
        inventions which Isis invents solely or which relate predominantly to
        the Isis Intellectual Property, and Elan and Isis agree to negotiate in
        good faith on the course of action to be taken with respect to HepaSense
        inventions that relate to both the Elan Intellectual Property and Isis
        Intellectual Property. The Parties shall have the right to remove their
        confidential information from any such patent application.

11.7    The Parties shall promptly inform each other in writing of any actual or
        alleged unauthorized use of any Elan Intellectual Property, the Isis
        Intellectual Property or the HepaSense Intellectual Property by a third
        party of which it becomes aware and provide the others with any
        available evidence of such unauthorized use.

11.8    At its option, as the case may be, Elan or Isis shall have the first
        option to enforce at its own expense and for its own benefit any
        unauthorized use of its respective Intellectual Property (the Elan
        Intellectual Property or the Isis Intellectual Property as the case may
        be) in the Field. At the enforcing party's request, the other Parties
        shall cooperate with such action. Should Elan or Isis decide not to
        enforce the Elan Intellectual Property or the Isis Intellectual Property
        respectively, against such unauthorized use in the Field, within a
        reasonable period but in any event within twenty (20) days after
        receiving written notice of such actual or alleged unauthorized use,
        HepaSense may in its discretion initiate such proceedings in its own
        name, at its expense and for its own benefit, and at such Party's
        request, Elan and Isis shall cooperate with such action. Any recovery
        remaining after the deduction by HepaSense of the reasonable expenses
        (including attorney's fees and expenses) incurred in relation to such
        enforcement proceeding shall belong to HepaSense. Alternatively, the
        Parties may agree to institute such proceedings in their joint names and
        shall reach agreement as to the proportion in which they shall share the
        proceeds of any such proceedings, and the expense of any costs not
        recovered, or the costs or damages payable to the third party. If the
        enforcement of the Elan Intellectual Property or the Isis Intellectual
        Property affects both the Field as well as other products being
        developed or commercialized by Isis or Elan or its commercial partners
        outside the Field, Isis or Elan shall endeavour to agree as to the
        manner in which the

                                       27
<PAGE>   28

        proceedings should be instituted and as to the proportion in which they
        shall share the proceeds of any such proceedings, and the expense of any
        costs not recovered, or the costs or damages payable to the third party.

11.9    HepaSense shall have the first right but not the obligation to bring
        suit or otherwise take action against any unauthorized use of the
        HepaSense Intellectual Property. If any such alleged use occurs that
        gives rise to a cause of action both inside and outside the Field,
        HepaSense, in consultation with the other Parties, shall determine the
        course of action to be taken. In the event that HepaSense takes such
        action, HepaSense shall do so at its own cost and expense and all
        damages and monetary award recovered in or with respect to such action
        shall be the property of HepaSense. HepaSense shall keep Elan and Isis
        informed of any action in a timely manner so as to enable Isis and Elan
        to provide input in any such action and HepaSense shall reasonably take
        into consideration any such input. At HepaSense's request, the Parties
        shall cooperate with any such action at HepaSense's cost and expense.

11.10   In the event that HepaSense does not bring suit or otherwise take action
        against any unauthorized use of the HepaSense Intellectual Property (i)
        if only one Party determines to pursue such suit or take such action at
        its own cost and expense, it shall be entitled to all damages and
        monetary award recovered in or with respect to such action and (ii) if
        the other Parties pursue such suit or action outside of HepaSense, they
        shall negotiate in good faith an appropriate allocation of costs,
        expenses and recovery amounts. At the Party's request, HepaSense shall
        cooperate with any such action at the Party's cost and expense.

11.11   In the event that a claim or proceeding is brought against HepaSense by
        a third party alleging that the sale, distribution or use of a Product
        in the Territory constitutes the unauthorized use of the intellectual
        property rights of such Party, HepaSense shall promptly advise the other
        Parties of such threat or suit.

11.12   Save in respect of claims by HepaSense against either Party, or by an
        Independent Third Party against HepaSense, where Elan is in breach of a
        representation or warranty under Clause 7 of the Elan License Agreement
        or where Isis is in breach of a representation or warranty under Clause
        7 of the Isis License Agreement, HepaSense shall indemnify, defend and
        hold harmless Elan or Isis, as the case may be, against all actions,
        losses, claims, demands, damages, costs and liabilities (including
        reasonable attorneys fees) relating directly or indirectly to all such
        claims or proceedings referred to in Clause 11.11, provided that Elan or
        Isis, as the case may be, shall not acknowledge to the third party or to
        any other person the validity of any claims of such a third party, and
        shall not compromise or settle any claim or proceedings relating thereto
        without the prior written consent to HepaSense, not to be unreasonably
        withheld or delayed. At its option, Elan or Isis, as the case may be,
        may elect to take over the conduct of such proceedings from HepaSense
        provided that HepaSense's indemnification obligations shall continue;
        the costs of defending such claim shall be borne by Elan or Isis, as the

                                       28
<PAGE>   29

        case may be and such Party shall not compromise or settle any such claim
        or proceeding without the prior written consent of HepaSense, such
        consent not to be unreasonably withheld or delayed.

                                    CLAUSE 12

           CROSS LICENSING/EXPLOITATION OF PRODUCTS OUTSIDE THE FIELD

12.1    Solely for the purpose of and insofar as is necessary, in each case, for
        Elan to perform research and development work on behalf of HepaSense,
        HepaSense shall grant to Elan a non-exclusive, worldwide, royalty-free,
        fully paid-up license for the term of the Licenses:

        12.1.1  to exploit the HepaSense Intellectual Property in the Field, and

        12.1.2  subject to the terms and conditions of the Isis License, a
                sublicense to exploit the Isis Intellectual Property in the
                Field.

12.2    Solely for the purpose of and insofar as is necessary, in each case, for
        Isis to perform to conduct research and development work on behalf of
        HepaSense, HepaSense shall grant to Isis a non-exclusive, worldwide,
        royalty-free, fully paid-up license for the term of the Licenses:

        12.2.1  to exploit the HepaSense Intellectual Property in the Field, and

        12.2.2  subject to the terms and conditions of the Elan License, a
                sublicense to exploit the Elan Intellectual Property in the
                Field.

12.3    Subject to the provisions of this Clause 12, HepaSense hereby grants to
        each of Elan and Isis a license to the HepaSense Intellectual Property
        as follows:

        12.3.1  HepaSense hereby grants to Elan a worldwide, perpetual,
                fully-paid and royalty-free license, with the right to
                sublicense, to the HepaSense Intellectual Property in all fields
                other than the Field or in connection with Isis proprietary
                Oligonucleotides on an as-is basis without recourse,
                representation or warranty whether express or implied, including
                warranties of merchantability or fitness for a particular
                purpose, or infringement of third party rights, and all such
                warranties are expressly disclaimed.

        12.3.2  Subject to the rights of Elan pursuant to Clause 8.4 hereof,
                HepaSense hereby grants to Isis a worldwide, perpetual,
                fully-paid and royalty-free license, with the right to
                sublicense, to the HepaSense Intellectual Property as it relates
                to the Designated Oligonucleotide or any other Oligonucleotide
                for use outside the Field on an as-is basis without recourse,
                representation or warranty whether express or implied, including
                warranties of merchantability or fitness for

                                       29
<PAGE>   30
        a particular purpose, or infringement of third party rights, and all
        such warranties are expressly disclaimed.

                                    CLAUSE 13

                                   REGULATORY

13.1    HepaSense shall keep the other Parties promptly and fully advised of
        HepaSense's regulatory activities, progress and procedures. HepaSense
        shall inform the other Parties of any dealings it shall have with an
        RHA, and shall furnish the other Parties with copies of all
        correspondence relating to the Products. The Parties shall collaborate
        to obtain any required regulatory approval of the RHA to market the
        Products.

13.2    HepaSense shall, at its own cost, file, prosecute and maintain any and
        all Regulatory Applications for the Product in the Territory in
        accordance with the Business Plan.

13.3    Any and all Regulatory Approvals obtained hereunder for any Product
        shall including without limitation, the DMF, shall be processed by and
        remain the property of HepaSense, provided that HepaSense shall allow
        Elan and Isis access thereto to enable Elan and Isis to fulfil their
        respective obligations and exercise their respective rights under this
        Agreement. HepaSense shall maintain such Regulatory Approvals at its own
        cost. All regulatory approvals and submissions relating to the System,
        including without limitation, the MAF, shall be processed by and be the
        property of Elan and at all times held in Elan's sole name; provided,
        however, that Elan will authorize HepaSense to reference its regulatory
        approval and submission, as described herein, with the FDA and such
        foreign agency to the extent necessary for HepaSense's regulatory
        purposes.

13.4    It is hereby acknowledged that there are inherent uncertainties involved
        in the registration of pharmaceutical products with the RHA's insofar as
        obtaining approval is concerned and such uncertainties form part of the
        business risk involved in undertaking the form of commercial
        collaboration as set forth in this Agreement.

                                    CLAUSE 14

                                  MANUFACTURING

14.1    Subject to the provisions of Clause 14.2, HepaSense shall be responsible
        for manufacturing, or having manufactured, all quantities of Products
        required for the development and commercialization of Products for use
        in the Field.

14.2    Elan shall, at its option, manufacture the System for HepaSense and meet
        its requirements, on standard commercial terms negotiated in good faith
        by

                                       30
<PAGE>   31

        HepaSense and Elan or to subcontract the manufacture and supply of the
        System and HepaSense shall agree to utilize Elan as its sole supplier,
        subject to the customary terms and conditions contained in a supply
        agreement to be executed by the parties. Isis shall have the right to
        manufacture and supply of the Designated Oligonucleotide with respect to
        the Product, on standard commercial terms negotiated in good faith by
        HepaSense and Isis or subcontract the manufacture and supply of the
        Designated Oligonucleotide. In the event Elan or Isis subcontract such
        manufacture and supply, the amount charged to HepaSense shall be [ * ].
        Any such supply agreement shall be negotiated and agreed by the Parties
        not later than the date of completion of Phase III (as such term is
        commonly used in connection with FDA applications) of the R&D Plan.

                                    CLAUSE 15

                        TECHNICAL SERVICES AND ASSISTANCE

15.1    Whenever commercially and technically feasible, HepaSense shall contract
        with Isis or Elan, as the case may be, to perform such other services as
        HepaSense may require, other than those specifically dealt with
        hereunder or in the License Agreements. In determining which Party
        should provide such services, the Management Committee shall take into
        account the respective infrastructure, capabilities and experience of
        Elan and Isis. There shall be no obligation upon either of Isis or Elan
        to perform such services.

15.2    HepaSense shall, if the Participants so agree, conclude an
        administrative support agreement with Elan and/or Isis on such terms as
        the Parties thereto shall in good faith negotiate. The administrative
        services shall include one or more of the following administrative
        services as requested by HepaSense:

        15.2.1  accounting, financial and other services;

        15.2.2  tax services;

        15.2.3  insurance services;

        15.2.4  human resources services;

        15.2.5  legal and company secretarial services;

        15.2.6  patent and related intellectual property services; and

        15.2.7  all such other services consistent with and of the same type as
                those services to be provided pursuant to this Agreement, as may
                be required.

                                               *CONFIDENTIAL TREATMENT REQUESTED

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<PAGE>   32

        The foregoing list of services shall not be deemed exhaustive and may be
        changed from time to time upon written request by HepaSense.

15.3    The Parties agree that each Party shall effect and maintain
        comprehensive general liability insurance in respect of all clinical
        trials and other activities performed by them on behalf of HepaSense.
        The Participants and HepaSense shall ensure that the industry standard
        insurance policies shall be in place for all activities to be carried
        out by HepaSense.

15.4    If Elan or Isis so requires, Isis or Elan, as the case may be, shall
        receive, at times and for periods mutually acceptable to the Parties,
        employees of the other Party (such employees to be acceptable to the
        receiving Party in the matter of qualification and competence) for
        instruction in respect of the Elan Intellectual Property or the Isis
        Intellectual Property, as the case may be, as necessary to further the
        Project.

15.5    The employees received by Elan or Isis, as the case may be, shall be
        subject to obligations of confidentiality no less stringent than those
        set out in Clause 20 and such employees shall observe the rules,
        regulations and systems adopted by the Party receiving the said
        employees for its own employees or visitors.

                                    CLAUSE 16

                      AUDITORS, BANKERS, REGISTERED OFFICE,
                  ACCOUNTING REFERENCE DATE; SECRETARY; COUNSEL

Unless otherwise agreed by the Participants and save as may be provided to the
contrary herein:

16.1    the auditors of HepaSense shall be KMPG Peat Marwick of Vallis Building,
        Hamilton, Bermuda;

16.2    the bankers of HepaSense shall be Bank of Bermuda or such other bank as
        may be mutually agreed from time to time;

16.3    the accounting reference date of HepaSense shall be December 31st in
        each Financial Year; and

16.4    the secretary of HepaSense shall be I.S. Outerbridge or such other
        Person as may be appointed by the Directors from time to time.

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<PAGE>   33

                                    CLAUSE 17

                              TRANSFERS OF SHARES;
                     RIGHT OF FIRST OFFER; TAG ALONG RIGHTS

GENERAL:

17.1    No Shareholder shall, directly or indirectly, sell or otherwise transfer
        (each, a "TRANSFER") any Shares held by it except as expressly permitted
        by and in accordance with the terms of this Agreement. HepaSense shall
        not, and shall not permit any transfer agent or registrar for any Shares
        to, transfer upon the books of HepaSense any Shares from any Shareholder
        to any transferee, in any manner, except in accordance with this
        Agreement, and any purported transfer not in compliance with this
        Agreement shall be void.

        During the Research and Development Term, no Shareholder shall, directly
        or indirectly, sell or otherwise Transfer any of its legal and/or
        beneficial interest in the Shares held by it to any other Person. After
        completion of the Research and Development Term, a Shareholder may
        Transfer Shares provided such Shareholder complies with the provisions
        of Clauses 17.2 and 17.3.

        Notwithstanding anything contained herein to the contrary, at all times,
        EIS and/or Isis shall have the right to Transfer any Shares to their
        Affiliates provided, however, that such assignment does not result in
        adverse tax consequences for any other Parties. EIS shall have the right
        to Transfer any Shares to a special purpose financing or similar entity
        established by Elan or EIS; provided, that such Affiliates or other
        Permitted Transferee to which such legal and/or beneficial interest in
        the Shares have been transferred shall agree to be expressly subject to
        and bound by all the limitations and provisions which are embodied in
        this Agreement.

17.2    No Shareholder shall, except with the prior written consent of the other
        Shareholder, create or permit to subsist any Encumbrance over or in, all
        or any of the Shares held by it (other than by a Transfer of such Shares
        in accordance with the provisions of this Agreement).

17.3    RIGHTS OF FIRST OFFER:

        If at any time after the end of the Research and Development Term a
        Shareholder shall desire to Transfer any Shares owned by it (a "SELLING
        SHAREHOLDER"), in any transaction or series of related transactions
        (other than a Transfer to an Affiliate or subsidiary or in the case of
        EIS to a special purpose financing or similar entity established by
        EIS), then such Selling Shareholder shall deliver prior written notice
        of its desire to Transfer (a "NOTICE OF INTENTION") (i) to HepaSense and
        (ii) to the Shareholders who are not the Selling Shareholder (and any
        transferee thereof permitted hereunder, if any), as applicable, setting
        forth such Selling Shareholder's desire to make such Transfer, the
        number of Shares proposed to be

                                       33
<PAGE>   34

        transferred (the "OFFERED SHARES") and the proposed form of transaction
        (the "TRANSACTION PROPOSAL"), together with any available documentation
        relating thereto, if any, and the price at which such Selling
        Shareholder proposes to Transfer the Offered Shares (the "OFFER PRICE").
        The "Right of First Offer" provided for in this Clause 16 shall be
        subject to any "Tag Along Right" benefiting a Shareholder which may be
        provided for by Clause 16, subject to the exceptions set forth therein.

        Upon receipt of the Notice of Intention, the Shareholders who are not
        the Selling Shareholder shall have the right to purchase at the Offer
        Price the Offered Shares, exercisable by the delivery of notice to the
        Selling Shareholder (the "NOTICE OF EXERCISE"), with a copy to
        HepaSense, within 10 business days from the date of receipt of the
        Notice of Intention. If no such Notice of Exercise has been delivered by
        the Shareholders who are not the Selling Shareholder within such
        10-business day period, or such Notice of Exercise does not relate to
        all of the Offered Shares covered by the Notice of Intention, then the
        Selling Shareholder shall be entitled to Transfer all of the Offered
        Shares to the intended transferee. In the event that all of the Offered
        Shares are not purchased by the non-selling Shareholders, the Selling
        Shareholder shall sell the available Offered Shares within 30 days after
        the delivery of such Notice of Intention on terms no more favorable to a
        third party than those presented to the non-selling Shareholders. If
        such sale does not occur, the Offered Shares shall again be subject to
        the Right of First Offer set forth in Clause 17.3.

        In the event that any of the Shareholders who are not the Selling
        Shareholder exercises their right to purchase all of the Offered Shares
        (in accordance with this Clause 16), then the Selling Shareholder shall
        sell all of the Offered Shares to such Shareholder(s), in the amounts
        set forth in the Notice of Intention, after not less than 10 business
        days and not more than 25 business days from the date of the delivery of
        the Notice of Exercise. In the event that more than one of the
        Shareholders who are not the Selling Shareholders wish to purchase the
        Offered Shares, the Offered Shares shall be allocated to such
        Shareholders on the basis of their pro rata equity interests in
        HepaSense.

        The rights and obligations of each of the Shareholders pursuant to the
        Right of First Offer provided herein shall terminate upon the date that
        the Common Shares are registered under Section 12(b) or 12(g) of the
        Exchange Act.

        At the closing of the purchase of all of the Offered Shares by the
        Shareholders who are not the Selling Shareholder (scheduled in
        accordance with Clause 16), the Selling Shareholder shall deliver
        certificates evidencing the Offered Shares being sold, duly endorsed, or
        accompanied by written instruments of transfer in form reasonably
        satisfactory to the Shareholders who are not the Selling Shareholder,
        duly executed by the Selling Shareholder, free and clear of any adverse
        claims, against payment of the purchase price therefor in cash, and such
        other customary documents as shall be necessary in connection therewith.

                                       34
<PAGE>   35

        Notwithstanding any other provision of this Clause 17.3, a Change in
        Control of any Stockholder shall not trigger a "Right of First Offer" in
        favor of any other Stockholder.

17.4    TAG ALONG RIGHTS:

        Subject to Clause 17.3, a Shareholder (the "TRANSFERRING SHAREHOLDER")
        shall not Transfer (either directly or indirectly), in any one
        transaction or series of related transactions, to any Person or group of
        Persons, any Shares, unless the terms and conditions of such Transfer
        shall include an offer to the other Shareholders (the "REMAINING
        SHAREHOLDERS"), to sell Shares at the same price and on the same terms
        and conditions as the Transferring Shareholder has agreed to sell its
        Shares (the "TAG ALONG RIGHT").

        In the event a Transferring Shareholder proposes to Transfer any Shares
        in a transaction subject to this Clause 16.4, it shall notify, or cause
        to be notified, the Remaining Shareholders in writing of each such
        proposed Transfer. Such notice shall set forth: (i) the name of the
        transferee and the amount of Shares proposed to be transferred, (ii) the
        proposed amount and form of consideration and terms and conditions of
        payment offered by the transferee (the "TRANSFEREE TERMS") and (iii)
        that the transferee has been informed of the Tag Along Right provided
        for in this Clause 16, if such right is applicable, and the total number
        of Shares the transferee has agreed to purchase from the Shareholders in
        accordance with the terms hereof.

        The Tag Along Right may be exercised by each of the Remaining
        Shareholders by delivery of a written notice to the Transferring
        Shareholder (the "CO-SALE NOTICE") within 10 business days following
        receipt of the notice specified in the preceding subsection. The Co-sale
        Notice shall state the number of Shares owned by such Remaining
        Shareholder which the Remaining Shareholder wishes to include in such
        Transfer; provided, however, that without the written consent of the
        Transferring Shareholder, the amount of such securities belonging to the
        Remaining Shareholder included in such Transfer may not be greater than
        such Remaining Shareholder's percentage beneficial ownership of Fully
        Diluted Common Shares multiplied by the total number of Fully Diluted
        Common Shares to be sold by both the Transferring Shareholder and all
        Remaining Shareholders. Upon receipt of a Co-sale Notice, the
        Transferring Shareholder shall be obligated to transfer at least the
        entire number of Shares set forth in the Co-sale Notice to the
        transferee on the Transferee Terms; provided, however, that the
        Transferring Shareholder shall not consummate the purchase and sale of
        any Shares hereunder if the transferee does not purchase all such Shares
        specified in all Co-sale Notices. If no Co-sale Notice has been
        delivered to the Transferring Shareholder prior to the expiration of the
        10 business day period referred to above and if the provisions of this
        Section have been complied with in all respects, the Transferring
        Shareholder shall have the right for a 45 day calendar day period to
        Transfer

                                       35
<PAGE>   36

        Shares to the transferee on the Transferee Terms without further notice
        to any other party, but after such 45-day period, no such Transfer may
        be made without again giving notice to the Remaining Shareholders of the
        proposed Transfer and complying with the requirements of this Clause 17.

        At the closing of any Transfer of Shares subject to this Clause 17, the
        Transferring Shareholder, and the Remaining Shareholder, in the event
        such Tag Along Right is exercised, shall deliver certificates evidencing
        such securities as have been Transferred by each, duly endorsed, or
        accompanied by written instruments of transfer in form reasonably
        satisfactory to the transferee, free and clear of any adverse claim,
        against payment of the purchase price therefor.

        Notwithstanding the foregoing, this Clause 17 shall not apply to any
        sale of Common Shares pursuant to an effective registration statement
        under the Securities Act in a bona fide public offering.

        The rights and obligations of each of the Stockholders pursuant to the
        "Tag Along Right" provided herein shall terminate upon the date that the
        Common Shares are registered under Section 12(b) or 12(g) of the
        Exchange Act.

        Notwithstanding any other provision of this Clause 17.4, a Change in
        Control of any Stockholder shall not trigger a "Tag Along Right" in
        favor of any other Stockholder.

                                    CLAUSE 18

                    MATTERS REQUIRING STOCKHOLDERS' APPROVAL

18.1    In consideration of Isis and Elan agreeing to enter into the License
        Agreements, the Parties hereby agree that HepaSense shall not without
        the prior approval of the EIS Director and the Isis Employee Directors:

        18.1.1. make a material determination outside the ordinary course of
                business, including, among other things, acquisitions or
                dispositions of intellectual property and licenses or
                sublicenses, change the domicile of, HepaSense from or
                discontinue jurisdiction HepaSense out of Bermuda, changes in
                the Business or the HepaSense budget as they relate to the
                Licensed Technologies; enter into joint ventures and similar
                arrangements as they relate to the Licensed Technologies and
                changes to the Business Plan as they relate to the Licensed
                Technologies;

        18.1.2. issue any unissued Preferred Shares or unissued Common Shares,
                or create or issue any new shares (including a split of the
                Shares) or Common Shares Equivalents, except as expressly
                permitted by the HepaSense Memorandum of Association or
                Bye-Laws;

                                       36
<PAGE>   37

        18.1.3. alter any rights attaching to any class of share in the capital
                of HepaSense or alter the HepaSense Memorandum of Association or
                Bye-Laws;

        18.1.4. consolidate, sub-divide or convert any of HepaSense's share
                capital or in any way alter the rights attaching thereto;

        18.1.5. dispose of all or substantially all of the assets of HepaSense;

        18.1.6. do or permit or suffer to be done any act or thing whereby
                HepaSense may be wound up (whether voluntarily or compulsorily),
                save as otherwise expressly provided for in this Agreement;

        18.1.7. enter into any contract or transaction except in the ordinary
                and proper course of the Business on arm's length terms;

        18.1.8. subject to Clause 24.13, assign, license or sub-license any of
                the Elan Intellectual Property, Isis Intellectual Property or
                HepaSense Intellectual Property;

        18.1.9. amend or vary the terms of the Isis License Agreement or the
                Elan License Agreement;

        18.1.10. permit a person other than HepaSense to own a regulatory
                approval relating to the Product(s);

        18.1.11. amend or vary the Business Plan or the HepaSense budget as they
                relate to the Licensed Technologies;

        18.1.12. alter the number of Directors;

        18.1.13. register any Shares of the Company for public trading with any
                governmental authority for public trading in any securities
                market; and

        18.1.14. declare or pay any dividend or make any distribution, directly
                or indirectly, with respect to its capital stock; or issue,
                sell, exchange, deliver, redeem, purchase or otherwise acquire
                or dispose of any shares of its capital stock or other
                securities.

                                    CLAUSE 19

                                    DISPUTES

19.1    Should any dispute or difference arise between Elan and Isis, or between
        Elan or Isis and HepaSense, during the period that this Agreement is in
        force, other than a dispute or difference relating to (i) the
        interpretation of any provision of this

                                       37
<PAGE>   38

        Agreement, (ii) the interpretation or application of law, or (iii) the
        ownership of any intellectual property, then any Party may forthwith
        give notice to the other Parties that it wishes such dispute or
        difference to be referred to the Chief Executive Officer of Isis and the
        President of EPT.

19.2    In any event of a notice being served in accordance with Clause 19.1,
        each of the Participants shall within 14 days of the service of such
        notice prepare and circulate to the designated senior officer of each of
        Elan and Isis a memorandum or other form of statement setting out its
        position on the matter in dispute and its reasons for adopting that
        position. Each memorandum or statement shall be considered by the
        designated senior officers of each of Elan and Isis who shall endeavour
        to resolve the dispute. If designated senior officers of each of Elan
        and Isis agree upon a resolution or disposition of the matter, they
        shall each sign a statement which sets out the terms of their agreement.
        The Participants agree that they shall exercise the voting rights and
        other powers available to them in relation to HepaSense to procure that
        the agreed terms are fully and promptly carried into effect.

                                    CLAUSE 20

                     TERMINATION/CERTAIN CHANGES OF CONTROL

20.1    This Agreement shall govern the operation and existence of HepaSense
        until

        20.1.1  terminated by written agreement of all Parties hereto; or

        20.1.2  otherwise terminated in accordance with this Clause 20.

20.2    For the purpose of this Clause 20, a "RELEVANT EVENT" is committed or
        suffered by a Participant if:

        20.2.1  it commits a breach of its material obligations under this
                Agreement or the applicable License Agreement and fails to
                remedy it within 60 days of being specifically required in
                writing to do so by the other Participant; provided, however,
                that if the breaching Participant has proposed a course of
                action to rectify the breach and is acting in good faith to
                rectify same but has not cured the breach by the 60th day, such
                period shall be extended by such period as is reasonably
                necessary to permit the breach to be rectified; or

        20.2.2  a distress, execution, sequestration or other process is levied
                or enforced upon or sued out against a material part of its
                property which is not discharged or challenged within 30 days;
                or

        20.2.3  it is unable to pay its debts in the normal course of business;
                or

                                       38
<PAGE>   39

        20.2.4  it ceases wholly or substantially to carry on its business,
                otherwise than for the purpose of a reconstruction or
                amalgamation, without the prior written consent of the other
                Participant (such consent not to be unreasonably withheld); or

        20.2.5  the appointment of a liquidator, receiver, administrator,
                examiner, trustee or similar officer of such Participant or over
                all or substantially all of its assets under the law of any
                applicable jurisdiction, including without limitation, the
                United States of America, Bermuda or Ireland; or

        20.2.6  an application or petition for bankruptcy, corporate
                re-organization, composition, administration, examination,
                arrangement or any other procedure similar to any of the
                foregoing under the law of any applicable jurisdiction,
                including without limitation, the United States of America,
                Bermuda or Ireland, is filed, and is not discharged within 60
                days, or a Participant applies for or consents to the
                appointment of a receiver, administrator, examiner or similar
                officer of it or of all or a material part of its assets, rights
                or revenues or the assets and/or the business of a Participant
                are for any reason seized, confiscated or condemned.

20.4    If either Participant commits a Relevant Event, the other Shareholder
        shall have in addition to all other legal and equitable rights and
        remedies hereunder, the right to terminate this Agreement upon 30 days'
        written notice.

20.5    In the event of a termination of the Elan License Agreement and/or the
        Isis License Agreement, both parties will negotiate in good faith to
        determine whether this Agreement should be terminated and if so, which
        provisions should survive termination.

20.6    The provisions of Clauses 1.1, 3, 5.1, 9, 10, 11.11, 11.12,12.3, 13.3,
        18, 19, 20, 22, 23 and 24 shall survive the termination of this
        Agreement under Clause 20.5 or by mutual consent pursuant to Clause 20.1
        in accordance with their terms; all other terms and provisions of this
        Agreement shall cease to have effect and be null and void upon the
        termination of this Agreement under Clause 20.5 or by mutual consent
        pursuant to Clause 20.1; provided, however, that so long as the License
        Agreements remain in effect Clauses 11.1 through 11.10 shall also
        survive.

20.7    [ * * ].

                                               *CONFIDENTIAL TREATMENT REQUESTED

                                       39
<PAGE>   40

20.8    In the event that [ * ] pursuant to Clause 20.7 above, the Participants
        shall jointly select a nationally recognised investment banking firm as
        arbitrator to make such determination. In the event the Participants do
        not agree upon the selection of such investment banking firm, Elan may
        contact the presiding justice of the Supreme Court of the State of New
        York sitting in the City, County, and State of New York (the "PRESIDING
        JUSTICE") and request that an independent US-based nationally recognised
        investment banking firm which is knowledgeable of the
        pharmaceutical/biotechnology industry be appointed within 10 Business
        Days. The Presiding Justice shall endeavor to select an investment
        banking firm as arbitrator which is technically knowledgeable in the
        pharmaceutical/biotechnology industry (and which directly and through
        its Affiliates, has no business relationship with, or shareholding in,
        either of the Participants). Promptly upon being notified of the
        arbitrator's appointment, the Participants shall submit to the
        arbitrator details of their assessment of the [ * ] together with such
        information as they think necessary to validate their assessment. The
        arbitrator shall notify Isis of the fair market value assessed by Elan
        (the "ELAN VALUATION") and shall notify Elan of the fair market value
        assessed by Isis (the "ISIS VALUATION"). The Participants shall then be
        entitled to make further submissions to the arbitrator within five
        Business Days explaining [ * ], as the case may be, are unjustified. The
        arbitrator shall thereafter meet with Isis and Elan and shall thereafter
        choose either the [ * ] on the basis of [ * ]. The arbitrator shall use
        its best efforts to determine [ * ] within 30 Business Days of his
        appointment. The Participants shall bear the costs of the arbitrator
        equally provided that the arbitrator may, in its discretion, allocate
        all or a portion of such costs to one Party. Any decision of the
        arbitrator shall be final and binding.

20.9    Elan shall purchase the Shares beneficially owned by Isis by delivery of
        the Purchase Price in cash no later than the 15th Business Day following
        determination of the Purchase Price by the arbitrator.

20.10   The Shares so transferred shall be sold by Isis with effect from the
        date of such transfer free from any lien, charge or encumbrance, but
        with all rights and restrictions attaching thereto.

20.11   If Elan exercises the Buyout Option pursuant to Clause 20.7, above,
        HepaSense shall continue to develop Isis Products on terms which are
        substantially the same as those which would be provided to an third
        party negotiating on an arm's length basis.

                                               *CONFIDENTIAL TREATMENT REQUESTED

                                       40
<PAGE>   41

20.12   If Elan exercises the Buyout Option pursuant to Clause 20.7, above, both
        parties will negotiate in good faith to agree to additional reasonable
        provisions and/or amendments to the License Agreements to protect the
        intellectual property rights of the Participants.

20.13   If Elan exercises the Buyout Option pursuant to Clause 20.7, above, the
        provisions of Clauses 1, 3, 10.2.6, 11.2 through 11.12, 12.3, 20.11,
        20.12, 20.13, 22, 23 and 24 shall survive the termination of this
        Agreement under this Clause 20.13; all other terms and provisions of
        this Agreement shall cease to have effect and be null and void.

                                    CLAUSE 21

                                  SHARE RIGHTS

21.1    The provisions regulating the rights and obligations attaching to the
        Common Shares and the Preferred Shares are set out in the HepaSense
        Bye-Laws.

                                    CLAUSE 22

                                 CONFIDENTIALITY

22.1    The Parties and/or HepaSense acknowledge and agree that it may be
        necessary, from time to time, to disclose to each other confidential
        and/or proprietary information, including without limitation,
        inventions, works of authorship, trade secrets, specifications, designs,
        data, know-how and other information, relating to the Field, the
        Products, present or future products, the HepaSense Intellectual
        Property, the Elan Intellectual Property or the Isis Intellectual
        Property, as the case may be, methods, compounds, research projects,
        work in process, services, sales suppliers, customers, employees and/or
        business of the disclosing Party, whether in oral, written, graphic or
        electronic form (collectively "CONFIDENTIAL INFORMATION").

22.2    Any Confidential Information revealed by a Party to another Party shall
        be maintained as confidential and shall be used by the receiving Party
        exclusively for the purposes of fulfilling the receiving Party's rights
        and obligations under this Agreement, and for no other purpose.
        Confidential Information shall not include:

        22.2.1  information that is generally available to the public;

        22.2.2  information that is made public by the disclosing Party;

        22.2.3  information that is independently developed by the receiving
                Party, as evidenced by such Party's records, without the aid,
                application or use of the disclosing Party's Confidential
                Information;

                                       41
<PAGE>   42

        22.2.4  information that is published or otherwise becomes part of the
                public domain without any disclosure by the receiving Party, or
                on the part of the receiving Party's directors, officers,
                agents, representatives or employees;

        22.2.5  information that becomes available to the receiving Party on a
                non-confidential basis, whether directly or indirectly, from a
                source other than the disclosing Party, which source did not
                acquire this information on a confidential basis; or

        22.2.6  information which the receiving Party is required to disclose
                pursuant to:

                (i)     a valid order of a court or other governmental body or
                        any political subdivision thereof or as otherwise
                        required by law, rule or regulation; or

                (ii)    other requirement of law;

                provided, however, that if the receiving Party becomes legally
                required to disclose any Confidential Information, the receiving
                Party shall give the disclosing Party prompt notice of such fact
                so that the disclosing Party may obtain a protective order or
                confidential treatment or other appropriate remedy concerning
                any such disclosure. The receiving Party shall fully co-operate
                with the disclosing Party in connection with the disclosing
                Party's efforts to obtain any such order or other remedy. If any
                such order or other remedy does not fully preclude disclosure,
                the receiving Party shall make such disclosure only to the
                extent that such disclosure is legally required; or

        22.2.7  information which was already in the possession of the receiving
                Party at the time of receiving such information, as evidenced by
                its records, provided such information was not previously
                provided to the receiving party from a source which was under an
                obligation to keep such information confidential; or

        22.2.8  information that is the subject of a written permission to
                disclose, without restriction or limitation, by the disclosing
                Party.

22.3    Each Party agrees to disclose Confidential Information of another Party
        only to those employees, representatives and agents requiring knowledge
        thereof in connection with their duties directly related to the
        fulfilling of the Party's obligations under this Agreement, so long as
        such persons are under an obligation of confidentiality no less
        stringent than as set forth herein. Each Party further agrees to inform
        all such employees, representatives and agents of the terms and
        provisions of this Clause and their duties hereunder and to obtain their
        consent hereto as a condition of receiving Confidential Information.
        Each Party agrees

                                       42
<PAGE>   43

        that it will exercise the same degree of care and protection to preserve
        the proprietary and confidential nature of the Confidential Information
        disclosed by a Party, as the receiving Party would exercise to preserve
        its own Confidential Information. Each Party agrees that it will, upon
        request of another Party, return all documents and any copies thereof
        containing Confidential Information belonging to or disclosed by such
        other Party. Each Party shall promptly notify the other Parties upon
        discovery of any unauthorized use or disclosure of the other Parties'
        Confidential Information.

22.4    Notwithstanding the above, each Party may use or disclose Confidential
        Information disclosed to it by another Party to the extent such use or
        disclosure is reasonably necessary in filing or prosecuting patent
        applications, prosecuting or defending litigation, complying with patent
        applications, prosecuting or defending litigation, complying with
        applicable governmental regulations or otherwise submitting information
        to tax or other governmental authorities, conducting clinical trials, or
        granting a permitted sub-license or otherwise exercising its rights
        hereunder; provided, that if a Party is required to make any such
        disclosure of the other Party's Confidential Information, other than
        pursuant to a confidentiality agreement, such Party shall inform the
        third party recipient of the terms and provisions of this Agreement and
        their duties hereunder and shall obtain their consent hereto as a
        condition of releasing to the third party recipient the Confidential
        Information.

22.5    Any breach of this Clause 22 by any employee, representative or agent of
        a Party is considered a breach by the Party itself.

22.6    The provisions relating to confidentiality in this Clause 22 shall
        remain in effect during the Term and for a period of seven years
        following the termination of this Agreement.

22.7    The Parties agree that the obligations of this Clause 22 are necessary
        and reasonable in order to protect the Parties' respective businesses,
        and each Party expressly agrees that monetary damages would be
        inadequate to compensate a Party for any breach by the other Party of
        its covenants and agreements set forth herein. Accordingly, the Parties
        agree and acknowledge that any such violation or threatened violation
        will cause irreparable injury to a Party and that, in addition to any
        other remedies that may be available, in law or in equity or otherwise,
        any Party shall be entitled to obtain injunctive relief against the
        threatened breach of the provisions of this Clause 22, or a continuation
        of any such breach by the other Party, specific performance and other
        equitable relief to redress such breach together with its damages and
        reasonable counsel fees and expenses to enforce its rights hereunder,
        without the necessity of proving actual or express damages.

                                       43
<PAGE>   44

                                    CLAUSE 23

                                      COSTS

23.1    Each Shareholder shall bear its own legal and other costs incurred in
        relation to preparing and concluding this Agreement and the Definitive
        Documents.

23.2    All other costs, legal fees, registration fees and other expenses
        relating to the transactions contemplated hereby, including the costs
        and expenses incurred in relation to the incorporation of HepaSense,
        shall be borne by HepaSense.

                                    CLAUSE 24

                                     GENERAL

24.1    GOOD FAITH:

        Each of the Parties hereto undertakes with the others to do all things
        reasonably within its power that are necessary or desirable to give
        effect to the spirit and intent of this Agreement.

24.2    FURTHER ASSURANCE:

        At the request of any of the Parties, the other Party or Parties shall
        (and shall use reasonable efforts to procure that any other necessary
        parties shall) execute and perform all such documents, acts and things
        as may reasonably be required subsequent to the signing of this
        Agreement for assuring to or vesting in the requesting Party the full
        benefit of the terms hereof.

24.3    NO REPRESENTATION:

        Each of the Parties hereto hereby acknowledges that in entering into
        this Agreement it has not relied on any representation or warranty
        except as expressly set forth herein or in any document referred to
        herein.

24.4    FORCE MAJEURE:

        Neither Party to this Agreement shall be liable for delay in the
        performance of any of its obligations hereunder if such delay is caused
        by or results from causes beyond its reasonable control, including
        without limitation, acts of God, fires, strikes, acts of war (whether
        war be declared or not), insurrections, riots, civil commotions,
        strikes, lockouts or other labor disturbances or intervention of any
        relevant government authority, but any such delay or failure shall be
        remedied by such Party as soon as practicable.

                                       44
<PAGE>   45

24.5    RELATIONSHIP OF THE PARTIES:

        Nothing contained in this Agreement is intended or is to be construed to
        constitute Elan/EIS and Isis as partners, or Elan/EIS as an employee or
        agent of Isis, or Isis as an employee or agent of Elan/EIS.

        No Party hereto shall have any express or implied right or authority to
        assume or create any obligations on behalf of or in the name of another
        Party or to bind another Party to any contract, agreement or undertaking
        with any third party.

24.6    COUNTERPARTS:

        This Agreement may be executed in any number of counterparts, each of
        which when so executed shall be deemed to be an original and all of
        which when taken together shall constitute this Agreement.

24.7    NOTICES:

        Any notice to be given under this Agreement shall be sent in writing by
        registered or recorded delivery post or reputable overnight courier such
        as Federal Express or telecopied to:

        Elan at:

        Lincoln House, Lincoln Place, Dublin 2, Ireland
        Attention: Vice President & General Counsel
        Elan Pharmaceutical Technologies,
        a division of Elan Corporation, plc
        Telephone: 353-1-709-4000
        Fax: 353-1-709-4124

        and

        Elan International Services, Ltd.
        102 St. James Court
        Flatts, Smiths FL04
        Bermuda
        Attention: President
        Telephone: 441-292-9169
        Fax: 441-292-2224

                                       45
<PAGE>   46

        Isis at:

        2292 Faraday Avenue
        Carlsbad, CA 92008
        Attention: B. Lynne Parshall, Esq.
        Telephone: 760-603-2460
        Fax: 760-931-9639

        HepaSense Ltd. at:

        102 St. James Court
        Clarendon House
        Church St.
        Hamilton, Bermuda
        Attention: Secretary
        Telephone: 441-295-1422
        Fax: 441-292-4720

        or to such other address(es) as may from time to time be notified by any
        Party to the others hereunder. A copy of any notice served by a
        Participant on HepaSense shall also be delivered to the other
        Participant.

        Any notice sent by mail shall be deemed to have been delivered within
        three Business Days after dispatch or delivery to the relevant courier
        and any notice sent by telecopy shall be deemed to have been delivered
        upon confirmation of receipt. Notices of change of address shall be
        effective upon receipt. Notices by telecopy shall also be sent by
        another method permitted hereunder.

24.8    GOVERNING LAW; ARBITRATION

        24.8.1  This Agreement shall be governed by and construed in accordance
                with the laws of the State of New York.

        24.8.2  Any dispute under this Agreement or the other Transaction
                Documents which is not settled by mutual consent (whether
                pursuant to the provisions in Clause 19 hereof or otherwise)
                shall be finally settled by binding arbitration, conducted in
                accordance with the Commercial Arbitration Rules of the American
                Arbitration Association by one (1) arbitrator appointed in
                accordance with said rules. Such arbitrator shall be reasonably
                satisfactory to each of the Parties; provided, that if the
                Parties are unable to agree upon the identity of such arbitrator
                within 15 days of demand by either Party, then either Party
                shall have the right to petition the Presiding Justice to
                appoint an arbitrator.

                                       46
<PAGE>   47

        The arbitration shall be held in New York, New York and the arbitrator
        shall be an independent expert in pharmaceutical product development and
        marketing (including clinical development and regulatory affairs).

        The arbitrator shall determine what discovery will be permitted,
        consistent with the goal of limiting the cost and time which the Parties
        must expend for discovery; provided the arbitrator shall permit such
        discovery as they deem necessary to permit an equitable resolution of
        the dispute.

        Any written evidence originally in a language other than English shall
        be submitted in English translation accompanied by the original or a
        true copy thereof.

        The costs of the arbitration, including administrative and arbitrators'
        fees, shall be shared equally by the Parties and each Party shall bear
        its own costs and attorneys' and witness' fees incurred in connection
        with the arbitration.

        In rendering judgement, the arbitrator shall be instructed by the
        Parties that he shall be permitted to select solely from between the
        proposals for resolution of the relevant issue presented by each Party,
        and not any other proposal.

        A disputed performance or suspended performances pending the resolution
        of the arbitration must be completed within thirty (30) days following
        the final decision of the arbitrators or such other reasonable period as
        the arbitrators determine in a written opinion.

        Any arbitration under the Transaction Documents shall be completed
        within one year from the filing of notice of a request for such
        arbitration.

        The arbitration proceedings and the decision shall not be made public
        without the joint consent of the Parties and each Party shall maintain
        the confidentiality of such proceedings and decision unless otherwise
        permitted by the other Party.

        The Parties agree that the decision shall be the sole, exclusive and
        binding remedy between them regarding any and all disputes,
        controversies, claims and counterclaims presented to the arbitrators.
        Application may be made to any court having jurisdiction over the Party
        (or its assets) against whom the decision is rendered for a judicial
        recognition of the decision and an order of enforcement.

24.9    SEVERABILITY:

        If any provision in this Agreement is agreed by the Parties to be,
        deemed to be or becomes invalid, illegal, void or unenforceable under
        any law that is applicable hereto, such provision will be deemed amended
        to conform to applicable laws so as to be valid and enforceable or, if
        it cannot be so amended without materially altering the intention of the
        Parties, it will be deleted, with effect from the date of

                                       47
<PAGE>   48

        such agreement or such earlier date as the Parties may agree, and the
        validity, legality and enforceability of the remaining provisions of
        this Agreement shall not be impaired or affected in any way.

24.10   AMENDMENTS:

        No amendment, modification or addition hereto shall be effective or
        binding on any Party unless set forth in writing and executed by a duly
        authorized representative of all Parties.

24.11   WAIVER:

        No waiver of any right under this Agreement shall be deemed effective
        unless contained in a written document signed by the Party charged with
        such waiver, and no waiver of any breach or failure to perform shall be
        deemed to be a waiver of any future breach or failure to perform or of
        any other right arising under this Agreement.

24.12   ASSIGNMENT:

        None of the Parties shall be permitted to assign its rights or
        obligations hereunder without the prior written consent of the other
        Parties except as follows:

        24.12.1 Elan, EIS and/or Isis shall have the right to assign their
                rights and obligations hereunder to their Affiliates provided,
                however, that such assignment does not result in adverse tax
                consequences for any other Parties.

        24.12.2 Elan and EIS shall have the right to assign their rights and
                obligations hereunder to a special purpose financing or similar
                entity established by Elan or EIS.

24.13   ASSIGNMENT OF HEPASENSE INTELLECTUAL PROPERTY:

        Upon one month's prior notice in writing from Elan to HepaSense and
        Isis, HepaSense shall assign the HepaSense Intellectual Property from
        HepaSense to a wholly-owned subsidiary of HepaSense to be incorporated
        in Ireland, which company shall be newly incorporated by Elan to
        facilitate such assignment.

24.14    WHOLE AGREEMENT/NO EFFECT ON OTHER AGREEMENTS:

        This Agreement (including the Schedules attached hereto) and the
        Definitive Documents set forth all of the agreements and understandings
        between the Parties with respect to the subject matter hereof, and
        supersedes and terminates all prior agreements and understandings
        between the Parties with respect to the subject matter hereof. There are
        no agreements or understandings with respect to the

                                       48
<PAGE>   49

        subject matter hereof, either oral or written, between the Parties other
        than as set forth in this Agreement and the Definitive Documents.

        In the event of any ambiguity or conflict arising between the terms of
        this Agreement and those of the HepaSense Bye-Laws, except with respect
        to the rights and obligations attaching to the Common Shares and the
        Preferred Shares in which respect the HepaSense Bye-Laws shall prevail,
        the terms of this Agreement.

        No provision of this Agreement shall be construed so as to negate,
        modify or affect in any way the provisions of any other agreement
        between any of the Parties unless specifically referred to, and solely
        to the extent provided herein. In the event of a conflict between the
        provisions of this Agreement and the provisions of the License
        Agreements, the terms of this Agreement shall prevail unless this
        Agreement specifically provide otherwise.

24.15   SUCCESSORS:

        This Agreement shall be binding upon and inure to the benefit of the
        Parties hereto, their successors and permitted assigns.

                                       49
<PAGE>   50

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the day
first set forth above.

                                        SIGNED

                                        BY:
                                           -------------------------------------

                                        for and on behalf of
                                        ELAN CORPORATION, PLC

in the presence of:
                   -------------------------------------

                                        SIGNED

                                        BY:
                                           -------------------------------------

                                        for and on behalf of
                                        ELAN INTERNATIONAL SERVICES, LTD.

in the presence of:
                   -------------------------------------

                                        SIGNED

                                        BY:
                                           -------------------------------------

                                        for and on behalf of
                                        ELAN PHARMA INTERNATIONAL LIMITED

in the presence of:
                   -------------------------------------

                                        SIGNED

                                        BY:
                                           -------------------------------------

                                        for and on behalf of
                                        ISIS PHARMACEUTICALS, INC.

in the presence of:
                   -------------------------------------

                                        SIGNED

                                       50
<PAGE>   51

                                        BY:
                                           -------------------------------------

                                        for and on behalf of
                                        HEPASENSE LTD.

in the presence of:
                   -------------------------------------

                                       51
<PAGE>   52

                                   SCHEDULE 1

                             ELAN LICENSE AGREEMENT

                                       52
<PAGE>   53

                                   SCHEDULE 2

                             ISIS LICENSE AGREEMENT

                                       53
<PAGE>   54

                                   SCHEDULE 3

                                  SUBSCRIPTIONS

ISIS 6,001 Common Shares
     3,612 Preferred Shares

EIS  2,388 Preferred Shares

                                       54<PAGE>   1
                                                                    EXHIBIT 10.2

                                               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 (this "Agreement"), dated as of
January 14, 2000, between ISIS PHARMACEUTICALS, INC., a Delaware corporation
(the "Company"), and ELAN INTERNATIONAL SERVICES, LTD., a Bermuda exempted
limited liability company ("EIS") and a wholly-owned subsidiary of Elan
Corporation, plc, an Irish public limited company ("Elan").

                                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, (i) 12,015 shares of a newly-created series of the
Company's Preferred Stock, par value $.001 per share, designated "Series B
Convertible Exchangeable Preferred Stock" (the "Series B Preferred Stock"), (ii)
shares of the Company's Common Stock, par value $.001 per share (the "Common
Stock"), in amounts and at the times determined pursuant to Section 1(b)(ii) and
(iii) hereof (the "Common Shares" and together with all shares of the Series B
Preferred Stock, the "Shares"), and (iii) warrants to purchase shares of Common
Stock in amounts and at the times determined pursuant to Section 1(b)(ii) and
(iii) hereof (the "Warrants"). In addition, EIS has agreed to lend certain funds
to the Company pursuant to a convertible promissory note in the form attached
hereto as Exhibit A (as may be amended at any time, the "Note" and, together
with the Series B Preferred Stock, the Common Shares, and the Warrants, the
"Securities"), with a maximum aggregate principal amount of U.S.$12,015,000,
amounts in respect of which shall be disbursed in accordance with its terms and
subject to the conditions contained herein and therein and in the Funding
Agreement. The rights, preferences and privileges of the Series B Preferred
Stock are as set forth in the Certificate of Designation of the Series B
Convertible Preferred Stock, (the "Certificate of Designation"), the form of
which is attached hereto as Exhibit B.

               B. The Company and EIS have formed HepaSense Ltd., a Bermuda
exempted limited liability company ("HepaSense"), and pursuant to the terms of a
Subscription, Joint Development and Operating Agreement, dated as of the date
hereof (as may be amended at any time, the "JDOA"), simultaneously with the
transactions contemplated by this Agreement, the Company shall acquire from
HepaSense, for an aggregate purchase price of $12,015,000, (i) 6,001 shares of
HepaSense's voting common stock, par value US$1.00 per share (the "HepaSense
Common Shares"), representing 100% of the outstanding shares of such class of
stock, and (ii) 3,612 shares of HepaSense's non-voting, convertible preferred
stock, par value US$1.00 per share (the "HepaSense Preferred Shares" and
together with the HepaSense Common Shares, the "HepaSense Capital Shares"),
representing 60.20% of the aggregate outstanding HepaSense Preferred Shares and,
on a fully diluted basis, 30.097% of the outstanding HepaSense Capital Shares.
EIS will acquire from HepaSense, for an aggregate purchase price of $2,985,000,
2,388 HepaSense Preferred Shares, representing 39.80% of the aggregate
outstanding HepaSense Preferred Shares and, on a fully diluted basis, 19.898% of
the outstanding HepaSense Capital Shares. Additionally, as of the date hereof,
HepaSense has entered into license agreements with (i) Elan and its subsidiary,
Elan Pharma International Limited (such agreement, as may be amended at any
time, the "Elan License

<PAGE>   2

Agreement"), and (ii) the Company (such agreement, as may be amended at any
time, the "Company License Agreement" and, together with the Elan License
Agreement, the "License Agreements").

               C. The Company and EIS are executing and delivering on the date
hereof a Registration Rights Agreement, in the form attached hereto as Exhibit C
(as amended at any time, the "Company Registration Rights Agreement"), in
respect of the Common Stock issued or issuable upon (i) conversion of the Series
B Preferred Stock and/or the Note and exercise of the Warrants, and (ii) the
Common Shares to be issued and purchased hereunder, and any other Common Stock
issued to EIS or any of its affiliates or permitted transferees upon any stock
split, stock dividend, recapitalization or similar event affecting the
Securities. The Company, EIS and HepaSense are also executing and delivering on
the date hereof a Registration Rights Agreement in the form attached hereto as
Exhibit D (as amended at any time, the "HepaSense Registration Rights
Agreement"), in respect of the purchase of HepaSense Common Shares and HepaSense
Preferred Shares by the Company and EIS. Additionally, the Company and EIS are
executing and delivering on the date hereof a Funding Agreement in the form
attached hereto as Exhibit E (the "Funding Agreement;" and, together with this
Agreement, the Certificate of Designation, the JDOA, the Company Registration
Rights Agreement, the HepaSense Registration Rights Agreement, the License
Agreements and each other document or instrument executed and delivered in
connection with the transactions contemplated hereby and by the JDOA, the
"Transactions Documents").

                               A G R E E M E N T:

               The parties hereto agree as follows:

               SECTION 1.  Closing.

               (a) Time and Place. The closing of the transactions contemplated
hereby (the "Closing") shall occur on the date hereof (the "Closing Date"), at
the offices of Brock Silverstein LLC, 800 Third Avenue, 21st Floor, New York, NY
10022.

               (b) Issuance of Securities.

                      (i) At the Closing, the Company shall issue and sell to
        EIS, and EIS shall purchase from the Company, for an aggregate purchase
        price of US$12,015,000 (the "Preferred Stock Purchase Price"), 12,015
        shares of Series B Preferred Stock.

                      (ii) On the sixtieth (60th) trading day after the Closing
        (the "First Subsequent Purchase Date"), the Company shall issue and sell
        to EIS, and EIS shall purchase from the Company, for an aggregate
        purchase price of US$7,500,000 ("First Common Stock Purchase Price"),
        (A) the number of shares of Common Stock determined by dividing the
        First Common Stock Purchase Price by [ * ] of the average closing price
        of the Common Stock for the [ * ] trading days ending two days prior
        such [ * ] trading day and (B) a Warrant to purchase a number of shares
        of Common Stock equal to [ * ] of the aggregate number of shares of
        Common Stock to be purchased by EIS pursuant to clause (ii)(A) above,
        pursuant to a warrant certificate in the form attached hereto as Exhibit
        F. The purchase by

                                       2

                                               *CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   3

        EIS of the securities to be issued on the First Subsequent Purchase Date
        is conditioned upon EIS' obtaining requisite approval, if any, pursuant
        to the Mergers and Takeover (Control) Act 1978-1996 (Ireland) (the
        "Mergers Act").

                      (iii) On any day within 5 trading days after the receipt
        by EIS from the Company of notification of the occurrence of the
        Completion Date (the "Second Subsequent Purchase Date"), the Company
        shall issue and sell to EIS, and EIS shall purchase from the Company,
        for an aggregate purchase price of US$7,500,000 (the "Second Common
        Stock Purchase Price"), (A) the number of shares of Common Stock
        determined by dividing the Second Common Stock Purchase Price by [ * ]
        of the average closing price of the Common Stock for the 60 trading days
        ending two days prior to the Completion Date and (B) a Warrant to
        purchase a number of shares of Common Stock equal to 5% of the aggregate
        number of shares of Common Stock to be purchased by EIS pursuant to
        clause (iii)(A) above, pursuant to a warrant certificate in the form
        attached hereto as Exhibit G. "Completion Date" shall mean the date upon
        which a nine month toxicity study, with results sufficient to support a
        decision that ISIS 14803 has [ * ], has been completed. The purchase by
        EIS of the securities to be issued on the Second Subsequent Purchase
        Date is conditioned upon EIS' obtaining requisite approval, if any,
        pursuant to the Mergers Act.

               (c) Convertible Note Facility. EIS shall lend the Company up to
        US$12,015,000, pursuant to the terms and conditions of the Note.

               (d) Delivery.

                      (i) At the Closing:

                             (A) EIS shall pay the Preferred Stock Purchase
        Price by wire transfer to an account designated by the Company and the
        parties hereto shall execute and deliver to each other, as applicable:
        (I) a certificate or certificates for the Series B Preferred Stock; (II)
        the Note; (III) the Company Registration Rights Agreement; (IV) the
        HepaSense Registration Rights Agreement; (V) the JDOA; (VI) the
        Certificate of Designation, as filed with the Secretary of State of the
        State of Delaware; (VII) the License Agreements; (VIII) the Funding
        Agreement; (IX) a secretary certificate, in substantially the form of
        Exhibit H attached hereto; and (X) any other documents or instruments
        reasonably requested by a party hereto; and

                             (B) The Company shall cause to be delivered to EIS
        an opinion of counsel in the form attached hereto as Exhibit I;

                             (C) There shall have been delivered to EIS and the
        Company a legal opinion of Bermuda counsel to HepaSense with respect to
        the due organization of HepaSense and the valid issuance by HepaSense of
        shares of HepaSense Capital Shares to EIS and the Company.

                                       3

                                               *CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   4

                      (ii) On the First Subsequent Purchase Date, EIS shall pay
        the First Common Stock Purchase Price by wire transfer to an account
        designated by the Company and the parties hereto shall execute and
        deliver to each other, as applicable: (A) a certificate or certificates
        for the Common Stock to be purchased on the First Subsequent Purchase
        Date, as determined pursuant to Section 1(b)(ii) hereof; (B) the Warrant
        to be issued pursuant to Section 1(b)(ii) hereof; (C) a secretary
        certificate of the Company, in substantially the form of Exhibit H; and
        (D) any other documents or instruments reasonably requested by a party
        hereto;

                      (iii) On the Second Subsequent Purchase Date, EIS shall
        pay the Second Common Stock Purchase Price by wire transfer to an
        account designated by the Company and the parties hereto shall execute
        and deliver to each other, as applicable: (A) a certificate or
        certificates for the Common Stock to be purchased on the Second
        Subsequent Purchase Date, as determined pursuant to Section 1(b)(iii)
        hereof; (B) the Warrant to be issued pursuant to Section 1(b)(iii)
        hereof; (C) a secretary certificate of the Company, in substantially the
        form of Exhibit H; and (D) any other documents or instruments reasonably
        requested by a party hereto.

               (e) Exemption from Registration. The Securities and any
underlying shares of Common Stock will be issued under an exemption or
exemptions from registration under the Securities Act of 1933, as amended (the
"Securities Act"). Accordingly, the certificates evidencing the Series B
Preferred Stock and the Common Shares, the Warrants, the Note and any shares of
Common Stock or other securities issuable upon the exercise, conversion or
exchange of any of the Securities shall, upon issuance, contain legends,
substantially in the forms as follows:

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

               THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
               ALSO SUBJECT TO THE RESTRICTIONS CONTAINED IN THAT CERTAIN
               SECURITIES PURCHASE AGREEMENT, DATED AS OF JANUARY 14, 2000, BY
               AND BETWEEN ISIS PHARMACEUTICALS, INC. AND ELAN INTERNATIONAL
               SERVICES, LTD.

                                       4
<PAGE>   5

               SECTION 2. Representations and Warranties of the Company. The
Company hereby represents and warrants to EIS, as of the date hereof, as
follows:

               (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. The Company is duly
qualified as a foreign corporation 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 be so qualified
would not, individually or in the aggregate, have a material adverse effect on
the business, assets, liabilities (contingent or otherwise), operations,
condition (financial or otherwise), or prospects of the Company (a "Company
Material Adverse Effect").

               (b) Capitalization. As of the Closing Date, the Company has
reserved a sufficient number of shares of Common Stock: (i) for issuance upon
conversion of the Series B Preferred Stock being purchased hereunder by EIS
(including dividends in-kind thereon), (ii) for issuance upon exercise of the
Warrants, and (iii) for issuance upon conversion of the Note (including interest
payable thereon). The Shares, when issued against payment therefor in accordance
with this Agreement, will be duly and validly issued, fully paid and
nonassessable, will not be issued in violation of any preemptive or similar
rights. The shares of Common Stock underlying the Series B Preferred Stock, the
Note and the Warrants (the "Underlying Shares"), when issued upon conversion or
exercise in accordance with the terms thereof, will be duly and validly issued,
fully paid and nonassessable, and will not be issued in violation of any
preemptive or similar rights.

               (c) Authorization of Transactions Documents. The Company has full
corporate power and authority to execute and deliver this Agreement and each of
the other Transactions Documents to which it is a party, and to perform its
obligations hereunder and thereunder. The execution, delivery and performance by
the Company of this Agreement and each of the other Transactions Documents to
which it is a party, including the issuance and sale of the Securities, have
been duly authorized by all requisite corporate action by the Company and, when
executed and delivered by the Company, this Agreement and each of the other
Transactions Documents to which it is a party will be the valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except (A) that enforcement may be limited by (i)
applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or
other similar laws affecting creditors' rights, and (ii) general equity
principles and limitations on the availability of equitable relief, including
specific performance, and (B) that any rights to indemnity or contribution
hereunder or thereunder may be limited by state and federal securities laws and
by public policy considerations.

               (d) No Violation. The execution, delivery and performance by the
Company of this Agreement and each other Transactions Document to which it is a
party, including the issuance and sale of the Securities, and compliance with
the provisions hereof and thereof by the Company, does not conflict with or
constitute or result in a breach of or default under (or an event which with
notice or passage of time or both would constitute a default) or give rise to
any right of termination, cancellation or acceleration under (i) the Certificate
of Incorporation, as amended, or by-laws, of the

                                       5
<PAGE>   6

Company, (ii) applicable law, statute, rule or regulation, 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 its
properties or assets, or (iii) any material contract or agreement affecting the
Company, including any contract filed as an exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 1998 (the "1998 Form 10-K")
or any subsequent interim quarterly report, except where such breach, default,
termination, cancellation or acceleration would not, individually or in the
aggregate, have a Company Material Adverse Effect.

               (e) Approvals. Other than as may be necessary pursuant to the
Mergers Act or applicable Bermuda Securities laws, no material permit,
authorization, consent, approval, or order 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 or the
Transactions Documents, including the issuance and sale of the Securities, by
the Company, other than the filing of a Form D by the Company pursuant to
Regulation D under the Securities Act ("Regulation D").

               (f) SEC Filings. The Company has filed with the Securities and
Exchange Commission (the "SEC") all forms, reports, schedules, statements,
exhibits and other documents (collectively, the "SEC Filings") required to be
filed by the Company on or before the date hereof. At the time filed, the SEC
Filings, including without limitation, any financial statements, exhibits and
schedules included therein or documents incorporated therein by reference (i)
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading and (ii) complied in all material respects with the applicable
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as the case may be.

               (g) Financial Statements. The audited financial statements of the
Company for the years ending December 31, 1997 and December 31, 1998, together
with the related statements of operations, stockholders' equity (deficit) and
cash flows for each of the two years then ended and the reports and opinions
thereon of Ernst & Young LLP, contained in the Company's 1997 Form 10-K and 1998
Form 10-K and the Company's unaudited balance sheet for the period ending
September 30, 1999, together with the related statements of operations,
stockholders' equity (deficit) and cash flows for the quarter then ended (as set
forth in the Company's Form 10-Q, for the quarterly period ending September 30,
1999), comply as to form in all material respects with applicable accounting
requirements and the published rules and regulation of the SEC with respect
thereto, and fairly present, in all material respects, the financial position of
the Company and the results of its operations and its cash flows at such dates
and for the periods then ended and were prepared in conformity in all material
respects with generally accepted accounting principles applied on a consistent
basis, subject, in the case of the unaudited financial statements for the
quarterly period ending September 30, 1999, to normal year-end audit adjustments
(which shall not be material in the aggregate) and the absence of footnote
disclosures.

               (h) Litigation. There is no legal, administrative, arbitration or
other action or proceeding or to the Company's knowledge governmental
investigation pending, or to the

                                       6
<PAGE>   7

Company's knowledge, threatened in writing against the Company, or any director,
officer or employee of the Company that challenges the validity or performance
of this Agreement or the other Transactions Documents to which the Company is a
party.

               (i) Absence of Certain Events. Since December 29, 1999, except as
contemplated by the Transactions Documents, (A) the Company has not (i) made,
paid or declared any dividend or distribution to any equity holder (in such
capacity) or redeemed any of its capital stock, (ii) varied its business plan or
practices, in any material respect, from past practices, (iii) entered into any
financing, joint venture, license or similar arrangement that would limit or
restrict its ability to perform its obligations hereunder and under each of the
other Transactions Documents to which it is a party, or (iv) suffered or
permitted to be incurred any liability or obligation or any lien or encumbrance
against any of its properties or assets that would limit or restrict its ability
to perform its obligations hereunder and under each of the other Transactions
Documents to which it is a party, and (B) there has not been any change or
development which has had, or in the Company's reasonable judgment is likely to
have, a Company Material Adverse Effect.

               (j) Disclosure. The representations and warranties set forth
herein and in the other Transactions 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 or therein not misleading
in light of the circumstances in which they were made.

               (k) Brokers or Finders. There have been no investment bankers,
brokers or finders used by the Company in connection with the transactions
contemplated by the Transactions Documents and no such persons or entities are
entitled to a fee or compensation in respect thereof.

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

               (a) Organization. EIS is 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 duly qualified as a foreign corporation
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 be so qualified would not, individually or in the
aggregate, have a material adverse effect on the business, assets, liabilities
(contingent or otherwise), operations, condition (financial or otherwise), or
prospects of EIS (an "EIS Material Adverse Effect").

               (b) Authorization of Transactions Documents. EIS has full
corporate power and authority to execute and deliver this Agreement and each of
the other Transactions Documents to which it is a party, and to perform its
obligations hereunder and thereunder. The execution, delivery, and performance
by EIS of this Agreement and each other Transactions Document to which it is a
party, including the purchase and acceptance of the Securities, have been duly
authorized by all requisite corporate action by EIS and, when executed and
delivered by EIS, this Agreement and each of the other Transactions Documents to
which it is a party, will be the valid and binding obligations

                                       7
<PAGE>   8

of EIS, enforceable against it in accordance with their respective terms, except
(A) that enforcement may be limited by (i) applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting
creditors' rights, and (ii) general equity principles and limitations on the
availability of equitable relief, including specific performance, and (B) that
any rights to indemnity or contribution hereunder or thereunder may be limited
by state and federal securities laws and by public policy considerations.

               (c) No Violation. The execution, delivery and performance by EIS
of this Agreement and each other Transactions Document to which it is a party,
including the purchase and acceptance of the Securities, and compliance with
provisions hereof and thereof by EIS, will not conflict with or constitute or
result in a breach of or default under (or an event which with notice or passage
of time or both would constitute a default) or give rise to any right of
termination, cancellation or acceleration under (i) the Memorandum and Articles
of Association of EIS, (ii) any applicable law, statute, rule or regulation, or
any ruling, writ, injunction, order, judgment or decree of any court,
arbitrator, administrative agency or other governmental body applicable to EIS
or any of its properties or assets, or (iii) any material contract to which EIS
is party, except where such breach, default, termination, cancellation or
acceleration would not, individually or in the aggregate, have an EIS Material
Adverse Effect.

               (d) Approvals. Except for consent required under the Mergers Act,
no material permit, authorization, consent, approval or order 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 or the Transactions Documents by EIS.

               (e) Investment Representations.

                      (i) 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 Transactions Documents to which it is a party,
        and has the capacity to protect its own interests. EIS has not been
        formed solely for the purpose of entering into the transactions
        described herein and therein and is acquiring the Securities (and the
        Underlying Shares) for investment for its own account, not as a nominee
        or agent, and not with the view to, or for resale, distribution or
        fractionalization thereof, in whole or in part, and no other person
        (other than Elan) has a direct or indirect interest, beneficial or
        otherwise in the Securities (or the Underlying Shares); provided,
        however, that EIS shall be permitted to convert or exchange such
        Securities in accordance with their terms.

                      (ii) EIS has not and does not intend to enter into any
        contract, undertaking, agreement or arrangement with any person or
        entity to sell, transfer or pledge the Securities (or the Underlying
        Shares), other than a transfer to a current affiliate or subsidiary or a
        special purpose financing or similar vehicle established by EIS or one
        of its affiliates.

                                       8
<PAGE>   9

                      (iii) EIS acknowledges its understanding that the private
        placement and sale of the Securities (and the Underlying Shares) is
        exempt from registration under the Securities Act by virtue of the
        provisions of Regulation D. In furtherance thereof, EIS represents and
        warrants that it is an "accredited investor" as that term is defined in
        Regulation D, has the financial ability to bear the economic risk of its
        investment, has adequate means for providing for its current needs and
        personal contingencies and has no need for liquidity with respect to its
        investment in the Company.

                      (iv) EIS agrees that it shall not sell or otherwise
        transfer any of the Securities (or the Underlying Shares) without
        registration under the Securities Act or pursuant to an opinion of
        counsel reasonably satisfactory to the Company that an exemption from
        registration is available, and fully understands and agrees that it must
        bear the total economic risk of its purchase for an indefinite period of
        time because, among other reasons, none of the Securities (or the
        Underlying Shares) have been registered under the Securities Act or
        under the securities laws of any applicable state or other jurisdiction
        and, therefore, cannot be resold, pledged, assigned or otherwise
        disposed of unless subsequently registered under the Securities Act and
        under the applicable securities laws of such states or jurisdictions or
        an exemption from such registration is available. EIS understands that
        the Company is under no obligation to register the Securities (or the
        Underlying Shares) on its behalf with the exception of certain
        registration rights with respect to certain of the Securities (and the
        Underlying Shares), as provided in the Company Registration Rights
        Agreement. EIS understands the lack of liquidity and restrictions on
        transfer of the Securities (and the Underlying Shares) and that this
        investment is suitable only for a person or entity of adequate financial
        means that has no need for liquidity of this investment and that can
        afford a total loss of its investment.

               (f) Litigation. There is no legal, administrative, arbitration or
other action or proceeding or governmental investigation pending, or to EIS's
knowledge threatened, against EIS that challenges the validity or performance of
this Agreement or the other Transactions Documents to which EIS is a party.

               (g) Brokers or Finders. There have been no investment bankers,
brokers or finders used by EIS in connection with the transactions contemplated
by the Transactions Documents and no such persons or entities are entitled to a
fee or compensation in respect thereof.

               SECTION 4.  Covenants of the Parties.

               (a) Operating Covenants. From and after the Closing Date for so
long as the Note is outstanding and until the earlier to occur of the exercise
or expiration of the EIS Exchange Right (as such term is defined in Section 5
hereof), the Company shall not without the prior written consent of EIS: (i)
sell, transfer, encumber, pledge or otherwise affect, in any respect, (A) any
HepaSense Capital Shares owned by the Company, including, without limitation,
those HepaSense Preferred Shares transferable to EIS upon exercise by EIS of the
EIS Exchange Right, or (B) its ability to permit EIS to exercise the EIS
Exchange Right in full, as provided herein or (ii) enter into any material
transaction with a director, officer or beneficial owner of more than 20% of
Common

                                       9
<PAGE>   10

Stock on other than an arm's length basis. From and after the Closing Date and
until the earlier to occur of the exercise or expiration of the EIS Exchange
Right, EIS shall not without the prior written consent of the Company encumber,
pledge or otherwise affect, in any respect, any HepaSense Capital Shares owned
by EIS.

               (b) Fully-diluted Stock Ownership. 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 Common Stock (or securities or rights, options or warrants
exercisable, exchangeable or convertible for or into Common Stock) representing
in the aggregate in excess of [ * ] of the Company's outstanding Common Stock on
a fully diluted basis (assuming the exercise, exchange or conversion of such
securities beneficially owned by EIS or its affiliates, but not the exercise,
exchange or conversion of any other similar securities), EIS shall have the
right to convert the Series B Preferred Stock and the shares issuable upon
conversion of the Note into non-voting, convertible liquidation preferred stock
of the Company such that EIS and its affiliates will not directly or indirectly
own more than [ * ] of the Common Stock for a period of at least two years from
the election of the conversions of the Series B Preferred Stock or the Note. In
the event that EIS shall undertake to exercise such right, EIS shall retain the
additional right to exchange such new class of equity security for Common Stock,
in its discretion at any time after two years from the issuance date of the new
securities pursuant to the terms of the underlying security. Each of the Company
and EIS 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 10 business days of the end of each of
EIS's fiscal quarters. The Company shall bear the fees and expenses in
connection with the foregoing for the first such conversion by EIS; thereafter,
EIS shall reimburse the Company for its reasonable legal fees and expenses,
filing fees and other reasonable and documented costs and fees in connection
with carrying out the foregoing.

               (c) Use of Proceeds. The Company shall use the proceeds of (i)
the issuance and sale of the Series B Preferred Stock solely to fund its initial
capital contributions to, and funding of, HepaSense as described in the JDOA,
and (ii) the issuance and funding of the Note solely to fund development amounts
in connection with the business of HepaSense, as described in the Funding
Agreement and, in each case, for no other purpose.

               (d) Confidentiality; Non-Disclosure.

                      (i) Subject to clauses (ii) and (iii) below, from and
        after the date hereof, neither the Company nor EIS (nor their respective
        affiliates) shall disclose to any person or entity this Agreement or the
        other Transactions Documents or the contents thereof or the parties
        thereto, except that such parties may make such disclosure (x) to their
        directors, officers, employees and advisors, so long as they shall have
        advised such persons of the obligation of confidentiality herein and for
        whose breach or default the disclosing party shall be responsible, or
        (y) as required by applicable law, rule, regulation or judicial or
        administrative process, provided that the disclosing party uses
        reasonable efforts to obtain an order or ruling protecting the
        confidentiality of confidential information of the other party contained
        herein or therein. The parties shall be entitled to seek injunctive or
        other equitable

                                       10

                                               *CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   11

        relief in respect of any breach or threatened breach of the foregoing
        covenant without the requirement of posting a bond or other collateral.

                      (ii) Prior to issuing any press release or public
        disclosure in respect of this Agreement or the transactions contemplated
        hereby, the party proposing such issuance shall obtain the consent of
        the other party to the contents thereof, which consent shall not be
        unreasonably withheld or delayed; it being understood that if such
        second party shall not have responded to such consent request within
        five business days, such consent shall be deemed given.

                      (iii) This Section 4(d) shall not be construed to prohibit
        disclosure by the receiving party of any information which has not been
        previously determined to be confidential by the disclosing party, or
        which shall have become publicly disclosed (other than by breach of the
        receiving party's obligations hereunder).

               (e) 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
Transactions Documents.

               SECTION 5. Conversion and Exchange Rights. The Certificate of
Designation sets forth certain rights of the holders of shares of Series B
Preferred Stock to convert such shares of preferred stock into newly issued
shares of Common Stock, or to exchange such shares of Series B Preferred Stock
into (i) the shares of HepaSense Preferred Shares owned by the Company or (ii)
if the HepaSense Preferred Shares issued to the Company on the date hereof are
converted into HepaSense Common Shares, the HepaSense Common Shares received
upon such conversion (the "EIS Exchange Right"), both on the terms and
conditions set forth therein.

               SECTION 6. Pledge of HepaSense Preferred Shares.

               (a) In order to secure the Company's obligations pursuant to the
EIS Exchange Right, except as provided in Section 6(e) hereof, the Company
hereby pledges, assigns, grants and sets over to EIS, all of the Company's
right, title and interest in and to all HepaSense Preferred Shares deliverable
by the Company upon exercise of the EIS Exchange Right (including share
distributions and dividends thereon, any security into which such HepaSense
Preferred Shares shall be converted and all certificates representing such
shares of capital stock and, issued as an addition to, in substitution or in
exchange for, or on account of any such shares, now or hereafter acquired by the
Company, the "Pledged Shares").

               (b) The Company shall cause to be delivered to EIS all of the
certificates evidencing the Pledged Shares together with duly executed stock
power in favor of EIS, and cause to be filed with the Secretary of State of
California an appropriate UCC-1 financing statement in respect of such pledge,
assignment or setting over, and take all other necessary, appropriate and
customary actions in connection therewith.

                                       11
<PAGE>   12

               (c) During the term of this pledge, in the event the Company
shall be entitled to receive by reason of its ownership of any of the Pledged
Shares any:

                             (i) Stock certificates issued in connection with
               any increase or reduction in capital, reclassification, merger,
               consolidation, sale of assets, combination of shares, stock
               split, spin-off or split-off; or

                             (ii) Option, warrant or right, whether as an
               addition to or in substitution or exchange for any of the Pledged
               Shares or otherwise;

then, in each such case, the Company shall accept the same as agent of EIS or
its permitted assign, in trust for EIS or its permitted assign and shall deliver
the same immediately to EIS or its permitted assign in the exact form received
with the Company's endorsement, to the extent necessary, or appropriate stock
powers duly executed by the Company, to be held by EIS or its permitted assign
as part of the Pledged Shares in accordance with the terms and conditions
contained in this Section 6.

               (d) The obligations of the Company under this Section 6 shall
commence upon the date hereof and shall terminate and be of no further force and
effect upon the expiration of the EIS Exchange Right. Upon the termination of
the pledge of the Pledged Shares, (i) the security interests granted hereby
shall terminate and all rights to the Pledged Shares shall revert to the
Company, (ii) EIS or its permitted assignee shall (x) deliver to the Company all
of the certificates evidencing the Pledged Shares (including the securities
delivered pursuant to Section 6(c)(i) and 6(c)(ii) hereof) and (y) execute and
deliver to the Company such documents as the Company shall reasonably request to
evidence the termination of the security interest granted in this Section 6,
including, without limitation, a UCC Form 3 termination statement.

               (e) Such pledge shall be governed by the applicable provisions of
the New York Uniform Commercial Code. Upon exercise of the EIS Exchange Right,
EIS shall be entitled to keep and retain such share certificates, which shall
then be owned by EIS in accordance with the terms thereof. Except as
specifically provided in Section 6(c) hereof, until EIS exercises the EIS
Exchange Right, the Company shall retain all rights in and to the Pledged Shares
(including without limitation all voting, dividend, liquidation and other
rights), subject only to this pledge and the JDOA.

               SECTION 7. Survival Period. The representations and warranties of
the Company and EIS contained herein shall survive for a period of two years
from and after the date hereof.

               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 or by
registered or certified mail, return receipt requested and postage prepaid, or
by facsimile transmission (with receipt confirmed by telephone) addressed as
follows:

                                       12
<PAGE>   13

                      (i) if to the Company, to:

                      Isis Pharmaceuticals, Inc.
                      2292 Faraday Avenue
                      Carlsbad, CA 92008
                      Attn:  B. Lynne Parshall
                      Tel.: 760-603-2460
                      Fax:  760-931-9639

                      with a copy to:
                      Cooley Godward LLP
                      4365 Executive Drive
                      San Diego, CA 92121
                      Attn:  Julie Robinson, Esq.
                      Tel.:  619-550-6000
                      Fax:  619-453-3555

                      (ii) if to EIS, to:

                      Elan International Services, Ltd.
                      Flatts, Smiths Parish
                      Bermuda, FL 04
                      Attention: Director
                      Tel.:  441-292-9169
                      Fax:  441-292-2224

                      with a copy to:

                      Brock Silverstein LLC
                      800 Third Avenue
                      New York, New York 10022
                      Attention: Scott Rosenblatt, Esq.
                      Tel.: 212-371-2000
                      Fax:  212-371-5500

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
effectively given (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, (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, and (iv) in the case of
facsimile transmission, on the date of telephone confirmation of receipt.

                                       13
<PAGE>   14

               SECTION 9. Entire Agreement. This Agreement and the other
Transactions Documents contain the entire understanding of the parties with
respect to the subject matter hereof and thereof 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 dated after the date hereof.

               SECTION 11. Counterparts and Facsimile. The Transactions
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 Transactions
Documents may be signed and delivered to the other party by facsimile
transmission; such transmission shall be deemed a valid signature.

               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 this 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, except that all issues
concerning the relative rights of the Company and its stockholders shall be
governed by the Delaware General Corporation Law, without giving effect to the
principles of conflicts of laws.

               SECTION 14. Arbitration.

               (a) Any dispute under the Transactions Documents which is not
settled by mutual consent shall be finally settled by binding arbitration,
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association by one arbitrator appointed in accordance with said
rules. Such arbitrator shall be reasonably satisfactory to each of the parties;
provided, that if the parties are unable to agree upon the identity of such
arbitrator within 15 days of demand by either party, then either party shall
have the right to petition a presiding justice of the Supreme Court of New York,
New York County, to appoint an arbitrator. The arbitration shall be held in New
York, New York and the arbitrator shall be an independent expert in
pharmaceutical product development and marketing (including clinical development
and regulatory affairs).

               (b) The arbitrator shall determine what discovery will be
permitted, consistent with the goal of limiting the cost and time which the
parties must expend for discovery; provided the arbitrator shall permit such
discovery as he or she deems necessary to permit an equitable resolution of the
dispute. Any written evidence originally in a language other than English shall
be submitted in English translation accompanied by the original or a true copy
thereof. The costs of the arbitration, including administrative and arbitrators'
fees, shall be shared equally by the parties and each party shall bear its own
costs and attorneys' and witness' fees incurred in connection with the
arbitration.

                                       14
<PAGE>   15

               (c) In rendering judgment, the arbitrator shall be instructed by
the parties that he or she shall be permitted to select solely from between the
proposals for resolution of the relevant issue presented by each party, and not
any other proposal. A disputed performance or suspended performances pending the
resolution of the arbitration must be completed within 30 days following the
final decision of the arbitrators or such other reasonable period as the
arbitrators determine in a written opinion.

               (d) Any arbitration under the Transactions Documents shall be
completed within one year from the filing of notice of a request for such
arbitration. The arbitration proceedings and the decision shall not be made
public without the joint consent of the parties and each party shall maintain
the confidentiality of such proceedings and decision unless otherwise permitted
by the other party.

               (e) The parties agree that the decision shall be the sole,
exclusive and binding remedy between them regarding any and all disputes,
controversies, claims and counterclaims presented to the arbitrators.
Application may be made to any court having jurisdiction over the party (or its
assets) against whom the decision is rendered for a judicial recognition of the
decision and an order of enforcement.

               SECTION 15. Expenses. Each of the parties shall be responsible
for its own costs and expenses incurred in connection with the transactions
contemplated hereby and by the other Transactions Documents.

               SECTION 16. Schedules, etc. All statements contained in any
exhibit or schedule delivered by 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 and Transfers. 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. This
Agreement, the shares of Series B Preferred Stock and the shares of Common Stock
being purchased hereunder by EIS, the Note, the Warrants, and the shares of
Common Stock underlying the Series B Preferred Stock, the Note and the Warrants
may be transferred by EIS to its affiliates and subsidiaries, as well as any
special purpose financing or similar vehicle established by EIS or its
affiliates, provided, however, that EIS shall remain liable for its obligations
hereunder after any such assignment. Other than as set forth above, no party
shall transfer or assign this Agreement, the shares of Series B Preferred Stock
and Common Shares being purchased hereunder by EIS, the Note, the Warrants, and
the shares of Common Stock underlying the Series B Preferred Stock, the Note and
the Warrants, or any interest therein, without the prior written consent of the
other party; provided, however, that no consent shall be required in connection
with any such transfer or assignment by a party pursuant to a sale of all or
substantially all of the business of such party whether by merger, sale of
stock, sale of assets or otherwise.

                                       15
<PAGE>   16

               SECTION 18. Severability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not be in any way affected or
impaired thereby.

                            [Signature Page Follows.]

                                       16
<PAGE>   17

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

                                        ISIS PHARMACEUTICALS, INC.

                                        By:
                                             -----------------------------------
                                             B. Lynne Parshall
                                             Executive Vice President

                                        ELAN INTERNATIONAL SERVICES, LTD.

                                        By:
                                             -----------------------------------
                                             Kevin Insley
                                             President

                                       17
<PAGE>   18

                                    EXHIBIT A
                           CONVERTIBLE PROMISSORY NOTE

                                       18
<PAGE>   19

                                    EXHIBIT B
                           CERTIFICATE OF DESIGNATION

                                       19
<PAGE>   20

                                    EXHIBIT C
                      COMPANY REGISTRATION RIGHTS AGREEMENT

                                       20
<PAGE>   21

                                    EXHIBIT D
                     HEPASENSE REGISTRATION RIGHTS AGREEMENT

                                       21
<PAGE>   22

                                    EXHIBIT E
                                FUNDING AGREEMENT

                                       22
<PAGE>   23

                                    EXHIBIT F
                               WARRANT CERTIFICATE
                    (FIRST SUBSEQUENT COMMON STOCK PURCHASE)

                                       23
<PAGE>   24

                                    EXHIBIT G
                               WARRANT CERTIFICATE
                    (SECOND SUBSEQUENT COMMON STOCK PURCHASE)

                                       24
<PAGE>   25

                                    EXHIBIT H
                         FORM OF SECRETARY'S CERTIFICATE

                                       25
<PAGE>   26

                                    EXHIBIT I
                           OPINION OF COUNSEL TO ISIS

                                       26

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