Document:

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                                                                   EXHIBIT 10.60

Execution copy
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                               LICENSE AGREEMENT

                                    BETWEEN

                             ELAN CORPORATION, PLC

                        ELAN PHARMA INTERNATIONAL LTD.

                                      AND

                           INCARA DEVELOPMENT, LTD.

Portions of this exhibit marked [*] have been omitted pursuant to a request for
confidential treatment.

                                       1
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                               TABLE OF CONTENTS

1   DEFINITIONS

2   ELAN LICENSE TO NEWCO

3   INTELLECTUAL PROPERTY

4   [*] AFTER ACQUIRED TECHNOLOGY

5   FINANCIAL PROVISIONS

6   RIGHT OF INSPECTION AND AUDIT

7   REPRESENTATIONS AND WARRANTIES

8   TERM AND TERMINATION

9   CONFIDENTIAL INFORMATION

10  GOVERNING LAW AND JURISDICTION

11  IMPOSSIBILITY OF PERFORMANCE - FORCE MAJEURE

12  ASSIGNMENT

13  NOTICES

14  MISCELLANEOUS

[*] Confidential Treatment Requested; Certain Information Omitted and Filed
Separately with the SEC.

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THIS AGREEMENT made this 19 January 2001

between:

(1)  Elan Corporation, plc., a public limited company incorporated under the
     laws of Ireland, and having its registered office at Lincoln House, Lincoln
     Place, Dublin 2, Ireland;

(2)  Elan Pharma International Ltd. incorporated under the laws of Ireland, and
     having its registered office at WIL House, Shannon Business Park, Shannon,
     County Clare, Ireland;

(3)  Incara Development, Ltd., an exempted limited liability company
     incorporated under the laws of Bermuda and having its registered office at
     Clarendon House, 2 Church St., Hamilton, Bermuda ("Newco"); and

(4)  Incara Pharmaceuticals Corporation (formerly Intercardia, Inc.), a
     corporation duly incorporated and validly existing under the laws of
     Delaware and having its principal place of business at 3200 East Highway
     54, Cape Fear Building, Suite 300, Research Triangle Park, North Carolina
     27709, United States of America.

RECITALS:
---------

A.   Simultaneously herewith, Incara, Elan, EIS, and Newco are entering into the
     JDOA for the purpose of recording the terms and conditions of the joint
     venture and of regulating their relationship with each other and certain
     aspects of the affairs of, and their dealings with Newco.

B.   Newco desires to enter into this Agreement with Elan so as to permit Newco
     to utilize the Elan Intellectual Property in making, having made,
     importing, using, offering for sale and selling the Products in the Field
     in the Territory.

C.   Simultaneously herewith Newco and Incara are entering into the Incara
     License Agreement relating to Newco's use of the Incara Intellectual
     Property.

1    DEFINITIONS

1.1  In this Agreement unless the context otherwise requires:

     "Affiliate" shall mean any corporation or entity controlling, controlled or
     under the common control of Elan or Incara or any third party, as the case
     may be, excluding, in

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     the case of Elan, an Elan JV.  For the purpose of this definition,
     (i)"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 and (ii)  Newco shall not be an Affiliate of Elan or EIS or
     Incara.

     "After Acquired Technology" shall have the meaning as such term is defined
     in Clause 4.

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

     "Bolus System" shall mean the ambulatory drug delivery system for direct
     attachment to the body of a patient, which is capable of delivering drug
     upon activation, either manually or automatically, as the foregoing are
     disclosed and described in the Elan Patents, and in respect of which, Elan,
     from time to time uses the trademark "MEDIPAD(R)" for descriptive purposes.

     "Business Plan" shall have the meaning, as such term is defined in the
     JDOA.

     "Change of Control of Incara/Newco" shall mean circumstances where a
     Technological Competitor of Elan shall:

     (i)  acquire [*]% or more of the voting stock of Incara or Newco, or
          otherwise directly control or influence [*] respect their management
          or business; or

     (ii) otherwise have entered into any joint venture, collaborative, license
          or other arrangement with Incara or Newco, as the case may be, to such
          an extent that such a Technological Competitor of Elan controls or
          influences [*] the business or management of Incara or Newco, as the
          case may be.

     "Compound" shall mean the compound identified by Incara as OP2000, an ultra
     low molecular weight heparin, the structure of which is described in
     Schedule 1, and in the Incara Patents.

     "Confidential Information" shall have the meaning, as such term is defined
     in Clause 9.

     "Continuous System" shall mean the 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 the foregoing are disclosed and
     described in the Elan Patents, and in respect of which, Elan, from time to
     time uses the trademark "MEDIPAD(R)" for descriptive purposes.

     "Definitive Documents" shall mean the definitive agreements relating to the
     transaction including finance, stock purchase, research and license
     agreements.
[*] Confidential Treatment Requested; Certain Information Omitted and Filed
Separately with the SEC.

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     "Effective Date" shall mean the date of this Agreement.

     "EIS" shall mean Elan International Services, Ltd., a Bermudan exempted
     limited liability company having its registered office at Clarendon House,
     2 Church St., Hamilton, Bermuda.

     "Elan" shall mean EPIL and Affiliates and subsidiaries of Elan Corp within
     the division of Elan Corp carrying on business as Elan Pharmaceutical
     Technologies.  For the avoidance of doubt, "Elan" shall exclude the
     Excluded Entities.

     "Elan Corp" shall mean Elan Corporation, plc., a public limited company
     incorporated under the laws of Ireland.

     "Elan Improvements" shall mean improvements to the Elan Patents and/or the
     Elan Know-How, developed (i) by Elan outside the Project, (ii) by Elan,
     Incara or Newco or by a third party (under contract with Newco) pursuant to
     the Project, and/or (iii) jointly by any combination of Elan, Incara, Newco
     or a third party (under contract with Newco) pursuant to the Project,
     except as limited by agreements with third parties.

     Subject to third party agreements, Elan Improvements shall constitute part
     of Elan Intellectual Property and be included in the license of the Elan
     Intellectual Property pursuant to Clause 2.1 solely for the purposes set
     forth therein.  If the inclusion of a Elan Improvement in the license of
     Elan Intellectual Property is restricted or limited by a third party
     agreement, Elan shall use reasonable commercial efforts to minimize any
     such restriction or limitation.

     "Elan Intellectual Property" shall mean the Elan Know-How, the Elan Patents
     and the Elan Improvements.

     For the avoidance of doubt, Elan Intellectual Property shall exclude
     inventions, patents and know-how owned, licensed or controlled by the
     Excluded Entities.

     "Elan JV" shall mean an entity that Elan and a third party (i) establish or
     have established, (ii) take shareholdings in or have a right to take
     shareholdings in, and (iii) grant certain licenses in and to certain
     intellectual property rights for the purpose of implementing a strategic
     alliance.

     "Elan Know-How" shall mean, subject to Clause 4.3, any and all rights
     owned, licensed or controlled by Elan to any scientific, pharmaceutical or
     technical information, data discovery, invention (whether patentable or
     not), know-how, substances, techniques, processes, systems, formulations,
     designs and expertise relating to the System which is not generally known
     to the public.

     "Elan License" shall have the meaning set forth in Clause 2.1.

     "Elan Patents" shall mean, subject to Clause 4.3, any and all rights under
     any and all patent applications and/or patents, now existing, currently
     pending or hereafter filed

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     or obtained or licensed by Elan relating to the System as set forth in
     Schedule 2, and any foreign counterparts thereof and all divisionals,
     continuations, continuations-in-part and all patents issuing on any of the
     foregoing and any foreign counterparts thereof, together with all
     registrations, reissues, re-examinations, supplemental protection
     certificates, or extensions thereof and any foreign counterparts thereof.

     "Elan Trademark(s)" shall mean one or more trademarks, trade names, or
     service marks that are owned or licensed by or on behalf of Elan which Elan
     may nominate and approve in writing from time to time for use in connection
     with the sale or promotion of the Products by Newco.

     "EPIL" or "Elan Pharma International Limited" shall mean Elan Pharma
     International Limited, a private limited company incorporated under the
     laws of Ireland.

     "Excluded Entities" shall mean The Liposome Company, Inc. and its
     subsidiaries; Axogen Limited; Neuralab Limited; Dura Pharmaceuticals, Inc.
     and its subsidiaries; and Affiliates (present or future) of Elan Corp
     within the division of Elan Corp carrying on business as Elan
     Pharmaceuticals which incorporates, inter alia, EPIL (only to the extent
     that it is the owner of patents, know-how or other intellectual property or
     technology invented and/or developed within the division of Elan Corp
     carrying on business as Elan Pharmaceuticals), Athena Neurosciences, Inc.,
     Elan Pharmaceuticals, Inc. and Elan Europe Limited

     "Field" shall mean the treatment and/or amelioration of any gastro-
     intestinal disease by the administration of the Product.  For the avoidance
     of doubt, gastro-intestinal disease includes inflammatory bowel disease
     (including ulcerative colitis and Crohn's Disease).

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

     "Incara" shall mean Incara Pharmaceuticals Corporation (formerly
     Intercardia, Inc.), a Delaware corporation and its Affiliates.

     "Incara Improvements" shall have the meaning as such term is defined in the
     Incara License Agreement.

     "Incara Intellectual Property" shall mean the Incara Know-How, the Incara
     Patents and the Incara Improvements.

     "Incara License Agreement" shall mean that certain license agreement, of
     even date herewith, entered into between Incara and Newco.

     "Incara Know-How" shall have the meaning as such term is defined in the
     Incara License Agreement.

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     "Incara Patents" shall have the meaning as such term is defined in the
     Incara License Agreement.

     "Incara Sublicense" shall have the meaning set forth in Clause 2.1 of the
     Incara License Agreement.

     "JDOA" shall mean that certain subscription, joint development and
     operating agreement, of even date herewith, by and between Elan, Incara,
     EIS and Newco.

     "Licensed Technologies" shall mean the Elan Intellectual Property and the
     Incara Intellectual Property.

     "Licenses" shall mean the Elan License and the Incara Sublicense.

     "License Agreements" shall mean this Agreement and the Incara License
     Agreement.

     "Management Committee" shall have the meaning, as such term is defined in
     the JDOA.

     "Merck Agreement" shall mean the Development, License and Supply Agreement
     dated 26 July 1999 between Elan Pharma International Limited and Merck
     Corporation.

     "Minimed Agreement" shall mean the Manufacturing Agreement dated 11 June,
     1999 among Elan Corp, EPIL and MiniMed Inc.

     "Newco Intellectual Property" shall mean all rights to patents, know-how
     and other intellectual property arising out of the conduct of the Project
     by any person, including any technology acquired by Newco from a third
     party, that does not constitute Elan Intellectual Property or Incara
     Intellectual Property.

     For the avoidance of doubt, any preclinical and clinical data and/or
     toxicity, stability and pharmacological data generated pursuant to the
     Project relating to the Compound shall constitute Newco Intellectual
     Property.

     For the further avoidance of doubt, any patent application filed by Newco,
     or by Elan or Incara on behalf of Newco, and any patent issued pursuant
     thereto, covering a Product shall constitute Newco Intellectual Property.

     "Party" shall mean Elan Corp, EPIL or Newco, as the case may be, and
     "Parties" means all such parties together.

     "Product(s)" shall mean:

     (i)  the System containing or packaged with the Compound developed pursuant
          to the Project; and/or

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     (ii) an injectable (including, for the avoidance of doubt, by intramuscular
          injection, intravenous injection, or subcutaneous injection)
          formulation of the Compound developed pursuant to the Project.

     For the avoidance of doubt, "Product" shall exclude any oral formulation of
     heparin or any heparinoid.

     "Project" shall mean all activities as undertaken by Elan, Incara and Newco
     in order to develop the Products.

     "R&D Committee" shall have the meaning, as such term is defined in the
     JDOA.

     "R&D Program(s)" shall mean any research and development program(s)
     commenced by Newco pursuant to the Project.

     "System" shall mean the Continuous System and/or the Bolus System.

     "Technological Competitor of Elan" shall mean a person or entity listed in
     Schedule 3 and divisions, subsidiaries and successors thereof or any
     additional broad-based technological competitor of Elan added to such
     Schedule from time to time upon mutual agreement of Incara and Elan.

     "Term" shall have the meaning set forth in Clause 8.

     "Territory" shall mean all the countries of the world, except Japan and
     Korea.

     "United States Dollar" and "US$" shall mean the lawful currency for the
     time being of the United States of America.

1.2  In this Agreement:

     1.2.1  The singular includes the plural and vice versa, and the masculine
            includes the feminine and vice versa and the neuter includes the
            masculine and the feminine.

     1.2.2  Any reference to a Clause or Schedule shall, unless otherwise
            specifically provided, be to a Clause or Schedule of this Agreement.

     1.2.3  The headings of this Agreement are for ease of reference only and
            shall not affect its construction or interpretation.

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2    ELAN LICENSE TO NEWCO

2.1  Elan hereby grants to Newco for the Term [*] license (the "Elan License")
     to the Elan Intellectual Property to make, have made, import, use, offer
     for sale and sell the Products in the Field in the Territory, subject to
     any contractual obligations that Elan has as of the Effective Date,
     including but not limited to the Minimed Agreement and the Merck Agreement.

2.2  [*] shall be responsible for payments related to the financial provisions
     and obligations of any third party agreement with respect to the Elan
     Intellectual Property to which it is a party on the Effective Date
     (including amendments thereto) (the "[*] Effective Date Agreements"),
     including without limitation, any royalty or other compensation obligations
     triggered thereunder on the Effective Date, or triggered thereunder after
     the Effective Date.

     For the avoidance of doubt, royalties, milestones or other payments which
     arise from the process of the commercialization or exploitation of products
     under the [*] Effective Date Agreements (for example, a milestone payment
     payable upon successful completion of Phase II clinical trials, the filing
     of an NDA application, obtaining NDA approval, or first commercial sale)
     shall be payments for which [*] will be responsible under this Clause 2.2.

2.3  Incara shall be a third party beneficiary under this Agreement and shall
     have the right to cause Newco to enforce Newco's rights under this
     Agreement against Elan.

2.4  Notwithstanding anything contained in this Agreement to the contrary, Elan
     shall have the right outside the Field and subject to the [*] provisions of
     Clause 4 to exploit and grant licenses and sublicenses of the Elan
     Intellectual Property.

     For the avoidance of doubt, Newco shall have no right to use the Elan
     Intellectual Property outside the Field.

2.5  Except as provided in Clause 11 of the JDOA, Newco shall not be permitted
     to assign, license or sublicense any of its rights under the Elan
     Intellectual Property without the prior consent in writing of Elan.

2.6  Any agreement between Newco and any permitted third party for the
     development or exploitation of the Elan Intellectual Property shall require
     such third party to maintain the confidentiality of all information
     concerning the Elan Intellectual Property.

     Insofar as the obligations owed by Newco to Elan are concerned, Newco shall
     remain responsible for all acts and omissions of any permitted sub-
     licensee, including Incara, as if they were acts and omissions by Newco.

[*] Confidential Treatment Requested; Certain Information Omitted and Filed
Separately with the SEC.

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2.7  At such time as the Management Committee is evaluating formulations for
     formulating the Product(s), [*]

     If the Parties should agree to in-license to Newco [*] will negotiate in
     good faith such amendments as are required to this Agreement, such as
     amending the provisions regulating non-competition.

2.8  For the avoidance of doubt,[*].

2.9  In the event that the Management Committee, by unanimous agreement,
     terminates any R&D Program in respect of any Compound ("Abandoned
     Compound") pursuant to Clause 2.3 of the JDOA:

     2.9.1  Newco and Incara shall confirm to Elan in writing that the Elan
            License has terminated insofar as it previously related to the
            Abandoned Compound; and

     2.9.2  Elan will cease to be bound by the [*] obligations set forth in
            Clause 4 in respect of the Abandoned Compound, and the Parties shall
            discuss in good faith what additional amendments are required to
            this Agreement.

3    INTELLECTUAL PROPERTY

3.1  Ownership of Intellectual Property:
     -----------------------------------

     3.1.1  Newco shall own the Newco Intellectual Property.

     3.1.2  Elan shall own the Elan Intellectual Property.

3.2  Trademarks:
     -----------

     3.2.1  Elan hereby grants to Newco for the Term [*] license to use the Elan
            Trademarks solely to research, develop, make, have made, import,
            use, offer for sale and sell the Products in the Field in the
            Territory and the following provisions shall apply as regards the
            license of the Elan Trademarks by Elan to Newco hereunder:

            (1)  Newco shall ensure that each reference to and use of an Elan
                 Trademark by Newco is in a manner approved by Elan and
                 accompanied by an acknowledgement, in a form approved by Elan,
                 that the same is a trademark (or registered trademark) of Elan.

[*] Confidential Treatment Requested; Certain Information Omitted and Filed
Separately with the SEC.

                                       10
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               From time to time, upon the reasonable request of Elan, Newco
               shall submit samples of the Product to Elan or its duly appointed
               agent to ensure compliance with quality standards and
               specifications. Elan, or its duly appointed agent, shall have the
               right to inspect the premises of Newco where the Product is
               manufactured, held or stored, and Newco shall permit such
               inspection, upon advance notice at any reasonable time, of the
               methods and procedures used in the manufacture, storage and sale
               of the Product. Newco shall not sell or otherwise dispose of any
               Product under the Elan Trademarks that fails to comply with the
               quality standards and specifications referred to in this Clause
               3.2, as determined by Elan.

          (2)  Newco shall not use an Elan Trademark in any way which might
               materially prejudice its distinctiveness or validity or the
               goodwill of Elan therein.

          (3)  The parties recognize that the Elan Trademarks have considerable
               goodwill associated therewith. Newco shall not use in relation to
               the Products any trademarks other than the Elan Trademarks
               (except the Incara Trademarks (as defined in the Incara License
               Agreement) licensed to Newco under the Incara License Agreement)
               without obtaining the prior consent in writing of Elan, which
               consent may not be unreasonably withheld. However, such use must
               not conflict with the use and display of the Elan Trademark and
               such use and display must be approved by Elan.

          (4)  Newco shall not use in the Territory any trademarks or trade
               names so resembling the Elan Trademark as to be likely to cause
               confusion or deception.

          (5)  Newco shall promptly notify Elan in writing of any alleged
               infringement or unauthorized use of which it becomes aware by a
               third party of the Elan Trademarks and provide Elan with any
               applicable evidence of infringement or unauthorized use.

          (6)  Newco shall favorably consider promoting and using the Elan
               Trademarks in each country of the Territory and provide proof of
               such use upon request by Elan.

          (7)  Newco shall not be permitted to assign or sublicense any of its
               rights under the Elan Trademarks without the prior written
               consents of Elan.

     3.2.2  Elan may, at [*] expense, file and prosecute applications to
            register and maintain registrations of the Elan Trademarks in the
            Territory. Newco shall reasonably co-operate with Elan in such
            efforts.

[*] Confidential Treatment Requested; Certain Information Omitted and Filed
Separately with the SEC.

                                       11
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     3.2.3  Elan will be entitled to conduct all enforcement proceedings
            relating to the Elan Trademarks and shall at its sole discretion
            decide what action, if any, to take in respect to any enforcement
            proceedings of the Elan Trademarks or any other claim or counter-
            claim brought in respect to the use or registration of the Elan
            Trademarks. Any such proceedings shall be conducted at [*] expense
            and for its own benefit. Newco and Incara shall reasonably cooperate
            with Elan in such efforts.

     3.2.4  Newco shall promptly notify Elan in writing in the event that any
            Elan Trademark has been challenged by a third party in a judicial or
            administrative proceeding in a country in the Territory as
            infringing on the rights of a third party and Elan shall have the
            first right to decide whether or not to defend such allegations, or
            to adopt an alternative mark. If Elan decides not defend the Elan
            Trademark, then Newco may request Elan to defend the Elan Trademark,
            at [*] expense, unless such requested defense is believed by Elan to
            be unsubstantiated and without merit. In such a case, Elan may elect
            not to initiate defense proceedings.

     3.2.5  Newco will have no ownership rights in respect of the Elan
            Trademarks or of the goodwill associated therewith, and Newco hereby
            acknowledges that, except as expressly provided in this Agreement,
            it shall not acquire any rights in respect thereof and that all such
            rights and goodwill are, and will remain, vested in Elan.

     3.2.6  Nothing in this Agreement shall be construed as a warranty on the
            part of Elan regarding the Elan Trademarks, including without
            limitation, that use of the Elan Trademarks in the Territory will
            not infringe the rights of any third parties. Accordingly, Newco
            acknowledges and agrees that Elan makes no such warranty.

     3.2.7  Elan assumes [*] to Newco or to any third parties with respect to
            the quality, performance or characteristics of any of the goods
            manufactured or sold by Newco under the Elan Trademarks pursuant to
            this Agreement.

4    [*] AFTER ACQUIRED TECHNOLOGY

4.1  [*]

4.2  [*]

[*] Confidential Treatment Requested; Certain Information Omitted and Filed
Separately with the SEC.

                                       12
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4.3  If, after the Effective Date, Elan:

     4.3.1  licenses or otherwise acquires from a third party know-how or patent
            rights relating to the Elan Intellectual Property in the Field in
            the Territory; or

     4.3.2  acquires or merges with a third party entity that has know-how or
            patent rights relating to the Elan Intellectual Property in the
            Field in the Territory;

     ("After Acquired Technology")

     Elan shall offer to license the After Acquired Technology to Newco (subject
     to existing contractual obligations) solely to make, have made, import,
     use, offer for sale and sell the Products in the Field in the Territory, on
     commercially reasonable terms, as would be offered to an independent third
     party negotiating in good faith on an arm's length basis, for a reasonable
     period under the prevailing circumstances.

     If Newco, by unanimous decision of the Management Committee, determines
     that Newco should not acquire such license, Elan shall be free to fully
     exploit the After Acquired Technology, whether inside or outside the Field,
     and to grant to third parties licenses and sublicenses with respect
     thereto.

5    FINANCIAL PROVISIONS

5.1  License Fees:
     -------------

     In consideration of the license to Newco of the Elan Patents under Clause
     2, Newco shall pay to Elan Corp a [*] license fee of $12,750,000 in cash,
     and Newco shall pay to EPIL a [*] license fee of $2,250,000 in cash (the
     "License Fees"), the receipt of which is hereby acknowledged by Elan Corp
     and EPIL.

     The License Fees shall not be subject to future performance obligations of
     Elan to Newco or Incara and shall not be applicable against future services
     provided by Elan to Newco or Incara.

     The terms of this Clause 5.1 relating to the License Fees are independent
     and distinct from the other terms of this Agreement.

5.2  Royalties:
     ----------

     Prior to the commercialization of the Products, the Management Committee
     shall consider and if appropriate, determine reasonable royalties on Net
     Sales with respect to the commercialization of the Products by Newco that
     shall be payable by Newco to Elan Corp and EPIL and Incara, and [*] by Elan
     Corp and EPIL and Incara [*] with EIS' and Incara's [*].

[*] Confidential Treatment Requested; Certain Information Omitted and Filed
Separately with the SEC.

                                       13
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     At such time, the Management Committee will agree an appropriate definition
     of "Net Sales" as such term is used in this Agreement.

     The provisions set forth in Clauses 5.3 to 5.8 and 6 relate to the payment
     of any royalties which the Management Committee may determine to be payable
     by Newco to Elan under this Agreement.

5.3  Apportionment:
     --------------

     Any license fees, royalties and other payments due under the terms of this
     Agreement to Elan Corp and EPIL shall be apportioned [*]% in favor of Elan
     Corp and [*]% in favor of EPIL.

5.4  Payment of royalties pursuant to Clause 5.3 shall be made quarterly in
     arrears during each Financial Year within 30 days after the expiry of the
     calendar quarter. The method of payment shall be by wire transfer to an
     account specified by Elan. Each payment made to Elan shall be accompanied
     by a true accounting of all Products sold by Newco's permitted
     sublicensees, if any, during such quarter.

     Such accounting shall show, on a country-by-country and Product-by-Product
     basis, Net Sales (and the calculation thereof) and each calculation of
     royalties with respect thereto, including the calculation of all
     adjustments and currency conversions.

5.5  Newco shall maintain and keep clear, detailed, complete, accurate and
     separate records for a period of [*] years:

     5.5.1  to enable any royalties on Net Sales that shall have accrued
            hereunder to be determined; and

     5.5.2  to enable any deductions made in the Net Sales calculation to be
            determined.

5.6  All payments due hereunder shall be made in United States Dollars.
     Payments due on Net Sales of any Product for each calendar quarter made in
     a currency other than United States Dollars shall first be calculated in
     the foreign currency and then converted to United States Dollars on the
     basis of the exchange rate in effect on the last working day for such
     quarter for the purchase of United States Dollars with such foreign
     currency quoted in the Wall Street Journal (or comparable publication if
     not quoted in the Wall Street Journal) with respect to the currency of the
     country of origin of such payment, determined by averaging the rates so
     quoted on each business day of such quarter.

5.7  If, at any time, legal restrictions in the Territory prevent the prompt
     payment when due of royalties or any portion thereof, the Parties shall
     meet to discuss suitable and reasonable alternative methods of paying Elan
     the amount of such royalties. In the

[*] Confidential Treatment Requested; Certain Information Omitted and Filed
Separately with the SEC.

                                       14
<PAGE>

5.8  event that Newco is prevented from making any payment under this Agreement
     by virtue of the statutes, laws, codes or government regulations of the
     country from which the payment is to be made, then such payments may be
     paid by depositing them in the currency in which they accrue to Elan's
     account in a bank acceptable to Elan in the country the currency of which
     is involved or as otherwise agreed by the Parties.

5.8  Elan and Newco agree to co-operate in all respects necessary to take
     advantage of any double taxation agreements or similar agreements as may,
     from time to time, be available.

5.9  Any taxes payable by Elan on any payment made to Elan pursuant to this
     Agreement shall be for the account of Elan. If so required by applicable
     law, any payment made pursuant to this Agreement shall be made by Newco
     after deduction of the appropriate withholding tax, in which event the
     Parties shall co-operate to obtain the appropriate tax clearance as soon as
     is practicable. On receipt of such clearance, Newco shall forthwith arrange
     payment to Elan of the amount so withheld.

6    RIGHT OF INSPECTION AND AUDIT

6.1  [*] during each Financial Year, or more often not to exceed [*] as
     reasonably requested by Elan, Newco shall permit Elan or its duly
     authorized representatives, upon reasonable notice and at any reasonable
     time during normal business hours, to have access to inspect and audit the
     accounts and records of Newco and any other book, record, voucher, receipt
     or invoice relating to the calculation of the royalty payments on Net
     Sales.

     Any such inspection of Newco's records shall be at the expense of [*],
     except that if any such inspection reveals a deficiency in the amount of
     the royalty actually paid to Elan hereunder in any Financial Year quarter
     of [*]% or more of the amount of any royalty actually due to Elan
     hereunder, then the expense of such inspection shall be borne solely by
     [*].  [*] shall promptly pay to Elan any amount of deficiency.

     If such inspection reveals a surplus in the amount of royalties actually
     paid to Elan by Newco, Elan shall reimburse Newco the surplus within 15
     days after determination.

6.2  In the event of any unresolved dispute regarding any alleged deficiency or
     overpayment of royalty payments hereunder, the matter will be referred to
     an independent firm of chartered accountants chosen by agreement of Incara
     and Elan for a resolution of such dispute.  Any decision by the said firm
     of chartered accountants shall be binding on the Parties.

[*] Confidential Treatment Requested; Certain Information Omitted and Filed
Separately with the SEC.

                                       15
<PAGE>

7    REPRESENTATIONS AND WARRANTIES

7.1  Elan represents and warrants to Newco and Incara, as of the Effective Date,
     as follows:

     7.1.1  Elan has the right to grant the Elan License;

     7.1.2  there are no agreements between Elan and any third party that
            conflict with the Elan License;

     7.1.3  there are no proceedings pending against Elan in connection with the
            Elan Intellectual Property in relation to the Field.

7.2  In addition to any other indemnities provided for herein, Elan shall
     indemnify and hold harmless Newco and its Affiliates and their respective
     employees, agents, officers and directors from and against any claims,
     losses, liabilities or damages (including reasonable attorney's fees and
     expenses) incurred or sustained by Newco arising out of or in connection
     with any:

     7.2.1  breach of any representation, covenant, warranty or obligation by
            Elan hereunder; or

     7.2.2  negligent act or omission on the part of Elan or any of its
            respective employees, agents, officers and directors in the
            performance of this Agreement.

7.3  In addition to any other indemnities provided for herein, Newco shall
     indemnify and hold harmless Elan and its Affiliates and their respective
     employees, agents, officers and directors from and against any claims,
     losses, liabilities or damages (including reasonable attorney's fees and
     expenses) incurred or sustained by Elan arising out of or in connection
     with any:

     7.3.1  breach of any representation, covenant, warranty or obligation by
            Newco hereunder; or

     7.3.2  negligent act or omission on the part of Newco or any of its agents
            or employees in the performance of this Agreement.

7.4  The Party seeking an indemnity shall:

     7.4.1  fully and promptly notify the other Party of any claim or
            proceeding, or threatened claim or proceeding;

     7.4.2  permit the indemnifying Party to take full care and control of such
            claim or proceeding;

     7.4.3  co-operate in the investigation and defense of such claim or
            proceeding;

                                       16
<PAGE>

     7.4.4  not compromise or otherwise settle any such claim or proceeding
            without the prior written consent of the other Party, which consent
            shall not be unreasonably withheld conditioned or delayed; and

     7.4.5  take all reasonable steps to mitigate any loss or liability in
            respect of any such claim or proceeding.

7.5  EXCEPT AS SET FORTH IN THIS CLAUSE 7, ELAN IS GRANTING THE LICENSE
     HEREUNDER ON AN "AS IS" BASIS WITHOUT 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.

7.6  NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, ELAN AND NEWCO
     SHALL NOT BE LIABLE TO THE OTHER BY REASON OF ANY REPRESENTATION OR
     WARRANTY, CONDITION OR OTHER TERM OR ANY DUTY OF COMMON LAW, OR UNDER THE
     EXPRESS TERMS OF THIS AGREEMENT, FOR ANY CONSEQUENTIAL, SPECIAL OR
     INCIDENTAL OR PUNITIVE LOSS OR DAMAGE (WHETHER FOR LOSS OF CURRENT OR
     FUTURE PROFITS, LOSS OF ENTERPRISE VALUE OR OTHERWISE) AND WHETHER
     OCCASIONED BY THE NEGLIGENCE OF THE RESPECTIVE PARTIES, THEIR EMPLOYEES OR
     AGENTS OR OTHERWISE.

8.   TERM AND TERMINATION

8.1  The term of this Agreement shall commence as of the Effective Date and
     shall, subject to the rights of termination outlined in this Clause 8 and
     to the provisions of applicable laws, expire on the last to occur of:

     8.1.1  the date [*] within the Elan Intellectual Property and the Incara
            Intellectual Property in the Territory; or

     8.1.2  the date which is [*] years following the date of the first
            commercial sale of a Product in the Territory

     (the "Term").

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

[*] Confidential Treatment Requested; Certain Information Omitted and Filed
Separately with the SEC.

                                       17
<PAGE>

8.3  For the purpose of this Clause 8, a "Relevant Event" is committed by a
     Party if:

     8.3.1  such Party commits a material breach of its representations,
            warranties or obligations under this Agreement or the JDOA and fails
            to cure it within [*] days of being specifically required in writing
            to do so by the other Party; provided, that if the breaching Party
            has proposed a course of action to cure the breach and is acting in
            good faith to cure same but has not cured the breach by the [*] day,
            such period shall be extended by such period as is reasonably
            necessary to permit the breach to be cured, provided that such
            period shall not be extended by more than [*] days, unless otherwise
            agreed in writing by the Parties;

     8.3.2  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 [*] days;

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

     8.3.4  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 Party (such consent
            not to be unreasonably withheld) ;

     8.3.5  the appointment of a liquidator, receiver, administrator, examiner,
            trustee or similar officer of such Party 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;

     8.3.6  an application or petition for bankruptcy, corporate re-
            organisation, 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 [*] days, or a Party 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 Party are for any
            reason seized, confiscated or condemned.

8.4  Elan shall be entitled to forthwith terminate this Agreement by notice in
     writing to Incara in the event of a Change of Control of Incara/Newco
     provided that the foregoing right shall not be triggered by the exercise by
     Elan of any options granted by the Definitive Documents.

     Incara and Newco shall promptly notify Elan in writing of the occurrence of
     a Change of Control of Incara/Newco.

[*] Confidential Treatment Requested; Certain Information Omitted and Filed
Separately with the SEC.

                                       18
<PAGE>

8.5  Upon expiration or termination of the Agreement:

     8.5.1. any sums that were due from Newco to Elan on Net Sales in the
            Territory or in such particular country or countries in the
            Territory (as the case may be) prior to the expiration or
            termination of this Agreement as set forth herein shall be paid in
            full within 60 days after the expiration or termination of this
            Agreement for the Territory or for such particular country or
            countries in the Territory (as the case may be);

     8.5.2  any provisions that expressly survive termination or expiration of
            this Agreement, including without limitation this Clause 8, shall
            remain in full force and effect;

     8.5.3  all representations, warranties and indemnities shall insofar as are
            appropriate remain in full force and effect;

     8.5.4  the rights of inspection and audit set out in Clause 6 shall
            continue in force for a period of [*];

     8.5.5  subject to Clause 8.5.7, all rights and licenses granted to Newco
            pursuant to this Agreement and to the Elan Intellectual Property
            pursuant to the JDOA (including the rights of Newco pursuant to
            Clause 10 of the JDOA) shall cease for the Territory or for such
            particular country or countries in the Territory (as the case may
            be) and shall revert to or be transferred to Elan, and Newco shall
            not thereafter use in the Territory or in such particular country or
            countries in the Territory (as the case may be) any rights covered
            by this Agreement;

     8.5.6  all rights to Newco Intellectual Property shall be assigned to and
            jointly owned by Incara and Elan and may be exploited by both Elan
            and Incara separately provided that Elan and Incara shall co-operate
            reasonably in the prosecution and maintenance of patents claiming
            such technology and rights and provided further that nothing
            hereunder shall grant, or be construed to grant, a license to the
            other party under the Elan Intellectual Property or the Incara
            Intellectual Property; and

     8.5.7  the rights of permitted third party sub-licensees in and to the Elan
            Intellectual Property shall survive the termination of the license
            and sublicense agreements granting said intellectual property rights
            to Newco; and Newco, Elan and Incara shall in good faith agree upon
            the form most advantageous to Elan and Incara in which the rights of
            Newco under any such licenses and sublicenses are to be held (which
            form may include continuation of Newco solely as the holder of such
            licenses or assignment of such rights to a third party or parties,
            including an assignment to both Elan and Incara).

[*] Confidential Treatment Requested; Certain Information Omitted and Filed
Separately with the SEC.

                                       19
<PAGE>

          Any sublicense agreement between Newco and such permitted sublicensee
          shall, inter alia, permit such an assignment of rights by Newco to
          Elan and shall contain appropriate confidentiality provisions.

9    CONFIDENTIAL INFORMATION

9.1  The Parties agree that it will be necessary, from time to time, to disclose
     to each other confidential and proprietary information, including without
     limitation, inventions, works of authorship, trade secrets, specifications,
     designs, data, know-how and other proprietary information relating to the
     Field, the Products, processes, services and business of the disclosing
     Party.

     The foregoing shall be referred to collectively as "Confidential
     Information".

9.2  Any Confidential Information disclosed by one Party to another Party shall
     be used by the receiving Party exclusively for the purposes of fulfilling
     the receiving Party's obligations under this Agreement and the JDOA and for
     no other purpose.

9.3  Save as otherwise specifically provided herein, each Party shall disclose
     Confidential Information of the other Party only to those employees,
     representatives and agents requiring knowledge thereof in connection with
     fulfilling the Party's obligations under this Agreement.  Each Party
     further agrees to inform all such employees, representatives and agents of
     the terms and provisions of this Agreement relating to Confidential
     Information and their duties hereunder and to obtain their agreement hereto
     as a condition of receiving Confidential Information.  Each Party shall
     exercise the same standard of care as it would itself exercise in relation
     to its own confidential information (but in no event less than a reasonable
     standard of care) to protect and preserve the proprietary and confidential
     nature of the Confidential Information disclosed to it by the other Party.
     Each Party shall, upon request of the other Party, return all documents and
     any copies thereof containing Confidential Information belonging to, or
     disclosed by, such other Party.

9.4  Any breach of this Clause 9 by any person informed by one of the Parties is
     considered a breach by the Party itself.

9.5  Confidential Information shall be deemed not to include:

     9.5.1  information that is in the public domain;

     9.5.2  information which is made public through no breach of this
            Agreement;

     9.5.3  information which is independently developed by a Party as evidenced
            by such Party's records;

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

                                       20
<PAGE>

9.6  The receiving Party will be entitled to disclose Confidential Information
     which the receiving Party is required to disclose pursuant to:

     9.6.1  a valid order of a court or other governmental body; or

     9.6.2  any other requirement of law;

     provided 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 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.

9.7  The provisions relating to confidentiality in this Clause 9 shall remain in
     effect during the term of this Agreement, and for a period of [*] years
     following the expiration or earlier termination of this Agreement.

9.8  The Parties agree that the obligations of this Clause 9 are necessary and
     reasonable in order to protect the Parties' respective businesses, and each
     Party 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 that any such violation or threatened
     violation shall cause irreparable injury to a Party and that, in addition
     to any other remedies that may be available, in law and equity or
     otherwise, each Party shall be entitled to obtain injunctive relief against
     the threatened breach of the provisions of this Clause 9, 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.

10   GOVERNING LAW AND JURISDICTION

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

10.2 The Parties will attempt in good faith to resolve any dispute arising out
     of or relating to this Agreement promptly by negotiation between executives
     of the Parties. In the event that such negotiations do not result in a
     mutually acceptable resolution within 60 days of the commencement of such
     negotiations, the Parties agree to consider other dispute resolution
     mechanisms including mediation.

[*] Confidential Treatment Requested; Certain Information Omitted and Filed
Separately with the SEC.

                                       21
<PAGE>

     In the event that the Parties fail to agree on a mutually acceptable
     dispute resolution mechanism within 10 days of either Party's demand for
     such alternative dispute resolution, or in the event that the dispute is
     not resolved pursuant to any dispute resolution mechanism agreed by the
     Parties within 6 months, save as otherwise agreed by the Parties, any such
     dispute shall be finally settled by the courts of competent jurisdiction.
     For the purposes of this Agreement the parties submit to the non-exclusive
     jurisdiction of the courts of the State and Federal Courts located in the
     State, City and County of New York.

11   IMPOSSIBILITY OF PERFORMANCE - FORCE MAJEURE

     Neither Elan nor Newco shall be liable for delay in the performance of any
     of its obligations hereunder if such delay results from causes beyond its
     reasonable control, including, without limitation, acts of God, fires,
     strikes, acts of war, intervention of a government authority, but any such
     delay or failure shall be remedied by such Party as soon as practicable.

12   ASSIGNMENT

     This Agreement may not be assigned by either Party without the prior
     written consent of the other, save that either Party may assign this
     Agreement to its Affiliates or subsidiaries without such prior written
     consent; provided that such assignment does not have any adverse tax
     consequences on the other Party.

13   NOTICES

13.1 Any notice to be given under this Agreement shall be sent in writing in
     English by registered or recorded delivery post or reputable overnight
     courier or telefaxed to the following addresses:

     If to Newco at:

     Clarendon House,
     2 Church St,
     Hamilton,
     Bermuda.
     Attention:  Secretary
     Telephone:  441 292 9169
     Fax:  441 292 2224

     with a copy to Incara at:

     3200 East Highway 54,
     Attn: Chief Executive Officer
     Suite 300,

                                       22
<PAGE>

     P.O.Box 14287,
     Research Triangle Park,
     North Carolina 27709
     USA.

     Attn: Chief Executive Officer
     Telephone    001 919 558 8688
     Fax:  001 919 544 1245

     with a copy to:

     Wyrick Robbins Yates Ponton LLP,
     4101 Lake Boone Trail,
     Suite 300,
     Raleigh,
     NC 27607.7506, USA.

     Attention:     Larry E. Robbins
     Telephone      001 919 781 4000
     Fax:  001 919 781 4865

     If to Elan at:

     c/o Elan International Services, Ltd.,
     102 St. James Court,
     Flatts, Smiths FL04,
     Bermuda.

     Attention:  President
     Telephone:  441-292-9169
     Fax:        441-292-2224

     or to such other address(es) and telefax numbers as may from time to time
     be notified by either Party to the other hereunder.

13.2 Any notice sent by mail shall be deemed to have been delivered within 7
     working days after dispatch or delivery to the relevant courier and any
     notice sent by telefax shall be deemed to have been delivered upon
     confirmation of receipt. Notice of change of address shall be effective
     upon receipt. Notices by telefax shall also be sent by another method
     permitted hereunder.

14   MISCELLANEOUS

14.1 Waiver:
     -------

     No waiver of any right under this Agreement shall be deemed effective
     unless

                                       23
<PAGE>

     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 other breach or failure to perform or of any
     other right arising under this Agreement.

14.2 Severability:
     -------------

     If any provision in this Agreement is agreed by the Parties to be, or is
     deemed to be, or becomes invalid, illegal, void or unenforceable under any
     law that is applicable hereto:

     14.2.1  such provision will be deemed amended to conform to applicable laws
             so as to be valid and enforceable; or

     14.2.2  if it cannot be so amended without materially altering the
             intention of the Parties, it will be deleted, with effect from the
             date of 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.

14.3 Further Assurances:
     -------------------

     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.

14.4 Successors:
     -----------

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

14.5 No Effect on Other Agreements/Conflict:
     ---------------------------------------

     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 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 JDOA, the terms of the JDOA shall prevail unless this
     Agreement specifically provides otherwise.

14.6 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 each Party.

                                       24
<PAGE>

14.7  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.

14.8  Good Faith:
      -----------

      Each Party undertakes to act reasonably in giving effect to the provisions
      of this Agreement.

14.9  No Reliance:
      ------------

      Each Party hereby acknowledges that in entering into this Agreement it has
      not relied on any representation or warranty save as expressly set out
      herein or in any document referred to herein.

14.10 Relationship of the Parties:
      ----------------------------

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

      Neither 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 the
      other Party or to bind the other Party to any contract, agreement or
      undertaking with any third party.

14.11 Whole Agreement:
      ----------------

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

                                       25
<PAGE>

                                  Schedule 1
                                  ----------

                                 The Compound
                                 ------------

                               OP2000 STRUCTURE

                                      [*]

[*] Confidential Treatment Requested; Certain Information Omitted and Filed
Separately with the SEC.

                                       26
<PAGE>

                                  Schedule 2
                                  ----------

                                 Elan Patents
                                 ------------

                               CONTINUOUS SYSTEM
                                      [*]

                                 BOLUS SYSTEM
                                      [*]

updated as of 11/29/00

[*] Confidential Treatment Requested; Certain Information Omitted and Filed
Separately with the SEC.

                                       27
<PAGE>

                                  Schedule 3
                                  ----------

                       Technological Competitors of Elan
                       ---------------------------------

                                      [*]

Including any and all divisions or subsidiaries of such entities and
successor entities.

[*] Confidential Treatment Requested; Certain Information Omitted and Filed
Separately with the SEC.

                                       28
<PAGE>

IN WITNESS WHEREOF the Parties hereto have executed this Agreement.

/s/ Kevin Insley
----------------
SIGNED BY
for and on behalf of
ELAN CORPORATION, PLC

/s/ Kevin Insley
----------------
SIGNED BY
for and on behalf of
ELAN PHARMA INTERNATIONAL LTD.

/s/ Stephen J. Rossiter
-----------------------
SIGNED BY
For and on behalf of
INCARA DEVELOPMENT, LTD.

/s/ Clayton I. Duncan
---------------------
AGREED TO AND ACCEPTED BY
INCARA PHARMACEUTICALS CORPORATION

                                       29<PAGE>

                                                                   Exhibit 10.61
                                                                Execution Copy I

THIS CONVERTIBLE PROMISSORY NOTE AND THE SHARES OF SERIES B PREFERRED STOCK
ISSUABLE UPON CONVERSION HEREOF 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 DECEMBER 21, 2000 BY AND AMONG, INCARA PHARMACEUTICALS CORPORATION, ELAN
INTERNATIONAL SERVICES, LTD. AND ELAN PHARMA INTERNATIONAL LIMITED.

                      INCARA PHARMACEUTICALS CORPORATION
                          CONVERTIBLE PROMISSORY NOTE

U.S.$4,806,000                                                 December 21, 2000

     The undersigned, Incara Pharmaceuticals Corporation, a Delaware corporation
with offices at 3200 East Highway 54, Cape Fear Building, Suite 300, Research
Triangle Park, North Carolina 27709 (the "Company"), unconditionally promises
                                          -------
to pay to Elan Pharma International Limited, an Irish private limited liability
company ("EPIL"), or its permitted assigns, transferees and successors as
          ----
provided herein (collectively with EPIL, the "Holder"), on December 21, 2006
                                              ------
(the "Maturity Date"), at such place as may be designated by the Holder to the
      -------------
Company, the principal amount outstanding hereunder (not to exceed Four Million
Eight Hundred Six Thousand Dollars (U.S.$4,806,000) (excluding capitalized
interest), or such lesser amount as shall then be payable pursuant to the terms
of Section 3 hereof, together with interest thereon accrued at a rate per annum
                                                                      --- -----
equal to 10.0%, from and after the date of the initial disbursement of funds
hereunder (the "Original Issue Date"), compounded on a semi-annual basis, the
                -------------------
initial such compounding to commence on the date that is 180 days from and after
the Original Issue Date and thereafter on each 180-day anniversary (each such
date, a "Compounding Date") and payable quarterly in arrears.
         ----------------

     SECTION 1. SECURITIES PURCHASE AGREEMENT.

          This Note is issued pursuant to a Securities Purchase Agreement dated
as of the date hereof, by and among the Company, Elan International Services,
Ltd., a Bermuda exempted limited liability company ("EIS"), and EPIL (as amended
                                                     ---
at any time, the "Securities Purchase Agreement"), and the Holder hereof is
                  -----------------------------
intended to be afforded the benefits thereof, including the representations and
warranties set forth therein.  The Company shall use the proceeds of the
issuance and sale of this Note solely in accordance with the provisions set
forth therein and as re
<PAGE>

quired therein.  Capitalized terms used but not otherwise defined herein shall,
unless otherwise indicated, have the meanings given such terms in the Securities
Purchase Agreement.

     SECTION 1. PAYMENTS OF PRINCIPAL AND INTEREST.

          Unless earlier converted in accordance with the terms of Section 4
below, or repaid in accordance with the terms hereof or reduced pursuant to
Section 3 below, the entire outstanding principal amount of this Note, together
with any accrued interest thereon, shall be due and payable in full, at the
option of the Company, in cash or by the issuance of shares of Series B
Convertible Preferred Stock, par value U.S.$0.01 per share (the "Series B
                                                                 --------
Preferred Stock"), of the Company having a fair market value equal to the value
---------------
of the underlying shares of common stock of the Company into which the Series B
Preferred Stock is convertible on the Maturity Date; provided, however, that if
the Company's common stock is no longer traded on a securities exchange, the
Nasdaq National Market or the Nasdaq SmallCap Market the fair market value shall
be reasonably determined by the Company's Board of Directors in good faith and
agreed to by the holders of the Series B Preferred Stock. Accrued interest
hereon shall not be paid in cash, but shall be capitalized and added to the
principal amount outstanding hereunder on each Compounding Date and on each date
which is the 90th day following each Compounding Date.

     SECTION 2. REDUCTION OF AMOUNTS PAYABLE HEREUNDER.

          If EIS shall have exercised its EIS Exchange Right, EIS, pursuant to
Section 5(c) of the Securities Purchase Agreement, shall cause to be paid to the
Company within 30 days of such exercise an amount equal to 30.1% of the
aggregate amount of the Development Funding and Additional Development Funding
through the date of such exercise, plus interest calculated thereon at the same
interest rate as in this Note, for the period from the date of initial payment
through the exercise of the EIS Exchange Right (the "Make-Whole Amount") or any
                                                     -----------------
portion of the Make-Whole Amount, as the case may be, provided to Newco (by or
on behalf of the Company and EIS and their respective affiliates and
subsidiaries) from and after the Initial Closing Date. EIS may pay such amount,
at its option, either (i) in cash, (ii) by offset against the amount payable
under the Note or (iii) a combination of (i) and (ii), to which EPIL hereby
consents. If payment of the Make-Whole Amount, or any portion of the Make-Whole
Amount, is effected by offset against the Note, such reduction shall be
evidenced in writing by an appropriate notation hereon or such other
documentation as shall be agreed to in writing by the Company and the holder
hereof, which agreement shall not be unreasonably withheld or delayed.

     SECTION 3. CONVERSION.

     (a)  Conversion Right.
          ----------------

          (i) After the second anniversary of the Original Issue Date, until
this Note is repaid in full, the Holder shall have the right from time to time,
in its sole discretion, to convert all or any portion of the outstanding
principal amount and accrued and unpaid interest then-outstanding hereunder,
(the Conversion Right"), into such number of shares of Series B Preferred Stock
     ----------------
that shall be obtained by dividing the sum of the outstanding principal amount
and all accrued and unpaid interest by U.S.$43.27 per share, subject to
adjustment as provided below in this Section (the "Conversion Price"); provided,
                                                   ----------------
however that the Note may be convertible at the option of either the Company or
the Holder at any time prior to the second anniversary of the Original Issue
Date in the event of a merger, consolidation or acquisition of the Company.

                                       2
<PAGE>

          (ii) The Holder shall be entitled to exercise the Conversion Right
from time to time as to the unconverted portion of this Note upon at least 10
days' prior written notice to the Company, such notice to be in the form
attached hereto as Annex I. Within 10 days of the conversion date specified in
                   -------
such notice, the Company shall issue appropriate stock certificates to EPIL (or
such affiliate designated by EPIL) representing the aggregate number of shares
of Series B Preferred Stock due to EPIL as a result of such conversion.

     (b)  Reclassification, Etc.  In case of (i) any reclassification,
          ----------------------
reorganization, change or conversion of securities of the class issuable upon
conversion of the outstanding principal amount and accrued and unpaid interest
then-outstanding hereunder (other than a change in par value, or from par value
to no par value), or (ii) any consolidation of the Company with or into another
entity (other than a merger or consolidation with another entity in which the
Company is the surviving entity and that does not result in any reclassification
or change of the class of securities issuable upon the conversion of the
outstanding principal amount and accrued and unpaid interest then-outstanding
hereunder), or (iii) any sale of all or substantially all the assets of the
Company, then the Company, or such successor or purchasing entity, as the case
may be, shall duly execute and deliver to the Holder a new Note or a supplement
hereto (in form and substance reasonably satisfactory to the Holder of this
Note), so that the Holder shall have the right to receive, in lieu of the shares
of Series B Preferred Stock otherwise issuable upon the conversion of such
outstanding principal amount and accrued and unpaid interest then-outstanding
hereunder, the kind and amount of shares of stock and other securities, money
and property receivable upon such reclassification, reorganization, change,
merger, consolidation or conversion by a holder of the number of shares of
Series B Preferred Stock issuable upon conversion of this Note.  Such new Note
shall provide for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 4.  The provisions
of this Section 4(b) shall similarly attach to successive reclassifications,
reorganizations, changes, mergers, consolidations, transfers or conversions.

     (c)  If at any time while there is any outstanding principal amount and
accrued interest then-outstanding hereunder the Company shall:

          (i)  fix a record date for the effectuation of a split or subdivision
of the outstanding shares of Series B Preferred Stock or the determination of
holders of Series B Preferred Stock entitled to receive a dividend or other
distribution payable in additional shares of Series B Preferred Stock or other
securities or property or rights convertible into, or entitling the holder
thereof to receive directly or indirectly, any of the foregoing (hereinafter
referred to as "Series B Preferred Stock Equivalents") without payment of any
                ------------------------------------
consideration by such holder for the additional shares of Series B Preferred
Stock or the Series B Preferred Stock Equivalents (including the additional
shares of Series B Preferred Stock or other securities or property issuable upon
conversion or exercise thereof), then the Conversion Right shall be adjusted
for, in addition to the number of shares of the Series B Preferred Stock
otherwise deliverable upon exercise of the Conversion Right, and without
adjustment to the Conversion Price, the amount of such additional shares of
Series B Preferred Stock and any Series B Preferred Stock Equivalents that the
holder hereof would have received or become entitled to receive on the same
terms and conditions as if such holder had been a holder of record of such
Series B Preferred Stock as shall have been deliverable immediately prior to
such record date pursuant to the terms of this Section 4; or

          (ii) shall subdivide or combine its Series B Preferred Stock, (A) in
the case of a subdivision, the Conversion Price shall be proportionately
decreased and the number of Shares

                                       3
<PAGE>

purchasable hereunder shall be proportionately increased, and (B) in the case of
a combination, the Conversion Price shall be proportionately increased and the
number of shares of Series B Preferred Stock purchasable hereunder shall be
proportionately decreased.

          (iii) The following provisions shall apply for purposes of this
Section 4:

          (A)  the aggregate maximum number of shares of Series B Preferred
     Stock or other amount of securities or property issuable or deliverable as
     the case may be, or delivered upon conversion or exercise of Series B
     Preferred Stock Equivalents (assuming the satisfaction of any conditions to
     convertibility or exercisability, including, without limitation, the
     passage of time, but without taking into account potential antidilution
     adjustments) shall be deemed to have been issued or delivered at the time
     such Series B Preferred Stock Equivalents were issued;

          (B)  in the event of any change in the number of shares of Series B
     Preferred Stock deliverable or in the consideration payable to the Company
     upon conversion or exercise of such Series B Preferred Stock Equivalents
     including, but not limited to, a change resulting from the antidilution
     provisions thereof, the Conversion Price, to the extent in any way affected
     by or computed using such Series B Preferred Stock Equivalents, shall be
     recomputed to reflect such change, but no further adjustment shall be made
     for the actual issuance of Series B Preferred Stock or any payment of such
     consideration upon the exercise of any such options or rights or the
     conversion or exchange of such securities; and

          (C)  upon the termination or expiration of the convertibility or
     exercisability of any such Series B Preferred Stock Equivalents, the
     Conversion Price, to the extent in any way affected by or computed using
     such Series B Preferred Stock Equivalents, shall be recomputed to reflect
     the issuance of only the number of shares of Series B Preferred Stock (and
     Series B Preferred Stock Equivalents which remain convertible or
     exercisable) actually issued upon the conversion or exercise of such Series
     B Preferred Stock Equivalents.

     (d)  Other Distributions.  In the event the Company shall declare a
          -------------------
distribution payable in securities of other persons, evidences of indebtedness
issued by the Company or other persons, assets, cash (excluding cash dividends
declared out of retained earnings) or options or rights not referred to in the
previous section (c), then, in each such case for the purpose of this section
(d), the Holder shall be entitled to a proportionate share of any such
distribution as though such Holder was a holder of the number of shares of
Series B Preferred Stock of the Company into which this Note would be
convertible as of the record date fixed for the determination of the holders of
Series B Preferred Stock of the Company entitled to receive such distribution.

     (e)  No Impairment.  The Company will not, by amendment of its Certificate
          -------------
of Incorporation or bylaws or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Section 4 and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of EPIL against
impairment.

                                       4
<PAGE>

     (f)  Notice of Adjustments.  Whenever the consideration issuable upon a
          ---------------------
conversion hereunder shall be changed pursuant to this Section 4, the Company
shall prepare a certificate setting forth, in reasonable detail, the event
requiring the change and the kind and amount of shares of stock and other
securities, money and property subsequently issuable upon a conversion hereof.
Such certificate shall be signed by its chief financial officer and shall be
delivered to EPIL.

     (g)  Fractional Shares; Rounding.  No fractional shares of Series B
          ---------------------------
Preferred Stock will be issued in connection with any exercise hereunder, but in
lieu of such fractional shares the Company shall make a cash payment therefor
based on the applicable Conversion Price.  All calculations under this Section 4
shall be made to the nearest cent or to the nearest one-hundredth of a share, as
the case may be.

     SECTION 4. EVENTS OF DEFAULT.

          The occurrence of any of the following events shall constitute an
event of default (an "Event of Default"):
                      ----------------

     (a)  a default in the payment of the principal amount of this Note, when
and as the same shall become due and payable;

     (b)  a default in the payment of any accrued and unpaid interest on this
Note, when and as the same shall become due and payable;

     (c)  a breach by the Company of its obligations under any of the
Transaction Documents, which breach remains uncured at the conclusion of the
cure period specified within the relevant Transaction Documents, after written
notice thereof by EPIL;

     (d)  a distress, execution, sequestration or other process is levied or
enforced upon the Company or sued out against a material part of its property
which is not discharged or challenged within 60 days;

     (e)  the Company is unable to pay its debts in the normal course of
business;

     (f)  the Company ceases wholly or substantially to carry on its business
(other than as a result of the merger or consolidation of the Company with
another entity), without the prior written consent of the Holder (such consent
not to be unreasonably withheld);

     (g)  the appointment of a liquidator, receiver, administrator, examiner,
trustee or similar officer of the Company or over all or substantially all of
its assets under the law; or

     (h)  any termination of the JDOA, due to a breach by the Company of its
obligations under the JDOA.

     SECTION 5. REMEDIES IN THE EVENT OF DEFAULT.

     (a)  In the case of any Event of Default by the Company, the Holder may in
its sole discretion demand that the aggregate amount of funds advanced to the
Company under this Note and outstanding hereunder and accrued and unpaid
interest thereon shall, in addition to all other rights and remedies of the
Holder hereunder and under applicable law, be and become immedi-

                                       5
<PAGE>

ately due and payable upon written notice delivered by the Holder to the
Company. Notwithstanding the preceding sentence, the rights of the Holder as set
forth in Sections 4 and 5 hereunder shall survive any such acceleration and
payment.

     (b)  The Company hereby waives demand and presentment for payment, notice
of nonpayment, protest and notice of protest, diligence, filing suit, and all
other notice and promises to pay the Holder its costs of collection of all
amounts due hereunder, including reasonable attorneys' fees.

     (c)  In the case of any Event of Default under this Note by the Company,
this Note shall continue to bear interest after such default at the interest
rate otherwise in effect hereunder plus 3% per annum (but in any event not in
                                           --- -----
excess of the maximum rate of interest permitted by applicable law).

     SECTION 6. VOTING RIGHTS.

     This Note shall not entitle the holder hereof to any voting rights or other
rights as a stockholder of the Company prior to its conversion.

     SECTION 7. SENIORITY.

     The Company shall not incur any indebtedness for money borrowed which shall
rank senior to this Note, without the prior written consent of the Holder;
provided, however, that the Company's capital leases and senior working capital
facilities shall be senior to this Note so long as (i) in the case of the
capital lease, the amount of principal attributable to the equipment leased does
not exceed the purchase price thereof at any time, (ii), in the case of the
working capital facilities, the maximum outstanding principal amount thereunder
shall not exceed U.S.$1,000,000 and (iii) the capital leases and working capital
facilities contain customary terms, including events of default provisions,
cross-default provisions and covenant default provisions.

     SECTION 8. MISCELLANEOUS.

     (a)  This Note 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. All or any part of this Note may be assigned or transferred
by the Holder and its permitted assigns and transferees to their respective
affiliates and subsidiaries, as well as any special purpose financing or similar
vehicle established by the Holder.  Other than as set forth above, no party
shall assign or transfer all or any part of this Note, or any interest therein,
without the prior written consent of the other party.

     (b)  All notices, demands and requests of any kind to be delivered to any
party in connection with this Note 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 courier or by registered or
certified mail, return receipt requested and postage prepaid, or by facsimile
transmission addressed as follows:

          (i)  if to the Company, to:

                 Incara Pharmaceuticals Corporation
                 Post Office Box 14287

                                       6
<PAGE>

                 3200 East Highway 54
                 Cape Fear Building, Suite 300
                 Research Triangle Park, North Carolina 27709
                 Attention: Chief Executive Officer
                 Facsimile: (919) 544-1245

                 with a copy to:
                 Wyrick Robbins Yates & Ponton LLP

                 4101 Lake Boone Trail
                 Suite 300
                 Raleigh, North Carolina 27607
                 Attention: Larry Robbins
                 Facsimile: (919) 781-4865

          (ii) if to EPIL, to:

               Elan Pharma International Limited
               Wil House
               Shannon Business Park
               Shannon, Co. Clare
               Ireland
               Attention: Secretary
               Facsimile: 011-353-61-362097

          with a copy to:

               Brock Silverstein LLC
               800 Third Avenue
               21/st/ Floor
               New York, NY 10022
               Attention: Kim E. Lefkowitz
               Facsimile: (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 9.  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 courier, 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, the date of telephone confirmation of receipt.

     (c)  This Note may not be modified or amended, or any of the provisions
hereof waived, except by written agreement of the Company and the Holder dated
after the date hereof.

     (d)  This Note shall be governed by and construed in accordance with the
internal laws of the State of New York, without giving effect to principles of
conflicts of laws.  Any dispute under this Note that is not settled by mutual
consent may be finally adjudicated by any federal or state court sitting in the
City, County and State of New York, and the Company consents to the

                                       7
<PAGE>

non-exclusive jurisdiction of such courts (or any appellate court therefrom)
over any such dispute. Nothing contained in this Section shall prevent the
adjudication of any dispute under this Agreement by any other state or federal
court, regardless of location, so long as such court has jurisdiction and is
located in a proper venue.

     (e)  This Note may be executed and delivered to the Holder by a facsimile
transmission; such transmission shall be deemed a valid signature.

                           [Signature page follows]

                                       8
<PAGE>

          IN WITNESS WHEREOF, the Company has executed and delivered this Note
on the date first above written.

                                INCARA PHARMACEUTICALS CORPORATION

                                By: /s/ Clayton I. Duncan
                                    --------------------------------------------
                                    Name: Clayton I. Duncan
                                    Title: President and Chief Executive Officer

                                       9
<PAGE>

                                    ANNEX I

           FORM OF NOTICE OF ELECTION TO EXERCISE A CONVERSION RIGHT

Date:

To:       Incara Pharmaceuticals Corporation

From:

Re:       Exercise of a Conversion Right

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

          Pursuant to the terms of the Convertible Promissory Note (the "Note")
                                                                         ----
issued by Incara Pharmaceuticals corporation (the "Company") to Elan Pharma
                                                   -------
International Limited ("Holder") dated December 21, 2000, specifically Section 4
                        ------
thereof, Holder hereby notifies the Company of its intention to exercise a right
of conversion.

          Pursuant to Section 4 of the Note, Holder hereby elects to convert
U.S.$__________ in aggregate principal amount and all accrued and unpaid
interest thereon for shares of the Company's Series B Preferred Stock, par value
U.S.$0.01 per share, effective __________, 200_.

          We have instructed our attorneys to contact the Company to discuss the
timing and documentation of the conversion.

                                             Sincerely,

                                             [HOLDER]

                                             By: _____________________________
                                                 Name:
                                                 Title:

                                       1

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