Document:

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                                                                   Exhibit 10.12

[NOTE: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN MARKED TO INDICATE THAT
CONFIDENTIALITY HAS BEEN REQUESTED FOR THIS CONFIDENTIAL INFORMATION. THE
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.]

                           EXCLUSIVE LICENSE AGREEMENT

         THIS LICENSE AGREEMENT is made and entered into this 1st day of
September, 1998 (the "Effective Date" between THE UNIVERSITY of NORTH CAROLINA
AT CHAPEL HILL, having an address at 308 Bynum Hall, Chapel Hill, N.C.
(hereinafter referred to as "University") and Inspire Pharmaceuticals, Inc., a
corporation organized and existing under the laws of Delaware and having an
address at 4222 Emperor Boulevard, Suite 470, Durham, NC 27703 (hereinafter
referred to as "Licensee").

                                   WITNESSETH

         WHEREAS, University owns and controls the inventions described in and
encompassed by University invention disclosure number OTD 95-24 and U.S. Patent
No. 5,635,160, corresponding foreign applications entering national phase from
PCT/US96/09190 and U.S. Continuation-In-Part application 08/853,056, all
entitled "Dinucleotides Useful for the Treatment of Cystic Fibrosis and for
Hydrating Mucus Secretions", disclosure number OTD 96-83 and U.S. patent
application No. 08/624,914 entitled "Method of Treating Bronchitis with Uridine
Triphosphates and Related Compounds", and disclosure number OTD 99-13 and U.S.
patent application No. 08/744,267 entitled "Method of Treating Ciliary
Dyskinesia with Uridine Triphosphates and Related Compounds" (collectively,
"Inventions");

         WHEREAS, the Inventions were developed by Drs. M. Jackson Stutts and
Richard C. Boucher, Eduardo R Lazarowski and Cara A. Geary (collectively, the
"Inventors"), of the University; and

         WHEREAS, Licensee is desirous of producing, using and selling products
which include the use of the Inventions and is willing to expend best efforts to
do so if it can obtain a license to use the Inventions under the terms and
conditions set forth herein; and

         WHEREAS, University desires to facilitate a timely transfer of its
information and technology concerning the Inventions for the ultimate benefit of
the public and this transfer is best accomplished by the grant of this license;
and

         WHEREAS, in the opinion of the University, this transfer can best be
accomplished consistent with its mission by affiliation with Licensee;

         NOW, THEREFORE, for and in consideration of the covenants, conditions,
and undertakings hereinafter set forth, it is agreed by and between the parties
as follows:

         1. Definitions

            1.1. "University Technology" means any unpublished research
and development information, unpatented inventions, clinical data, and technical
data developed by the Inventors while employees of the University and in the
possession of the University prior to the Effective Date of this Agreement,
which relates to and is necessary for the practice of the Inventions and which
University has the right to provide to Licensee.
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            1.2. "Licensed Products" means any method, procedure, product, or
component part thereof whose manufacture, sale, or use includes any use of
University Technology that is covered by any Valid Claim included in the Patent
Rights.

            1.3. "Patent Rights" means any unexpired U.S. patents and/or
pending patent applications covering the Inventions owned or controlled by
University prior to or during the term of this Agreement and which University
has the right to provide to Licensee, as well as any continuations,
continuations in part, divisions, substitutions, continued patent applications,
patents issued thereon, or reissues thereof, and any foreign counterpart of any
of the foregoing. University's current U.S. and foreign patents and patent
applications which are included in Patent Rights and which exist on the
Effective Date of this Agreement are set forth on Exhibit A. Upon either party's
request, the parties shall cooperate in reviewing and updating Exhibit A from
time to time (but not more frequently than once during any twelve (12) month
period).

            1.4. "Net Sales" means the gross amount invoiced for all Licensed
Products sold by or for Licensee and/or its sublicensees in arm's length sales
to unrelated third parties (excluding sales by Licensee to its sublicensees for
their resale) less deductions for (i) trade, quantity and cash discounts or
rebates actually allowed, (ii) credits or allowances actually given for
rejections or returns or because of rebates or retroactive reductions, (iii)
sales, use and value added taxes, and (iv) freight, shipping or other costs of
transportation charged to a customer. Such amounts shall be determined from the
books and records of Licensee or its sublicensees, maintained in accordance with
the accounting principles used by such entity, consistently applied. Licensed
Products will be considered sold when billed out, or when delivered or paid for
before delivery, whichever first occurs.

            1.5.     "Licensed Territory" means the entire world.

            1.6. "Valid Claim" means a claim of an issued patent which has not
lapsed or become abandoned or been declared invalid or unenforceable by a
court of competent jurisdiction or an administrative agency for which there is
no right of appeal or for which the right of appeal is waived.

         2. Grant of License and Term

            2.1. University grants to Licensee to the extent of the Licensed
Territory, an exclusive license (with the right to grant sublicenses pursuant to
Article 5) under the Patent Rights to make, have made, use and sell, and have
sold Licensed Products, upon the terms and conditions set forth herein.

            2.2 University grants to Licensee to the extent of the Licensed
Territory a nonexclusive license with the right to grant non-exclusive
sublicenses pursuant to Article 5) to use University Technology, subject to all
the terms and conditions of this Agreement.

            2.3. Any license granted herein is exclusive for a term beginning on
the Effective Date of this Agreement and, unless terminated sooner as herein
provided, ending at the expiration of the last to expire Valid Claim of any
patent included in the Patent Rights.

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            2.4. Licensee shall not disclose any unpublished University
Technology furnished by University pursuant to Article 2.2 above, nor shall
University disclose any of Licensee's confidential information received under
Articles 4.3, 5.2 or 18.1 below, to third parties during the term of this
Agreement or any time thereafter, provided, however, that disclosure may be made
by the receiving party of any such information it has received from the
disclosing party at any time: (1) with the prior written consent of the
disclosing party, (2) after the same shall have become public through no fault
of the disclosing party, (3) as demonstrated by documentary evidence, if the
same was independently developed or discovered by the disclosing party prior to
the time of its disclosure, (4) the same is or was disclosed to the disclosing
party at any time, whether prior to or after the time of its disclosure under
this Agreement, by a third party having no fiduciary relationship with the
disclosing party and having no obligation of confidentiality with respect to
such University Technology, (5) the same is required to be disclosed to comply
with applicable laws or governmental regulations, including disclosures made in
connection with securities regulation filings, provided the disclosing party
receives prior written notice of such disclosure and that Licensee takes all
reasonable and lawful actions to minimize the extent of such disclosure and, if
possible, to avoid such disclosure, or (6) where the same is provided by the
receiving party to third parties under substantially the same terms and
conditions, including confidentiality provisions to those in this Agreement, for
consulting, process and formulation development, manufacturing, external testing
and marketing trials; provided, further, that disclosure may be made when it is
necessary to disclose information in order to conduct clinical trials as in the
case of investigators' brochures, clinical protocols, other regulatory filings
or documents and due diligence processes.

            2.5. Notwithstanding the foregoing, any and all licenses granted
hereunder are subject to the rights of the United States Government which arise
out of its sponsorship of the research which led to the Inventions.

         3. License Fee, Milestone Payments and Royalties

            3.1      Licensee shall pay to University the following fees:

            (a)      Upon execution of this Agreement, a license issue fee of
                     [CONFIDENTIAL TREATMENT REQUESTED] for Inventions
                     described in U.S. Patent No. 5,635,160, entitled
                     "Dinucleotides Useful for the Treatment of Cystic
                     Fibrosis and for Hydrating Mucus Secretions", University
                     file OTD 95-24, U.S. patent applications No. 08/624,914
                     entitled "Method of Treating Bronchitis with Uridine
                     Triphosphates and Related Compounds", University File
                     OTD 96-83, and U.S. patent application No. 08/744,267
                     entitled "Method of Treating Ciliary Dyskinesia with
                     Uridine Triphosphates and Related Compounds", University
                     File OTD 99-13;

            (b)      Licensee will continue to reimburse the University
                     for properly documented costs (including attorney's
                     fees) arising out of the patenting of the Inventions
                     pursuant to Article 10 of this Agreement;

            (c)      Licensee shall pay to University the following
                     milestone payments within sixty (60) days after each
                     milestone is achieved:

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                     Payment  Milestone

                     [CONFIDENTIAL TREATMENT REQUESTED]

            (d)      In partial consideration of the license granted under
                     Article 2.1 of this Agreement, Licensee shall issue
                     to the University a total of Fifty Thousand (50,000)
                     shares of Common Stock of the Company upon execution
                     of this Agreement;

            (e)      All fees and the reimbursement of patenting costs
                     shall be non-refundable and shall not be a credit
                     against any other amounts due hereunder except as may
                     be provided for elsewhere in this Agreement;

            (f)      Milestone payments are payable only one time
                     hereunder and for all milestones accomplished in
                     connection with this Agreement the aggregate cash
                     payments shall not exceed [CONFIDENTIAL TREATMENT
                     REQUESTED].

[CONFIDENTIAL TREATMENT REQUESTED]

                    3.2. Beginning on the Effective Date of this Agreement and
continuing for the term of this Agreement, Licensee will pay University a
running royalty of [CONFIDENTIAL TREATMENT REQUESTED] of all Net Sales of the
Licensed Products(s). The obligation to pay royalties to University under this
Article 3.2 is imposed only once with respect to the same unit of Licensed
Product regardless of the number of Patent Rights pertaining thereto.

                    3.3. After the first commercial sale of a Licensed Product,
Licensee agrees to make quarterly written reports to University within sixty
(60) days after the first days of each January, April, July, and October during
the term of this Agreement and as of such dates, stating in each such report the
amount, description, and aggregate Net Sales of Licensed Products sold or
otherwise disposed of during the preceding three calendar months and upon which
royalty is payable as provided in Article 3.2 hereof. The first such report
shall include all such Licensed Products so sold or otherwise disposed of prior
to the date of such report.

                    3.4. Concurrently with the making of each such report,
Licensee shall pay to the University royalties at the rate specified in Article
3.2 of this Agreement on the Licensed Products included therein.

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                    3.5

                    (a)      [CONFIDENTIAL TREATMENT REQUESTED]

                    (b)      [CONFIDENTIAL TREATMENT REQUESTED]

                    3.6. University may, by sixty (60) days advance written
notice to Licensee, terminate this Agreement during any April subsequent to the
second anniversary of the first commercial sale of a Licensed Product if
Licensee, together with its sublicensees, have not practiced the Invention
during each calendar year which precedes each such April to the extent of
generating earned payments to University under Articles 3.2 of this Agreement in
an amount no less than [CONFIDENTIAL TREATMENT REQUESTED] provided, however, any
such termination shall not be effective if Licensee can demonstrate reasonable
efforts by Licensee or Licensee's sublicensee(s) toward first commercial sale of
Licensed Product during each such calendar year. Should there be a dispute as to
whether Licensee has, during such sixty (60) day period, demonstrated such
reasonable efforts, the parties shall conduct good faith discussions directed
toward resolution of the dispute. If, following such sixty (60) day period,
there is a dispute as to whether Licensee has demonstrated such reasonable
efforts, then such sixty (60) day period automatically shall be extended for
thirty (30) days, during which time the parties shall hold good faith
discussions in order to resolve such dispute. If, following such thirty (30) day
extension, such dispute has not been resolved, the original sixty (60) day
period shall be extended for an additional thirty (30) days, during which time
the Director of the Office of Technology Development at University and the Vice
President and Chief Operating Officer of Licensee shall use good faith,
reasonable efforts to resolve such dispute.

                   3.7. Should this Agreement become effective or terminate or
expire during a calendar year, the minimum annual royalty or maintenance fee
(whichever applicable) for such portion of a year shall be determined by
multiplying the minimum annual royalty or maintenance fee (whichever applicable)
set forth for the year in which this Agreement becomes effective, terminates or
expires, by a fraction, the numerator of which shall be the number of days
during such calendar year for which this Agreement shall be in effect and the
denominator of which shall be 365.

                   3.8. In the event of default in payment of any payment owing
to University under the terms of this Agreement, and if it becomes necessary for
University to undertake legal action to collect said payment, Licensee shall pay
all legal fees and costs incurred by University in connection therewith.

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                  3.9. In the event that Licensee is legally required to pay
royalties to one or more third parties for the license of technology other than
the Patent Rights or University Technology in order to make, use or sell a
Licensed Product, then Licensee shall be entitled to pay University a pro-rata
share of total royalties due on Net Sales of that Licensed Product, where the
reduction in royalties due to University under Article 3.2 above is
[CONFIDENTIAL TREATMENT REQUESTED]. By example, and for purpose of clarity, if a
Licensed Product requires Licensee to pay royalties of [CONFIDENTIAL TREATMENT
REQUESTED] of Net Sales to third parties under license of technologies other
than the Patent Rights or University Technology, the royalties payable to
University by Licensee would be calculated as follows:

     royalties due University = [CONFIDENTIAL TREATMENT REQUESTED]

                  where: r\i\ = the royalty rate payable by Licnsee
                         for the ith third party license
                         N = total number of third party licenses
                         (N less than or equal to 4)

                  [CONFIDENTIAL TREATMENT REQUESTED]

                  3.10. Licensee shall make all royalty payments required under
this Agreement in the United States in United States Dollars. The royalty
payments due shall be translated at the rate of exchange at which United States
Dollars are listed in The Wall Street Journal for the currency of the country in
which the royalty is accrued on the last business day of the calendar quarter in
which such sales were made, or with respect to the sublicensees of the Licensee,
at the rate of exchange used by such sublicensees.

                  3.11. Licensee shall pay interest on any payment under this
Agreement that is not made by the date due hereunder at a rate equal to the
prime rate plus 2% obtained from The Wall Street Journal, Eastern U.S. edition,
on the business day next preceding the date such payment was due, from such date
until payment in full has been made.

         4.       Diligence Requirements

                  4.1. Licensee shall use its best efforts to proceed diligently
with the manufacture and sale of Licensed Products and shall earnestly and
diligently offer and continue to offer for sale such Licensed Products, both
under reasonable conditions and including the ability of the Licensee to
exercise its discretion with respect to commercial, financial and regulatory
variables affecting the commercialization of Licensed Products during the term
of this Agreement. Licensee shall be deemed to have used its best efforts in a
given country(ies) with respect to the foregoing

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obligations if Licensee grants a sublicense to a pharmaceutical company with a
market cap in excess of [CONFIDENTIAL TREATMENT REQUESTED] (a "Major
Pharmaceutical Company") who has agreed to use reasonable commercial efforts to
develop, market and sell Licensed Products in such country(ies), provided that
any such sublicense contains, for each sublicensed Licensed Product, performance
milestones analogous to those in Article 4.2 below.

                  4.2. In particular, Licensee shall use diligent efforts to
meet the performance milestones set forth below:

                  Date                      Milestone

                  [CONFIDENTIAL TREATMENT REQUESTED]

The parties acknowledge that the first milestone relating to the submission of
the IND has been accomplished by Licensee.

                  4.3. On each anniversary date of the Effective Date of this
Agreement, and until the time of first commercial sale of a Licensed Product,
Licensee shall provide University with a report describing progress toward
developmental milestones listed in Article 4.2 unless and until Licensee and/or
its sublicensee are no longer developing additional Licensed Products.

                  4.4.

                  (a) Following the first commercial sale of the first Licensed
Product pursuant to this Agreement, each party shall notify the other within
thirty (30) days after such party receives a Bona Fide Inquiry from a
prospective sublicensee that wishes to obtain a sublicense in a Field in which
Licensee is not developing or selling any Licensed Products at the time such
Bona Fide Inquiry is made. For purposes of this Article 4.4, "Bona Fide Inquiry"
shall mean an inquiry to obtain such sublicense on terms that are
scientifically, technologically and commercially reasonable, that is made by a
third party having or having reasonable access to reasonably sufficient
scientific knowledge, technology, drug development experience, personnel,
facilities and capital to support the development, commercialization and launch
of a product in such Field.

                  (b) Except as provided in Article 4.4(c), within ninety (90)
days after sending or receiving such a notice, as the case may be, Licensee
shall:

                      (i) Commence good faith negotiations with such
prospective sublicensee;

                      (ii) Agree, via a notice sent to University, to grant
back to University the right to license the University's rights in the Patent
Rights in such Field in connection with and simultaneously with University's
execution of a license agreement with such prospective sublicensee. In such
case, University shall have no further obligation to Licensee with respect to
any revenue resulting from such a license. In the event a prospective
sublicensee wishes to acquire

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an exclusive license under this Article 4.4(b)(ii) to any Patent Rights that are
jointly owned by University and Licensee, Licensee agrees, via a notice sent to
University, to grant back to University the right to license both Licensee's and
University's rights in the Patient Rights in such Field in connection with and
simultaneously with University's execution of a license agreement with such
prospective sublicensee. In such case, University agrees to pay Licensee
[CONFIDENTIAL TREATMENT REQUESTED] of all revenue generated from such license
agreement, after deducting [CONFIDENTIAL TREATMENT REQUESTED] from any such
revenue to cover University's costs associated with establishing and maintaining
each such license;

                         (iii) Provide University with a reasonable written
development plan that Licensee has initiated, or intends to initiate, to develop
a Licensed Product in such Field; or

                         (iv) [CONFIDENTIAL TREATMENT REQUESTED].

                  (c) Article 4.4(b) shall not apply with respect to any Bona
Fide Inquiry if, at the time such Bona Fide Inquiry is made or Licensee receives
notice thereof from University, as the case may be: (i) Licensee is undertaking
any actions under Articles 4.4(b), (iii) or (iv) with respect to any other Bona
Fide Inquiry in the same field; (ii) Licensee, either alone or in conjunction
with its collaborative partner(s), is already developing or selling a Licensed
Product having a formulation and/or delivery method substantially similar to the
product sought to be developed by such prospective sublicensee; or (iii)
Licensee, either alone or in conjunction with its collaborative partner(s), is
already developing an additional Licensed Product in any Field (i.e., until
development of such additional Licensed Product is abandoned or commercially
launched.

               5. Sublicenses

                  5.1. Subject to this Article, Licensee may grant sublicenses
under its rights under Article 2.1 above and in connection therewith, Licensee
may grant non-exclusive sublicenses under its rights under Article 2.2 above,
provided that each sublicense (other than an sublicense to a Major
Pharmaceutical Company as defined in Article 4.1) contains a provision that such
sublicense and the rights thereby granted are personal to the sublicensee
thereunder and such sublicense cannot be further sublicensed.

                  5.2. Any sublicense granted pursuant to this Article shall be
in accordance with the terms and conditions of this Agreement. Licensee will
provide to University a copy of each sublicense agreement within thirty (30)
days of execution of the sublicense agreement. Each sublicense agreement
provided by Licensee to University shall be treated as confidential by
University in accordance with Article 2.4 herein. It is understood that Licensee
will not provide to University the financial terms of any sublicense agreement.

               6. Cancellation

                  6.1. It is expressly agreed that, notwithstanding the
provisions of any other paragraph of this contract, if Licensee should fail to
deliver to University any royalty at the time or

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times that the same should be due to University or if either party should in any
material respect violate or fail to keep or perform any covenant, condition, or
undertaking of this Agreement on its part to be kept or performed hereunder,
then and in such event the affected party shall have the right to cancel and
terminate this Agreement, and the license herein provided for, by written notice
to the other party if such party has failed to cure any such breach within 30
days of receipt of written notice from the affected party describing such
breach. Notwithstanding the foregoing, a party shall be afforded an opportunity
to cure a material breach of an obligation to pay money under this Agreement
only twice within any period of eighteen (18) consecutive months. In the event a
party materially breaches an obligation to pay money more than twice during any
eighteen (18) month period, the non-breaching party shall have the right to
terminate this Agreement upon thirty (30) days written notice. For purposes of
this Article 6.1, a breach of an obligation to pay money under this Agreement
shall be material if such payment, as calculated under the terms of this
Agreement, is not made in full within sixty (60) days after such payment is due
hereunder.

                  6.2. In the event that, for any reason whatsoever, Licensee
does not achieve any part of the performance milestones set forth in Article
4.2, Licensee will provide to University a revised development plan with a
proposed extension date within thirty (30) days following the missed milestone
date. Within thirty (30) days of receipt of the second revised development plan,
University shall notify Licensee whether University approves an extension of the
milestone date as requested in the said plan; such approval shall not be
unreasonably withheld. If Licensee fails to meet the same performance milestone
a second time, Licensee will provide to University a revised development plan
with a proposed extension date and an extension fee of [CONFIDENTIAL TREATMENT
REQUESTED] within thirty (30) days following the missed milestone date. Payment
made by Licensee under this Article 6.2 shall not be creditable against payments
otherwise due under the Agreement. Within thirty (30) days of receipt of the
second revised development plan, University shall notify Licensee whether
University approves a second extension of the milestone date as requested in the
said plan; such approval shall not be unreasonably withheld. If, after securing
two such extensions, Licensee fails to meet the performance milestone by the
extended due date, University shall be free to terminate this Agreement
according to the terms of Article 6.1 of this Agreement upon thirty (30) days
written notice to Licensee. For the avoidance of doubt, University shall be free
to terminate this Agreement according to the terms of Article 6.1 of this
Agreement and upon thirty (30) days written notice to Licensee, if Licensee
fails to provide either an acceptable revised development plan or the extension
fee (if applicable) within thirty (30) days following the missed milestone date.

                  6.3. If Licensee should be adjudged bankrupt or enter into a
composition with or assignment to its creditors, then, subject to applicable
bankruptcy laws, in such event University shall have the right to cancel and
terminate this Agreement, and the license herein provided for, by written notice
to Licensee.

                  6.4. Licensee shall have the right to terminate this
Agreement, in whole or as to any Licensed Product in any country in the
Territory, at any time, and from time to time, by giving notice in writing to
University. Such termination shall be effective ninety (90) days from the date
such notice is given, and all Licensee's rights associated therewith shall cease
as of that date.

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                  6.5. Any termination or cancellation under any provision of
this Agreement shall not relieve Licensee of its obligation to pay any royalty
or other fees (including attorney's fees pursuant to Article 3.1 hereof) due or
owing at the time of such cancellation or termination.

                  6.6. Upon termination of this Agreement for any reason, all
sublicenses granted by Licensee under this Agreement shall be assigned to
University.

               7. Disposition of Licensed Products on Hand Upon Cancellation or
Termination

                  7.1. Upon cancellation of this Agreement or upon termination
in whole or in part, Licensee shall provide University with a written inventory
of all Licensed Products in process of manufacture, in use or in stock. Except
with respect to termination by University for nonpayment of royalties pursuant
to Article 6.1, Licensee shall have the privilege of disposing of the inventory
of such Licensed Products within a period of one hundred and eighty (180) days
of such termination and royalties shall be paid to University with respect to
such Licensed Product as though this Agreement had not terminated. Licensee will
also have the right to complete performance of all contracts executed by
Licensee prior to cancellation or termination by University and requiring use of
the University Technology, Patent Rights (except in the case of termination by
University for nonpayment of royalties pursuant to Article 6.1) or Licensed
Products within and beyond said 180-day period provided that the remaining term
of any such contract does not exceed one year.

               8. Use of University's Name

                  8.1. The use of the name of University, or any contraction
thereof, in any manner in connection with the exercise of this Agreement is
expressly prohibited except with prior written consent of University. The
foregoing notwithstanding Licensee shall have the right to identify the
University and to disclose the terms of this Agreement in any prospectus,
offering memorandum, or other document or filing required by applicable
securities laws or other applicable law or regulation, or where the use of the
name of the University is in the ordinary course of business and used for
identification purposes and not for marketing or promotional purposes.

               9. University Use

                  9.1. It is expressly agreed that, notwithstanding any
provisions herein, University is free to make noncommercial use of University
Technology, Patent Rights and Licensed Products for its own research, public
service, clinical, teaching and educational purposes without payment of
royalties. Furthermore, University shall be free to publish University
Technology, as it sees fit, except that Licensee shall have the right to review
any proposed disclosure of University Technology at least sixty (60) days prior
to such disclosure to determine whether filing of a patent application covering
such disclosure is warranted. If it is determined by Licensee that a patent
application should be filed, University shall delay its publication or
disclosure for a period not to exceed thirty (30) days thereafter to allow time
for the filing of such patent application covering patentable subject matter.
All expenses associated with any such patent application are to be borne by
Licensee in accordance with Article 10 herein. Such delay, however, shall not be
imposed on the filing of any student thesis or dissertation. In addition, if it
is determined in good faith by Licensee that confidential or proprietary
information is being disclosed, the parties will

                                       10
<PAGE>

consult in good faith to arrive at an agreement on mutually acceptable
modifications to the proposed disclosure to avoid such disclosure; provided that
University shall not be required to make any modification that are not
reasonably acceptable to University.

              10. Patents and Infringements

                  10.1. Licensee shall continue to reimburse University for any
properly documented costs incurred in relation to patenting the Inventions. As
of the Effective Date of this Agreement, Licensee shall bear the cost of filing
and prosecuting U.S. Patent applications and maintenance of issued patents
included within the Patent Rights. Such filings and prosecution shall be by
counsel of University's choosing but shall be reasonably acceptable to Licensee.
University shall keep Licensee advised as to the prosecution of such
applications by forwarding to Licensee copies of all official correspondence,
(including, but not limited to, Applications, Office Actions, responses, etc.)
relating thereto. Licensee shall have the right to advise University as to such
prosecution, and further, shall have the right to make reasonable requests as to
the conduct of such prosecution.

                  10.2. As regards filing of foreign patent applications and
maintenance of issued patents corresponding to the U.S. application described in
Article 10.1 above, Licensee shall designate that country or those countries, if
any, in which Licensee desires such corresponding patent application(s) to be
filed. Licensee shall pay all costs and legal fees associated with the
preparation and filing of such designated foreign patent applications and
maintenance of issued patents, and such applications shall be in the
University's name and by counsel of the University's choosing and reasonably
acceptable to Licensee. University may elect to file corresponding patent
applications in countries other than those designated by Licensee, but in that
event University shall be responsible for all costs associated with such
non-designated filings. In such event, Licensee shall forfeit its rights under
this Agreement in the country or countries where University exercises its option
to file such corresponding patent applications and remains responsible for the
costs relating thereto. In those countries where Licensee pays the costs and
legal fees associated with foreign patent applications, University shall keep
Licensee advised as to the prosecution of such applications by forwarding to
Licensee copies of all official correspondence, (including, but not limited to,
Applications, Office Actions, responses, etc.) relating thereto. Licensee shall
have the right to advise University as to such prosecution, and further, shall
have the right to make reasonable requests as to the conduct of such
prosecution.

                  10.3. If the production, sale or use of Licensed Products
under this Agreement by Licensee results in any claim for patent infringement
against Licensee or its sublicensees, Licensee shall promptly notify the
University thereof in writing, setting forth the facts of such claim in
reasonable detail. As between the parties to this Agreement, Licensee shall have
the first and primary right and responsibility at its own expense to defend and
control the defense of any such claim against Licensee, by counsel of its own
choice. Licensee may settle any such claim in its sole discretion provided that
such settlement does not impose any obligation on University or adversely affect
University's rights in or to any Patent Rights or University Technology. It is
understood that any other settlement of such actions must be approved by
University. Such approval shall not be unreasonably withheld. University agrees
to cooperate with Licensee in any reasonable manner deemed by Licensee to be
necessary in defending any such action. Licensee shall reimburse University for
any out of pocket expenses incurred in providing such assistance.

                                       11
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                  10.4. In the event that any Patent Rights licensed to Licensee
are infringed by a third party, Licensee shall have the primary right, but not
the obligation, to institute, prosecute and control any action or proceeding
with respect to such infringement, by counsel of its choice, including any
declaratory judgment action arising from such infringement. University agrees to
cooperate with Licensee in any reasonable manner deemed by Licensee to be
necessary in defending any such action, including joining such action if the
University is an indispensable party, provided that Licensee shall reimburse
University for its out-of-pocket expenses incurred in providing such assistance.
-Any recovery or reimbursement received by Licensee from such action shall be
allocated first to reimburse Licensee for all costs and expenses incurred in
connection with any such action. Any remainder shall be allocated between the
parties as follows: [CONFIDENTIAL TREATMENT REQUESTED]

                  10.5. If an action is brought against Licensee as described in
Article 10.3, Licensee may offset the royalty paid to the University in each
quarterly royalty period by [CONFIDENTIAL TREATMENT REQUESTED] of the amount of
the expenses incurred in that royalty period as a result of such action, said
expenses to include costs, attorney's fees, judgments, and all other expenses
incident to the infringement action, to a maximum of [CONFIDENTIAL TREATMENT
REQUESTED] of the amount otherwise payable University in that royalty period.
Expenses in excess of the amounts due in any royalty period may be carried over
into subsequent royalty periods and deducted or offset in accordance with the
terms of this Agreement; provided, however if by settlement or court order
Licensee receives from the other side amount to cover some or all of its legal
defense costs, attorneys' fees or liability incurred in such infringement
suit(s), Licensee shall promptly remit to University its pro-rata share of such
amounts.

                  10.6. Notwithstanding the foregoing, and in University's sole
discretion, University shall be entitled to participate through counsel of its
own choosing in any legal action involving the Inventions. Nothing in the
foregoing sections shall be construed in any way which would limit the authority
of the Attorney General of North Carolina.

                  10.7 If University brings an action against its patent counsel
for malpractice or other breach of fiduciary duty as a result of the loss or
abandonment of any of Patent Rights caused by the negligent or intentional
actions or failure to act of the University's patent counsel, University shall
divide equally any recovery or reimbursement from such action with Licensee,
after deduction of University's expenses associated with bringing and
prosecuting the action.

                                       12
<PAGE>

              11. Waiver

                  11.1. It is agreed that no waiver by either party hereto of
any breach or default of any of the covenants or agreements herein set forth
shall be deemed a waiver as to any subsequent and/or similar breach or default.

              12. License Restrictions

                  12.1. It is agreed that the rights and privileges granted to
Licensee are each and all expressly conditions upon the faithful performance on
the part of the Licensee of every requirement herein contained, and that each of
such conditions and requirements may be and the same are specific license
restrictions.

              13. Assignments

                  13.1. This Agreement is binding upon and shall inure to the
benefit of the University, its successors and assigns. This Agreement shall not
be assignable or otherwise transferable by either party without the prior
written consent of the other, which consent shall not be unreasonably withheld,
except that Licensee may assign or otherwise transfer its rights under this
Agreement to the following parties without obtaining consent: (1) a successor to
Licensee's business, or a successor to that portion of Licensee's business that
pertains to the subject matter of the Patent Rights or any University
Technology, and (2) any entities controlled by, controlling, or under common
control with Licensee.

              14. Indemnity

                  14.1. Licensee agrees to indemnify, hold harmless and defend
University, its officers, employees, and agents, against any and all claims,
suits, losses, damage, costs, fees, and expenses asserted by third parties, both
government and private, resulting from or arising out of the exercise of this
Agreement.

              15. Insurance

                  15.1. Licensee is required to maintain in force at its sole
cost and expense, with reputable insurance companies, general liability
insurance and products liability insurance coverage in an amount reasonably
sufficient to protect against liability under Article 14.1, above. The
University shall have the right to ascertain from time to time that such
coverage exists, such right to be exercised in a reasonable manner.

              16. Independent Contractor Status

                  16.1. Neither party hereto is an agent of the other for any
purpose.

              17. Representations and Warranties

                  17.1. University represents that as of the Effective Date the
entire right, title, and interest in the patent application comprising the
Patent Rights have been assigned to it and

                                       13
<PAGE>

that University has the authority to issue licenses under said Patent Rights.
University also represents that it has received no notification that the Patent
Rights are invalid nor that the exercise by Licensee of the rights granted
hereunder will infringe on any patent or other proprietary right of any third
party. University makes no warranties that any patent will issue on University
Technology or Inventions. University further makes no warranties, express or
implied as to any matter whatsoever, including, without limitation, the
condition of any invention(s) or product(s), that are the subject of this
Agreement; or the merchantability or fitness for a particular purpose of any
such invention or product. University shall not be liable for any direct,
consequential, or other damages suffered by Licensee or any others resulting
from the use of the Inventions of Licensed Products.

                  17.2. The transfer of Common Stock pursuant to Article 3.1(d)
of this Agreement is made with the University in reliance upon the University's
representation to the Licensee, which the University hereby confirms by
execution of this Agreement, except to the extent the University distributes
part of its Common Stock to the Inventors pursuant to University policy (which
does not require the Inventors to pay any consideration to University for such
Common Stock) that the Common Stock to be received by the University (the
"Securities") will be acquired for investment for University's own account, not
as a nominee or agent, and not with a view to the resale or distribution of any
part thereof, and that the University has no present intention of selling,
granting any participation in, or otherwise distributing the same. By executing
this Agreement, the University further represents that it does not have any
contract, undertaking, agreement, or arrangement with any person to sell,
transfer, or grant participation to such person or to any third person, with
respect to any of the Securities.

                  17.3. The University has received all the information that it
considers necessary or appropriate for deciding whether to acquire the
Securities. The University further represents that it has had sufficient
opportunity to ask questions and receive answers from the Licensee regarding the
terms and conditions of the offering of the Securities.

                  17.4. The University acknowledges that it is able to fend for
itself, can bear the economic risk of its investment, and has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of the investment in the Securities.

                  17.5. The University understands that the Securities are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from Licensee in a transaction not involving
a public offering and that under such laws and applicable regulations such
Securities may be resold without registration under the Securities Act of 1933,
as amended (the "Act"), only in certain limited circumstances. Further,
University understands that Licensee is under no obligation to register the
securities, in whole or in part, under the Act. In this regard, the University
represents that it is familiar with SEC Rule 144, as currently in effect, and
understands the resale limitations imposed thereby and by the Act. In addition,
prior to the distribution of Securities to any Inventor, as contemplated by
Article 17.1, University shall cause such Inventor to execute an acknowledgment
substantially in the form attached as Exhibit B.

                                       14
<PAGE>

              18. Accounting and Records

                  18.1. Licensee will keep complete, true and accurate books of
account and records for the purpose of showing the derivation of all amounts
payable to University under this Agreement. Such books and records will be kept
at Licensee's principal place of business for at least three (3) years following
the end of the calendar quarter to which they pertain, and will be open at all
reasonable times for inspection by a representative of University for the
purpose of verifying Licensee's royalty statements, or Licensee's compliance in
other respects with this Agreement. The representative and the University will
be obliged to treat as confidential all relevant matters except information
relating to the accuracy of such reports and payments or except as required by
law. Results of any such examination shall be made available to Licensee.

                  18.2. Such inspections shall be at the expense of University,
unless a variation or error in excess of five percent (5%) is discovered in the
course of any such inspection, whereupon all costs relating thereto shall be
paid by Licensee.

                  18.3. Licensee will pay to University within thirty (30) days
of receiving notice from University the full amount of any underpayment,
together with interest pursuant to Article 3.12.

              19. Compliance with Laws

                  19.1. In exercising its rights under this Agreement, Licensee
shall fully comply with the requirements of any and all applicable laws,
regulations, rules and orders of any governmental body having jurisdiction over
the exercise of rights under this Agreement. Licensee further agrees to
indemnify and hold University harmless from and against any costs, expenses,
attorney's fees, citation, fine, penalty and liability of every kind and nature
which might be imposed by reason of any asserted or established violation of any
such laws, order, rules and/or regulations.

              20. U.S. Manufacture

                  20.1. It is agreed that any Licensed Products sold in the
United States shall be substantially manufactured in the United States unless
Licensee has received a waiver from the United States Government, whose
sponsorship of the research led to the Invention. University shall use
reasonable efforts to support Licensee's effort to obtain such a waiver.
Licensee shall promptly inform University in the event it receives such a
waiver.

              21. Notices

                  21.1. Any notice required or permitted to be given to the
parties hereto shall be deemed to have been properly given when received by
means of confirmed facsimile transmission, recognized national overnight
courier, or first-class certified mail to the other party at the appropriate
address or facsimile number as set forth below or to such other addresses or
facsimile numbers as may be designated in writing by the parties from time to
time during the term of this Agreement.

                                       15
<PAGE>

UNIVERSITY                                    LICENSEE

Dr. Francis J. Meyer                          Dr. Christy Shaffer
Director, Office of Technology Development    Vice President & COO
CB #4105, 308 Bynum Hall                      Inspire Pharmaceuticals, Inc.
University of North Carolina at Chapel Hill   4222 Emperor Boulevard, Suite 470,
Chapel Hill, NC 27599-4105                    Durham, NC 27703
Ph: (919) 966 3929                            Ph: (919) 941 9777
Fax: (919) 962 0646                           Fax: (919) 941 9797

              22. Governing Laws

                  22.1.    This Agreement shall be interpreted and construed in
accordance with the laws of the State of North Carolina.

              23. Complete Agreement

                  23.1. It is understood and agreed between University and
Licensee that this Agreement constitutes the entire Agreement, both written and
oral, between the parties, and that all prior agreements respecting Patent
Rights and University Technology as defined herein, either written or oral,
expressed or implied, shall be abrogated, canceled, and are null and void and of
no effect.

              24. Force Majeure

                  24.1. Neither party will be responsible for delays resulting
from acts beyond the control of such party, provided that the non-performing
party uses reasonable commercial efforts to avoid or remove such causes of
nonperformance and continues performance hereunder with reasonable dispatch
whenever such causes are removed.

              25. Amendment

                  25.1. No amendment, modification or supplement of any
provision of this Agreement shall be valid or effective unless made in writing
and signed by a duly authorized officer of each party.

              26. Descriptive Headings

                  26.1. The descriptive headings of this Agreement are for
convenience only, and shall be of no force or effect in construing or
interpreting any of the provisions of this Agreement.

              27. Counterparts

                  27.1. This Agreement may be executed simultaneously in any
number of counterparts, any of which need not contain the signature of more than
one party but all such counterparts taken together shall constitute one and the
same agreement.

                                       16
<PAGE>

              28. Survival of Terms

                  28. The provisions of Articles 6.6, 7, 8, 9,10, 14, 15, 18,
19, 21, 22 and 28 shall survive the expiration or termination of this Agreement.

              IN WITNESS WHEREOF, both University and Licensee have executed
this Agreement, in duplicate originals, by their respective officers hereunto
duly authorized, the day and year first above written. The Inventors have
likewise indicated their acceptance of the terms hereof by signing below.

UNIVERSITY OF NORTH CAROLINA AT              INSPIRE PHARMACEUTICALS, INC.
CHAPEL HILL

/s/ Francis J. Meyer                         /s/ Christy Shaffer
----------------------------------           ----------------------------------
Francis J. Meyer                             Christy Shaffer
Director, Office of Technology Development   Vice President & Development & COO
Date: Sept. 1, 1998                          Date: August 12, 1998
      -------------                                ---------------

Read and accepted:

INVENTORS:

/s/ M. Jackson Stutts
-------------------------
M. Jackson Stutts

/s/  Richard C. Boucher
-------------------------
Richard C. Boucher

/s/ Eduardo R. Lazarowski
-------------------------
Eduardo R. Lazarowski

/s/ Cara A. Geary
-------------------------
Cara A. Geary

                                       17
<PAGE>

                                    EXHIBIT A

                              LIST OF PATENT RIGHTS

1.        U.S. Application No. 08/486,988 (now issued U.S. Patent No. 5,
          635,160) "Dinucleotides Useful for the Treatment of Cystic Fibrosis
          and for Hydrating Mucus Secretions", M.J. Stutts, III, R.C. Boucher,
          Jr., E.R. Lazarowski, and C.A. Geary. Assignee: The University of
          North Carolina at Chapel Hill, Chapel Hill, N.C. Issued June 3, 1997.

2.        U.S. Application No. 08/744,367, "Method of Treating Bronchitis with
          Uridine Triphosphates and Related Compounds", C.L. Shaffer, R.C.
          Boucher, Jr., J.L. Rideout , and K.M. Jacobus. Assignee: Inspire
          Pharmaceuticals, Inc., 4222 Emperor Blvd., Durham, N.C. and The
          University of North Carolina at Chapel Hill, Chapel Hill, N.C. Filing
          Date Nov. 7, 1996. PCT Filing Date Oct. 21, 1997.

3.        U.S. Application No. 08/624,914, "Method of Treating Ciliary
          Dyskinesia with Uridine Triphosphates and Related Compounds", K.M.
          Jacobus, B.R. Yerxa, W. Pendergast, R.C. Boucher, Jr., J.L. Rideout,
          D.J. Drutz, M.K. James, M.J. Stutts, III, C.A. Geary, and E.R.
          Lazarowski. Assignee: Inspire Pharmaceuticals, Inc., 4222 Emperor
          Blvd., Durham, N.C. and The University of North Carolina at Chapel
          Hill, Chapel Hill, N.C. U.S. Filing Date March 27, 1996. PCT Filing
          Date March 27, 1997.

4.        U.S. Application No. 08/853,056 (CIP of U.S. Application No
          08/486,988), "Dinucleotides Useful for the Treatment of Lung Disease",
          M.J. Stutts, III, R.C. Boucher, Jr., E.R. Lazarowski, and C.A. Geary.
          Assignee: The University of North Carolina at Chapel Hill, Chapel
          Hill, N.C. Filing Date May 8, 1997

5.        PCT/US96/09190 (international filing of U.S. Application No
          08/486,988) "Dinucleotides Useful For The Treatment of Lung Disease",
          M.J. Stutts, III, R.C. Boucher, Jr., E.R. Lazarowski, and C.A. Geary.
          Assignee: The University of North Carolina at Chapel Hill, Chapel
          Hill, N.C. PCT Filing Date June 6, 1996

6.        New Zealand Patent Application No. 310713, "Dinucleotides Useful For
          The Treatment of Lung Disease", M.J. Stutts, III, R.C. Boucher, Jr.,
          E.R. Lazarowski, and C.A. Geary. Assignee: The University of North
          Carolina at Chapel Hill, Chapel Hill, N.C.

7.        Mexico Patent Application No. 979637, "Dinucleotides Useful For The
          Treatment of Lung Disease", M.J. Stutts, III, R.C. Boucher, Jr., E.R.
          Lazarowski, and C.A. Geary. Assignee: The University of North Carolina
          at Chapel Hill, Chapel Hill, N.C.

8.        Japan Patent Application No. 501572/97, "Dinucleotides Useful For The
          Treatment of Lung Disease", M.J. Stutts, III, R.C. Boucher, Jr., E.R.
          Lazarowski, and C.A. Geary. Assignee: The University of North Carolina
          at Chapel Hill, Chapel Hill, N.C.
<PAGE>

9.        Korea Patent Application No. 708775/97, "Dinucleotides Useful For The
          Treatment of Lung Disease", M.J. Stutts, III, R.C. Boucher, Jr., E.R.
          Lazarowski, and C.A. Geary. Assignee: The University of North Carolina
          at Chapel Hill, Chapel Hill, N.C.

10.       European Patent Application No. 96919139.4, "Dinucleotides Useful For
          The Treatment of Lung Disease", M.J. Stutts, III, R.C. Boucher, Jr.,
          E.R. Lazarowski, and C.A. Geary. Assignee: The University of North
          Carolina at Chapel Hill, Chapel Hill, N.C. (designating Austria,
          Belgium, Switzerland, Germany, Denmark, Spain, Finland, France, United
          Kingdom, Greece, Ireland, Italy, Luxembourg, Monaco, Netherlands,
          Portugal and Sweden)

11.       Norway Patent Application No. 96919139.4, "Dinucleotides Useful For
          The Treatment of Lung Disease", M.J. Stutts, III, R.C. Boucher, Jr.,
          E.R. Lazarowski, and C.A. Geary. Assignee: The University of North
          Carolina at Chapel Hill, Chapel Hill, N.C.

12.       Australia Patent Application No. 61764/96, "Dinucleotides Useful For
          The Treatment of Lung Disease", M.J. Stutts, III, R.C. Boucher, Jr.,
          E.R. Lazarowski, and C.A. Geary. Assignee: The University of North
          Carolina at Chapel Hill, Chapel Hill, N.C.

13.       China Patent Application No. 96195028.5, "Dinucleotides Useful For The
          Treatment of Lung Disease", M.J. Stutts, III, R.C. Boucher, Jr., E.R.
          Lazarowski, and C.A. Geary. Assignee: The University of North Carolina
          at Chapel Hill, Chapel Hill, N.C.

14.       Canada Patent Application No. 2,223,894, "Dinucleotides Useful For The
          Treatment of Lung Disease", M.J. Stutts, III, R.C. Boucher, Jr., E.R.
          Lazarowski, and C.A. Geary. Assignee: The University of North Carolina
          at Chapel Hill, Chapel Hill, N.C.

15.       Brazil Patent Application No. PI9609063.4, "Dinucleotides Useful For
          the Treatment of Lung Disease", M.J. Stutts, III, R.C. Boucher, Jr.,
          E.R. Lazarowski, and C.A. Geary. Assignee: The University of North
          Carolina at Chapel Hill, Chapel Hill, N.C.
<PAGE>

                                    EXHIBIT B

                           ACKNOWLEDGMENT BY INVENTOR

In connection with the transfer of certain shares of Common Stock (the "Shares")
of Inspire Pharmaceuticals, Inc. ("Inspire") from The University of North
Carolina at Chapel Hill (the "University") to the undersigned pursuant to
University policy, the undersigned hereby acknowledges that the undersigned
understands that such Shares are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from Inspire in
a transaction not involving a public offering and that under such laws and
applicable regulations such Shares may be resold without registration under the
Securities Act of 1933, as amended (the "Act"), only in certain limited
circumstances.. In this regard, the undersigned represents that the undersigned
is familiar with SEC Rule 144, as currently in effect, and understands the
resale limitations imposed thereby and by the Act.

Date:
     ------------------                -------------------------------
                                       (Print Name)

                                       -------------------------------
                                       (signature)<PAGE>

                                                                   EXHIBIT 10.13

[NOTE: CERTAIN PORTIONS OF THIS DOCUMENT HAVE BEEN MARKED TO INDICATE THAT
CONFIDENTIALITY HAS BEEN REQUESTED FOR THIS CONFIDENTIAL INFORMATION. THE
CONFIDENTIAL PORTIONS HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.]

                           JOINT DEVELOPMENT, LICENSE

                              AND SUPPLY AGREEMENT

                                    BETWEEN

                         INSPIRE PHARMACEUTICALS, INC.

                                      AND

                        KISSEI PHARMACEUTICAL CO., LTD.

                                  DATED AS OF

                               SEPTEMBER 10, 1998
<PAGE>

                                TABLE OF CONTENTS
                                -----------------
<TABLE>
<CAPTION>

                                                                                                               Page
                                                                                                               ----

<S>                                                                                                              <C>
1.       DEFINITIONS..............................................................................................1

2.       REPRESENTATIONS AND WARRANTIES...........................................................................6
                  2.1      Representations and Warranties of Both Parties.........................................6
                  2.2      Representations and Warranties of Inspire..............................................7
                  2.3      Representations and Warranties of Kissei...............................................7

3.       JOINT DEVELOPMENT COMMITTEE..............................................................................8
                  3.1      Members; Officers. ....................................................................8
                  3.2      Responsibilities.......................................................................8
                  3.3      Meetings...............................................................................9
                  3.4      Decisions.............................................................................10
                  3.5      Minutes...............................................................................10
                  3.6      Term. ................................................................................11
                  3.7      Expenses..............................................................................11

4.       JOINT DEVELOPMENT PROGRAM...............................................................................11
                  4.1      Scope of Joint Development Program....................................................11
                  4.2      Specific Kissei Responsibilities......................................................11
                  4.3      Specific Inspire Responsibilities.....................................................12
                  4.4      Coordinator/Liaison Functions.........................................................13
                  4.5      Regulatory Matters....................................................................14
                  4.6      Funding of Joint Development Program.  ...............................................15
                  4.7      Conduct of Joint Development Program..................................................15
                  4.8      Liability.............................................................................16

5.       GRANT OF RIGHTS; COMMERCIALIZATION; MARKETING...........................................................17
                  5.1      Development Licenses..................................................................17
                  5.2      Commercialization License. ...........................................................17
                  5.3      Sublicensing.  .......................................................................17
                  5.4      Grantback Rights. ....................................................................18
                  5.5      Commercialization Obligations, Rights.................................................19
                  5.6      Right of First Refusal. ..............................................................19
                  5.7      Adverse Reaction Reporting.  .........................................................19

6.       FEES, MILESTONES AND ROYALTIES..........................................................................21
                  6.1      Up-front Payment.  ...................................................................21
                  6.2      Coordinator/Liaison Fees..............................................................21
                  6.3      Milestone Payments....................................................................22

</TABLE>

                                      (i)
<PAGE>

<TABLE>
<CAPTION>

<S>               <C>                                                                                           <C>
                  6.4      Transfer Price........................................................................22
                  6.5      Royalty Payments. ....................................................................23
                  6.6      Obligation to Pay Royalties...........................................................23

7.       PAYMENTS AND REPORTS....................................................................................24
                  7.1      Payments..............................................................................24
                  7.2      Mode of Payment. .....................................................................24
                  7.3      Records Retention.....................................................................24
                  7.4      Audit Request.........................................................................24
                  7.5      Cost of Audit.........................................................................25
                  7.6      No Non-Monetary Consideration for Sales...............................................25
                  7.7      Taxes.................................................................................26

8.       MANUFACTURE AND SUPPLY..................................................................................26
                  8.1      Commercial Supply Agreement. .........................................................26

9.       OWNERSHIP; PATENTS......................................................................................26
                  9.1      Ownership.  ..........................................................................26
                  9.2      Patent Maintenance....................................................................27
                  9.3      Patent Enforcement....................................................................28
                  9.4      Infringement Action by Third Parties.  ...............................................28

10.      PUBLICATION; CONFIDENTIALITY............................................................................29
                  10.1     Notification..........................................................................29
                  10.2     Review................................................................................29
                  10.3     Exclusions............................................................................30
                  10.4     Confidentiality; Exceptions...........................................................30
                  10.5     Exceptions to Obligation. ............................................................30
                  10.6     Limitations on Use....................................................................31
                  10.7     Remedies..............................................................................31

11.      INDEMNIFICATION.........................................................................................31
                  11.1     By Kissei.............................................................................31
                  11.2     By Inspire............................................................................32
                  11.3     Notice................................................................................32
                  11.4     Complete Indemnification. ............................................................32

12.      TERM; TERMINATION.......................................................................................32
                  12.1     Term..................................................................................32

</TABLE>

                                      (ii)
<PAGE>

<TABLE>
<CAPTION>

<S>               <C>                                                                                           <C>
                  12.2     Termination for Cause.................................................................33
                  12.3     Termination by Kissei.................................................................33
                  12.4     Effect of Expiration or Termination...................................................33
                  12.5     Accrued Rights; Surviving Obligations.................................................35

13.      FORCE MAJEURE...........................................................................................35
                  13.1     Events of Force Majeure...............................................................35

14.      MISCELLANEOUS...........................................................................................36
                  14.1     Relationship of Parties.  ............................................................36
                  14.2     Assignment............................................................................36
                  14.3     Books and Records.....................................................................36
                  14.4     Further Actions.......................................................................36
                  14.5     Notice.  .............................................................................36
                  14.6     Use of Name. .........................................................................37
                  14.7     Public Announcements..................................................................37
                  14.8     Waiver................................................................................38
                  14.9     Compliance with Law. .................................................................38
                  14.10    Severability..........................................................................38
                  14.11    Amendment.............................................................................38
                  14.12    Governing Law; English Original Controlling...........................................38
                  14.13    Arbitration. .........................................................................38
                  14.14    Entire Agreement......................................................................39
                  14.15    Parties in Interest.  ................................................................39
                  14.16    Descriptive Headings..................................................................39
                  14.17    Counterparts..........................................................................39

</TABLE>

                                     (iii)
<PAGE>

                          TABLE OF CONTENTS - continued
                          -----------------------------

                                    EXHIBITS
                                    --------

EXHIBIT A     INSPIRE'S COSTS

EXHIBIT B     INITIAL PATENTS

EXHIBIT C     INITIAL MEMBERS OF JOINT DEVELOPMENT
              COMMITTEE

EXHIBIT D     TERMS AND CONDITIONS OF THE COMMERCIAL

              SUPPLY AGREEMENT

                                      (iv)
<PAGE>

                           JOINT DEVELOPMENT, LICENSE
                              AND SUPPLY AGREEMENT

     THIS JOINT DEVELOPMENT, LICENSE AND SUPPLY AGREEMENT (this "Agreement"),
dated as of September 10, 1998, is entered into by and between Inspire
Pharmaceuticals, Inc., a corporation organized and existing under the laws of
the State of Delaware, having offices located at 4222 Emperor Boulevard, Suite
470, Durham, North Carolina 27703, USA ("Inspire"), and Kissei Pharmaceutical
Co., Ltd., a corporation organized under the laws of Japan, having offices
located at 19-48, Yoshino, Matsumoto-City, Nagano-Prefecture,  399-8710, Japan
("Kissei").

                                 PRELIMINARY STATEMENTS
                                 ----------------------

     A.  Inspire owns, and/or has exclusive rights to, the Patents and Know-How
in existence as of the Effective Date relating to the Compound.  In addition,
Inspire has the expertise necessary to coordinate the worldwide development and
manufacture of the Product.

     B.  Kissei has the personnel, facilities and expertise necessary for the
development and commercialization of the Product in the Territory.

     C.  The Parties wish to collaborate to develop, commercialize and market
the Product, upon the terms and conditions set forth in this Agreement.  In
connection therewith, Kissei desires to obtain, and Inspire desires to grant to
Kissei, an exclusive license under the Licensed Technology with respect to the
development and commercialization of the Product in the Territory for
applications in the Field, subject to Inspire's right to manufacture and supply
Finished Product and Delivery Systems for Kissei, all on the terms and
conditions set forth below.

     D.  Simultaneously with the execution of this Agreement, the Parties are
entering in that certain Stock Purchase Agreement (the "Stock Purchase
Agreement") and documents ancillary thereto, all dated of even date herewith,
pursuant to which Kissei is purchasing shares of Series C Preferred Stock of
Inspire.

     NOW, THEREFORE, in consideration of the foregoing Preliminary Statements
and the mutual agreements and covenants set forth herein, the Parties hereby
agree as follows:

1.   DEFINITIONS.

     As used in this Agreement, the following terms shall have the meanings set
forth in this Section 1 unless context dictates otherwise:

                                       1
<PAGE>

     1.1  "Affiliate," with respect to any Party, shall mean any entity
controlling, controlled by, or under common control with, such Party.  For these
purposes, "control" shall refer to (i) the possession, directly or indirectly,
of the power to direct the management or policies of an entity, whether through
the ownership of voting securities, by contract or otherwise, or (ii) the
ownership, directly or indirectly, of at least 50% of the voting securities or
other ownership interest of an entity.

     1.2  "Annual Development Plan" shall have the meaning assigned to such term
in Section 4.1(a).

     1.3  "Cassette" shall mean a disposable self-contained unit to be filled
with a quantity of Formulated Material sufficient to provide the number of doses
as approved by the Joint Development Committee pursuant to Section 3.2(f) (e.g.,
sufficient for dosing for one week).

     1.4  "cGMP" shall mean current Good Manufacturing Practice as defined in
Parts 210 and 211 of Title 21 of the Code of Federal Regulations, as may be
amended from time to time, or any successor thereto.

     1.5  "Compound" shall mean the chemical compound designated as INS365,
whose chemical name is P1, P4-Di(uridine 5'-tetraphosphate), and all sodium
salts thereof.

     1.6  "Compound Specifications" shall mean the specifications for the
Compound approved by the Joint Development Committee in consideration of the
regulatory requirements in the Territory, as may be amended from time to time.

     1.7  "Confidential Information" shall have the meaning assigned to such
term in Section 10.4.

     1.8  "Cost of Compound" shall mean Inspire's fully burdened costs
associated with the manufacture of the Compound, as determined pursuant to
Exhibit A.

     1.9  "Cost of Delivery Systems" shall mean Inspire's fully burdened costs
associated with the manufacture of the Delivery System, as determined pursuant
to Exhibit A.

     1.10  "Cost of Finished Product" shall mean Inspire's fully burdened costs
associated with the manufacture of the Finished Product, including without
limitation, the Cost of Formulated Material and the costs associated with
assembly of the Finished Product, as determined pursuant to Exhibit A.

     1.11  "Cost of Formulated Material" shall mean Inspire's fully burdened
costs associated with the manufacture of the Formulated Material, as determined
pursuant to Exhibit A.

                                      -2-
<PAGE>

     1.12  "Delivery System" shall mean the novel delivery system designed to
deliver Formulated Material contained within a Cassette to the lungs via
inhalation and to be reusable for at least one year, as approved by the Joint
Development Committee pursuant to Section 3.2(f).

     1.13  "Delivery System Specifications" shall mean the specifications for
the Delivery System approved by the Joint Development Committee in consideration
of the regulatory requirements in the Territory, as may be amended from time to
time.

     1.14  "Development Coordinator/Liaison" shall have the meaning assigned to
such term in Section 4.4(a).

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

     1.16  "Executive Officers" shall have the meaning assigned to such term in
Section 3.4(b).

     1.17  "Field" shall mean the treatment (but not the diagnosis) of
respiratory diseases in humans, excluding otitis media and sinusitis.

     1.18  "Finished Product" shall mean the Formulated Material: (i) loaded
into a Cassette, for use with a Delivery System, or (ii) contained in a
vial/nebule for use with standard nebulizers.

     1.19  "Finished Product Specifications" shall mean the specifications for
the Finished Product approved by the Joint Development Committee in
consideration of the regulatory requirements in the Territory, and such other
packaging and labeling specifications as are agreed upon by the Joint
Development Committee or the Parties, as the case may be, for the Finished
Product, as may be amended from time to time.

     1.20  "First Commercial Sale" shall mean, with respect to any Product, the
first sale for use or consumption by the general public of such Product in the
Territory after all required NDA Approvals have been granted, or, if such sale
is otherwise permitted, by the Regulatory Authority in the Territory.

     1.21  "Formulated Material" shall mean any inhalation formulation of any
product containing the Compound as an active ingredient.

     1.22  "Formulated Material Specifications" shall mean the specifications
for the Formulated Material approved by the Joint Development Committee in
consideration of the regulatory requirements in the Territory, as may be amended
from time to time.

     1.23   "FTE" shall mean a full-time equivalent employee of Inspire assigned
to conduct  coordination/liaison activities pursuant to Section 4.4, including
scientists, professionals or the like, but excluding non-technical, non-
professional personnel such as secretarial staff.  As used herein,

                                      -3-
<PAGE>

a "full-time equivalent" shall mean a full-time person, or in the case of less
than a full- time dedicated person, a full-time, equivalent person year, based
upon a total of 1,880 hours per year of work related to such activities.

     1.24  "Improved Analog" shall mean any dinucleotide P2Y2 receptor agonist
which has utility as an inhalation product for use in the Field.

     1.25  "IND" shall mean any filing made with the Regulatory Authority in the
Territory for initiating clinical trials in the Territory with respect to the
Product.

     1.26  "Invention" shall mean any new or useful process, manufacture,
compound or composition of matter relating to the Compound or the Product
(including, without limitation, the formulation, delivery or use thereof),
whether patentable or unpatentable, or any improvement thereof, that is
conceived or first reduced to practice or demonstrated to have utility during
the term of, and in connection with, the Joint Development Program.

     1.27  "Joint Development Committee" shall have the meaning assigned to such
term in Section 3.1.

     1.28  "Joint Development Program" shall mean the joint development program
with respect to the Product conducted by Kissei in collaboration with Inspire
pursuant to Section 4.

     1.29  "Know-how" shall mean any and all Inventions, improvements,
discoveries, claims, formulae, processes, trade secrets, technologies and know-
how (including confidential data and Confidential Information) which is
generated, owned or controlled by Inspire at any time before or during the term
of this Agreement relating to, derived from or useful for the use or sale of the
Compound or the Product, including, without limitation, synthesis, preparation,
recovery and purification processes and techniques, control methods and assays,
chemical data, toxicological and pharmacological data and techniques, clinical
data, medical uses, product forms and product formulations and specifications.

     1.30  "Licensed Claim" shall mean any claim of any Patent that relates to
and is necessary for the use and sale of the Compound or the Product, which
claim has not been held invalid or unenforceable by decision of a court or other
governmental agency of competent jurisdiction, unappealable or unappealed within
the time allowed for appeal, and which is not admitted to be invalid through
disclaimer or otherwise not admitted by Inspire to be invalid.

     1.31  "Licensed Technology" shall mean the Licensed Claims and Know-how,
collectively.

     1.32  "Manufacturing Coordinator/Liaison" shall have the meaning assigned
to such term in Section 4.4(b).

                                      -4-
<PAGE>

     1.33   "Manufacturing Standards" shall mean, with respect to the Finished
Product and Delivery System, cGMP and such additional manufacturing
specifications or standards as may be established by mutual agreement of the
Parties from time to time.

     1.34  "NDA" shall mean any filing of a New Drug Application made with the
Regulatory Authority in the Territory for NDA Approval with respect to the
Product.

     1.35  "NDA Approval" shall mean approval of the NDA for the Product filed
in the Territory, including pricing or reimbursement, where applicable, by the
Regulatory Authority in the Territory.

     1.36  "Net Sales" shall mean, with respect to the Product, the gross amount
invoiced for the Product by Kissei, its Affiliates and Sublicensees, if any, in
arm's length sales to Third Parties, commencing with the First Commercial Sale
of the Product, less deductions for: (i) trade, quantity and/or cash discounts,
allowances and rebates actually allowed or given; (ii) freight, postage,
shipping insurance and other transportation expenses (if separately identified
in such invoice); (iii) credits or refunds actually allowed for rejections,
defects or recalls of such Product, outdated or returned Product, or because of
rebates or retroactive price reductions; and (iv) sales, value-added, excise
taxes, tariffs and duties, and other taxes directly related to the sale, to the
extent that such items are included in the gross invoice price (but not
including taxes assessed against the income derived from such sale).  Such
amounts shall be determined from the books and records maintained by Kissei, its
Affiliates or Sublicensees, as applicable.

     1.37  "Party" shall mean Inspire or Kissei and, when used in the plural,
shall mean Inspire and Kissei.

     1.38  "Patents" shall mean the patents set forth on Exhibit B, and any
other patents or patent applications in the Territory owned or controlled by
Inspire during the term of this Agreement that relate to the Compound or the
Product, together with any patents that may issue therefor in the Territory,
including any and all extensions, renewals, continuations, continuations-in-
part, divisions, patents-of-additions, reissues, supplementary protection
certificates or foreign counterparts of any of the foregoing.

     1.39  "Product" shall mean any system which consists of Finished Product
and the Delivery System or Finished Product for use with standard nebulizers,
for use in the Field, the manufacture, use or sale of which either is: (i) based
upon, derived from or related to any of the Know-how; and/or (ii) covered by one
or more Licensed Claims and, but for this Agreement, would constitute an
infringement (whether directly, contributorily or by inducement) thereof.

     1.40  "Regulatory Authority" shall mean the authority(ies) in the Territory
with responsibility for granting regulatory approval for the marketing and sale
of the Product in the Territory, and any successor(s) thereto.

                                      -5-
<PAGE>

     1.41 "Specifications" shall mean the Compound Specifications, the
Formulated Material Specifications, Finished Product Specifications or the
Delivery System Specifications, either respectively or collectively, as context
may dictate.

     1.42  "Stock Purchase Agreement" shall have the meaning assigned to such
term in the Preliminary Statements.

     1.43  "Strategic Partners" shall have the meaning assigned to such term in
Section 4.4(a).

     1.44  "Sublicensee" shall mean a Third Party to which Kissei has granted a
sublicense to develop, use or sell the Product in the Territory, or who acts as
a distributor of Kissei for the resale of any Product to the trade in the
Territory, pursuant to Section 5.3.

     1.45  "Supplied Goods" shall have the meaning assigned to such term in
Section 8.1.

     1.46  "Supply Agreement" shall have the meaning assigned to such term in
Section 8.1.

     1.47  "Territory" shall mean Japan.

     1.48  "Testing Methods" shall have the meaning assigned to such term in
Section 5(c) of Exhibit D.

     1.49   "Third Party" shall mean any person who or which is neither a Party
nor an Affiliate of a Party.

     1.50  "Third Party Manufacturer" shall have the meaning assigned to such
term in Section 7(a) of Exhibit D.

     1.51  "Transfer Price" shall have the meaning assigned to such term in
Section 6.4.

     1.52  [CONFIDENTIAL TREATMENT REQUESTED].

2.   REPRESENTATIONS AND WARRANTIES.

     2.1  Representations and Warranties of Both Parties.    Each Party
represents and warrants to the other Party, as of the Effective Date, that:

                                      -6-
<PAGE>

          (a) such Party is duly organized and validly existing under the laws
of the jurisdiction of its incorporation and has full corporate power and
authority to enter into this Agreement and to carry out the provisions hereof;

          (b) such Party is free to enter into this Agreement;

          (c) in so doing, such Party will not violate any other agreement to
which it is a party;

          (d) such Party has taken all corporate action necessary to authorize
the execution and delivery of this Agreement and the performance of its
obligations under this Agreement; and

          (e) no person or entity has or will have, as a result of the
transactions contemplated by this Agreement, any right, interest or valid claim
against or upon such Party for any commission, fee or other compensation as a
finder or broker because of any act or omission by such Party or any of its
agents.

     2.2  Representations and Warranties of Inspire.    Inspire represents and
warrants to Kissei, as of the Effective Date, that:

          (a) Inspire is the owner of, or has exclusive rights to, all of the
Patents in existence on the Effective Date, and has the exclusive right to grant
the licenses granted under this Agreement therefor;

          (b) to the best of Inspire's knowledge, Inspire has exclusive rights
to all of the Know-how in existence on the Effective Date and the exclusive
right to grant licenses with respect thereto; and

          (c) Inspire has not entered into any agreement with any Third Party
which is in conflict with the rights granted to Kissei pursuant to this
Agreement.

     2.3  Representations and Warranties of Kissei.    Kissei represents and
warrants to Inspire, as of the Effective Date, that:

          (a) Kissei has the facilities, personnel and experience sufficient in
quantity and quality to perform its obligations under this Agreement;

          (b) All of the personnel assigned to perform such obligations shall be
qualified and properly trained; and

          (c) Kissei shall perform such obligations in a manner commensurate
with professional standards generally applicable in its industry.

                                      -7-
<PAGE>

3.   JOINT DEVELOPMENT COMMITTEE.

     3.1  Members; Officers.    The Parties shall establish a joint development
committee (the "Joint Development Committee"), which shall consist of six
members, three members from each Party.  At least one member from each Party
must be a clinical development professional.  The initial members of the Joint
Development Committee are set forth on Exhibit C.  Members of the Joint
Development Committee may be represented at any meeting by a designee appointed
by such member for such meeting.  The chairperson and secretary of the Joint
Development Committee shall serve coterminous one-year terms, each commencing on
the Effective Date or an anniversary thereof, as the case may be.  The right to
name the chairperson and the secretary of the Joint Development Committee shall
alternate between the Parties, and each chairperson and secretary shall be named
no later than 10 days after the commencement of his or her term.  The initial
chairperson shall be selected by Kissei and is designated on Exhibit C.  The
initial secretary shall be selected by Inspire and is designated on Exhibit C.
Each Party shall be free to change its members, on prior written notice to the
other Party.  Each Party may, in its discretion, invite non-member
representatives of such Party to attend meetings of the Joint Development
Committee, provided that the other Party approves such Party's invitee(s) in
advance.

     3.2  Responsibilities.    Subject to the other terms of this Agreement, the
Joint Development Committee shall oversee the development of the Product
pursuant to this Agreement, from the commencement of any development efforts
through the date on which all NDA Approvals in the Territory for the Product
actively being sought have been obtained.  After all such NDA Approvals have
been obtained, the Parties shall continue to collaborate in complying with all
regulatory requirements of maintaining such NDA Approvals (including post-
marketing surveillance and adverse event reporting).  Without limiting the
generality of the foregoing, the Joint Development Committee shall:

          (a) plan, supervise and coordinate the development of the Product
under this Agreement;

          (b) commencing on the Effective Date, discuss and prepare an Annual
Development Plan for the first year of the term of the Joint Development Program
and, not later than 90 days after the Effective Date, finalize an Annual
Development Plan for the first year of the term of the Joint Development
Program;

          (c) not later than three months prior to each anniversary of the
Effective Date during the term of the Joint Development Program, discuss and
prepare an Annual Development Plan, and, prior to each anniversary of the
Effective Date during the term of the Joint Development Program, finalize an
Annual Development Plan for the next year of the term of the Joint Development
Program;

                                      -8-
<PAGE>

          (d) determine whether to approve proposed amendments or modifications
to any Annual Development Plan;

          (e) review and determine whether to approve clinical study protocols,
the selection of clinical investigators, clinical study write-ups, regulatory
submissions, NDAs and the like relating to the Joint Development Program;

          (f) review and determine whether to approve the final design of the
Cassette and the Delivery System;

          (g) evaluate data from the Joint Development Program;

          (h) review all proposed publications and presentations of the Parties
pursuant to Section 10.2;

          (i) review all studies relating to the Product and any other studies
proposed to be performed in connection with the registration process for the
Product under this Agreement;

          (j) allocate responsibilities between the Parties, coordinate the
activities of the Parties, and review and evaluate progress, all under the Joint
Development Program, provided that the Joint Development Committee shall not
have authority to make any determination that either Party is in breach of its
obligations under the Joint Development Program;

          (k) determine, review and amend, from time to time, the
Specifications;

          (l) provide a mechanism for the exchange of information between the
Parties with regard to Know-how and Inventions;

          (m) resolve disputes between the Parties with respect to the
foregoing; and

          (n) have such other responsibilities as may be assigned to the Joint
Development Committee pursuant to this Agreement or as may be mutually agreed
upon by the Parties from time to time.

     3.3  Meetings.    During the term of the Joint Development Program and the
12-month period thereafter, the Joint Development Committee shall meet at least
twice during every calendar year, and more frequently as the Parties deem
appropriate, on such dates, and at such places and times, as the Parties shall
agree.  During each calendar year during the term of the Joint Development
Program and the 12-month period thereafter, meetings of the Joint Development
Committee shall be held in Japan, North Carolina or such other place as the
Parties may agree.  Thereafter, during the remainder of the term of this
Agreement, the Joint Development Committee shall meet on an as needed basis on
such dates, and at such places and times, as the Parties shall agree. The
chairperson

                                      -9-
<PAGE>

shall, if practicable, send notice of all meetings to all members of the Joint
Development Committee no less than 20 days before the date of each meeting.  The
Joint Development Committee may also convene or be polled or consulted from time
to time by means of telecommunications, video conferences or correspondence, as
deemed necessary or appropriate; provided, however, that the Joint Development
Committee must meet in person at least twice every calendar year during the term
of the Joint Development Program and the 12-month period thereafter.

     3.4  Decisions.

          (a) The Joint Development Committee may make decisions with respect to
any subject matter that is subject to the Joint Development Committee's
decision-making authority. All decisions of the Joint Development Committee
shall be made by consensus of the members (or their designees) present at any
meeting.

          (b) In the event that consensus cannot be reached by the Joint
Development Committee after good faith discussions with respect to a matter that
is subject to its decision-making authority, the matter shall be referred for
further review and resolution to the Vice Chairman of the Board, currently Dr.
David Drutz, at Inspire, or such other similar position designated by Inspire
from time to time, and the Managing Director, R&D, currently Dr. Masanori
Iwadare, at Kissei, or such other similar position designated by Kissei from
time to time (such officers collectively, the "Executive Officers").  The
Executive Officers shall use reasonable efforts to resolve the matter within 30
days after the matter is referred to them.

     3.5  Minutes.    Promptly after each Joint Development Committee meeting,
the chairperson or the secretary of Inspire shall prepare  and distribute to all
members of the Joint Development Committee draft minutes of the meeting within
10 days after the meeting.  Such minutes shall provide a description, in
reasonable detail, of the discussions had at the meeting and a list of any
actions, decisions or determinations approved by the Joint Development Committee
and a list of any issues to be resolved by the Executive Officers.  The
chairperson or the secretary of Kissei shall then have 10 days after receiving
such draft minutes to collect Kissei members= comments thereon and provide them
to the chairperson or the secretary of Inspire.  Upon the expiration of such
second 10-day period, the chairperson and the secretary of the Joint Development
Committee shall have an additional 10 days to discuss each other's comments and
finalize the minutes.  The secretary and chairperson shall each sign and date
the final minutes.  The signature of the chairperson and the secretary upon the
final minutes shall indicate each Party=s assent to the minutes.  With the sole
exception of specific items of the meeting minutes to which the chairperson and
the secretary cannot agree and which are escalated as provided below, definitive
minutes of all Joint Development Committee meetings shall be finalized no later
than 30 days after the meeting to which the minutes pertain.  If at any time
during the preparation and finalization of Joint Development Committee meeting
minutes the secretary and the chairperson do not agree on any issue with respect
to the minutes, such issue shall be resolved by the escalation process provided
in Section 3.4(b).  The decision resulting from the escalation process shall be
recorded by the chairperson or the secretary

                                      -10-
<PAGE>

of Inspire in amended finalized minutes for said meeting.  All other issues in
the minutes which are not subject to such escalation shall be finalized within
the above-mentioned 30-day period.

     3.6  Term.    The Joint Development Committee shall exist until the
termination or expiration of the Joint Development Program and for such longer
period as necessary to perform the responsibilities assigned to it under this
Agreement.

     3.7  Expenses.    Each Party shall be responsible for all travel and
related costs and expenses for its members and approved invitees to attend
meetings of, and otherwise participate on, the Joint Development Committee.

4.   JOINT DEVELOPMENT PROGRAM.

     4.1  Scope of Joint Development Program.

          (a) The Joint Development Committee, acting in accordance with
Sections 3.2(b) and (c), shall prepare and provide to each Party, in form and
substance mutually acceptable to each Party, a detailed description of the
specific actions to be taken under the Joint Development Program during the
upcoming year, which shall include a reasonably detailed description of the
goals and scope of such research, the allocation of responsibilities to the
respective Parties and a research plan (each, an "Annual Development Plan").

          (b) If the Joint Development Committee fails to agree on an Annual
Development Plan: (i) the Parties nevertheless shall continue to fund the Joint
Development Program in accordance with Section 4.6; (ii) each Party nevertheless
shall continue to conduct the Joint Development Program in accordance with the
goals and scope of such research as reasonably determined by such Party, within
the scope of the Joint Development Program conducted to date (or, with respect
to the first year of the Joint Development Program, within the scope of this
Agreement); and (iii) Inspire nevertheless shall continue to supply Compound,
Finished Product and Delivery Systems necessary for the conduct of the Joint
Development Program in accordance with this Section 4.

     4.2  Specific Kissei Responsibilities.    As part of the Joint Development
Program, and pursuant to the Annual Development Plans, Kissei shall:

          (a)  Conduct, or cause to be conducted, manage and oversee any pre-
clinical studies, or additional pre-clinical studies, required by the Regulatory
Authorities in order to file an NDA for the Product in the Territory; (b)
Conduct, or cause to be conducted, manage and oversee all clinical studies
required by the Regulatory Authorities in order to obtain NDA Approvals for the
Product in the Territory;

                                      -11-
<PAGE>

          (c) Make all regulatory filings, based on the information and
documentation provided by Inspire, and conduct all analysis and other support
necessary with respect to the manufacture of the Finished Product, Delivery
Systems or Product in the Territory; and

          (d) Perform such other obligations with respect to the Joint
Development Program as the Joint Development Committee may assign to it from
time to time.

     4.3  Specific Inspire Responsibilities.    As part of the Joint Development
Program and pursuant to the Annual Development Plans, Inspire shall:

          (a) Immediately after the Effective Date, provide to Kissei copies of
all pre-clinical and clinical data, studies and materials in Inspire's
possession and control that relate to the development and commercialization of
the Product;

          (b) Thereafter provide to Kissei copies of all data, studies and
material that come into Inspire's possession and control during the term of this
Agreement that relate to the development and commercialization of the Product
(including, without limitation, such data, studies and materials of Strategic
Partners, to the extent Inspire has the right to provide same to Kissei);

          (c) In consultation with Kissei, finalize the design of and the
manufacturing process for the Delivery System and the Finished Product, subject
to review and approval of the Joint Development Committee;

          (d) In consultation with Kissei, make all necessary changes to: (i)
the formulation, chemistry,  manufacturing process and manufacturing controls
for the Compound, Formulated Material and Finished Product; and (ii) the design
and manufacturing method for the Delivery System and the Finished Product,
subject in each case to review and approval of the Joint Development Committee;

          (e)  Supply Kissei or its designee(s) with sufficient quantities of
the Compound and/or the Formulated Material to complete all pre-clinical studies
of the Product in which Kissei is required to engage by the applicable
Regulatory Authorities until the filing of, or the affirmative decision of the
Joint Development Committee not to pursue, an IND with respect to the Product in
the Territory.  Such Compound and/or Formulated Material shall be supplied in
accordance with quarterly forecasts therefor provided by Kissei at least 180
days prior to the anticipated delivery date for each shipment thereof, provided,
however, in the event that Kissei requires Compound and/or Formulated Material
in fewer than 180 days, Kissei shall notify Inspire of such need and Inspire
will use all reasonable efforts to meet Kissei's delivery request;

                                      -12-
<PAGE>

          (f) Supply Kissei or its designee(s) with sufficient quantities of
Finished Product and Delivery Systems to complete all clinical studies and all
development, analysis, regulatory support, cGMP and all other NDA Approval-
related activities with respect to the Product in which Kissei is required to
engage by applicable law or regulation until the commercial launch, or the
affirmative decision of the Joint Development Committee not to pursue the
commercial launch, of the Product in the Territory. Such Finished Product and
Delivery Systems shall be supplied in accordance with quarterly forecasts
therefor provided by Kissei at least 180 days prior to the anticipated delivery
date for each shipment of Finished Product or Delivery Systems, provided,
however, in the event that Kissei requires Finished Product and/or Delivery
Systems in fewer than 180 days, Kissei shall notify Inspire of such need and
Inspire will use all reasonable efforts to meet Kissei's delivery request;

          (g) As Inspire and its Third Party Manufacturers gain knowledge and
experience in producing the pre-clinical and clinical supplies required pursuant
to Sections 4.3(e) and (f), use reasonable efforts to reduce the lead time
needed to manufacture Compound, Formulated Material, Finished Product and/or
Delivery Systems such that Inspire could be in a position to meet Kissei's
delivery requirements on fewer than 180 days prior notice;

          (h) Designate and maintain coordinator/liaisons in accordance with
Section 4.4;

          (i) Negotiate in good faith with all relevant Strategic Partners to
obtain the right to: (i) disclose to Kissei all Third Party data or information
owned by such Strategic Partners that this Agreement contemplates will be shared
with Kissei to the extent that Inspire has the right to do so, and (ii) grant
Kissei the right to cross-reference regulatory filings owned by such Strategic
Partners that this Agreement contemplates will be granted to Kissei to the
extent that Inspire has the right to do so; and

          (j) Perform such other obligations with respect to the Joint
Development Program as the Joint Development Committee may assign to it from
time to time.

     4.4  Coordinator/Liaison Functions.    Within 90 days after the Effective
Date, Inspire shall designate two FTEs, to be funded by Kissei pursuant to
Section 6.2, who shall perform the following functions:

          (a)  One FTE shall serve as a project manager (the "Development
Coordinator/Liaison") who shall be responsible for coordinating, and
facilitating communication regarding, the worldwide development of the Product
among Inspire, Kissei and Inspire's other strategic partners and/or licensees
(collectively, "Strategic Partners").  Inspire shall continue to provide a
Development Coordinator/Liaison until NDA Approval for the Product is received,
or definitively abandoned, in the Territory, whichever occurs first; and

                                      -13-
<PAGE>

     (b) The second FTE shall serve as a project manager (the "Manufacturing
Coordinator/Liaison") who shall be responsible for coordinating, and
facilitating communication regarding, the design and development of the Delivery
System and the Finished Product, the manufacture of the Compound, the
formulation of the Formulated Material and the manufacture of the Product among
Inspire, Kissei and Inspire's Strategic Partners. Inspire shall continue to
provide a Manufacturing Coordinator/Liaison until Kissei files the NDA for the
Product with the Regulatory Authority in the Territory , or until definitely
abandoned, whichever occurs first. Thereafter Inspire shall continue to provide
a Manufacturing Coordinator/Liaison as and when determined by the Joint
Development Committee.

Each such coordinator/liaison shall maintain regular communication with Kissei
and each of Inspire's Strategic Partners with respect to the matters for which
such coordinator/liaison is responsible.  Such communication may include
attendance of meetings and telephone conferences to be held from time to time,
at the request and convenience of the Parties and any Third Parties involved.

     4.5  Regulatory Matters.

          (a) Kissei shall be responsible for preparing and filing INDs, NDAs
and other regulatory filings for the Product in the Territory up to and
including NDA Approval, and thereafter shall be responsible for maintaining such
NDA Approvals.  All such filings shall be in Kissei's name.

          (b) Kissei shall own all INDs, NDAs, NDA Approvals and other
regulatory filings for the Product in the Territory.

          (c) In order to assist Kissei in the performance of its obligations
under this Section 4.5, Inspire, to the extent it has the right to do so, shall
provide Kissei or its designee(s) with complete copies (or copies of relevant
portions) of, and shall grant Kissei or its designee(s), free of charge, the
right to cross-reference, any INDs, NDAs, NDA Approvals or other regulatory
filings made or held in any country in North America and Europe for the Product.
Inspire shall execute, acknowledge and deliver such further instruments, and
shall do all such other acts, all as promptly as possible after Kissei's request
therefor, that may be necessary or appropriate to effectuate such right in each
such country.  Inspire shall not guarantee or warrant that the information and
documents provided to Kissei under this Section shall be useful or effective or
free from any defect.

          (d) Kissei shall provide Inspire with complete copies (or copies of
relevant portions) of, and shall grant Inspire free of charge the right to
cross-reference any INDs, NDAs, NDA Approvals or other regulatory filings made
or held in the Territory in the name of Kissei (or that of its Affiliates or
Sublicensees) reasonably necessary or useful to enable Inspire to market
products either within the Territory and outside the Field, or outside the
Territory.  Kissei shall execute, acknowledge and deliver such further
instruments, and shall do all such other acts, all as promptly as possible after
Inspire's request therefor, that may be necessary or appropriate to effectuate
such right in the Territory.  Kissei also shall provide such copies and such
right to cross-

                                      -14-
<PAGE>

reference, free of charge, to any Strategic Partner that grants Kissei or its
designee(s) the right to cross-reference such Strategic Partner's INDs, NDAs,
NDA Approvals or other regulatory filings made or held in any countries in North
America and/or Europe to enable such Strategic Partner to market products
outside the Territory in North America and Europe, and any other countries in
which such Strategic Partners hold such rights.  Moreover, Kissei shall provide
such copies and such right to cross-reference, with a reasonable charge, to any
Strategic Partner that does not have rights in any countries in North America
and/or Europe to enable such Strategic Partner to market products outside the
Territory in such countries.  Kissei shall not guarantee or warrant that the
information and documents provided to Inspire under this Section shall be useful
or effective or free from any defect.

          (e) Kissei shall keep Inspire informed as to the status of all
regulatory filings made pursuant to this Section 4.5, permit Inspire to review
any revisions to any filings or communications with Regulatory Authorities
during their preparation and shall confer with Inspire regarding the preparation
of such filings, communications with Regulatory Authorities and other matters
pertaining to or affecting the registration process.

          (f) In connection with any IND or NDA filed by Kissei pursuant to this
Section 4.5, Kissei shall notify Inspire as soon as reasonably possible of any
meeting with the Regulatory Authority in the Territory scheduled by Kissei
(which notification shall describe the subject matter of any such meeting),
shall permit Inspire to assist Kissei in the preparation for any such meeting
and shall promptly advise Inspire in writing of the outcome of any such meeting.

     4.6  Funding of Joint Development Program.

          (a) Except as otherwise expressly provided in this Agreement, each
Party shall bear the entire cost and expense it incurs in connection with
fulfillment of its obligations under the Joint Development Program.

          (b) Kissei shall pay [CONFIDENTIAL TREATMENT REQUESTED], as the case
may be, in connection with the manufacture and supply of Compound, Formulated
Material, Finished Product and Delivery Systems pursuant to Sections 4.3(e) and
(f).  Inspire shall be entitled to invoice Kissei therefor following shipment of
such Compound, Formulated Material, Finished Product and Delivery Systems from
time to time.  Payment shall be made by Kissei in U.S. Dollars within 30 days
after Kissei's receipt of each invoice therefor, by telegraphic transfer
remittance.

     4.7  Conduct of Joint Development Program.    The Parties, acting in
accordance with this Section 4 and relevant Annual Development Plans, shall use
all commercially reasonable efforts to develop the Product in the Territory.
Kissei, acting in accordance with this Section 4 and relevant Annual Development
Plans, shall use all commercially reasonable efforts to obtain NDA Approvals

                                      -15-
<PAGE>

necessary to market and sell the Product in the Territory.  Without limiting the
generality of the foregoing, during the term of the Joint Development Program,
each Party shall:

          (a) undertake an interactive, cooperative Joint Development Program
with the other Party as set forth in the applicable Annual Development Plan, and
such other activities that, from time to time, the Joint Development Committee
decides are necessary for the commercial success of the Joint Development
Program;

          (b) use all reasonable efforts and proceed diligently to perform the
work set out for such Party to perform in the Annual Development Plan,
including, without limitation, by using personnel with sufficient skills and
experience, together with sufficient equipment and facilities (it being
acknowledged that neither Party shall have an obligation to acquire additional
equipment or to expand its facilities in order to perform its obligations under
the Joint Development Program);

          (c) conduct the Joint Development Program in good scientific manner,
and in compliance in all material respects with all requirements of applicable
laws, rules and regulations, and all other requirements of any applicable
current good clinical practice, good laboratory practice and current good
manufacturing practice to attempt to achieve the objectives of the Joint
Development Program efficiently and expeditiously;

          (d) within 30 days after the end of each six-month period during the
term of the Joint Development Program and within 30 days following the
expiration or termination of the Joint Development Program, furnish the Joint
Development Committee with reasonably detailed, written reports on all
activities conducted by such Party under the Joint Development Program during
such six-month period or the term of the Joint Development Program, as the case
may be;

          (e) maintain records, in sufficient detail and in good scientific
manner, which shall be complete and accurate and shall fully and properly
reflect all work done and results achieved in connection with the Joint
Development Program in the form required under all applicable laws and
regulations.  Each Party shall have the right, during normal business hours and
upon reasonable notice, to inspect and copy all such records.  Each Party shall
maintain such records and information contained therein in confidence in
accordance with Section 10 and shall not use such records or information except
to the extent otherwise permitted by this Agreement; and

          (f) allow representatives of the other Party, upon reasonable notice
and during normal business hours, to visit such Party's facilities where the
Joint Development Program is being conducted, and consult, during such visits
and by telephone, with such Party's personnel performing work on the Joint
Development Program.

     4.8  Liability.    Each Party shall be responsible for, and hereby assumes,
any and all risks of personal injury or property damage attributable to the
negligent or willful acts or omissions,

                                      -16-
<PAGE>

during the term of the Joint Development Program, of such Party or its
Affiliates, and their respective directors, officers, employees and agents.

5.   GRANT OF RIGHTS; COMMERCIALIZATION; MARKETING.

     5.1  Development Licenses.

          (a) Inspire hereby grants to Kissei, during the term of the Joint
Development Program, the exclusive (except as to Inspire), paid-up license, with
the right to grant sublicenses solely to the extent provided in Section 5.3(a),
under the Licensed Technology, to conduct the Joint Development Program.

          (b) Kissei hereby grants to Inspire, during the term of the Joint
Development Program, the exclusive (except as to Kissei), paid-up license, with
no right to grant sublicenses (except to the extent necessary to conduct the
Joint Development Program), under Kissei's interest in any Inventions, to
conduct the Joint Development Program.

     5.2  Commercialization License.    Inspire hereby grants to Kissei an
exclusive (even as to Inspire) license throughout the Territory, with the right
to grant sublicenses in accordance with the terms of this Agreement, under the
Licensed Technology, to develop, use, market and sell Products in the Field.
With respect to any such Patents that may issue in Japan during the term of this
Agreement, a  statement referencing the exclusive license granted to Kissei
pursuant to this Section 5.2 shall be registered with the Japanese Patent Office
at Kissei=s cost, as soon as is practically possible after the issuance of the
respective Patents.  Inspire hereby agrees that it will execute such documents
and instruments as may be required to effect the registration of such statement
and otherwise cooperate with Kissei in connection with the registration of such
statement with the Japanese Patent Office.

     5.3  Sublicensing.

          (a) Solely in connection with the grant of a sublicense of the
licenses granted to Kissei under Section 5.2, Kissei shall have the right to
grant a sublicense of the licenses granted to Kissei under Section 5.1(a) for
purposes of such Affiliates' or Sublicensees' performance of Kissei's
obligations under Section 4, provided that, in addition to the requirements set
forth in Section 5.3(b), each Affiliate or Sublicensee agrees in writing to
maintain scientific records and permit Inspire to inspect and copy such records
and visit such facilities pursuant to the relevant provisions of Section 4.7,
and to observe all other applicable terms, of this Agreement.

          (b) Kissei shall have the right to grant sublicenses to any of its
Affiliates or Sublicensees of the licenses granted to Kissei under Section 5.2
for purposes of such Affiliates' or Sublicensees' performance of Kissei's
obligations under Section 5.5, provided that: (i) Kissei shall

                                      -17-
<PAGE>

submit all proposed sublicenses to Inspire for approval, which approval shall
not be unreasonably withheld; (ii) Kissei shall guarantee and be responsible for
the making of all payments due, and the making of any reports under this
Agreement, with respect to sales of Product by its Affiliates or Sublicensees
and their compliance with all applicable terms of this Agreement; and (iii) each
Affiliate or Sublicensee agrees in writing to maintain books and records and
permit Inspire to review such books and records pursuant to the relevant
provisions, and to observe all other applicable terms, of this Agreement.
Kissei shall promptly provide Inspire with notice of any sublicense granted
pursuant to this Section 5.3, and provide a copy of the sublicense to Inspire
upon its request.

          (c) Kissei hereby unconditionally guarantees the performance of any of
its  Affiliates and Sublicensees hereunder.  In the event of a breach by such an
Affiliate or Sublicensee in the observance of applicable terms of this
Agreement, Inspire shall be entitled to proceed against either such Affiliate or
Sublicensee or directly against Kissei, as Inspire may determine in its sole
discretion, to enforce this Agreement.

     5.4  Grantback Rights.    Subject to the terms and conditions of this
Agreement, Kissei hereby grants to Inspire:

          (a) With respect to any unpatented know-how that embodies or relates
to Inventions and that are owned or controlled by Kissei or its Affiliates, an
exclusive (except as to Kissei), paid-up, perpetual license thereunder: (i) to
develop, make, have made, use, offer to sell, sell and have sold products with
applications outside the Field for all purposes worldwide (including, without
limitation, within the Territory), and  (ii) to develop, make, have made, use,
offer to sell, sell and have sold Products with applications within the Field
for all purposes outside the Territory.  The foregoing licenses shall include
the right to grant sublicenses.

          (b) With respect to any patents or patent applications that embody or
relate to Inventions and that are owned or controlled by Kissei or its
Affiliates, an exclusive (except as to Kissei), paid-up, perpetual license
thereunder, to develop, make, have made, use, offer to sell, sell and have sold
Products with applications within the Field for all purposes outside the
Territory.  The foregoing licenses shall include the right to grant sublicenses.

          (c) With respect to any patents or patent applications that embody or
relate to Inventions and that are owned or controlled by Kissei or its
Affiliates, an exclusive (except as to Kissei)  license, with fees and royalties
as consideration to Kissei, to develop, make, have made, use, offer to sell,
sell and have sold products with applications outside the Field for all purposes
worldwide (including, without limitation, within the Territory); provided that
Inspire shall grant Kissei a right of first offer with respect to co-development
and co-marketing of products covered by such Inventions.  The foregoing licenses
shall include the right to grant sublicenses.  The Parties shall negotiate the
license fees and royalty rates for the license to such Inventions in good faith
and consistent with customary business practices therefor and the other terms
and conditions set forth in this Agreement.

                                      -18-
<PAGE>

     5.5  Commercialization Obligations, Rights.    Kissei shall use all
commercially reasonable efforts to develop and commercialize the Product in the
Territory.  In connection therewith, Kissei shall dedicate resources to the
development and commercialization of the Product consistent with the resources
that Kissei, at all relevant times, would dedicate to products containing
compounds that were generated from Kissei's own research efforts which Kissei
decided to develop commercially and market and that have pricing, volume and
marketing potentials similar to those of the Product.  Kissei, either itself
and/or by and through its Affiliates and Sublicensees, shall be responsible for,
and shall have the exclusive right to engage in, all marketing, advertising,
promotional,  launch and sales activities in connection with such efforts.

     5.6  Right of First Refusal.    [CONFIDENTIAL TREATMENT REQUESTED]

     5.7  Adverse Reaction Reporting.

          (a) Each Party shall record, evaluate, summarize and review all
adverse drug experiences associated with the Compound and the Product.  In order
that each Party may be fully informed of the adverse drug experiences associated
therewith that are known to the other Party, each Party shall report:

                                      -19-
<PAGE>

               (i)  In the case of Inspire, to:

                    Inspire Pharmaceuticals, Inc.
                    4222 Emperor Boulevard, Suite 470
                    Durham, North Carolina  27703
                    USA
                    Attention:  Patricia Edgar, Ph.D., Director, Regulatory
                                Affairs
                    Facsimile No.: (919) 941-9797
                    Telephone No.: (919) 941-9777 ext. 277

               (ii)  In the case of Kissei, to:

                    Kissei Pharmaceutical Co., Ltd.
                    1-3, Koishikawa
                    3-Chome, Bunkyo-Ku, Tokyo
                    112-0002
                    JAPAN
                    Attention:  Haruo Suzawa, Ph.D., Director, Member of the
                                Board, Clinical Development, R & D
                    Facsimile No.: (03)5804-8560
                    Telephone No.: (03)5684-3539

all "adverse events," as defined by the then current ICH guidelines, involving
the Compound and/or the Product (all such reports, "AE Reports").  "Serious"
adverse events shall be reported to the other Party within three working days
after a Party's (a "reporting Party") becoming aware of such an event and shall
either be reported by facsimile or telephone.  The reporting Party shall report
on a quarterly basis all other adverse events that are known to the reporting
Party through either the receipt of clinical study documentation or post-market
surveillance.  In addition, the reporting Party shall report all known instances
of use of the Product during pregnancy.  In any event, each Party shall promptly
notify the other of any complaint received by such Party in sufficient detail
and in sufficient time to allow the responsible Party to comply with any and all
regulatory requirements imposed upon it in the Territory.  Each Party shall also
advise the other of any regulatory developments (e.g., proposed recalls,
labeling and other registrational dossier changes, etc.) affecting the Compound
or the Product in the Territory.

          (b) According to current ICH guidelines, an "adverse event" is any
untoward medical occurrence in a patient or clinical investigation subject
administered a pharmaceutical product, which occurrence does not necessarily
have to have a causal relationship with the treatment.

          (c) According to current ICH guidelines, a "serious" adverse event is
any untoward medical occurrence that, at any dose, results in death, is life-
threatening (at the time of the

                                      -20-
<PAGE>

event), requires inpatient hospitalization or prolongation of existing
hospitalization, results in persistent or significant disability or incapacity,
or is a congenital anomaly or birth defect.

          (d) The details of adverse reaction reporting during development stage
and thereafter shall be stipulated in separate agreements to be entered into by
the Parties in due course.

6.   FEES, MILESTONES AND ROYALTIES.

     6.1  Up-front Payment.

          (a) As partial consideration to Inspire for the license and other
rights granted to Kissei under this Agreement, upon the execution of this
Agreement by both Parties, Kissei shall pay to Inspire the sum of [CONFIDENTIAL
TREATMENT REQUESTED] in connection with the license and other rights in the
Territory.  Such sum shall be non-refundable.

          (b) As further consideration to Inspire for the license and other
rights granted to Kissei under this Agreement, pursuant to the Stock Purchase
Agreement and simultaneously with the execution of this Agreement, Kissei is
purchasing 375,000 shares of Inspire's Series C Preferred Stock for an aggregate
purchase price of US$900,000.

     6.2  Coordinator/Liaison Fees.    As consideration to Inspire for
designating and maintaining the Development Coordinator/Liaison and the
Manufacturing Coordinator/Liaison:

          (a) For every calendar year during which Inspire maintains a
Development Coordinator/Liaison, Kissei shall pay Inspire the sum of
[CONFIDENTIAL TREATMENT REQUESTED], which shall be payable, in advance, on the
first day of each calendar quarter, in equal installments, until NDA Approval
for the Product is received, or definitively abandoned, in the Territory,
whichever occurs first; and

          (b) For every calendar year during which Inspire maintains a
Manufacturing Coordinator/Liaison, Kissei shall pay Inspire the sum of
[CONFIDENTIAL TREATMENT REQUESTED], which shall be payable, in advance, on the
first day of each calendar quarter, in equal installments until Kissei files the
NDA for the Product with the Regulatory Authority in the Territory , or until
definitely abandoned, whichever occurs first.  Thereafter Kissei shall continue
to make such payments for the Manufacturing Coordinator/Liaison as and when
determined by the Joint Development Committee.  In addition, during any period
when Kissei is paying such amount for the Manufacturing Coordinator/Liaison,
Kissei shall also reimburse Inspire for all reasonable travel, lodging, meals
and other necessary out-of-pocket expenses incurred by Inspire in connection
with the Manufacturing Coordinator/Liaison's performance of his or her
obligations under this Agreement.In addition, on the Effective Date, Kissei
shall pay Inspire a quarterly installment of each of the Development
Coordinator/Liaison fee and the Manufacturing Coordinator/Liaison fee, pro rated
for

                                      -21-
<PAGE>

the number of days remaining after the Effective Date in the calendar quarter in
which the Effective Date falls.  Similarly, Inspire shall refund to Kissei such
portion of quarterly installment of each of the Development Coordinator/Liaison
fee and the Manufacturing Coordinator/Liaison fee as prorated for the number of
days remaining after the termination of each of their services in the calendar
quarter in which the termination occurs.

     6.3  Milestone Payments.    As further consideration to Inspire for the
license and other rights granted to Kissei under this Agreement, Kissei shall
pay to Inspire the following milestone payments upon the first occurrence of
each event set forth below with respect to each Product:

[CONFIDENTIAL TREATMENT REQUESTED]

          Each of the payments required pursuant to this Section 6.3 shall be
paid within 30 days after such milestone has been achieved.

     6.4  Transfer Price.

          (a) The transfer price to Kissei for the Supplied Goods shall be an
amount equal to [CONFIDENTIAL TREATMENT REQUESTED] (the "Transfer Price").

          (b) Notwithstanding Section 6.4(a), in the event and to the extent
that Kissei provides Delivery Systems to health care providers and/or patients
at a nominal charge or no charge,

                                      -22-
<PAGE>

          Inspire and Kissei will negotiation in good faith for [CONFIDENTIAL
TREATMENT REQUESTED].

(c)  [CONFIDENTIAL TREATMENT REQUESTED]

     6.5  Royalty Payments.    As further consideration to Inspire for the
license and other rights granted to Kissei under this Agreement, during the term
of this Agreement, Kissei shall pay to Inspire a royalty on Net Sales of the
Product commencing on the First Commercial Sale of the Product by Kissei, its
Affiliates or its Sublicensees, on a Product-by-Product basis, in an amount
equal to [CONFIDENTIAL TREATMENT REQUESTED] of the aggregate Net Sales of the
Product by Kissei, its Affiliates and its Sublicensees throughout the Territory.
Notwithstanding the foregoing, the royalty rate shall be reduced to
[CONFIDENTIAL TREATMENT REQUESTED] with respect to a Product when such Product
ceases to be covered by any Licensed Claims in the Territory or when one or more
Third Parties markets a generic product.  For purposes of this provision,
"generic product" means a Third Party product: (i) having as a pharmaceutically
active ingredient the same Compound or its salt as such Product, AND (ii) where
the manufacture, use or sale of such Third Party product is not covered by a
Licensed Claim.  Such reduced royalty rate shall be effective for the first full
calendar quarter commencing after the date of any such event.

     6.6  Obligation to Pay Royalties.   The obligation to pay royalties to
Inspire under this Section 6 is imposed only once with respect to the same unit
of Product regardless of the number of Patents or quantity of Know-how
pertaining thereto.  There shall be no obligation to pay royalties to Inspire
under this Section 6 on sales of Product between Kissei and its Affiliates and
Sublicensees, but in such instances the obligation to pay royalties shall arise
upon the sale by Kissei or its Affiliates or Sublicensees to unrelated Third
Parties.  Payments due under this Section 6 shall be deemed to accrue when
Product is billed.

                                      -23-
<PAGE>

7.   PAYMENTS AND REPORTS.

     7.1  Payments.

          (a) Inspire shall submit invoices to Kissei for the Transfer Price of
Supplied Goods promptly after each shipment thereof.  Each such invoice shall
include any previously uninvoiced adjustments to the Cost of Delivery Systems
pursuant to Section 6.4(b).  Payments shall be made by Kissei within 30 days
after Kissei's receipt of each invoice therefor, by telegraphic transfer
remittance.

          (b) Beginning with the calendar quarter in which the First Commercial
Sale of Products is made in the Territory and for each calendar quarter
thereafter, Kissei shall submit a statement, Product-by-Product, of the amount
of Net Sales during such quarter and the amount of royalties due on such Net
Sales.  Each such statement shall also include information on the number of
Delivery Systems delivered by Kissei during such calendar quarter and the price
Kissei charged therefor.  Each such statement shall be accompanied by payment of
the royalties due.  The statement, together with the accompanying payment, shall
be submitted quarterly within 30 days after the end of each calendar quarter.

     7.2  Mode of Payment.    All invoices submitted by Inspire shall be stated
in U.S. Dollars. Kissei shall make all payments required under this Agreement as
directed by Inspire from time to time, net of any out-of-pocket transfer costs
or fees, in U.S. Dollars.  All payments due shall be translated at the
Telegraphic Transfer Selling rate (TTS) quoted by Tokyo Mitsubishi Bank, Japan
on the day and time of remittance.

     7.3  Records Retention.    Kissei and its Affiliates and Sublicensees shall
keep complete and accurate records pertaining to the sale of Products, and
Inspire shall keep complete and accurate records pertaining to Inspire's Cost of
Compound, Formulated Material, Cost of Finished Product and Cost of Delivery
Systems, for a period of three calendar years after the year in which such sales
or costs occurred, and in sufficient detail to permit the other Party to confirm
the accuracy of the aggregate royalty and/or Transfer Price calculations
hereunder.

     7.4  Audit Request.

          (a) At the request and expense of Inspire, Kissei and its Affiliates
and Sublicensees shall permit an independent, certified public accountant
appointed by Inspire and reasonably acceptable to Kissei, at reasonable times
and upon reasonable notice, to examine such records as may be necessary to: (i)
determine the correctness of any report or payment made under this Agreement; or
(ii) obtain information as to the aggregate Transfer Price and/or royalties
payable for any calendar quarter in the case of Kissei's failure to report or
pay pursuant to this Agreement.  Said accountant shall not disclose to Inspire
any information other than information relating to said

                                      -24-
<PAGE>

reports, royalties, and payments. Results of any such examination shall be made
available to both Parties.

          (b) At the request and expense of Kissei, Inspire shall permit an
independent, certified public accountant appointed by Kissei and reasonably
acceptable to Inspire, at reasonable times and upon reasonable notice, to
examine those records as may be necessary to verify the aggregate Cost of
Compound, Cost of Formulated Material, Cost of Finished Product and/or Cost of
Delivery Systems incurred for any period.  Said accountant shall not disclose to
Kissei any information other than information relating to said Cost of Compound,
Cost of Formulated Material, Cost of Products and/or Cost of Delivery Systems.
Results of any such examination shall be made available to both Parties.

     7.5  Cost of Audit.

          (a) Inspire shall bear the full cost of the performance of any audit
requested by Inspire except as hereinafter set forth.  If, as a result of any
inspection of the books and records of Kissei, its Affiliates or its
Sublicensees, it is shown that Kissei's payments under this Agreement were less
than the amount which should have been paid, then Kissei shall make all payments
required to be made to eliminate any discrepancy revealed by said inspection
within 30 days after Inspire's demand therefor.  Furthermore, if the payments
made were less than 95% of the amount that should have been paid during the
period in question, Kissei shall also reimburse Inspire for the reasonable costs
of such audit and shall make such payment required to be made to eliminate such
discrepancy.

          (b) Kissei shall bear the full cost of the performance of any audit
requested by Kissei except as hereinafter set forth.  If, as a result of any
inspection of the books and records of Inspire, it is shown that Inspire
overstated its Cost of Compound, Cost of Formulated Material, Cost of Finished
Product and/or Cost of Delivery Systems under this Agreement for any period,
then Kissei shall be entitled to a credit in the amount necessary to eliminate
any discrepancy revealed by said inspection.  Such credit may be applied against
any amounts due and owing to Inspire pursuant to this Agreement (e.g.,
milestones, royalties, Transfer Price).  Furthermore, if the amounts for any
period were overstated by more than five percent, Inspire shall also reimburse
Kissei for the reasonable costs of such audit and shall make such payment
required to be made to eliminate such discrepancy.

     7.6  No Non-Monetary Consideration for Sales.    Without the prior written
consent of Inspire, Kissei and its Affiliates and Sublicensees shall not accept
or solicit any non-monetary consideration of the sale of the Product other than
as would be reflected in Net Sales.  The use by Kissei and its Affiliates and
Sublicensees of a commercially reasonable amount of Product for promotional
sampling shall not violate this Section 7.6.

                                      -25-
<PAGE>

     7.7  Taxes.

          (a) In the event that Kissei is required to withhold any tax to the
tax or revenue authorities in the Territory regarding any payment to Inspire due
to the laws of such country, such amount shall be deducted from the payment to
be made by Kissei, and Kissei shall notify Inspire and promptly furnish Inspire
with copies of any tax certificate or other documentation evidencing such
withholding.  Each Party agrees to cooperate with the other party in claiming
exemptions from such deductions or withholdings under any agreement or treaty
from time to time in effect.

          (b) If  Inspire has the legal obligation to collect and/or pay any
sales, use, excise or value added taxes, the appropriate amount shall be added
to Kissei's invoice and paid by Kissei, unless Kissei provides Inspire with a
valid tax exemption certificate authorized by the appropriate taxing authority.

8.   MANUFACTURE AND SUPPLY.

     8.1  Commercial Supply Agreement.    Both Parties recognize the importance
of Inspire  establishing and maintaining a reliable and steady source of supply
of Finished Product and Delivery Systems (collectively, "Supplied Goods") for
commercial marketing in the Territory by Kissei so that supply shortages do not
occur.  Commencing on the Effective Date, Inspire intends to work toward that
goal with its Third Party Manufacturers, and will keep Kissei informed, through
the Joint Development Committe, of the actions being undertaken by Inspire to do
so.  Inspire shall also give Kissei, through the Joint Development Committee or
otherwise, as Kissei may desire, an opportunity to review Inspire's actions and
provide input into other actions deemed appropriate.  At such time as the Joint
Development Committee determines is appropriate, the Parties shall negotiate in
good faith the terms of a commerical supply agreement to be entered into by the
Parties (the "Supply Agreement") pursuant to which Inspire shall provide Kissei
with its commercial supply requirements of Supplied Goods.  The Supply Agreement
shall contain mutually acceptable terms and conditions, substantially consistent
with the terms and conditions set forth on Exhibit D.

9.   OWNERSHIP; PATENTS.

     9.1  Ownership.

          (a) Except as otherwise provided in Section 9.1(b) or (c), Inspire
shall retain all right, title and interest in and to the Patents and Know-how,
regardless of which Party prepares and prosecutes the applications associated
therewith, or maintains the patents, copyrights or other intellectual property
rights related thereto, subject to the license granted to Kissei pursuant to
Section 5.2.  Rights to Inventions made solely by employees of Inspire shall
belong to Inspire.

                                      -26-
<PAGE>

Notwithstanding any other provision of this Agreement, Kissei shall not own any
right, title or interest in and to any Inventions relating to the Cassette or
Delivery System.

          (b) Rights to Inventions made solely by employees of Kissei shall
belong to Kissei.

          (c) Rights to Inventions which were made jointly by employees of
Inspire and by employees of Kissei shall belong jointly to Inspire and to
Kissei.  Such joint Inventions shall be subject to the terms and conditions of
this Agreement.

          (d) Inspire shall not own any right, title or interest in any
trademark or  trade name selected by Kissei or the Joint Development Committee
to appear on any Product label or to be inscribed on any Product or component
part thereof.

     9.2  Patent Maintenance.

          (a) Inspire shall have full responsibility for, and shall control the
preparation and prosecution of, all patent applications and the maintenance of
all patents relating to the Licensed Technology (including the Patents)
throughout the Territory.  Inspire shall pay all costs  and expenses of filing,
prosecuting and maintaining the Patents and the patents covering Inventions
owned by Inspire in the Territory.

          (b) Inspire shall select qualified independent patent counsel to file
and prosecute all patent applications pursuant to Section 9.2(a).  Inspire shall
provide copies to Kissei of any filings made to, and written communications
received from, any patent office relating, in whole or in part, to the Licensed
Claims.

          (c) Each Party agrees promptly to provide to the other Party a
complete written disclosure of any Invention made by such Party.  Inspire shall
determine whether any Invention owned solely by Inspire or jointly by Inspire
and Kissei is patentable, and if so, shall proceed with the preparation and
prosecution of a patent application covering any such Invention. Kissei shall
determine whether any Invention owned solely by Kissei is patentable, and if so,
shall proceed with the preparation and prosecution of a patent application
covering any such Invention.

          (d) Inspire and Kissei shall share all costs and expenses of filing,
prosecuting and maintaining the Patents and the patents covering Inventions
owned jointly by Kissei and Inspire in the Territory.  If either Party elects
not to pay for: (i) the filing of a patent application in the Territory on any
such Patent or Invention which the other Party reasonably believes is
patentable, or (ii) the further prosecution or maintenance of any such Patent or
Invention in the Territory, or (iii) the filing of any divisional or continuing
patent application based on any Patent or Invention in the Territory, such Party
shall notify the other Party in a timely manner and the other Party may do so at
its own expense.  In such event, such patent or application in the Territory
shall be assigned by such Party

                                      -27-
<PAGE>

to the other Party, all of such assigning Party's rights in such patent or
application in the Territory shall cease, and, in the case where Kissei is the
assigning Party, the license granted to Kissei under Section 5.2 with respect
thereto shall terminate.

          (e) Each Party agrees to cooperate with the other Party to execute all
lawful papers and instruments, to make all rightful oaths and declarations and
to provide consultation and assistance as may be necessary in the preparation,
prosecution, maintenance, and enforcement of all such patents.

     9.3  Patent Enforcement.

          (a) If either Party learns of an infringement, unauthorized use,
misappropriation  or ownership claim or threatened infringement or other such
claim (an "infringement") by a Third Party with respect to any Licensed
Technology within the Territory, such Party shall promptly notify the other
Party and shall provide such other Party with available evidence of such
infringement.  In addition, Inspire shall notify Kissei when Inspire becomes
aware of any infringement action involving the Product in any country outside
the Territory in a timely manner.

          (b) Kissei shall have the first right, but not the duty, to institute
patent infringement actions against Third Parties based on any Licensed
Technology in the Territory.  If Kissei does not secure actual cessation of such
infringement or institute an infringement proceeding against an offending Third
Party within 180 days of learning of such infringement, Inspire shall have the
right, but not the duty, to institute such an action with respect to any
infringement by such Third Party.  The costs and expenses of any such action
(including fees of attorneys and other professionals) shall be borne by the
Party instituting the action, or, if the Parties elect to cooperate in
instituting and maintaining such action, such costs and expenses shall be borne
by the Parties in such proportions as they may agree in writing.  Each Party
shall execute all necessary and proper documents and take such actions as shall
be appropriate to allow the other Party to institute and prosecute such
infringement actions.  Any award paid by Third Parties as a result of such an
infringement action (whether by way of settlement or otherwise) shall be applied
first to reimburse both Parties for all costs and expenses incurred by the
Parties with respect to such action on a pro rata basis and, if after such
reimbursement any funds shall remain from such award, [CONFIDENTIAL TREATMENT
REQUESTED].

     9.4  Infringement Action by Third Parties.    In the event of the
institution or threatened institution of any suit by a Third Party against
Kissei for patent infringement involving the sale, distribution or marketing of
any Product in the Territory where such infringement claim is a result of the
use of the Licensed Technology, Kissei shall promptly notify Inspire in writing
of such suit.  Unless otherwise covered by Section 11.2(c), Kissei shall have
the right to defend such suit at its own expense,

                                      -28-
<PAGE>

and Inspire hereby agrees to assist and cooperate with Kissei, at Inspire's own
expense, to the extent necessary in the defense of such suit.  During the
pendency of such action and thereafter, Kissei shall continue to make all
payments due under this Agreement; provided, however, that Kissei shall be
entitled to a credit against royalties otherwise owing on such Product in an
amount equal to [CONFIDENTIAL TREATMENT REQUESTED] of the royalties or other
damages due to such Third Party in any calendar quarter, except that in no event
shall any such credit reduce the royalty rate to less than [CONFIDENTIAL
TREATMENT REQUESTED].  Further, if Kissei finally prevails and receives an award
from such Third Party as a result of such action (whether by way of judgment,
award, decree, settlement or otherwise), such award shall be allocated in the
manner provided in Section 9.3(b).

10.  PUBLICATION; CONFIDENTIALITY.

     10.1  Notification.

          (a) Both Parties recognize that each may wish to publish the results
of their work relating to the subject matter of this Agreement.  However, both
Parties also recognize the importance of acquiring patent protection.
Consequently, subject to any applicable laws or regulations obligating either
Party to do otherwise, any proposed publication by either Party shall comply
with this Section 10.1(a).  At least 30 days before a manuscript is to be
submitted to a publisher, the publishing Party will provide the Joint
Development Committee with a copy of the manuscript.  Any such manuscript, if
not in English, shall be accompanied by an English language  summary thereof,
which shall include a translation of all data tables to be included in such
manuscript.  In such event, the publishing Party shall provide an English
translation of such manuscript, in whole or in part, as requested by any member
of the Joint Development Committee, at least 10 days prior to submission of such
manuscript to the publisher.  If the publishing Party wishes to make an oral
presentation, it will provide the Joint Development Committee with a copy of the
abstract (if one is submitted) at least 30 days before it is to be submitted.

          (b) In addition, Inspire shall provide Kissei with a copy of any
publications relating to the Compound or the Product published by any of
Inspire's Strategic Partners in a timely manner after such publication.

     10.2  Review.    The Joint Development Committee will review the
manuscript, abstract, text or any other material provided under Section 10.1(a)
to determine whether patentable subject matter is disclosed.  The Joint
Development Committee will notify the publishing Party within 30 days of receipt
of the proposed publication if the Joint Development Committee, in good faith,
determines that patentable subject matter is or may be disclosed, or if the
Joint Development Committee, in good faith, believes Confidential Information
(as defined in Section 10.4) is or may be disclosed.  If it is determined by the
Joint Development Committee that patent applications should be filed, the
publishing Party shall delay its publication or presentation for a period not to
exceed 90 days from the Joint Development Committee's receipt of the proposed
publication or presentation to allow time for the filing of patent applications
covering patentable subject matter.  In the event that the delay

                                      -29-
<PAGE>

needed to complete the filing of any necessary patent application will exceed
the 90 day period, the Joint Development Committee will discuss the need for
obtaining an extension of the publication delay beyond the 90 day period. If it
is determined in good faith by the Joint Development Committee that Confidential
Information or proprietary information is being disclosed, the Parties will
consult in good faith to arrive at an agreement on mutually acceptable
modifications to the proposed publication or presentation to avoid such
disclosure.

     10.3  Exclusions.    Nothing in Sections 10.1 and 10.2 shall prevent either
Party: (i) in connection with efforts to secure financing at any time during the
term of this Agreement, from issuing statements as to achievements made, and the
status of the work being done by the Parties, under this Agreement, so long as
such statements do not jeopardize the ability to obtain patent protection on
Inventions or disclose non-public technical or scientific Confidential
Information; or (ii) from issuing statements that such Party determines to be
necessary to comply with applicable law (including the disclosure requirements
of the U.S. Securities and Exchange Commission, Nasdaq or any other stock
exchange on which securities issued by such Party are traded); provided that, to
the extent practicable under the circumstances, such Party shall provide the
other Party with a copy of the proposed text of such statements sufficiently in
advance of the scheduled release thereof to afford such other Party a reasonable
opportunity to review and comment upon the proposed text.

     10.4  Confidentiality; Exceptions.    Except to the extent expressly
authorized by this Agreement or otherwise agreed in writing, the Parties agree
that, during the term of this Agreement and for five years thereafter, the
receiving Party, its Affiliates, its licensees and its sublicensees shall keep,
and shall ensure that its employees, officers and directors keep, completely
confidential and shall not publish or otherwise disclose and shall not use for
any purpose any information furnished to it by the other Party, its Affiliates,
its licensees or its sublicensees or developed under or in connection with this
Agreement, except to the extent that it can be established by the receiving
Party by competent proof that such information: (i) was already known to the
receiving Party, other than under an obligation of confidentiality, at the time
of disclosure by the other Party; (ii) was generally available to the public or
otherwise part of the public domain at the time of its disclosure to the
receiving Party; (iii) became generally available to the public or was otherwise
part of the public domain after its disclosure and other than through any act or
omission of the receiving Party in breach of this Agreement; or (iv) was
disclosed to the receiving Party, other than under an obligation of
confidentiality,  by a Third Party who had no obligation to the disclosing Party
not to disclose such information to others  (all such information to which none
of the foregoing exceptions applies, "Confidential Information").

     10.5  Exceptions to Obligation.    The restrictions contained in Section
10.4 shall not apply to Confidential Information that: (i) is submitted by the
recipient to governmental authorities to facilitate the issuance of NDA
Approvals for the Product, provided that reasonable measures shall be taken to
assure confidential treatment of such information; (ii) is provided by the
recipient to Third Parties under confidentiality provisions at least as
stringent as those in this Agreement, for consulting, manufacturing development,
manufacturing, external testing, marketing trials and, with

                                      -30-
<PAGE>

respect to Kissei, to Third Parties who are Sublicensees or other
development/marketing partners of Kissei with respect to any of the subject
matter of this Agreement; or (iii) is otherwise required to be disclosed in
compliance with applicable laws or regulations or order by a court or other
regulatory body having competent jurisdiction; provided that if a Party is
required to make any such disclosure of the other Party's Confidential
Information such Party will, except where impracticable for necessary
disclosures, for example to physicians conducting studies or to health
authorities, give reasonable advance notice to the other Party of such
disclosure requirement and, except to the extent inappropriate in the case of
patent applications, will use its best efforts to secure confidential treatment
of such Confidential Information required to be disclosed.

     10.6  Limitations on Use.    Each Party shall use, and cause each of its
Affiliates, its licensees and its sublicensees to use, any Confidential
Information obtained by such Party from the other Party, its Affiliates, its
licensees or its sublicensees, pursuant to this Agreement or otherwise, solely
in connection with the activities or transactions contemplated hereby.

     10.7  Remedies.    Each Party shall be entitled, in addition to any other
right or remedy it may have, at law or in equity, to an injunction, without the
posting of any bond or other security, enjoining or restraining the other Party,
its Affiliates, its licensees and/or its sublicensees from any violation or
threatened violation of this Section 10.

11.  INDEMNIFICATION.

     11.1  By Kissei.    Kissei shall indemnify, defend and hold harmless
Inspire and its Affiliates, and their respective directors, officers, employees
and agents, from and against any and all liabilities, damages, losses, costs and
expenses (including the reasonable fees of attorneys and other professionals)
arising out of or resulting from:

          (a)  negligence, recklessness or wrongful intentional acts or
omissions of Kissei, its Affiliates or its Sublicensees, if any, and their
respective directors, officers, employees and agents, in connection with the
work performed by Kissei under the Joint Development Program;

          (b)  any warranty claims, Product recalls or any tort claims of
personal injury (including death) or property damage relating to or arising out
of any manufacture, use, distribution or sale of any Product by Kissei, its
Affiliates or its Sublicensees due to any negligence, recklessness or wrongful
intentional acts or omissions by, or strict liability of, Kissei, its Affiliates
or its Sublicensees, and their respective directors, officers, employees and
agents, except, in each case, to the comparative extent such claim arose out of
or resulted from the negligence, recklessness or wrongful intentional acts or
omissions of Inspire and its Affiliates, and their respective directors,
officers, employees and agents; or

                                      -31-
<PAGE>

          (c) any breach of any representation or warranty made by Kissei
pursuant to Section 2.

     11.2  By Inspire.    Inspire shall indemnify, defend and hold harmless
Kissei, its Affiliates and its Sublicensees, and their respective directors,
officers, employees and agents, from and against any and all liabilities,
damages, losses, costs and expenses (including the reasonable fees of attorneys
and other professionals) arising out of or resulting from:

          (a)  negligence, recklessness or wrongful intentional acts or
omissions of Inspire or its Affiliates, and their respective directors,
officers, employees and agents, in connection with the work performed by Inspire
under the Joint Development Program;

          (b)  any warranty claims, Product recalls or any tort claims of
personal injury (including death) or property damage relating to or arising out
of any manufacture, use, distribution or sale of any Supplied Goods by Inspire
or its Affiliates due to any negligence, recklessness or wrongful intentional
acts or omissions by, or strict liability of, Inspire or its Affiliates, and
their respective directors, officers, employees and agents, except, in each
case, to the comparative extent such claim arose out of or resulted from the
negligence, recklessness or wrongful intentional acts or omissions of Kissei,
its Affiliates or its Sublicensees, and their respective directors, officers,
employees and agents; or

          (c)  any breach of any representation or warranty made by Inspire
pursuant to Section 2.

     11.3  Notice.    In the event that any person (an "indemnitee") entitled to
indemnification under Section 11.1 or 11.2 is seeking such indemnification, such
indemnitee shall inform the indemnifying Party of the claim as soon as
reasonably practicable after such indemnitee receives notice of such claim,
shall permit the indemnifying Party to assume direction and control of the
defense of the claim (including the sole right to settle it at the sole
discretion of the indemnifying Party, provided that such settlement does not
impose any obligation on the indemnitee or the other Party) and shall cooperate
as requested (at the expense of the indemnifying Party) in the defense of the
claim.

     11.4  Complete Indemnification.    As the Parties intend complete
indemnification, all costs and expenses incurred by an indemnitee in connection
with enforcement of this Section 11 shall also be reimbursed by the indemnifying
Party.

12.  TERM; TERMINATION.

     12.1  Term.    This Agreement shall become effective as of the Effective
Date and, unless earlier terminated pursuant to the other provisions of this
Section 12, shall expire as follows:

                                      -32-
<PAGE>

          (a)  As to each Product in the Territory, this Agreement shall expire
on the later of  (i) the tenth anniversary of the First Commercial Sale of such
Product in the Territory, or (ii) the date on which the sale of such Product
ceases to be covered by a Licensed Claim in the Territory.

          (b)  This Agreement shall expire in its entirety upon the expiration
of this Agreement with respect to all Products in the Territory.

     12.2  Termination for Cause.    Either Party (the "non-breaching Party")
may, without prejudice to any other remedies available to it at law or in
equity, terminate this Agreement in the event the other Party (the "breaching
Party") shall have materially breached or defaulted in the performance of any of
its material obligations hereunder (but excluding any such breach or default
under the Supply Agreement, which shall be addressed in such separate Supply
Agreement), and such default shall have continued for 60 days after written
notice thereof was provided to the breaching party by the non-breaching party
(or, if such default cannot be cured within such 60-day period, if the breaching
party does not commence and diligently continue actions to cure such default
during such 60-day period).  Any such termination shall become effective at the
end of such 60-day period unless the breaching party has cured any such breach
or default prior to the expiration of such 60-day period (or, if such default
cannot be cured within such 60-day period, if the breaching party has commenced
and diligently continued actions to cure such default).  The right of either
party to terminate this Agreement as provided in this Section 12.2 shall not be
affected in any way by its waiver or failure to take action with respect to any
previous default.

     12.3  Termination by Kissei.    In the event that Kissei, in its sole good
faith discretion, determines that continued development or marketing of the
Product pursuant to this Agreement is scientifically or economically infeasible,
Kissei shall have the right to terminate this Agreement in its entirety upon
three months' prior written notice.

     12.4  Effect of Expiration or Termination.

          (a)  Following the expiration of the term of this Agreement with
respect to a Product in the Territory pursuant to Section 12.1(a):

          (i)  Kissei shall have a non-exclusive, royalty-free, perpetual right
to continue to use, market, distribute, sell, manufacture and have manufactured
any Product in the Territory, and the non-exclusive, perpetual and paid-up right
to use the Licensed Technology in connection therewith.  To that end, Kissei may
continue to hold and use all data, reports, records and materials that relate to
or are prepared in the course of the Joint Development Program, and may hold all
INDs, NDAs, NDA Approvals and other regulatory filings made or filed by Kissei
for such Product, pursuant to this Agreement, and may in its sole discretion
continue any sublicense granted by Kissei under this Agreement; and

                                      -33-
<PAGE>

          (ii)  Inspire shall have the fully-paid non-exclusive right to
continue to cross-reference and otherwise exercise its rights as set forth in
Section 4.5(d) under the NDA Approval(s) and other regulatory filings for such
Product in the Territory.

          (b)  Following expiration of the term of this Agreement in its
entirety pursuant to Section 12.1(b):

          (i)  Kissei shall have a non-exclusive, royalty-free, perpetual right
to continue to use, market, distribute, sell manufacture and have manufactured
all Products in the Territory, and the non-exclusive, perpetual and paid-up
right to use the Licensed Technology in connection therewith.  To that end,
Kissei may continue to hold and use all data, reports, records and materials
that relate to or are prepared in the course of the Joint Development Program,
and may hold all INDs, NDAs, NDA Approvals and other regulatory filings made or
filed by Kissei for all Products, pursuant to this Agreement, and may in its
sole discretion continue any sublicense granted by Kissei under this Agreement;

          (ii)  Inspire shall have: (A) the fully-paid non-exclusive right to
continue to cross-reference and otherwise exercise its rights as set forth in
Section 4.5(d) under the NDA Approvals and other regulatory filings for Products
in such countries; and (B) the fully-paid, non-exclusive, perpetual right to
continue to use patents or know-how that embody or relate to Inventions and that
are owned or controlled by Kissei or its Affiliates as set forth in Section 5.4.

          (c)  If this Agreement is terminated by Inspire pursuant to Section
12.2 by reason of a breach or default by Kissei, in addition to any other
remedies available to Inspire at law or in equity, or by Kissei pursuant to
Section 12.3: (i) Kissei shall promptly transfer to Inspire copies of all data,
reports, records and materials in Kissei's possession or control that relate to
the Joint Development Program and return to Inspire all relevant records and
materials in Kissei's possession or control containing Confidential Information
of Inspire (provided that Kissei may keep one copy of such Confidential
Information of Inspire for archival purposes only); (ii) all licenses granted by
Inspire to Kissei under Sections 5.1 and 5.2 shall terminate; (iii) ownership of
all INDs, NDAs, NDA Approvals and other regulatory filings made or filed for the
Product shall be transferred promptly to Inspire; and (iv) all sublicenses
granted by Kissei under this Agreement shall terminate.  Furthermore, Inspire
shall have the fully-paid, non-exclusive, perpetual right to continue to use
patents or know-how that embody or relate to Inventions and that are owned or
controlled by Kissei or its Affiliates as set forth in Section 5.4.

          (d)  If this Agreement is terminated by Kissei pursuant to Section
12.2 by reason of a breach or default by Inspire, in addition to any other
remedies available to Kissei at law or in equity,:  (i) the license granted to
Inspire by Kissei under Section 5.4 shall terminate; (ii) Kissei shall have an
exclusive, royalty-free, perpetual right to continue to use, market, distribute,
sell, manufacture and have manufactured any Product in the Territory, and the
exclusive, perpetual and paid-up right to use the Licensed Technology in
connection therewith.  To that end, Kissei may

                                      -34-
<PAGE>

continue to hold and use all data, reports, records and materials that relate to
or are prepared in the course of the Joint Development Program, and may hold all
INDs, NDAs, NDA Approvals and other regulatory filings made or filed by Kissei
for the Products, pursuant to this Agreement, and may in its sole discretion
continue any sublicenses granted by Kissei under this Agreement; and (iii) in
order to secure the right of Kissei in clause (ii) of this Section 12.4(d),
Inspire hereby grants Kissei the Manufacturing License as provided in the Supply
Agreement, and will use all reasonable efforts to enable Kissei to manufacture,
or have manufactured Finished Product and Delivery Systems, including working
with Kissei to establish arrangements with the Third Party Manufacturers.

     12.5  Accrued Rights; Surviving Obligations.

          (a)  Termination, relinquishment or expiration of this Agreement for
any reason shall be without prejudice to any rights which shall have accrued to
the benefit of either Party prior to such termination, relinquishment or
expiration.  Such termination, relinquishment or expiration shall not relieve
either Party from obligations which are expressly indicated to survive
termination or expiration of this Agreement.

          (b)  All of the Parties' rights and obligations under Sections 3.7,
4.7(d), 4.7(e), 4.8, 5.7, 7, 9.1, 9.3 (solely with respect to actions commenced
before the effective date of termination of this Agreement), 9.4 (solely with
respect to actions commenced before the effective date of termination of this
Agreement), 10.4, 10.5, 10.6, 10.7, 11, 12.4, 12.5, 14.12 and 14.13 shall
survive termination, relinquishment or expiration of this Agreement.

13.  FORCE MAJEURE.

     13.1  Events of Force Majeure.    Neither Party shall be held liable or
responsible to the other Party nor be deemed to be in default under, or in
breach of any provision of, this Agreement for failure or delay in fulfilling or
performing any obligation of this Agreement when such failure or delay is due to
force majeure, and without the fault or negligence of the Party so failing or
delaying.  For purposes of this Agreement, force majeure is defined as causes
beyond the control of the Party, including, without limitation, acts of God;
acts, regulations, or laws of any government; war; civil commotion; destruction
of production facilities or materials by fire, flood, earthquake, explosion or
storm; labor disturbances; epidemic; and failure of public utilities or common
carriers.  In such event Inspire or Kissei, as the case may be, shall
immediately notify the other Party of such inability and of the period for which
such inability is expected to continue.  The Party giving such notice shall
thereupon be excused from such of its obligations under this Agreement as it is
thereby disabled from performing for so long as it is so disabled and the 30
days thereafter.  To the extent possible, each Party shall use reasonable
efforts to minimize the duration of any force majeure.

                                      -35-
<PAGE>

14.  MISCELLANEOUS.

     14.1  Relationship of Parties.    Nothing in this Agreement is intended or
shall be deemed to constitute a partnership, agency, employer-employee or joint
venture relationship between the Parties.  No Party shall incur any debts or
make any commitments for the other, except to the extent, if at all,
specifically provided herein.

     14.2  Assignment.    Neither Party shall be entitled to assign its rights
hereunder without the express written consent of the other Party hereto, except
that each Party may assign its rights and transfer its duties hereunder to any
assignee of all or substantially all of its business (or that portion thereof to
which this Agreement relates) or in the event of such Party's merger,
consolidation or involvement in a similar transaction.  No assignment and
transfer shall be valid or effective unless done in accordance with this Section
14.2 and unless and until the assignee/transferee shall agree in writing to be
bound by the provisions of this Agreement.

     14.3  Books and Records.    Any books and records to be maintained under
this Agreement by a Party or its Affiliates or Sublicensees shall be maintained
in accordance with generally accepted accounting principles, consistently
applied.

     14.4  Further Actions.    Each Party shall execute, acknowledge and deliver
such further instruments, and do all such other acts, as may be necessary or
appropriate in order to carry out the purposes and intent of this Agreement.

     14.5  Notice.

          (a)  Any notice or request required or permitted to be given under or
in connection with this Agreement shall be deemed to have been sufficiently
given if in writing and personally delivered or sent by certified mail (return
receipt requested), facsimile transmission (receipt verified), or overnight
express courier service (signature required), prepaid, to the Party for which
such notice is intended, at the address set forth for such Party below:

               (i)  In the case of Inspire, to:

                    Inspire Pharmaceuticals, Inc.
                    4222 Emperor Boulevard, Suite 470
                    Durham, North Carolina  27703
                    USA
                    Attention: Christy L. Shaffer, Ph.D.
                    Facsimile No.:  (919) 941-9797

                                      -36-
<PAGE>

               (ii) In the case of Kissei, to:

                    Kissei Pharmaceutical Co., Ltd.
                    19-48, Yoshino
                    Matsumoto-City, Nagano-Prefecture
                    399-8710
                    JAPAN
                    Attention: Masanori Iwadare, Ph.D.
                    Facsimile No.:  (263) 28-2174

or to such other address for such Party as it shall have specified by like
notice to the other Party, provided that notices of a change of address shall be
effective only upon receipt thereof.  If delivered personally or by facsimile
transmission, the date of delivery shall be deemed to be the date on which such
notice or request was given.  If sent by overnight express courier service, the
date of delivery shall be deemed to be the next business day after such notice
or request was deposited with such service.  If sent by certified mail, the date
of delivery shall be deemed to be the third business day after such notice or
request was deposited with the U.S. or Japanese Postal Service, as the case may
be.

          (b)  All correspondence, notices and other communications shall be
promptly provided to the other Party in English.  If any data, information and
document or literature which relate to Joint Development Program or any
regulatory filings is written in non-English language, an appropriate summary in
English shall be attached to it, and an English translation will follow in a
timely manner if requested.

     14.6  Use of Name.    Except as otherwise provided herein, neither Party
shall have any right, express or implied, to use in any manner the name or other
designation of the other Party or any other trade name or trademark of the other
Party for any purpose in connection with the performance of this Agreement.

     14.7  Public Announcements.    Except as required by law (including,
without limitation, disclosure requirements of the U.S. Securities and Exchange
Commission, Nasdaq or any other stock exchange on which securities issued by a
Party are traded) and as permitted by Section 10.3, neither Party shall make any
public announcement concerning this Agreement or the subject matter hereof
without the prior written consent of the other, which shall not be unreasonably
withheld, provided that it shall not be unreasonable for a Party to withhold
consent with respect to any public announcement containing any of such Party's
Confidential Information.  In the event of a required public announcement, to
the extent practicable under the circumstances, the Party making such
announcement shall provide the other Party with a copy of the proposed text
prior to such announcement sufficiently in advance of the scheduled release of
such announcement to afford such other Party a reasonable opportunity to review
and comment upon the proposed text.

                                      -37-
<PAGE>

     14.8  Waiver.    A waiver by either Party of any of the terms and
conditions of this Agreement in any instance shall not be deemed or construed to
be a waiver of such term or condition for the future, or of any subsequent
breach hereof.  All rights, remedies, undertakings, obligations and agreements
contained in this Agreement shall be cumulative and none of them shall be in
limitation of any other remedy, right, undertaking, obligation or agreement of
either Party.

     14.9  Compliance with Law.    Nothing in this Agreement shall be deemed to
permit a Party to export, reexport or otherwise transfer any Product sold under
this Agreement without compliance with applicable laws.

     14.10  Severability.    When possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.

     14.11  Amendment.    No amendment, modification or supplement of any
provisions of this Agreement shall be valid or effective unless made in writing
and signed by a duly authorized officer of each Party.

     14.12  Governing Law; English Original Controlling.    This Agreement shall
be governed by and interpreted in accordance with the laws of Delaware without
regard to its choice of law principles; provided, however, that any arbitration
proceeding conducted pursuant to Section 14.13 shall be governed by the
Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June
10, 1958.  The English original of this Agreement shall prevail over any
translation hereof.

     14.13  Arbitration.

          (a)  Except as expressly otherwise provided in this Agreement, any
dispute arising out of or relating to any provisions of this Agreement shall be
finally settled by arbitration to be held in San Francisco, California, under
the auspices and then current commercial arbitration rules of the International
Chamber of Commerce.  Such arbitration shall be conducted by three arbitrators
appointed according to said rules and in the English language.  The Parties
shall instruct such arbitrators to render a determination of any such dispute
within 30 days after their appointment.

          (b)  Any award rendered by the arbitrator(s) shall be final and
binding upon the Parties.  Judgment upon any award rendered may be entered in
any court having jurisdiction, or application may be made to such court for a
judicial acceptance of the award and an order of enforcement, as the case may
be.  Each Party shall pay its own expenses of arbitration, and the expenses of
the arbitrator(s) shall be equally shared unless the arbitrator(s) assesses as
part of his or

                                      -38-
<PAGE>

her award all or any part of the arbitration expenses of one Party (including
reasonable attorneys' fees) against the other Party.

          (c)  This Section 14.13 shall not prohibit a Party from seeking
injunctive relief from a court of competent jurisdiction in the event of a
breach or prospective breach of this Agreement by the other Party which would
cause irreparable harm to the first Party.

     14.14  Entire Agreement.    This Agreement, together with the Exhibits
hereto and every Annual Development Plan approved by the Joint Development
Committee, sets forth the entire agreement and understanding between the Parties
as to the subject matter hereof and merges all prior discussions and
negotiations between them, and neither of the Parties shall be bound by any
conditions, definitions, warranties, understandings or representations with
respect to such subject matter other than as expressly provided herein or as
duly set forth on or subsequent to the date hereof in writing and signed by a
proper and duly authorized officer or representative of the Party to be bound
thereby.

     14.15  Parties in Interest.    All of the terms and provisions of this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the Parties hereto and their respective permitted successors and assigns.

     14.16  Descriptive Headings.    The descriptive headings of this Agreement
are for convenience only, and shall be of no force or effect in construing or
interpreting any of the provisions of this Agreement.

     14.17  Counterparts.    This Agreement may be executed simultaneously in
any number of counterparts, any one of which need not contain the signature of
more than one Party but all such counterparts taken together shall constitute
one and the same agreement.

                                     * * *

                                      -39-
<PAGE>

     IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed by its duly authorized representative as of the day and year first
above written.

                                    INSPIRE PHARMACEUTICALS, INC.

                                    By: /s/ David J. Drutz
                                        -----------------------------------
                                        David J. Drutz, M.D., Vice Chairman

                                    KISSEI PHARMACEUTICALS CO., LTD.

                                    By:/s/ Mutsuo Kanzawa
                                       -------------------------------
                                        Mutsuo Kanzawa, President and
                                         Chief Executive Officer
<PAGE>

                                   EXHIBIT A
                                   ---------

                                INSPIRE'S COSTS
                                ---------------

                       [CONFIDENTIAL TREATMENT REQUESTED]
<PAGE>

                                   EXHIBIT B
                                   ---------

                                INITIAL PATENTS
                                ---------------

1.   US Patent No. 5,635,160 " Dinucleotides Useful for the Treatment of Cystic
     Fibrosis and for Hydrating Mucus Secretions", M. J. Stutts, III, R. C.
     Boucher, Jr., E. R. Lazarowski, and C. A. Geary. Assignee: The University
     of North Carolina at Chapel Hill, Chapel Hill, N.C. Issued: June 3, 1997.

2.   [CONFIDENTIAL TREATMENT REQUESTED]

3.   [CONFIDENTIAL TREATMENT REQUESTED]

4.   US Patent No. 5,763,447 "Method of Preventing or Treating Pneumonia in
     Immobilized Patients with Uridine Triphosphates and Related Compounds", K.
     M. Jacobus and H. J. Leighton. Assignee: Inspire Pharmaceuticals, Inc.,
     4222 Emperor Blvd., Durham, N.C. Issued: June 9, 1998.

5.   [CONFIDENTIAL TREATMENT REQUESTED].
<PAGE>

                                   EXHIBIT C
                                   ---------

                               INITIAL MEMBERS OF
                               ------------------
                          JOINT DEVELOPMENT COMMITTEE
                          ---------------------------

A.   Initial Designees of Inspire:

     1.  Christy Shaffer, Ph.D., Initial Secretary

     2.  Richard Evans, Ph.D.

     3.  Patricia Edgar, Ph.D.

B.   Initial Designees of Kissei:

     1.  Toshiro Kobayashi, Initial Chairperson

     2.  Kinji Izuka, Ph.D.

     3.  Haruo Suzawa, Ph.D.
<PAGE>

                                   EXHIBIT D
                                   ---------

                            TERMS AND CONDITIONS OF
                            -----------------------
                        THE COMMERCIAL SUPPLY AGREEMENT
                        -------------------------------

Defined terms used in the Exhibit shall have the meaning assigned to such terms
in the Joint Development, License and Supply Agreement dated as of September 10,
1998 between the Parties (the "License Agreement").

     1.  Supply.  Commencing on the commercial launch of the Product and
thereafter during the term of the Supply Agreement, Inspire shall have, or have
obtained, all rights necessary to make, or have made, Finished Product and
Delivery Systems.  Commencing on the commercial launch of the Product and
thereafter during the term of the Supply Agreement, subject to the terms and
conditions of this agreement, Inspire shall supply Kissei with all of Kissei's
requirements for Supplied Goods for commercial use in the Territory (which shall
be deemed to include all of the requirements of Kissei's Affiliates and
Sublicensees), and Kissei shall purchase from Inspire all of such requirements
for the Supplied Goods.  Kissei may place orders for the requirements of its
Affiliates and Sublicensees, and either have Inspire ship directly to such
Affiliates or Sublicensees or to Kissei for its reshipment to such Affiliates
and Sublicensees.  Inspire shall prepare all Supplied Goods in bulk containers
for shipment to Kissei.  Kissei shall be responsible for putting the Supplied
Goods in final packaged form, including, without limitation, all product
labeling and other package inserts and materials required by the applicable
Regulatory Authorities.

     2.  Forecasts.  Commencing 24 months prior to the anticipated commercial
launch of the first Product in the Territory, no later than 180 days prior to
the first day of each calendar quarter ("Q1"), Kissei shall provide Inspire with
a non-binding, good faith rolling forecast of estimated quantities in trade
units and anticipated delivery schedules for the Supplied Goods for the
following 12-month period (i.e., Q1 and the next three calendar quarters ("Q2,"
"Q3," etc., respectively)), by calendar quarters.  The quantity indicated for Q1
shall be considered a firm order.  Such forecasts shall be revised and updated
quarterly, including firm orders for the next succeeding quarter.

     3.  Orders.

          (a) Together with each forecast provided under Section 2 (the "Current
Forecast"), Kissei shall place its firm order on a quarterly basis with Inspire,
setting forth trade units, delivery dates and shipping instructions with respect
to each shipment of Supplied Goods for delivery in Q1.  Inspire shall accept
such orders from Kissei, subject to the other terms and conditions of the Supply
Agreement, to the extent such quantity of Finished Product or Delivery Systems,
as the case may be, is: (i) no more than the least of: (A) the quantity thereof
reflected in the Current Forecast for Q1; (B) [CONFIDENTIAL TREATMENT REQUESTED]
of the quantity thereof reflected for Q2 in the forecast that next preceded the
Current Forecast; and (C) [CONFIDENTIAL TREATMENT REQUESTED] of the quantity
thereof reflected for Q3 in the forecast that next preceded the forecast
referred to in clause (i)(B); and (ii) no less than the greatest

                                      D-1
<PAGE>

of: (A) the quantity thereof reflected in the Current Forecast for Q1; (B)
[CONFIDENTIAL TREATMENT REQUESTED] of the quantity thereof reflected for Q2 in
the  forecast that next preceded the Current Forecast; and (C) [CONFIDENTIAL
TREATMENT REQUESTED] of the quantity thereof reflected for Q3 in the forecast
that next preceded the forecast referred to in clause (ii)(B).  Kissei's orders
shall be made pursuant to purchase orders which are in a form mutually
acceptable to the Parties, to the extent that such form is not inconsistent with
the terms of the Supply Agreement.

          (b) Inspire shall not be obligated to accept orders for Q1 to the
extent the quantity of Supplied Goods ordered exceeds the foregoing limitations,
but shall use good faith efforts to fill such orders for such excess quantities
from available supplies.  In the event that Inspire, despite the use of good
faith efforts, is unable to supply such excess quantities to Kissei, such
inability to supply shall not be deemed to be a breach of Inspire's obligations
under this Supply Agreement.  Inspire shall use all reasonable efforts to notify
Kissei within 10 days after receipt of an order of Inspire's ability to fill any
amounts of such orders in excess of the quantities that Inspire is obligated to
supply.

          (c) In the event that Kissei submits orders of Supplied Goods with
respect to any Q1 for less than the minimum quantity of Product that Kissei is
required to purchase under this Supply Agreement, Inspire nevertheless shall
have the right to supply and ship to Kissei, and Kissei shall have the
obligation to purchase and accept from Inspire, such minimum quantity of
Supplied Goods.

          (d) By way of illustration, examples of the maximum quantities of
Finished Product or Delivery Systems that Inspire is required to supply, and the
minimum quantities of Finished Product or Delivery Systems that Kissei is
required to order (and that Inspire is entitled to supply), are set forth on
Schedule 1.

     4.  Delivery.  With respect to exact shipping dates, Inspire shall use all
reasonable commercial efforts to ship quantities of Supplied Goods that Inspire
is obligated to supply pursuant to Section 3 on the dates specified in Kissei's
purchase orders submitted and accepted in accordance with Section 3.  All
Supplied Goods delivered pursuant to the terms of the Supply Agreement shall be
suitably packed for shipment by Inspire, marked for shipment to the destination
point indicated in Kissei's purchase order.  All Supplied Goods will be
delivered CIF the arrival point designated by Kissei.  The shipping packaging
shall be in accordance with the package specifications which shall be approved
by both Parties from time to time.

     5.  Conformity; Specifications; Quality Control.

          (a) All quantities of Supplied Goods supplied by Inspire pursuant to
the Supply Agreement will comply with all applicable Specifications and
applicable Manufacturing Standards and shall adhere to all applicable
governmental laws and regulations relating to the manufacture, sale

                                      D-2
<PAGE>

and shipment of the respective Supplied Goods at the time they arrive at the
point designated by Kissei.

          (b) Kissei shall have the right to change the Specifications, from
time to time,  to accommodate the demands or requests of any Regulatory
Authority at any time during the term of the Supply Agreement on not less than
12 months' prior written notice to Inspire.  Any costs or expenses incurred by
Inspire in connection with such changes shall be borne by Kissei, and Inspire
shall be entitled to include such costs and expenses in invoices submitted to
Kissei pursuant to Section 7.1(a) of the License Agreement, from time to time.
In addition, other changes to the Specifications shall be made only upon the
mutual consent of the Parties.  In this case, any costs or expenses derived from
such changes shall be paid by the Party which demands or requests such changes.
In any such event, Inspire shall use reasonable commercial efforts to meet any
of the foregoing changes.

          (c) Inspire shall conduct, or cause to be conducted, quality control
testing of Supplied Goods prior to shipment in accordance with the applicable
Specifications and applicable Manufacturing Standards as are in effect from time
to time and such other quality control testing procedures agreed to by the
Parties from time to time (collectively, the "Testing Methods").  Inspire or its
designee shall retain records pertaining to such testing.  Each shipment of
Supplied Goods hereunder shall be accompanied by a certified quality control
protocol and certificate of analysis for each lot of Supplied Goods therein as
well as such customs and other documentation as is necessary or appropriate.

     6.  Acceptance/Rejection; Interim Replacement.

          (a) Kissei may test or cause to be tested Supplied Goods in accordance
with Kissei's customary procedures within 30 days of its receipt at Kissei's
plant or that of its designee.  Kissei or its designee shall have the right to
reject any shipment of Supplied Goods made to it under this Agreement that does
not meet the applicable Specifications and applicable Manufacturing Standards
when received by it at such destination when tested in accordance with the
Testing Methods.  All claims by Kissei of non-conforming Supplied Goods shall be
deemed waived unless made by Kissei in writing and received by Inspire within
such 30-day period.

          (b) All claims of non-conforming Supplied Goods shall be accompanied
by a report of analysis (including a sample of the Supplied Goods from the batch
analyzed) of the allegedly non-conforming Supplied Goods that shall have been
made by Kissei or its designee, using the Testing Methods.  If, after its own
analysis of such sample, Inspire confirms such non-conformity, then Inspire
shall replace such shipment at its expense, including charges incurred by Kissei
for shipping and/or storage, if applicable.  If, after its own analysis, Inspire
does not confirm such non-conformity, the Parties shall agree to retest the
shipment or otherwise in good faith attempt to agree upon a settlement of the
issue.  In the event that the Parties cannot resolve the issue, the Parties
shall submit the disputed Supplied Goods to an independent testing laboratory,
to be agreed

                                      D-3
<PAGE>

upon by the Parties, for testing in accordance with the Testing Methods.
Notwithstanding Section 14.13 of the License Agreement, the findings of such
laboratory shall be binding on the Parties, absent manifest error.  Expenses of
such testing shall be borne by the Party adversely affected by such findings.
In the event that any such shipment or batch thereof is ultimately agreed or
found not to meet the applicable Specifications or Manufacturing Standards,
Inspire agrees to replace such shipment at its expense, including charges
incurred by Kissei for shipping and/or storage, if applicable.  Kissei shall
return any such rejected shipment to Inspire if so instructed by Inspire, at
Inspire's expense.

          (c) During the pendency of any dispute concerning the conformity of a
shipment of Supplied Goods to the applicable Specifications and applicable
Manufacturing Standards, Inspire shall replace the shipment under dispute, at
the request of Kissei.  Such replacement Supplied Goods shall be ordered in
accordance with Section 3.

          (d) Notwithstanding any other provision of the License Agreement or
the Supply Agreement, Kissei shall not be required to pay for any shipment of
Supplied Goods that fails to meet the applicable Specifications, but Kissei
shall be obligated to pay in full for any rejected shipment of Supplied Goods
that is subsequently determined to meet the applicable Specifications.  In the
event that Kissei pays for a shipment of Supplied Goods and subsequently rejects
such shipment in accordance with the terms of the Supply Agreement, Kissei shall
be entitled to a refund or credit equal to the amount paid with respect to such
rejected shipment.  Any such refund or credit shall be reflected in the
statements submitted by Kissei pursuant to Section 7.1(b) of the License
Agreement.

          (e) Based on the information currently available regarding the
Finished Product, Inspire anticipates that the commercial shelf-life of Finished
Product will be at least 24 months.  The targeted commercial shelf-life of
Finished Product is 36 months.

     7.  Third Party Manufacturers.

          (a) The Parties acknowledge and agree that Inspire shall satisfy its
supply obligations to Kissei hereunder through arrangements with Third Parties
engaged to perform services or supply facilities or goods (including Compound,
Formulated Material, Finished Product and Delivery Systems) in connection with
the manufacture, testing, and/or packaging of Supplied Goods (each, a "Third
Party Manufacturer").  Inspire shall ensure that all such facilities comply with
the applicable Manufacturing Standards in effect from time to time, and such
Third Party Manufacturers shall permit Kissei to inspect such facilities, at
Kissei=s request at any time during the term of the Supply Agreement or the
License Agreement.

          (b) Inspire acknowledges and agrees that such Third Party
Manufacturers shall be subject to Section 5(a) and that use of a Third Party
Manufacturer shall not relieve Inspire of its obligations under Section 5(a).

                                      D-4
<PAGE>

     8.  Manufacturing Plan.  At least 12 months prior to the anticipated launch
of the Product, Inspire shall prepare a proposed manufacturing plan for Supplied
Goods, including, without limitation, plans and timing for establishing Third
Party Manufacturers and back-up and/or secondary Third Party Manufacturers (to
the extent feasible and practicable) for review and approval by the Joint
Development Committee (the "Manufacturing Plan").  Upon approval of the
Manufacturing Plan by the Joint Development Committee, Inspire shall use
commercially reasonable efforts to comply with the Manufacturing Plan.

     9.  Shortage of Supply.  Inspire shall notify Kissei:  (i) within 30 days
of Inspire's receipt of a firm order from Kissei as provided in Section 3, or
(ii) immediately upon becoming aware of an event of force majeure under Section
13 of the License Agreement or any other event that would render Inspire unable
to supply the quantity of Supplied Goods to Kissei that Inspire is required to
supply hereunder, if Inspire is unable to supply such quantities of Supplied
Goods.  In such event, Inspire shall implement all reasonable measures to remedy
the shortage.

     10.  Inability to Supply.

          (a) In the event of any Inability to Supply (as defined herein) with
respect to any Supplied Goods, Kissei shall have the option, exercisable by
providing Inspire written notice thereof, to manufacture (or have manufactured)
such Supplied Goods for sufficient supply thereof in the Territory in order to
settle the Inability to Supply.  In such event: (i) Inspire shall provide to
Kissei copies of all documentation within Inspire's possession and control that
is reasonably necessary to enable Kissei to manufacture (or have manufactured)
Supplied Goods with respect to which an Inability to Supply has occurred; (ii)
Inspire shall provide such technical assistance to Kissei as is reasonably
necessary to enable Kissei to manufacture (or have manufactured) such Supplied
Goods pursuant to the applicable Specifications and Manufacturing Standards; and
(iii) Inspire shall reasonably cooperate with Kissei to establish an alternative
supply, including sources of materials.  Notwithstanding the foregoing, Inspire
shall continue to resolve the Inability to Supply as provided in Section 9.
Once Inspire has resolved the Inability to Supply, Inspire shall notify Kissei
and shall resume manufacturing of such Supplied Good to meet Kissei's
requirements as soon as practicable.

          (b) For purposes of this Section 10, an "Inability to Supply" shall
mean, with respect to any Supplied Goods, Inspire's failure to supply Kissei
with quantities of such Supplied Goods meeting the applicable Specifications and
Manufacturing Standards: (i) in any two consecutive calendar quarters, equal to
at least 70%, or (ii) in any 12-month period, equal to at least 80%, of the
lesser of (i) the quantity of such Supplied Goods ordered by Kissei for the
applicable period, and (ii) the maximum quantity of  such Supplied Goods that
Inspire is obligated to supply under Section 3 for the applicable period.

          (c) The remedy provided in this Section 10 shall be Kissei's sole
remedy for Inability to Supply unless such Inability to Supply results from a
material breach of Inspire's material obligations contained in the Supply
Agreement.  However, in the event that such Inability to Supply

                                      D-5
<PAGE>

results from a material breach of Inspire=s material obligations contained in
the Supply Agreement, the remedy provided in this Section 10 shall be in
addition to any other remedies available to Kissei at equity or in law.

     11.   Right to Manufacture.  In the event that Kissei exercised the option
referred to in Section 10(a), Inspire hereby grants to Kissei, and Kissei hereby
accepts, a royalty-free license (the "Manufacturing License") under the Licensed
Technology necessary to make, have made, use and sell such Supplied Goods in the
Territory for use in applications within the Field.  Such Manufacturing License
shall be subject to all other terms and conditions of the Supply Agreement.  In
such event, Kissei shall be relieved of its obligation to purchase the
quantities of Supplied Goods from Inspire, to the extent that Kissei has elected
to exercise the Manufacturing License.

     12.  Investigation; Recall.  In the event that the Supplied Product
supplied hereunder, or any portion thereof, should be alleged or proven not to
meet the applicable Specifications, applicable Manufacturing Standards or other
applicable mandatory standards for same, Kissei shall notify Inspire
immediately, and both Parties shall cooperate fully regarding the investigation
and disposition of any such matter.  Each Party shall bear all costs and
expenses associated with any Product recall that is due to or arises from an act
or omission with respect to which such Party has an obligation to provide
indemnification under Section 11 of the License Agreement.

     13.  Supply Following Expiration of the License Agreement.  Following the
expiration of the term of the License Agreement in its entirety pursuant to
Section 12.1(b) of the License Agreement, the Parties shall hold discussions
concerning the desirability and feasibility of Inspire's continued supply of
Supplied Goods to Kissei.  If the Parties agree that such an arrangement would
be desirable and feasible, then they shall negotiate in good faith the terms
upon which such supply shall be made.

                                      D-6
<PAGE>

Schedule 1 - Maximum/minimum Orders under Section 3
----------

The following examples are intended to illustrate the operation of Section 3
regarding the maximum quantity of Supplied Goods that Inspire is required to
accept orders for, and the minimum quantity of Supplied Goods that Kissei is
required to purchase (and Inspire is entitled to supply), with respect to any
particular Q1.

Assumptions

1.   The following examples are restricted to the supply of Finished Product.
     Identical calculations would be made with respect to Inspire's supply of
     Delivery Systems but are omitted for purposes of clarity.

2.   "Forecast 1" refers to the quarterly forecast for Finished Product to be
     supplied by Inspire during the fourth calendar quarter of 2001 (the
     "Subject Quarter") which forecast is delivered to Inspire by Kissei on or
     before the first day of the fourth calendar quarter of 2000.

3.   "Forecast 2" refers to the quarterly forecast for Finished Product to be
     supplied by Inspire during the Subject Quarter which forecast is delivered
     to Inspire by Kissei on or before the first day of the first calendar
     quarter of 2001.

4.   "Forecast 3" refers to the quarterly forecast for Finished Product to be
     supplied by Inspire during the Subject Quarter which forecast is delivered
     to Inspire by Kissei on or before the first day of the second calendar
     quarter of 2001.

Example 1

Kissei's forecasts for Finished Product for the Subject Quarter, as provided
over a three-quarter period, are as follows:

====================================================================
             Forecast 1                 Forecast 2      Forecast 3
====================================================================
                 *                      *                  *
====================================================================

The first forecast (Forecast 1), provided to Inspire before the start of the
fourth quarter 2000, forecasts * of Finished Product.  The second
forecast (Forecast 2), provided to Inspire before the start of the first quarter
2001, forecasts * of Finished Product.  The third forecast (Forecast 3),
provided to Inspire before the start of the second quarter 2001, forecasts *
units of Finished Product.

                      *[CONFIDENTIAL TREATMENT REQUESTED]
                                      D-7
<PAGE>

Kissei's forecasts for Finished Product have increased over this three-quarter
period.  Pursuant to clause (i) of Section 3(a), Kissei is entitled to purchase,
and  Inspire is obligated to deliver no more Finished Product than the least of:

     (A)  [*] of the quantity of Finished Product reflected in Forecast 1
          (*);

     (B)  [*] of the quantity of Finished Product reflected in Forecast 2
          (*); or

     (C)  the quantity of Finished Product reflected in Forecast 3 (*).

Therefore, Inspire will not be obligated to accept orders for, or supply, more
than * of Finished Product during the Subject Quarter.

Example 2

Kissei's forecasts for Finished Product for the Subject Quarter, as provided
over a three-quarter period, are as follows:

====================================================================
             Forecast 1        Forecast 2                Forecast 3
====================================================================
                *                  *                          *
====================================================================

Kissei's forecasts for Finished Product have decreased over this three-quarter
period.  Pursuant to clause (ii) of Section 3(a), Kissei is required to
purchase, and Inspire is entitled to supply, no less Finished Product than the
greatest of:

     (A)  [*] of the quantity of Finished Product reflected in Forecast 1 (*);

     (B)  [*] of the quantity of Finished Product reflected in Forecast 2 (*);
          or

     (C)  the quantity of Finished Product reflected in Forecast 3 (*).

Therefore, Kissei is obligated to purchase, and Inspire is entitled to supply, *
of Finished Product during the Subject Quarter.

Example 3

Kissei's forecasts for Finished Product for the Subject Quarter, as provided
over a three-quarter period, are as follows:

                      *[CONFIDENTIAL TREATMENT REQUESTED]

                                      D-8
<PAGE>

====================================================================
             Forecast 1                 Forecast 2      Forecast 3
====================================================================
                 *                          *               *
====================================================================

Kissei's forecasts for Finished Product have decreased between the two most
recent forecasts.  Pursuant to clause (ii) of Section 3(a), Kissei is required
to purchase, and Inspire is entitled to supply, no less Finished Product than
the greatest of:

     (A)  * of the quantity of Finished Product
          reflected in Forecast 1 (*);

     (B)  [CONFIDENTIAL TREATMENT REQUESTED] of the quantity of Finished Product
          reflected in Forecast 2 (*); or

     (C)  the quantity of Finished Product reflected in Forecast 3 (*).

Therefore, Kissei is obligated to purchase, and Inspire is entitled to supply,
* of Finished Product during the Subject Quarter.

Example 4

Kissei's forecasts for Finished Product for the Subject Quarter, as provided
over a three quarter period,  are as follows:

====================================================================
             Forecast 1                 Forecast 2      Forecast 3
====================================================================
                 *                          *                *
====================================================================

Kissei's forecasts for Finished Product have increased between the two most
recent forecasts.  Pursuant to clause (i) of Section 3(a), Kissei is entitled to
purchase, and Inspire is obligated to deliver no more Finished Product than the
least of:

     (A)  * of the quantity of Finished Product
          reflected in Forecast 3 (*);

     (B)  * of the quantity of Finished Product
          reflected in Forecast 2 (*); or

     (C)  the quantity of Finished Product reflected in Forecast 3 (*).

Therefore, Inspire will not be obligated to accept orders for, or supply, more
than * of Finished Product during the Subject Quarter.

                     * [CONFIDENTIAL TREATMENT REQUESTED]

                                      D-9

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