Document:

EXHIBIT 10.2

Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by [***], have been
separately filed with the Securities and Exchange Commission.

                       INVESTMENT AND COMMISSION AGREEMENT

This Investment and Commission Agreement (the "Agreement") is made as of
December 10, 2001, by and between Discovery Laboratories, Inc., a Delaware
corporation ("Discovery"), and PharmaBio Development, Inc., a North Carolina
corporation ("PharmaBio").

Background and Overview

A.    Discovery and Quintiles Transnational Corp. ("Quintiles"), an Affiliate of
      PharmaBio, have executed a Commercialization Agreement (herein so called)
      on the date hereof, pursuant to which Quintiles will provide exclusive
      Commercialization Services in the Territory for the Product.

B.    Discovery and PharmaBio have agreed that PharmaBio will fund the payments
      for the Commercialization Services, pursuant to the terms and conditions
      set forth herein.

For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:

1.0   Definitions.

1.1   "Affiliate" shall mean, as to any person or entity, any corporation or
      business entity controlled by, controlling, or under common control with
      such party or entity. For this purpose, "control" shall mean direct or
      indirect beneficial ownership of at least fifty percent (50%) of the
      voting stock or income interest in such corporation or other business
      entity.

1.2   "Annual Period" shall mean a twelve-month period beginning on the Launch
      Date and each anniversary thereof.

1.3   "Commercialization Expenses" shall mean the fees and expenses payable to
      Quintiles for the Commercialization Services.

1.4   "Commercialization Services" shall mean (i) sales and marketing services
      provided by Quintiles under the Commercialization Agreement after the
      Launch Date (including, but not limited to, services provided after the
      Launch Date related to the deployment and management of a dedicated sales
      force for the promotion of the Product), and (ii) services provided under
      the Commercialization Agreement before the Launch Date for the following
      specific activities: (x) recruitment, hiring and training for the sales
      force; (y) establishing sales force targets, territory alignments, mapping
      and sales
<PAGE>

      force optimization, and validation of practitioner's state license; and
      (z) conducting launch meetings and the national, regional and district
      meetings.

1.5   "Commission Term" means the ten (10) consecutive Annual Periods beginning
      on the Launch Date.

1.6   "FDA" shall mean the US Food and Drug Administration.

1.7   "JCC" shall mean the joint commercialization committee established under
      the Commercialization Agreement. If for any reason the Commercialization
      Agreement is terminated or the JCC is otherwise disbanded under the
      Commercialization Agreement, then Discovery and PharmaBio shall in good
      faith, as promptly as practicable, form an advisory body composed of an
      equal number of designees of Discovery and PharmaBio (the "Advisory
      Board"); provided, that Discovery shall have at least the same rights and
      authority with respect to such advisory body as it had with respect to the
      JCC (and PharmaBio shall have at least the same rights and authority with
      respect to such advisory body as Quintiles had with respect to the JCC).
      In such event, (i) the Advisory Board shall perform all of the obligations
      under this Agreement that would otherwise have been performed by the JCC,
      and all references to the JCC herein shall thereafter be deemed references
      to the Advisory Board, and (ii) PharmaBio shall appoint members to the
      Advisory Board who are at least as experienced in pharmaceutical marketing
      and sales activities as Quintiles' members of the JCC.

1.8   "Launch Date" shall mean the date upon which the Product is first shipped
      in the United States for commercial sale.

1.9   "Maximum Investment" shall mean $10,000,000 per year for each of the seven
      (7) years following the Launch Date. (All dollar references in this
      Agreement shall refer to United States Dollars).

1.10  "Minimum Sales Force Level" shall mean the sales force size for the
      Product recommended by the JCC from time to time as provided for in the
      Commercialization Agreement (provided that, for purposes of such
      calculation, the recommended sales force size will not exceed the sales
      force size that could be reasonably supported by the amount of
      Commercialization Expenses funded by PharmaBio under this Agreement). If
      the parties are not able to unanimously agree to such sales force size
      calculation, then such calculation shall be made in accordance with the
      dispute resolution process set forth in Section 11 of this Agreement.

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<PAGE>

1.11  "Net Sales" means the amount billed by Discovery or an Affiliate or any
      sublicensee, or on behalf of or for the benefit of Discovery or an
      Affiliate or any sublicensee, for sales of the Product to a third party in
      the Territory less: (i) discounts, including cash and quantity discounts,
      charge-back payments, refunds and rebates granted to managed health care
      or similar organizations or to federal, state and local governments
      (including, without limitation, Medicaid rebates), their agencies, and
      purchasers and reimbursers or to trade customers, including but not
      limited to, wholesalers and chain and pharmacy buying groups, (ii) credits
      or allowances actually granted upon claims, damaged goods, rejections or
      returns of such Product, including recalls, regardless of the party
      requesting such, (iii) freight, postage, shipping and insurance charges
      actually allowed or paid for delivery of Product, to the extent billed,
      (iv) taxes, duties or other governmental charges levied on, absorbed or
      otherwise imposed on sale of such Product, including without limitation
      value-added taxes, or other governmental charges otherwise measured by the
      billing, when included in billing, as adjusted for rebates, charge-backs
      and refunds, and (v) bad debts related to Product sales (defined as any
      bills unpaid for 120 days after due), provided that (a) any subsequent
      collection by Discovery on such bad debt shall be restored as Net Sales at
      the time of collection, and in the amount, of such collection, and (b)
      Discovery shall follow commercially reasonable practices of collecting and
      otherwise administering debt related to Product sales. Provided, however,
      in no event shall Net Sales be less than [***] of the gross sales of the
      Product in the Territory.

1.12  "Product" shall mean the product currently known as Surfaxin, as such name
      may change from time to time, for any and all formulations and delivery
      mechanisms (i) for the indications of (x) idiopathic respiratory distress
      syndrome ("IRDS") and (y) meconium aspiration syndrome ("MAS"); and (ii)
      solely for the purposes of Section 1.11, include all "off-label" uses.

1.13  "Territory" shall mean the United States (including Puerto Rico).

2.0   Commercialization Agreement.

      The Commercialization Agreement is in the form attached hereto as Exhibit
      A. All defined terms used herein but not defined in this Agreement shall
      have the meanings set forth in the Commercialization Agreement.

Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.

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<PAGE>

3.0   Investment and Commission; Related Agreements.

3.1   PharmaBio will support the commercialization of the Product as follows:

      (a)   PharmaBio shall fund one hundred percent (100%) of the
            Commercialization Expenses for the period ending on the seventh
            anniversary of the Launch Date (the "Commitment Period"), subject to
            the Maximum Investment for each such year and the other terms and
            conditions in this Agreement.

      (b)   PharmaBio shall fund the amounts payable under Section 3.1(a) by
            paying the invoices submitted by Quintiles that correspond to the
            applicable Commercialization Expenses that accrue during the
            Commitment Period, which payments shall be made by PharmaBio within
            twenty (20) days of PharmaBio's receipt of the invoice. As directed
            by Discovery, PharmaBio shall make such payment through either (i) a
            payment to Discovery, or (ii) an inter-company payment directly to
            Quintiles.

3.2   In consideration for the performance of PharmaBio of its funding
      commitments set forth in Section 3.1, Discovery shall pay PharmaBio a
      commission on Net Sales during the Commission Term. The commission
      payments payable by Discovery to PharmaBio with respect to each Annual
      Period are as follows:

           -------------------------------------------------------
           Annual Period during the              Commission on Net
                Commission Term                        Sales
           -------------------------------------------------------
                       1                               [***]
           -------------------------------------------------------
                       2                               [***]
           -------------------------------------------------------
                       3                               [***]
           -------------------------------------------------------
                       4                               [***]
           -------------------------------------------------------
                       5                               [***]
           -------------------------------------------------------
                       6                               [***]
           -------------------------------------------------------
                       7                               [***]
           -------------------------------------------------------
                       8                               [***]
           -------------------------------------------------------
                       9                               [***]
           -------------------------------------------------------
                      10                               [***]
           -------------------------------------------------------

      The commission payments under this Section 3.2 shall be paid as soon as
      reasonably practicable following the end of each calendar quarter (but not
      later than thirty (30) days following the end of each calendar quarter)
      during the ten (10) Annual Periods in the Commission Term.

Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.

                                       4
<PAGE>

3.3   The JCC shall take the following actions a reasonable time prior to the
      Launch Date: (i) prepare a marketing plan for the Product, including a
      sales forecast; (ii) agree to the Commercialization Services reasonably
      necessary to support sales of the Product in the Territory at the levels
      set forth in such sales forecast (including the optimum sales force size
      to support such sales of the Product); and (iii) agree to a related budget
      for Commercialization Expenses. On or about each anniversary of the Launch
      Date, the JCC shall update such items. The above actions will be taken by
      the JCC with due regard to the size and value of the market for the
      Product in the Territory, taking into account, among other variables, the
      clinical safety and efficacy of the Product (and related labeling claims),
      the competitive environment in which the Product is being promoted, and a
      reasonable budget for the sales and marketing activities. Notwithstanding
      anything to the contrary in this Agreement or the procedures for JCC
      decisions set forth in the Commercialization Agreement, the parties agree
      to the following:

      (a)   Discovery shall have the final decision on the marketing plan for
            the Product and the activities (including the Commercialization
            Services) necessary to implement such marketing plan.

      (b)   Notwithstanding anything to the contrary in this Agreement,
            PharmaBio shall have the final decision on the amount of
            Commercialization Expenses that will be funded by PharmaBio under
            Section 3.1 of this Agreement, provided that PharmaBio shall not act
            unreasonably or in bad faith in determining such amount. For
            purposes of the preceding sentence, PharmaBio shall be deemed to
            have acted unreasonably or in bad faith if PharmaBio sets the amount
            of Commercialization Expenses that PharmaBio is willing to fund
            under Section 3.1 at a level that cannot reasonably be justified in
            light of the size and value of the market for the Product.
            Notwithstanding anything to the contrary in this Agreement,
            PharmaBio cannot be deemed to have acted unreasonably or in bad
            faith for purposes of this Section 3.3(b) by failing to fund
            Commercialization Expenses in excess of the Maximum Investment.
            Further, PharmaBio shall not be deemed to have acted unreasonably or
            in bad faith for purposes of this Section 3.3(b) by failing to fund
            Commercialization Expenses (or suspending such funding) upon certain
            events impacting the marketing of the Product that are not within
            PharmaBio's control, which is defined as: (i) a material breach by
            Discovery of any obligation or representation or warranty under this
            Agreement; (ii) withdrawal of Product caused by actual or threatened
            regulatory action by the FDA or other governmental entity, safety
            concerns relating to Product, the loss of Discovery's license rights
            or other rights to Product, or similar cause; (iii) significant
            unforeseen new information regarding the safety or efficacy of
            Product which has a material adverse effect on the sales of Product;
            or (iv) other material factors adversely impacting Net Sales of the
            Product that were not reasonably foreseeable by, or within the
            control of, PharmaBio as of the date hereof. If PharmaBio shall
            decide not to fund some amount of the Commercialization Expenses,
            then (i) Discovery shall be entitled to fund such amounts

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<PAGE>

            directly, and (ii) subject to prior termination as provided for in
            Section 7.0, PharmaBio's right to receive the commission payments
            set forth in Section 3.2 shall not be reduced.

3.4   Discovery shall use commercially reasonable efforts to commercialize the
      Product in the Territory. In this regard, Discovery will provide a sales
      force of a size not less the Minimum Sales Force Level during the
      Commitment Period. If, at any time during such period, Discovery reduces
      the Product sales force below the Minimum Sales Force Level for a period
      of more than [***], then Discovery and PharmaBio will negotiate in good
      faith to restructure PharmaBio's commitments under Section 3.1 and the
      corresponding commission amounts under Section 3.2 , which negotiations
      will take into account the implications of the reduced sales force size on
      future sales of the Product. If the parties are unable to agree to such
      restructuring within thirty (30) days after PharmaBio gives written notice
      to Discovery of its intent to pursue a remedy under this Section 3.4 for
      Discovery's failure to maintain the Minimum Sales Force Level, then
      PharmaBio may, at its sole discretion by written notice to Discovery,
      elect to suspend the following: (i) all future funding obligations under
      Section 3.1; and (ii) the running of the Commission Term (including,
      without limitation, the then-current Annual Period). During the suspension
      period, PharmaBio shall continue to receive royalties at the rate equal to
      the commission amount applicable immediately prior to the effective date
      of the suspension period. If PharmaBio elects this remedy, the then
      operating Annual Period for commission payments under Section 3.2, and the
      funding commitments under Section 3.1, shall be suspended until the
      Minimum Sales Force Level is satisfied. Such Annual Period, and the
      funding commitments under Section 3.1, shall restart when the Minimum
      Sales Force Level is satisfied, at the same time point such Annual Period
      was suspended, such that PharmaBio enjoys the full length of the ten (10)
      Annual Periods described in Section 3.2 with the benefit of the Minimum
      Sales Force Level for seven (7) full twelve-month periods, and the term
      "Commission Term" shall, for all purposes under this Agreement, be
      extended accordingly. PharmaBio's remedies under this Section 3.4 shall
      not apply for any period that Quintiles fails to satisfy its sales force
      staffing obligations under the Commercialization Agreement.
      Notwithstanding anything herein to the contrary, PharmaBio's rights under
      this Section 3.4 shall be expressly subject to the provisions of Section
      3.5.

3.5   In the event that Discovery terminates the Commercialization Agreement
      under Section 12.3 thereof, then:

      (a)   Discovery shall use commercially reasonable efforts in good faith to
            identify, retain and train a new sales force (the "New Sales Force")
            as soon as practicable to perform substantially similar functions as
            were to have been provided by Quintiles under the Commercialization
            Agreement;

Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.

                                       6
<PAGE>

      (b)   During the period (the "Transition Period") beginning on the
            effective date of Discovery's termination of the Commercialization
            Agreement and ending on the first day of the month next following
            the date on which the New Sales Force begins detailing physicians:

            (i)   Discovery's obligation to provide the Minimum Sales Force
                  Level shall be suspended;

            (ii)  PharmaBio shall have none of the suspension or other remedial
                  rights that it would otherwise have under Section 3.4 as a
                  result of Discovery's failure to provide the Minimum Sales
                  Force Level or otherwise;

            (iii) in lieu of the commission rate set forth in Section 3.2,
                  Discovery's commission obligation to PharmaBio hereunder shall
                  equal the product of (A) the commission rate set forth in
                  Section 3.2 multiplied by (B) the percentage that Net Sales is
                  during the Transition Period of projected Net Sales for the
                  Transition Period (based on the JCC's most recent Net Sales
                  forecast, prorated, to the extent necessary, on a reasonable,
                  good faith basis); and

            (iv)  the Commission Term shall continue to run during the
                  Transition Period such that it will continue to expire on the
                  tenth (10th) anniversary of the Funding Date.

      (c)   PharmaBio's funding commitments under Section 3.1 shall continue in
            full force and effect, and all references hereunder to Quintiles
            shall be deemed to refer to the New Sales Force (and all references
            to (i) the Commercialization Agreement hereunder shall be deemed to
            refer to the agreement, if any, pursuant to which Discovery retains
            the New Sales Force and (ii) Quintiles hereunder shall be deemed to
            refer to the New Sales Force or the contract provider of the New
            Sales Force, as applicable).

3.6   As of the date hereof, the parties have entered into a Common Stock and
      Warrant Purchase Agreement. The representations and warranties set forth
      in Article IV of the Stock Purchase Agreement with respect to Discovery
      (excluding Sections 4.02, 4.14 through 4.18 and 4.20, and after modifying
      Section 4.04 so that "Transaction Documents" shall mean this Agreement)
      and in Article V with respect to PharmaBio (excluding Section 5.03 through
      5.06 and after modifying Section 5.02 so that "Transaction Documents"
      shall mean this Agreement) are incorporated in this Agreement by reference
      and form part of the consideration given to each party in exchange for the
      other party's commitments set forth herein. Discovery agrees to continue
      to exercise diligent efforts to submit the NDA (as defined in the
      Commercialization Agreement) for the Product to the FDA and to reasonably
      diligently seek FDA approval for the Product. Upon the approval of either
      the MAS or the IRDS indication, Discovery shall continue to use
      commercially reasonable

                                       7
<PAGE>

      efforts to submit the NDA for the other indication to the FDA and to seek
      FDA approval of such.

3.7   Each Party shall keep or cause to be kept such records as are required to
      determine, in a manner consistent with generally accepted accounting
      principles in the United States, the sums or credits due under this
      Agreement. Upon the written request of either party, the other party shall
      permit an independent certified public accountant appointed by such party
      and reasonably acceptable to the other party, accompanied by
      representatives of the financial department of such party at reasonable
      times and upon reasonable notice, to audit only those records as may be
      necessary to determine the correctness or completeness of any report or
      payment made under this Agreement. Results of any such audit shall be (i)
      limited to information relating to the Product, (ii) made available to
      both parties and (iii) subject to the confidentiality protections set
      forth herein. The party requesting the audit shall bear the full cost of
      the performance of any such audit, unless such audit discloses a variance
      of more than five percent (5%) from the amount of the original report,
      royalty or payment calculation. In such case, the party being audited
      shall bear the full cost of the performance of such audit.

3.8   Without the prior approval of PharmaBio, Discovery shall not, nor shall it
      allow any Affiliate or third party acting on behalf of or for the benefit
      of Discovery or any Affiliate to, commercialize a product that would
      reasonably be expected to compete with the Product in the Territory during
      the Commission Term.

3.9   The parties acknowledge and agree that (i) Discovery may pursue additional
      formulations and/or delivery technologies for the Product, which may
      result in pre-launch and launch promotional activities for the additional
      formulations and/or delivery technologies, (ii) such pre-launch and launch
      promotional activities are within the scope of the Commercialization
      Agreement, and (iii) the expenses associated with such pre-launch and
      launch promotional activities will be considered "Commercialization
      Expenses" for purposes of this Agreement and shall be subject to
      PharmaBio's funding obligations hereunder in accordance with the terms and
      limitations set forth herein.

3.10  PharmaBio shall make milestone payments to Discovery pursuant to the terms
      set forth in this Section 3.10. The "First Milestone" (herein so called)
      shall be paid on the earlier to occur of the receipt of FDA approval ("FDA
      Approval") to commercialize (x) the MAS Indication or (y) the IRDS
      Indication. The amount of the First Milestone shall be seventy percent
      (70%) of the outstanding principal (as of the controlling FDA Approval)
      under the Loan Agreement (herein so called), dated as of the date hereof,
      between PharmaBio and Discovery. The "Second Milestone" (herein so called)
      shall be paid on the earlier to occur of (x) the completion by Quintiles
      or an appropriate Affiliate of a written assessment and report in
      customary form indicating the "approvability" by the FDA of Discovery's
      NDA for the Product for the indication that was not approved as a
      condition for the First Milestone, which shall include without limitation
      an assessment and report as to the quality of the documentation comprising
      such NDA and the clinical data included in such NDA, or

                                       8
<PAGE>

      (y) the issuance by the FDA of a letter in customary form indicating that
      Discovery's NDA for the Product for such indication is "approvable." The
      amount of the Second Milestone payment shall be the remaining principal
      amounts outstanding under the Loan Agreement. PharmaBio shall have the
      right to apply the First Milestone and Second Milestone payments against
      any amounts then outstanding under the Loan Agreement.

4.0   Confidentiality and Ownership of Information.

4.1   Discovery on the one part and PharmaBio on the other part each
      acknowledges that, in the course of performing its obligations hereunder,
      it may receive information from the other party which is proprietary to
      the disclosing party and which the disclosing party wishes to protect from
      public disclosure ("Confidential Information"). Each receiving party
      agrees to retain in confidence, during the Commission Term, and thereafter
      for a period of seven (7) years, all Confidential Information disclosed to
      it by or on behalf of the other party, and that it will not, without the
      written consent of such other party, use Confidential Information for any
      purpose other than the purposes indicated herein. These restrictions shall
      not apply to Confidential Information which: (i) is or becomes public
      knowledge (through no fault of the receiving party); (ii) is made lawfully
      available to the receiving party by an independent third party that, to
      the knowledge of the receiving party, is under no duty of confidentiality
      to the disclosing party; (iii) is already in the receiving party's
      possession at the time of receipt from the disclosing party (and such
      prior possession can be demonstrated by competent evidence by the
      receiving party); (iv) is independently developed by the receiving party
      and/or Affiliates (and such independent development can be demonstrated by
      competent evidence by the receiving party); or (v) is required by law,
      regulation, rule, act or order of any governmental authority or agency to
      be disclosed by the receiving party, provided, however, if reasonably
      possible, such receiving party gives the disclosing party sufficient
      advance written notice to permit it to seek a protective order or other
      similar order with respect to such Confidential Information and,
      thereafter, the receiving party discloses only the minimum Confidential
      Information required to be disclosed in order to comply.

4.2   PharmaBio on the one hand and Discovery on the other hand shall limit
      disclosure of the other party's Confidential Information to only those of
      their respective officers, representatives, agents and employees
      (collectively "Agents") who are directly concerned with the performance of
      this Agreement and have a legitimate need to know such Confidential
      Information in the performance of their duties.

4.3   All Discovery inventions, processes, know-how, patents, trade secrets,
      copyrights, trade names, trademarks, service marks, marketing materials,
      proprietary materials or other intellectual property of any kind, and all
      improvements to any of the foregoing (collectively, "Discovery Property"),
      disclosed, used, improved, modified or developed in connection with the
      relationship contemplated by this Agreement shall remain the sole and
      exclusive property of Discovery. PharmaBio shall not have any right, title
      or interest in or to any Discovery Property.

                                       9
<PAGE>

4.4   Discovery acknowledges that PharmaBio (and its Affiliates) possess certain
      inventions, processes, know-how, trade secrets, improvements, other
      intellectual properties and other assets, including but not limited to
      analytical methods, procedures and techniques, computer technical
      expertise and software, and business practices, including, but not limited
      to the Innovex Territory Management System (ITMS), which have been
      independently developed by PharmaBio and/or its Affiliates (collectively
      "Quintiles Property"). Any Quintiles Property or improvements thereto
      which are disclosed, used, improved, modified or developed by Quintiles
      under or during the term of this Agreement shall remain the sole and
      exclusive property of PharmaBio or the respective Affiliates.

5.0   Independent Contractor Relationship.

      For the purposes of this Agreement, Discovery and PharmaBio are
      independent contractors and nothing contained in this Agreement shall be
      construed to place them in the relationship of partners, principal and
      agent, employer and employee or joint venturers. Neither Discovery nor
      PharmaBio shall have the power or right to bind or obligate the other
      party, nor shall either party hold itself out as having such authority.

6.0   Termination.

      Either party may terminate this Agreement for material breach upon thirty
      (30) days written notice specifying the nature of the breach, if such
      breach (i) has not been substantially cured within the thirty (30) day
      period or (ii) is not curable within such 30-day period and the breaching
      party has not commenced and diligently continued during such 30-day period
      reasonable actions to cure such breach. During the 30-day cure period for
      termination due to breach, each party will continue to perform its
      obligations under this Agreement. Either party may terminate this
      Agreement immediately upon provision of written notice if the other party
      becomes insolvent or files for bankruptcy or is not otherwise able to pay
      its obligations as they become due and payable.

7.0   Indemnification and Liability Limits.

7.1   PharmaBio shall indemnify, defend and hold harmless Discovery, its
      Affiliates and its and their respective directors, officers, employees and
      agents from and against any and all losses, claims, actions, damages,
      liabilities, penalties, costs and expenses (including reasonable
      attorneys' fees and court costs) (collectively, "Losses"), resulting from
      any: (i) material breach by PharmaBio (or its employees) of its
      obligations hereunder; (ii) willful misconduct or grossly negligent acts
      or omissions of PharmaBio or its employees; and (iii) material violation
      by PharmaBio or its employees of any municipal, county, state or federal
      laws, rules or regulations applicable to the performance of PharmaBio's
      obligations under this Agreement; except, in each case, to the extent such
      Losses are determined to have resulted from the gross negligence or
      willful misconduct of Discovery or its employees.

7.2   Discovery shall indemnify, defend and hold harmless PharmaBio and its
      Affiliates and their respective directors, officers, employees and agents
      from and against any and all

                                       10
<PAGE>

      Losses resulting from: (i) any third party claim arising from the
      manufacture, storage, packaging, production, transportation, distribution,
      use, sale or other disposition of the Product; (ii) material breach by
      Discovery (or its employees) of its obligations hereunder; (iii) willful
      misconduct or grossly negligent acts or omissions of Discovery or its
      employees; and (iv) material violation by Discovery or its employees of
      any municipal, county, state or federal laws, rules or regulations
      applicable to the performance of Discovery's obligations under this
      Agreement, except, in each case, to the extent such Losses are determined
      to have resulted from the gross negligence or willful misconduct of
      PharmaBio or any of its employees.

7.3   In the event of a third party claim or lawsuit, the party seeking
      indemnification hereunder (the "Indemnified Party") shall give the party
      obligated to indemnify (the "Indemnifying Party") prompt written notice of
      any claim or lawsuit (including a copy thereof), provided that the failure
      of an Indemnified Party to notify the Indemnifying Party on a timely basis
      will not relieve the Indemnifying Party of any liability that it may have
      to the Indemnified Party unless the Indemnifying Party demonstrates that
      the defense of such action is materially prejudiced by the Indemnified
      Party's failure to give such notice. The Indemnified Party and its
      employees shall fully cooperate with Indemnifying Party and its legal
      representatives in the investigation and defense of any matter the subject
      of indemnification, which defense shall be managed by the Indemnifying
      Party in a manner, including the selection of legal counsel, reasonably
      acceptable to the Indemnified Party. The Indemnified Party shall not
      unreasonably withhold its approval of the settlement of any such claim,
      liability, or action by Indemnifying Party covered by this indemnification
      provision; provided that such settlement does not include an admission or
      acknowledgement of liability or fault of the Indemnified Party.

7.4   Neither PharmaBio nor Discovery, nor any of such party's Affiliates,
      directors, officers, employees, subcontractors or agents shall have, under
      any legal theory (including, but not limited to, contract, negligence and
      tort liability), any liability to any other party hereto for any loss of
      opportunity or goodwill, or any type of special, incidental, indirect or
      consequential damage or loss, in connection with or arising out of this
      Agreement. For the avoidance of doubt, a claim by PharmaBio for
      commissions on Net Sales payable by Discovery hereunder or a claim by
      Discovery for payments pursuant to Section 3.1 shall not be limited in any
      way pursuant to the provisions set forth in the preceding sentence.

8.0   Notices.

      Any notice required to be given by either party shall be in writing. All
      notices shall be to the parties and addresses listed below, and shall be
      deemed sufficiently given (i) when received, if delivered personally or
      sent by facsimile transmission with confirmed receipt, or (ii) one
      business day after the date mailed or sent by an internationally
      recognized overnight delivery service with charges prepaid.

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<PAGE>

      If to PharmaBio:  PharmaBio Development, Inc.
                        4709 Creekstone Drive
                        Durham, NC 27703
                        Attention: President
                        Fax: 919-998-2090

      With a copy to:   General Counsel
                        PharmaBio Development, Inc.
                        4709 Creekstone Drive
                        Durham, NC 27703
                        Fax: 919-998-2090

      If to Discovery:  Discovery Laboratories, Inc.
                        350 South Main Street, Suite 307
                        Doylestown, PA 18901
                        Attention: Robert J. Capetola, Ph.D., President and CEO
                        Fax: 215-340-3940

      With a copy to:   Roberts, Sheridan & Kotel
                        The New York Practice of
                        Dickstein Shapiro's Corporate & Finance Group
                        1177 Avenue of the Americas
                        New York, NY 10036-2714
                        Attn: Ira L. Kotel
                        Facsimile: (212) 835-1400

9.0   Assignment.

      No party may assign any of its rights or obligations under this Agreement
      to any third party without the written consent of the other party, except
      that Discovery may assign its rights or obligations under this Agreement
      to a bona fide third party that (i) acquires all of Discovery's business
      (a "Permitted Sale") provided that such party assumes all of Discovery's
      rights and obligations under this Agreement. Other than pursuant to a
      Permitted Sale, Discovery may not, without the written approval of
      PharmaBio, assign any of its rights in the Product in the Territory to a
      third party. PharmaBio may at any time assign or transfer any of its
      rights or obligations under this Agreement to an Affiliate so long as such
      Affiliate agrees in an enforceable written instrument to be bound by all
      the terms and conditions of this Agreement as if it were PharmaBio and a
      party thereto, which instrument shall be delivered a reasonably
      practicable time prior to such assignment. Nothing in this Section 9.0
      shall preclude the transfer of a party's rights and obligations under this
      Agreement in conjunction with a merger in which such party is not the
      surviving entity.

10.0  General Provisions.

10.1  This Agreement shall be construed, governed, interpreted, and applied in
      accordance with the laws of the State of Delaware, without giving effect
      to the principles of conflict of laws.

                                       12
<PAGE>

10.2  The provisions of Articles 1 (except for Section 1.7), 2, 45, 7, 8, 10 and
      11 shall survive the termination of this Agreement for any reason.

10.3  This Agreement contains the entire understandings of the parties with
      respect to the subject matter herein and cancels all previous agreements
      (oral and written), negotiations and discussions dealing with the same
      subject matter. The parties, from time to time during the term of this
      Agreement, may modify any of the provisions hereof only by an instrument
      in writing duly executed by the parties.

10.4  No failure or delay on the part of a party in either exercising or
      enforcing any right under this Agreement will operate as a waiver of, or
      impair, any such right. No single or partial exercise or enforcement of
      any such right will preclude any other or further exercise or enforcement
      thereof or the exercise or enforcement of any other right. No waiver of
      any such right will have effect unless given in a signed writing. No
      waiver of any such right will be deemed a waiver of any other right.

10.5  If any part or parts of this Agreement are held to be illegal, void or
      ineffective, the remaining portions of this Agreement shall remain in full
      force and effect. If any of the terms or provisions are in conflict with
      any applicable statute or rule of law, then such term(s) or provision(s)
      shall be deemed inoperative to the extent that they may conflict
      therewith, and shall be deemed to be modified or conformed with such
      statute or rule of law. In the event of any ambiguity respecting any term
      or terms hereof, the parties agree to construe and interpret such
      ambiguity in good faith in such a way as is appropriate to ensure its
      enforceability and viability.

10.6  The headings contained in this Agreement are used only as a matter of
      convenience, and in no way define, limit, construe or describe the scope
      or intent of any section of this Agreement.

10.7  The individuals signing below are authorized and empowered to bind the
      parties to the terms of this Agreement.

10.8  Whenever provision is made in this Agreement for either Party to secure
      the consent or approval of the other, that consent or approval shall not
      unreasonably be withheld or delayed, and whenever in this Agreement
      provisions are made for one Party to object to or disapprove a matter,
      such objection or disapproval shall not unreasonably be exercised. For the
      avoidance of doubt, PharmaBio's funding decisions under Section 3.3(b)
      shall not be deemed a "consent or approval" for purposes of this Section
      10.8.

11.0  Dispute Resolution:

11.1  Governing Law. This Agreement, including, without limitation, the
      interpretation, performance, enforcement, breach or termination thereof
      and any remedies relating thereto, shall be governed by and construed in
      accordance with the laws of the State

                                       13
<PAGE>

      of Delaware, United States of America, as applied to agreements executed
      and performed entirely in the State of Delaware, without regard to
      conflicts of law rules.

11.2  Internal Review. In the event that a dispute, difference, claim, action,
      demand, request, investigation, controversy, threat, discovery request or
      request for testimony or information or other question arises pertaining
      to any matters which arise under, out of, in connection with, or in
      relation to this Agreement (a "Dispute") and either party so requests in
      writing, prior to the initiation of any formal legal action, the Dispute
      will be submitted to the JCC, which will use its good faith efforts to
      resolve the Dispute within ten (10) days. If the JCC is unable to resolve
      the Dispute in such period, the JCC will refer the Dispute to the Chief
      Executive Officers of Discovery and Quintiles Corp. For all Disputes
      referred to the Chief Executive Officers, the Chief Executive Officers
      shall use their good faith efforts to meet at least two times in person
      and to resolve the Dispute within ten (10) days after such referral.

11.3  Arbitration.

      (a)   If the parties are unable to resolve any Dispute under Section 11.2,
            then either party may require the matter to be settled by final and
            binding arbitration by sending written notice of such election to
            the other party clearly marked "Arbitration Demand". Thereupon such
            Dispute shall be arbitrated in accordance with the terms and
            conditions of this Section 11.3 Notwithstanding the foregoing,
            either party may apply to a court of competent jurisdiction for a
            temporary restraining order, a preliminary injunction, or other
            equitable relief to preserve the status quo or prevent irreparable
            harm.

      (b)   The arbitration panel will be composed of three arbitrators, one of
            whom will be chosen by Discovery, one by Quintiles, and the third by
            the two so chosen. If both or either of Discovery or Quintiles fails
            to choose an arbitrator or arbitrators within 14 days after
            receiving notice of commencement of arbitration, or if the two
            arbitrators fail to choose a third arbitrator within 14 days after
            their appointment, the American Arbitration Association shall, upon
            the request of both or either of the parties to the arbitration,
            appoint the arbitrator or arbitrators required to complete the
            panel. The arbitrators shall have reasonable experience in the
            matter under dispute. The decision of the arbitrators shall be final
            and binding on the parties, and specific performance giving effect
            to the decision of the arbitrators may be ordered by any court of
            competent jurisdiction.

      (c)   Nothing contained herein shall operate to prevent either party from
            asserting counterclaim(s) in any arbitration commenced in accordance
            with this agreement, and any such party need not comply with the
            procedural provisions of this Section 11.3 in order to assert such
            counterclaim(s).

                                       14
<PAGE>

      (d)   The arbitration shall be filed with the office of the American
            Arbitration Association ("AAA") located in Wilmington, Delaware or
            such other AAA office as the parties may agree upon (without any
            obligation to so agree). The arbitration shall be conducted pursuant
            to the Commercial Arbitration Rules of AAA as in effect at the time
            of the arbitration hearing, such arbitration to be completed in a
            sixty (60) day period. In addition, the following rules and
            procedures shall apply to the arbitration:

      (e)   The arbitrators shall have the sole authority to decide whether or
            not any Dispute between the parties is arbitrable and whether the
            party presenting the issues to be arbitrated has satisfied the
            conditions precedent to such party's right to commence arbitration
            as required by this Section 11.3.

      (f)   The decision of the arbitrators, which shall be in writing and state
            the findings the facts and conclusions of law upon which the
            decision is based, shall be final and binding upon the parties, who
            shall forthwith comply after receipt thereof. Judgment upon the
            award rendered by the arbitrator may be entered by any competent
            court. Each party submits itself to the jurisdiction of any such
            court, but only for the entry and enforcement to judgment with
            respect to the decision of the arbitrators hereunder.

      (g)   The arbitrators shall have the power to grant all legal and
            equitable remedies (including, without limitation, specific
            performance) and award compensatory damages provided by applicable
            law, but shall not have the power or authority to award punitive
            damages. No party shall seek punitive damages in relation to any
            matter under, arising out of, or in connection with or relating to
            this Agreement in any other forum.

      (h)   The parties shall bear their own costs in preparing for and
            participating in the resolution of any Dispute pursuant to this
            Section 11.3, and the costs of the arbitrator(s) shall be equally
            divided between the parties; provided, however, that each party
            shall bear the costs incurred in connection with any Dispute brought
            by such party that the arbitrators determine to have been brought in
            bad faith.

      (i)   Except as provided in the last sentence of Section 11.3(a), the
            provisions of this Section 11.3 shall be a complete defense to any
            suit, action or proceeding instituted in any federal, state or local
            court or before any administrative tribunal with respect to any
            Dispute arising with regard to this Agreement. Any party commencing
            a lawsuit in violation of this Section 11.3 shall pay the costs of
            the other party, including, without limitation, reasonable
            attorney's fees and defense costs.

                                       15
<PAGE>

11.4  Costs. The parties shall bear their own costs in preparing for and
      participating in the resolution of any Dispute, and the costs of
      mediator(s) and arbitrator(s) shall be equally divided between the
      parties.

                                       16
<PAGE>

IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
through their duly authorized officers on the date(s) set forth below.

PHARMABIO DEVELOPMENT, INC.             DISCOVERY LABORATORIES, INC.

By:     /s/ Thomas C. Perkins           By      /s/ David L. Lopez
       -------------------------------         ---------------------------------

Name:   Thomas C. Perkins               Name:   David L. Lopez
       -------------------------------         ---------------------------------

Title:  Vice President and General      Title:  Vice President and
        Counsel                                 General Counsel
       -------------------------------         ---------------------------------

                                       17EXHIBIT 10.3

                   COMMON STOCK AND WARRANT PURCHASE AGREEMENT

      THIS COMMON STOCK AND WARRANT PURCHASE AGREEMENT (this "Agreement") is
dated and entered into as of December 10, 2001, by and between DISCOVERY
LABORATORIES, INC., a Delaware corporation (the "Company"), and PHARMABIO
DEVELOPMENT INC., a North Carolina corporation ("Purchaser").

      WHEREAS, the Company and Purchaser have entered into an Investment and
Commission Agreement and a Loan Agreement, both dated as of the date hereof, and
the Company and Quintiles Transnational Corp., an Affiliate of the Purchaser,
have entered into a Commercialization Agreement also dated as of the date hereof
(together with this Agreement, and the Warrants, collectively, the "Transaction
Agreements"); and

      WHEREAS, in connection with the foregoing, Purchaser desires to acquire
and the Company is willing to issue and sell to Purchaser: shares of common
stock, $.001 par value per share, of the Company (the "Common Stock"); and
warrants to purchase shares of Common Stock as described herein, subject to the
terms and conditions specified herein;

      NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties, the parties agree
as follows:

                                    ARTICLE I
                                   DEFINITIONS

      1.01 Definitions. For purposes of this Agreement, in addition to the terms
defined elsewhere herein, the following terms shall have the meanings set forth
below:

      "Affiliate" shall mean, as to any person or entity, any corporation or
business entity controlled by, controlling, or under common control with such
party or entity. For this purpose, "control" shall mean direct or indirect
beneficial ownership of at least fifty percent (50%) of the voting stock or
income interest in such corporation or other business entity.

      "beneficial ownership" or "beneficially own" shall have the meaning given
under Rule 13d-3 promulgated under the Exchange Act.

      "Business Day" shall mean any day other than a Saturday, Sunday or legal
holiday on which banks in North Carolina and New York are open for the conduct
of their banking business.

<PAGE>

      "Closing" shall have the meaning specified in Section 2.02(a) herein.

      "Closing Date" shall have the meaning specified in Section 2.02(a) herein

      "Event of Default" shall have the meaning given such term in the Loan
Agreement.

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

      "FFDCA" shall mean the United States Federal Food, Drug and Cosmetic Act,
as amended from time to time, and all regulations promulgated thereunder.

      "Five-Day Average Trading Price" of the Common Stock on any date shall
mean the average of the closing sales prices quoted on the Nasdaq SmallCap
Market for the five (5) trading days prior to such date.

      "knowledge" shall mean, when used with respect to the Company, the
knowledge of the executive officers and directors of the Company.

      "Loan Agreement" shall mean the Loan Agreement dated as of the date hereof
between the Company and Purchaser, as amended, modified or supplemented from
time to time.

      "Registrable Securities" shall mean (i) the Shares, (ii) the Warrant
Shares, and (iii) any Common Stock issued as a dividend or other distribution
with respect to, or in exchange for or in replacement of, such above-described
securities; provided however, that "Registrable Securities" shall not include
any securities sold by a person either pursuant to a registration statement or
Rule 144.

      "Rule 144" shall mean Rule 144 as promulgated by the SEC under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that may be promulgated by the SEC.

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

      "SEC" shall mean the Securities and Exchange Commission.

      "Shares" shall mean all shares of Common Stock of the Company issued at
the Closing.

      "Thirty-Day Average Trading Price" of the Common Stock on any date shall
mean the average of the closing sales prices quoted on the Nasdaq SmallCap
Market for the thirty (30) trading days prior to such date.

      "Warrants" shall mean the Class G and Class H Warrants described in
Section 2.01.

                                      -2-
<PAGE>

      "Warrant Shares" shall mean the shares issuable by the Company upon the
exercise of the Warrants.

                                   ARTICLE II
                         PURCHASE AND SALE OF THE SHARES

      2.01 Issuance of the Shares and Warrants.

            (a) Shares and Class G Warrant. Subject to the terms and conditions
of this Agreement, at the Closing, the Company agrees to issue and sell to
Purchaser, and Purchaser agrees to purchase from the Company for an aggregate
purchase price of $3,000,000:

                  (1) a number of shares of Common Stock equal to $3,000,000
divided by the higher of (x) 125% of the Thirty-Day Average Trading Price, and
(y) the Five-Day Average Trading Price, with any fractional share amount rounded
to the nearest whole share and with 0.5 shares or more rounded up; and

                  (2) a warrant to purchase 357,143 shares of Common Stock with
an initial exercise price equal to the higher of (x) 115% of the Thirty-Day
Average Trading Price, and (y) the Five-Day Average Trading Price, in form and
substance satisfactory to the parties (the "Class G Warrant").

            (b) Class H Warrant. Subject to the terms and conditions of this
Agreement, at the Closing, the Company agrees to issue to Purchaser a warrant to
purchase 320,000 shares of Common Stock with an initial exercise price equal to
the higher of (x) the Thirty-Day Average Trading Price, and (y) the Five-Day
Average Trading Price and a vesting schedule and otherwise in form and substance
satisfactory to the parties (the "Class H Warrant").

      2.02 Closing; Delivery of the Shares.

            (a) Closing.

                  (i) The purchase and sale of the Shares and Warrants shall
take place at a closing (the "Closing") to be held at the offices of Smith,
Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P., 2500 First Union Capitol
Center, Raleigh, NC 27601 at 10:00 a.m. Eastern Time on the date of this
Agreement, or at such other location, time and date as may be mutually agreed
upon by the parties (the "Closing Date"). The Closing shall take place
contemporaneously with the execution and delivery of this Agreement and the
other Transaction Agreements by the parties thereto.

                  (ii) At the Closing, subject to the terms and conditions
contained in this Agreement, in payment of the full purchase price for the
Shares and the Warrants, Purchaser shall provide a wire transfer of immediately
available funds to the Company in an amount equal to Three Million Dollars
($3,000,000) using the following wire transfer instructions:

                                      -3-
<PAGE>

                     Bank Name:        First Union National Bank
                                       Roanoke, Virginia (USA)
                     ABA No.:          051400549
                     Beneficiary:      First Clearing Corporation
                     Account No.:
                     To further credit Discovery Laboratories, Inc., Account No.

            (b) Delivery of Shares and Warrants. At the Closing, the Company
shall deliver the Class G Warrant and the Class H Warrant, and as soon as
reasonably practicable after the Closing the Company shall deliver a stock
certificate evidencing the Shares, all issued in the name of Purchaser and dated
as of the Closing Date.

                                   ARTICLE III
                              CONDITIONS TO CLOSING

      3.01 Conditions to Purchaser's Obligations at Closing. The obligation of
Purchaser to purchase and pay for the Shares and the Warrants at the Closing is
subject to each of the following conditions precedent:

            (a) Opinion of Counsel. Dickstein Shapiro Morin & Oshinsky, LLP,
counsel to the Company, shall have delivered its legal opinion to Purchaser, in
the form acceptable to the parties regarding this Agreement and the transactions
contemplated hereby;

            (b) Board Resolutions. Purchaser shall have received at the Closing
copies of the resolutions of the Board of Directors of the Company authorizing
the execution and delivery of this Agreement and the performance by the Company
of all transactions contemplated hereby, certified by an appropriate officer of
the Company;

            (c) Officer's Certificate. Purchaser shall have received at the
Closing, a certificate, executed by the appropriate officer of the Company and
dated as of the Closing Date, together with and certifying (i) the names of the
officers of the Company authorized to sign this Agreement together with the true
signatures of such officers; (ii) a copy of the certificate of incorporation of
the Company, as amended and in effect as of the Closing Date; (iii) a copy of
the bylaws of the Company, as amended and in effect as of the Closing Date; (iv)
that the representations and warranties contained in Article IV hereof are true
and correct as of the Closing Date; and (v) the Company has complied with all
the agreements and satisfied all the conditions herein on its part to be
performed or satisfied on or prior to the Closing Date;

            (d) Transaction Agreements. Purchaser shall have received at the
Closing the Transaction Agreements, duly executed by an authorized officer of
the Company; and

            (e) Instruction Letter. The Company shall have transmitted an
instruction letter to its stock transfer agent directing it to issue to
Purchaser the stock certificate for the Shares, and Purchaser shall have
received a copy of such letter.

                                      -4-
<PAGE>

      3.02 Conditions to Company's Obligations at Closing. The obligation of the
Company to issue and sell the Shares and Warrants at the Closing is subject to
each of the following additional conditions precedent:

            (a) Transaction Agreements. The Company shall have received at the
Closing the Transaction Agreements, duly executed by an authorized officer of
Purchaser or its Affiliates, as the case may be.

            (b) Payment. Purchaser shall have delivered Three Million Dollars
($3,000,000) in immediately available funds to Company's specified account in
accordance with Section 2.02(a)(ii).

                                   ARTICLE IV
                    REPRESENTATIONS AND WARRANTIES OF COMPANY

      The Company represents and warrants to Purchaser as follows:

      4.01 Corporate Status. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and the Company is qualified to do business as a foreign corporation in each
jurisdiction in which qualification is required, except where failure to so
qualify would not have a Material Adverse Effect (as defined herein). Except for
Acute Therapeutics, Inc., a wholly owned subsidiary of the Company that is
presently inactive, the Company does not own or control, directly or indirectly,
any interest in any other corporation, partnership, limited liability company,
association, or other business entity. The Company is not a participant in any
joint venture, partnership, or similar arrangement. The Company has all
requisite corporate power and authority to carry on its business as now
conducted.

      4.02 Authorized Capital Stock.

            (a) As of the Closing Date, 24,753,138 shares of Common Stock and no
shares of the Company's preferred stock, par value $.001 per share ("Preferred
Stock"), were issued and outstanding. All of the outstanding shares of the
Company's capital stock are duly authorized, validly issued, fully paid and
nonassessable.

            (b) Except as set forth on Schedule 4.02(b), there are no
outstanding subscriptions, options, warrants, rights, calls, contracts, demands,
commitments, conversion rights or other agreements or arrangements of any
character or nature whatever under which the Company is or may be obligated (x)
to issue or sell shares of its Common Stock or Preferred Stock, or (y) to
register shares of its Common Stock or Preferred Stock. No holder of any
security of the Company is entitled to any preemptive or similar rights to
purchase any securities of the Company.

            (c) The Company has reserved a reasonably adequate number of
authorized but unissued shares of Common Stock for issuance upon exercise of the
Warrants and such

                                      -5-
<PAGE>

shares shall remain so reserved (subject to reduction from time to time for
Common Stock issued upon the exercise of the Warrants), as long as the Warrants
are exercisable.

      4.03 Issuance, Sale and Delivery of the Securities. The Shares, the
Warrants and the Warrant Shares, when issued and paid for pursuant to the terms
of this Agreement or the exercise provisions of the Warrants, as the case may
be, will be duly and validly authorized, issued and outstanding, fully paid,
nonassessable and free and clear of all pledges, liens, encumbrances and
restrictions (other than restrictions arising under federal or state securities
or "blue sky" laws). The issuance of the Shares, the Warrants and the Warrant
Shares by the Company pursuant to this Agreement (hereinafter such securities
are sometimes collectively referred to as the "Securities") are not subject to
any preemptive or other similar rights. No further approval or authority of the
stockholders or the Board of Directors of the Company will be required for the
issuance and sale of the Securities to be sold by the Company as contemplated
herein. Assuming the accuracy of the representations and warranties of Purchaser
contained in Article V, the issuance of the Shares, the Warrants and the Warrant
Shares as contemplated by this Agreement is exempt from the registration
provisions of the Securities Act.

      4.04 Due Execution, Delivery and Performance of the Agreements. The
Company has full legal right, corporate power and authority to enter into the
Transaction Agreements and to perform the transactions contemplated under the
Transaction Agreements. The Transaction Agreements have been duly authorized,
executed and delivered by the Company. The making and performance of the
Transaction Agreements by the Company and the consummation of the transactions
contemplated therein will not violate any provision of the organizational
documents of the Company, and will not result in the creation of any lien,
charge, security interest or encumbrance upon any assets of the Company pursuant
to the terms or provisions of, or will not conflict with, result in the breach
or violation of, or constitute, either by itself or upon notice or the passage
of time or both, a default under any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which the Company
is a party or by which the Company or its properties may be bound or affected
and in each case which would have a material adverse effect on the financial
condition, properties, business or results of operations of the Company (a
"Material Adverse Effect") or any statute or any authorization, judgment,
decree, order, rule or regulation of any court or any regulatory body,
administrative agency or other governmental body, applicable to the Company or
any of its properties. No consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other governmental body, or any
other party, is required for the execution and delivery of this Agreement or the
consummation of the transactions contemplated by this Agreement. The Transaction
Agreements constitute valid and binding obligations of the Company, enforceable
in accordance with their respective terms except as such enforceability may be
limited by bankruptcy, insolvency, moratorium, reorganization or other similar
laws affecting the enforcement of creditors' rights generally and as to
limitations on the enforcement of the remedy of specific performance and other
equitable remedies.

      4.05 Financial Statements and Reports. Prior to the execution hereof, the
Company has made available to Purchaser true and complete copies of the
Company's most recently filed Form 10-KSB and the Proxy Statement filed in
connection with the Company's most recent annual meeting of stockholders and all
Forms 10-QSB and 8-K filed by the Company with the SEC after

                                      -6-
<PAGE>

January 1, 2001, in each case without exhibits thereto (the "SEC Reports"). As
of their respective filing dates, the SEC Reports were prepared in all material
respects in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC Reports. The SEC Reports, when
read as a whole, do not contain any untrue statements of a material fact and do
not omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim financial
statements of the Company included in the SEC Reports have been prepared in
accordance with United States generally accepted accounting principles applied
on a consistent basis (except as may be indicated therein or in the notes
thereto) and fairly present, in all material respects, the financial position of
the Company as at the dates thereof and the results of its operations and cash
flows for the periods then ended subject, in the case of the unaudited interim
financial statements, to normal year-end adjustments and any other adjustments
described in such financial statements. The Company has filed with the SEC on a
timely basis, or received a valid extension of such time of filing, all forms,
reports and documents required to be filed by it under the Exchange Act.

      4.06 No Defaults. Except as to defaults, violations and breaches which
individually or in the aggregate would not have a Material Adverse Effect on the
Company, the Company is not in violation or default of any provision of its
certificate of incorporation or bylaws, or other organizational documents, or in
breach of or default with respect to any provision of any agreement, judgment,
decree, order, mortgage, deed of trust, lease, franchise, license, indenture,
permit or other instrument to which it is a party or by which it or any of its
properties are bound; and there does not exist any state of fact which, with
notice or lapse of time or both, would constitute an event of default or default
on the part of the Company as defined in such documents, except such defaults
which individually or in the aggregate would not have a Material Adverse Effect
on the Company.

      4.07 Contracts. (a) The contracts and agreements of the Company described
in the SEC Reports, including without limitation the Company's licenses and
options for licenses, are in full force and effect on the date hereof; and the
Company is not, nor to the Company's knowledge is any other party, in breach of
or default under any of such contracts or agreements which would have a Material
Adverse Effect on the Company. All such contracts and agreements constitute
valid and binding obligations of the Company, enforceable in accordance with
their respective terms except as such enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and as to limitations
on the enforcement of the remedy of specific performance and other equitable
remedies.

            (b) Without limiting the generality of Section 4.07(a), the Company
makes the representations and warranties in this Section 4.07(b) regarding the
Sublicense Agreement dated October 28, 1996 (the "Sublicense") among Johnson &
Johnson and Ortho Pharmaceutical Corporation, as licensors (collectively,
"Licensor"), and Acute Therapeutics, Inc., as licensee, as follows:

                                      -7-
<PAGE>

                  (i) Company is the successor to Acute Therapeutics, Inc. under
the Sublicense.

                  (ii) The Sublicense is in full force and effect, and the
Company is not, nor to the Company's knowledge is the Licensor, in breach or
default under the Sublicense in any material respect or in any manner that would
permit a party to terminate the Sublicense. To the Company's knowledge, no event
or condition exists or has occurred which would permit a party to terminate the
Sublicense. The Sublicense is a valid and binding agreement, enforceable in
accordance with its terms.

                  (iii) To the Company's knowledge, after reasonable
investigation and inquiry, (x) the representations and warranties of the
Licensor under Section 12 of the Sublicense are true and correct and (y) the
Scripps Agreement (as defined in the Sublicense) is in full force and effect.

                  (iv) The Company has received a valid and binding extension of
the deadline for the filing of the NDA referred to in Section 6 of the
Sublicense until October 28, 2002. The Company has achieved all milestones
required to be achieved under the Sublicense by the dates required thereunder,
taking into account any valid and binding extensions obtained by the Company.

      4.08 No Actions. There are no legal or governmental actions, suits,
proceedings or investigations pending or, to the Company's knowledge, threatened
to which the Company is or may be a party or of which property owned or leased
by the Company is or may be the subject, or related to environmental or
discrimination matters, which actions, suits, proceedings or investigations,
individually or in the aggregate, might prevent or might reasonably be expected
to have a material adverse affect the transactions contemplated by this
Agreement or result in a material adverse change in the financial condition,
properties, business, or results of operations of the Company (a "Material
Adverse Change"); and no labor disturbance by the employees of the Company
exists or is imminent, to the Company's knowledge, which might reasonably be
expected to have a Material Adverse Effect. The Company is not a party to or
subject to the provisions of any material injunction, judgment, decree or order
of any court, regulatory body administrative agency or other governmental body.

      4.09 Properties. The Company has good and marketable title to all the
properties and assets reflected as owned by it in the SEC Reports, subject to no
lien, mortgage, pledge, charge or encumbrance of any kind except (i) those, if
any, reflected in such SEC Reports, or (ii) those which are not material in
amount and do not adversely affect the use made and proposed to be made of such
property by the Company. The Company holds its leased properties under valid and
binding leases. The Company owns, leases or licenses all such properties
necessary for the conduct of its business (as described in the SEC Reports).

      4.10 No Material Change. Other than the private placement of shares of
Common Stock on October 1, 2001, since September 30, 2001, (i) the Company has
not incurred any material liabilities or obligations, indirect, or contingent,
or entered into any material verbal or written agreement or other transaction
which is not in the ordinary course of business or which

                                      -8-
<PAGE>

could reasonably be expected to result in a material reduction in the future
earnings of the Company; (ii) the Company has not sustained any material loss or
interference with its business or properties from fire, flood, windstorm,
accident or other calamity not covered by insurance; (iii) the Company has not
paid or declared any dividends or other distributions with respect to its
capital stock and the Company is not in default in the payment of principal or
interest on any outstanding debt obligations; (iv) there has not been any change
in the capital stock of the Company, other than options issued pursuant to
employee equity incentive plans or purchase plans approved by the Company's
Board of Directors, or indebtedness material to the Company; and (v) except for
the operating losses and negative cash flow the Company has continued to incur,
there has not been any Material Adverse Change.

      4.11 Intellectual Property. (a) The Company owns or has obtained valid
rights to use the inventions, patent applications, patents, trademarks (both
registered and unregistered), tradenames, copyrights and trade secrets necessary
for the conduct of the Company's business (as described in the SEC Reports)
(collectively, the "Intellectual Property"); and (b) to the Company's knowledge:
(i) there are no third parties who have any ownership rights to any Intellectual
Property that is owned by, or has been licensed to, the Company for the product
indications described in the SEC Reports that would preclude the Company from
conducting its business (as described in the SEC Reports), except for the
ownership rights of the owners of the Intellectual Property licensed or optioned
by the Company; (ii) there are currently no sales of any products that would
constitute an infringement by third parties of any Intellectual Property owned,
licensed or optioned by the Company; (iii) there is no pending or threatened
action, suit, proceeding or claim by others challenging the rights of the
Company in or to any Intellectual Property owned, licensed or optioned by the
Company; (iv) there is no pending or threatened action, suit, proceeding or
claim by others challenging the validity or scope of any Intellectual Property
owned, licensed or optioned by the Company; (v) there is no pending or
threatened action, suit, proceeding or claim by others that the Company
infringes or otherwise violates any patent, trademark, copyright, trade secret
or other proprietary right of others; and (vi) the Company is not subject to any
judgment, order, writ, injunction or decree of any court or any Federal, state,
local, foreign or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any arbitrator, and the
Company has not entered into or is a party to any contract which restricts or
impairs the use of any such Intellectual Property in a manner which would have a
Material Adverse Effect on the Company.

      4.12 Compliance. The Company has been and is in compliance in all material
respects with all applicable laws, rules, regulations and orders, in respect of
the conduct of its business and the ownership of its properties, including
without limitation with respect to the FFDCA, environmental issues, and taxes
and other governmental charges.

      4.13 Taxes. The Company has filed all federal, state, local and foreign
income and other tax returns required to be filed by it and has paid or accrued
all taxes shown as due thereon, and the Company has no knowledge of a tax
deficiency which has been or might be asserted or threatened against it.

      4.14 Transfer Taxes. On the Closing Date, all stock transfer or other
taxes (other than income taxes) which are required to be paid in connection with
the sale and transfer of the Shares

                                      -9-
<PAGE>

to be sold to the Purchaser hereunder will be, or will have been, fully paid or
provided for by the Company and all laws imposing such taxes will be or will
have been fully complied with.

      4.15 Registration and Listing of Stock. The Company's Common Stock is
registered pursuant to Section 12(g) of the Exchange Act and is listed on the
Nasdaq SmallCap Market, and the Company has taken no action designed to, or
likely to have the effect of, terminating the registration of the Common Stock
under the Exchange Act or de-listing the Common Stock from the Nasdaq SmallCap
Market, nor has the Company received any notification that the SEC or the
National Association of Securities Dealers, Inc. (the "NASD") is contemplating
terminating such registration or listing.

      4.16 No Manipulation of Stock. The Company has not taken any action
designed to or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Common Stock to facilitate the
transactions contemplated hereby.

      4.17 Investment Company. The Company is not an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for an
investment company, within the meaning of the Investment Company Act of 1940, as
amended.

      4.18 No Solicitation. The Company has not in the past nor will it
hereafter take any action to sell, offer for sale or solicit offers to buy any
securities of the Company which would bring the offer, issuance or sale of the
Shares, as contemplated by this Agreement, within the provisions of Section 5 of
the Securities Act, unless such offer, issuance or sale was or shall be within
the exemptions of Section 4 (or other appropriate exemption) of the Securities
Act.

      4.19 Insurance. The Company maintains insurance with sound and reputable
insurance companies of the types and in the amounts that the Company reasonably
believes is adequate for its business, including, but not limited to, insurance
covering all real and personal property owned or leased by the Company against
all risks customarily insured against by similarly situated companies, all of
which insurance is in full force and effect.

      4.20 No Integration. Neither the Company nor any of its Affiliates nor any
person acting on the Company's behalf has, directly or indirectly, at any time
within the past six (6) months made any offer or sale of any security or
solicitation of any offer to buy any security under circumstances, that in the
opinion of the Company's counsel, concurred by the Purchaser's counsel, would
eliminate the availability of the exemption from registration under Regulation D
under the Securities Act in connection with the offer and sale of the Securities
as contemplated hereby.

      4.21 No Implied Representations. All of the Company's representations and
warranties are contained in this Agreement, and no other representations or
warranties by the Company shall be implied.

                                      -10-
<PAGE>

                                    ARTICLE V
                   REPRESENTATIONS AND WARRANTIES OF PURCHASER

      Purchaser represents and warrants to Company as follows:

      5.01 Corporate Status. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of North Carolina.
Purchaser has all requisite corporate power and authority to carry on its
business as now conducted.

      5.02 Due Execution, Delivery and Performance of Agreement. Purchaser and
its Affiliates have full legal right, corporate power and authority to enter
into the Transaction Agreements and to perform the transactions contemplated
thereunder. This Agreement has been duly authorized, executed and delivered by
Purchaser. This Agreement constitutes the valid and binding obligation of
Purchaser enforceable in accordance with its terms.

      5.03 Investment. Purchaser is acquiring the Securities for Purchaser's own
account, and not with a view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities
Act. Purchaser acknowledges receiving and reviewing the SEC Reports. Purchaser
is aware of the Company's business affairs and financial condition has been
afforded (i) the opportunity to ask such questions as it has deemed necessary
of, and to receive answers from, representatives of the Company concerning the
business affairs and financial condition of the Company and (ii) the opportunity
to request such additional information which the Company possesses or can
acquire without unreasonable effort or expense and has had access to and has
acquired sufficient information about the Company to reach an informed and
knowledgeable decision to acquire the Securities to be purchased hereunder.
Purchaser, either by reason of its own business or financial experience or the
business or financial experience of its professional advisors (who are
unaffiliated with and who are not compensated by the Company or any affiliate,
finder or selling agent of the Company, directly or indirectly), has such
business and financial experience as is required to give it the capacity to
utilize the information received, to evaluate the risks involved in purchasing
such securities, to make an informed decision about purchasing the Securities
and to protect its own interests in connection with the purchase of the
Securities and is able to bear the risks of an investment in the Securities.
Purchaser is able to bear the economic risk of holding the Securities for an
indefinite period of time and can afford a complete loss of its investment.
Purchaser is not itself a "broker" or a "dealer" as defined in the Exchange Act
and is not an "affiliate" of the Company as defined in Rule 405 promulgated
under the Securities Act.

      5.04 Accredited Investor. Purchaser is an "accredited investor" within the
meaning of Rule 501 of Regulation D promulgated under the Securities Act.

      5.05 Shares and Warrants Not Registered. Purchaser understands that the
Securities are not registered under the Securities Act or registered or
qualified under any state securities or "blue sky" laws in reliance on specific
exemptions therefrom. Purchaser acknowledges and agrees that (i) it shall not
directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of
(or solicit any offers to buy, purchase or otherwise acquire or take a pledge
of) any of the

                                      -11-
<PAGE>

Securities, except in compliance with the Securities Act and State securities or
"blue sky" laws and the rules and regulations promulgated thereunder and with
this Agreement, and (ii) neither the Shares, the Warrants nor the Warrant Shares
may be resold or otherwise transferred except in a transaction registered under
the Securities Act or unless an exemption from such registration is available.
Purchaser understands that until the Shares and the Warrant Shares have been
registered for resale by the Purchaser in compliance with applicable securities
laws, the certificates evidencing the Shares, the Warrants and the Warrant
Shares will be imprinted with a legend (in accordance with Section 5.06) that
prohibits the transfer of the Shares, the Warrants and the Warrant Shares unless
(a) such transaction is registered or such registration is not required or (b)
if the transfer is pursuant to an exemption from registration, upon the
reasonable request of the Company, an opinion of counsel reasonably satisfactory
to the Company is obtained to the effect that the transaction is not required to
be registered or is so exempt.

      5.06 Legend. To the extent applicable, each certificate evidencing the
Shares and the Warrant Shares, shall be endorsed with the legend substantially
in the form set forth below:

            "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
            THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
            SECURITIES OR "BLUE-SKY" LAWS AND MAY NOT BE SOLD, TRANSFERRED,
            ASSIGNED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF UNLESS
            REGISTERED UNDER SUCH ACT OR UNDER SUCH LAWS, OR PURSUANT TO AN
            EXEMPTION FROM SUCH REGISTRATION, AND ARE SUBJECT TO THE TERMS AND
            CONDITIONS OF THE COMMON STOCK AND WARRANT PURCHASE AGREEMENT DATED
            DECEMBER 10, 2001, BETWEEN DISCOVERY LABORATORIES, INC. AND
            PHARMABIO DEVELOPMENT INC., A COPY OF WHICH IS AVAILABLE UPON
            WRITTEN REQUEST OF THE CORPORATE SECRETARY OF DISCOVERY
            LABORATORIES, INC."

                                   ARTICLE VI
                               SUBSCRIPTION RIGHT

      6.01 Subscription Right.

            (a) If at any time after the date hereof until the date on which
there shall no longer remain outstanding at least 25% of the Shares (computed on
an as converted to Common Stock basis) purchased by Purchaser under this
Agreement, the Company proposes to issue equity securities of the Company of any
kind, the primary purpose of which is to raise equity capital (the term "equity
securities" shall include for these purposes any warrants, options or other
rights to acquire equity securities and debt securities convertible into equity
securities), other than (x) to the public in an underwritten offering pursuant
to a registration statement filed under the Securities Act, (y) issued in
connection with bona fide acquisitions, mergers, joint ventures, collaborative
arrangements, strategic alliances or similar transactions, the terms of which
are approved by the Company's Board of Directors, or (z) pursuant to any stock
option,

                                      -12-
<PAGE>

stock purchase or similar plan or arrangement for the benefit of the employees
of the Company or its subsidiaries, adopted by the Board of Directors, then, the
Company shall:

                  (i) give written notice to Purchaser (no less than fifteen
      (15) Business Days prior to the closing of such issuance) setting forth in
      reasonable detail (A) the designation and all of the terms and provisions
      of the securities proposed to be issued (the "Proposed Securities"),
      including, where applicable, the voting powers, preferences and relative
      participating, optional or other special rights, and the qualification,
      limitations or restrictions thereof; (B) the price and other terms of the
      proposed sale of such securities; (C) the amount of such securities
      proposed to be issued; and (D) such other information as Purchaser may
      reasonably request in order to evaluate the proposed issuance; and

                  (ii) offer to issue and sell to Purchaser, on such terms as
      the Proposed Securities are issued, upon full payment by Purchaser, a
      portion of the Proposed Securities equal to a percentage determined by
      dividing (A) the number of shares of Common Stock then held by Purchaser
      (computed on an as converted to Common Stock basis but excluding any
      Warrant Shares attributable to the Class H Warrant that are unvested as of
      the date thereof), by (B) the total number of shares of Common Stock then
      outstanding, including for purposes of this calculation all shares of
      Common Stock issuable upon conversion or exercise in full of any
      convertible or exercisable securities (other than employee stock options)
      then outstanding (including shares of Common Stock issuable upon
      conversion of convertible securities or issuable upon exercise of
      outstanding warrants).

            (b) Purchaser must exercise its purchase rights hereunder within ten
      (10) Business Days after receipt of such notice from the Company. The
      closing of the exercise of such subscription right shall take place
      simultaneously with the closing of the sale of the Proposed Securities
      giving rise to such subscription right.

            (c) Upon the expiration of the ten (10) Business Day offering period
described above, the Company will be free to sell such Proposed Securities that
Purchaser has not elected to purchase during the ninety (90) days following such
expiration on financial and economic terms and conditions no more favorable to
the purchasers thereof than those offered to Purchaser. Any Proposed Securities
offered or sold by the Company after such ninety (90) day period must be
reoffered to Purchaser pursuant to this Section 6.01.

            (d) The election by Purchaser not to exercise its subscription
rights under this Section 6.01 in any one instance shall not affect its
subscription rights as to any subsequent proposed issuance.

            (e) Any sale of such securities by the Company without first giving
Purchaser the rights described in this Section 6.01 shall be void and of no
force and effect.

                                      -13-
<PAGE>

                                   ARTICLE VII
                               REGISTRATION RIGHTS

      7.01 Required Registration.

            (a) At any time following one hundred eighty (180) days after the
date of this Agreement, the holders of Registrable Securities who hold and
propose to sell Registrable Securities with an aggregate value of at least
$500,000 shall have the right to require the Company to register under the
Securities Act on Form S-3 or other comparable or successor form such shares by
delivering written notice thereof to the Company. All such registrations shall
be non-underwritten. For so long as the Company may be obligated to effect a
registration statement pursuant to this Section 7.01, the Company shall use its
reasonable best efforts to be and remain eligible to use Form S-3 or other
appropriate comparable or successor form under the Securities Act.

            (b) The Company shall be obligated to register Registrable
Securities pursuant to this Section 7.01 on not more than one occasion during
any twelve-month rolling period, or on more than two occasions in the aggregate;
provided, however, that such obligation shall be deemed satisfied only when a
registration statement covering all shares of Registrable Securities requested
to be included in such registration statement by the holders thereof, for sale
in accordance with the method of disposition specified by the requesting
holders, shall have become effective or if the holders participating in the
registration withdraw from the registration; provided, further, that if such
registration statement has become effective but the contemplated public offering
is withdrawn prior to the completion thereof, or if holders participating in the
registration withdraw, causing the requirements of this Section not to be met,
because of material adverse developments affecting the Company that were not
known to the participating holders prior to such effectiveness, then such
registration shall not count as one of the registrations hereunder.

            (c) The Company shall be entitled to include in any registration
statement referred to in this Section 7.01, for sale in accordance with the
method of disposition specified by requesting holders, shares of Common Stock to
be sold by the Company for its own account or for the account of other security
holders of the Company, but only to the extent that such inclusion will not
adversely affect the offering for the account of the holders of Registrable
Securities.

      7.02 Incidental Registration. If the Company at any time (other than
pursuant to Section 7.01) proposes to register any of its securities under the
Securities Act for sale to the public, whether for its own account or for the
account of other security holders or both (except with respect to registration
statements on Forms S-4, S-8 or another form not available for registering the
Registrable Securities for sale to the public, or which relate to employee
benefit plans or with respect to corporate reorganizations or other transactions
subject to Rule 145 of the Securities Act), each such time it will give written
notice to all holders of outstanding Registrable Securities of its intention so
to do. Upon the written request of any such holder, received by the Company
within thirty (30) days after the giving of any such notice by the Company, to
register

                                      -14-
<PAGE>

any of its Registrable Securities, the Company will use its best efforts to
cause such Registrable Securities to be included in the registration statement
proposed to be filed by the Company, all to the extent requisite to permit the
sale or other disposition of such Registrable Securities so registered. In the
event that any registration pursuant to this Section 7.02 shall be an
underwritten public offering of Common Stock, the number of shares of
Registrable Securities to be included in such an underwriting may be limited if
and to the extent that the managing underwriter shall be of the opinion that
such inclusion would adversely affect the marketing of the securities to be sold
by the Company therein, and, in such case, the number of shares of securities
that are entitled to be included in the registration and underwriting shall be
allocated in the following manner: The securities of the Company held by
officers, directors and other stockholders of the Company, other than securities
held by holders ("Demand Holders") who have contractual rights (existing prior
to the date of this Agreement) to participate in or demand such registration,
shall be excluded from such registration and underwriting to the extent required
by such limitation, and, if a limitation on the number of shares is still
required, the number of shares that may be included in the registration and
underwriting by each of the holders Registrable Securities and Demanding Holders
shall be reduced, on a pro rata basis (based on the number of shares held by
such holders of Registrable Securities and Demanding Holders), by such minimum
number of shares as is necessary to comply with such limitation.

      7.03 Registration Procedures. If and whenever the Company is required by
the provisions of Section 7.01 or 7.02 to effect the registration of any
Registrable Securities under the Securities Act, the Company will, as
expeditiously as reasonably possible:

            (a) prepare and file with the SEC a registration statement with
respect to such securities as soon as reasonably practicable after delivery of
the applicable notice, and in any event within thirty (30) days thereof, and use
its reasonable best efforts to cause such registration statement to become
effective within ninety (90) days after delivery of such notice and remain
effective for the period of the distribution contemplated thereby (determined as
hereinafter provided); provided, however, that that Company's obligation to file
a registration statement, or cause such registration statement to become and
remain effective, shall be suspended for a period not to exceed ninety (90) days
in any twelve-month period if in the reasonable judgment of the Company's Board
of Directors it would be detrimental to the Company to effect a registration at
such time;

            (b) prepare and file with the SEC such amendments and supplements to
such registration statement and the related prospectus as may be necessary to
keep such registration statement effective for the period specified in paragraph
(a) above and comply with the provisions of the Securities Act with respect to
the disposition of all Registrable Securities covered by such registration
statement in accordance with the sellers' intended method of disposition set
forth in such registration statement for such period; provided, however, the
holders hereby acknowledge that the Company may notify the holders of the
suspension of the use of the prospectus forming a part of the registration
statement until such time as an amendment to such registration statement has
been filed by the Company and declared effective by the SEC or until the Company
has otherwise amended or supplemented such prospectus, and upon receipt of such
notice the holders shall suspend the use of the prospectus and shall not offer

                                      -15-
<PAGE>

or sell any securities pursuant to said prospectus during the period commencing
at the time at which the Company gives the holders notice of the suspension of
the use of said prospectus and ending at the time the Company gives the holders
notice that holders may thereafter effect sales pursuant to said prospectus.
Notwithstanding anything herein to the contrary, the Company (i) shall not
suspend use of the registration statement by holders unless such suspension is
in the good faith opinion of the Company and its counsel advisable under the
federal securities laws and the rules and regulations promulgated thereunder;
and (ii) shall use its best efforts to amend to such registration statement or
amend or supplement such prospectus as soon as practicable to again permit sales
pursuant to said prospectus;

            (c) furnish to each seller of Registrable Securities and to each
underwriter, if applicable, such number of copies of the registration statement
and the prospectus included therein (including each preliminary prospectus) as
such persons reasonably may request in order to facilitate the public sale or
other disposition of the Registrable Securities covered by such registration
statement;

            (d) use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under the securities or "blue
sky" laws of such jurisdictions as the sellers of Registrable Securities or, in
the case of an underwritten public offering, the managing underwriter reasonably
shall request, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;

            (e) immediately notify each seller of Registrable Securities and
each underwriter, if applicable, under such registration statement, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event of which the Company has knowledge
as a result of which the prospectus contained in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing;
and

            (f) if the offering is underwritten and at the request of any seller
of Registrable Securities, use its best efforts to furnish on the date that
Registrable Securities are delivered to the underwriters for sale pursuant to
such registration: (i) an opinion dated such date of counsel representing the
Company for the purposes of such registration, addressed to the underwriters and
to such seller, in form and substance as is customarily given in an underwritten
public offering; and (ii) a letter dated such date from the independent public
accountants retained by the Company, addressed to the underwriters and to such
seller, in form and substance as is customarily given in an underwritten public
offering.

For purposes of Section 7.03(a) and (b), the period of distribution of
Registrable Securities in any registration shall be deemed to extend until the
earlier of the sale of all Registrable Securities covered thereby and one
hundred twenty (120) days after the effective date thereof.

                                      -16-
<PAGE>

      7.04 Expenses. All expenses incurred by the Company in complying with
Sections 7.01, 7.02 and 7.03, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
counsel fees) incurred in connection with complying with state securities or
"blue sky" laws, fees of the NASD, transfer taxes, fees of transfer agents and
registrars and the reasonable fees and disbursements of one counsel for the
sellers of Registrable Securities (not to exceed $25,000 in the aggregate), but
excluding any Selling Expenses, are called "Registration Expenses". All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities are called "Selling Expenses". The Company will pay all
Registration Expenses in connection with each registration statement under
Section 7.01 or 7.02. All Selling Expenses in connection with each such
registration statement shall be borne by the participating sellers on a pro rata
basis based on the number of Registrable Securities included in such
registration statement.

      7.05 Indemnification and Contribution.

            (a) In the event of a registration of any of the Registrable
Securities under the Securities Act pursuant to Section 7.01 or 7.02, to the
extent permitted by applicable law, the Company will indemnify and hold harmless
each seller of such Registrable Securities thereunder, each underwriter of such
Registrable Securities thereunder and each other person, if any, who controls
such seller or underwriter within the meaning of Section 5 of the Securities
Act, against any losses, claims, damages or liabilities, joint or several, to
which such seller, underwriter or controlling person may become subject under
the Securities Act or other applicable Federal or State securities or "blue sky"
laws, to the extent that such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which such Registrable Securities were registered under the
Securities Act, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each such seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable, to
any such indemnitee if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an (i) untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished by or on behalf of such indemnitee in writing specifically
for use in such registration statement or prospectus or (ii) such untrue
statement or alleged untrue statement or omission or alleged omission was
contained in a preliminary or earlier effective prospectus and corrected in a
final or amended prospectus, and such holder of Registrable Securities failed to
deliver a copy of the final or amended prospectus at or prior to the
confirmation of the sale of the Registrable Securities to the buyer of such
Registrable Securities; provided, further, that the indemnity agreement
contained in this Section 7.05(a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Company, which consent shall not be
unreasonably withheld, provided that such consent shall not be required if the
settlement shall

                                      -17-
<PAGE>

include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect of such
claim or litigation.

            (b) In the event of a registration of any of the Registrable
Securities under the Securities Act pursuant to Section 7.01 or 7.02, to the
extent permitted by applicable law, each seller of such Registrable Securities
thereunder, severally and not jointly, will indemnify and hold harmless the
Company, each person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Securities Act,
against all losses, claims, damages or liabilities, joint or several, to which
the Company or such officer, director, underwriter or controlling person may
become subject under the Securities Act or other applicable Federal or State
securities or "blue sky" laws, to the extent that such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the registration statement under which such Registrable Securities was
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company and each such officer,
director, underwriter and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that such
seller will be liable hereunder in any such case if and only to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with information pertaining to such
seller, as such, furnished in writing to the Company by or on behalf of such
seller specifically for use in such registration statement or prospectus, and
provided, further, that the indemnity agreement contained in this Section
7.05(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of such seller, which consent shall not be unreasonably withheld, provided that
such consent shall not be required if the settlement shall include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation; provided, further, that the liability of each seller hereunder shall
be limited to the net proceeds received for the account of such seller from the
sale of Registrable Securities covered by such registration statement.

            (c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 7.05 and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 7.05 if and to the extent the indemnifying party is prejudiced by
such omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the

                                      -18-
<PAGE>

extent it shall wish, to assume and undertake the defense thereof with counsel
reasonably satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 7.05 for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified party shall have the right to select a separate counsel
and to assume such legal defenses and otherwise to participate in the defense of
such action, with the reasonable expenses and fees of such separate counsel and
other expenses related to such participation to be reimbursed by the
indemnifying party as incurred; provided, further, that the Company shall not
have any reimbursement obligation for the expenses and fees of more than one
such separate counsel for all indemnitees.

            (d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Registrable Securities exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 7.05 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 7.05 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any such
selling holder or any such controlling person in circumstances for which
indemnification is provided under this Section 6; then, and in each such case,
the Company and such holder will contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution from
others) in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the
other, as well as any other relevant equitable considerations. The relative
fault of the parties shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (A) no such
holder will be required to contribute any amount in excess of the public
offering price of all such Registrable Securities offered by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.

      7.06 Changes in Common Stock. If, and as often as, there is any change in
the Common Stock by way of a stock split, stock dividend, combination or
reclassification, or through a merger, consolidation, reorganization or
recapitalization, or by any other means,

                                      -19-
<PAGE>

appropriate adjustment shall be made in the provisions hereof so that the rights
and privileges granted hereby shall continue with respect to the Common Stock as
so changed.

      7.07 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the SEC that may at any time permit the sale of
the Registrable Securities to the public without registration, the Company
agrees to:

            (a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;

            (b) use commercially reasonable efforts to file with the SEC in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and

            (c) furnish to each holder of Registrable Securities forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of such Rule 144 and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as such
holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing such holder to sell any Registrable Securities without
registration.

      7.08 Future Registration Rights. The Company shall not, except with the
consent of the holders of a majority of the Registrable Securities, enter into
any agreement with any holder or prospective holder of any securities of the
Company that would allow such holder or prospective holder to include such
securities in any registration filed pursuant to Section 7.01 or 7.02 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion thereof will not reduce the amount of Registrable Securities that is
included.

      7.09 Certain Holder Obligations. (a) As a condition to the inclusion of
its Registrable Securities in a registration effected pursuant to Section 7.01
or 7.02, the holders will promptly provide the Company with such information as
the Company shall reasonably request in order to prepare the applicable
registration statement for such registration, including, but not limited to,
information regarding the holders, the securities of the Company owned
beneficially or of record by the holders, the distribution proposed by the
holders, a customary selling securityholders questionnaire and, upon the
Company's request, the holders shall provide such information in writing and
signed by the holders and stated to be specifically for inclusion in the
applicable registrations. In the event that the distribution of the Common Stock
covered by the applicable registration statement shall be effected pursuant to
an underwritten offering as contemplated by Section 7.02, the inclusion of the
Registrable Securities shall be conditioned on the holders' execution and
delivery of a customary underwriting agreement with terms and conditions
reasonably satisfactory to the Company with respect thereto.

            (b) The holders shall not take any action with respect to any
distribution deemed to be made pursuant to any registration statement pursuant
to Section 7.01 or 7.02, which would constitute a violation of Regulation M
under the Exchange Act.

                                      -20-
<PAGE>

            (c) If, at the end of any period during which the Company is
obligated to keep a registration statement pursuant to Section 7.01 or 7.02
effective, the holders have Registrable Securities which were included in such
registration statement, the holders shall discontinue sales of such securities
pursuant to the registration statement and prospectus upon receipt of notice
from the Company of its intention to remove from registration the shares covered
by registration statement which remain unsold (as permitted under the provisions
of this Article VII, and the holders shall notify the Company of the number of
shares registered which remain unsold promptly upon receipt of such notice from
the Company.

            (d) The holders shall have no right to take any action to restrain,
enjoin or otherwise delay any registration as a result of any controversy that
may arise with respect to the interpretation or implementation of the terms of
this Article VII.

      7.10 Termination of Registration Rights.The obligations of the Company to
register shares of Registrable Securities under Section 7.01 or 7.02 for a
holder of Registrable Securities shall terminate on the earlier to occur of (i)
the date on which such holder can, in the reasonable opinion of counsel to the
Company, sell all shares of its Registrable Securities in a three-month period
without registration under the Securities Act pursuant to Rule 144 under the
Securities Act.

      7.11 Listing. The Company shall use its best efforts to list, and keep
authorized for listing, the Registrable Securities on the Nasdaq SmallCap
Market, the Nasdaq National Market or any national securities exchange on which
the Common Stock is traded.

                                  ARTICLE VIII
                              ADDITIONAL AGREEMENTS

      8.01 Short Sales, etc. Purchaser represents and agrees that, during the
period from October 3, 2001 through the date of this Agreement, Purchaser and
its Affiliates did not and, from the date hereof until the first anniversary of
the date of this Agreement, Purchaser will not, and shall cause its Affiliates
not to, execute or effect or cause to be executed or effected any "short sale"
(as defined in Rule 3b-3 of the Exchange Act) of Common Stock or any hedging
transaction in which the other party to such transaction is reasonably likely to
engage in such a short sale as a direct result of such transaction.

      8.02 Restriction on Purchase of Common Stock. Until the expiration or
termination of the Commercialization Agreement, Purchaser will not, and shall
cause its Affiliates not to, purchase or become the beneficial owner of any
shares of Common Stock which results in Purchaser and its Affiliates
beneficially owning more than nineteen percent (19%) of the issued and
outstanding shares of Common Stock; provided, however that (a) nothing in this
Section shall prevent Purchaser and its Affiliates from acquiring Common Stock
contemplated by the Transaction Agreements and (b) Purchaser shall not be deemed
to violate this Section as a result of any reorganization, recapitalization,
stock repurchase, stock combination or other similar transaction effected by the
Company with respect to the Common Stock if Purchaser and its

                                      -21-
<PAGE>

Affiliates beneficially owned less than 19% of the issued and outstanding shares
of Common Stock before giving effect to such transaction.

      8.03 Restrictions on Sale of Shares.

            (a) Until one hundred eighty (180) days after the date of this
Agreement, Purchaser will not sell or otherwise transfer the Shares.

            (b) If, at any time prior to the first anniversary of the date of
this Agreement, Purchaser proposes to sell Shares constituting one percent
(1.0%) or more of the outstanding shares of Common Stock, then Purchaser shall
first offer to sell such Shares of the Company, and the parties agree to
negotiate in good faith to reach an agreement on the purchase price and other
terms of the sale of such Shares to the Company. If the parties are not able to
reach such an agreement within ten (10) Business Days, then Purchaser shall be
free to proceed with such sale to a third party so long as it complies with any
other applicable terms of this Agreement.

            (c) Until the expiration or termination of the Commercialization
Agreement, Purchaser will not knowingly sell the Shares to a person or entity
which actively sells, distributes, markets, develops, or produces a
pharmaceutical product which directly competes with the Product (as defined in
the Investment and Commission Agreement) for any of the indications contemplated
by the Transaction Agreements on the date hereof. In any event, this subsection
(c) shall not prevent Purchaser from selling the Shares in open-market
transactions.

            (d) The restrictions under this Section shall not be applicable to
any transfers of the Shares to any Affiliate of Quintiles Transnational Corp.,
so long as such Affiliate agrees in an enforceable written instrument to be
bound by all the terms and conditions of this Agreement as if it were Purchaser
and a party hereto, which instrument shall be delivered a reasonably practicable
time prior to such sale or transfer.

      8.04 Voting Agreement. Until the earlier of (i) such time that Purchaser
beneficially owns less than one percent of the issued and outstanding shares of
Common Stock of the Company, and (ii) the completion of the Company's annual
meeting of shareholders for the calendar year 2003, at each annual meeting of
the shareholders of the Company or in connection with any other meeting or
action by written consent in lieu of a meeting of the shareholders of the
Company, Purchaser shall vote or act with respect to all shares of Common Stock
beneficially owned by it (x) in favor of all persons nominated by the then
current Board of Directors of the Company for election to the Board of Directors
of the Company and (y) in accordance with the recommendations of the Board of
Directors with respect to any other issue; provided, that this clause (y) shall
not apply to any issue that is directly related to the matters which are subject
to the Transaction Agreements or to any Change of Control (as defined in the
Loan Agreement). The voting agreement contained in this Section 8.04 is
irrevocable to the extent permitted by applicable law and is coupled with an
interest. Until the earlier of (i) such time that Purchaser

                                      -22-
<PAGE>

beneficially owns less than five percent of the issued and outstanding shares of
Common Stock of the Company, and (ii) three years after the date of this
Agreement, at and in relation to each annual meeting of the shareholders of the
Company or in connection with any other meeting or action by written consent in
lieu of a meeting of shareholders of the Company, Purchaser will not actively
oppose any items referred to in clauses (x) and (y) above.

      8.05 Continuation of Certain Restrictions. If at any time prior to the
second anniversary of the date of this Agreement, Purchaser transfers Shares in
accordance with the provisions of this Agreement, Purchaser shall not effect
such transfer unless the transferee agrees in an enforceable written instrument
to be bound by the terms and conditions of Sections 8.01, 8.03(c), and 8.04;
provided, however, that (i) such transferee shall not be bound to any greater
extent as to duration of time or otherwise than Purchaser is bound under such
Sections on the date of this Agreement and (ii) this Section 8.05 shall not
apply to any transfer by Purchaser to a transferee that will own one percent or
less of the Company's outstanding shares of Common Stock after giving effect to
such transfer.

      8.06 Termination of Restrictions. Upon the occurrence of an Event of
Default under the Loan Agreement or the termination of the Investment and
Commission Agreement by Purchaser in accordance with its terms, all of the
provisions of this Article VIII shall immediately terminate and have no further
force or effect.

                                   ARTICLE IX
                                  MISCELLANEOUS

      9.01 Amendments, Etc. No amendment or waiver of any provision of this
Agreement, nor consent to any departure by the Company therefrom, shall in any
event be effective unless the same shall be in writing and signed by Purchaser,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.

      9.02 Notices. All notices and other communications provided for hereunder
shall be in writing, shall specifically refer to this Agreement, shall be
addressed to the receiving party's address set forth below or to such other
address as a party may designate by notice hereunder, and shall be deemed to
have been sufficiently given for all purposes if (a) mailed by first class
certified or registered mail, postage prepaid, (b) sent by nationally recognized
overnight courier for next Business Day delivery, (c) personally delivered, or
(d) made by telecopy or facsimile transmission with confirmed receipt.

                                      -23-
<PAGE>

         If to Company:    Discovery Laboratories, Inc.
                           350 South Main Street, Suite 307
                           Doylestown, PA 18901-4874
                           Attn: President
                           Facsimile: (215) 340-3940

         with a copy to:   Roberts, Sheridan & Kotel
                           The New York Practice of
                           Dickstein Shapiro's Corporate & Finance Group
                           1177 Avenue of the Americas, 41st Floor
                           New York, NY 10036-2714
                           Attn: Ira L. Kotel
                           Facsimile: (212) 997-9880

         If to Purchaser:  PharmaBio Development Inc.
                           4709 Creekstone Drive
                           Suite 200 Riverbirch Bldg.
                           Durham, NC 27703
                           Attn: President
                           Facsimile:  (919) 998-2090

         with a copy to:   Smith, Anderson, Blount, Dorsett
                            Mitchell & Jernigan, L.L.P.
                           2500 First Union Capitol Center
                           Raleigh, NC 27601
                           Attn: Christopher B. Capel
                           Facsimile: (919) 821-6800

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

      9.04 Attorneys' Fees. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expense of appeals.

      9.05 Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of the Company and Purchaser and their respective
successors and assigns, provided that neither the Company nor Purchaser may
assign or transfer any or all of its rights or obligations under this Agreement
without the prior written consent of the other party and any

                                      -24-
<PAGE>

attempted assignment without such consent shall be null and void; provided,
however, that Purchaser may at any time assign or transfer any of its rights or
obligations under this Agreement to an Affiliate.

      9.06 Severability. To the extent any provision of this Agreement is
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.

      9.07 Entire Agreement. This Agreement and the other Transaction Agreements
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter thereof and supersede all prior oral or written
agreements and understandings relating to the subject matter thereof. No
statement, representation, warranty, covenant or agreement of any kind not
expressly set forth in the Transaction Agreements shall affect, or be used to
interpret, change or restrict, the express terms and provisions of the
Transaction Agreements.

      9.08 Further Action. Each party shall, without further consideration, take
such further action and execute and deliver such further documents as may be
reasonably requested by the other party in order to carry out the provisions and
purposes of this Agreement.

      9.09 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute one and the same instrument. This Agreement may
be executed and delivered by telecopy or facsimile transmission and any
execution by such means shall be deemed an original.

      9.10 Survival. The representations, warranties, covenants and agreements
made herein by the Company and Purchaser shall survive the Closing.

      9.11 Publicity. Except as otherwise required by applicable law or by
obligations pursuant to any listing agreement with or rules of any securities
exchange or automated quotation system, each party shall, and shall cause its
respective Affiliates to, not, issue any press release or make any other public
statement relating to, connected with or arising out of this Agreement or the
matters contained herein without the other parties' prior written approval of
the contents and the manner of presentation and publication thereof (which
approval shall not be unreasonably withheld or delayed).

      9.12 Governing Law. This Agreement, including, without limitation, the
interpretation, performance, enforcement, breach or termination thereof and any
remedies relating thereto, shall be governed by and construed in accordance with
the laws of the State of Delaware, United States of America, as applied to
agreements executed and performed entirely in the State of Delaware, without
regard to conflicts of law rules.

      9.13 Internal Review. In the event that a dispute, difference, claim,
action, demand, request, investigation, controversy, threat, discovery request
or request for testimony or

                                      -25-
<PAGE>

information or other question arises pertaining to any matters which arise
under, out of, in connection with, or in relation to this Agreement (a
"Dispute") and either party so requests in writing, prior to the initiation of
any formal legal action, the Dispute will be submitted to the JCC (as defined in
the Commercialization Agreement), which will use its good faith efforts to
resolve the Dispute within ten (10) days. If the JCC is unable to resolve the
Dispute in such period, the JCC will refer the Dispute to the Chief Executive
Officers of the Company and Purchaser. For all Disputes referred to the Chief
Executive Officers, the Chief Executive Officers shall use their good faith
efforts to meet at least two times in person and to resolve the Dispute within
ten (10) days after such referral.

      9.14 Arbitration. (a) If the parties are unable to resolve any Dispute
under Section 9.13, then either party may require the matter to be settled by
final and binding arbitration by sending written notice of such election to the
other party clearly marked "Arbitration Demand". Thereupon such Dispute shall be
arbitrated in accordance with the terms and conditions of this Section 9.14.
Notwithstanding the foregoing, either party may apply to a court of competent
jurisdiction for a temporary restraining order, a preliminary injunction, or
other equitable relief to preserve the status quo or prevent irreparable harm.

      (b) The arbitration panel will be composed of three arbitrators, one of
whom will be chosen by the Company, one by Purchaser, and the third by the two
so chosen. If both or either of the Company or Purchaser fails to choose an
arbitrator or arbitrators within 14 days after receiving notice of commencement
of arbitration, or if the two arbitrators fail to choose a third arbitrator
within 14 days after their appointment, the American Arbitration Association
shall, upon the request of both or either of the parties to the arbitration,
appoint the arbitrator or arbitrators required to complete the panel. The
arbitrators shall have reasonable experience in the matter under dispute. The
decision of the arbitrators shall be final and binding on the parties, and
specific performance giving effect to the decision of the arbitrators may be
ordered by any court of competent jurisdiction.

      (c) Nothing contained herein shall operate to prevent either party from
asserting counterclaim(s) in any arbitration commenced in accordance with this
agreement, and any such party need not comply with the procedural provisions of
this Section 9.14 in order to assert such counterclaim(s).

      (d) The arbitration shall be filed with the office of the American
Arbitration Association ("AAA") located in Wilmington, Delaware or such other
AAA office as the parties may agree upon (without any obligation to so agree).
The arbitration shall be conducted pursuant to the Commercial Arbitration Rules
of AAA as in effect at the time of the arbitration hearing, such arbitration to
be completed in a sixty (60) day period. In addition, the following rules and
procedures shall apply to the arbitration:

      (e) The arbitrators shall have the sole authority to decide whether or not
any Dispute between the parties is arbitrable and whether the party presenting
the issues to be arbitrated has satisfied the conditions precedent to such
party's right to commence arbitration as required by this Section 9.14.

                                      -26-
<PAGE>

      (f) The decision of the arbitrators, which shall be in writing and state
the findings the facts and conclusions of law upon which the decision is based,
shall be final and binding upon the parties, who shall forthwith comply after
receipt thereof. Judgment upon the award rendered by the arbitrator may be
entered by any competent court. Each party submits itself to the jurisdiction of
any such court, but only for the entry and enforcement to judgment with respect
to the decision of the arbitrators hereunder.

      (g) The arbitrators shall have the power to grant all legal and equitable
remedies (including, without limitation, specific performance) and award
compensatory damages provided by applicable law, but shall not have the power or
authority to award punitive damages. No party shall seek punitive damages in
relation to any matter under, arising out of, or in connection with or relating
to this Agreement in any other forum.

      (h) The parties shall bear their own costs in preparing for and
participating in the resolution of any Dispute pursuant to this Section 9.14,
and the costs of the arbitrator(s) shall be equally divided between the parties;
provided, however, that each party shall bear the costs incurred in connection
with any Dispute brought by such party that the arbitrators determine to have
been brought in bad faith.

      (i) Except as provided in the last sentence of Section 9.14(a), the
provisions of this Section 9.14 shall be a complete defense to any suit, action
or proceeding instituted in any federal, state or local court or before any
administrative tribunal with respect to any Dispute arising with regard to this
Agreement. Any party commencing a lawsuit in violation of this Section 9.14
shall pay the costs of the other party, including, without limitation,
reasonable attorney's fees and defense costs.

      9.15 HSR Filings. Purchaser acknowledges and agrees that if any of the
transactions contemplated by this Agreement or any other Transaction Agreement
shall require compliance with any applicable requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder (the "HSR Act"), and the antitrust,
competition, foreign investment or similar laws of any foreign countries or
supranational commissions or boards that require pre-merger notifications or
filings by either the Company or Purchaser, neither party shall have breached in
any material respect its obligations under this Agreement if the closing of any
such transaction is delayed to allow the parties to comply with any such laws,
rules and regulations, and any waiting periods required thereunder, including,
but not limited to compliance with any "Second Requests" as provided for, and
defined in, the HSR Act.

                            [signature page follows]

                                      -27-
<PAGE>

         [Signature Page to Common Stock and Warrant Purchase Agreement]

      IN WITNESS WHEREOF, Company and Purchaser have caused this Common Stock
and Warrant Purchase Agreement to be executed in their names by their duly
authorized officers or representatives effective as of the date first above
written.

                                      DISCOVERY LABORATORIES, INC.

                                      By: /s/ David L. Lopez
                                          --------------------------------------
                                              David L. Lopez
                                              Vice President and General Counsel

                                      PHARMABIO DEVELOPMENT INC.

                                      By: /s/ Thomas C. Perkins
                                          --------------------------------------
                                              Thomas C. Perkins
                                              Vice President and General Counsel

                                      -28-

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