TRANSCEND THERAPEUTICS INC, S-1/A, 1997-07-01

TRANSCEND THERAPEUTICS INC
S-1/A, 1997-07-01
BIOLOGICAL PRODUCTS, (NO DIAGNOSTIC SUBSTANCES)

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<PAGE> 1

As filed with the Securities and Exchange Commission on July 1, 1997

Registration No. 333-22817
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 5

FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
TRANSCEND THERAPEUTICS, INC.
(Exact name of registrant as specified in its charter)

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

<TABLE>
<S> <C> <C>
DELAWARE 2836 04-3174575
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

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

640 MEMORIAL DRIVE, CAMBRIDGE, MASSACHUSETTS 02139 (617) 374-1200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

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

HECTOR J. GOMEZ, M.D., PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TRANSCEND THERAPEUTICS, INC.
640 MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02139 (617) 374-1200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

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

Copies to:

<TABLE>
<S> <C>
STEVEN D. SINGER, ESQ. CHARLES W. MULANEY, JR., ESQ.
PHILIP P. ROSSETTI, ESQ. RODD M. SCHREIBER, ESQ.
HALE AND DORR LLP SKADDEN, ARPS, SLATE, MEAGHER
60 State Street & FLOM (ILLINOIS)
Boston, Massachusetts 02109 333 W. Wacker Drive, Suite 2100
(617) 526-6000 Chicago, Illinois 60606
(312) 407-0700
</TABLE>

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

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date hereof.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
================================================================================
<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED JULY 1, 1997

PROSPECTUS
2,455,000 SHARES
[TRANSCEND THERAPEUTICS LOGO]
COMMON STOCK

All of the 2,455,000 shares of Common Stock offered hereby are being sold
by Transcend Therapeutics, Inc. ("Transcend" or the "Company"). Prior to the
Offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be between
$10.00 and $12.00 per share. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price. The Company
has applied to list the Common Stock for quotation on the Nasdaq National Market
under the symbol "TSND."

Boehringer Ingelheim International GmbH, the Company's corporate partner
for its Procysteine development program, has expressed its intention to purchase
$5.0 million of Common Stock in the Offering at the initial public offering
price. See "Business -- Boehringer Ingelheim."

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," BEGINNING ON PAGE 7.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
================================================================================

<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................... $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total(3)..................................... $ $ $
==================================================================================================================
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $1,000,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
368,250 additional shares of Common Stock on the same terms and conditions
set forth above, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ , and $ ,
respectively. See "Underwriting."

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

The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that delivery of such shares of Common Stock will be
made by EVEREN Clearing Corp. through the facilities of the Depository Trust
Company, New York, New York, on or about , 1997.

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

EVEREN Securities, Inc. Principal Financial Securities, Inc.

, 1997
<PAGE> 3
- --------------------------------------------------------------------------------
In connection with the onset of acute respiratory distress syndrome ("ARDS"),
neutrophils, a type of white blood cell, activate and adhere to the surface of
pulmonary capillaries. These neutrophils then release reactive oxygen species
("ROS") and protease enzymes which cause damage to lung tissue. Glutathione,
which is normally present in lung cells and lung fluid in high concentrations,
neutralizes or inactivates these ROS and limits oxidative damage. Anti-protease
enzymes are present in the lung under normal conditions and protect the lung
against oxidative tissue damage. The protective effect of anti-proteases is
lost in the presence of excessive ROS. Preclinical studies indicate that
glutathione may also prevent further lung damage indirectly by blocking ROS
inhibition of anti-proteases.

Glutathione Depletion
And Oxidative
Tissue Damage

[Picture]

blood vessel
activated neutrophil
damaged lung tissue
release of ROS and proteases
endothelial cell

[Flow chart]

glutamate
Procysteine(R) - Procysteine(R) - cysteine - GSH (glutathione)
glycine

- --------------------------------------------------------------------------------
Treatment with Procysteine is a novel pharmacological approach to diseases
associated with oxidative tissue damage. A number of published studies have
indicated decreased levels of glutathione in conditions where excessive
production of ROS has caused severe tissue damage. Of the three amino acids
which comprise glutathione, it is the lack of available cysteine that limits
glutathione synthesis. Procysteine provides method for introducing the amino
acid cysteine into cells. Preclinical studies have documented Procysteine's
ability to increase intracellular levels of glutathione and prevent ROS damage.
Procysteine has not been approved by the United States Food and Drug
Administration (the "FDA") or any foreign regulatory agency. There can be no
assurance that Procysteine will be approved by the FDA or any foreign regulatory
agency on a timely basis, if at all. See "Risk Factors - No Assurance of FDA
Approval; Comprehensive Government Regulation."
- --------------------------------------------------------------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE
COMPANY, INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE COVERING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

Procysteine(R) is a registered trademark and Transcend Therapeutics(TM) is a
trademark of Transcend Therapeutics, Inc. All other trademarks or trade names
referred to in this Prospectus are the property of their respective owners.

<PAGE> 4
- --------------------------------------------------------------------------------

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus, including information under "Risk Factors."

THE COMPANY

Transcend Therapeutics, Inc. ("Transcend" or the "Company") develops novel
pharmaceuticals for the critical care market, with its initial compounds
focusing on the treatment of diseases associated with oxidative stress and
resultant tissue damage. The Company's lead product candidate, Procysteine(R),
has been evaluated in two Phase II clinical trials involving patients with acute
respiratory distress syndrome ("ARDS"). In the second quarter of 1997, the
Company began a Phase III clinical trial to determine the safety and efficacy of
Procysteine in the treatment of ARDS. In February 1997, the Company and
Boehringer Ingelheim International GmbH ("BI") entered into a Development and
License Agreement (the "BI Agreement") relating to the worldwide development and
marketing of intravenous formulations of Procysteine ("Procysteine i.v.") for
the treatment and prevention of ARDS and the related condition, multiple organ
dysfunction ("MOD"). BI has agreed to pay Transcend up to $46.0 million
(consisting of a $5.0 million license fee paid in March 1997, a $5.0 million
equity investment and $36.0 million in contingent milestone payments related to
ARDS and MOD), as well as royalties on any related product sales.

The Company's initial product candidates are small molecule,
glutathione-repleting agents designed to prevent or limit oxidative tissue
damage from reactive oxygen species ("ROS"), highly reactive toxic molecules
produced as part of the body's immune response. Glutathione, a molecule found in
high concentrations throughout the body, is one of the principal mechanisms for
neutralizing ROS. Preclinical and clinical studies have demonstrated that in
some conditions involving massive acute inflammation, including severe
infection, multiple trauma and extensive burns, large quantities of ROS may be
produced. Studies have also indicated decreased levels of glutathione in such
conditions. When the body's production of ROS increases and exceeds the capacity
of glutathione and other antioxidant systems to combat oxidative stress, tissue
damage in the body's major organs can result, leading to organ dysfunction and,
in many cases, death.

The Company's strategy is to exploit the potential of the
glutathione-repleting agents currently in its portfolio, with a particular focus
on products for the critical care market, and to enhance its product pipeline
through collaborations with academic and research institutions. The Company
plans to commercialize its product candidates through strategic alliances, as in
its alliance with BI, and to retain strategically important development,
marketing or co-promotion rights in order to enhance its product development
opportunities.

ARDS, a disorder characterized by severe lung dysfunction, is a devastating
complication of conditions associated with massive acute inflammation, such as
severe infection, multiple trauma and extensive burns. This disorder affects an
estimated 150,000 patients in the United States annually, and has a mortality
rate of approximately 40 percent. There are currently no commercially available
drug treatments for ARDS. Treatment for patients suffering from ARDS is
administered in a hospital intensive care unit and is generally limited to
supportive care consisting of highly invasive mechanical ventilation. Mechanical
ventilation involves forcing air containing high concentrations of oxygen into
the lungs via an endotracheal tube inserted through a patient's nose or mouth.
Due to the invasive nature of this procedure, mechanical ventilation places a
patient at an increased risk of serious complications, including
hospital-acquired infection with drug resistant organisms.

MOD, the failure of two or more organs, generally has catastrophic
consequences for the patient. Organ systems that are frequently involved in MOD
include the lungs (ARDS), the kidneys (acute renal failure), the liver (acute
hepatic failure) and the heart (cardiovascular collapse). The mortality rate for
MOD patients is approximately 60 percent when two organs fail and exceeds 90
percent when a
- --------------------------------------------------------------------------------

3
<PAGE> 5

third organ fails. The Company estimates that there are over 750,000 patients
annually in the United States at risk of MOD. Currently, there are no
commercially available drugs to prevent or treat MOD.

Treatment with Procysteine is a novel pharmacological approach to diseases
associated with oxidative stress and resultant tissue damage such as ARDS and
MOD. Procysteine provides a method for introducing into cells the amino acid
cysteine, an essential building block of glutathione. Preclinical studies have
documented Procysteine's ability to increase intracellular levels of glutathione
and prevent ROS damage. The Company has developed intravenous and oral
formulations of Procysteine and has characterized the safety profile and
pharmacokinetics of these formulations in clinical trials involving over 265
subjects in total.

Company-sponsored Phase II trials with intravenously administered
Procysteine have indicated the potential efficacy of Procysteine in the
treatment of patients with ARDS. In the first Phase II trial, which involved 32
patients treated with Procysteine or placebo, Procysteine-treated patients
gained independence from mechanical ventilation a median of five days earlier
than did placebo-treated patients. The second Phase II trial, which involved a
total of 25 patients, indicated a similar reduction in median days on mechanical
ventilation among Procysteine-treated patients as compared with placebo-treated
patients. Procysteine-treated patients also regained efficiency in transporting
oxygen to the blood stream to a greater degree than did placebo-treated
patients, as indicated by an established measure of lung function.

Under the BI Agreement, the Company granted BI an exclusive worldwide
license to use and sell Procysteine i.v. for all pharmaceutical applications.
The Company has principal responsibility for, and will bear all expenses related
to, clinical development of Procysteine i.v. for use in the treatment of ARDS.
The Company has also granted BI the right, at its election, to participate in
the development of and to commercialize Procysteine i.v. worldwide for the
treatment and prevention of MOD. The Company has retained the right to
co-promote Procysteine i.v. in the United States. The Company is responsible for
manufacturing and supplying BI with Procysteine i.v. for clinical trials and
commercial purposes, including responsibility for manufacturing-related
regulatory compliance. Pursuant to the BI Agreement, BI has paid the Company an
upfront license fee of $5.0 million and has agreed to purchase $5.0 million of
equity securities of the Company in a private placement. BI has expressed its
intention to fulfill this obligation by purchasing $5.0 million of Common Stock
in the Offering at the initial public offering price (454,545 shares of Common
Stock assuming an initial public offering price of $11.00 per share). BI has
also agreed to make additional payments to the Company, which could total up to
$36.0 million, upon the achievement of clinical development and regulatory
milestones relating to ARDS and, if BI exercises its participation rights, to
MOD. More than half of the milestone payments are payable with respect to
MOD-related development. In addition, BI will pay the Company royalties (and, if
applicable, co-promotion payments in the United States) on any sales of
Procysteine i.v.

Based on Procysteine's mechanism of action, the Company believes that the
drug has potential applications in other diseases. Transcend has conducted Phase
I/II clinical trials with Procysteine to determine its potential application for
the treatment of amyotrophic lateral sclerosis and atherosclerotic
cardiovascular disease. The Company plans to evaluate the results of these
trials to determine whether to conduct further Phase II clinical trials for
either or both of these indications. If such studies are conducted and yield
positive results, the Company would seek to outlicense its rights to oral
Procysteine for these indications.

The Company was organized in Delaware in December 1992 under the name Free
Radical Sciences, Inc. and changed its name to Transcend Therapeutics, Inc. in
June 1995. The Company's executive office is located at 640 Memorial Drive,
Cambridge, Massachusetts 02139 and its telephone number is (617) 374-1200.

4
<PAGE> 6
- -------------------------------------------------------------------------------
THE OFFERING

<TABLE>
<S> <C>
Common Stock offered.................................... 2,455,000 shares

Common Stock to be outstanding after the Offering....... 6,334,885 shares(1)

Use of proceeds......................................... To fund clinical trials and research and
development programs, to acquire and/or
license technology rights or compounds
and for other general corporate
purposes.

Proposed Nasdaq National Market symbol.................. TSND
</TABLE>

- ---------------
(1) Based on shares outstanding as of March 31, 1997. Includes an aggregate of
2,995,547 shares of Common Stock issuable upon the automatic conversion of
outstanding shares of Series A, Series B and Series C Convertible Preferred
Stock upon the closing of the Offering, assuming an initial public offering
price of $11.00 per share. If the initial public offering price is less than
$11.00 per share, additional shares of Common Stock will be issued upon the
conversion of shares of Series C Convertible Preferred Stock. See
"Description of Capital Stock -- Series Convertible Preferred Stock." Also
includes an aggregate of $1,039,000 of Common Stock, to be issued upon the
closing of the Offering at the initial public offering price in exchange for
all of the Company's outstanding Nonconvertible Redeemable Preferred Stock
(94,455 shares of Common Stock assuming an initial public offering price of
$11.00 per share). Excludes (i) 362,152 shares of Common Stock issuable upon
exercise of outstanding options as of March 31, 1997 at a weighted average
exercise price of $1.20 per share; (ii) 375,965 additional shares of Common
Stock reserved for future grants of options or awards under the Company's
Amended and Restated 1994 Equity Incentive Plan as of March 31, 1997; (iii)
5,000 shares of Common Stock reserved for issuance upon exercise of a
warrant outstanding as of March 31, 1997 at an exercise price of $5.00 per
share; and (iv) $519,500 of Common Stock reserved for issuance upon the
exercise of warrants to purchase such stock at the initial public offering
price (47,227 shares of Common Stock assuming an initial public offering
price of $11.00 per share). See "Management -- Amended and Restated 1994
Equity Incentive Plan," "Business -- Boehringer Ingelheim," "Certain
Transactions" and "Description of Capital Stock."
- -------------------------------------------------------------------------------

5
<PAGE> 7

SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------- -----------------
1993 1994 1995 1996 1996 1997
------ ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue........................................ $6,095(1) $ -- $ -- $ -- $ -- $5,000(2)
Total operating expenses....................... 6,124 3,742 4,384 3,802 874 1,472
------ ------- ------- ------- ------- -------
Income (loss) from operations.................. (29) (3,742) (4,384) (3,802) (874) 3,528
Other income (expense)......................... -- 139 (66) (325) (138) 25
------ ------- ------- ------- ------- -------
Net income (loss).............................. $ (29) $(3,603) $(4,450) $(4,127) (1,012) 3,553
====== ======= ======= ======= ======= =======
Net income (loss) to common stockholders....... $ (29) $(4,714) $(5,931) $(9,207) $(1,382) $3,523
====== ======= ======= ======= ======= =======
Pro forma net income (loss) per common
share(3)..................................... $ (2.31) $ .88
======= =======
Pro forma weighted average common shares
outstanding(3)............................... 3,981 3,981
======= =======
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(4) AS ADJUSTED(5)
-------- ------------ -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Restricted cash(6)............................................ $ 4,350 $ 4,350 $ 9,350
Unrestricted cash and cash equivalents........................ 1,146 1,146 20,593
Working capital............................................... 4,354 4,354 29,302
Total assets.................................................. 6,797 6,797 30,411
Redeemable preferred stock.................................... 891(7) 891 --
Deficit accumulated during the development stage.............. (16,166) (16,166) (16,344)
Total stockholders' equity (deficit).......................... (15,460) 4,716 29,722
</TABLE>

- ---------------
(1) Reflects a one-time contract research fee of $6,095,000 for various research
and development services. See Note 2 of Notes to Financial Statements.
(2) Reflects a one-time license fee of $5.0 million received in connection with
the signing of the BI Agreement. See "Business -- Boehringer Ingelheim."
(3) See Note 2 of Notes to Financial Statements for information concerning the
computation of pro forma net loss per common share.
(4) Presented on a pro forma basis to give effect to the automatic conversion of
all of the outstanding shares of Series A, Series B and Series C Convertible
Preferred Stock upon the closing of the Offering into an aggregate of
2,995,547 shares of Common Stock (assuming an initial public offering price
of $11.00 per share). See "Certain Transactions" and "Description of Capital
Stock -- Series Convertible Preferred Stock."
(5) As adjusted to give effect to (i) the sale of 2,455,000 shares of Common
Stock offered hereby, at an assumed initial public offering price of $11.00
per share (after deducting estimated underwriting discounts and commissions
and estimated expenses of the Offering) and the receipt of the estimated net
proceeds therefrom; and (ii) the issuance, upon the closing of the Offering,
of an aggregate of $1,039,000 of Common Stock at the initial public offering
price in exchange for all of the Company's outstanding Nonconvertible
Redeemable Preferred Stock (94,455 shares of Common Stock assuming an
initial public offering price of $11.00 per share.) See "Use of Proceeds,"
"Capitalization" and "Certain Transactions."
(6) Actual and Pro Forma restricted cash consist of the balance of the $5
million license fee received in March 1997 in connection with the signing of
the BI Agreement and Pro Forma As Adjusted consists of the balance of the $5
million license fee and gives effect to BI's expressed intention to purchase
$5 million of Common Stock in the Offering at the initial public offering
price. Under the BI Agreement, the license fee and the proceeds from such
purchase are required to be used for the Company's ARDS clinical trial.
(7) Includes all issued and outstanding shares of Series A, Series B and Series
C Convertible Preferred Stock and Nonconvertible Redeemable Preferred Stock.
See "Capitalization," "Certain Transactions" and "Description of Capital
Stock -- Series Convertible Preferred Stock."
------------------------

Except as otherwise noted, all information in this Prospectus, including
financial information, share and per-share data: (i) has been adjusted to
reflect the conversion of all outstanding shares of Series A, Series B and
Series C Convertible Preferred Stock into an aggregate of 2,995,547 shares of
Common Stock upon the
closing of the Offering (assuming an initial public offering price of $11.00 per
share); (ii) has been adjusted to reflect a one-for-five reverse split of the
Common Stock effected in February 1997; and (iii) assumes no exercise of the
Underwriters' over-allotment option. See "Certain Transactions," "Description of
Capital Stock" and "Underwriting."

6
<PAGE> 8

RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
FACTORS SHOULD BE CONSIDERED CAREFULLY BY POTENTIAL INVESTORS IN EVALUATING AN
INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN
THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH DIFFERENCES
INCLUDE THOSE DISCUSSED BELOW.

EARLY STAGE OF PRODUCT DEVELOPMENT. The Company has not completed
development of any drugs and does not expect that any drugs resulting from its
development efforts will be available for several years, if at all. All of the
Company's potential products are in research, preclinical development or
clinical trials. Product development of new pharmaceuticals, including
Procysteine and the Company's other glutathione-repleting agents (the TR-500
compounds), is highly uncertain, and unanticipated developments, clinical or
regulatory delays, unexpected adverse side effects or inadequate therapeutic
efficacy could slow or prevent the product development efforts of the Company
and have a materially adverse effect on the Company's business, financial
condition and results of operations. There can be no assurance that the
Company's current potential products or any future potential products will
advance to clinical trials, prove safe and effective in clinical trials, meet
applicable regulatory standards, be capable of being produced in commercial
quantities at acceptable cost or be successfully marketed.

DEPENDENCE ON PROCYSTEINE. Since its inception, the Company has devoted
its efforts almost entirely to the development of its lead product candidate,
Procysteine, which is the only potential product currently under development by
the Company that is in human clinical trials. Procysteine will require
substantial additional clinical testing and substantial further investment to
determine whether it will prove to be safe and effective. Clinical testing of
safety and efficacy can take several years. In May 1997, the Company began a
Phase III clinical trial (the "Phase III Clinical Trial") to determine the
safety and efficacy of Procysteine for use in the treatment of acute respiratory
distress syndrome ("ARDS"). There can be no assurance that the Phase III
Clinical Trial, or any other such testing, will confirm that Procysteine is safe
or efficacious. In addition, the successful commercialization of Procysteine is
subject to the risks of failure inherent in the development of drug and
biological products and products based on new technologies. These risks include
the possibility that the use of Procysteine as an approach to the treatment of
ARDS or other indications targeted by the Company will not be successful; that
Procysteine will not be safer, more effective or more economical than
pharmaceutical or non-pharmaceutical products or treatments currently on the
market or subsequently introduced; that third parties will market superior or
equivalent products for the treatment of ARDS or other indications targeted by
the Company; that Procysteine will not prove safe or effective or will fail to
receive necessary regulatory clearance; that Procysteine will be difficult or
uneconomical to manufacture on a large scale; or that proprietary rights of
third parties will preclude the Company from marketing Procysteine, any of which
would have a material adverse effect on the Company's business, financial
condition and results of operations and could result in the Company being forced
to discontinue operations. The Company does not currently conduct any internal
discovery or research. In addition, the Company's product development efforts
are based on its approach of repleting glutathione to treat or prevent diseases
associated with oxidative tissue damage. As a result, in the event that the
Company is unsuccessful in completing the development and commercialization of
Procysteine as a treatment for ARDS or other indications targeted by the Company
or if such approach is otherwise unsuccessful, the Company will be required to
identify and license or acquire alternative technologies or compounds in order
to develop product candidates, of which there can be no assurance. In the event
that Procysteine does not prove to be safe, effective and commercially
attractive, it is unlikely that the Company would continue to pursue development
of the use of intracellular glutathione-repleting agents for the treatment of
oxidative stress, and the Company's business, financial condition and results of
operations would be materially and adversely affected.

7
<PAGE> 9

DEPENDENCE ON BOEHRINGER INGELHEIM. The Company has entered into a
Development and License Agreement with Boehringer Ingelheim International GmbH
("BI") (the "BI Agreement") for the worldwide development and marketing of
intravenous formulations of Procysteine ("Procysteine i.v."). Under the BI
Agreement, the Company granted BI an exclusive worldwide license to use and sell
Procysteine i.v. for all pharmaceutical applications. The Company has retained
certain rights with respect to the marketing and sales of Procysteine i.v. in
the United States. See "Business -- Boehringer Ingelheim." The BI Agreement
requires BI, at its own expense, to use reasonable diligence to market
Procysteine i.v. in each major market country, following receipt of necessary
regulatory approvals, with a level of effort consistent with the efforts used
for other BI products having similar commercial potential. There can be no
assurance, however, that BI will commit sufficient marketing resources to the
commercialization of Procysteine i.v. or otherwise perform its obligations under
the BI Agreement. The failure of BI to commit sufficient marketing resources to
the commercialization of Procysteine i.v. or otherwise perform its obligations
under the BI Agreement would have a material adverse effect on the Company's
business, financial condition and results of operations.

Under the BI Agreement, the Company has principal responsibility for, and
will bear all expenses related to, the clinical development of Procysteine i.v.
for use in the treatment of ARDS in countries other than Japan. BI has certain
rights, exercisable until the end of 1997, to develop and commercialize
Procysteine in Japan. If BI does not exercise its rights during 1997, all rights
to Procysteine i.v. in Japan will revert to the Company. The Company is also
responsible for the expenses of obtaining any necessary regulatory approvals in
these countries. In addition, the Company is responsible for manufacturing and
supplying BI with Procysteine i.v. for clinical trials and commercial purposes,
including responsibility for manufacturing-related regulatory compliance. The
Company's right to receive milestone payments and, ultimately, royalties is
based upon successful performance of such obligations. There can be no assurance
that the Company will have the financial or logistical resources to meet these
obligations or that the Company will achieve the development and regulatory
milestones necessary to earn such payments. Failure to perform these obligations
or achieve such milestones would have a material adverse effect on the Company's
business, financial condition and results of operations.

Pursuant to the BI Agreement, in March 1997, BI paid the Company an upfront
license fee of $5.0 million (the "BI License Fee") and has agreed to purchase
$5.0 million of equity securities of the Company in a private placement. BI has
expressed its intention to fulfill this obligation by purchasing $5.0 million of
Common Stock in the Offering at the initial public offering price (454,545
shares of Common Stock assuming an initial public offering price of $11.00 per
share). BI has agreed to make additional payments to the Company, which could
total up to $36.0 million, upon the achievement of clinical development and
regulatory milestones relating to the ARDS and multiple organ dysfunction
("MOD") indications. Of such amount, more than half is payable only with respect
to development relating to MOD. BI has the right, but not the obligation, to
participate in the development of and to commercialize Procysteine i.v. for the
treatment and prevention of MOD. If BI exercises its rights with respect to the
MOD indication, it will be required to share in clinical development funding or
reimburse the Company for clinical development costs. However, BI is not
required to exercise its rights until late in the product development process,
if at all. There can be no assurance that BI will exercise its rights with
respect to MOD. As such, there can be no assurance that the Company will be able
to gain access to the resources (financial and other) necessary to conduct
required MOD clinical trials or complete the development of Procysteine i.v. for
MOD if BI declines to exercise its rights or defers such exercise until later in
the product development process or that the Company will ever receive milestone
payments in connection with its MOD program.

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<PAGE> 10

treatment of ARDS. Any such termination would have a material adverse effect on
the Company's business, financial condition and results of operations.

UNCERTAINTY ASSOCIATED WITH CLINICAL TRIALS. Before obtaining regulatory
approvals for the commercial sale of any of the Company's potential products,
the products will be subjected to extensive preclinical and clinical testing to
demonstrate their safety and efficacy in humans. Preclinical studies of product
candidates may not predict and do not ensure safety or efficacy in humans and
are not necessarily indicative of the results that may be achieved in clinical
trials with humans. To date, the Company has tested its lead product candidate,
Procysteine, in limited numbers of subjects in Phase I and Phase II clinical
trials. The results from these clinical trials are not necessarily predictive of
results that will be obtained from more extensive clinical testing, including
the Company's Phase III Clinical Trial. There can be no assurance that
additional clinical trials, including the Phase III Clinical Trial, will
demonstrate the safety and efficacy of Procysteine to the extent necessary to
obtain regulatory approvals. Companies in the biotechnology industry have
suffered significant setbacks in advanced clinical trials, even after promising
results in earlier trials. The dosage level of Procysteine being administered in
the Phase III Clinical Trial is higher than that administered in the earlier
human clinical trials. There can be no assurance that administration of
Procysteine at this dosage level, or at such other dosage level required for
therapeutic efficacy, will result in a safety profile comparable to or more
favorable than earlier studies. The failure to adequately demonstrate the safety
and efficacy of Procysteine or any other product candidate could delay or
prevent regulatory approval and would have a material adverse effect on the
business, financial condition and results of operations of the Company. See
"Business -- Product Development Programs."

Although two clinical trials are a customary basis for approval of new
drugs, based on discussions with the United States Food and Drug Administration
(the "FDA"), if the results of the Phase III Clinical Trial are conclusive, the
Company expects to be able to submit an NDA upon completion of one trial. If the
results of the Phase III Clinical Trial alone are not conclusive, the Company
does not currently plan to conduct further Phase III clinical trials of
Procysteine i.v. for the treatment of ARDS. In the event the Company elects to
conduct further Phase III clinical trials of Procysteine for the treatment of
ARDS, the Company may be required to obtain substantial additional funds, and
there can be no assurance that the Company would be able to obtain such funds on
acceptable terms, if at all. See "Risk Factors -- Need for Substantial
Additional Funds." In addition, there can be no assurance that the Company's
Phase III Clinical Trial will be completed on a timely basis or at all, that the
trial will demonstrate the safety and efficacy of Procysteine to the extent
necessary to obtain regulatory approvals, or that the FDA will not require
additional studies to support regulatory approval.

The rate of completion of clinical trials is dependent upon, among other
factors, the enrollment of patients. Patient accrual is a function of many
factors, including the size of the patient population, the proximity of patients
to clinical sites, the eligibility criteria for the trial to be performed, the
existence of competitive clinical trials and the availability of other approved
therapies. The protocol for the Company's Phase III Clinical Trial of
Procysteine for ARDS calls for an interim analysis to confirm the
appropriateness of the sample size. The results of the analysis could lead the
Company to increase the number of patients in the trial. Delays in planned
patient enrollment or increases in the number of required patients in the
Company's Phase III Clinical Trial or future clinical trials of Procysteine or
other potential products may result in increased costs, program delays or both,
which would have a material adverse effect on the Company. In addition, the
Company has a limited clinical staff and, as a result, will rely on third
parties to assist it in monitoring and analyzing the Phase III Clinical Trial,
which may result in delays in completing, or failure to complete, clinical
trials if such third parties fail to perform under their agreements with the
Company or fail to meet regulatory standards in the performance of their
obligations under such agreements. There can be no assurance that, if the Phase
III Clinical Trial is completed, the Company will be able to submit a new drug
application ("NDA") or its equivalent in countries outside the United States as
scheduled or that any such application will be reviewed and approved by the FDA
or comparable agencies in foreign countries in a timely manner, or at all. See
"Business -- Government Regulation." Even if cleared by the FDA or the
regulatory

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<PAGE> 11

authorities of other countries, Procysteine may later be shown to be unsafe or
to not have its purported effect, thereby preventing its widespread use or
requiring its withdrawal from the market.

HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY. The Company is a
development stage company that commenced operations in January 1993. No revenues
have been generated from product sales, and product sales revenues are not
anticipated for a number of years, if at all. The Company had a deficit
accumulated during the development stage of approximately $16.2 million as of
March 31, 1997. The continued development of the Company's products will require
the commitment of substantial resources to conduct or contract with others to
conduct research and preclinical development and clinical testing, and to
establish sales, marketing, quality control, regulatory and administrative
capabilities. Accordingly, the Company expects to continue to incur substantial
operating losses for at least the next several years. The size of net losses and
the time required by the Company to reach and to sustain profitability are
highly uncertain. To achieve profitability, the Company must, alone or with
others, successfully complete development of Procysteine, obtain necessary
regulatory approvals, establish manufacturing, sales and marketing capabilities
and successfully market such product. As such, there can be no assurance that
the Company will be able to achieve or, if achieved, sustain, profitability.

NO ASSURANCE OF FDA APPROVAL; COMPREHENSIVE GOVERNMENT REGULATION. The
research, development, clinical testing, manufacturing and marketing of
therapeutic products are subject to extensive regulation by numerous
governmental authorities in the United States and other countries. All of the
Company's potential products will require governmental approvals for
commercialization, which approvals have not yet been obtained and are not
expected to be obtained for several years, if at all. Preclinical and clinical
trials and manufacturing of all of the Company's potential products, including
its lead product candidate, Procysteine, will be subject to the rigorous testing
and approval processes of the FDA and corresponding foreign regulatory
authorities. The regulatory process, which includes preclinical studies and
clinical testing of potential products to establish their safety and efficacy,
requires many years to complete and the expenditure of substantial resources.
Data obtained from preclinical and clinical activities are susceptible to
varying interpretations which could delay, limit or prevent regulatory approval.
In addition, delays or rejection may be encountered based upon changes in, or
additions to, regulatory policies for drug approval during the period of product
development and regulatory review. The Company, an independent Safety Monitoring
Board ("SMB") or the FDA may suspend clinical trials at any time if the
participants in such trials are being exposed to unacceptable health risks.
Delays in obtaining such approvals could adversely affect the marketing of
products developed by the Company and the Company's ability to generate
commercial product revenues. There can be no assurance that requisite regulatory
approvals will be obtained within a reasonable period of time, if at all.
Moreover, if regulatory approval of a product is granted, such approval may
impose limitations on the indicated uses for which such product may be marketed.
Further, even if such regulatory approval is obtained, a marketed product, its
manufacturer and its manufacturing facilities are subject to continual review
and periodic inspections. Among the conditions for product approval and
continued marketing approval is that the quality control and manufacturing
procedures of the Company or its collaborative partners or contract
manufacturers conform to the FDA's current good manufacturing practice ("cGMP")
regulations which must be followed at all times. In complying with cGMP
requirements, manufacturers must expend time, money and effort on a continuing
basis in production, record keeping and quality control. Manufacturing
establishments, both domestic and foreign, are subject to inspection by or under
the authority of the FDA and by other federal, state and local agencies. Failure
to pass such inspections may subject the manufacturer to possible FDA actions
such as the suspension of manufacturing, seizure of the product, withdrawal of
approval or other regulatory sanctions. The FDA also may require the
manufacturer to recall a product from the market. The Company is responsible for
ensuring manufacturing-related regulatory compliance under the BI Agreement. The
failure by the Company, its corporate collaborators or contract manufacturers to
comply with cGMP could result in a breach of the BI Agreement and could have a
material adverse effect on the business, financial condition and results of
operations of the Company.

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<PAGE> 12

Discovery of previously unknown problems with a product, manufacturer or
facility may result in restrictions on such product or manufacturer, including
withdrawal of the product from the market. Failure to comply with the applicable
regulatory requirements can, among other things, result in fines, suspensions of
regulatory approvals, product recalls, operating restrictions and criminal
prosecution. The Company is also subject to numerous environmental, health and
workplace safety laws and regulations, including those governing laboratory
procedures and the handling of biohazardous materials. Any violation of, and the
cost of compliance with, such laws and regulations could adversely affect the
Company's operations. See "Business -- Government Regulation."

UNCERTAINTY OF MARKET ACCEPTANCE. The Company's success, growth and
profitability will depend primarily on market acceptance of Procysteine, if
cleared for marketing by the FDA, for the treatment of ARDS and other
indications targeted by the Company. Physicians may be reluctant or unwilling to
prescribe a product such as Procysteine unless they determine that the clinical
benefits to the patient and the cost savings achieved through the use of
Procysteine are significant. Such determination will depend, in part, upon
Procysteine's effectiveness, safety, ease of use and level of third-party
reimbursement. Even if the benefits of Procysteine are established as clinically
significant, physicians, pharmacists and other health care providers may elect
not to purchase, prescribe or administer Procysteine for any number of reasons.
As a result, there can be no assurance that demand for Procysteine will be
sufficient to allow for profitable operations. Because Procysteine represents
the Company's primary product focus, if Procysteine does not achieve a
significant level of market acceptance, the Company's business, financial
condition and results of operation would be materially and adversely affected.

NEED FOR SUBSTANTIAL ADDITIONAL FUNDS. The Company expects negative
cash-flows from operations to continue and to increase for the foreseeable
future. The Company will need substantial additional funds to fund its existing
and planned preclinical studies and clinical trials, and other operating
expenses. The Company anticipates that the net proceeds from the Offering, and
the $5.0 million BI License Fee payment, including interest thereon, together
with the Company's existing funds, will be sufficient to fund its operating
expenses and capital requirements as currently planned for at least the next 24
months. However, there can be no assurance that the Company's assumptions
regarding future operating losses and operating expenses will be accurate. In
addition, under the BI Agreement, the Company has agreed to use the aggregate
$10.0 million in proceeds from BI only for the clinical development of
Procysteine i.v. for use in the treatment of ARDS. The Company's actual working
capital needs and funding requirements will depend upon numerous factors,
including the progress of the external research and development programs being
supported by the Company, the magnitude and scope of these activities, the
timing, costs and results of preclinical development and clinical testing,
including the Company's Phase III Clinical Trial, the timing and costs of
obtaining regulatory approvals, the level of resources that the Company commits
to the development of manufacturing, marketing and sales capabilities, if any,
whether BI elects to participate in and co-fund the development of the Company's
MOD program, the ability of the Company to establish new and maintain existing
collaborative arrangements with BI and other companies to provide funding to the
Company, the costs of any acquisitions and/or licensing of technology rights,
products or businesses, the technological advances and activities of
competitors, the cost involved in preparing, filing, prosecuting, maintaining,
enforcing and defending patent claims and other intellectual property rights,
developments related to regulatory and reimbursement matters and other factors.
The Company intends to seek additional funding through corporate collaborations
such as its collaboration with BI. There can be no assurance that the Company
will be able to negotiate such agreements on acceptable terms, or at all. The
Company will also seek additional funding through public or private financings.
If additional funds are raised by issuing equity securities, further dilution to
stockholders will result. Debt financing, if available, may involve restrictive
covenants. If adequate funds are not available, the Company may be required to
delay, scale back or eliminate certain of its product development programs,
license to others rights to commercialize products or technologies that the
Company would otherwise seek to develop and commercialize itself or cease
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

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<PAGE> 13

DEPENDENCE ON RESEARCH AND CLINICAL COLLABORATORS AND SCIENTIFIC
ADVISORS. The Company does not have any research facilities and does not intend
to conduct internal discovery activities. Substantially all of the Company's
research and clinical testing activities are performed by third parties. The
Company's strategy for development and commercialization of products depends
upon the formation of collaborations with academic and other institutions to
perform research, development and clinical testing functions for the Company and
to access technology. The Company is dependent upon creating and maintaining
relationships with collaborators at academic and other institutions who conduct
a substantial portion of the Company's research, development and clinical
testing. Such collaborators are not employees of the Company. All of the
Company's consultants are employed by employers other than the Company and may
have commitments to, or consulting or advisory contracts with other entities
that may limit their availability to the Company. As a result, the Company has
limited control over their activities and, except as otherwise required by its
collaboration and consulting agreements, can expect only limited amounts of
their time to be spent on the Company's activities. The failure of these third
parties to perform their obligations under such agreements or to devote adequate
time to the Company's projects could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
also seeks to protect its proprietary technology, including technology which may
not be patented or patentable, in part by confidentiality agreements and, if
applicable, inventor's rights agreements with its collaborators, advisors,
employees and consultants. There can be no assurance that these agreements will
not be breached, that the Company will have adequate remedies for any breach, or
that the Company's trade secrets will not be otherwise disclosed to or
discovered by competitors. Any unauthorized dissemination of the Company's
confidential information could have an adverse effect on the Company's business.
The Company's completion of its Phase III Clinical Trial and the research and
development of and access to other potential products or technologies will
depend on continued collaborations with researchers at academic and other
institutions. There can be no assurance that the Company will be able to
negotiate additional acceptable collaborations with collaborators at academic
and other institutions or that its existing collaborations will be successful.

RAPID TECHNOLOGICAL CHANGE; INTENSE COMPETITION. The biotechnology and
pharmaceutical industries are subject to rapid and significant technological
change. The Company competes with all entities developing and producing
pharmaceuticals for the treatment of ARDS or MOD or other diseases which may be
the subject of future product development efforts of the Company. Competitors of
the Company in the United States and abroad are numerous and include, among
others, pharmaceutical and biotechnology companies, universities and other
research institutions. The Company's competitors may succeed in identifying and
developing products that are more effective than those of the Company or in
obtaining regulatory approvals of their drugs more rapidly than the Company and
such success could render the Company's products obsolete or non-competitive and
have a material adverse effect on the Company's business, financial condition
and results of operations. As a result, the Company's success depends upon
developing and maintaining a competitive position in the development of products
and technologies in its area of focus.

Competition in the pharmaceutical and biotechnology industry is intense and
is expected to continue to increase. Many of the Company's competitors are
actively engaged in the research and development of products in the Company's
targeted areas. Many of these competitors have substantially greater financial
and technical resources and product and marketing capabilities than the Company,
as well as considerable experience in preclinical testing, human clinical trials
and other regulatory approval procedures, and certain of these competitors may
compete with the Company in establishing development and marketing agreements
with pharmaceutical companies. There is currently no commercially available drug
to treat ARDS. There can be no assurance that research and development by others
will not render any of the Company's planned products obsolete or uneconomical,
or result in therapies superior to any developed by the Company, or that any
products developed by the Company will be preferred to any existing or newly
developed technologies or therapies.

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<PAGE> 14

LIMITED SOURCE OF SUPPLY; DEPENDENCE ON THIRD-PARTY MANUFACTURERS. To be
successful, the Company's products, including Procysteine, if successfully
developed, must be manufactured in commercial quantities in accordance with
regulations prescribed by the FDA, at acceptable costs and on a timely basis and
in accordance with the Company's obligations to any collaborators, including BI.
The Company is responsible for manufacturing and supplying BI with Procysteine
i.v. for clinical and commercial purposes. The Company does not have the
capability to manufacture products under cGMP regulations prescribed by the FDA
and does not intend to develop such a capability in the near future.
Accordingly, the Company anticipates that, for the foreseeable future, it will
pursue a strategy of seeking production capability from outside vendors or
corporate collaborators. The Company does not have a long term, fixed price
supply agreement for Procysteine, but rather obtains Procysteine by issuing
purchase orders to its supplier on an as needed basis. There can be no assurance
that the Company's existing or future outside vendors or prospective corporate
collaborators will be able to manufacture Procysteine or any other product which
is successfully developed by the Company on a commercial scale in compliance
with cGMP or other regulatory guidelines or that any collaborator or vendor will
be able to manufacture such products on a timely basis or in quantities of a
quality or at prices which will be commercially viable or beneficial for the
Company or will satisfy the Company's obligations to any collaborators,
including BI. In February 1997, the Company's sole supplier of bulk drug
substance for Procysteine was issued a warning letter by the FDA for failure to
be in compliance with cGMP. The FDA has indicated that, until the supplier is in
compliance with cGMP, it will recommend disapproval of any NDA listing this
supplier as the supplier of bulk drug substance. Because the Company believes it
has sufficient supplies to complete its Phase III Clinical Trial, it does not
believe that the supplier's existing issues with the FDA will affect the
completion of the trial, although no assurance to that effect can be given. If
the supplier does not resolve its noncompliance prior to the time, if ever, that
the Company files an NDA and if an alternate supplier, if needed, is not
available on acceptable terms prior to such NDA filing, the Company would be
materially and adversely affected. While the Company also believes that
alternate suppliers of its bulk drug substance for Procysteine would be
available, such suppliers would need to be identified and qualified by the FDA.
There can be no assurance that any such suppliers would be qualified by the FDA
or be able to satisfy the Company's requirements on a timely basis, if at all.
In addition, a termination or interruption in the Company's supply of bulk drug
substance for Procysteine or a failure generally to obtain third-party
manufacturing on commercially acceptable terms and on a timely basis, would
delay or foreclose the Company's ability to commercialize products, in which
case its business, financial condition and results of operations would be
materially and adversely affected.

LACK OF COMMERCIAL SALES AND MARKETING EXPERIENCE; DEPENDENCE ON STRATEGIC
ALLIANCES. The Company does not have experience in marketing, sales,
distribution or support of commercial products. To succeed in marketing any of
its products, the Company must develop and maintain a sales force with
sufficient marketing and technical expertise to commercialize and provide
support for its products. Alternatively, the Company must obtain such
capabilities through third parties. To date, the Company has entered into one
strategic alliance for the development and marketing of intravenous formulations
of the Company's lead product candidate, Procysteine. See "Risk
Factors -- Dependence on Boehringer Ingelheim." There can be no assurance that
the Company will be able to establish in-house sales and distribution
capabilities or gain market acceptance for its products or enter into other
strategic relationships without undue delays or expenditures. Any such delay or
expenditure could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
current or future collaborators, if any, will commit sufficient marketing and
other resources towards developing, promoting and commercializing its products.
Further, competitive conflicts may arise among these third parties that could
prevent them from working cooperatively with the Company. The amount and timing
of resources devoted to these activities by such parties generally would be
controlled by such partners. In addition, strategic relationships generally
provide the collaborator with the right to terminate an agreement in part or in
full under certain circumstances. Any termination of a strategic relationship
for any reason could substantially reduce the likelihood that the collaborative
product candidate would be developed, would obtain regulatory approvals and be

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<PAGE> 15

successfully commercialized on a timely basis, if at all, and any such
termination could, therefore, have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's royalties
from sales of products licensed to collaborators, if any, may be less than the
revenues the Company could have generated had it commercialized and marketed
products itself. There can be no assurance that the Company would be successful
in establishing or maintaining future collaborative arrangements, that any
collaborative partners would be successful in developing and commercializing
products or that the Company would generate revenues from royalties sufficient
to offset the Company's significant investment in research and development and
other costs.

PATENTS AND PROPRIETARY RIGHTS; THIRD-PARTY RIGHTS. The Company's
commercial success will depend, to a significant extent, on the Company's and
any licensor's ability to obtain patent protection for its products and methods,
including methods for treating or preventing human disease. The Company is
conducting research and expects to seek additional patents in the future. The
Company's success will depend to a significant extent on its ability to obtain
and enforce patents, maintain trade secret protection and operate without
infringing the patents and proprietary rights of third parties.

The Company has obtained from the Cornell Research Foundation ("Cornell"),
an exclusive license (the "Cornell Agreement") under certain patents covering
methods of using Procysteine, the Company's lead product candidate, to increase
intracellular levels of glutathione and/or cysteine. The last of these United
States patents licensed from Cornell expires in 2004. The expiration of such
U.S. patent protection may have a material adverse effect on the ability of the
Company to exclude others from making, using or selling Procysteine for use in
methods of treating or preventing the diseases discussed in this Prospectus. The
Company has also licensed corresponding patents in Canada, United Kingdom,
Germany, France, Austria and Sweden. The Company's rights under the Cornell
Agreement further include an exclusive license under a United States patent to a
composition of matter for the TR-500 series of glutathione-repleting agents
("TR-500 Compounds"). In addition, the Company owns a United States patent
application for the use of Procysteine in treating pulmonary disease, including
ARDS. The Company recently received a final Office Action, from the U.S. Patent
and Trademark Office ("USPTO"), rejecting the claims of this patent application
as being obvious over a combination of prior art references. Final Office
Actions commonly are issued by the USPTO. While receipt of a final Office Action
may impose certain procedural limitations on an applicant's subsequent
submissions in a particular case, it does not signal the end of the prosecution
process. The Company intends to respond vigorously to the final Office Action,
by the presentation of additional arguments and facts in support of its position
that the patent application contains patentable subject matter. There can be no
assurance, however, that this patent application ultimately will issue as a
patent in the United States, or, if it issues, as to the breadth of the claims.
A corresponding European patent has issued and has been validated as national
patents in Austria, Belgium, Denmark, France, Germany, Greece, Italy,
Luxembourg, Monaco, the Netherlands, Portugal, Spain, Sweden, Switzerland and
the United Kingdom, all of which expire in 2011. Corresponding patent
applications are pending in Canada, Australia and Japan. By July 16, 1997, any
person may give notice to the European Patent Office of opposition to the
European patent. An adverse decision in any such opposition may result in
revocation of the European patent and the national patents which issued
therefrom. The Company may be required to obtain licenses to patents or other
proprietary rights of third parties in addition to its license from Cornell. No
assurance can be given that any licenses required under any such patents or
proprietary rights would be made available on terms acceptable to the Company,
if at all. If the Company does not obtain such licenses, it could encounter
delays in product market introductions while it attempts to design around such
patents or other rights, or it may be unable to develop, manufacture or sell
products.

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<PAGE> 16

inventors. In addition, the coverage originally claimed in a patent application
can be significantly reduced or modified before and after a patent is issued.
Consequently, there can be no assurance that any of the Company's or any
licensor's pending or future patent applications will result in the issuance of
patents or, if any patents are issued, whether the patents will be subjected to
further proceedings limiting their scope, and whether they will provide
significant proprietary protection or competitive advantage, or will be
circumvented or invalidated. Because patent applications in the United States
are maintained in secrecy until patents issue and patent applications in certain
other countries generally are not published until more than 18 months after they
are filed, and since publication of inventions in scientific or patent
literature often lags behind actual dates of invention, the Company cannot be
certain that it or any licensor was the first inventor of inventions covered by
pending patent applications or that it or such licensor was the first to file
patent applications on such inventions.

There can be no assurance that the Company's or any licensor's patents, if
issued, would not be found invalid or unenforceable by a court or that such
patents would cover products or technologies of the Company's competitors.
Competitors or potential competitors may have filed applications for or received
patents, and may obtain additional patents and proprietary rights relating to
products or methods for treating or preventing human disease that are
competitive with those of the Company. To protect its proprietary rights, the
Company may be required to participate in interference proceedings declared by
the USPTO to determine priority of invention, which could result in substantial
cost to the Company. Moreover, even if the Company's patents issue, there can be
no assurance that they will provide sufficient proprietary protection or will
not be later limited, circumvented or invalidated.

There is substantial uncertainty concerning whether human clinical data
will be required for the issuance of patents for methods of treating or
preventing human disease, particularly for diseases such as ARDS and MOD, for
which the Company believes there is currently no commercially available drug for
prevention or treatment. If such data is required, the Company's ability to
obtain patent protection could be delayed or otherwise adversely affected.
Although the USPTO issued new utility guidelines in July 1995 that address the
requirements for demonstrating utility for biotechnology inventions, including
inventions relating to methods for treating or preventing human diseases, there
can be no assurance that USPTO patent examiners will follow such guidelines or
that the USPTO's position will not change with respect to what is required to
establish utility for methods of using Procysteine or future potential products
of the Company in the treatment of human diseases. Nor can it be assured that
compliance with such guidelines will result in patents that are valid and
enforceable. Furthermore, the enactment of legislation implementing the General
Agreement on Trade and Tariffs has resulted in certain changes to United States
patent laws that became effective on June 8, 1995. Most notably, the term of
patents that issue from patent applications filed on or after June 8, 1995 is no
longer a period of 17 years from the date of grant. The new term of United
States patents will commence on the date of issuance and terminate 20 years from
the earliest claimed filing date of the application. Because the time from
filing to issuance of biotechnology patent applications is often more than three
years, a 20-year term from the claimed date of filing may result in a
substantially shortened term of patent protection, which may adversely impact
the Company's patent position. In addition, if this change results in a shorter
period of patent coverage, and if the Company negotiates royalties based on the
existence of a valid patent, the Company's business could be adversely affected.

The Company was independently approached by two individuals, each claiming
to be the first and sole inventor of the use of Procysteine in the treatment of
patients with amyotrophic lateral sclerosis ("ALS"). One of those individuals is
employed by Massachusetts General Hospital, where the Company has sponsored a
clinical trial for the administration of Procysteine to ALS patients. Two
identical patent applications, each naming one of the individuals as sole
inventor, have been filed at the Company's expense and with full disclosure of
the two patent applications to each individual and Massachusetts General
Hospital. There can be no assurance that the subject matter of these patent
applications is patentable over prior art. If the claims are found allowable in
the two applications, it is expected that an interference will be declared
between the two patent applications and the USPTO will determine priority of
invention. There can be no assurance that the Company will be able to obtain a

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<PAGE> 17

license to any patent that issues or that any such license, if obtained, would
be on terms acceptable to the Company. If the Company cannot obtain such a
license, the Company will not be able to develop, market and sell Procysteine
for use in the treatment of ALS.

The Company also seeks to protect its proprietary technology, including
technology which may not be patented or patentable, in part by confidentiality
agreements and, if applicable, inventor's rights agreements with its
collaborators, advisors, employees and consultants. There can be no assurance
that these agreements will not be breached, that the Company will have adequate
remedies for any breach, or that the Company's trade secrets will not be
otherwise disclosed to, or discovered by, competitors. Moreover, the Company
conducts a significant amount of research through academic advisors and
collaborators who are prohibited from entering into confidentiality or
inventor's rights agreements by their academic institutions. Any unauthorized
dissemination of the Company's confidential information could have an adverse
effect on the Company's business.

MANAGEMENT OF GROWTH; RISK OF ACQUIRING NEW TECHNOLOGIES. One of the
Company's strategies is to build a product pipeline by acquiring and/or
licensing technology rights, products or businesses. The Company's strategy
could involve the retention of additional personnel, the establishment of new or
expanded facilities and the acquisition of technology rights, products,
equipment, businesses or assets of other companies. There can be no assurance
that the Company's management personnel, systems, procedures and controls will
be adequate to support the expansion of the Company's operations. The
acquisition of additional personnel, technology rights, products, equipment,
businesses or assets of other companies, as well as the entry into new areas of
scientific research, will require the dedication of management resources in
order to achieve its strategic objectives. There can be no assurance that the
Company will be able to manage successfully the growth and expansion of its
operations. Failure of the Company to manage its growth, or any specific
acquisition of additional capabilities, could have a material adverse effect on
the Company's business, operating results and financial condition.

POTENTIAL FOR CONFLICT WITH CLINTEC. In connection with the formation of
the Company and the contribution and licensing of certain assets and technology
to the Company by Clintec Nutrition Company ("Clintec") and Cornell, the Company
holds the rights to certain patents and related technology covering methods of
using Procysteine and the TR-500 Compounds ("Covered Technology"). The Company
has granted to Clintec an exclusive, royalty-free sub-license to the use of the
Covered Technology for certain clinical nutrition and nutritional applications
while retaining exclusive rights to all pharmaceutical applications. Although no
disputes have arisen to date regarding the exclusive rights of the Company,
Clintec or its successors in their respective fields, such a dispute could have
a material adverse effect on the Company's ability to enter into corporate
alliances and license arrangements, and if resolved in a manner adverse to the
Company would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Technology and
License Agreements."

PRODUCT LIABILITY. The testing, marketing and sale of human therapeutic
products entail an inherent risk of exposure to product liability claims by
consumers, health care providers, pharmaceutical and biotechnology companies or
other sellers of the Company's products. There can be no assurance that
substantial product liability claims will not be asserted against the Company.
While the Company has liability insurance with respect to clinical trials, there
can be no assurance that the Company will be able to maintain clinical trial
liability insurance on acceptable terms or that such insurance will provide
adequate coverage against potential liabilities. The Company does not have
product liability insurance coverage for the commercial sale of Procysteine, the
Company's lead product candidate. The Company will seek to obtain product
liability insurance coverage for commercial sales if and when its products are
commercialized. However, there can be no assurance that adequate insurance
coverage will be available in sufficient amounts and at acceptable costs, if at
all. In addition, pursuant to the terms of the licensing agreements entered into
by the Company, including the agreement licensing methods of using Procysteine
in the treatment of human diseases, the Company has agreed to indemnify certain
third parties with respect to losses incurred as a result of the

16
<PAGE> 18

manufacture, supply or sale of potential product candidates. The Company has
also agreed to indemnify BI with respect to any claims relating primarily to the
manufacture of Procysteine i.v. Any indemnification or product liability claim
or product recall could inhibit or prevent commercialization of products being
developed by the Company and otherwise have a material adverse effect on the
Company's business, financial condition and results of operations.

UNCERTAINTY OF PHARMACEUTICAL PRICING, REIMBURSEMENT AND RELATED
MATTERS. The Company's business, financial condition and results of operations
may be materially adversely affected by the continuing efforts of government and
third-party payors to contain or reduce the costs of health care through various
means. For example, in certain foreign markets, pricing and profitability of
prescription pharmaceuticals are subject to government control. In the United
States, the Company expects that there will continue to be a number of federal
and state proposals to implement similar government control. While the Company
cannot predict whether any such regulatory proposals will be adopted or the
effect such proposals may have on its business, the pendency of such proposals
could have a material adverse effect on the Company's ability to raise capital,
and the adoption of such proposals could have a material adverse effect on the
Company in general. In addition, increasing emphasis on managed care in the
United States will continue to put pressure on the pricing of pharmaceutical
products. Cost control initiatives could decrease the price that the Company or
its strategic partners, if any, receive for any products in the future and could
have a material adverse effect on the Company's business, financial condition
and results of operations.

The ability of the Company to commercialize pharmaceutical products may
depend in part on the extent to which reimbursement for the products will be
available from government and health administration authorities, private health
insurers and other third-party payors. Significant uncertainty exists as to the
reimbursement status of newly approved health care products. Third-party payors,
including Medicare, increasingly are challenging the price and cost
effectiveness of medical products and services. Government and other third-party
payors are increasingly attempting to contain health care costs by limiting both
coverage and the level of reimbursement for new therapeutic products and by
refusing in some cases to provide coverage for uses of approved products for
disease indications for which the FDA has not granted labeling approval. There
can be no assurance that any third-party insurance will cover use by patients of
Procysteine or products developed by the Company or its strategic partners, if
any, or that adequate third-party reimbursement will be available to enable the
Company to maintain price levels sufficient to realize an appropriate return on
its investment in product development. Failure to achieve sufficient price
levels for its drugs could adversely affect the Company's business, financial
condition and results of operations. In addition, if adequate coverage and
reimbursement levels are not provided by government and other third-party payors
for the Company's products, the market acceptance of these products may be
reduced, which may have a material adverse effect on the Company's business,
financial condition and results of operations.

DEPENDENCE ON KEY PERSONNEL. The Company is highly dependent on the
members of its management and scientific staff, the loss of one or more of whom
could have a material adverse effect on the Company. The Company's employment
agreements with each of its executive officers may be terminated by the employee
upon short notice. The Company also depends on its scientific collaborators and
advisors, all of whom have commitments that may limit their availability to the
Company. In addition, the Company believes that its future success will depend
in large part upon its ability to attract and retain highly skilled scientific,
managerial and marketing personnel, particularly as the Company expands its
activities in clinical trials, the regulatory approval process and sales and
marketing. The Company faces significant competition for such personnel from
other companies, research and academic institutions, government entities and
other organizations. There can be no assurance that the Company will be
successful in hiring or retaining the personnel it requires for continued
growth. The failure to hire and retain such personnel could materially and
adversely affect the Company's prospects.

MANAGEMENT DISCRETION AS TO USE OF PROCEEDS. The Company expects to use
approximately $8.0 million of the net proceeds of the Offering (in addition to
the BI License Fee) to fund its Phase III

17
<PAGE> 19

Clinical Trial. The Company will use the remaining net proceeds of the Offering
for other research and development, preclinical and clinical programs, to
acquire and/or license technology rights or compounds, and for other general
corporate purposes. As such, the Company's management will retain broad
discretion as to the allocation of a significant portion (approximately 67%) of
the net proceeds of the Offering. As a result of such discretion, the Company's
management could allocate the proceeds of the Offering to uses which the
shareholders may not deem desirable. In addition, there can be no assurance that
the proceeds can or will be invested to yield an acceptable return. See "Use of
Proceeds."

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Sales of substantial
amounts of Common Stock in the public market after the Offering, or the
possibility of such sales occurring, could adversely affect prevailing market
prices for the Common Stock or the future ability of the Company to raise
capital through an offering of equity securities. Of the 6,334,885 shares
outstanding after the Offering, the 2,455,000 shares of Common Stock offered
hereby will be freely tradeable without restriction in the public market unless
such shares are held by "affiliates" of the Company, as that term is defined in
Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), or
are subject to lock-up agreements as described below. The remaining 3,879,885
shares of Common Stock are restricted securities under the Securities Act, and
may be sold in the public market only if they are registered or if they qualify
for exemption from registration under Rule 144 or Rule 701 under the Securities
Act. Pursuant to "lock-up" agreements, certain of the Company's stockholders and
all of its executive officers and directors, who collectively hold 3,765,801 of
such restricted securities (excluding BI), have agreed not to offer, sell or
otherwise dispose of any of their restricted securities for a period of 270 days
from the date of this Prospectus (the "Lock-Up Period") without the prior
written consent of EVEREN Securities, Inc. ("EVEREN Securities"). In addition,
BI has agreed not to offer, sell or otherwise dispose of any shares of Common
Stock acquired by BI (the "BI Shares") for a period of 360 days from the date of
this Prospectus (the "BI Lock-Up Period") without the prior written consent of
EVEREN Securities. The Company has also agreed that it will not offer, sell or
otherwise dispose of Common Stock for a period of 270 days from the date of this
Prospectus without the prior written consent of EVEREN Securities, other than
pursuant to existing stock option plans or upon exercise of currently
outstanding warrants. Upon termination of the Lock-Up Period, approximately
3,671,347 shares of the restricted securities will be available for immediate
sale in the public market, subject to certain volume, manner of sale, and other
limitations under Rule 144. Upon termination of the BI Lock-Up Period, the BI
Shares issued in the Offering will be eligible for immediate sale in the public
market without limitation. In addition, of the restricted securities not subject
to lock-up agreements, approximately 74,741 shares will be eligible for sale
without limitation under Rule 144(k) and 39,342 shares will be eligible for sale
beginning 90 days after the date of this Prospectus, subject to certain volume,
manner of sale and other limitations under Rule 144 and Rule 701. EVEREN
Securities may, in its sole discretion and at any time without notice, release
all or any portion of the shares subject to such lock-up agreements.

After the Offering, holders of an aggregate of 3,771,801 shares of Common
Stock will be entitled to certain rights with respect to the registration of
such shares for resale under the Securities Act. In addition, the Company
intends to file a Registration Statement on Form S-8 after the date of this
Prospectus to register an aggregate of 362,152 shares of Common Stock reserved
for issuance upon exercise of outstanding options and an aggregate of 375,965
shares of Common Stock reserved for issuance pursuant to future option grants
under the Company's Amended and Restated 1994 Equity Incentive Plan. If such
registrations cause a large number of shares to be registered and sold in the
public market, such sales could have an adverse effect on the market price for
the Company's Common Stock. See "Description of Capital Stock -- Registration
Rights" and "Shares Eligible for Future Sale."

CONTROL BY EXISTING STOCKHOLDERS. Following the Offering and the BI Equity
Investment, the Company's directors, executive officers and principal
stockholders and certain of their affiliates will beneficially own approximately
47.8 percent of the outstanding shares of Common Stock (45.3 percent if the
Underwriters' over-allotment option is exercised in full). Accordingly, if
acting in concert, they will have the ability to substantially influence the
election of the Company's directors and other actions

18
<PAGE> 20

requiring stockholder approval. This concentration of ownership may have the
effect of delaying or preventing a change of control of the Company.

ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK
PRICE. Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after the Offering. The initial public
offering price will be determined by negotiations between the Company and
representatives of the Underwriters. The trading price of the Common Stock could
be subject to wide fluctuations in response to quarterly variations in the
Company's operating results, shortfalls in such operating results from levels
forecast by securities analysts, announcements of technological innovations or
new commercial products by the Company or its competitors, progress with
clinical trials, government regulations, changes in third-party reimbursement,
changes in the Company's relationships with BI or with future collaborative
partners, public concern as to the safety and efficacy of drugs developed by the
Company and its competitors and other events or factors. In addition, the stock
market has, from time to time, experienced extreme price and volume fluctuations
that have particularly affected the market prices for companies in the
biotechnology and pharmaceutical industries and that have often been unrelated
to the operating performance of the affected companies. Announcements of changes
in reimbursement policies of third-party payors, regulatory developments,
economic news and other external factors may have a significant impact on the
market price of biotechnology and pharmaceutical stocks. Broad market
fluctuations of this type may adversely affect the future market price of the
Common Stock. See "Underwriting."

ANTI-TAKEOVER PROVISIONS. Certain provisions of the Company's Restated
Certificate of Incorporation and By-laws, as in effect upon the closing of the
Offering, and Section 203 of the Delaware General Corporate Law may have the
effect of deterring hostile takeovers or delaying or preventing changes in
control or management of the Company, including transactions in which
stockholders might otherwise receive a premium for their shares over then
current market prices. In addition, these provisions may limit the ability of
stockholders to approve transactions that they may deem to be in their best
interests. The Restated Certificate of Incorporation provides, among other
things, for a classified Board of Directors, and that members of the Board of
Directors may be removed only for cause upon the affirmative vote of holders of
at least two-thirds of the shares of capital stock of the Company entitled to
vote. The Company's Board of Directors is also authorized to issue up to
5,000,000 shares of Preferred Stock and to determine the price, rights,
preferences and privileges of those shares without further vote or action by the
Company's stockholders. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
such shares of Preferred Stock that may be issued in the future. Any such
Preferred Stock may have other rights, including economic rights senior to the
Common Stock, and, as a result, the issuance thereof could have a material
adverse effect on the market value of the Common Stock. Furthermore, the Company
is subject to anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which prohibits the Company from engaging in a "business
combination" with an "interested stockholder," unless the business combination
is approved in a prescribed manner. See "Description of Capital Stock --
Delaware Anti-Takeover Law and Certain Charter and By-Law Provisions."

SUBSTANTIAL DILUTION TO NEW INVESTORS. The initial public offering price
per share of the Company's Common Stock will be substantially higher than the
book value per share of Common Stock. Investors purchasing shares of Common
Stock in the Offering will experience immediate and substantial dilution of
$6.37 per share. To the extent outstanding options and warrants to purchase
Common Stock are exercised, there will be a further dilution of $.12 per share
to new investors. See "Dilution."

ABSENCE OF DIVIDENDS. The Company has never declared or paid cash
dividends on the Common Stock. The Company currently anticipates that it will
retain all future earnings for use in the operation and growth of its business
and, therefore, does not anticipate paying any cash dividends in the foreseeable
future. See "Dividend Policy."

19
<PAGE> 21

USE OF PROCEEDS

The net proceeds from the sale of the 2,455,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $11.00 per share
are estimated to be $24.1 million ($27.9 million if the Underwriters'
over-allotment option is exercised in full), after deducting estimated
underwriting discounts and commissions and estimated expenses of the Offering.

The Company will use up to $8.0 million of the net proceeds of the
Offering, in addition to the BI License Fee, to fund additional costs associated
with its Phase III Clinical Trial. The Company intends to use the balance of the
net proceeds of the Offering for other research and development, including
development of Procysteine i.v. for use in the prevention of ARDS and/or MOD,
working capital and general corporate purposes. The Company may also use a
portion of the net proceeds of the Offering to acquire and/or license technology
rights or compounds, although the Company has no agreements or commitments for
any such acquisitions. See "Risk Factors -- Need for Substantial Additional
Funds."

In March 1997, the Company received the upfront $5.0 million BI License Fee
from BI in connection with the BI Agreement. In addition, BI has agreed to
purchase $5.0 million of equity securities of the Company in a private
placement. BI has expressed its intention to fulfill this obligation by
purchasing $5.0 million of Common Stock in the Offering at the initial public
offering price (454,545 shares of Common Stock assuming an initial public
offering price of $11.00 per share). The Company has agreed with BI to use the
aggregate $10.0 million in proceeds from BI only for the clinical development of
Procysteine i.v. for use in the treatment of ARDS.

The Company anticipates that the net proceeds from the Offering and the BI
License Fee, including interest thereon together with the Company's existing
funds, will be sufficient to fund its operating expenses and capital
requirements as currently planned for at least the next 24 months. However,
there can be no assurance that the Company's assumptions regarding future
operating losses and operating expenses, including the cost of its Phase III
Clinical Trial, will be accurate. If adequate funds are not available, the
Company may be required to delay, scale back or eliminate certain of its product
development programs, license to others rights to commercialize products or
technologies that the Company would otherwise seek to develop and commercialize
itself, or cease operations. See "Risk Factors -- Need for Substantial
Additional Funds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

DIVIDEND POLICY

The Company has never declared or paid cash dividends on the Common Stock.
The Company currently anticipates that it will retain all future earnings for
use in the operation and growth of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future.

20
<PAGE> 22
CAPITALIZATION
The following table sets forth as of March 31, 1997 (i) the actual
capitalization of the Company; (ii) the pro forma capitalization of the Company
as described in Note 1 below; and (iii) the pro forma capitalization of the
Company as adjusted to reflect the transactions described in Note 2 below,
including the issuance and sale of the 2,455,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $11.00 per share, after
deducting estimated underwriting discounts and commissions and estimated
expenses of the Offering and the receipt of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Description of Capital Stock." This table
should be read in conjunction with the Company's Financial Statements and the
Notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
-------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Redeemable preferred stock:
Series A Redeemable Convertible Preferred Stock, $.01 par value;
12,991,000 shares authorized; 9,916,330 shares issued and
outstanding (actual); no shares authorized, issued and
outstanding (pro forma and pro forma as adjusted).............. $ 9,140 $ -- $ --

Series B Redeemable Convertible Preferred Stock, $.01 par value;
3,000,000 shares authorized; 690,775 shares issued and
outstanding (actual); no shares authorized, issued and
outstanding (pro forma and pro forma as adjusted).............. 1,036 -- --

Series C Redeemable Convertible Preferred Stock, $.01 par value;
4,255,319 shares authorized, issued and outstanding (actual);
no shares authorized, issued and outstanding (pro forma and pro
forma as adjusted)............................................. 10,000 -- --

Nonconvertible Redeemable Preferred Stock, $.01 par value;
1,039,000 shares authorized, issued and outstanding (actual and
pro forma); no shares authorized, issued and outstanding (pro
forma as adjusted)............................................. 891 891 --

Stockholders' equity (deficit):
Common Stock, $.01 par value; 25,000,000 shares authorized,
789,883 shares issued and outstanding (actual); 25,000,000
authorized, 3,785,430 shares issued and outstanding (pro
forma); 25,000,000 shares authorized, 6,334,885 shares issued
and outstanding (pro forma as adjusted)(4)..................... 8 38 63

Preferred Stock, $.01 par value; no shares authorized (actual and
pro forma); 5,000,000 shares authorized, no shares issued and
outstanding (pro forma as adjusted)............................ -- -- --

Additional paid-in capital....................................... 1,640 21,786 46,915

Deferred compensation(5)......................................... (912) (912) (912)

Accretion of Nonconvertible Redeemable Preferred Stock........... (30) (30) --

Deficit accumulated during the development stage................. (16,166) (16,166) (16,344)
-------- -------- --------
Total stockholders' equity (deficit)........................... (15,460) 4,716 29,722
-------- -------- --------
Total capitalization......................................... $ 5,607 $ 5,607 $ 29,722
======== ======== ========
</TABLE>
- ---------------

(1) Presented on a pro forma basis to give effect to (i) the automatic
conversion of all of the outstanding shares of Series A, Series B and Series
C Convertible Preferred Stock upon the closing of the Offering into an
aggregate of 2,995,547 shares of Common Stock (assuming an initial public
offering price of $11.00 per share). See "Certain Transactions" and
"Description of Capital Stock."

(2) As adjusted to give effect to (i) the sale of 2,455,000 shares of Common
Stock offered hereby, at an assumed initial public offering price of $11.00
per share (after deducting estimated underwriting discounts and commissions
and estimated expenses of the Offering) and the receipt of the estimated net
proceeds therefrom; and (ii) the issuance, upon the closing of the Offering,
of an aggregate of $1,039,000 of Common Stock at the initial public offering
price in exchange for all of the Company's outstanding Nonconvertible
Redeemable Preferred Stock (94,455 shares of Common Stock assuming an
initial public offering price of $11.00 per share). See "Use of Proceeds"
and "Certain Transactions."

(4) Excludes (i) 362,152 shares of Common Stock issuable upon exercise of
outstanding options as of March 31, 1997 at a weighted average exercise
price of $1.20 per share; (ii) 375,965 additional shares of Common Stock
reserved for future grants of options or awards under the Company's Amended
and Restated 1994 Equity Incentive Plan as of March 31, 1997; (iii) 5,000
shares of Common Stock reserved for issuance upon exercise of a warrant
outstanding as of March 31, 1997 at an exercise price of $5.00 per share;
and (iv) $519,500 of Common Stock reserved for issuance upon the exercise of
warrants to purchase such stock at the initial public offering price (47,227
shares of Common Stock assuming an initial public offering price of $11.00
per share). See "Management -- Amended and Restated 1994 Equity Incentive
Plan," "Certain Transactions" and "Description of Capital Stock."

(5) See Note 7 of Notes to the Financial Statements for information concerning
the computation of deferred compensation.

21
<PAGE> 23

DILUTION

The pro forma net tangible book value of the Company as of March 31, 1997
was $3.5 million or $.93 per share. Pro forma net tangible book value per share
is equal to the Company's pro forma net tangible assets (pro forma tangible
assets less pro forma total liabilities), divided by the pro forma number of
shares of Common Stock outstanding on March 31, 1997, assuming the automatic
conversion of all of the outstanding shares of Series A, Series B and Series C
Convertible Preferred Stock upon the closing of the Offering into an aggregate
of 2,995,547 shares of Common Stock (assuming an initial public offering price
of $11.00 per share). Without taking into account any other changes in pro forma
net tangible book value other than to give effect to (i) the sale of the
2,455,000 shares of Common Stock in the Offering (at an assumed initial public
offering price of $11.00 per share) and the receipt of the estimated net
proceeds therefrom, and (ii) the issuance, upon the closing of the Offering, of
an aggregate of $1,039,000 of Common Stock at the initial public offering price
in exchange for all of the Company's outstanding Nonconvertible Redeemable
Preferred Stock (94,455 shares of Common Stock assuming an initial public
offering price of $11.00 per share), the pro forma net tangible book value of
the Company as of March 31, 1997 would have been approximately $29.3 million or
$4.63 per share. This represents an immediate increase in pro forma net tangible
book value of $3.70 per share to existing stockholders and an immediate dilution
in pro forma net tangible book value of $6.37 per share to new investors. The
following table sets forth the per share dilution to new investors in the
Offering:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $11.00
Pro forma net tangible book value per share as of March 31,
1997 ........................................................ $ .93
Increase per share attributable to new investors................ 3.70
-----
Pro forma net tangible book value per share after the Offering.... 4.63
------
Dilution per share to new investors............................... $ 6.37
======
</TABLE>

The following table sets forth, on a pro forma basis as of March 31, 1997,
the differences between existing stockholders and new investors with respect to
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price paid per share (at an assumed initial
public offering price of $11.00 per share and before deducting estimated
underwriting discounts and commissions and estimated expenses of the Offering):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 3,879,885 61% $13,287,000 33% $ 3.42
New investors................... 2,455,000 39 27,005,000 67 11.00
--------- --- ----------- ---
Total...................... 6,334,885 100% $40,292,000 100%
========= === =========== ===
</TABLE>

The foregoing tables assume no exercise of any outstanding stock options or
warrants subsequent to March 31, 1997. As of March 31, 1997, there were (i)
362,152 shares of Common Stock issuable upon exercise of outstanding options at
a weighted average exercise price of $1.20 per share; (ii) 5,000 shares of
Common Stock reserved for issuance upon the exercise of a warrant at an exercise
price of $5.00 per share; and (iii) $519,500 of Common Stock reserved for
issuance upon the exercise of warrants to purchase such stock at the initial
public offering price (47,227 shares of Common Stock assuming an initial public
offering price of $11.00 per share). To the extent that these options or
warrants are exercised, there will be a further dilution of $.12 per share to
new investors. See "Management -- Amended and Restated 1994 Equity Incentive
Plan," "Certain Transactions" and "Description of Capital Stock." In addition,
if the initial public offering price is less than $11.00 per share, additional
shares of Common Stock will be issued upon the exchange of shares of
Nonconvertible Redeemable Preferred Stock for shares of Common Stock at the
initial public offering price, the exercise of outstanding warrants to purchase
shares of Common Stock at the initial public offering price and the conversion
of shares of Series C Convertible Preferred Stock at the closing of the
Offering, resulting in further dilution to new investors. See "Certain
Transactions" and "Description of Capital Stock -- Series Convertible Preferred
Stock."

22
<PAGE> 24

SELECTED FINANCIAL DATA

The following selected financial data are derived from the audited and
unaudited financial statements of Transcend Therapeutics, Inc. The data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements and related
Notes thereto, and other financial information included elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- ------------------
1993 1994 1995 1996 1996 1997
------ ------- ------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>

<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................................. $6,095(1) $ -- $ -- $ -- $ -- $5,000(2)
Operating expenses:
Research and development.......................... 4,498 2,627 2,739 1,968 479 501
General administration............................ 1,626 1,115 1,645 1,834 395 971
------ ------- ------- ------- ------- ------
Total operating expenses........................ 6,124 3,742 4,384 3,802 874 1,472
------ ------- ------- ------- ------- ------
Income (loss) from operations....................... (29) (3,742) (4,384) (3,802) (874) 3,528
Other income (expense).............................. -- 139 (66) (325) (138) 25
------ ------- ------- ------- ------- ------
Net income (loss)................................... (29) (3,603) (4,450) (4,127) (1,012) 3,553
Accretion of Nonconvertible Redeemable Preferred
Stock............................................. -- (1,111) (1,481) (5,080)(3) (370) (30)
------ ------- ------- ------- ------- ------
Net income (loss) to common stockholders............ $ (29) $(4,714) $(5,931) $ (9,207) $(1,382) $3,523
====== ======= ======= ======= ======= ======
Pro forma net income (loss) per common share(4)..... $ (2.31) $ .88
======= ======
Pro forma weighted average common shares
outstanding(4).................................... 3,981 3,981
======= ======
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------------
DECEMBER 31, PRO
---------------------------------------- PRO FORMA AS
1993 1994 1995 1996 ACTUAL FORMA(5) ADJUSTED(6)
------ ------- ------- -------- ------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Restricted cash(7)................ $ 4,350 $ 4,350 $ 9,350
Unrestricted cash and cash
equivalents..................... $ 66 $ 3,461 $ 1,276 $ 640 1,146 1,146 20,593
Working capital (deficit)......... (63) 3,136 733 96 4,354 4,354 29,302
Total assets...................... 107 4,257 1,866 1,566 6,797 6,797 30,411
Senior secured convertible
notes........................... -- -- 2,000 -- -- -- --
Redeemable preferred stock........ -- 8,100 9,581 20,176 891(8) 891 --
Deficit accumulated during the
development stage............... (28) (3,631) (8,081) (19,719) (16,166) (16,166) (16,344)
Total stockholders' equity
(deficit)....................... (28) (4,368) (10,297) (19,235) (15,460) 4,716 29,722
</TABLE>

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

(1) Reflects a one-time contract research fee of $6,095,000 for various research
and development services. See Note 2 of Notes to Financial Statements.
(2) Reflects a one-time license fee of $5.0 million received in connection with
the signing of the BI Agreement. See "Business -- Boehringer Ingelheim."
(3) Includes approximately $4.0 million of additional accretion relating to the
exchange of the Series C Convertible Preferred Stock in September 1996. See
"Certain Transactions."
(4) See Note 2 of Notes to Financial Statements for information concerning the
computation of pro forma net loss per common share.
(5) Presented on a pro forma basis to give effect to the automatic conversion of
all of the outstanding shares of Series A, Series B and Series C Convertible
Preferred Stock upon the closing of the Offering into an aggregate of
2,995,547 shares of Common Stock (assuming an initial public offering price
of $11.00). See "Certain Transactions" and "Description of Capital Stock --
Series Convertible Preferred Stock."
(6) As adjusted to give effect to (i) the sale of 2,455,000 shares of Common
Stock offered hereby, at an assumed initial public offering price of $11.00
per share (after deducting estimated underwriting discounts and commissions
and estimated expenses of the Offering) and the receipt of the estimated net
proceeds therefrom and (ii) the issuance, upon the closing of the Offering,
of an aggregate of $1,039,000 of Common Stock at the initial public offering
price in exchange for all of the Company's outstanding Nonconvertible
Redeemable Preferred Stock (94,455 shares of Common Stock assuming an
initial public offering price of $11.00 per share). See "Use of Proceeds,"
"Capitalization", "Certain Transactions" and "Description of Capital Stock."
(7) Actual and Pro Forma restricted cash consist of the balance of the $5
million license fee received in March 1997 in connection with the signing of
the BI Agreement and Pro Forma As Adjusted consists of the balance of the $5
million license fee and gives effect to BI's expressed intention to purchase
$5 million of Common Stock in the Offering at the initial public offering
price. Under the BI Agreement, the license fee and the proceeds from such
purchase are required to be used for the Company's ARDS clinical trial.
(8) Includes all issued and outstanding shares of Series A, Series B and Series
C Convertible Preferred Stock and Nonconvertible Redeemable Preferred Stock.
See "Capitalization," "Certain Transactions" and "Description of Capital
Stock."

23
<PAGE> 25

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the results of operations and
financial condition of the Company should be read in conjunction with the
Financial Statements and Notes thereto included elsewhere in this Prospectus.

OVERVIEW

The Company develops novel pharmaceuticals for the critical care market,
with its initial compounds focusing on the treatment of diseases associated with
oxidative stress and resulting tissue damage. Since inception, the Company has
devoted substantially all of its resources to the development of Procysteine and
related compounds. The Company has generated no revenue from product sales and
has been dependent upon funding from external financing, contract research and
interest income. In March 1997, BI made an upfront license fee payment to the
Company of $5.0 million. In addition, BI has agreed to purchase $5.0 million of
equity securities of the Company in a private placement. BI has expressed its
intention to fulfill this obligation by purchasing $5.0 million of Common Stock
in the Offering at the initial public offering price (454,545 shares of Common
Stock assuming an initial public offering price of $11.00 per share).

The Company has accumulated net losses of $16.2 million through March 31,
1997. Losses have resulted principally from costs incurred for clinical and
product development and from general and administrative expenses. The Company
expects to incur additional operating losses over at least the next several
years, and expects such losses to increase as the Company advances its clinical
development programs. The Company's ability to achieve profitability is
dependent on its ability to successfully complete development of, and obtain
regulatory approval for, its planned products, enter into agreements for
commercialization of such products and successfully market such products, as to
which there can be no assurance. See "Risk Factors -- History of Losses;
Uncertainty of Future Profitability."

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1997 AND 1996

The Company earned revenues of $5.0 million consisting of a non-refundable,
non-creditable licensing fee received under the BI Agreement in the three-month
period ended March 31, 1997 and no revenues in the three-month period ended
March 31, 1996.

The Company's total operating expenses for the three months ended March 31,
1997 and 1996 were $1.5 million and $1.0 million, respectively. Research and
development expenses for each of the three-month periods ended March 31, 1997
and 1996 were approximately $500,000. General and administrative expenses for
the three-month periods ended March 31, 1997 and 1996 were approximately
$970,000 and $400,000, respectively. General and administrative expenses
increased for the three months ended March 31, 1997 due to higher compensation
expenses and professional fees related to the BI Agreement, which was signed in
February 1997.

Other income (expense) for the three-month periods ended March 31, 1997 and
1996 consists of income and interest expense. Interest income for the
three-month periods ended March 31, 1997 and 1996 was $25,000 and $12,000,
respectively. The increase in interest income was due primarily to high cash
balances. The Company incurred interest expense of $150,000 in the three-month
period ended March 31, 1996 on outstanding senior secured convertible term
notes, payable in shares of Series A and Series B Convertible Preferred Stock.
There were no senior secured convertible notes outstanding in the three months
ended March 31, 1997.

The Company earned a net profit of $3.6 million for the three months ended
March 31, 1997, as compared to a net loss of $1.0 million for the three months
ended March 31, 1996.

24
<PAGE> 26

YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

The Company earned no revenue in 1996, 1995 and 1994.

The Company's total operating expenses for the years ended December 31,
1996, 1995 and 1994 were $3.8 million, $4.4 million and $3.7 million,
respectively. Research and development expenses for the years ended December 31,
1996, 1995 and 1994 were $2.0 million, $2.7 million and $2.6 million,
respectively. Research and development expenses decreased in 1996 from 1995 due
to completion of the Phase II clinical program in ARDS in June 1996, reduced
clinical costs for oral Procysteine, and reduced assay, formulation, development
and clinical material costs. Research and development expenses increased in 1995
from 1994 due to higher clinical development expenditures for the ARDS and MOD
programs. General and administrative expenses for the years ended December 31,
1996, 1995 and 1994 were $1.8 million, $1.6 million and $1.1 million,
respectively. General and administrative expenses increased in 1996 from 1995
due primarily to increased business development expenses. General and
administrative expenses increased in 1995 from 1994 due primarily to increased
administrative personnel and recruitment costs and higher rent and office
expenses.

Other income (expense) for the years ended December 31, 1996, 1995 and 1994
comprises interest income and interest expense. Interest income for the years
ended December 31, 1996, 1995 and 1994 were $30,000, $111,000 and $139,000,
respectively. Interest income decreased in 1996 and 1995 as compared to 1994
primarily due to reduced cash balances available for investment. The Company
incurred interest expense, payable in shares of Series A and Series B
Convertible Preferred Stock, for the years ended December 31, 1996 and 1995, of
$355,000 and $178,000, respectively, related to the Company's senior secured
convertible notes. There were no senior secured convertible notes outstanding in
the year ended December 31, 1994.

Net loss for the years ended December 31, 1996, 1995 and 1994 were $4.1
million, $4.5 million and $3.6 million, respectively.

No income tax provision or benefit has been provided for federal income tax
purposes as the Company has incurred losses since inception. As of December 31,
1996, the Company had deferred tax assets of $5.5 million. Because of
uncertainties surrounding the realization of these favorable tax attributes in
future tax periods, all of the net deferred tax assets have been fully offset by
a valuation allowance. As of December 31, 1996, the Company had total net
operating loss carryforwards of $11.9 million and federal and state tax credits
of approximately $775,000, both of which expire on dates through 2011. The
Company's ability to utilize the net operating loss carryforwards in future
years may be limited in some circumstances, including significant changes in
ownership interests, due to certain provisions of the Internal Revenue Code of
1986, as amended. See Note 5 to Notes to Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

Since its inception, the Company has financed its operations primarily with
$13.6 million from the private sale of equity securities and convertible notes,
$6.1 million in contract research payments, and $280,000 in interest income. In
April 1994, the Company sold an aggregate of 6,500,000 shares of Series A
Convertible Preferred Stock resulting in proceeds to the Company of $6.5
million. In September 1995, the Company sold $2.0 million in aggregate principal
amount of senior secured convertible notes due 1997 (the "Series A Notes").
Interest on the Series A Notes was payable in the form of, and the Series A
Notes were convertible into, shares of the Company's Series A Convertible
Preferred Stock. In January 1996, the Company sold an aggregate of 130,000
shares of Series A Convertible Preferred Stock resulting in proceeds of $130,000
to the Company. In May 1996, the Company issued an aggregate of $1.0 million in
aggregate principal amount of senior secured convertible notes due 1997 (the
"Series B Notes"). Interest on the Series B Notes was payable in the form of,
and the Series B Notes were convertible into, shares of the Company's Series B
Convertible Preferred Stock.

25
<PAGE> 27

In April 1994, the Company acquired rights to the Covered Technology from
Clintec and Cornell in exchange for 715,026 shares of Common Stock and 9,000
shares of Nonconvertible Redeemable Preferred Stock issued to Clintec and 35,025
shares of Common Stock (of which 7,025 shares of Common Stock were subsequently
returned to the Company) issued to Cornell. See "Certain Transactions."

In September 1996, the Company sold an aggregate of 851,604 shares of
Series C Convertible Preferred Stock to certain investors of the Company (at a
price of $11.75 per share on a Common Stock equivalent basis) (the "September
1996 Financing"). In addition, in September 1996, the Company entered into an
agreement to issue 3,404,255 shares of Series C Convertible Preferred Stock in
exchange for all of its then outstanding shares of Nonconvertible Redeemable
Preferred Stock (the "Nonconvertible Preferred Stock Exchange"). See "Certain
Transactions."

Upon the closing of the September 1996 Financing, (i) the Series A Notes,
including interest thereon, were converted into an aggregate of 2,098,631 shares
of Series A Convertible Preferred Stock and the Series B Notes, including
interest thereon, were converted into an aggregate of 690,775 shares of Series B
Convertible Preferred Stock; and (ii) Series A Convertible Preferred Stock
warrants (the "Series A Warrants") were exercised pursuant to a net exercise
provision resulting in the issuance of an aggregate of 789,894 shares of Series
A Convertible Preferred Stock. See "Certain Transactions."

In February 1997, the Company entered into a development and license
agreement with BI, pursuant to which BI paid the Company an upfront license fee
of $5.0 million in March 1997. In addition, BI has agreed to purchase $5.0
million of equity securities of the Company in a private placement. BI has
expressed its intention to fulfill this obligation by purchasing $5.0 million of
Common Stock in the Offering at the initial public offering price. The Company
has agreed with BI to use the aggregate $10.0 million in proceeds from the BI
License Fee and the BI Equity Investment solely for the development of
Procysteine i.v. for use in the treatment of ARDS.

In March 1997, the Company sold an aggregate of 1,039,000 shares of
Nonconvertible Redeemable Preferred Stock and warrants to purchase $346,300 of
Common Stock, exercisable at the initial public offering price (31,482 shares of
Common Stock assuming an initial public offering price of $11.00 per share),
resulting in proceeds to the Company of approximately $1.0 million. In May 1997,
the Company agreed to issue additional warrants to the holders of its
Nonconvertible Redeemable Preferred Stock to purchase $173,200 of Common Stock,
exercisable at the initial public offering price (15,745 shares of Common Stock
assuming an initial public offering price of $11.00 per share), and the holders
of such stock agreed to exchange their shares of Nonconvertible Redeemable
Preferred Stock for an aggregate of $1,039,000 of Common Stock upon the closing
of the Offering at the initial public offering price (94,455 shares of Common
Stock assuming an initial public offering price of $11.00 per share).

The Company expects negative cash flows from operations to continue and to
increase for the foreseeable future. The Company anticipates that the net
proceeds from the Offering and the BI License Fee, including interest thereon,
together with the Company's existing funds, will be sufficient to fund its
operating expenses and capital requirements as currently planned for at least
the next 24 months. However, there can be no assurance that the Company's
assumptions regarding future operating losses and operating expenses will be
accurate. The Company's actual working capital needs and funding requirements
will depend upon numerous factors, including the progress of the external
research and development programs being supported by the Company, the magnitude
and scope of these activities, the timing, costs and results of preclinical and
clinical testing, including the Phase III Clinical Trial, the timing and costs
of obtaining regulatory approvals, the level of resources that the Company
commits to the development of manufacturing, marketing and sales capabilities,
if any, whether BI elects to participate in and co-fund the development of the
Company's MOD program, the ability of the Company to establish new and maintain
existing collaborative arrangements with BI and other companies to provide
funding to the Company, the costs of any acquisitions and/or licensing of
technology rights, products or businesses, the technological advances and
activities of competitors, the costs involved in preparing, filing, prosecuting,
maintaining, enforcing and defending patent claims and

26
<PAGE> 28

other intellectual property rights, developments related to regulatory and
reimbursement matters and other factors. The Company intends to seek additional
funding through corporate collaborations. There can be no assurance that the
Company will be able to negotiate such agreements on acceptable terms, or at
all. The Company will also seek additional funding through public or private
financings. If additional funds are raised by issuing equity securities, further
dilution to stockholders will result. Debt financing, if available, may involve
restrictive covenants. If adequate funds are not available, the Company may be
required to delay, scale back or eliminate certain of its product development
programs, to license to others rights to commercialize products or technologies
that the Company would otherwise seek to develop and commercialize itself or
cease operations. See "Risk Factors -- Need for Substantial Additional Funds"
and "Use of Proceeds."

REVENUE RECOGNITION AND FUNDED RESEARCH

Revenues from the nonrefundable $5.0 million BI license fee payment were
recognized as license revenues upon execution of the BI Agreement.
Non-refundable fees, collection of which is subject to the achievement of
clinical development and regulatory milestones, will be recorded when such
milestones are attained.

27
<PAGE> 29

BUSINESS

The Company develops novel pharmaceuticals for the critical care market,
with its initial compounds focusing on the treatment of diseases associated with
oxidative stress and resultant tissue damage. The Company's lead product
candidate, Procysteine, an intracellular glutathione-repleting agent, has been
evaluated in two Phase II clinical trials involving patients with ARDS. In the
second quarter of 1997, the Company began its Phase III Clinical Trial to
determine the safety and efficacy of Procysteine for the treatment of ARDS. The
Company has also conducted Phase I/II clinical trials with Procysteine to
determine its potential application for the treatment of ALS and ASCVD.

In February 1997, the Company and BI entered into a collaboration for the
worldwide development and marketing of Procysteine i.v. for the treatment and
prevention of ARDS and MOD. Under the BI Agreement, the Company granted BI an
exclusive worldwide license to use and sell Procysteine i.v. for all
pharmaceutical applications. The Company has principal responsibility for, and
will bear all expenses related to, clinical development of Procysteine i.v. for
use in the treatment of ARDS. The Company has also granted BI the right, at its
election, to participate in the development of and to commercialize Procysteine
i.v. worldwide for the treatment and prevention of MOD. The Company has retained
the right, exercisable prior to the filing of an NDA for Procysteine i.v. for
ARDS, to participate in the sales and marketing of Procysteine i.v. in the
United States, through the Company's establishment of a small specialist sales
force at its expense. If the Company exercises its option, the Company will
receive a royalty which consists of a fixed component based on net sales of
Procysteine i.v. in the United States plus a variable component based on BI's
net profits from the sale of Procysteine i.v. in the United States. The Company
is responsible for manufacturing and supplying BI with Procysteine i.v. for
clinical trials and commercial purposes. Pursuant to the BI Agreement, BI paid
the Company an upfront license fee of $5.0 million and has agreed to purchase
$5.0 million of equity securities of the Company in a private placement. BI has
expressed its intention to fulfill this obligation by purchasing $5.0 million of
Common Stock in the Offering at the initial public offering price (454,545
shares of Common Stock assuming an initial public offering price of $11.00 per
share). BI has also agreed to make additional payments to the Company, which
could total up to $36.0 million, upon the achievement of clinical development
and regulatory milestones relating to ARDS and, if BI exercises its
participation rights, to MOD. More than half of the milestone payments are
payable only with respect to MOD-related development. In addition, BI will pay
the Company royalties (and, if applicable, co-promotion payments in the United
States) on any sales of Procysteine i.v.

BUSINESS STRATEGY

Transcend's strategy is to develop and commercialize novel pharmaceuticals
for the critical care market, with its initial compounds focusing on the
treatment of diseases associated with oxidative stress and resultant tissue
damage. The Company's strategy involves the following key elements:

Exploit Glutathione Repletion Methodologies. The Company is currently
concentrating on the preclinical and clinical development of the
glutathione-repleting compounds in its portfolio. Transcend's priority is
advancing the clinical program for Procysteine for the treatment of ARDS.

Leverage Development Expertise. Transcend's management and scientific
personnel have considerable experience in the development of novel
pharmaceutical products. The Company uses this expertise to manage the
development of its products through external resources, such as contract
research organizations and contract manufacturers. The Company believes that the
continued focus on development expertise will allow it to benefit from the
commercialization of products without requiring a substantial investment in
costly infrastructure.

Commercialize Products through Collaborations. The Company intends to
enter into strategic alliances and licensing arrangements with corporate
partners in order to accelerate the development

28
<PAGE> 30

and commercialization of its product candidates. Specifically, the Company plans
to establish alliances with pharmaceutical companies to complete clinical
trials, prepare regulatory submissions and market and sell the Company's
products. Consistent with its strategy, the Company has formed an alliance with
BI for the worldwide development and marketing of Procysteine i.v. As in its
alliance with BI, the Company intends to retain strategically important
development, manufacturing, marketing or co-promotion rights in order to enhance
its product development opportunities.

Enhance Product Pipeline. The Company plans to build a product pipeline,
with a particular therapeutic focus on critical care, through the licensing or
acquisition of compounds from academic laboratories and research institutions,
such as the compounds it has acquired from Cornell. In pursuing this strategy,
the Company may also acquire and/or license complementary technology rights or
other businesses. Transcend believes its scientific and development expertise
provides the Company with an ability to recognize opportunities for commercial
development at an early stage.

BACKGROUND ON OXIDATIVE TISSUE DAMAGE

While oxygen is vital to life, it can also be extremely toxic. As a
by-product of normal metabolism, the body produces small amounts of highly
reactive, toxic molecules called reactive oxygen species ("ROS"). In addition,
larger quantities of ROS are produced by activation of neutrophils, a type of
white blood cell, as part of the body's immune response against infection.
Although ROS help kill infectious organisms, the excessive production of ROS, as
part of the inflammatory response to infection, can also cause oxidative tissue
damage. In some conditions associated with massive acute inflammation, such as
severe infection, multiple trauma and extensive burns, activation of neutrophils
may produce such large quantities of ROS that severe tissue damage in organs
occurs, leading to organ dysfunction and in many cases death. In addition,
oxidative tissue damage is believed to play a causative role in a number of
chronic conditions, such as ALS, ASCVD and hemolytic anemias.

The body employs a number of systems to neutralize or inactivate ROS by
converting them into water and other harmless substances. One of the body's
principal means for protecting cells from oxidative tissue damage is the
molecule glutathione, a small peptide found in high concentrations throughout
the body. Glutathione is produced inside cells from three amino acids,
L-cysteine, L-glutamic acid and glycine, and functions as one of the primary
non-enzymatic, ROS-neutralizing compounds made in the body. Other means for
neutralizing ROS include enzymes, such as superoxide dismutase and catalase,
which are produced in the body and are supplemented by ingested vitamins. Most
enzymatic systems can neutralize only certain types of ROS and cannot be
restored rapidly within cells after depletion. The Company believes that
intracellular glutathione repletion may be a more effective method for
neutralizing ROS than other systems because glutathione can be rapidly
constituted and can neutralize all types of ROS.

A number of published studies have indicated decreased levels of
glutathione in conditions where excessive production of ROS has caused severe
tissue damage. In severe inflammatory conditions, the body's production of ROS
increases and exceeds the capacity of glutathione and other antioxidant systems
to combat oxidative stress, resulting in tissue damage.

Ideally, direct replacement of glutathione within cells would reduce or
eliminate additional oxidative tissue damage. However, direct administration of
glutathione does not offer intracellular protection against oxidative damage,
because the physico-chemical properties of glutathione inhibit its passage
through cell membranes. Of the three amino acids which comprise glutathione, it
is the lack of availability of cysteine that limits glutathione synthesis.
Increasing available intracellular levels of cysteine to facilitate the
production of glutathione may, therefore, be a viable therapeutic approach.
However, direct administration of cysteine is not practical because it may be
toxic when present outside of cells at the concentrations required to achieve a
therapeutic effect.

PRODUCT DEVELOPMENT PROGRAMS

Transcend is developing small molecule, intracellular glutathione-repleting
agents designed to limit or prevent oxidative tissue damage. Procysteine, the
Company's first product candidate, is a

29
<PAGE> 31

delivery system for the introduction of the amino acid cysteine into cells.
Procysteine readily enters cells, where it is converted into cysteine that is
then available for glutathione synthesis.

The Company has developed intravenous and oral formulations of Procysteine.
The ability of Procysteine to increase glutathione levels when given orally or
intravenously has been documented in published preclinical and clinical studies.
In its clinical trials, Transcend is evaluating the use of this approach to
treat or prevent conditions where oxidative stress results in tissue damage. To
date, the safety profile and pharmacokinetics of Procysteine administered
intravenously or orally have been characterized in over 265 subjects in clinical
trials sponsored by Transcend. The observed serious adverse events in these
trials were consistent with the underlying diseases and the Company believes
that none of these adverse events were drug related. See "Business --
Procysteine - Intravenous Formulation -- Acute Respiratory Distress Syndrome --
Clinical Program."

The primary focus of the Company's product development program is to
complete its Phase III Clinical Trial of Procysteine i.v. for the treatment of
ARDS. Depending on the progress and results of the ARDS program, the Company
intends to pursue the development of Procysteine for the prevention of ARDS
and/or MOD. The Company also intends to conduct a further examination of the
results of the Phase I/Phase II clinical trials of oral Procysteine for the
treatment of ALS and ASCVD in order to determine the advisability of conducting
further Phase II clinical trials as well as to conduct additional early stage
preclinical research for the TR-500 compounds in its portfolio. The Company's
product development programs are described in the table below.

<TABLE>
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
PRODUCT CANDIDATE INDICATION STATUS(1) MARKETING RIGHTS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Procysteine i.v. Treatment of Acute Phase III Boehringer Ingelheim(2)
Respiratory Distress Syndrome
Prevention of Acute Phase II(3)
Respiratory Distress Syndrome
and/or Multiple Organ
Dysfunction
- ---------------------------------------------------------------------------------------------------------
Procysteine (oral) Amyotrophic Lateral Sclerosis Phase I/II Transcend Therapeutics
Atherosclerotic Cardiovascular Phase I/II
Disease
- ---------------------------------------------------------------------------------------------------------
TR-571 Hemolytic Anemias Preclinical Research Transcend Therapeutics
- ---------------------------------------------------------------------------------------------------------
TR-520 Acute Renal Failure Preclinical Research Transcend Therapeutics
- ---------------------------------------------------------------------------------------------------------
</TABLE>

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

(1) "Preclinical research" includes in vitro studies of product candidates and
evaluation in animals. "Phase I/II" refers to clinical trials in which the
compound is tested in a limited patient population for safety,
pharmacokinetics and preliminary indications of biological activity in
patients with the targeted disease. "Phase II" refers to clinical trials in
which the compound is tested in a limited patient population to assess the
efficacy of the drug for a specific indication and to gather additional
evidence relating to safety and potential adverse effects. "Phase III"
refers to large-scale comparative clinical trials in which the compound is
tested in a wider patient population to obtain evidence of levels of safety
and efficacy required by the FDA and other regulatory authorities.

(2) The Company has retained the right to co-promote Procysteine i.v. in the
United States.

(3) Phase II trial data regarding the application of Procysteine for the
prevention of MOD was obtained from the Company's first Phase II ARDS trial.
Additional trials will be required in order to complete a Phase II program
for the prevention of ARDS and/or MOD. See "Business -- Procysteine -
Intravenous Formulation -- Multiple Organ Dysfunction."

30
<PAGE> 32

PROCYSTEINE - INTRAVENOUS FORMULATION

Treatment of Acute Respiratory Distress Syndrome

There are currently no commercially available drug treatments for ARDS.
Treatment for patients suffering from ARDS is administered in a hospital
intensive care unit and is generally limited to supportive care, consisting of
highly invasive mechanical ventilation. Mechanical ventilation involves forcing
air containing high concentrations of oxygen into the lungs through an
endotracheal tube inserted through a patient's nose or mouth. Patients must be
sedated because this process usually causes extreme discomfort. Patients
requiring mechanical ventilation for more than two weeks generally require
surgical insertion of a tracheostomy tube to avoid complications of prolonged
nasotracheal or orotracheal intubation. As long as the patient is on mechanical
ventilation, there is an increased risk of serious complications, including
hospital-acquired infection with drug resistant organisms.

ROS play a central role in ARDS. In connection with the onset of ARDS,
neutrophils activate and adhere to the surface of pulmonary capillaries. These
neutrophils then release ROS and protease enzymes which cause the damage to lung
tissue. Glutathione, which is normally present in lung cells and in lung fluid
in high concentrations, neutralizes or inactivates these ROS and limits
oxidative damage. Anti-protease enzymes are present in the lung under normal
conditions and protect the lung against damage. The protective effect of
anti-proteases is lost in the presence of excessive ROS. Preclinical studies
indicate that glutathione may prevent further lung damage indirectly, by
blocking ROS inhibition. The clinical result of excess ROS in the lungs is a
swelling of the normally thin walls lining the air spaces that impedes the
movement of oxygen from the air spaces into the bloodstream. Patients with ARDS
require supplemental oxygen and mechanical ventilation in order to maintain
sufficient oxygen for the body's tissues, but the oxygen rich air provided by
the ventilator has the potential to exacerbate oxidative tissue damage.

The Company believes that increasing glutathione levels by administering
Procysteine may prevent additional ROS damage and speed recovery of lung
function, thereby reducing the need for mechanical ventilation. Because of
multiple complications associated with prolonged mechanical ventilation, the
Company also believes that reduced time on the ventilator is a clinically
important goal in the treatment of ARDS patients and will also likely reduce the
cost of treating these patients.

Clinical Development. Transcend has sponsored two randomized, double-blind
placebo-controlled Phase II trials of Procysteine which have indicated potential
efficacy in the treatment of patients with ARDS. An objective of the first Phase
II trial was to assess the effect of Procysteine on patients with ARDS. Of the
ARDS patients studied, 17 received 189 mg/kg/day (milligrams of drug/kilogram of
body weight/day) of Procysteine for up to ten days, and 15 received a placebo.
The study results provided evidence that Procysteine-treated patients gained
independence from mechanical ventilation a median of five days earlier than did
placebo-treated patients, which was a statistically significant difference.

The objective of the second Phase II trial was to assess the effect of
Procysteine on blood glutathione levels. This study was conducted in 25 patients
with sepsis syndrome and organ dysfunction, 23 of whom suffered from pulmonary
dysfunction (either acute lung injury or ARDS). Of the 25 patients, 19 received
200 mg/kg/day of Procysteine for up to 21 days and six patients received a
placebo. Prior to administration of Procysteine or the placebo, the patients in
the study had lower blood glutathione concentrations than a healthy control
population. Following administration, average glutathione concentration
increased to a greater degree in the patients receiving Procysteine than in
placebo-treated patients.

31
<PAGE> 33

As in the first Phase II trial, the results of the second Phase II trial
indicated a reduction in median days on mechanical ventilation among
Procysteine-treated patients compared with placebo patients. However, the study
was not designed to provide statistical evidence of efficacy and this trend did
not reach statistical significance. The results of the study also indicated
that, as measured by PaO(2)/FiO(2) (an established measure of lung function),
Procysteine-treated patients regained efficiency of the lungs in transporting
oxygen to the bloodstream to a greater degree than placebo-treated patients.

Based on the results of the Phase II trials and on discussions with the
FDA, Transcend began its Phase III Clinical Trial in May 1997. The Phase III
Clinical Trial is a randomized, double-blind, placebo-controlled trial of
approximately 350 newly-diagnosed ARDS patients. The protocol includes an
interim analysis to confirm the appropriateness of the sample size. The results
of this analysis could require an increase in the number of patients in the
study. Patients receive either 210 mg/kg/day of Procysteine or a placebo for up
to 14 days. The trial will involve approximately 50 centers and the Company
expects to complete enrollment in the trial in approximately 18 months. The
primary endpoint for the trial is the number of days patients are alive and
off-ventilator over a 30-day trial period. This endpoint is designed to provide
an accurate and quantifiable measure of the clinical benefit as measured by
reduction in ventilator days, while accounting for the high mortality rate in
these patients. Secondary endpoints in the trial include the effect of
Procysteine treatment on mortality, lung function and other organ function. The
Company believes that the use of non-mortality endpoints has become generally
accepted as a measure of clinical benefit in ARDS treatment studies. In
anticipation of its Phase III Clinical Trial, the Company has analyzed its
initial Phase II trial results using the proposed Phase III Clinical Trial
primary endpoint and confirmed a trend, although not statistically significant,
in favor of Procysteine-treated patients. The Company intends to rely on third
parties to assist it in monitoring the Phase III trial and managing data
generated in the trial. See "Risk Factors -- Uncertainty Associated with
Clinical Trials."

Whereas two studies are a customary basis for approval for new drugs, in
life-threatening conditions such as ARDS which lack effective therapy,
regulatory agencies have become willing to consider approval based upon just a
single trial. Based on discussions with the FDA, if the results of the Phase III
Clinical Trial are conclusive, the Company expects to be able to submit an NDA
upon completion of one trial. If the results of the Phase III Clinical Trial
alone are not conclusive, the Company does not currently plan to conduct further
Phase III clinical trials of Procysteine i.v. for the treatment of ARDS. In the
event the Company elects to conduct further Phase III clinical trials of
Procysteine for the treatment of ARDS, the Company may be required to obtain
substantial additional funds, and there can be no assurance that the Company
would be able to obtain such funds on acceptable terms, if at all. See "Risk
Factors -- Need for Substantial Additional Funds." In addition, there can be no
assurance that the Company's Phase III Clinical Trial will be completed on a
timely basis or at all, that the trial will demonstrate the safety and efficacy
of Procysteine to the extent necessary to obtain regulatory approvals, or that
the FDA will not require additional studies to support regulatory approval. In
addition, in earlier trials sponsored by Transcend involving approximately 265
subjects, Procysteine was administered at doses of up to 300 mg/kg/day for one
day and doses of up to 210 mg/kg/day for 21 days. There can be no assurance that
administration of Procysteine at this dosage level or at any other dosage level
required for therapeutic efficacy, will result in a safety profile comparable to
or more favorable than earlier studies. See "Risk Factors -- Uncertainty
Associated with Clinical Trials."

The Company has been granted orphan-drug designation by the FDA for
Procysteine for the treatment of ARDS. See "Business -- Government Regulation."

Prevention of ARDS and MOD

Patients at risk of developing ARDS are also at risk of developing
dysfunction of other organs. The failure of one organ, such as the lungs, places
other organs at risk of failure. The failure of two or more organs, known as
multiple organ dysfunction or MOD, generally has catastrophic consequences for
the patient. Organ systems that are frequently affected in MOD include the lungs
(ARDS), kidneys (acute renal failure), the liver (acute hepatic failure) and the
heart (cardiovascular collapse). While the

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mortality rate of patients with a single organ failure is 30 to 40 percent, the
mortality rate rises to more than 60 percent when two organs fail and exceeds 90
percent when a third organ fails. In addition, MOD exacts a significant cost on
the healthcare system. MOD patients are treated in intensive care units, with
costs averaging $100,000 per patient. The Company estimates that there are over
750,000 patients annually in the United States at risk of MOD. These patients
include those patients with ARDS as well as those who suffer from acute
conditions such as severe infection, multiple trauma and extensive burns.
Because of the difficulty of determining which patients will develop MOD and due
to the higher rate of mortality that occurs when a single organ dysfunction
progresses to MOD, the Company believes it would be more effective to administer
treatment prophylactically.

Currently, there are no commercially available drugs to prevent ARDS or
MOD. As in ARDS, mechanical support for other failed organs (e.g., dialysis to
support kidney function), and pharmacological treatments for complications
arising from MOD, are the sole available therapies. Because most methods of
mechanical intervention, such as dialysis, are invasive, they also carry
additional risks to patients.

Published clinical studies have indicated that the same process of
oxidative tissue damage that results in ARDS also contributes to the development
of MOD. The Company believes, based on published and Company-sponsored
preclinical studies, that Procysteine may be effective in the prevention of ARDS
and/or MOD in patients with acute conditions such as severe infection, multiple
trauma and extensive burns. In the Company's first ARDS Phase II trial, there
was a statistically significantly lower percentage of patients with new organ
dysfunction (other than lung) in the group receiving Procysteine compared to the
placebo group. In the second trial sponsored by the Company including patients
with ARDS (and who are at risk of MOD), a reduced level of glutathione was
shown. Additional Phase II work will be required to complete a Phase II program
for the use of Procysteine for the prevention of ARDS and/or MOD. The Company's
Phase III Clinical Trial for ARDS is also expected to provide data on the
potential of Procysteine to prevent progression to MOD.

Under the BI Agreement, BI has the right to participate in the development
of and to commercialize Procysteine i.v. worldwide for the treatment and
prevention of MOD. If BI exercises this right, it will be required to share in
clinical development funding or reimburse the Company for clinical development
costs. See "Business -- Boehringer Ingelheim." The Company believes that, unlike
in ARDS trials, non-mortality endpoints have not become generally accepted as
measures of clinical benefit in trials for the treatment or prevention of other
organ dysfunction and as a result, additional research will be necessary to
define an appropriate endpoint. Further, since not all patients in a prevention
trial develop ARDS and/or MOD, a trial for the prevention of ARDS and/or MOD
would require a considerably larger number of patients than a trial for the
treatment of ARDS. If BI does not elect to participate in the development of
Procysteine i.v. for the prevention of ARDS and/or MOD, the Company will be
required to raise substantial additional funds to pursue further research and
development. If the Company undertakes such an ARDS/MOD prevention program,
there can be no assurance that the results of earlier studies on the use of
Procysteine for the prevention of ARDS and/or MOD will be predictive of results
that will be obtained from more extensive clinical testing. See "Risk Factors --
Uncertainty Associated with Clinical Trials" and "Risk Factors -- Need for
Substantial Additional Funds."

PROCYSTEINE - ORAL FORMULATION

Transcend has conducted Phase I/II trials with Procysteine to determine its
potential application for the treatment of ALS and ASCVD. During 1997, the
Company plans to evaluate the results of these trials to determine whether to
initiate expanded Phase II clinical trials for either or both of these
indications. If such studies are conducted and yield positive results, the
Company would seek to outlicense its rights to oral Procysteine for ALS and/or
ASCVD.

Amyotrophic Lateral Sclerosis

The inherited form of ALS, a fatal degenerative disorder, is widely
believed to be the result of a malfunctioning enzyme that results in increased
ROS. The Company believes, based on published

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preclinical studies, that increasing glutathione levels in nerve cells in such
patients may reduce or prevent further oxidative tissue damage. The Company
sponsored a Phase I/II clinical trial which demonstrated that Procysteine
entered the cerebrospinal fluid in ALS patients, indicating that Procysteine is
able to gain access to nerve cells. Based on this result, the Company may
conduct a Phase II trial to evaluate the efficacy of Procysteine in limiting
neuromuscular degeneration in patients with ALS. There can be no assurance,
however, that the study will be conducted or completed or that the results of
this study will be positive. See "Risk Factors -- Uncertainty Associated with
Clinical Trials" and "Risk Factors -- Patents and Proprietary Rights;
Third-Party Rights."

The Company has been granted orphan drug designation by the FDA for
Procysteine for the treatment of ALS. See "Business -- Government Regulation."

Atherosclerotic Cardiovascular Disease

Atherosclerotic cardiovascular disease ("ASCVD"), a major risk factor for
heart attack and stroke, is characterized by a narrowing of the arteries by
lipid deposits and the loss of blood vessel elasticity. There is growing
evidence in the medical literature that increased vascular oxidative stress is a
primary mechanism of impaired blood vessel elasticity in patients with
atherosclerosis. The Company believes, based on preclinical studies, that
Procysteine administration may improve blood vessel elasticity. As a result, it
may enhance blood flow, and reduce the risk and severity of heart attack in
patients with coronary artery disease. The Company has completed a Phase I/II
clinical trial in which a single, oral dose of Procysteine rapidly restored
blood vessel elasticity in patients with ASCVD. Based on this result, the
Company may conduct a similar Phase I/II trial using multiple doses of
Procysteine. There can be no assurance, however, that the study will be
conducted or completed or that the results of this study will be positive. See
"Risk Factors -- Uncertainty Associated with Clinical Trials" and "Risk
Factors -- Patents and Proprietary Rights; Third-Party Rights."

TR-500 COMPOUNDS (GLUTATHIONE-REPLETING AGENTS)

The TR-500 Compounds are a group of glutathione derivatives that enable the
direct delivery of glutathione into cells. The Company believes that in clinical
conditions, where glutathione cannot be repleted efficiently through the use of
Procysteine, the TR-500 Compounds may serve as second generation
glutathione-repleting agents. The Company believes, based on preclinical
studies, that TR-571 may have potential therapeutic application in hemolytic
anemias where ROS may play a role in blood cell damage. These anemias include
inherited disorders such as sickle cell disease and thalassemia, and acquired
anemias such as the hemolytic anemia associated with dialysis. In addition, the
Company believes, based on preclinical studies, that TR-520 may have potential
therapeutic application in the treatment of acute renal failure, where low
glutathione levels play a role in kidney tissue damage. During 1997, the Company
plans to select one or more of these compounds for further preclinical
development.

BOEHRINGER INGELHEIM

In February 1997, the Company entered into an agreement with Boehringer
Ingelheim International GmbH for the worldwide development and commercialization
of Procysteine i.v. Under the BI Agreement, the Company granted BI an exclusive
worldwide license to use and sell Procysteine i.v. for all pharmaceutical
applications.

The Company has principal responsibility for, and will bear all expenses
related to, the clinical development of Procysteine i.v. for use in the
treatment of ARDS in all countries other than Japan. BI has certain rights,
exercisable until the end of 1997, to develop and commercialize Procysteine i.v.
for the treatment of ARDS in Japan. If BI does not exercise its rights during
1997, all rights to Procysteine i.v. in Japan will revert to the Company. The
Company is also responsible for obtaining at its expense any necessary
regulatory approvals relating to the use of Procysteine i.v. for the treatment
of ARDS (other than in Japan, which remains BI's responsibility if it exercises
its Japanese development rights).

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BI is responsible for the worldwide marketing, sale and distribution of
Procysteine i.v. for the treatment of ARDS. The Company has retained the right
to co-promote Procysteine i.v. in the United States.

The Company has also granted BI the right to participate in the development
of and to commercialize Procysteine i.v. worldwide for the treatment and
prevention of MOD. If BI exercises its rights with respect to the MOD
indication, it will be required to share in clinical development funding or
reimburse the Company for clinical development costs. However, BI is not
required to exercise its rights until late in the product development process,
if at all, and there can be no assurance that the Company will be able to gain
access to the resources (financial and other) necessary to conduct required MOD
clinical trials if BI declines to exercise its rights or defers such exercise
until later in the product development process. If BI elects not to exercise its
participation rights with respect to the MOD indication, all rights relating
thereto will revert to the Company.

The Company has also granted BI the right to participate in the development
of and to commercialize Procysteine i.v. for use in indications other than ARDS
and MOD. The Company has retained the right, subject to a right of first
negotiation with BI, to develop and commercialize oral formulations of
Procysteine, including for ALS and ASCVD. The Company has agreed not to
commercialize oral formulations of Procysteine for any indication for which BI
is participating in the development and commercialization of Procysteine i.v.
The Company has agreed to manufacture, either directly or through contract
manufacturers, and supply BI with Procysteine i.v. for clinical trials and
commercial purposes.

BI has paid the Company an upfront license fee of $5.0 million and has
agreed to purchase $5.0 million of equity securities of the Company in a private
placement. BI has expressed its intention to fulfill this obligation by
purchasing $5.0 million of Common Stock in the Offering at the initial public
offering price (454,545 shares of Common Stock assuming an initial public
offering price of $11.00 per share). The Company has agreed with BI to use the
aggregate $10.0 million in proceeds from BI only for the clinical development of
Procysteine i.v. for use in the treatment of ARDS. BI has also agreed to make
additional payments to the Company, which could total up to $36.0 million, upon
the achievement of clinical development and regulatory milestones relating to
ARDS and, if BI exercises its participation rights, to MOD. More than half of
these milestone payments are payable only with respect to MOD-related
development. Because BI is not required to participate in the development and
commercialization of Procysteine i.v. for MOD, there can be no assurance that BI
will be obligated to make any of the milestone payments relating to the
development of Procysteine i.v. for MOD.

BI has also agreed to pay royalties (and, if applicable, co-promotion
payments in the United States) on any sales of Procysteine i.v.

The BI Agreement is subject to termination by either party for a material
breach by the other party which is not cured within 90 days. In addition, BI has
the right to terminate the agreement at any time (i) within six months after
completion of the Phase III Clinical Trial, or (ii) within 30 days after notice
that the Company intends, without the consent of BI, to file an NDA for
Procysteine i.v. for the treatment of ARDS. Any such termination would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Risk Factors -- Dependence on Boehringer Ingelheim"
and "Risk Factors -- Lack of Commercial Sales and Marketing Experience;
Dependence on Strategic Alliances."

The Company will be dependent upon the efforts of BI with respect to the
commercialization of Procysteine i.v. There can be no assurance that BI will
commit sufficient marketing resources to the commercialization of the Company's
products. Any failure by BI to commit sufficient marketing resources to the
commercialization of Procysteine i.v. would have a material adverse effect on
the Company's business, financial condition and results of operations. See "Risk
Factors -- Dependence on Boehringer Ingelheim."

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MANUFACTURING

The Company is responsible for manufacturing and supplying BI with
Procysteine i.v. for clinical trials and commercial purposes. The Company
currently contracts with third-party manufacturers to produce its compounds for
preclinical research and for clinical trials. The Company expects to utilize
third-party manufacturers for commercial production. The Company has established
relationships with a third party to produce bulk quantities of Procysteine and
with other parties to formulate the compound into intravenous and oral forms of
Procysteine for clinical trials. Through third-party manufacturers and
formulators, the Company believes it has produced sufficient Procysteine for use
in its Phase III Clinical Trial.

The Company believes that it will be able to reach arrangements with
third-party manufacturers and formulators on commercially reasonable terms, and
that it will not be necessary for it to develop internal manufacturing
capability in order to successfully commercialize Procysteine. The manufacturing
process for Procysteine involves established technology, and the Company
believes that other potential suppliers are available should the Company be
unable to obtain reasonable terms in the future from its current vendors.
However, in the event that the Company is unable to obtain contract
manufacturing or formulation services on reasonable terms, it may need to
acquire manufacturing capability or it may be unable to commercialize its
products as planned or satisfy its obligations under the BI Agreement. In
February 1997, the Company's sole supplier of bulk drug substance for
Procysteine was issued a warning letter by the FDA for failure to be in
compliance with cGMP. The FDA has indicated that, until the supplier is in
compliance with cGMP, it will recommend disapproval of any NDA listing this
supplier as the supplier of bulk drug substance. Based on conversations with the
supplier, the Company currently believes that the noncompliance will be resolved
prior to the time, if ever, that the Company is able to file an NDA. In
addition, the Company believes that alternate suppliers of its bulk drug
substance for Procysteine are available. Because the Company believes it has
sufficient supplies to complete the Phase III Clinical Trial, it does not
believe that the supplier's existing issues with the FDA will affect the
completion of the trial, although no assurance to that effect can be given. If
the supplier does not resolve its noncompliance prior to the time, if ever, that
the Company files an NDA and if an alternate supplier, if needed, is not
available on acceptable terms prior to such NDA filing, the Company would be
materially and adversely affected. In addition, there can be no assurance that
the Company's existing or future outside vendors or prospective corporate
collaborators will be able to manufacture Procysteine or any other developed
product on a commercial scale or that any collaborator or vendor will be able to
manufacture such products on a timely basis, in quantities or at prices which
will be commercially viable or beneficial for the Company or necessary to
satisfy its obligations under the BI Agreement. See "Risk Factors -- Limited
Source of Supply; Dependence on Third-Party Manufacturers."

SALES AND MARKETING

The Company has entered into an agreement with BI pursuant to which BI will
be responsible for marketing Procysteine i.v., subject to certain co-promotion
rights in the United States retained by Transcend. The Company plans to form
additional strategic alliances with established pharmaceutical or biotechnology
companies in order to finance the development of certain of its other product
candidates. The Company may elect to establish a sales force to market and
distribute those products for which it retains marketing rights or shares rights
with corporate partners, including its co-promotion rights under the BI
Agreement. There can be no assurance that the Company will be able to establish
in-house sales, marketing or distribution capabilities or enter into or maintain
strategic relationships for sales, marketing and distribution on a timely basis,
or at all. Even if the Company does develop or obtain sales, marketing and
distribution capabilities, there can be no assurance that any product developed
by the Company or its strategic partners, including BI, will be successfully
marketed. See "Risk Factors -- Dependence on Boehringer Ingelheim; -- Lack of
Commercial Sales and Marketing Experience; Dependence on Strategic Alliances"
and "Business -- Boehringer Ingelheim."

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PATENTS AND PROPRIETARY RIGHTS

The Company's commercial success will depend to a significant extent on
obtaining and enforcing patent protection for its products and methods,
including methods for treating or preventing human disease, or for such products
and methods licensed from third parties, maintaining trade secret protection and
operating without infringing the proprietary rights of third parties. As of
March 31, 1997, the Company owns or has exclusively licensed 16 United States
patents and nine United States applications as well as counterparts of these
patents and applications in various foreign jurisdictions. Of these, nine United
States patents and two United States applications relate to the Company's
business as described in this Prospectus. Specifically, the Company owns a
United States patent application for the use of Procysteine in treating
pulmonary disease, including ARDS. The Company recently received a final Office
Action, from the USPTO, rejecting the claims of this patent application as being
obvious over a combination of prior art references. Final Office Actions
commonly are issued by the USPTO. While receipt of a final Office Action may
impose certain procedural limitations on an applicant's subsequent submissions
in a particular case, it does not signal the end of the prosecution process. The
Company intends to respond vigorously to the final Office Action, by the
presentation of additional arguments and facts in support of its position that
the patent application contains patentable subject matter. There can be no
assurance, however, that this patent application ultimately will issue as a
patent in the United States, or, if it issues, as to the breadth of the claims.
A corresponding European patent has issued and has been validated as national
patents in Austria, Belgium, Denmark, France, Germany, Greece, Italy,
Luxembourg, Monaco, the Netherlands, Portugal, Spain, Sweden, Switzerland, and
the United Kingdom, all of which expire in 2011. Corresponding patent
applications are pending in Canada, Australia and Japan. By July 16, 1997, any
person may give notice to the European Patent Office of opposition to the
European patent. An adverse decision in any such opposition may result in
revocation of the European patent and the national patents which issued
therefrom.

The patent positions of pharmaceutical and biotechnology firms, including
the Company, are uncertain and involve complex legal and factual questions for
which important legal principles are largely unresolved, particularly in regard
to methods for treating or preventing human disease, and most particularly for
diseases such as ARDS and MOD, for which the Company believes there is currently
no commercially available drug for treatment or prevention. Substantial periods
of time pass before the USPTO responds on the merits to patent applications and
submissions on behalf of the inventors. In addition, the coverage claimed in a
patent application can be significantly reduced or modified before and after a
patent is issued. Consequently, there can be no assurance that any of the
Company's or any licensor's pending or future patent applications will result in
the issuance of patents or, if any patents are issued, whether the patents will
be subjected to further proceedings limiting their scope, and whether they will
provide significant proprietary protection or competitive advantage, or will be
circumvented or invalidated. Because patent applications in the United States
are maintained in secrecy until patents issue and patent applications in certain
other countries generally are not published until more than 18 months after they
are filed, and since publication of inventions in scientific or patent
literature often lags behind actual dates of invention, the Company cannot be
certain that it or any licensor was the first inventor of inventions covered by
pending patent applications or that it or such licensor was the first to file
patent applications on such inventions.

There can be no assurance that the Company's or any licensor's patents, if
issued, would not be found invalid or unenforceable by a court or that such
patents would cover products or technologies of the Company's competitors.
Competitors or potential competitors may have filed applications for or received
patents, and may obtain additional patents and proprietary rights relating to
products or methods for treating or preventing human disease that are
competitive with those of the Company. To protect its proprietary rights, the
Company may be required to participate in interference proceedings declared by
the USPTO to determine priority of invention, which could result in substantial
cost to the Company. Moreover, even if the Company's or any licensor's patents
issue, there can be no assurance that they will provide sufficient proprietary
protection or will not be later limited, circumvented or invalidated.

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The Company may be required to obtain licenses to patents or other
proprietary rights of third parties. No assurance can be given that any licenses
required under any such patents or proprietary rights would be made available on
terms acceptable to the Company, if at all. If the Company does not obtain such
licenses, it could encounter delays in product market introductions while it
attempts to design around such patents or other rights, or it may be unable to
develop, manufacture or sell products. See "Risk Factors -- Patents and
Proprietary Rights; Third Party Rights."

There is substantial uncertainty concerning whether human clinical data
will be required for the issuance of patents for methods of treating or
preventing human disease, particularly for diseases such as ARDS and MOD, for
which the Company believes there is currently no commercially available drug for
treatment or prevention. If such data is required, the Company's ability to
obtain patent protection could be delayed or otherwise adversely affected.
Although the USPTO issued new utility guidelines in July 1995 that address the
requirements for demonstrating utility for biotechnology inventions, including
for inventions relating to methods for treating or preventing human disease,
there can be no assurance that USPTO patent examiners will follow such
guidelines or that the USPTO's position will not change with respect to what is
required to establish utility for Procysteine or future potential products of
the Company in the treatment of human diseases. In addition, there can be no
assurance that compliance with such guidelines will result in valid and
enforceable patents. Furthermore, the enactment of legislation implementing the
General Agreement on Trade and Tariffs has resulted in certain changes to United
States Patent laws that became effective on June 8, 1995. Most notably, the term
of patent protection for patent applications filed on or after June 8, 1995 is
no longer a period of 17 years from the date of grant. The new term of United
States patents will commence on the date of issuance and terminate 20 years from
the earliest effective filing date of the application. Because the time from
filing to issuance of biotechnology patent applications is often more than three
years, a 20-year term from the effective date of filing may result in a
substantially shortened term of patent protection, which may adversely impact
the Company's patent position. In addition, if this change results in a shorter
period of patent coverage, and if the Company negotiates royalties based on the
existence of a valid patent, the Company's business could be adversely affected.

TECHNOLOGY AND LICENSE AGREEMENTS

The Company was formed to develop and commercialize the Covered Technology
which was originally developed at Cornell and licensed to Baxter Healthcare
Corporation ("Baxter"). In 1989, Baxter and Nestle Clinical Nutrition, Inc.
("Nestle") established Clintec, and Baxter assigned its rights in the Covered
Technology to Clintec. From 1988 to 1994, Baxter and Clintec completed various
studies of Procysteine, including preclinical studies, assay development,
toxicology, formulation and several clinical studies. In April 1994, the Company
acquired rights to the Covered Technology from Cornell and Clintec.

Cornell Research Foundation

In connection with a Contribution Agreement dated April 5, 1994 (the
"Contribution Agreement") between the Company and Clintec, the Company obtained
an exclusive worldwide license from Cornell (the "Cornell Agreement") to certain
patents covering methods of using Procysteine to increase intracellular levels
of glutathione and/or cysteine. The Company's rights under the Cornell

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Agreement include an exclusive license under a composition of matter patent for
the TR-500 series of glutathione-repleting agents.

In consideration for the licenses granted to Transcend under the Cornell
Agreement, Cornell received 35,025 shares of Common Stock (of which 7,025 shares
were returned to the Company in settlement of a dispute). See "Certain
Transactions." In addition, Transcend agreed to (i) provide funding to Cornell
Medical College of an aggregate of $400,000 over a three-year period, which
commenced in July 1994; (ii) pay royalties on sales of products covered by the
licensed patents, if any; and (iii) pay annual minimum royalties which would be
credited in any year against earned royalties due for such year. Under the
Cornell Agreement, Transcend agreed to exercise due diligence in development and
commercialization of products covered by the licensed patents. Any failure to
exercise such diligence with respect to a particular technology licensed under
the Agreement would permit Cornell to cause the license to become non-exclusive.

Clintec Nutrition Company

Pursuant to the Contribution Agreement, in exchange for 680,000 shares of
Common Stock and 9,000 shares of Nonconvertible Redeemable Preferred Stock, the
Company acquired from Clintec various clinical supplies, data, records,
contractual and intellectual property rights related to pharmaceutical
applications of the Covered Technology. In connection with the Contribution
Agreement, the Company granted to Clintec an exclusive, royalty-free sub-license
to the use of the Covered Technology for certain clinical nutrition and
nutritional applications, while retaining exclusive rights to all pharmaceutical
applications of the Covered Technology. As part of the September 1996 Financing
by the Company, all shares of Nonconvertible Redeemable Preferred Stock held by
Clintec were exchanged for 3,404,255 shares of Series C Preferred Stock. The
agreement also provides that if the Company should decide not to maintain the
patents or decides to abandon the application which are the subject of the
agreement, the Company will assign such patents and applications to Clintec. See
"Certain Transactions."

COMPETITION

The pharmaceutical and biotechnology industries are characterized by
rapidly advancing technologies, intense competition and a strong emphasis on
proprietary products. Many entities, including pharmaceutical and biotechnology
companies, academic institutions and other research organizations are actively
engaged in the discovery and development of products in the therapeutic areas
pursued by the Company. Many of these entities have greater financial,
technical, manufacturing and marketing resources than the Company. In addition,
many of these competitors have become more active in seeking patent protection
and licensing arrangements in anticipation of collecting royalties for use of
technology that they have developed.

The Company's ability to compete effectively will depend on its ability to
advance its core technology, maintain a proprietary position on its technology
and products, obtain required governmental approvals on a timely basis, attract
and retain key personnel and develop effective products that can be manufactured
cost-effectively and marketed successfully. The Company expects that competition
among products approved for sales will be based, among other things, on
efficacy, reliability, product safety, price and patent position.

Currently there are no commercially available drugs to prevent or treat
ARDS. There can be no assurance that research and development by others will not
render any of the Company's planned products obsolete or uneconomical, or result
in therapies superior to any developed by the Company, or that any products
developed by the Company will be preferred to any existing or newly developed
technologies. See "Risk Factors -- Rapid Technological Change; Intense
Competition."

GOVERNMENT REGULATION

The production, marketing, sales and distribution of the Company's products
and its research and development activities are subject to extensive regulation
for safety, efficacy and quality by numerous

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governmental authorities in the United States and other countries. In the United
States, drugs and certain biological products are subject to rigorous FDA
regulation under the Federal Food, Drug and Cosmetic Act (the "FDCA"), and the
regulations promulgated thereunder, as well as other federal and state statutes
and regulations that govern, among others, the testing, manufacture, safety,
efficacy, labeling, storage, record keeping, approval, advertising and promotion
of the Company's products. Product development and approval within this
regulatory framework can take a number of years and requires the expenditure of
substantial resources. Any failure by the Company or its collaborators or
licensees to obtain regulatory approval, or any delay in obtaining such
approvals, could adversely affect the marketing of products being developed by
the Company, its ability to receive product or royalty revenues and its
liquidity and capital resources.

Human therapeutics are normally subject to rigorous preclinical and
clinical testing. The standard process required by the FDA before a drug may be
marketed in the United States includes (i) preclinical laboratory tests; (ii)
submission to the FDA of an investigational new drug application ("IND"), which
must be approved before human clinical trials may commence; (iii) adequate and
well-controlled human clinical trials to establish the safety and efficacy of
the drug in its intended indication; (iv) submission to the FDA of an NDA; and
(v) FDA approval of the NDA prior to any commercial sale or shipment of the
drug.

Preclinical animal testing is generally conducted in the laboratory to
evaluate the potential safety and efficacy of a drug. Although the results of
preclinical testing may show the efficacy of a product tested in animals, and
may support an application to begin clinical testing, subsequent clinical
testing may not demonstrate comparable effectiveness in humans. The results of
these animal studies are submitted to the FDA as part of the IND and NDA. See
"Risk Factors -- Uncertainty Associated with Clinical Trials."

Clinical trials involve the administration of the investigational new drug
to healthy volunteers or to patients, under the supervision of a qualified
principal investigator. Clinical trials must be conducted in accordance with
good clinical practices under protocols that detail the objectives of the study,
the parameters to be used to monitor safety and, if applicable, the efficacy
criteria to be evaluated. Each protocol must be submitted to the FDA as part of
the IND. Further, each clinical trial must be conducted under the auspices of an
Institutional Review Board ("IRB") at the institution at which the trial will be
conducted. IRBs will consider, among other things, ethical factors, the safety
of human subjects and the possible liability of the institution. Typically,
clinical evaluation involves a three-phase process. In Phase I, trials are
conducted with a small number of human subjects to determine the safety profile,
the pattern of drug distribution and metabolism. In Phase II, trials are
conducted with a larger group of patients afflicted with a specific condition in
order to determine preliminary efficacy, optimal dosages and expanded evidence
with respect to safety. In Phase III, large-scale, often multi-center,
comparative trials are conducted with patients afflicted with a target disease
in order to provide enough data for the statistical proof of safety and efficacy
required by the FDA and other regulatory authorities. The pertinent SMB or the
FDA may suspend clinical trials at any time if they believe that the subjects or
patients are being exposed to an unacceptable health risk.

The results of the pharmaceutical development, preclinical studies and
clinical trials are submitted to the FDA in the form of an NDA. The testing and
approval process is likely to require substantial time and effort and there can
be no assurance that any approval will be granted on a timely basis, if at all.
The FDA may deny an NDA if applicable regulatory criteria are not satisfied,
require additional testing or information, or approve an NDA subject to
postmarketing testing and surveillance or limitations on the indicated uses for
which the subject drug may be marketed. Finally, product approvals may be
withdrawn if compliance with regulatory standards is not maintained or if
problems occur following initial marketing.

Domestic manufacturing establishments are subject to inspection by the FDA
and must comply with the FDA's cGMP. To supply products for use in the United
States, foreign manufacturing

40
<PAGE> 42

establishments must comply with cGMP and are subject to periodic inspection by
the FDA or by regulatory authorities in such countries under reciprocal
agreements with the FDA.

The Orphan Drug Act of 1983 generally provides incentives to manufacturers
to undertake development and marketing of products to treat relatively rare
diseases or diseases where fewer than 200,000 persons in the United States would
be likely to receive the treatment. A drug that both receives orphan drug
designation by the FDA and is the first product of a chemical moiety to receive
FDA marketing approval for its indication is entitled to receive up to a
seven-year exclusive marketing period in the United States for that indication.
A drug that is considered by the FDA to be different from a particular orphan
drug is not barred from sale in the United States during such exclusive
marketing period. Legislation has previously been introduced in Congress to
limit the marketing exclusivity provided for certain orphan drugs. Although the
outcome of that legislation, if reintroduced, is uncertain, there remains a
possibility that future legislation will limit the incentives currently afforded
to the developers of orphan drugs.

The Company has been granted orphan drug designation for Procysteine for
the treatment of ARDS and ALS. There can be no assurance, however, that a
product considered by the FDA to be different from Procysteine will not be
successfully introduced by a competitor of the Company. Any such product would
not be barred from sale in the United States by the designation of Procysteine
as an orphan drug. If such a drug proved to be safer, more effective or less
costly than Procysteine, the Company's business could be materially adversely
affected.

If and when the Company markets its products outside the United States,
whether or not FDA approval has been obtained, approval of a pharmaceutical
product by comparable governmental regulatory authorities in foreign
jurisdictions must be obtained prior to the commencement of human clinical
trials or marketing approval for drugs. The requirements governing the conduct
of clinical trials, product licensing, pricing and reimbursement vary widely
from country to country. In addition, the Company's products may be subject to
export control. See "Risk Factors -- No Assurance of FDA Approval; Comprehensive
Government Regulation."

PRODUCT LIABILITY

The testing, marketing and sale of human therapeutic products entail an
inherent risk of exposure to product liability claims by consumers, health care
providers, pharmaceutical and biotechnology companies or other sellers of the
Company's products. There can be no assurance that substantial product liability
claims will not be asserted against the Company. While the Company has liability
insurance with respect to clinical trials, the Company does not have product
liability insurance coverage for the commercial sale of Procysteine, the
Company's lead product candidate. There can be no assurance that the Company
will be able to maintain clinical trials liability insurance on acceptable terms
or that such insurance will provide adequate coverage against potential
liabilities. The Company will seek to obtain product liability insurance
coverage for commercial sales if and when its products are commercialized.
However, there can be no assurance that adequate insurance coverage will be
available in sufficient amounts and at acceptable costs, if at all. In addition,
pursuant to the terms of certain licensing agreements entered into by the
Company, the Company has agreed to indemnify certain third parties with respect
to losses incurred as a result of the manufacture, supply or sale of potential
product candidates. The Company has also agreed to indemnify BI with respect to
any claims relating primarily to the manufacture of Procysteine i.v. Any
indemnification or product liability claim or product recall could inhibit or
prevent commercialization of products being developed by the Company and
otherwise have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors -- Product Liability."

EMPLOYEES

As of May 15, 1997, the Company employed 13 people, two of whom hold Ph.D.
and/or M.D. degrees. The Company's employees are not members of a union, and the
Company believes that it has good employee relations. All of the Company's
employees have signed agreements obligating them to

41
<PAGE> 43

protect the proprietary nature of the Company's confidential information. See
"Risk Factors -- Dependence on Key Personnel."

FACILITIES

The Company currently holds an operating lease on and occupies
approximately 7,700 square feet of leased office and administrative space at 640
Memorial Drive, Cambridge, Massachusetts. The Company pays approximately
$200,000 annually under its facilities lease. The lease on these facilities
expires in December 1999. The Company believes that these facilities should be
sufficient to meet the Company's needs through December 1999.

42
<PAGE> 44

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The current executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- ---- -----------------------------------------------
<S> <C> <C>
Hector J. Gomez, M.D., Ph.D. ........ 58 President, Chief Executive Officer and Director

John J. Whalen, M.D. ................ 50 Senior Vice President and Chief Scientific
Officer

B. Nicholas Harvey .................. 37 Vice President, Finance, Chief Financial
Officer and Secretary

Jerry T. Jackson(1).................. 56 Chairman of the Board

Philippe Chambon, M.D., Ph.D.(1)..... 39 Director

Frank L. Douglas, M.D., Ph.D.(2)..... 54 Director

Richard W. Hunt, C.P.A.(2)........... 42 Director

William C. Mills III(2).............. 41 Director

Gerard M. Moufflet(1)................ 53 Director
</TABLE>

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

(1) Member of the Compensation Committee.

(2) Member of the Audit Committee.

HECTOR J. GOMEZ, M.D., PH.D. has served as President, Chief Executive
Officer and a director of the Company since November 1994. He previously served
as Vice President of Medical Affairs at Vertex Pharmaceuticals Incorporated, a
rational drug design company, from May 1992 to November 1994. From December 1991
to May 1992, Dr. Gomez served as Associate Vice President at Immunomedics, Inc.,
a biotechnology company. From December 1988 to December 1991, he served as
Executive Director of Cardiovascular Clinical Research at Ciba-Geigy Corporation
("Ciba-Geigy"), a pharmaceutical company. Previously, Dr. Gomez served as
Director of Clinical Research from 1979 to 1984, and as Senior Director of
Clinical Research from 1985 to December 1988, at Merck & Co., Inc. ("Merck"), a
pharmaceutical company. During his tenures at Merck and Ciba-Geigy, Dr. Gomez
successfully directed the clinical development phase of ten NDAs. His
accomplishments include the management of the clinical program, from IND filing
through marketing approval, for enalapril (Vasotec(R)) and lisinopril
(Prinivil(R) and Zestril(R)), cardiovascular products. Dr. Gomez received his
M.D. from National University in Bogota, Colombia, his Ph.D. in Pharmacology
from Marquette University and his Diploma in Clinical Pharmacology from Tulane
University.

JOHN J. WHALEN, M.D. has served as Senior Vice President and Chief
Scientific Officer of the Company since October 1995. In addition, he has served
as Chairman of the Company's Scientific Advisory Board since October 1995. From
1990 to 1995, he served as Senior Vice President and General Manager of the
Pharmaceutical Division at Alpha Therapeutic Corporation, a pharmaceutical
company. He has also held senior management positions as Vice President of
Clinical Research at G.H. Besselaar Associates ("Besselaar") and as Director of
Clinical Research for Cardiovascular/Renal Products at Merck, Sharp & Dohme
Research Laboratories. Dr. Whalen has an extensive background in directing
clinical trials at Besselaar, Merck and Alpha Therapeutic Corporation. Dr.
Whalen's achievements include the clinical development of Fluosol(R),
Lotensin(R), Vasotec I.V.(R), Oncolym(R) and Venoglobulin S(R). Dr. Whalen
received his B.S. in Physics from Rensselaer Polytechnic Institute and his M.D.
from the University of Virginia and participated in a pulmonary fellowship at
New York University.

B. NICHOLAS HARVEY has served as Vice President, Finance, Chief Financial
Officer and Secretary of the Company since December 1992. From February 1992 to
December 1992, he was Treasurer at The Computer Power Group, a computer services
and software company. From May 1986 to February 1989, he was Executive Director
at Brunckhorst & Co., an Australian investment firm that he helped to found.

43
<PAGE> 45

Mr. Harvey received his B.Econ. and LL.B. from the Australian National
University and his M.B.A. from the Harvard Business School in 1991.

JERRY T. JACKSON has served as Chairman of the Board of the Company since
May 1996 and has been a director of the Company since September 1995. He was an
Executive Vice President of Merck from January 1993 until his retirement in
January 1995. During 1994, Mr. Jackson had responsibility for Merck's
International Human Health, Vaccines, AgVet and Astra/Merck U.S. divisions and
for worldwide marketing. In 1993, he also served as President of the Merck Human
Health Division and from February 1986 to December 1992, Mr. Jackson was Senior
Vice President at Merck. Mr. Jackson also serves as a director of Cor
Therapeutics, Inc., SunPharm Corporation and Molecular Biosystems, Inc.

PHILIPPE O. CHAMBON, M.D., PH.D. has been a director of the Company since
November 1995. Dr. Chambon has been with Sprout Group ("Sprout"), a venture
capital firm, since May 1995 and currently serves as General Partner. From May
1993 to April 1995, Dr. Chambon served as a Manager in the Healthcare Practice
of The Boston Consulting Group, a management consulting firm. Dr. Chambon was an
executive with Sandoz Pharmaceuticals Corp., a leading pharmaceutical company,
from September 1987 to April 1993, most recently serving as the Executive
Director of New Product Management.

FRANK L. DOUGLAS, M.D., PH.D. has been a director of the Company since
September 1995. Dr. Douglas has been Chief Research Officer for Hoechst Marion
Roussel, A.G. since May 1997 and was Global Head of Research for Hoescht from
1995 to 1997. Prior to its acquisition by Hoechst Marion Roussel, Dr. Douglas
was Executive Vice President of the Research and Development Division and served
as a director at Marion Merrell Dow, Inc. from 1992 to 1995. In 1992, he was
also an Adjunct Professor of Medicine and Pharmacology at the University of
Kansas. In 1991, Dr. Douglas was a Vice President and Partner of the Biocine
Company, a joint venture between Ciba-Geigy and Chiron. From 1988 to 1991, he
was Senior Vice President and Director of Research for Ciba-Geigy Pharmaceutical
Corp.

RICHARD W. HUNT, C.P.A. has been a director of the Company since November
1995. Mr. Hunt is Vice President, Corporate Development of Baxter International
Inc., a worldwide developer and manufacturer of health care products and
systems. Since January 1982, Mr. Hunt has held various positions with Baxter
International Inc. From November 1978 to January 1982, Mr. Hunt served in
various senior level financial positions with Searle Pharmaceuticals, Inc.

WILLIAM C. MILLS III has been a director of the Company since April 1994
and was Chairman of the Board from April 1994 to May 1996. He served as interim
Chief Executive Officer of the Company from April 1994 to November 1994. Since
1988, Mr. Mills has been a General Partner of FH&Co. III, L.P., which is a
General Partner of The Venture Capital Fund of New England ("VCFNE"), a venture
capital firm. From 1981 until 1988, he served as a Managing General Partner and
General Partner at PaineWebber Ventures/Ampersand, a venture capital firm. Mr.
Mills also serves as a director of Cytogen Corporation, where he served as
Chairman of the Board from January 1995 to May 1996.

GERARD M. MOUFFLET has been a director of the Company since April 1994.
Since September 1989, Mr. Moufflet has been Senior Vice President in charge of
the medical sector for Advent International Corporation ("Advent"), a private
equity investment firm. Prior to joining Advent, Mr. Moufflet served as
Corporate Vice President in charge of Baxter International and spent 17 years in
various marketing, financial and general management positions. He also serves as
a director of Curative Health Services, Inc.

Certain of the current directors of the Company were nominated and elected
in accordance with a stockholder's voting agreement. This agreement will
terminate upon the consummation of the Offering. See "Certain Transactions."
Each officer serves at the discretion of the Board of Directors. There are no
family relationships among any of the directors or executive officers of the
Company.

44
<PAGE> 46

CLASSIFIED BOARD OF DIRECTORS

The Company's Restated Certificate of Incorporation will be amended upon
the closing of the Offering to provide for a classified Board of Directors
consisting of three classes, as nearly equal in number as possible, with the
directors in each class serving staggered three-year terms. The Class I
directors are Mr. Mills and Drs. Chambon and Douglas; the Class II directors are
Messrs. Moufflet and Hunt; and the Class III directors are Dr. Gomez and Mr.
Jackson. The terms of the Class I, Class II and Class III Directors will expire
initially in 1998, 1999 and 2000, respectively. At each annual meeting of the
stockholders of the Company, the successors to the class of directors whose term
expires at such meeting will be elected to hold office for a term expiring at
the annual meeting of stockholders held in the third year following the year of
their election. See "Description of Capital Stock -- Delaware Anti-Takeover Law
and Certain Charter and By-Law Provisions."

BOARD COMMITTEES

The Board of Directors has a Compensation Committee which has
responsibility for reviewing the performance of the officers of the Company,
making recommendations to the Board concerning salaries and incentive
compensation for such officers and administering the Company's Amended and
Restated 1994 Equity Incentive Plan. The Compensation Committee consists of
Messrs. Moufflet and Jackson and Dr. Chambon.

The Board of Directors also has an Audit Committee which has responsibility
for reviewing the Company's financial statements and significant audit and
accounting practices with the Company's independent auditors and making
recommendations to the Board of Directors with respect thereto. The Audit
Committee consists of Messrs. Mills and Hunt and Dr. Douglas.

BOARD COMPENSATION

The Company's directors do not currently receive any cash compensation for
service on the Board of Directors or any committee thereof, but directors are
reimbursed for certain expenses in connection with attendance at Board of
Directors and committee meetings. Two of the Company's non-employee directors,
Dr. Douglas and Mr. Jackson, were each granted stock options to purchase 8,000
shares of Common Stock in 1995 with an exercise price of $.50 per share in
connection with their service on the Board of Directors. In addition, in July
1996 Mr. Jackson was granted options to purchase 8,000 shares of Common Stock
with an exercise price of $2.50 per share in connection with his appointment as
Chairman of the Board of the Company. Each option vests 50 percent on the first
anniversary of the date of grant, and the remainder of each option vests monthly
over the following year. The options terminate upon the earlier of the tenth
anniversary of the date of grant or the termination of the director's service on
the Board of Directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The current members of the Company's Compensation Committee are Messrs.
Jackson and Moufflet and Dr. Chambon, none of whom is an employee of the
Company.

SCIENTIFIC ADVISORY BOARD

The Company has established a Scientific Advisory Board, whose members
review the Company's research, development and clinical activities and are
available for consultation with the Company's management and scientific staff
relating to their respective areas of expertise. Dr. Whalen, Senior Vice
President and Chief Scientific Officer of the Company, is Chairman of the
Company's Scientific Advisory Board. The other members of the Company's
Scientific Advisory Board and their primary academic or professional
affiliations are listed below:

GORDON R. BERNARD, M.D. chairs the Steering Committee for National
Institutes of Health ("NIH") ARDS Clinical Trials, and is currently a Professor
of Medicine at the Vanderbilt University School of Medicine. In addition, Dr.
Bernard has served as principal investigator for clinical trials of
glutathione-repleting agents in ARDS.

MITCHELL P. FINK, M.D. is Surgeon-in-Chief of Beth Israel Deaconess
Hospital and Professor of Surgery at Harvard Medical School. Dr. Fink serves on
the Editorial Board of several key journals, such

45
<PAGE> 47

as Critical Care Medicine, Journal of Trauma, and Shock. Dr. Fink's major
research interests include the role of neutrophils in septic and traumatic shock
and development of novel therapeutic agents for septic shock.

NORMAN K. HOLLENBERG, M.D., PH.D. is a Professor of Medicine at Harvard
Medical School and the Brigham and Women's Hospital. Dr. Hollenberg's research
interests include renal perfusion and function, and the genetic underpinnings of
hypertension and renal injury.

JOHN E. REPINE, M.D. is the Director of the Webb-Waring Institute for
Biomedical Research, and Professor of Medicine and Associate Dean for Student
Affairs at the University of Colorado Health Sciences Center. Dr. Repine has a
distinguished research record on oxidative stress and disease pathology.

ROBERT T. SCHOOLEY, M.D. is Professor of Medicine and Head of the
Infectious Disease Division at the University of Colorado Health Services
Center. His research includes work on AIDS, immunology, and infectious diseases.
Dr. Schooley served as Chair of numerous groups at the NIH, including the Core
Immunology Committee of the AIDS Clinical Trials Group.

STEVEN R. TANNENBAUM, PH.D. is a Professor of Chemistry and Toxicology at
the Massachusetts Institute of Technology. Dr. Tannenbaum's research efforts
include the chemistry of free radicals in biological systems, and leading work
on N-nitroso compounds and other environmental carcinogens and mutagens.

EXECUTIVE COMPENSATION

The following table sets forth for the fiscal year ended December 31, 1996
the compensation for services rendered to the Company in all capacities with
respect to its Chief Executive Officer and each of its other executive officers
whose cash compensation in 1996 exceeded $100,000 (the Chief Executive Officer
and such other executive officers are hereinafter referred to as the "Named
Executive Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
--------------------
ANNUAL COMPENSATION NUMBER OF SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
- -------------------------------- --------- -------- -------------------- ---------------
<S> <C> <C> <C> <C>
Hector J. Gomez, M.D., Ph.D..... $240,000 $ -- 40,000 $ 1,755(1)
President and
Chief Executive Officer
John J. Whalen, M.D. ........... 160,000 -- 30,000 5,331(2)
Senior Vice President and
Chief Scientific Officer
B. Nicholas Harvey.............. 128,000 -- 30,000 --
Vice President, Finance
and Chief Financial Officer
</TABLE>

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

(1) Consists of premiums paid by the Company on a term life insurance policy on
behalf of Dr. Gomez.
(2) Consists of relocation expenses reimbursed to Dr. Whalen by the Company.

46
<PAGE> 48

OPTION GRANTS IN LAST FISCAL YEAR

The following table contains information concerning the grant of stock
options to the Named Executive Officers during the fiscal year ended December
31, 1996.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------
PERCENT POTENTIAL REALIZABLE
OF TOTAL VALUE AT ASSUMED
OPTIONS ANNUAL RATES OF
NUMBER OF GRANTED STOCK PRICE
SECURITIES TO FAIR MARKET APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE VALUE ON OPTION TERM($)(2)
OPTIONS IN FISCAL PRICE THE DATE EXPIRATION ------------------------------
NAME GRANTED(#) YEAR(1) ($/SHARE) OF GRANT DATE 0% 5% 10%
- -------------------------------- --------- --------- --------- ----------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hector J. Gomez, M.D., Ph.D. ... 40,000 31% $2.50 $ 11.00 7/25/06 $340,000 $617,000 $1,041,000
John J. Whalen, M.D. ........... 30,000 23 2.50 11.00 7/25/06 255,000 463,000 781,000
B. Nicholas Harvey ............. 30,000 23 2.50 11.00 7/25/06 255,000 463,000 781,000
</TABLE>

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

(1) Based on options to purchase 129,298 shares of Common Stock granted to
employees in fiscal 1996.
(2) The potential realizable value of each option at 0% is based on the fair
market value of the Common Stock on the date of grant, $11.00 per share,
minus the exercise price times the number of shares underlying the option.
The potential realizable value of each option at 5% and 10% are based on the
term of the option at its time of grant (ten years). Each is calculated by
assuming that the stock price on the date of grant appreciates at 5% or 10%,
as applicable, compounded annually for the entire term of the option, and
that the option is exercised and sold on the last day of its term for the
appreciated stock price. Actual gains, if any, on stock option exercises
will depend on the future performance of the Common Stock and the date at
which the options are exercised.

AGGREGATE OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE

The following table sets forth, for each of the Named Executive Officers,
the number of shares acquired on exercise of options during the fiscal year
ended December 31, 1996, the aggregate dollar value realized upon such exercise
and the number and value of unexercised options held by each such officer on
December 31, 1996:

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR-END AT FISCAL YEAR-END(2)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---------------------------------- ----------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Hector J. Gomez, M.D., Ph.D. ..... 1,800 $18,900 59,174/90,826 $612,982/$882,018
John J. Whalen, M.D. ............. -- -- 11,879/46,121 118,484/ 430,516
B. Nicholas Harvey ............... -- -- 27,087/32,488 278,168/ 287,372
</TABLE>

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

(1) Based on the fair market value of the Common Stock on the date of exercise,
less the option exercise price. Such shares have not actually been sold.

(2) Based on the fair market value of the Common Stock on December 31, 1996
($11.00) less the option exercise price.

EMPLOYMENT AGREEMENTS

On November 29, 1994, the Company entered into an employment agreement with
Dr. Gomez, which provides for an annual base salary of $230,000, subject to
increase upon annual review. Under the agreement, Dr. Gomez received an option
to purchase 110,000 shares of Common Stock at an exercise price of $.50 per
share. Such option vests monthly over four years and terminates on November 28,
2004. Upon termination of employment by the Company other than for cause (as
defined in the agreement), the Company will pay Dr. Gomez his then current
salary, less any consulting income earned by Dr. Gomez, until the earlier of six
months from the date of such termination or the date upon which Dr. Gomez
secures other employment. The agreement provides that, for a period of twelve
months following termination of employment for any reason, Dr. Gomez will not
engage, directly or indirectly, in activities which compete with those of the
Company.

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<PAGE> 49

AMENDED AND RESTATED 1994 EQUITY INCENTIVE PLAN

The Company's 1994 Equity Incentive Plan was initially adopted by the Board
of Directors and approved by the stockholders in April 1994. The 1994 Equity
Incentive Plan was amended and restated by the Board of Directors and the
stockholders in February 1997. Under the terms of the 1994 Equity Incentive
Plan, the Company is authorized to make awards of restricted stock and to grant
incentive stock options and non-statutory stock options to employees (including
officers and employee directors) and directors of, and consultants and advisors
to, the Company to purchase shares of the Common Stock of the Company. As of
March 31, 1997, a total of 362,152 shares of Common Stock were reserved for
issuance upon exercise of outstanding options granted under the 1994 Equity
Incentive Plan, and an additional 375,965 shares of Common Stock were reserved
for future options or awards under the 1994 Equity Incentive Plan.

Stock option grants under the 1994 Equity Incentive Plan entitle the
optionee to purchase Common Stock from the Company, for a specified exercise
price, during the periods specified in the applicable option agreement. The
Compensation Committee of the Board of Directors will select the persons to whom
options are granted, and determine the number of shares covered by each option,
its exercise price, its vesting schedule and its expiration date. Options are
generally not assignable or transferable except by will or the laws of descent
and distribution.

Restricted stock awards under the 1994 Equity Incentive Plan entitle the
recipient to purchase Common Stock from the Company under terms which provide
for vesting over a period of time and a right of repurchase of unvested stock
when the recipient's relationship with the Company terminates. The Compensation
Committee of the Board of Directors will select the recipients of restricted
stock awards, determine the times at which restricted stock awards are made, and
determine the number of shares of Common Stock subject to the award, the
purchase price (which can be less than the fair market value of the Common
Stock) and the vesting schedule for such shares. The recipients may not sell,
transfer or otherwise dispose of shares subject to a restricted stock award
until such shares are vested. Upon termination of the recipient's relationship
with the Company, the Company will be entitled to repurchase those shares which
are not vested on the termination date at a price equal to their original
purchase price.

As of March 31, 1997, the Company had 13 employees, all of whom were
eligible to participate in the 1994 Equity Incentive Plan. The number of
individuals receiving stock options varies from year to year depending on
various factors, such as the number of promotions and the Company's hiring needs
during the year.

The Compensation Committee may, in its sole discretion, include additional
provisions in any option or award granted or made under the 1994 Equity
Incentive Plan, including without limitation restrictions on transfer,
repurchase rights, commitments to pay cash bonuses, to make, arrange for or
guaranty loans or to transfer other property to optionees upon exercise of
options, or such other provisions as shall be determined by the Compensation
Committee, provided they are not inconsistent with the 1994 Equity Incentive
Plan and applicable law. The Compensation Committee may also, in its sole
discretion, accelerate or extend the date or dates on which all or any
particular option or options granted under the 1994 Equity Incentive Plan may be
exercised. Each of the options granted to date has provided that, upon certain
events constituting a change of control of the Company, the option becomes fully
exercisable. The Board of Directors has approved the accelerated vesting of
certain stock options held by employees of the Company, including the Named
Executive Officers, effective upon the closing of the Offering (the "IPO
Acceleration"). Under the first of three components of the IPO Acceleration, the
vesting of all stock options granted prior to 1996 will accelerate by one year.
Under the second component, the vesting of stock options granted to each of the
Named Executive Officers prior to 1996 will further accelerate by approximately
one month for each four months of such officer's employment, up to a maximum of
one additional year of acceleration. Under the third component, half of the
30,000 shares of Common Stock subject to an option granted to Mr. Harvey on July
25, 1996 will become exercisable upon the closing of the Offering, subject to
the condition of his continued employment for twelve months following the
Offering.

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<PAGE> 50

CERTAIN TRANSACTIONS

On April 5, 1994, the Company acquired the Covered Technology from Clintec,
in exchange for 680,000 shares of Common Stock and 9,000 shares of the Company's
Nonconvertible Redeemable Preferred Stock which were exchanged in September 1996
for an aggregate of 3,404,255 shares of Series C Convertible Preferred Stock.
Richard W. Hunt, a director of the Company, is Vice President, Corporate
Development of Baxter International Inc., the sole owner of Baxter.
Concurrently, the Company entered into a license agreement with Cornell related
to the Covered Technology in return for 35,025 shares of Common Stock, payment
of minimum royalties and a three-year research agreement with Cornell Medical
College providing for the payment of $133,000 per year ending in July 1997. On
October 4, 1995, Cornell agreed to return to the Company 7,025 shares of Common
Stock in settlement of a dispute related to the abandonment by Cornell of a
patent application in Japan. See "Business -- Technology and License
Agreements."

In connection with the organization of the Company in December 1992, the
Company's two founding scientists from Clintec, Dr. Gary Pace and Dr. Dennis
Goldberg, purchased from the Company 100 shares of Common Stock at a price of
$.05 per share. On April 5, 1994, upon the Company's acquisition of the Covered
Technology from Clintec, the previously issued and outstanding shares of Common
Stock held by Dr. Pace and Dr. Goldberg were exchanged for 44,109 shares of
Common Stock, effected in the form of a stock dividend.

Also on April 5, 1994, the Company issued and sold an aggregate of
6,500,000 shares of Series A Convertible Preferred Stock at a price of $1.00 per
share in a private placement to certain institutional investors, including
3,494,500 shares to entities affiliated with Advent, 1,000,000 shares to
entities affiliated with Sprout, 1,000,000 shares to VCFNE, 500,000 shares to
Baxter and 500,000 shares to Nestle (the "1994 Financing"). Gerard Moufflet, a
director of the Company, is Senior Vice President of Advent. Philippe Chambon,
M.D., Ph.D., a director of the Company, is a General Partner of Sprout. William
C. Mills III, a director of the Company, is a General Partner of FH & Co. III,
L.P., the General Partner of VCFNE. The Company concurrently issued warrants
(the "Series A Warrants") to purchase an aggregate of 1,625,000 shares of Series
A Convertible Preferred Stock to the same investors at an exercise price of
$1.00 per share (including warrants to purchase 873,625 shares to entities
affiliated with Advent, 250,000 shares to entities affiliated with Sprout,
250,000 shares to VCFNE, 125,000 shares to Baxter and 125,000 shares to Nestle).
In accordance with the terms of such warrants, on September 13, 1995, Series A
Warrants for an aggregate of 250,000 shares of Series A Convertible Preferred
Stock were cancelled. In September 1996, the Series A Warrants were exercised
pursuant to a net exercise provision for an aggregate of 789,894 shares of
Series A Convertible Preferred Stock (including 501,869 shares to Advent,
143,617 shares to Sprout and 143,617 shares to VCFNE).

In connection with the 1994 Financing, the Company entered into a
Stockholders' Agreement with its stockholders, which was amended and restated on
September 13, 1995 and further amended on May 29, 1996 (as so amended, the
"Stockholders' Agreement"). Each party to the Stockholders' Agreement has agreed
to vote all shares over which such party exercises control to elect as directors
of the Company: (i) one representative designated by VCFNE; (ii) one
representative designated by Advent; (iii) one representative designated by
Sprout; (iv) one representative designated by Clintec; and (v) the Chief
Executive Officer of the Company. Messrs. Mills, Moufflet and Hunt and Dr.
Chambon currently serve as the designees of VCFNE, Advent, Clintec and Sprout,
respectively. The Stockholders' Agreement will terminate upon the consummation
of the Offering.

Also in connection with the 1994 Financing, the Company became a party to a
Right of First Refusal Agreement and a Right of First Refusal and Co-sale
Agreement (collectively, the "Right of First Refusal Agreements") with certain
stockholders of the Company (the "Holders"). The Right of First Refusal
Agreements provide each of the Holders with a right of first refusal with
respect to securities issued by the Company, a right of first refusal with
respect to any proposed transfer of shares by another Holder and a right to
participate in any proposed transfer of shares by any other Holder. The Right of
First Refusal Agreements will terminate upon the consummation of the Offering.
In addition,

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<PAGE> 51

in connection with the 1994 Financing, the Company agreed to register in certain
circumstances shares of its capital stock held by certain investors. See
"Description of Capital Stock -- Registration Rights."

On September 13, 1995, the Company sold Series A Notes in the aggregate
principal amount of $2.0 million to certain institutional investors, including
notes in the aggregate principal amount of $1,270,728 to entities affiliated
with Advent, $363,636 to entities affiliated with Sprout and $363,636 to VCFNE.
Interest on the Series A Notes accrued at 30 percent per annum, payable every
four months in the form of shares of Series A Convertible Preferred Stock (at
one share per $1.00 of interest due and payable). The Series A Notes matured on
January 15, 1997, and were convertible into shares of Series A Convertible
Preferred Stock (at one share per $1.00 of principal outstanding) upon the
closing of a private financing resulting in gross proceeds to the Company of
$2.0 million or more. The Company issued an aggregate of 397,806 shares of
Series A Convertible Preferred Stock in lieu of interest payable on the Series A
Notes through May 13, 1996 to the holders thereof. At the closing of the
September 1996 Financing, the Company issued 98,631 shares of Series A
Convertible Preferred Stock in full payment of accrued and unpaid interest
through such date (including 62,666 shares to entities affiliated with Advent;
17,933 shares to entities affiliated with Sprout; and 17,933 shares to VCFNE)
Concurrently, the Series A Notes were converted into an aggregate of 2,000,000
shares of Series A Convertible Preferred Stock (including 1,270,728 shares to
entities affiliated with Advent; 363,636 shares to entities affiliated with
Sprout; and 363,636 shares to VCFNE).

In January 1996, the Company issued an aggregate of 130,000 shares of
Series A Convertible Preferred Stock to two of its directors, Dr. Douglas and
Mr. Jackson, and one former director of the Company. Such shares were issued (at
$1.00 per share) for an aggregate of $130,000.

On May 29, 1996, the Company issued Series B Notes in the aggregate
principal amount of $1.0 million to certain institutional investors, including
notes in the aggregate principal amount of $635,364 to entities affiliated with
Advent, $181,818 to entities affiliated with Sprout and $181,818 to VCFNE.
Interest on the Series B Notes accrued at 30 percent per annum, payable every
four months in the form of Series B Convertible Preferred Stock (at one share
per $1.50 of interest due and payable). The Series B Notes matured on January
15, 1997, and were convertible into shares of Series B Convertible Preferred
Stock (at one share per $1.50 of principal) upon the closing of a private
financing of $1.0 million. On September 3, 1996, at the closing of the September
1996 Financing, the Company issued 24,109 shares of Series B Convertible
Preferred Stock in full payment of accrued and unpaid interest on the Series B
Notes through such date (including 15,318 shares to entities affiliated with
Advent; 4,383 shares to entities affiliated with Sprout; and 4,384 shares to
entities affiliated with VCFNE). Concurrently, the Series B Notes were converted
into an aggregate of 666,666 shares of Series B Convertible Preferred Stock
(including 423,576 shares to entities affiliated with Advent, 121,212 shares to
entities affiliated with Sprout and 121,212 shares to VCFNE).

In the September 1996 Financing, the Company issued 3,404,255 shares of
Series C Convertible Preferred Stock to Clintec in exchange for all of the
outstanding shares of Nonconvertible Redeemable Preferred Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

Pursuant to the September 1996 Financing, the Company issued and sold an
aggregate of 851,064 shares of Series C Convertible Preferred Stock (including
150,205 shares to the Advent Group; 42,983 shares to VCFNE; and 19,342 shares to
Sprout Group) at a price of $2.35 per share. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

In February 1997, the Company entered into an agreement with BI relating to
the worldwide development and commercialization of Procysteine i.v. For a
description of the BI Agreement, see "Business -- Boehringer Ingelheim." In
connection with the BI Agreement, BI agreed to purchase $5.0 million of equity
securities of the Company in a private placement. BI has expressed its intention
to fulfill this obligation by purchasing $5.0 million of Common Stock in the
Offering at the initial public offering price (454,545 shares of Common Stock
assuming an initial public offering price of $11.00 per

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<PAGE> 52

share). The Company expects to grant BI certain registration rights with respect
to the BI Shares. See "Description of Capital Stock -- Registration Rights."

In March 1997, the Company issued and sold an aggregate of 1,039,000 shares
of the Company's Nonconvertible Redeemable Preferred Stock and warrants to
purchase $346,300 of Common Stock, exercisable at the initial public offering
price (31,482 shares of Common Stock assuming an initial public offering price
of $11.00 per share), to certain institutional investors, including 433,697
shares to entities affiliated with Advent, 85,000 shares to entities affiliated
with Sprout, 100,554 shares to VCFNE, 319,068 shares to Baxter, 38,000 shares to
Dr. Gomez, 12,000 shares to Dr. Whalen and 50,000 shares to Mr. Jackson (the
"Bridge Financing"), resulting in proceeds to the Company of approximately $1.0
million. In May 1997, the Company agreed to issue warrants to purchase an
additional $173,200 of Common Stock to such investors (together with the shares
issuable upon exercise of the warrants issued in March 1997, the "Bridge Warrant
Shares"), exercisable at the initial public offering price (15,745 shares of
Common Stock assuming an initial public offering price of $11.00 per share).
Concurrently, the holders of such stock agreed to exchange their shares of
Nonconvertible Redeemable Preferred Stock for an aggregate of $1,039,000 of
Common Stock upon the closing of the Offering at the initial public offering
price (94,455 shares of Common Stock assuming an initial public offering price
of $11.00 per share).

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<PAGE> 53

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of March 31, 1997, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, by
(i) each person or entity known to the Company to own beneficially more than 5%
of the Company's Common Stock; (ii) each of the Company's directors; (iii) each
of the Named Executive Officers; and (iv) all directors and executive officers
as a group.

<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY
NUMBER OF OWNED(2)(3)
SHARES ---------------------
BENEFICIALLY PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) OFFERING OFFERING
- ------------------------------------------------------------ ------------ -------- --------
<S> <C> <C> <C>
5% STOCKHOLDERS
Advent Group(4)........................................... 1,294,277 32.4% 20.1%
101 Federal Street
Boston, MA 02110
Baxter Healthcare Corporation(5).......................... 964,279 24.2 15.0
One Baxter Parkway
Deerfield, IL 60015
Nestle Clinical Nutrition, Inc. .......................... 789,650 19.9 12.3
900 North Brand Boulevard
Glendale, CA 91203
Clintec International, Inc. .............................. 689,650 17.4 10.7
One Baxter Parkway
Deerfield, IL 60015
Boehringer Ingelheim International GmbH................... 454,545 -- 7.1
D-55216 Ingelheim am Rhein
Germany(6)
The Venture Capital Fund of New England III, L.P. ........ 367,163 9.2 5.7
160 Federal Street, 23rd Floor
Boston, MA 02110 (7)
DLJ Capital Corporation(8)................................ 360,186 9.1 5.6
277 Park Avenue
New York, NY 10172
DIRECTORS
Jerry T. Jackson(9)....................................... 26,824 * *
Philippe Chambon, M.D., Ph.D.(8).......................... 360,186 9.1 5.6
Frank L. Douglas, M.D., Ph.D.(10)......................... 16,668 * *
Richard W. Hunt(11)....................................... 964,279 24.2 15.0
William C. Mills III(12).................................. 367,163 9.2 5.7
Gerard M. Moufflet(4)..................................... 1,294,277 32.4 20.1
NAMED EXECUTIVE OFFICERS
Hector J. Gomez, M.D., Ph.D.(13).......................... 79,980 2.0 1.2
John J. Whalen, M.D.(14).................................. 19,556 * *
B. Nicholas Harvey(15).................................... 31,661 * *
All directors and executive officers as a group
(nine persons)(16)..................................... 3,160,954 76.0 47.8
</TABLE>

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

* Less than 1%

(1) Unless otherwise indicated, the address for each beneficial owner is c/o
the Company, 640 Memorial Drive, Cambridge, Massachusetts 02139.

(2) The inclusion herein of any shares of Common Stock as beneficially owned
does not constitute an admission of beneficial ownership of those shares.
Unless otherwise indicated, each person listed above has sole investment
and voting power with respect to the shares listed. In accordance with the
rules of the Securities and Exchange Commission, each person is deemed to
beneficially own any shares issuable upon exercise of stock options or
warrants held by such person that are currently

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<PAGE> 54

exercisable or that become exercisable within 60 days after March 31, 1997,
and any reference in these footnotes to shares subject to stock options or
warrants held by the person in question refers only to such shares.

(3) The number of shares deemed outstanding for purposes of calculating these
percentages is comprised of the 3,879,885 shares outstanding as of March
31, 1997, which gives effect to the conversion into shares of Common Stock
of all outstanding shares of Series A, Series B and Series C Preferred
Stock, and (ii) the exchange of all of the Company's outstanding
Nonconvertible Redeemable Preferred Stock for an aggregate of $1,039,000 of
Common Stock at the initial public offering price (94,455 shares of Common
Stock assuming an initial public offering price of $11.00 per share).
Shares held by the person in question include shares subject to stock
options and warrants exercisable within 60 days after March 31, 1997. If
the initial public offering price is less than $11.75 per share, additional
shares of Common Stock will be issued upon conversion of shares of Series C
Convertible Preferred Stock. See "Description of Capital Stock -- Series
Convertible Preferred Stock."

(4) Represents 822,812 shares held by Global Private Equity II Limited
Partnership, 331,421 shares held by Rovent II Limited Partnership, 136,340
shares held by Advent Performance Materials Limited Partnership and 3,704
shares held by Advent International Investors II Limited Partnership (the
"Advent Group"). Includes an aggregate of 19,714 Bridge Warrant Shares. Mr.
Moufflet, a director of the Company, is Senior Vice President of Advent
International Corporation, which is a general partner of Advent
International Investors II Limited Partnership and of Advent International
Limited Partnership, the general partner of each of the other members of
the Advent Group. Mr. Moufflet disclaims beneficial ownership of all such
shares.

(5) Includes 689,650 shares held by Clintec International, Inc., a wholly owned
subsidiary of Baxter and 14,503 Bridge Warrant Shares.

(6) Consists of $5.0 million of equity securities of the Company which, under
the BI Equity Investment, BI has agreed to purchase in a private placement.
BI has expressed its intention to fulfill this obligation by purchasing
Common Stock in the Offering at the initial public offering price (assumes
an initial public offering price of $11.00 per share).

(7) Includes 4,571 Bridge Warrant Shares.

(8) Represents 310,945 shares held by Sprout Capital VI, L.P. (including 3,335
Bridge Warrant Shares) and 49,241 shares held by DLJ Capital Corporation
(including 528 Bridge Warrant Shares), with respect to all of which Dr.
Chambon shares voting and investment power. DLJ Capital Corporation is the
managing general partner of Sprout Capital VI, L.P. Dr. Chambon is General
Partner of Sprout Group.

(9) Includes 10,006 shares subject to stock options and 2,273 Bridge Warrant
Shares held by Mr. Jackson.

(10) Includes 6,668 shares subject to stock options held by Dr. Douglas.

(11) Represents 689,650 shares held by Clintec International, Inc. and 274,629
shares held by Baxter. Mr. Hunt is Vice President, Corporate Development of
Baxter International, Inc. and shares voting power with respect to shares
held by Clintec's sole stockholder, Baxter.

(12) Represents 367,163 shares held by the VCFNE, with respect to which Mr.
Mills shares voting and investment power. Mr. Mills is a general partner of
FH & Co. III, L.P., a general partner of the VCFNE.

(13) Includes 72,998 shares subject to stock options and 1,727 Bridge Warrant
Shares held by Dr. Gomez.

(14) Includes 17,920 shares subject to stock options and 545 Bridge Warrant
Shares held by Dr. Whalen.

(15) Represents 31,661 shares subject to stock options held by Mr. Harvey.

(16) Includes 139,253 shares subject to stock options and an aggregate of 47,196
Bridge Warrant Shares.

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<PAGE> 55

DESCRIPTION OF CAPITAL STOCK

The Company's current Restated Certificate of Incorporation (the
"Certificate of Incorporation"), authorizes 46,285,319 shares of capital stock,
consisting of 25,000,000 shares of Common Stock, $.01 par value, and 21,285,319
shares of Preferred Stock, $.01 par value. In connection with the Offering, the
Company's Certificate of Incorporation will be amended and restated (the
"Restated Certificate of Incorporation"). Upon completion of the Offering, the
Restated Certificate of Incorporation will authorize the issuance of 30,000,000
shares of capital stock, consisting of 25,000,000 shares of Common Stock, par
value $.01 per share, and 5,000,000 shares of Preferred Stock, par value $.01
per share. Set forth below is a description of the capital stock of the Company.

COMMON STOCK

As of March 31, 1997, assuming the conversion all outstanding shares of
Preferred Stock into Common Stock, there were 3,785,430 shares of Common Stock
issued and outstanding held of record by 22 stockholders and 362,152 shares of
Common Stock issuable upon the exercise of outstanding stock options.

The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders and are not entitled to cumulative
voting rights with respect to the election of directors. Accordingly, holders of
a majority of the shares of Common Stock entitled to vote in any election of
directors may elect all of the directors standing for election. Holders of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors out of funds legally available therefor,
subject to preferences that may be applicable to any outstanding Preferred
Stock. In the event of liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share ratably in all net assets
remaining after payment of liabilities and the liquidation preference of any
outstanding Preferred Stock. Holders of Common Stock have no preemptive,
subscription, redemption, conversion or other subscription rights, and there are
no sinking fund provisions applicable to the Common Stock. All currently
outstanding shares of Common Stock are, and the shares of Common Stock being
issued and sold in the Offering will be, duly authorized, validly issued, fully
paid and nonassessable.

SERIES CONVERTIBLE PREFERRED STOCK

The Company currently has outstanding 9,916,330 shares of Series A
Convertible Preferred Stock, 690,775 shares of Series B Convertible Preferred
Stock and 4,255,319 shares of Series C Convertible Preferred Stock, $.01 par
value per share (respectively, the "Series A Preferred Stock," "Series B
Preferred Stock" and "Series C Preferred Stock"). See "Certain Transactions."
Assuming an initial public offering price of $11.00 per share, because of the
one-for-five reverse stock split effected in February 1997, each share of Series
A and Series B Preferred Stock will automatically convert into one-fifth of a
share of Common Stock upon closing of the Offering.

Under the terms of the Company's Convertible Preferred Stock, if the
Company issues shares of Common Stock at less than the Conversion Price of any
series of its Convertible Preferred Stock (as defined in the terms of such
series), the number of shares of Common Stock issuable upon conversion of shares
of such series will adjust in accordance with a weighted average antidilution
formula. The Conversion Price of the Company's Series C Preferred Stock is
$11.75 per share. Accordingly, an initial public offering price of less than
$11.75 will cause an adjustment in the number of shares issuable upon the
automatic conversion of Series C Preferred Stock at the closing of the Offering.
At an initial public offering price of $11.00 per share, an aggregate of
6,334,885 shares of Common Stock will be outstanding after the Offering (23,062
shares more than if there were no antidilution adjustment in the Conversion
Price of the Series C Preferred Stock). Initial public offering prices of
$10.00, $9.00 and $8.00 per share would cause an additional 55,554, 90,556 and
128,368 shares, respectively, to be outstanding after the Offering.

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<PAGE> 56

Following completion of the Offering and the conversion of all of the
outstanding shares of Preferred Stock, the Board of Directors will have the
authority to issue from time to time up to 5,000,000 shares of Preferred Stock
in one or more series and to fix the powers, designations, preferences and
relative, participating, optional or other rights thereof, including dividend
rights, conversion rights, voting rights, redemption terms, liquidation
preferences and the number of shares constituting each such series, without any
further vote or action by the Company's stockholders. The issuance of Preferred
Stock could adversely affect the rights of holders of Common Stock and could
have the effect of delaying, deferring or preventing a change in control of the
Company. The Company has no present plans to issue any of these shares of
Preferred Stock.

NONCONVERTIBLE REDEEMABLE PREFERRED STOCK

The Company has outstanding 1,039,000 shares of Nonconvertible Redeemable
Preferred Stock, $.01 par value per share (the "Nonconvertible Preferred
Stock"). All outstanding shares of Nonconvertible Preferred Stock are expected
to be exchanged upon the closing of the Offering for an aggregate of $1,039,000
of Common Stock at the initial public offering price (94,455 shares of Common
Stock assuming an initial public offering price of $11.00 per share). Except as
required by law, the Nonconvertible Redeemable Preferred Stock has no voting
rights. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

WARRANTS

In March 1997, upon the issuance of shares of Nonconvertible Preferred
Stock, the Company also issued warrants to purchase $346,300 of Bridge Warrant
Shares, exercisable at the initial public offering price (31,482 shares of
Common Stock assuming an initial public offering price of $11.00 per share). In
May 1997, the Company agreed to issue additional warrants to the holders of its
Nonconvertible Preferred Stock to purchase $173,200 of Bridge Warrant Shares,
exercisable at the initial public offering price (15,745 shares of Common Stock
assuming an initial public offering price of $11.00 per share), and the holders
of such stock agreed to exchange their shares of Nonconvertible Preferred Stock
for an aggregate of $1,039,000 of Common Stock upon the closing of the Offering
at the initial public offering price (94,455 shares of Common Stock assuming an
initial public offering price of $11.00 per share). Such warrants are
exercisable upon issuance and expire five years from the date of issuance.

In connection with the execution of a lease of real property from the
Massachusetts Institute of Technology ("MIT") in October 1994, the Company
issued a warrant to MIT to purchase 5,000 shares of Common Stock at a price of
$5.00 per share. This warrant expires on October 28, 1999.

REGISTRATION RIGHTS

At the completion of the Offering, certain stockholders of the Company (the
"Rightsholders") will be entitled to certain rights with respect to the
registration under the Securities Act of a total of 3,771,801 shares of Common
Stock (the "Registrable Shares") pursuant to the terms of an agreement among the
Company and the Rightsholders (the "Registration Rights Agreement"). Such number
of shares includes shares of Common Stock to be issued in exchange for the
Company's outstanding Nonconvertible Redeemable Preferred Stock and the Bridge
Warrant Shares. Under the Registration Rights Agreement beginning 6 months after
the effective date of the Company's registration statement relating to the
Offering, on not more than one occasion and subject to certain limitations, the
Company is required to use its best efforts to file a registration statement
under the Securities Act if requested by the holders of (i) 35 percent of the
outstanding shares of Preferred Stock (on an as-converted basis) held by
Rightsholders immediately prior to the Offering (the "Preferred Rightsholders");
or (ii) 35 percent of the outstanding shares of Common Stock held by
Rightsholders immediately prior to the Offering (the "Common Rightsholders"). In
addition, at any time after the Company becomes eligible to use Form S-3, on not
more than one occasion, the Company is required to use its best efforts to file
a registration statement on Form S-3 if requested by (i) 35 percent of the
Preferred Rightsholders or

55
<PAGE> 57

(ii) 35 percent of the Common Rightsholders. The Registration Rights Agreement
also provides that in the event the Company proposes to file a registration
statement under the Securities Act with respect to an offering by the Company,
the Rightsholders shall be entitled to include Registrable Shares in such
registration, subject to the right of the managing underwriter of any such
offering to exclude some or all of such Registrable Shares from such
registration if and to the extent that inclusion of such Shares would adversely
affect the marketing of the shares to be sold by the Company ("Incidental
Rights"). In such event, the amount of Registrable Shares to be offered for the
accounts of the Rightsholders shall be reduced pro rata among all of the
requesting Rightsholders based upon the number of shares requested to be
included in such registration by all requesting Rightsholders. BI will have such
Incidental Rights with respect to any BI Shares issued in the Offering. The
Company is required to bear the expenses of the first registration requested by
Preferred Rightsholders and the first registration requested by Common
Rightsholders, except underwriting discounts and commissions and fees of more
than one counsel to the Rightsholders. The Rightsholders and BI are subject to
certain lock-up agreements. See "Shares Eligible For Future Sale."

DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS

The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15 percent or more of the
corporation's voting stock.

The Restated Certificate of Incorporation provides for the division of the
Board of Directors into three classes as nearly equal in size as possible with
staggered three-year terms. See "Management." In addition, the Restated
Certificate of Incorporation provides that directors may be removed only for
cause by the affirmative vote of the holders of two-thirds of the shares of
capital stock of the corporation entitled to vote. Under the Restated
Certificate of Incorporation, any vacancy on the Board of Directors, however
occurring, including a vacancy resulting from an enlargement of the Board, may
only be filled by vote of a majority of the directors then in office. The
classification of the Board of Directors and the limitations on the removal of
directors and filling of vacancies could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of the Company.

The Restated Certification of Incorporation also provides that after the
closing of the Offering, any action required or permitted to be taken by the
stockholders of the Company at an annual meeting or special meeting of
stockholders may only be taken if it is properly brought before such meeting and
may not be taken by written action in lieu of a meeting. The Restated
Certificate of Incorporation further provides that special meetings of the
stockholders may only be called by the Chairman of the Board of Directors, the
Chief Executive Officer or, if none, the President of the Company or by the
Board of Directors. Under the Company's Amended and Restated By-Laws (the
"By-Laws"), in order for any matter to be considered "properly brought" before a
meeting, a stockholder must comply with certain requirements regarding advance
notice to the Company. The foregoing provisions could have the effect of
delaying until the next stockholders meeting stockholder actions which are
favored by the holders of a majority of the outstanding voting securities of the
Company. These provisions may also discourage another person or entity from
making a tender offer for the Company's Common Stock, because such person or
entity, even if it acquired a majority of the outstanding voting securities of
the Company, would be able to take action as a stockholder (such as electing new
directors or approving a merger) only at a duly called stockholders meeting, and
not by written consent.

The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of

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<PAGE> 58

incorporation or by-laws, unless a corporation's certificate of incorporation or
by-laws, as the case may be, requires a greater percentage. The Restated
Certificate of Incorporation and the By-Laws require the affirmative vote of the
holders of at least 66 2/3 percent of the shares of capital stock of the Company
issued and outstanding and entitled to vote to amend or repeal any of the
provisions described in the prior two paragraphs.

The Restated Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. The provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain circumstances
involving wrongful acts, such as the breach of a director's duty of loyalty or
acts or omissions which involve intentional misconduct or a knowing violation of
law. Further, the Restated Certificate of Incorporation contains provisions to
indemnify the Company's directors and officers to the fullest extent permitted
by the General Corporation Law of Delaware. The Company believes that these
provisions will assist the Company in attracting and retaining qualified
individuals to serve as directors.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to the Offering, there has not been any public market for the Common
Stock and there can be no assurance that a significant public market for the
Common Stock will be developed or be sustained after the Offering. Sales of
substantial amounts of Common Stock in the public market after the Offering, or
the possibility of such sales occurring, could adversely affect prevailing
market prices for the Common Stock or the future ability of the Company to raise
capital through an offering of equity securities. See "Risk Factors -- Shares
Eligible for Future Sale; Registration Rights."

After the Offering, the Company will have outstanding 6,334,885 shares of
Common Stock (6,703,135 shares if the Underwriters' over-allotment option is
exercised in full). Of these shares, the 2,455,000 shares offered hereby will be
freely tradable in the public market without restriction under the Securities
Act, unless such shares are held by "affiliates" of the Company, as that term is
defined in Rule 144 under the Securities Act, or are subject to certain lock-up
agreements as described below.

The remaining 3,879,885 shares of Common Stock outstanding upon completion
of the Offering will be "restricted securities" as that term is defined in Rule
144 (the "Restricted Shares"). The Restricted Shares were issued and sold by the
Company in private transactions in reliance upon exemptions from registration
under the Securities Act. Restricted Shares may be sold in the public market
only if they are registered or if they qualify for an exemption from
registration under the Securities Act, including an exemption under Rule 144 or
701, which are summarized below.

Pursuant to "lock-up" agreements, certain of the Company's stockholders and
all of its executive officers and directors, who collectively hold 3,765,801 of
such Restricted Shares (excluding BI), have agreed not to offer, sell, or
otherwise dispose of any of their Restricted Shares for a period of 270 days
from the date of this Prospectus (the "Lock-Up Period"), without the prior
written consent of EVEREN Securities. In addition, BI has agreed not to offer,
sell or otherwise dispose of any shares of Common Stock received under the BI
Equity Investment for a period of 360 days from the date of this Prospectus
without the prior written consent of EVEREN Securities (the "BI Lock-Up
Period"). The Company has also agreed that it will not offer, sell or otherwise
dispose of Common Stock for a period of 180 days from the date of this
Prospectus, other than pursuant to existing stock option plans or upon exercise
of currently outstanding warrants, without the prior written consent of EVEREN
Securities. Upon termination of the Lock-Up Period, approximately 3,671,347
shares of the Restricted Shares will be eligible for immediate sale in the
public market, subject to certain volume, manner of sale, and other limitations
under Rule 144. Upon termination of the BI Lock-Up Period, the BI Shares will be
eligible for immediate sale in the public market without limitation. In
addition, of the Restricted Shares not

57
<PAGE> 59

subject to lock-up agreements, approximately 74,741 shares will be eligible for
immediate sale, without limitation under Rule 144(k), and approximately 39,342
of such Restricted Shares will be eligible for sale beginning 90 days after the
date of this Prospectus, subject to certain volume, manner of sale and other
limitations under Rule 144 and Rule 701.

Following the expiration of such lock-up periods, certain shares issued
upon exercise of options granted by the Company prior to the date of this
Prospectus will also be available for sale in the public market pursuant to Rule
701 under the Securities Act. Rule 701 permits resales of such shares in
reliance upon Rule 144 but without compliance with certain restrictions,
including the holding period requirement, imposed under Rule 144. In general,
under Rule 144 as currently in effect, beginning 90 days after the date of this
Prospectus, a person (or persons whose shares of the Company are aggregated) who
has beneficially owned Restricted Shares for at least one year (including the
holding period of any prior owner who is not an affiliate of the Company) would
be entitled to sell within any three-month period a number of shares that does
not exceed the greater of one percent of the then outstanding shares of Common
Stock (approximately 63,349 shares immediately after the Offering) or the
average weekly trading volume of the Common Stock during the four calendar weeks
preceding the filing of a report on Form 144 with respect to such sale. Sales
under Rule 144 are also subject to certain manner of sale and notice
requirements and to the availability of current public information about the
Company. Under Rule 144(k), a person who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner who is not an affiliate of the
Company) is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.

As of March 31, 1997, options to purchase a total of 362,152 shares of
Common Stock were outstanding under the Company's 1994 Equity Incentive Plan. Of
such shares, an aggregate of approximately 289,775 shares are subject to lock-up
agreements as described above, and the remaining 72,377 shares will be available
for sale in the public market 90 days after the date of this Prospectus pursuant
to Rule 701. As of March 31, 1997, 375,965 shares were available for future
option grants under the 1994 Equity Incentive Plan.

The Company intends to file after the effective date of the Offering a
Registration Statement on Form S-8 to register an aggregate of 738,117 shares of
Common Stock reserved for issuance under the 1994 Equity Incentive Plan. Such
Registration Statement will become effective automatically upon filing. Shares
issued under the 1994 Equity Incentive Plan, after the filing of the
Registration Statement on Form S-8, may be sold in the open market, subject, in
the case of certain holders, to the Rule 144 limitations applicable to
affiliates, the above-referenced lock-up agreements and vesting restrictions
imposed by the Company.

At the completion of the Offering, certain stockholders will be entitled to
certain rights with respect to the registration of shares for resale under the
Securities Act. See "Description of Capital Stock."

58
<PAGE> 60

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
underwriters (the "Underwriters") named below, for whom EVEREN Securities and
Principal Financial Securities, Inc. are acting as representatives (the
"Representatives"), have severally agreed to purchase, subject to the terms and
conditions of the Underwriting Agreement, and the Company has agreed to sell to
the Underwriters, the following respective number of shares of Common Stock.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
----------------------------------------------------------------- ---------
<S> <C>
EVEREN Securities, Inc. .........................................
Principal Financial Securities, Inc .............................

---------
Total....................................................... 2,455,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.

The Underwriters propose to offer the shares of Common Stock to the public
at the offering price set forth on the cover page of this Prospectus, and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow to selected dealers and such dealers may
reallow a concession not in excess of $ per share to certain other dealers.
After the initial public offering of the shares of Common Stock, the offering
price and other selling terms may be changed by the Representatives.

The Company has granted to the Underwriters an option, exercisable at any
time during the 30-day period after the date of this Prospectus, to purchase up
to an additional 368,250 shares of Common Stock at the initial public offering
price set forth on the cover page of this Prospectus, less underwriting
discounts and commissions. The Underwriters may exercise such option solely for
the purpose of covering over-allotments, if any, in connection with the
Offering. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth next to
such Underwriter's name in the preceding table bears to the total number of
shares listed in the table.

The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the Offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot the Offering,
creating a syndicate short position. In addition, the Underwriters may bid for
and purchase shares of Common Stock in the open market to cover syndicate short
positions or to stabilize the price of the Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions from syndicate members in
the Offering, if the syndicate repurchases previously distributed Common Stock
in syndicate covering transactions, in stabilization transactions or otherwise.
Any of these activities may stabilize or maintain the market price of the Common
Stock above independent market levels. The Underwriters are not required to
engage in these activities, and may end any of these activities at any time.

The Representatives of the Underwriters have informed the Company that the
Underwriters do not intend to confirm sales to accounts over which they exercise
discretionary authority.

59
<PAGE> 61

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.

The executive officers, directors and certain employees of the Company and
other stockholders have agreed that they will not, without the prior written
consent of EVEREN Securities, offer, sell or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock, or
securities exchangeable for or convertible into shares of Common Stock for a
period of 270 days from the date of this Prospectus. BI has agreed that it will
not, without the prior written consent of EVEREN Securities, offer, sell or
otherwise dispose of any shares of Common Stock for a period of 360 days from
the date of this Prospectus. The Company has agreed that it will not, without
the prior written consent of EVEREN Securities, offer, sell, contract to sell,
grant any option to purchase or otherwise dispose of any shares of Common Stock,
options or warrants to acquire shares of Common Stock or securities exchangeable
for or convertible into shares of Common Stock for a period of 270 days after
the date of this Prospectus, except for securities issued under its option plan
or upon exercise of currently outstanding warrants. See "Shares Eligible for
Future Sale."

Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the shares of Common
Stock included in the Offering will be determined by negotiations between the
Company and the Representatives. Among the factors considered in determining
such price will be the history of and prospects for the Company's business and
the industry in which it competes, an assessment of the Company's management and
the present state of the Company's development, its past and present operations
and financial performance, the prospects for future earnings of the Company, the
present state of the Company's research programs, the current state of the
economy in the United States and the current level of economic activity in the
industry in which the Company competes and in related or comparable industries,
and the current prevailing condition in the securities markets, including
current market valuations of publicly traded companies that are comparable to
the Company.

LEGAL MATTERS

Hale and Dorr LLP, Boston, Massachusetts will pass upon the validity of the
shares of Common Stock offered by the Company hereby. Skadden, Arps, Slate,
Meagher & Flom (Illinois), Chicago, Illinois, will pass upon certain legal
matters relating to the Offering for the Underwriters.

EXPERTS

The financial statements of Transcend Therapeutics, Inc. at December 31,
1995 and 1996, and for each of the three years in the period ended December 31,
1996 and for the period January 1, 1993 (commencement of operations) to December
31, 1996 (not separately presented herein) appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as stated in their report thereon (which contains an explanatory
paragraph with respect to the Company's ability to continue as a going concern)
appearing elsewhere herein and are included in reliance upon such report, given
upon the authority of such firm as experts in accounting and auditing.

The statements in this Prospectus under the captions "Risk
Factors -- Patents and Proprietary Rights; Third-Party Rights" and
"Business -- Patents and Proprietary Rights" relating to United States patent
matters have been reviewed and approved by Pennie & Edmonds LLP, New York, New
York, patent counsel to the Company, and have been included herein in reliance
upon the review and approval by such firm as experts in patent law.

60
<PAGE> 62

ADDITIONAL INFORMATION

As a result of the Offering, the Company will become subject to the
information and reporting requirements of the Securities Exchange Act of 1934,
as amended, and in accordance therewith will file periodic reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). The Company intends to furnish to its stockholders annual
reports containing financial statements audited by an independent public
accounting firm and will make available copies of quarterly reports containing
unaudited financial statements for the first three quarters of each fiscal year.

The Company has filed with the Commission, Washington, D.C. 20549, a
Registration Statement (which term shall include all amendments, exhibits and
schedules thereto) on Form S-1 under the Securities Act with respect to the
shares of Common Stock offered hereby. This Prospectus, which constitutes a part
of the Registration Statement, does not contain all of the information set forth
in the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission, to which Registration
Statement reference is hereby made. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference. The
Registration Statement and the exhibits thereto may be inspected and copied at
prescribed rates at the public reference facilities maintained by the Commission
at N.W., Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the Commission located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. In addition, the Company is required to file
electronic versions of these documents with the Commission through the
Commission's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system.
The Commission maintains a World Wide Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.

61
<PAGE> 63

TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Auditors......................................................... F-2
Balance Sheets......................................................................... F-3
Statements of Operations............................................................... F-4
Statements of Redeemable Preferred Stock and Stockholders' Deficit..................... F-5
Statements of Cash Flows............................................................... F-6
Notes to Financial Statements.......................................................... F-7
</TABLE>

F-1
<PAGE> 64

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Transcend Therapeutics, Inc.

We have audited the accompanying balance sheets of Transcend Therapeutics,
Inc. (a company in the development stage) as of December 31, 1996 and 1995, and
the related statements of operations, redeemable preferred stock and
stockholders' deficit, and cash flows for each of the three years in the period
ended December 31, 1996 and the period January 1, 1993 (commencement of
operations) to December 31, 1996 (not separately presented herein) . These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Transcend Therapeutics, Inc.
(a company in the development stage) at December 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996 and the period January 1, 1993 (commencement of
operations) to December 31, 1996 (not separately presented herein) in conformity
with generally accepted accounting principles.

As discussed in Note 1, the Company is a development-stage company with a
net capital deficiency that has not and will not achieve sufficient revenues to
support future operations without additional financing. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are discussed in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.

ERNST & YOUNG LLP

Boston, Massachusetts
January 10, 1997

F-2
<PAGE> 65

TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------- ------------
1996 1995 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Restricted cash.......................................... $ 4,349,806
Unrestricted cash and cash equivalents................... $ 639,626 $ 1,276,305 1,145,752
Prepaid expenses and other current assets................ 39,579 38,282 23,399
Other assets............................................. 41,328 25,000
------------ ------------ ------------
Total current assets....................................... 720,533 1,314,587 5,543,957
Property and equipment, net................................ 46,108 52,706 42,840
Other assets:
Deferred offering costs.................................. 409,548 833,565
Patents and licenses, net................................ 389,576 443,795 376,021
Other assets............................................. 54,600
------------ ------------ ------------
$ 1,565,765 $ 1,865,688 $ 6,796,383
============ ============ ============

LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT

Current liabilities:
Accounts payable and accrued expenses.................... $ 624,535 $ 404,329 $ 1,189,859
Interest payable to related party........................ 177,534
------------ ------------ ------------
Total current liabilities.................................. 624,535 581,863 1,189,859
Senior Secured Convertible Note............................ 2,000,000
Redeemable Preferred Stock:
Series A Redeemable Convertible Preferred Stock,
12,991,000 shares authorized, 9,916,330 and 6,500,000
shares issued and outstanding, in 1996 and 1995
respectively, par value $.01 (liquidation preference of
$9,140,187)............................................ 9,140,187 6,500,000 9,140,187
Series B Redeemable Convertible Preferred Stock,
3,000,000 shares authorized, 690,775 shares issued and
outstanding, par value $.01 (liquidation preference of
$1,036,163)............................................ 1,036,163 1,036,163
Series C Redeemable Convertible Preferred Stock,
4,255,319 shares authorized, issued and outstanding,
par value $.01 (liquidation preference of
$10,000,000)........................................... 10,000,000 10,000,000
Redeemable Non-convertible Preferred Stock, 9,000 shares
authorized, issued and outstanding, par value $.01..... 3,081,028 891,000
Stockholders' deficit:
Common Stock, par value $0.01, 25,000,000 shares
authorized, 779,381, 763,306 and 789,883 shares issued
and outstanding at December 31, 1996 and 1995 and March
31, 1997, respectively................................. 7,793 7,633 7,898
Series A Preferred Stock Warrants, par value $0.01,
1,625,000 warrant shares authorized, 1,375,000, issued
and outstanding in 1995................................ 13,750
Additional paid-in capital............................... 1,453,848 354,471 1,640,340
Deferred compensation.................................... (977,802) (912,743)
Accretion of Redeemable Nonconvertible Preferred Stock... (2,591,904) (30,000)
Deficit accumulated during the development stage......... (19,718,959) (8,081,153) (16,166,321)
------------ ------------ ------------
Total stockholders' deficit....................... (19,235,120) (10,297,203) (15,460,826)
------------ ------------ ------------
Total liabilities and stockholders' deficit....... $ 1,565,765 $ 1,865,688 $ 6,796,383
============ ============ ============
</TABLE>

See accompanying notes.

F-3
<PAGE> 66

TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)

STATEMENTS OF OPERATIONS
(in thousands, except per-share amounts)

<TABLE>
<CAPTION>
PERIOD
JANUARY 1, 1993
YEARS ENDED DECEMBER 31 MARCH 31, (COMMENCEMENT
--------------------------- ---------------- OF OPERATIONS) TO
1996 1995 1994 1997 1996 MARCH 31, 1997
------- ------- ------- ------ ------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Research and development contract
revenues and license fees......... $5,000 $ -- $ 11,095
Operating expenses:
Research and development.......... $ 1,968 $ 2,739 $ 2,627 501 479 12,333
General administration............ 1,834 1,645 1,115 971 395 7,191
------- ------- ------- ------ ------- --------
Total operating expenses............ 3,802 4,384 3,742 1,472 874 19,524
Other income (expense):
Interest income................... 30 112 139 25 12 305
Interest expense.................. (355) (178) -- (150) (532)
------- ------- ------- ------ ------- --------
(325) (66) 139 25 (138) (227)
------- ------- ------- ------ ------- --------
Net income (loss)................... $(4,127) $(4,450) $(3,603) $3,553 $(1,012) $ (8,656)
========
------- ------- ------- ------ -------
Accretion of Redeemable
Nonconvertible Preferred Stock.... (5,080) (1,481) (1,111) (30) (370)
------- ------- ------- ------ -------
Net income (loss) to common
stockholders...................... (9,207) (5,931) (4,714) 3,523 (1,382)
======= ======= ======= ====== =======
Pro forma net income (loss) per
common share...................... $ (2.31) $ .88
======= ======
Pro forma weighted average common
shares outstanding................ 3,981 3,981
======= ======
</TABLE>

See accompanying notes.

F-4
<PAGE> 67

TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)

STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
CONVERTIBLE PREFERRED CONVERTIBLE PREFERRED CONVERTIBLE PREFERRED
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
---------------------- ---------------------- -----------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of Common Stock, December 1992
($.01/share)...................................
Purchase of Treasury Stock......................
Net loss........................................
Balance at December 31, 1993....................
April 1994:
Issuance of Common Stock from treasury for
services.......................................
Issuance of Series A Redeemable Convertible
Preferred Stock
($1.00/share)................................. 6,500,000 $6,500,000
Issuance of Redeemable Nonconvertible Preferred
Stock for technology
($1,000/share)................................
Issuance of Common Stock for technology and
payment of expenses ($.50/share)...............
Issuance of Series A Preferred Stock Warrants
($.01/share)...................................
Accretion of Redeemable Nonconvertible Preferred
Stock..........................................
Net loss........................................
--------- ---------- -------- ---------- --------- -----------
Balance at December 31, 1994.................... 6,500,000 6,500,000
Cancellation of Cornell's common shares.........
Extinguishment of Series A Preferred Warrants...
Conversion of options to common shares..........
Accretion of Redeemable Nonconvertible Preferred
Stock..........................................
Net loss........................................
--------- ---------- -------- ---------- --------- -----------
Balance at December 31, 1995.................... 6,500,000 6,500,000
Issuance of Series A Redeemable Convertible
Preferred Stock in January 1996................ 130,000 130,000
Issuance of Series A Redeemable Convertible
Preferred Stock in lieu of interest in January,
May and September 1996 ($1.00/share)........... 496,437 496,437
Issuance of Series B Redeemable Convertible
Preferred Stock in lieu of interest in
September 1996 ($1.50/share)................... 24,109 $ 36,164
Conversion of Senior Secured Convertible Note to
Series B Redeemable Convertible Preferred Stock
in September 1996 ($1.50/share)................ 666,666 999,999
Conversion of Redeemable Convertible Senior
Secured Convertible Note to Series A Redeemable
Convertible Preferred Stock in September 1996
($1.00/share).................................. 2,000,000 2,000,000
Accretion of Redeemable Nonconvertible Preferred
Stock..........................................
Issuance of Series C Redeemable Convertible
Preferred Stock in September 1996
($2.35/share).................................. 851,064 $ 2,000,000
Conversion of Redeemable Nonconvertible
Preferred Stock to Series C Redeemable
Convertible Preferred Stock in September 1996
($2.35/share).................................. 3,404,255 8,000,000
Conversion of Series A Redeemable Convertible
Warrants to Series A Preferred Stock in
September 1996 ($.02/share).................... 789,893 13,750
Exercise of stock options.......................
Grant of stock options..........................
Amortization of deferred compensation expense...
Net loss........................................
--------- ---------- -------- ---------- --------- -----------
Balance at December 31, 1996.................... 9,916,330 9,140,187 690,775 1,036,163 4,255,319 10,000,000
--------- ---------- -------- ---------- --------- -----------
Exercise of stock options (unaudited)...........
Issuance of Common Stock warrants (unaudited)...
Grant of stock options (unaudited)
Accretion of Redeemable Nonconvertible Preferred
Stock (unaudited)..............................
Amortization of deferred compensation
(unaudited)....................................
Net income (unaudited)..........................
--------- ---------- -------- ---------- --------- -----------
Balance at March 31, 1997 (unaudited)........... 9,916,330 $9,140,187 690,775 $1,036,163 4,255,319 $10,000,000
========= ========== ======== ========== ========= ===========
See accompanying notes.

<CAPTION>
REDEEMABLE
NONCONVERTIBLE SERIES A PREFERRED
PREFERRED STOCK COMMON STOCK STOCK WARRANTS
------------------------ ------------------ ----------------------
NUMBER OF NUMBER OF NUMBER OF
SHARES AMOUNT SHARES AMOUNT WARRANTS AMOUNT
--------- ----------- --------- ------ ---------- ---------
<S> <<C> <C> <C> <C> <C> <C>
Issuance of Common Stock, December 1992
($.01/share)................................... 44,109 $ 441
Purchase of Treasury Stock......................
Net loss........................................
------- ------
Balance at December 31, 1993.................... 44,109 441
April 1994:
Issuance of Common Stock from treasury for
services.......................................
Issuance of Series A Redeemable Convertible
Preferred Stock
($1.00/share).................................
Issuance of Redeemable Nonconvertible Preferred
Stock for technology
($1,000/share)................................ 9,000 $ 489,124
Issuance of Common Stock for technology and
payment of expenses ($.50/share)............... 715,025 7,150
Issuance of Series A Preferred Stock Warrants
($.01/share)................................... 1,625,000 $ 16,250
Accretion of Redeemable Nonconvertible Preferred
Stock.......................................... 1,110,816
Net loss........................................
------ ----------- ------- ------ ---------- --------
Balance at December 31, 1994.................... 9,000 1,599,940 759,134 7,591 1,625,000 16,250
Cancellation of Cornell's common shares......... (7,025) (70)
Extinguishment of Series A Preferred Warrants... (250,000) (2,500)
Conversion of options to common shares.......... 11,197 112
Accretion of Redeemable Nonconvertible Preferred
Stock.......................................... 1,481,088
Net loss........................................
------ ----------- ------- ------ ---------- --------
Balance at December 31, 1995.................... 9,000 3,081,028 763,306 7,633 1,375,000 13,750
Issuance of Series A Redeemable Convertible
Preferred Stock in January 1996................
Issuance of Series A Redeemable Convertible
Preferred Stock in lieu of interest in January,
May and September 1996 ($1.00/share)...........
Issuance of Series B Redeemable Convertible
Preferred Stock in lieu of interest in
September 1996 ($1.50/share)...................
Conversion of Senior Secured Convertible Note to
Series B Redeemable Convertible Preferred Stock
in September 1996 ($1.50/share)................
Conversion of Redeemable Convertible Senior
Secured Convertible Note to Series A Redeemable
Convertible Preferred Stock in September 1996
($1.00/share)..................................
Accretion of Redeemable Nonconvertible Preferred
Stock.......................................... 999,734
Issuance of Series C Redeemable Convertible
Preferred Stock in September 1996
($2.35/share)..................................
Conversion of Redeemable Nonconvertible
Preferred Stock to Series C Redeemable
Convertible Preferred Stock in September 1996
($2.35/share).................................. (9,000) (4,080,762)
Conversion of Series A Redeemable Convertible
Warrants to Series A Preferred Stock in
September 1996 ($.02/share).................... (1,375,000) (13,750)
Exercise of stock options....................... 16,075 160
Grant of stock options..........................
Amortization of deferred compensation expense...
Net loss........................................
------ ----------- ------- ------ ---------- --------
Balance at December 31, 1996.................... -- -- 779,381 7,793 -- --
------ ----------- ------- ------ ---------- --------
Exercise of stock options (unaudited)........... 10,502 105
Issuance of Common Stock warrants (unaudited)... 28,858 861,000
Grant of stock options (unaudited)
Accretion of Redeemable Nonconvertible Preferred
Stock (unaudited).............................. 30,000
Amortization of deferred compensation
(unaudited)....................................
Net income (unaudited)..........................
------ ----------- ------- ------ ---------- --------
Balance at March 31, 1997 (unaudited)........... 28,858 $ 891,000 789,883 $7,898 -- $ --
====== =========== ======= ====== ========== ========
See accompanying notes.

<CAPTION>
CUMULATIVE
ACCRETION ON DEFICIT
REDEEMABLE ACCUMULATED TREASURY
ADDITIONAL NONCONVERTIBLE DURING STOCK
PAID-IN PREFERRED DEFERRED DEVELOPMENT NUMBER OF ------
CAPITAL STOCK COMPENSATION STAGE SHARES AMOUNT
---------- -------------- ------------ ------------ --------- ------
Issuance of Common Stock, December 1992
($.01/share)................................... $ (436)
Purchase of Treasury Stock...................... 4,959 $ (2)
Net loss........................................ $ (28,274)
---------- ------------ ------- ----
Balance at December 31, 1993.................... (436) (28,274) 4,959 (2)
April 1994:
Issuance of Common Stock from treasury for
services....................................... (4,959) 2
Issuance of Series A Redeemable Convertible
Preferred Stock
($1.00/share).................................
Issuance of Redeemable Nonconvertible Preferred
Stock for technology
($1,000/share)................................
Issuance of Common Stock for technology and
payment of expenses ($.50/share)............... 350,363
Issuance of Series A Preferred Stock Warrants
($.01/share)...................................
Accretion of Redeemable Nonconvertible Preferred
Stock.......................................... $ (1,110,816)
Net loss........................................ (3,602,892)
---------- ------------ ----------- ------------ ------- ----
Balance at December 31, 1994.................... 349,927 (1,110,816) (3,631,166)
Cancellation of Cornell's common shares......... (3,442)
Extinguishment of Series A Preferred Warrants... 2,500
Conversion of options to common shares.......... 5,486
Accretion of Redeemable Nonconvertible Preferred
Stock.......................................... (1,481,088)
Net loss........................................ (4,449,987)
---------- ------------ ----------- ------------ ------- ----
Balance at December 31, 1995.................... 354,471 (2,591,904) (8,081,153) -- --
Issuance of Series A Redeemable Convertible
Preferred Stock in January 1996................
Issuance of Series A Redeemable Convertible
Preferred Stock in lieu of interest in January,
May and September 1996 ($1.00/share)...........
Issuance of Series B Redeemable Convertible
Preferred Stock in lieu of interest in
September 1996 ($1.50/share)...................
Conversion of Senior Secured Convertible Note to
Series B Redeemable Convertible Preferred Stock
in September 1996 ($1.50/share)................
Conversion of Redeemable Convertible Senior
Secured Convertible Note to Series A Redeemable
Convertible Preferred Stock in September 1996
($1.00/share)..................................
Accretion of Redeemable Nonconvertible Preferred
Stock.......................................... (999,734)
Issuance of Series C Redeemable Convertible
Preferred Stock in September 1996
($2.35/share)..................................
Conversion of Redeemable Nonconvertible
Preferred Stock to Series C Redeemable
Convertible Preferred Stock in September 1996
($2.35/share).................................. (3,591,638) (7,510,876)
Conversion of Series A Redeemable Convertible
Warrants to Series A Preferred Stock in
September 1996 ($.02/share)....................
Exercise of stock options....................... 7,877
Grant of stock options.......................... 1,091,500 $(1,091,500)
Amortization of deferred compensation expense... 113,698
Net loss........................................ (4,126,930)
---------- ------------ ----------- ------------ ------- ----
Balance at December 31, 1996.................... 1,453,848 -- (977,802) (19,718,959) -- --
---------- ------------ ----------- ------------ ------- ----
Exercise of stock options (unaudited)........... 5,147
Issuance of Common Stock warrants (unaudited)... 178,000
Grant of stock options (unaudited) 3,346 (3,346)
Accretion of Redeemable Nonconvertible Preferred
Stock (unaudited).............................. (30,000)
Amortization of deferred compensation
(unaudited).................................... 68,405
Net income (unaudited).......................... 3,552,638
---------- ------------ ----------- ------------ ------- ----
Balance at March 31, 1997 (unaudited)........... $1,640,341 $ (30,000) $ (912,743) $(16,166,321) -- $ --
========== ============ =========== ============ ======= ====
See accompanying notes.
</TABLE>

F-5
<PAGE> 68

TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)

STATEMENTS OF CASH FLOWS
(in thousands, except per-share amounts)

<TABLE>
<CAPTION>
PERIOD
JANUARY 1, 1993
DECEMBER 31, MARCH 31, (COMMENCEMENT
--------------------------- ----------------- OF OPERATIONS) TO
1996 1995 1994 1997 1996 MARCH 31, 1997
------- ------- ------- ------- ------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income...................................... $(4,127) $(4,450) $(3,603) $ 3,553 $(1,012) $ (8,656)
Adjustments to reconcile net loss to cash provided by
operating activities:
Depreciation......................................... 13 10 8 4 2 39
Amortization......................................... 54 54 41 14 14 163
Issuance of Preferred Stock in lieu of interest
payments........................................... 533 199 533
Amortization of deferred compensation expense........ 114 68 182
Loss on sale of property and equipment............... 5 5
Expenses incurred with related party that were
settled with the issuance of Common Stock.......... 304 304
Change in operating assets and liabilities:
Restricted cash.................................... (4,350) (4,350)
Prepaid expenses and other current assets.......... (1) 162 (193) 16 15 (23)
Other assets....................................... 13 3 (50) 16 (21)
Accounts payable, Deferred Offering costs and
accrued expenses................................. 146 84 233 64 195 614
Interest payable to related party.................. (178) 143 (13) (178)
------- ------- ------- ------- ------- --------
Net cash used in operating activities.................. (3,433) (3,989) (3,273) (615) (765) (11,210)

INVESTING ACTIVITIES
Purchase of equipment and improvements................. (7) (29) (18) 0 (5) (86)
Proceeds from sale of equipment........................ 1 1 2
------- ------- ------- ------- ------- --------
Net cash used in investing activities.................. (6) (28) (18) 0 (5) (84)

FINANCING ACTIVITIES
Issuance of Common Stock Warrants......................
Proceeds from issuance of debt......................... 1,000 2,000 170 178 3,348
Payment on note payable to related party............... (170) (170)
Offering costs......................................... (335) 77 (258)
Issuance of Series A Preferred Stock Warrants.......... 16 16
Issuance of Series A Redeemable Convertible Preferred
Stock................................................ 130 6,500 861 130 7,491
Issuance of Series C Redeemable Convertible Preferred
Stock................................................ 2,000 2,000
Issuance of Redeemable Non-Convertible Preferred
Stock................................................
Issuance of Common Stock...............................
Proceeds from exercise of stock options................ 8 2 5 15
Purchase of Treasury Stock............................. (2)
------- ------- ------- ------- ------- --------
Net cash provided by financing activities.............. 2,803 1,832 6,686 1,121 130 12,440
------- ------- ------- ------- ------- --------
Increase (decrease) in cash and cash equivalents......... (636) (2,185) 3,395 506 (640) 1,146
Cash and cash-equivalents at beginning of period......... 1,276 3,461 66 640 1,276
------- ------- ------- ------- ------- --------
Cash and cash-equivalents at end of period............... $ 640 $ 1,276 $ 3,461 $ 1,146 $ 636 $ 1,146
======= ======= ======= ======= ======= ========

SUPPLEMENTAL DISCLOSURES FOR NON-CASH ACTIVITIES:
Non-Cash Financing Transactions
Issuance of Redeemable Nonconvertible Preferred Stock
for technology......................................... $ 489
Issuance of Common Stock for technology.................. $ 53
Conversion of Senior Secured Convertible Notes to
Series B Redeemable Convertible Preferred Stock........ $ 1,000
Conversion of Senior Secured Convertible Notes to
Series A Redeemable Convertible Preferred Stock........ $ 2,000
Conversion of Series A Redeemable Convertible Stock
Warrants to Series A Preferred Stock................... $ 14
</TABLE>

See accompanying notes.

F-6
<PAGE> 69

TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996

1. BASIS OF PRESENTATION

COMPANY

Transcend Therapeutics, Inc. (the "Company") was incorporated on December
23, 1992, and began operations in January 1993. The Company is a
development-stage enterprise, as defined in Statement of Financial Accounting
Standards No. 7, and is devoting its efforts to develop novel pharmaceuticals
for the treatment of diseases caused by oxidative stress and resultant tissue
damage, with a particular therapeutic focus on critical care. In 1997, the
Company plans to begin a pivotal Phase III clinical trial of its lead product
candidate, Procysteine(R) , to determine its safety and efficacy in the
treatment of acute respiratory distress syndrome ("ARDS").

GOING CONCERN

The financial statements have been prepared on a going-concern basis. For
the current year ended, the Company recorded a net loss of $4,126,930, as funds
were primarily expended by the Company on the ongoing Procysteine(R) clinical
development program for the treatment of ARDS. At December 31, 1996, the Company
had a net capital deficiency and has not and will not achieve sufficient revenue
to support future operations without additional financing. Management believes
that to continue as a going concern, the Company will require additional funding
to complete both its clinical development program and, ultimately, the marketing
of its products.

Management is proceeding with plans to secure new funds for the ongoing
clinical development of Procysteine(R) through: (1) funding provided by a
worldwide collaboration with a pharmaceutical marketing partner for intravenous
Procysteine(R); and (2) a $1 million private financing by existing corporate and
venture capital shareholders of the Company; and (3) an initial public offering
of the Company's Common Stock in 1997. The 1996 financial statements do not
include any adjustments for the planned new fundraising.

RECAPITALIZATION

In August 1996, the Company's Board of Directors approved a one-for-five
reverse stock split of its Common Stock. There was a delay in filing the
necessary amendments to the Company's charter and the split was not effective
until February 1997. All common share and per share amounts have been adjusted
retroactively to reflect the stock split.

On April 5, 1994, the Company completed a recapitalization in which
25,000,000 shares of common stock, 8,125,000 shares of Series A Redeemable
Convertible Preferred Stock, 9,000 shares of Redeemable Nonconvertible Preferred
Stock and 1,625,000 warrants to purchase 1,625,000 shares of Series A Redeemable
Convertible Preferred Stock were authorized. All previously issued and
outstanding shares of common stock were exchanged and reissued for 44,109 shares
of common stock, effected in the form of a stock dividend. The accompanying
financial statements reflect the recapitalization and, accordingly, all
financial statements have been restated on a retroactive basis for all periods
presented.

CONTRACT RESEARCH FEE

During the year ended December 31, 1993, the Company received a one-time
contract research fee of $6,095,400 from Clintec Nutrition Company ("Clintec"),
a joint venture of Baxter Healthcare Corporation ("Baxter") and Nestle SA
("Nestle"), for various research and development services. Upon the closing of
the first venture capital financing of $6,500,000 on April 5, 1994, the Company

F-7
<PAGE> 70

TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

acquired Procysteine(R) and related technologies from Clintec in exchange for
680,000 shares of Common Stock and 9,000 shares of Redeemable Nonconvertible
Preferred Stock (see Note 6).

INTERIM FINANCIAL STATEMENTS (UNAUDITED)

The balance sheet at March 31, 1997, the statements of operations and
statements of cash flows for the three months ended March 31, 1996 and 1997 and
the period from January 1, 1993 (date of inception) through March 31, 1997, and
the statement of Redeemable Preferred Stock and Stockholders' Deficit for the
three months ended March 31, 1997 are unaudited, but, in the opinion of
management, include all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of results for these interim periods. The
results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the entire year.

2. SIGNIFICANT ACCOUNTING POLICIES

ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.

RESTRICTED CASH

Pursuant to the Development and License Agreement with Boehringer
Ingelheim, GmbH(BI), the Company is restricted as to the manner in which it can
use proceeds from BI. According to the agreement, the use of all funding under
the BI Agreement must be used exclusively for the ARDS Development Program.

CASH AND CASH EQUIVALENTS

The Company considers all investments with an original maturity of three
months or less on their acquisition date to be cash equivalents.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the related assets. The
cost and accumulated depreciation of property and equipment at December 31 are
as follows:

<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Furniture and equipment.................................. $75,651 $69,020
Less accumulated depreciation............................ 29,543 16,314
------- -------
Furniture and equipment, net............................. $46,108 $52,706
======= =======
</TABLE>

INTANGIBLE ASSETS

Acquired patents and licenses are recorded at cost and amortized using the
straight-line method over the estimated useful lives of the related assets,
subject to the maximum legal life of the patents and/or licenses. The costs of
internally generated patents or patent applications are expensed in the period
incurred as research and development expenses.

F-8
<PAGE> 71

TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

FAIR VALUE OF FINANCIAL INSTRUMENTS

In 1996, the Company adopted SFAS No. 107, "Disclosures about the Fair
Value of Financial Instruments," which requires the disclosure of the fair value
of financial instruments. At December 31, 1996, the Company's financial
instruments consist of cash and cash equivalents, accounts payable and accrued
expenses, and mandatorily redeemable preferred stock. Fair value of issued
equity instruments is based upon negotiated prices and includes cash and the
fair value of other consideration received.

MANDATORY REDEEMABLE PREFERRED STOCK

Mandatorily redeemable preferred stock is recorded upon issuance at fair
value, net of issuance costs, and periodically accreted to redemption value
using the interest method.

REVENUE RECOGNITION

Research and development contract revenues and license revenues are
recognized as earned and represent, in 1993, reimbursement of the Company's
expenditures pursuant to the terms of an agreement with Clintec Nutrition
Company whereby the Company was reimbursed $6,095,000 for expenditures it
incurred. In 1997, the Company recognized as revenue the $5.0 million license
fee received from BI because it represents a license fee in exchange for which
the Company granted BI exclusive rights to various patents related to
intravenous procysteine and which the Company has no obligation to repay.

STOCK-BASED COMPENSATION

The Company has elected to follow Accounting Principles Board Opinion No.
25 "Accounting for Stock Issued to Employees" (APB 25) in accounting for its
stock-based compensation plans, rather than the alternative fair value
accounting method provided for under Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (FAS 123). Under APB 25, when
the exercise price of options granted to employees and outside directors under
these plans equals the market price of the underlying stock on the date of
grant, no compensation expense is required.

As required by FAS 123, the Company accounts for stock based compensation
issued to non-employee suppliers of goods and services utilizing the fair value
method provided for under FAS 123.

PRO FORMA NET LOSS PER COMMON SHARE (UNAUDITED)

Pro forma net loss per common share is computed using the weighted average
number of common shares, convertible preferred shares assuming conversion at
date of issuance and dilutive equivalent shares from stock options and warrants
using the treasury stock method. Pursuant to the Securities and Exchange
Commission Staff Accounting Bulletin No. 83, shares and equivalent shares issued
by the Company at prices below the assumed public offering price during the
twelve-month period prior to the proposed offering have been included in the
calculation as if they were outstanding for all periods presented (using the
treasury stock method and using the assumed midpoint of the initial public
offering price range.) Historical loss per share has not been presented since
such amounts are not deemed meaningful.

The accretion of Redeemable Nonconvertible Preferred Stock is added to the
Company's net loss in order to arrive at net loss available to common
stockholders in the calculation of net loss per common share.

DEFERRED OFFERING COSTS

The Company defers specific incremental costs directly attributable to its
public offering incurred prior to the offering, which will be charged, against
equity at the completion of the offering.

F-9
<PAGE> 72

TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In March 1995, the Financial Accounting Standards Board (FAS) issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" (FAS 121), which requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. FAS 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The Company adopted FAS 121 in the first quarter of 1996. The adoption of
this Statement had no impact on the financial position or results of operations
of the Company as no indicators of impairment currently exist.

3. ACCRUED LIABILITIES

Included in accounts payable and accrued expenses were the following
accrued expenses at December 31:

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Accrued vacation....................................... $ 53,000 $ 33,000
Accrued clinical costs................................. 58,000 177,000
Accrued other.......................................... 64,000 98,000
Accrued offering costs................................. 105,000
Accrued patent costs................................... 20,000
-------- --------
Total accrued expenses....................... $300,000 $308,000
======== ========
</TABLE>

4. SENIOR SECURED CONVERTIBLE NOTES

On September 13, 1995, the Company sold Series A Notes in the aggregate
principal amount of $2,000,000 to certain institutional investors. Subsequently,
on May 29, 1996, the Company issued Series B Convertible Notes in the aggregate
principal amount of $1,000,000 to certain institutional investors. The Series A
Notes were convertible into shares of Series A Preferred Stock at one share per
$5.00 of principal outstanding. The Series B Notes were convertible into shares
of Series B Preferred stock at one share per $7.50 of principal outstanding.

Prior to conversion, each note was to mature on January 15, 1997, bearing
interest of 30% per annum, payable every four months beginning January 13, 1996.
Interest payments were made in the form of Series A and B Convertible Preferred
Stock. All principal and accrued interest were converted into shares of Series A
and B Convertible Preferred Stock upon the closing of the issuance of the Series
C Convertible Preferred Stock as described in Note 6.

5. INCOME TAXES

The Company accounts for income taxes using the liability method, whereby
tax rates are applied to cumulative temporary differences based on when and how
they are expected to affect the tax return. Deferred tax assets and liabilities
are adjusted for tax rate changes.

At December 31, 1996, the Company has available net operating tax loss
carry-forwards, for both federal and Massachusetts tax purposes, of
approximately $11,900,000. These losses are available to offset future income of
the company and will expire for both federal and Massachusetts tax purposes
through the year 2011 and 2001, respectively. The utilization of these tax
losses and tax credit carry-forwards may be subject to limitation as a result of
any past or potential ownership changes as defined by Sections 382 and 383 of
the Internal Revenue Code.

F-10
<PAGE> 73

TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

In addition, the Company has approximately $400,000 and $375,000,
respectively, of federal and state research and development tax credit
carry-forwards. These credits are available, subject to limitations, to offset
future tax liabilities of the Company and will expire through 2011.

Deferred income taxes reflect the net tax effect of temporary differences
between carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Due to the Company's net
loss position, a valuation allowance for 100% of its deferred tax assets has
been established. The Company has the following deferred tax assets as of
December 31:

<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ 4,760,000 $ 3,213,346
Vacation accrual................................ 20,000 7,685
R&D tax credit.................................. 775,000 650,000
----------- -----------
Total deferred tax assets......................... 5,555,000 3,871,031
Valuation allowance............................... (5,555,000) (3,871,031)
----------- -----------
Deferred income taxes, net........................ $ -0- $ -0-
=========== ===========
</TABLE>

The net increase during 1995 and 1996 in the total valuation allowance was
$1,683,969 and $1,775,463, respectively, as a result of the unbenefitted net
loss in the respective years.

6. STOCKHOLDERS' EQUITY

COMMON STOCK

On April 5, 1994, the Company acquired a direct license from Cornell
Research Foundation ("Cornell") to the Procysteine(R) and related technologies
for the issue of 35,025 shares of Common Stock. In accordance with the same
agreement, the Company issued 680,000 shares of Common Stock to Clintec as part
consideration for the acquisition of the Procysteine(R) and related
technologies. The technology has been recorded at the Common Stock's fair value
of $.50 per share at the time of the transaction.

In relation to the acquisition of Covered Technology from Clintec, Clintec
agreed on April 5, 1994 to forgive and forever discharge the Company from any
obligation to repay an outstanding amount due for expenses incurred of $304,446
due to Clintec. The Company recorded this amount as a contribution to capital
during 1994.

The Company has reserved 2,977,485 shares of Common Stock for issuance upon
conversion of the Series A, B and C Redeemable Convertible Preferred Stock and
Common Stock Warrants, and 370,324 shares of Common Stock for issuance upon
exercise of stock options granted under the 1994 Equity Incentive Plan.

COMMON STOCK WARRANTS

On October 28, 1994, as additional consideration for the execution of the
lease on the office space, the Company issued Common Stock Warrants to purchase
5,000 shares of Common Stock, exercisable through October 28, 1999, at $5.00 per
share to the lessor.

SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK

During 1994, the Company sold 6,500,000 shares of Series A Redeemable
Convertible Preferred Stock ("Series A Stock") for $6,500,000. The Series A
Stock is convertible into shares of Common

F-11
<PAGE> 74

TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Stock, at a conversion price of $5.00 per share, and has a liquidation
preference over the Nonconvertible Preferred Stock and the Common Stock of up to
$1.00 per share plus any accrued, but unpaid, dividends. In addition, the Series
A Stock will participate on an as-converted basis with Common Stock in any
dividends declared and in remaining assets in liquidation. The Series A Stock is
redeemable, at the option of the holder, in certain circumstances. The holders
of Series A stock are entitled to vote at a meeting of the shareholders on an
as-converted basis.

SERIES B AND C REDEEMABLE CONVERTIBLE PREFERRED STOCK

On September 3, 1996, the Company sold an aggregate of 851,064 shares of
its Series C Convertible Preferred Stock to a group of investors for $2.0
million. As part of the same transaction, the sole holder (Clintec) of 9,000
shares of the Company's Redeemable Nonconvertible Preferred Stock exchanged such
shares for 3,404,255 shares of Series C Convertible Preferred Stock. The Series
C Stock is convertible into shares of Common Stock, at a conversion price of
$11.75 per share. In addition, $3.1 million in aggregate principal amount of,
and interest on, the Series A Notes and Series B Notes were converted into an
aggregate of 2,098,631 shares of Series A Convertible Preferred Stock and
690,775 shares of Series B Convertible Preferred Stock. The notes were scheduled
to mature on January 15, 1997, bearing interest of 30% per annum (see Note 4).

The holders of Series B and C Redeemable Convertible Preferred Stock are
entitled to receive dividends and to vote at each meeting of the stockholders at
a rate equal to the amount they would have received as if the shares were
converted into comparable shares of common stock.

The Series B and C Preferred Stock are convertible into common stock of the
Company at conversion prices of $7.50 and $11.75, respectively, subject to
adjustment should the Company have a stock split or stock dividend or issue
additional securities that are convertible into shares of Common Stock at
conversion prices of less than $7.50 and $11.75, respectively.

The Series B and C Preferred Stock are redeemable, at the option of the
holder, in certain circumstances and have a liquidation preference over Common
Stock holders of up to $1.50 and $2.35 per share, respectively, plus any
accrued, but unpaid dividends. The Series A, B and C Preferred Stock share
ratably in any liquidation and on an as converted basis with common stock in
remaining assets.

In addition, the Company may require all of the outstanding shares of
Preferred Stock to be converted into shares of common stock upon consummation of
a public offering for the sale of the Company's common stock at a price at the
then current conversion price, in an offering not less than $10,000,000 in
proceeds.

SERIES A REDEEMABLE CONVERTIBLE PREFERRED WARRANT SHARES

In conjunction with the issuance of the Series A Redeemable Convertible
Preferred Stock, the Company sold 1,625,000 warrants to purchase Series A
Redeemable Convertible Preferred Stock at a price per share equal to the lesser
of (i) the per share purchase price of the securities issued in the next
financing round or (ii) $5.00. During 1995, 250,000 warrant shares were canceled
by the Company in accordance with the terms and conditions stipulated in the
April 4, 1994 Series A Preferred Stock Purchase Warrants agreement, as a result
of not participating in the private placement offering in September 1995 (see
Note 4).

In connection with the issuance of the Series C Convertible Preferred
Stock, the holders of the Series A Preferred Stock Warrants (Series A Warrants)
elected to surrender the Series A Warrants and receive Series A Convertible
Preferred Stock equivalent to the difference between the deemed fair market
value of the Series C Preferred Stock ($2.35/share) and the exercise price of
the Series A

F-12
<PAGE> 75

TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Warrants ($1.00/share) multiplied by the outstanding Series A Warrants
(1,375,000). The resulting aggregate fair market value of the Series A Preferred
Stock received converted into 789,983 of Series A Convertible Preferred Stock
and were issued upon the net exercise of such warrants.

REDEEMABLE NONCONVERTIBLE PREFERRED STOCK

The Company had issued 9,000 shares of Redeemable Nonconvertible Preferred
Stock to Clintec as part consideration for the acquisition of the Procysteine(R)
and related technologies at its fair value of approximately $500,000 on April 5,
1994. The Redeemable Nonconvertible Preferred Stock was redeemable, upon certain
conditions at the option of the holder, at a price of $1,000 per share plus any
unpaid dividends which accrued at a rate of $70 per share per annum. The
Redeemable Nonconvertible Preferred Stock had a liquidation preference over
Common Stock of $1,000 per share, plus any accrued, but unpaid, dividends. As
part of the September 3, 1996 financing transaction, the holders exchanged the
nonconvertible preferred stock for 3,404,255 of Series C Preferred Stock valued
at $8 million by the Company. The Company recorded the difference of
approximately $4 million between the carrying value of the Redeemable
Nonconvertible Preferred Stock and the value of the Series C Preferred Stock
issued in exchange thereof as a charge to accumulated deficit and an adjustment
to net loss to common stockholders in 1996.

7. STOCK OPTION PLAN

The Company has elected to follow the Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires the use
of option valuation models that were not developed for use in valuing employee
stock options.

The Company has a 1994 Equity Incentive Plan (the Plan), as amended on
August 21, 1996, which authorizes the Board of Directors to grant stock options
to purchase up to an aggregate of 775,891 shares of Common Stock. Stock options
granted under the Plan may qualify as "incentive stock options" under Section
422 of the Internal Revenue Code. The price at which shares may be purchased
with an option shall be specified by the Board at the date the option is
granted, but in the case of an incentive stock option, shall not be less than
fair market value on the date of grant. The duration of any option shall be
specified by the Board, but no option designated as an "incentive stock option"
may be exercised beyond ten years from the date of grant. Options granted under
the Plan vest ratably over two to four years beginning after one year of
service.

The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for employees and members of the Board of Directors: risk free
interest rates of 5% to 7%; volatility factors of the expected market price of
the Company's common stock of .01, and a weighted-average expected life of the
option of 3 to 6 years. At this time management does not expect to pay any
dividends to shareholders during the vesting period of the options, and
therefore, has excluded such assumption from determining fair value of the
options.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because changes in the subjective input assumptions can materially
effect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.

F-13
<PAGE> 76

TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Proforma information regarding net income is required by Statement 123, and
has been determined as if the Company has accounted for employee stock options
under the fair value method of that Statement. Proforma net loss for 1996 and
1995 was $(4,180,878) and $(4,451,993), respectively. The proforma net loss per
common share for 1996 was ($2.36). For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over the option'
vesting period, and is net of the amount recorded for deferred compensation
expense by the Company.

During the twelve months ended December 31, 1996, the Company issued stock
options to purchase shares of Common Stock at exercise prices ranging from $.50
to $2.50 per share. The Company recorded an increase to additional
paid-in-capital and a corresponding charge to deferred compensation in the
amount of $1,091,500 to recognize the aggregate difference between the deemed
fair market value for accounting purposes of the stock options at the date of
grant and the option exercise price. The deferred compensation is being
amortized over the option vesting period. Compensation expense of $113,698 was
recorded in the twelve months ended December 31, 1996.

A summary of the Company's Stock option transactions are summarized as
follows:

<TABLE>
<CAPTION>
OPTION
OPTIONS PRICE
OUTSTANDING PER SHARE
----------- -----------
<S> <C> <C>
Balances at December 31, 1994.............................. 203,838 $.50
Options granted.......................................... 96,600 .50
Options exercised........................................ (11,197) .50
Options forfeited........................................ (26,786) .50
-------
Balances at December 31, 1995.............................. 262,455
Options granted.......................................... 4,600 .50 - 1.50
Options granted.......................................... 126,400 2.50
Options exercised........................................ (16,075) .50
Options forfeited........................................ (7,056) .50
-------
Balances at December 31, 1996.............................. 370,324 .50 - 2.50
=======
Options exercisable at December 31, 1996................... 205,088 $.50 - 2.50
=======
</TABLE>

The weighted average grant-date fair value of options granted during the
year and exercise price was $2.46 and $.50, respectively. The weighted average
price and remaining life of the outstanding options as of December 31, 1996 is
$1.20 and 33 months, respectively. The Compensation Committee of the Board of
Directors of the Company voted on July 25, 1996 to accelerate the vesting
employee stock options granted prior to 1996 up to 24 months pursuant to a
formula based on period of employment upon the closing of an Initial Public
Offering "IPO" of the Company's Common Stock. The weighted average remaining
life does not reflect any adjustment to the options exerciseable by employees
upon an IPO.

F-14
<PAGE> 77

TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

8. LEASE OBLIGATIONS

The Company leases office space under a five-year operating lease, with the
option to extend for an additional five years, subject to certain rights of
first refusal held by other parties, which commenced in December 1994. The
Company also leases certain office equipment. Future minimum lease payments
under noncancelable lease agreements are as follows:

Rent expense amounted to $199,381, $185,532 and $68,599 for the years ended
December 31, 1996, 1995 and 1994, respectively.

9. COMMITMENTS AND CONTINGENCIES

The Company is committed to pay minimum royalties to Cornell Research
Foundation under patent licenses of $60,000 per annum through 2000, net of
certain patent costs. In addition, the Company has an ongoing research agreement
with Cornell Medical College with $133,000 due on July 1996.

10. DEFINED CONTRIBUTION PLAN

During 1995, the Company began a defined contribution 401(k) plan which
covers substantially all employees. The plan permits participants to make
contributions from 1% to 15% of their compensation (as defined). In addition,
the Company may contribute to the plan at its discretion. The Company made no
contributions in 1996 or 1995.

11. RELATED-PARTY TRANSACTIONS

During 1995, Baxter provided various services to the Company and billed
$50,526 for the cost of those services. These services included clinical
inventory storage and recordkeeping, stability operations, particle analysis,
formulation development, quality management and laboratory services. These
arrangements were terminated during 1995 and transferred to other vendors.

During 1995, the Company repaid a note payable due to Clintec in the amount
of $170,000 for fees paid by Clintec on behalf of the Company for delivery of a
clinical data base.

On October 4, 1995, the Company reached a settlement with Cornell over a
dispute related to the abandonment by Cornell of a patent application in Japan.
The settlement provided for the cancellation of 7,025 shares of common stock
(see Note 6), change of patent attorneys and reimbursement of various costs
incurred by the Company.

During 1996, the Company paid $532,601 of interest due on the Series A and
Series B Notes, in the form of shares of Series A and Series B Preferred Stock,
to certain investors of the Company (see Note 6).

12. SUBSEQUENT EVENTS (UNAUDITED)

In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of this new pronouncement has not
been presented since the Company has not computed the effect at this time.

F-15
<PAGE> 78

TRANSCEND THERAPEUTICS, INC.
(A Company in the Development Stage)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

In February 1997, the Company entered into a Development and License
Agreement with BI. In connection with this agreement, BI made a license payment
to the Company of $5.0 million in March 1997. Pursuant to the BI-Agreement, the
Company has agreed to use the funds provided by BI (including the $5.0 million
upfront license fee and the $5.0 million in proceeds from the BI Equity
Investment) exclusively for its ARDS development program and, as such, these
funds have been classified as restricted cash on the Balance Sheet.

Subsequent to December 31, 1996, the Company granted stock options to
employees, outside consultants and Scientific Advisory Board members to purchase
an aggregate of 13,309 shares of Common Stock exercisable at $11.00 per share.
In accordance with SFAS 123, the Company used a Black & Scholes option pricing
model to value the stock options granted to outside consultants and Scientific
Advisory Board members. The Company assumed a risk free interest rate of 5.5%, a
market value of $11.00 per share and a volatility of 65%. The resulting deferred
compensation will be amortized to expense over the vesting period. The
compensation expense relating to these options was not material for the period
ended March 31, 1997.

Subsequent to December 31, 1996, the Company issued an aggregate of 10,504
shares of Common Stock upon the exercise of options.

In March 1997, the Company issued 1,039,000 shares of Nonconvertible
Preferred Stock and Warrants to purchase $346,300 of Common Stock exercisable at
the initial public offering price (31,482 shares, assuming an initial public
offering price of $11.00 per share). The Company accounted for the debt issued
and the detachable stock warrants in accordance with APB Opinion 14 which
requires an allocation based upon the fair market value of the debt and rights
as soon as both sell separately on the open market. In May 1997, the Company
agreed to exchange all of the shares of Redeemable Nonconvertible Preferred
Stock for shares of common stock to be issued upon the closing of an initial
public offering at the initial public offering price. Concurrently, the Company
increased the value of the detachable stock warrants by $173,200 to $519,500 of
common stock at the initial public offering price (47,227 shares assuming an
initial public offering price of $11.00). If, by August 1997, the Company has
not completed an initial public offering, the Redeemable Nonconvertible
Preferred Stock can be redeemed for $1,039,000 in cash at the option of the
holders.

In April 1997, the Company entered into a Clinical Development Agreement to
provide the Company with monitoring and data management services in connection
with its first Phase III ARDS clinical trial. The Agreement provides for
payments of approximately $2.0 million during the 18 month period beginning in
April, 1997.

F-16
<PAGE> 79

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

NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON IS AUTHORIZED IN
CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK OFFERED
HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.

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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 7
Use of Proceeds........................... 20
Dividend Policy........................... 20
Capitalization............................ 21
Dilution.................................. 22
Selected Financial Data................... 23
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 24
Business.................................. 28
Management................................ 43
Certain Transactions...................... 49
Principal Stockholders.................... 52
Description of Capital Stock.............. 54
Shares Eligible for Future Sale........... 57
Underwriting.............................. 59
Legal Matters............................. 60
Experts................................... 60
Additional Information.................... 61
Index to Financial Statements............. F-1

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

UNTIL , 1997 (25 DAYS AFTER THE DATE OF
THIS PROSPECTUS), ALL DEALERS EFFECTING
TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================
</TABLE>

======================================================

2,455,000 SHARES
[TRANSCEND THERAPEUTICS LOGO]
COMMON STOCK

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

PROSPECTUS
------------------------------
EVEREN Securities, Inc.
PRINCIPAL FINANCIAL SECURITIES, INC.
, 1997

======================================================
<PAGE> 80

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the Securities and Exchange Commission registration fee and the NASD filing
fee.

<TABLE>
<CAPTION>
ITEM AMOUNT
----------------------------------------------------------------------- ----------
<S> <C>
SEC Registration Fee................................................... $ 21,371*
NASD Filing Fee........................................................ 7,440*
Nasdaq National Market Listing Fee..................................... 35,260
Transfer Agent and Registrar Fees...................................... 5,000
Accounting Fees and Expenses........................................... 225,000
Legal Fees and Expenses................................................ 350,000
Printing, Engraving and Mailing Expenses............................... 250,000
Miscellaneous.......................................................... 105,929
----------
Total............................................................. $1,000,000
==========
</TABLE>

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

* Includes fee from prior filing

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Article VIII of the Registrant's Restated Certificate of Incorporation (the
"Restated Certificate of Incorporation") provides that no director of the
Registrant shall be personally liable for any monetary damages for any breach of
fiduciary duty as a director, except to the extent that a Delaware General
Corporation Law prohibits the elimination or limitation of liability of
directors for breach of fiduciary duty.

Article IX of the Registrant's Restated Certificate of Incorporation
provides that a director or officer of the Registrant (a) shall be indemnified
by the Registrant against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement incurred in connection with any litigation
or other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his request, provided that he undertakes to repay the amount advanced
if it is ultimately determined that he is not entitled to indemnification for
such expenses.

Article VIII of the Registrant's Restated Certificate of Incorporation
further provides that the indemnification provided therein is not exclusive, and
provides that in the event that the Delaware

II-1
<PAGE> 81

General Corporation Law is amended to expand the indemnification permitted to
directors or officers the Registrant must indemnify those persons to the fullest
extent permitted by such law as so amended.

Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.

The Company also currently has in place standard director and officer
liability insurance which, subject to customary exclusions and specified limits,
insures its directors and officers against certain losses and expenses suffered
or incurred by such persons as a result of serving in such capacity.

Under Section 7 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed as
Exhibit 1 hereto.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Set forth in chronological order below is information regarding the number
of shares of Common and Preferred Stock issued, and the number of options
granted and warrants issued, by the Registrant since its incorporation. Further
included is the consideration, if any, received by the Registrant for such
shares and options, and information relating to the section of the Securities
Act of 1933, as amended (the "Securities Act"), or rule of the Securities and
Exchange Commission under which exemption from registration was claimed. Awards
of options did not involve any sale under the Securities Act and none of these
securities was registered under the Securities Act.

1. In December 1992, the Registrant sold an aggregate of 100 shares of its
Common Stock for $.01 per share to Dr. Gary Pace and Dr. Dennis Goldberg,
founders of the Registrant.

2. In April 1994, the previously issued and outstanding shares of Common
Stock of the Registrant issued to Dr. Pace and Dr. Goldberg were exchanged for
an aggregate of 44,109 shares of its Common Stock effected in the form of a
stock dividend.

3. In April 1994, the Registrant issued 680,000 shares of its Common Stock
and 9,000 shares of its Nonconvertible Redeemable Preferred Stock to Clintec
Nutrition Company upon receipt from Clintec of its rights in Procysteine and
related pharmaceutical technologies.

4. In April 1994, as part of a license agreement with Cornell Research
Foundation ("Cornell"), the Registrant issued 35,025 shares of its Common Stock
to Cornell. On October 4, 1995, Cornell agreed to return 7,025 such shares for
cancellation in settlement of a dispute related to the abandonment by Cornell of
a patent application in Japan licensed to the Registrant under the license
agreement.

5. In April 1994, the Registrant sold an aggregate of 6,500,000 shares of
its Series A Convertible Preferred Stock to a group of investors at a purchase
price of $1.00 per share for an aggregate of $6.5 million. As part of the same
transaction, the investors also purchased from the Registrant warrants to
purchase an aggregate of 1,625,000 shares of Series A Preferred Stock for $.01
per share of Series A Preferred Stock issuable upon the exercise of such
warrants. The exercise price of the warrants was $1.00 per share.

II-2
<PAGE> 82

6. In October 1994, in connection with the Registrant's lease of office
space from the Massachusetts Institute of Technology ("MIT"), the Registrant
issued to MIT 5,000 shares of its Common Stock at an exercise price of $5.00 per
share.

7. In September 1995, the Registrant sold $2.0 million aggregate principal
amount of its Senior Secured Convertible Notes ("Series A Notes") to a group of
investors. Interest accrued on the Series A Notes at the rate of 30 percent per
annum and was payable in, and the principal amount of such notes was convertible
into, shares of Series A Convertible Preferred Stock (at one share per $1.00 of
such interest or principal).

8. In January 1994, the Registrant sold an aggregate of 130,000 shares of
Series A Preferred Stock to Jerry Jackson and Frank Douglas, directors of the
Registrant, and one former director of the Registrant, for an aggregate purchase
price of $130,000 at $1.00 per share.

9. In January 1996, the Registrant issued an aggregate of 198,903 shares of
Series A Convertible Preferred Stock to a group of investors as interest due and
payable on Series A Notes held by such investors.

10. In May 1996, the Registrant issued an aggregate of 198,903 shares of
Series A Preferred Stock to a group of investors as interest due and payable on
Series A Notes held by such investors.

11. In May 1996, the Registrant issued $1.0 million in aggregate principal
amount of notes ("Series B Notes") to the holders of Series A Notes. Interest
accrued on the Series B Notes at the rate of 30 percent per annum and was
payable in, and the principal amount of such notes was convertible into, shares
of Series B Convertible Preferred Stock (at one share per $1.50 of such interest
or principal).

12. In September 1996, the Registrant sold an aggregate of 851,064 shares
of its Series C Convertible Preferred Stock to a group of investors at a
purchase price of $2.35 per share for an aggregate of $2.0 million. As part of
the same transaction, (a) the sole holder of 9,000 shares of the Registrant's
Nonconvertible Redeemable Preferred Stock exchanged such shares for 3,404,255
shares of the Series C Convertible Preferred Stock, (b) holders of warrants to
purchase shares of Series A Convertible Preferred Stock were issued an aggregate
of 789,893 shares of Series A Convertible Preferred Stock pursuant to a net
exercise of such warrants, and (c) $3.1 million in aggregate principal amount
of, and interest on, the Series A Notes and Series B Notes were converted into
an aggregate of 2,098,631 shares of Series A Convertible Preferred Stock and
690,775 shares of Series B Convertible Preferred Stock.

13. In March 1997, the Registrant sold an aggregate of 1,039,000 shares of
Nonconvertible Redeemable Preferred Stock and warrants to purchase $346,300 of
Common Stock, exercisable at the initial public offering price (31,482 shares of
Common Stock, assuming an initial public offering price of $11.00 per share), to
a group of investors, resulting in proceeds to the Company of approximately $1.0
million. Such warrants are exercisable upon issuance and expire five years from
the date of issuance.

14. In February 1997, the Registrant agreed to sell to a corporate partner
$5.0 million of Common Stock at the initial public offering price (454,545
shares of Common Stock assuming an initial public offering price of $11.00 per
share).

15. In May 1997, the Registrant agreed to issue additional warrants to the
holders of its Nonconvertible Preferred Stock to purchase $173,200 of Common
Stock, exercisable at the initial public offering price (15,745 shares of Common
Stock assuming an initial public offering price of $11.00 per share), and the
holders of such stock agreed to exchange their shares of Nonconvertible
Preferred Stock for an aggregate of $1,039,000 of Common Stock upon the closing
of the Offering at the initial public offering price (94,455) shares of Common
Stock assuming an initial public offering price of $11.00 per share).

16. From April 1994 through March 31, 1997, the Registrant granted options
to purchase 447,244 shares of Common Stock at exercise prices ranging from $.50
to $11.00 per share.

II-3
<PAGE> 83

No underwriters were engaged in connection with any of the foregoing sales
of securities. The issuance of shares of capital stock and securities in the
transactions described in paragraphs (1) through (15) above were offered and
sold in reliance upon the exemption from registration under Section 4(2) of the
Securities Act and/or Regulation D promulgated under the Securities Act, for
sales by an issuer not involving any public offering. The issuances of
securities in the transaction described in paragraph 16 above are deemed to be
exempt from registration under the Securities Act by virtue of Rule 701
promulgated thereunder in that they were offered and sold pursuant to written
compensatory benefits plans or pursuant to written contract relating to
compensation.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -------------------------------------------------------------------------------
<C> <S>
1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Registrant, as amended.
3.2 Form of Second Amended and Restated Certificate of Incorporation of the
Registrant (to be filed prior to the consummation of the public offering).
3.3 Amended and Restated By-Laws of the Registrant.
4.1 Specimen certificate for shares of Common Stock, $.01 par value per share, of
the Registrant.
4.2 Second Amended and Restated Registration Rights Agreement dated August 21, 1996
among the Registrant and The Venture Capital Fund of New England III, L.P.,
Advent International Investors II Limited Partnership, Advent Performance
Materials Limited Partnership, Global Private Equity II Limited Partnership,
Rovent II Limited Partnership, Paal C. Gisholt, Charles Hsu, Sprout Capital VI,
L.P., DLJ Capital Corporation, Baxter Healthcare Corporation, Clinical
Nutrition Holdings, Inc., Clintec Nutrition Company, the Massachusetts
Institute of Technology, Jerry T. Jackson, Frank L. Douglas and Richard B. Egen
(collectively, the "Holders") (the "Registration Rights Agreement").
4.3 Amendment No. 1 to the Registration Rights Agreement dated March 3, 1997 by and
among the Registrant and the Holders.
4.4 Third Amended and Restrated Registration Rights Agreement dated June 13, 1997
among the Company, the Holders, Boehringer Ingelheim International GmbH ("BI"),
Hector Gomez and John Whalen.
5 Opinion of Hale and Dorr LLP with respect to the validity of the securities
being offered.
10.1 Amended and Restated 1994 Equity Incentive Plan.
+10.2* Contribution Agreement dated April 5, 1994 by and between the Registrant and
Clintec Nutrition Company.
10.3 Non-solicitation Agreement dated April 5, 1994 between the Registrant and
Baxter Healthcare Corporation.
+10.4 License Agreement dated April 5, 1994 between the Registrant and Clintec
Nutrition Company.
+10.5* Amended and Restated Exclusive License Agreement CRF D-416 and D-052, D-913,
D-1069, D-1239, D-1258, D-1403, D-1426, dated August 12, 1996 between the
Registrant and Cornell Research Foundation, Inc.
10.6 Common Stock Purchase Warrant dated October 28, 1994 for 5,000 shares of Common
Stock issued to the Massachusetts Institute of Technology.
10.7 Lease dated October 28, 1994 between the Registrant and the Massachusetts
Institute of Technology.
10.8 Employment Agreement dated November 28, 1994 between the Registrant and Hector
J. Gomez.
10.9 Letter Agreement dated October 4, 1995 between the Registrant and Cornell
Research Foundation, Inc.
+10.10* Development and License Agreement dated February 28, 1997 between the
Registrant and BI.
10.11 Stock Purchase Agreement dated February 28, 1997 between the Registrant and BI.
</TABLE>

II-4
<PAGE> 84

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -------------------------------------------------------------------------------
<C> <S>
10.12 Non-Convertible Preferred Stock and Warrant Purchase Agreement
("Non-Convertible Stock Purchase Agreement") dated March 3, 1997 among the
Company and the Purchasers (as defined therein)
10.13 Letter Agreement dated June 2, 1997 between the Registrant and BI.
10.14 First Amendment of the Non-Convertible Stock Purchase Agreement dated June 4,
1997.
11 Statement regarding Computation of Pro Forma Loss Per Common Share
23.1 Consent of Hale and Dorr LLP (included in Exhibit 5).
23.2 Consent of Pennie & Edmonds LLP.
23.3 Consent of Ernst & Young LLP.
24 Powers of Attorney.
27 Financial Data Schedule
</TABLE>

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

Except as noted, all exhibits have been previously filed.

* Filed herewith.

+ Confidential treatment requested as to certain portions, which portions
are omitted and filed separately with the Commission.

(B) FINANCIAL STATEMENT SCHEDULES

All schedules have been omitted because they are not required or because
the required information is given in the Financial Statements or Notes thereto.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-5
<PAGE> 85

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 5 to Form S-1 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cambridge, Commonwealth of Massachusetts, on this 1st
day of July, 1997.

TRANSCEND THERAPEUTICS, INC.

By: /s/ HECTOR J. GOMEZ
------------------------------------
Hector J. Gomez, M.D., Ph.D.,
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 5 to Form S-1 Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------- ---------------

/s/ HECTOR J. GOMEZ President, Chief Executive Officer July 1, 1997
- ------------------------------------------ and Director (Principal Executive
Hector J. Gomez, M.D., Ph.D. Officer)

/s/ B. NICHOLAS HARVEY Vice President, Finance and Chief July 1, 1997
- ------------------------------------------ Financial Officer (Principal
B. Nicholas Harvey Financial and Accounting Officer)

* Chairman of the Board of Directors July 1, 1997
- ------------------------------------------
Jerry T. Jackson

* Director July 1, 1997
- ------------------------------------------
Philippe Chambon, M.D., Ph.D.
* Director July 1, 1997
- ------------------------------------------
Frank L. Douglas, M.D., Ph.D.

* Director July 1, 1997
- ------------------------------------------
Richard W. Hunt

* Director July 1, 1997
- ------------------------------------------
William C. Mills III

* Director July 1, 1997
- ------------------------------------------
Gerard M. Moufflet
</TABLE>

*By: /s/ HECTOR J. GOMEZ
------------------------------
Hector J. Gomez
Attorney-in-fact

II-6
<PAGE> 86

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGES
-------- -------------------------------------------------------------------- ------------
<S> <C> <C>
1 Form of Underwriting Agreement. ....................................
3.1 Restated Certificate of Incorporation of the Registrant, as
amended. ...........................................................
3.2 Form of Second Amended and Restated Certificate of Incorporation of
the Registrant (to be filed prior to the consummation of the public
offering). .........................................................
3.3 Amended and Restated By-Laws of the Registrant. ....................
4.1 Specimen certificate for shares of Common Stock, $.01 par value per
share, of the Registrant. ..........................................
4.2 Second Amended and Restated Registration Rights Agreement dated
August 21, 1996 among the Registrant and The Venture Capital Fund of
New England III, L.P., Advent International Investors II Limited
Partnership, Advent Performance Materials Limited Partnership,
Global Private Equity II Limited Partnership, Rovent II Limited
Partnership, Paal C. Gisholt, Charles Hsu, Sprout Capital VI, L.P.,
DLJ Capital Corporation, Baxter Healthcare Corporation, Clinical
Nutrition Holdings, Inc., Clintec Nutrition Company, the
Massachusetts Institute of Technology, Jerry T. Jackson, Frank L.
Douglas and Richard B. Egen (collectively, the "Holders") (the
"Registration Rights Agreement"). ..................................
4.3 Amendment No. 1 to the Registration Rights Agreement dated March 3,
1997 by and among the Registrant and the Holders. ..................
4.4 Third Amended and Restrated Registration Rights Agreement dated June
13, 1997 among the Company, the Holders, Boehringer Ingelheim
International GmbH ("BI"), Hector Gomez and John Whalen. ...........
5 Opinion of Hale and Dorr LLP with respect to the validity of the
securities being offered. ..........................................
10.1 Amended and Restated 1994 Equity Incentive Plan. ...................
+10.2* Contribution Agreement dated April 5, 1994 by and between the
Registrant and Clintec Nutrition Company. ..........................
10.3 Non-solicitation Agreement dated April 5, 1994 between the
Registrant and Baxter Healthcare Corporation. ......................
+10.4 License Agreement dated April 5, 1994 between the Registrant and
Clintec Nutrition Company. .........................................
+10.5* Amended and Restated Exclusive License Agreement CRF D-416 and
D-052, D-913, D-1069, D-1239, D-1258, D-1403, D-1426, dated August
12, 1996 between the Registrant and Cornell Research Foundation,
Inc. ...............................................................
10.6 Common Stock Purchase Warrant dated October 28, 1994 for 5,000
shares of Common Stock issued to the Massachusetts Institute of
Technology. ........................................................
10.7 Lease dated October 28, 1994 between the Registrant and the
Massachusetts Institute of Technology. .............................
10.8 Employment Agreement dated November 28, 1994 between the Registrant
and Hector J. Gomez. ...............................................
10.9 Letter Agreement dated October 4, 1995 between the Registrant and
Cornell Research Foundation, Inc. ..................................
+10.10* Development and License Agreement dated February 28, 1997 between
the Registrant and BI. .............................................
10.11 Stock Purchase Agreement dated February 28, 1997 between the
Registrant and BI. .................................................
10.12 Non-Convertible Preferred Stock and Warrant Purchase Agreement ("Non
Convertible Stock Purchase Agreement") dated March 3, 1997 among the
Company and the Purchasers (as defined therein).....................
</TABLE>

<PAGE> 87

<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGES
-------- -------------------------------------------------------------------- ------------
<S> <C> <C>
10.13 Letter Agreement dated June 2, 1997 between the Registrant and
BI..................................................................
10.14 First Amendment of Non-Convertible Stock Purchase Agreement dated
June 4, 1997........................................................
11 Statement regarding Computation of Pro Forma Loss Per Common
Share ..............................................................
23.1 Consent of Hale and Dorr LLP (included in Exhibit 5). ..............
23.2 Consent of Pennie & Edmonds LLP ....................................
23.3 Consent of Ernst & Young LLP. ......................................
24 Powers of Attorney .................................................
27 Financial Data Schedule ............................................
</TABLE>

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

Except as noted, all exhibits have been previously filed.

* Filed herewith.

+ Confidential treatment requested as to certain portions, which portions
are omitted and filed separately with the Commission.

<PAGE> 1

EXHIBIT 10.2

CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

CONTRIBUTION AGREEMENT

between

FREE RADICAL SCIENCES, INC.

and

CLINTEC NUTRITION COMPANY

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

April 5, 1994
-----------------------

<PAGE> 2

TABLE OF CONTENTS

Page

SECTION 1 - CONTRIBUTION OF ASSETS 1

1.1 Contribution of Assets 1
1.2 Assumption of Liabilities 2
1.3 Issuance of Common Shares and Non-Convertible
Preferred Shares; Contingent Payments 3
1.4 Transfer of Contributed Assets 6
1.5 Delivery of Records and Contracts 6
1.6 Closing 6
1.7 Section 351 Transaction 6
1.8 Tax Definition 6
1.9 Certain Payments Relating to Contract with
Dickson Research Group 6
1.10 Cooperation with FRS in Obtaining Rights under
Contract de Recherche 7

SECTION 2 - REPRESENTATIONS AND WARRANTIES OF CLINTEC 7

2.1 Organization and Qualification 7
2.2 Authority to Execute and Perform Agreements 7
2.3 Compliance with Laws 8
2.4 Consents; No Breach 8
2.5 Actions and Proceedings 9
2.6 Contracts and Other Agreements 9
2.7 Intangible Property 10
2.8 Title to Assets; Liens 11
2.9 Insurance 11
2.10 Brokerage 12
2.11 Full Disclosure 12
2.12 Contract de Collaboration 12
2.13 Investment Representations 12

SECTION 3 - CONDITIONS PRECEDENT TO THE OBLIGATION OF
FRS TO CLOSE 13

3.1 Representations, Warranties and Covenants 13
3.2 Third Party Consents 13
3.3 Baxter Agreement with Pace 14
3.4 Non-Solicitation Agreement 14
3.5 License Agreement 14
3.6 Services Letter 14
3.7 Letter Agreement 14
3.8 Opinion of Counsel to Clintec 14
3.9 Litigation 14
3.10 Delivery of Instruments of Transfer 14
3.11 Stock Purchase Agreement 14

(i)

<PAGE> 3

SECTION 4 - CONDITIONS PRECEDENT TO THE OBLIGATION OF
CLINTEC TO CLOSE 15

4.1 Delivery of Assumption Agreement 15
4.2 Litigation 15
4.3 License 15
4.4 Stock Purchase Agreement 15

SECTION 5 - NON-COMPETITION AND EMPLOYEE NON-SOLICITATION.. 15

5.1 No Competing Business 15
5.2 Certain Acquisitions of Competing Businesses 16
5.3 Non-Solicitation of FRS Employees 16
5.4 No Disclosure of Proprietary Information 17
5.5 Remedies 17

SECTION 6 - INDEMNIFICATION 17

6.1 Survival 17
6.2 Obligation of Clintec to Indemnify 19
6.3 Obligation of FRS to Indemnify 19
6.4 Notice and Opportunity to Defend 19
6.5 Other Benefits 20
6.6 Limitation on Representations and Warranties 20
6.7 Exclusion 20

SECTION 7 - MISCELLANEOUS 21

7.1 Publicity 21
7.2 Notices 21
7.3 Entire Agreement 22
7.4 Australian Insurance 22
7.5 Confidentiality Letter 22
7.6 Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies 22
7.7 Governing Law 23
7.8 Binding Effect; No Assignment 23
7.9 Expenses 23
7.10 Taxes 23
7.11 Variations in Pronouns 23
7.12 Counterparts 23
7.13 Exhibits and Schedules 23
7.14 Headings 24

(ii)

<PAGE> 4

SCHEDULES

1.1(i) Inventory
1.1(ii) Contributed Contracts
1.1(iv) Intangible Property
1.2 Assumed Liabilities
2.3 Permits
2.4 Consents
2.5 Actions and Other Proceedings
2.6 Contracts and Other Agreements
2.7 Intangible Property

(i)

<PAGE> 5

CONTRIBUTION AGREEMENT

CONTRIBUTION AGREEMENT dated as of April 5, 1994, among Free Radical
Sciences, Inc., a Delaware corporation ("FRS") and Clintec Nutrition
Company, an Illinois general partnership ("Clintec").

WITNESSETH

WHEREAS, Clintec is the owner of certain intangible property described
on Schedule 1.1(iv) hereto (collectively, the "Technology").

WHEREAS, Clintec desires to contribute to FRS, and FRS desires to
acquire, all of Clintec's right, title and interest in and to the
Technology in exchange for Common Stock and NonConvertible Preferred Stock
of FRS and for certain rights to receive contingent payments from FRS, as
part of a transaction in which certain other investors will acquire Common
Stock and Series A Preferred Stock of FRS.

NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth below, the parties hereby agree as follows:

SECTION I. - CONTRIBUTION OF ASSETS

A. CONTRIBUTION OF ASSETS. Subject to the provisions of this
Agreement, at the Closing (as defined in Section 1.6 hereof), Clintec
agrees to sell and FRS agrees to purchase, effective as of the Effective
Date (as defined in Section 1.6 hereof), free and clear of any mortgage,
lien, pledge, charge, security, interest or encumbrance of any kind,
including, without limitation, Tax liens (a "Lien"), other than Permitted
Liens (as hereinafter defined), all right, title and interest of Clintec
in, to and under:

(i) the clinical supplies listed on Schedule 1.1(i);

(ii) All rights under all contracts, agreements, licenses and
commitments listed on Schedule 1.1(ii) except for Clintec's rights
under Section 10.14 of the contract (the "Dickson Contract") between
Clintec and Dickson Research Group ("Dickson"), entered into on the
date hereof, (collectively, the "Contributed Contracts");

-1-

<PAGE> 6

(iii) all of Clintec's rights, claims, credits, causes of action or
rights of set-off against third parties relating to any of the
Contributed Contracts, the other items referred to in paragraphs (i)
and (iii) - (vii) of this Section 1.1 or to the Compounds, including,
without limitation, unliquidated rights under manufacturers' and
vendors' warranties;

(iv) the items listed on Schedule 1.1(iv) and all patents, licensed
patents, copyrights, trademarks, tradenames, technology, know-how,
processes, trade secrets, inventions, invention records, proprietary
data, formulae, research and development data, human clinical data,
computer software programs and other intangible property and any
applications for the same owned or licensed by Clintec and relating to
the molecular entities L-2-oxothiazolidine-4-carboxylate
(Procysteine), its isomers, its esters (including diesters) and its
neutral salts, the cysteine derivative N-acetyl-cysteine, and
glutathione esters (including diesters) including the alkyl monoesters
(collectively, the "Compounds");

(v) all books, records, files and papers, whether in hard copy or
computer format, relating to the items described in paragraphs (i) -
(iii) and (vi) - (vii) of this Section 1.1 or to the Compounds,
including, without limitation, manuals and data and correspondence
relating to the Contributed Contracts;

(vi) all transferable licenses, permits or other governmental
authorizations affecting, or relating in any way to, items described
in paragraphs (i) - (iii) and (v) - (vii) of this Section 1.1 or to
the Compounds, if any;

(vii) all rights to commercially exploit any other free-radical
scavengers which have been developed or are being developed, as of the
date hereof, by or on behalf of Clintec for a primary purpose or use
as a pharmaceutical, if any (collectively, the "Other Compounds");
Section 1.1(i) through (vii) shall be referred to collectively as the
"Contributed Assets".

-2-

<PAGE> 7

At the closing, Clintec shall also contribute to the capital of FRS
all of FRS's indebtedness to Clintec for money borrowed or other amounts
advanced to FRS, except that Clintec shall not contribute to the capital of
FRS but FRS shall repay to Clintec by wire transfer of immediately
available funds at the Closing an amount equal to $175,304, determined as
set forth in the Reconciliation Letter between Clintec and FRS of even date
herewith.

B. ASSUMPTION OF LIABILITIES. Upon the sale and purchase of the
Contributed Assets, FRS shall assume and agree to pay or discharge when due
the liabilities and obligations of Clintec which are to be performed after
the Closing Date (as defined in Section 1.6 below) as are described on
Schedule 1.2. Such liabilities to be assumed by FRS under this Agreement
are hereinafter sometimes referred to as the "Assumed Liabilities." Except
as otherwise specifically provided in this Section 1.2, (a) FRS shall not
assume or be liable for any obligation or liability of Clintec, of any kind
or nature, known, unknown, contingent or otherwise, including without
limitation: (i) any liability of Clintec incurred in connection with this
Agreement and the transactions provided for herein, including brokerage,
accounting and counsel fees, transfer and other taxes, and expenses
pertaining to the performance by Clintec of its obligations hereunder, (ii)
any liability or obligation of Clintec arising out of any contract or
agreement, (iii) any liability or obligation arising out of or relating to
the clinical development or testing of the Compounds or the Other Compounds
on or prior to Closing, (iv) any obligations to Clintec's employees,
including without limitation, any pension, retirement, or profit-sharing
plan or trust, (v) any litigation, proceeding, claim by any person or
entity or other obligation of Clintec arising out of the conduct of
Clintec's business or its use of the Compounds or other Contributed Assets
prior to the Closing Date, whether or not such litigation, proceeding,
claim or obligation is pending, threatened, or asserted before, on, or
after the Closing Date, (vi) Taxes (as defined in Section 1.8) whether
relating to periods before or after the Closing Date, and (vii) any
obligations under any law, including but not limited to antitrust, civil
rights, health, safety, labor, discrimination and environmental laws; and
(b) Clintec shall be solely responsible for, and shall discharge, any and
all liabilities and obligations of Clintec not included within the Assumed
Liabilities. The assumption of the Assumed Liabilities by FRS hereunder
shall be treated as independent of its existing business and shall not
enlarge any rights of third parties under contracts or arrangements with
FRS or Clintec. Nothing herein shall prevent FRS from contesting in good
faith any of the Assumed Liabilities.

-3-

<PAGE> 8

CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

C. ISSUANCE OF COMMON SHARES AND NON-CONVERTIBLE PREFERRED SHARES;
CONTINGENT PAYMENTS. (a) In consideration of the contribution of the
Contributed Assets to FRS, at the Closing, FRS shall deliver to Clintec
certificates for an aggregate of 3,400,000 shares (the "Common Shares") of
FRS's Common Stock, $.01 par value per share, and 9,000 shares (the
"Preferred Shares") of FRS's Non-Convertible Preferred Stock, $.01 par
value per share, registered in the name of Clintec.

(b) From and after the Closing, FRS shall pay to Clintec in U.S.
dollars, within 30 days after the end of each calendar quarter after the
Closing, a royalty equal to **** of FRS's Gross Margin (as hereinafter
defined) on Net Sales (as hereinafter defined) of drugs sold by FRS or any
subsidiary, affiliate or sublicensee of FRS during such calendar quarter
for applications for patients with AIDS approved by the FDA (in the case of
sales in the United States) or approved by any foreign regulatory agency,
if applicable (in the case of sales outside the United States) (the "AIDS
Drugs"); provided however, that no such royalty will be payable by FRS
until FRS's cumulative Gross Margin on Net Sales of AIDS Drugs exceeds the
total amount of costs incurred for clinical inventory used in the AIDS
clinical studies (up to a maximum of **** million of such costs), which
royalty shall be payable only on such excess; and provided further, that
the sum of all royalty obligations with respect to technology involved in
the manufacture, use or sale of such AIDS drug will in no case, in the
aggregate, exceed **** of Net Sales, which percentage will include payments
to Cornell Research Foundation and any other third party for technology
involved in the manufacture, use or sale of such AIDS drug (the "Contingent
Payment").

(c) For this purpose, Gross Margin shall mean Net Sales less the
direct cost of goods sold, which will include royalties paid to Cornell and
any other third party for technology involved in the manufacture, use or
sale of the drug. Also for this purpose, Net Sales shall mean the gross
amount of money billed by FRS to its customers on sale or use of drugs for
FDA approved applications for patients with AIDS subsequent to the Closing,
**************************************************************************
**************************************************************************
**************************************************************************
**************************************************************************
************************************************************** FRS will
deliver to Clintec within 30 days after the end of each calendar year
ending after the Closing a report in writing setting forth sales of the
AIDS Drugs and will accompany such

-4-

<PAGE> 9

report with an appropriate payment of royalty due for such period. FRS will
keep accurate records for at least three years, certified by it, showing
the information by which FRS arrived at a royalty determination and will
permit an auditor appointed and paid for by Clintec and acceptable to FRS
to make such inspection of said records as may be necessary to verify
royalty reports made by FRS. However, if such inspection demonstrates that
the royalties paid were less than 90% of the royalties due, and FRS' Net
Sales of the AIDS Drugs for the applicable year was $500,000 or more, then
FRS shall reimburse Clintec the reasonable charges charged by the auditor
for such inspection.

(d) In the event it is ultimately determined, by a court of
competent jurisdiction or pursuant to any agreement between FRS and the
Internal Revenue Service ("IRS") and/or any applicable state tax authority
(collectively "Tax Authority"), that any payment made pursuant to Section
1.3(b) is not currently deductible by FRS for federal or state income tax
purposes (a "Final Determination"), then the amounts payable by FRS under
Section 1.3(b) after such Final Determination becomes final shall be
reduced to the extent necessary so that the present value, as of the first
day of the first year for which any payment is determined not to be
currently deductible, of (i) all payments made by FRS under Section 1.3(b)
(taking into account the reduction under this Section 1.3(d)) minus (ii)
all Tax Reductions attributable to such payments, is equivalent to the
present value, as of the first day of the first year for which any payment
is determined not to be currently deductible, of (iii) all payments that
would be provided for under Section 1.3(b) but for this Section 1.3(d) and
Section 1.3(e) if all such payments had been currently deductible for
federal and state income tax purposes, minus (iv) all Tax Reductions
attributable to such payments, it being the intention of the parties that
FRS be put in the same economic position it would have been in had the
amounts payable pursuant to Section 1.3(b) been currently deductible for
federal and state income tax purposes. For this purpose, (i) present value
of a payment of Tax Reduction shall be determined by using, for each
calendar year of the computation, the federal mid-term rate determined
using an annual compounding convention under Section 1274(d) of the
Internal Revenue Code of 1986, as amended (the "Code"), announced for
January of such calendar year, and (ii) the "Tax Reduction" attributable to
a payment is the amount of the actual reduction in federal and state income
tax liability resulting from the payment.

-5-

<PAGE> 10

(e) In the event the IRS asserts that any payment made pursuant to
Section 1.3(b) is not currently deductible by FRS for federal income tax
purposes and the matter has not been settled or resolved upon the
completion of the audit examination (including an appeal to the IRS appeals
office) (an "Interim Determination") then, notwithstanding the provisions
of Section 1.3(d), the amounts payable by FRS under Section 1.3(b) after
the Interim Determination may be reduced to the extent they could have been
reduced under Section 1.3(d) if such deficiency had been upheld or agreed
to in a Final Determination, provided, however, that if there is a Final
Determination in which such deficiency is not upheld or agreed to in its
entirety, then FRS shall pay to Clintec, within 90 days of such Final
Determination, the amount necessary to put Clintec in the same economic
position it would have been in if this Section 1.3(e) had not applied.

(f) In the event that the amounts payable under Section 1.3(b)
without regard to Sections 1.3(d) and 1.3(e) are insufficient to permit any
reduction in the amounts payable under Section 1.3(b) that is required
pursuant to Section 1.3(d) or 1.3(e) as a result of a Final Determination
or Interim Determination to be effected within the four next succeeding
calendar quarters after such Final Determination or Initial Determination,
then Clintec shall pay to FRS, within 90 days after the end of the last of
such calendar quarters, the amount necessary to put FRS in the economic
position it would have been in if the amounts payable under Section 1.3(b)
had been sufficient to permit the full amount of any such required
reduction to be effected.

(g) FRS shall give Clintec a reasonable period of time (i) to
review any federal or state income tax returns of FRS in which FRS claims a
deduction for payments made pursuant to Section 1.3(b) prior to the filing
of any such returns and (ii) to control the manner in which any such
deductions are claimed on such return.

(h) FRS shall promptly notify Clintec of any claim by a Tax
Authority that any payment made by FRS under Section 1.3(b) is not
currently deductible, and in such event Clintec shall have the exclusive
right to assume the defense of any such claim and to control any
controversy resulting therefrom, at Clintec's expense. FRS agrees to
cooperate with Clintec in the defense of any such claim and to cooperate
with Clintec and the FRS Firm or the Joint Firm (as hereinafter defined) in
the determination of the amount of any reduction in payments required
hereunder. Such cooperation shall include, but not be limited to, (i) the
execution and delivery of any power of attorney required to allow

-6-

<PAGE> 11

Clintec and its representatives to represent FRS in any controversy which
Clintec has the right to control hereunder, (ii) the prompt and timely
filing of appropriate claims for any refund, and (iii) making available to
Clintec and its representatives all books, records (including working
papers and schedules), information and employees necessary or useful in
connection with any tax inquiry, audit, investigation, dispute or
litigation relating to the matters described in this Section 1.3(h).

(i) The determination of the amount of any reduction pursuant to
Sections 1.3(d) or 1.3(e) hereof shall initially be made by the independent
certified public accountants then serving as auditor for FRS (the "FRS
Firm"), and such determination shall be furnished to Clintec in writing,
which shall include a computation of the amount of any reduction and a
detailed written explanation of the manner in which such computation was
made. If Clintec objects in writing to such determination within 60 days
after it is received by Clintec, then the amount of any reduction shall be
determined by a "Big Six" firm of independent certified public accountants
jointly selected by Clintec and FRS (or, if they are unable to agree, then
such a firm jointly selected by the FRS Firm and a firm of independent
public accountants designated by Clintec) (the "Joint Firm"), and the
decision of the Joint Firm shall be final and binding upon the parties. If
Clintec does not object in writing to the determination of the FRS Firm
within such time period, then the decision of the FRS Firm shall be final
and binding upon the parties. No reduction in the payments provided for in
Section 1.3(b) shall be made until a decision of the FRS Firm or the Joint
Firm has become final. The fees and expenses of the FRS Firm shall be borne
by FRS, and the fees and expenses of the Joint Firm shall be shared equally
by Clintec and FRS, except that if the Joint Firm decides that the amount
of any reduction in payments required hereunder is less than 90% of the
amount of the reduction decided by the FRS Firm, then FRS shall bear all of
the fees and expenses of the Joint Firm.

D. TRANSFER OF CONTRIBUTED ASSETS. At the Closing, Clintec shall
deliver or cause to be delivered to FRS good and sufficient instruments of
transfer transferring to FRS title to all of the Contributed Assets. Such
instruments of transfer (a) shall be in the form and will contain the
warranties, covenants and other provisions (not inconsistent with the
provisions hereof) which are usual and customary for transferring the type
of property involved under the laws of the jurisdictions applicable to such
transfers, (b) shall be in form and substance satisfactory to FRS and its
counsel, and (c) shall effectively vest in FRS good title to all the
Contributed Assets free and clear of all Liens.

-7-

<PAGE> 12

E. DELIVERY OF RECORDS AND CONTRACTS. At the Closing, Clintec, to the
extent FRS does not already have possession of such documents or rights,
shall deliver or cause to be delivered to FRS, at FRS' request, all written
leases, contracts, commitments and rights evidencing Contributed Assets and
Assumed Liabilities, with such assignments thereof and consents to
assignments as are necessary to assure FRS of the full benefit of the same.
From time to time, pursuant to the request of FRS delivered to Clintec
after the Closing, Clintec, at Clintec's expense and without any further
consideration, will execute and deliver to FRS such instruments and
documents of conveyance and transfer, and do and cause to be done such acts
or things, as FRS may reasonably request in order to more effectively
contribute, convey, transfer and assign to FRS, or to perfect or record
FRS's interest in or title to, or to enable FRS to use, any and all of the
Contributed Assets, or otherwise to carry out the purposes and intent of
this Agreement.

F. Closing. The closing of the sale and purchase of the transactions
contemplated hereby (the "Closing"), shall take place at the offices of
Palmer & Dodge, One Beacon Street, Boston, MA at 10:00 a.m., local time, on
April 5, 1994, or at such other time and place as agreed to by the parties
(the "Closing Date") and the effective date of such sale and purchase shall
be February 1, 1994 (hereinafter referred to as the "Effective Date").

G. Section 351 Transaction. The parties intend that the contribution
of the Contributed Assets be treated as a transfer described in Section 351
of the Internal Revenue Code of 1986, as amended (the "Code"), and the
parties agree that they will prepare and file their federal and any state
or local income tax returns in a manner consistent with such
characterization.

H. Tax Definition. For purposes of this Agreement, the term "Taxes" or
individually, a "Tax" shall mean all federal, state, county, local, foreign
and other taxes, including, without limitation, income taxes, estimated
taxes, alternative minimum taxes, excise taxes, sales taxes, use taxes,
import duties, value-added taxes, gross receipts taxes, franchise taxes,
capital stock taxes, employment and payroll-related taxes, withholding
taxes, stamp taxes, transfer taxes, windfall profit taxes, environmental
taxes and property taxes, whether or not measured in whole or in part by
net income and all deficiencies, or other additions to such taxes and
interest, fines and penalties thereon.

-8-

<PAGE> 13

CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

I. Certain Payments Relating to Contract with Dickson Research Group.
Upon the fulfillment, to FRS's satisfaction, of all of Dickson's
obligations to FRS with respect to Study 3.0 under the Dickson Contract,
FRS shall pay to Clintec by certified check or wire transfer of immediately
available funds an amount equal to ********* representing the value of
Clintec's prepayment under the Dickson Contract. FRS agrees that after the
Closing it will continue to use Dickson for the completion of Study 3.0
unless it has a valid business reason for terminating Dickson.

J. Cooperation with FRS in Obtaining Rights under Contract de
Recherche. Clintec Technologies, S.A. and L'Institut National de la
Recherche Agronomique ("INRA") entered into a Research Contract on December
24, 1992 (the "INRA Contract") under which Clintec may have rights to
commercially exploit any research results, inventions or discoveries. To
the extent that Clintec has such rights (including the right to license
FRS) under the INRA Contract as such rights relate to Pharmaceutical
Applications (as defined in the License Agreement) without the payment by
Clintec of additional consideration therefor, Clintec will execute an
exclusive, fully paid, royalty-free license granting to FRS all such
rights. To the extent Clintec is unable to license such rights, Clintec
will use its best efforts to cause INRA to offer to FRS an exclusive
license, granting FRS all such rights, provided, however, that Clintec
shall not be required to make any payment to INRA or to incur any
out-of-pocket expenses in connection therewith. Clintec will provide FRS
copies of all correspondence between Clintec and INRA which relates to the
INRA Contract and Pharmaceutical Applications (as defined in the License
Agreement), and will give FRS an opportunity to respond to such
correspondence to the extent that such correspondence relates to
Pharmaceutical Applications of the Compounds or the Other Compounds.

SECTION II. - REPRESENTATIONS AND WARRANTIES
OF CLINTEC

Clintec represents and warrants to FRS as follows:

A. Organization and Qualification. Clintec is a general partnership
duly established, validly existing and in good standing under the laws of
Illinois and has full power and lawful authority to own, lease and operate
its assets, properties and business and to carry on its business as now
being and as heretofore conducted. Clintec is not required to be qualified
or otherwise authorized to transact business as a foreign

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partnership in any jurisdiction (in the United States and outside of the
United States) in which such qualification or authorization is required by
law and in which the failure to so qualify or be authorized could have a
material adverse effect on the Contributed Assets. Clintec does not file
and is not required to file any franchise, income or other tax returns in
any jurisdiction (in the United States or outside of the United States)
other than in Illinois, based upon the ownership or use of the Contributed
Assets therein or the derivation of income therefrom.

B. Authority to Execute and Perform Agreements. Clintec has the full
legal right and power and all authority and approvals required to enter
into, execute and deliver this Agreement and the Related Agreements (as
hereinafter defined) and to perform fully its respective obligations
hereunder and thereunder, and each of this Agreement and the Related
Agreements has been or will be duly executed and delivered and is the valid
and binding obligation of Clintec enforceable in accordance with its terms.
Clintec has obtained the necessary approval of its partners, (collectively,
the "Partners"), and third parties to the transactions contemplated by this
Agreement and the Related Agreements.

C. Compliance with Laws.

(a) Clintec is not in violation of any order, judgment,
injunction, award or decree binding upon it relating to the Contributed
Assets, or which would affect the transactions contemplated hereunder.
Subject to the exception that Clintec makes no representation or warranty
in respect of the activities of FRS at its offices located at 245 First
Street, Cambridge, Massachusetts, neither Clintec nor FRS, nor their
respective officers, directors, employees or agents, is in violation of any
Environmental or Clinical Testing Law (as hereinafter defined). For
purposes of this Agreement, Environmental or Clinical Testing Law shall
mean the regulations and requirements of the Occupational Safety and Health
Administration ("OSHA"), and laws, ordinances, regulations and other
requirements respecting the clinical testing of health care products,
pollution or protection of the environment, including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes into the environment (including, without limitation,
ambient air, surface water, ground water or land), or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, human bodily
fluids,

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chemicals or industrial, toxic or hazardous substances or wastes. Clintec
and, to the best of Clintec's knowledge, FRS have never received notice of,
and there has never been, any citation, fine or penalty imposed or asserted
against Clintec, or, to the best knowledge of Clintec, FRS for any such
violation or alleged violation.

(b) Set forth on Schedule 2.3 are all of the licenses issued by
OSHA and all other licenses, permits, franchises, orders or approvals of
any federal, state, local or foreign governmental or regulatory body,
relating to the clinical testing of health care products and environmental
matters, including, without limitation, the treatment, storage, disposal,
transport or handling of human bodily fluids (collectively, "Permits") that
are material to the use of the Contributed Assets. Clintec holds all
Permits necessary to the operation and use of the Contributed Assets as
presently used. Such Permits are in full force and effect and, except as
set forth on Schedule 2.3, such Permits will be transferred to FRS as part
of the Contributed Assets. No violations are or have been recorded with any
governmental or regulatory body in respect of any Permit; and no proceeding
is pending or, to the best knowledge of Clintec, threatened to revoke or
limit any Permit.

D. Consents; No Breach. All consents, permits, authorizations and
approvals from any person pursuant to applicable law or contracts or other
agreements with Clintec, that are required in connection with the
performance of Clintec's obligations under this Agreement, or the
assignment of the Contributed Assets or the assumption of the Assumed
Liabilities are set forth on Schedule 2.4 hereto. The execution, delivery
and performance of this Agreement and the Related Agreements and the
consummation of the transactions contemplated hereby and thereby will not
(i) violate any provision of the Partnership Agreement of Clintec; (ii)
except as set forth on Schedule 2.4, violate, conflict with or result in
the breach of any of the terms or conditions of, result in modification of
the effect of, or otherwise give any other contracting party the right to
terminate, or constitute (or with notice or lapse of time or both
constitute) a default under, any material instrument, contract or other
agreement to which Clintec is a party or to which any of its assets or
properties may be bound or subject; (iii) violate any order, judgment,
injunction, award or decree of any court, arbitrator or governmental or
regulatory body against, or binding upon, Clintec or the securities,
properties, assets or business of Clintec; (iv) violate any statute, law or
regulation of any jurisdiction as such statute, law or regulation relates
to Clintec or to the securities, properties, assets or business of

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Clintec; (v) violate any Permit; (vi) except as set forth in Schedule 2.4,
require the approval or consent of any foreign, federal, state, local or
other governmental or regulatory body or the approval or consent of any
other person; or (vii) result in the creation of any Lien on the
Contributed Assets.

E. ACTIONS AND PROCEEDINGS. There are no outstanding orders,
judgments, injunctions, awards or decrees of any court, governmental or
regulatory body or arbitration tribunal against or involving Clintec which
are reasonably likely to affect or relate to any of the Contributed Assets
or the transactions contemplated hereunder. Except as set forth on Schedule
2.5, there are no actions, suits or claims or legal, administrative (other
than patent office proceedings not involving third parties) or arbitral
proceedings or, to the best knowledge of Clintec, governmental
investigations (whether or not the defense thereof or liabilities in
respect thereof are covered by insurance) pending or, to the best knowledge
of Clintec, threatened against or involving Clintec which are reasonably
likely to affect or relate to any of the Contributed Assets or the
transactions contemplated hereunder. To the best of Clintec's knowledge,
there is no fact, event or circumstance that may give rise to any suit,
action, claim, governmental investigation or proceeding based upon a
material violation of any law governing environmental matters, including,
without limitation, the treatment, storage, disposal, transport or handling
of human bodily fluids, or regulating the clinical testing of health care
products that individually or in the aggregate would have a material
adverse effect on the Contributed Assets or the transactions contemplated
hereunder.

F. CONTRACTS AND OTHER AGREEMENTS. Schedule 2.6 contains a complete
and correct list of all agreements, contracts and commitments of the
following types, written or oral, (1) to which Clintec is a party and which
relate to the Compounds or the Other Compounds, (2) to which the
Contributed Assets are bound, subject to or affected by (except to the
extent any such agreements, contracts or commitments relate solely to
Clinical Nutrition (as defined in the License Agreement), or (3) to the
best of Clintec's knowledge, to which FRS is a party:

(i) contracts and other agreements for the purchase or sale
of materials, supplies, equipment, merchandise or services;

(ii) partnership or joint venture agreements;

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<PAGE> 17

(iii) contracts, options and other agreements for the
purchase of any asset, tangible or intangible calling for an aggregate
purchase price or payments in any one year of more than $25,000 in any
one case (or in the aggregate, in the case of any related series of
contracts and other agreements);

(iv) contracts and other agreements that cannot by their
terms be canceled by Clintec and any successor or assignee of Clintec
without liability, premium or penalty on no less than thirty days
notice;

(v) contracts and other agreements with customers or
suppliers for the sharing of fees, the rebating of charges or other
similar arrangements;

(vi) contracts and other agreements containing covenants of
Clintec not to compete in any line of business or with any person or
covenants of any other person not to compete with Clintec in any line
of business;

(vii) contracts, indentures, mortgages, promissory notes,
loan agreements, guaranties, security agreements, pledge agreements,
and other agreements relating to the borrowing of money or securing
any such liability;

(viii) distributorship or licensing agreements;

(ix) contracts under which Clintec will acquire or has
acquired ownership of, or license to, intangible property, including
software (other than software licensed by Clintec as an end user for
less than $25,000 and not distributed by it); or

(x) any other material contract or other agreement whether
or not made in the ordinary course of business.

There have been delivered or made available to FRS true and complete
copies of all of the written contracts and other agreements (and all
amendments, waivers or other modifications thereto) and accurate
descriptions of all oral contracts and other agreements set forth on
Schedule 2.6. Except as set forth in Schedule 2.6, all of such contracts
and other agreements are valid, subsisting, in full force and effect,
binding upon Clintec or FRS, as applicable, and to the best knowledge of
Clintec, binding upon the other parties thereto in accordance with their
terms, and Clintec or FRS, as applicable, has paid in full or

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accrued all amounts now due thereunder and has satisfied in full or
provided for all of its liabilities and obligations thereunder which are
presently required to be satisfied or provided for, and is not in default
under any of them, nor, to the best knowledge of Clintec, is any other
party to any such contract or other agreement in default thereunder, nor
does any condition exist that with notice or lapse of time or both would
constitute a default thereunder.

G. INTANGIBLE PROPERTY. (a) Except as set forth on Schedule 2.7,
Clintec has exclusive ownership of all patents, trademarks and trade names;
all applications to register any of the foregoing; all trade secrets,
inventions, customer lists, manufacturing or other processes, designs, data
compilations, research results and other confidential information and
legally protected proprietary rights (collectively, "Proprietary Rights")
that constitute Contributed Assets and Clintec has the right to use, free
and clear of claims or rights of others, all such Proprietary Rights.

(b) Clintec has not received any notices claiming infringement by
Clintec of any Proprietary Rights of others, and, to the best knowledge of
Clintec none of the present activities of Clintec or its products or assets
infringe on any Proprietary Rights of others, including unauthorized use of
any confidential information or trade secrets of any person, including
without limitation any former employer of any past or present employees of
Clintec.

(c) All patents, patent applications, trademarks, trademark
applications and registrations and registered copyrights (or applications
therefor) which constitute Contributed Assets are listed in Schedule 2.7
("Registered Rights"). All of the Registered Rights have been duly
registered in, filed in or issued by the United States Patent and Trademark
Office, the United States Register of Copyrights, or the corresponding
offices of other jurisdictions as identified on said Schedule, and have
been properly maintained and renewed in accordance with all applicable
provisions of law and administrative regulations in the United States and,
to the best of Clintec's knowledge, in each such other jurisdiction,
provided, however, that Clintec makes no representation or warranty as to
the validity or enforceability of any issued patent or trademark.

(d) Clintec has disclosed or made available confidential
information and trade secrets included in the Proprietary Rights only to
(i) employees of Clintec who required

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such disclosure or access for Clintec's business purposes and who, to the
best of Clintec's knowledge, have exercised the same degree of care to
preserve the confidentiality of such information and trade secrets as they
have to preserve the confidentiality of other confidential information and
trade secrets of Clintec, and (ii) consultants or other third parties
(other than employees of FRS) who have executed written confidentiality
agreements governing their use of such confidential information and trade
secrets. Clintec is not aware of any unauthorized disclosure of any such
confidential information or trade secrets by any of its employees or of any
breach of any obligation of any such consultants or other third parties
under the confidentiality agreements referred to above.

(e) To the best of Clintec's knowledge, none of the activities of
Clintec's employees relating to the Proprietary Rights violate any
agreements which any such employees have with former employers.

H. TITLE TO ASSETS; LIENS. Clintec owns outright and has good title to
all the Contributed Assets, free and clear of any Liens, except for liens
or other encumbrances securing the claims of materialmen, carriers,
landlords and like persons or attorneys' liens, all of which are not yet
due and payable ("Permitted Liens"). Upon delivery of and payment for the
Contributed Assets as herein provided, FRS will acquire all of Clintec's
right, title and interest thereto, free and clear of any Liens. The
Contributed Assets constitute all assets of Clintec which relate to the
Compounds or the Other Compounds.

I. INSURANCE. Clintec is covered by all policies or binders of
liability, product liability, clinical trial and other insurance that are
customary and reasonable in relation to the Contributed Assets. Such
policies and binders are in full force and effect, all premiums with
respect thereto are currently paid and are in conformity with the
requirements of all contracts to which Clintec is a party and are valid and
enforceable in accordance with their terms. Neither Clintec nor the
Partners is in default with respect to any provision contained in any such
policy or binder nor has Clintec or the Partners failed to give any notice
or present any claim under any such policy or binder in due and timely
fashion. There are no outstanding unpaid claims under any such policy or
binder. Neither Clintec nor the Partners has received notice of
cancellation or non-renewal of any such policy or binder.

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<PAGE> 20

J. BROKERAGE. No broker, finder, agent or similar intermediary has
acted on behalf of Clintec, the Partners or their respective affiliates in
connection with this Agreement or the transactions contemplated hereby, and
there are no brokerage commissions, finders fees or similar fees or
commissions payable in connection therewith based on any agreement,
arrangement or understanding with Clintec, the Partners or their respective
affiliates, or any action taken by them.

K. FULL DISCLOSURE. No representation or warranty of Clintec contained
in this Agreement, including the schedules attached hereto, contains 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 made, in
the context in which made, not false or misleading.

L. CONTRACT DE COLLABORATION. Clintec has the authority to transfer
and assign to FRS, without the consent (written or otherwise) by the other
parties thereto, and will transfer and assign to FRS at the Closing, all of
Clintec's rights and interests in the following research contracts which
are described on Schedule 1.1(ii), section 3:

(i) Contract de Collaboration between Clintec Technologies S.A.
and L'Universite, Joseph Fourier, and

(ii) Contract de Collaboration between Clintec Technologies S.A.
and L'Institut National de la Recherche Agronomique dated October 25, 1993.

M. INVESTMENT REPRESENTATIONS.

(a) Clintec has not relied upon the advice of a "purchaser
representative," as defined in Regulation D under the Securities Act of
1933, as amended (the "Securities Act") in evaluating the risks and merits
of the Common Shares and Preferred Shares (collectively, the "Shares").

(b) Clintec has had an opportunity to ask questions of and receive
answers from FRS, or a person or persons acting on FRS's behalf, concerning
the terms and conditions of the Shares.

(c) Clintec understands that the Shares have not been registered
under the Securities Act or under the securities laws of any state or other
jurisdiction in reliance upon exemptions for private offerings, and that,
while FRS may in the future register the Shares, except as set forth in the
Registration Rights Agreement of even date herewith between FRS, Clintec
and

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<PAGE> 21

the other parties named therein ("Registration Rights Agreement") it is
under no obligation to do so, and Clintec further understands that Clintec
is acquiring the Shares without being furnished any offering literature or
prospectus.

(d) Clintec represents that the Shares are being acquired solely
for its own account, for investment and not with a view to or for the
resale, distribution, subdivision, or fractionalization thereof; Clintec
has no present plans to enter into any contract, undertaking, agreement, or
arrangement relating thereto.

(e) Clintec acknowledges and is aware that there are substantial
restrictions on the transferability of the Shares; the Shares cannot be
resold unless the Shares are registered under the Securities Act and any
applicable securities law of any state or other jurisdiction, or an
exemption from registration is available; except as set forth in the
Registration Rights Agreement, Clintec has no rights to require that the
Shares be registered under the Securities Act; and there currently is no
and there may never be, a public market for the Shares.

(f) Clintec has such knowledge and experience in financial and
business matters that it is capable of evaluating the relative risks and
merits of the Shares.

(g) Clintec is a general partnership organized and with its
principal place of business in the state of Illinois.

SECTION III. - CONDITIONS PRECEDENT TO
THE OBLIGATION OF FRS TO CLOSE

The obligation of FRS to enter into and complete the Closing is
subject, at the option of FRS acting in accordance with the provisions of
this Agreement with respect to termination hereof, to the fulfillment of
the following conditions, any one or more of which may be waived by it:

A. REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of Clintec contained in this Agreement shall be true on and as
of the Closing Date with the same force and effect as though made on and as
of the Closing Date. Clintec shall have performed and complied with all
covenants and agreements required by this Agreement to be performed or
complied with by Clintec on or prior to the Closing Date. Clintec shall
have delivered to FRS a certificate, dated

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the Closing Date and signed by an officer of Clintec to the foregoing
effect and stating that all conditions to FRS's obligations hereunder have
been satisfied.

B. THIRD PARTY CONSENTS. FRS shall have received evidence of the
receipt of all authorizations, consents and permits of others required to
permit the consummation by FRS and Clintec of the transactions contemplated
by this Agreement, including but not limited to, all consents set forth on
Schedule 2.4, except to the extent waived by FRS in writing.

C. BAXTER AGREEMENT WITH PACE. Baxter shall have executed and
delivered a waiver of certain rights of Baxter under its contract with Gary
Pace, dated August 22, 1989, (the "Waiver") in the form agreed by the
parties.

D. NON-SOLICITATION AGREEMENT. Baxter shall have executed and
delivered the Employee Non-Solicitation Agreement between Baxter and FRS,
dated of even date herewith.

E. LICENSE AGREEMENT. Clintec shall have executed and delivered the
License Agreement between Clintec and FRS, dated of even date herewith (the
"License Agreement").

F. SERVICES LETTER. Baxter shall have executed and delivered the
letter relating to the provision by Baxter of certain services, dated of
even date herewith, together with the Non-Solicitation Agreement and the
Waiver (together with the License Agreement and the Letter Agreement
described in Section 3.7 the "Related Agreements").

G. LETTER AGREEMENT. The Letter Agreements, dated June 15, 1993 and
December 22, 1993, respectively, between FRS and Clintec shall be
terminated and of no further force and effect.

H. OPINION OF COUNSEL TO CLINTEC. FRS shall have received the opinion
of Bell, Boyd & Lloyd, counsel to Clintec, dated the Closing Date,
addressed to FRS, and in the form agreed by the parties.

I. LITIGATION. No action, suit or proceeding shall have been
instituted before any court or governmental or regulatory body, or
instituted or threatened by any governmental or regulatory body, to
restrain, modify or prevent the carrying out of the transactions
contemplated hereby, or to seek damages or a discovery order in connection
with such transactions, or that has or may have, in the reasonable opinion
of FRS, a materially adverse effect on the Contributed Assets.

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<PAGE> 23

J. DELIVERY OF INSTRUMENTS OF TRANSFER. Clintec shall have delivered
or caused to be delivered to FRS instruments of transfer in conformity with
Section 1.4 above.

K. STOCK PURCHASE AGREEMENT. The transactions contemplated by the
Series A Convertible Preferred Stock Purchase Agreement of even date
herewith among The Venture Capital Fund of New England III, L.P., Advent
International Investors II Limited Partnership, Rovent II Limited
Partnership, Global Private Equity II Limited Partnership, Paal C. Gisholt,
Charles Hsu, Sprout Capital VI, L.P., DLJ Capital Corporation Baxter,
Clinical Nutrition Holdings, Inc. ("CNHI") and FRS (the "Stock Purchase
Agreement") shall have been consummated, and the other Financing Documents
(as defined in the Stock Purchase Agreement) shall have been executed and
delivered by the parties thereto other than FRS (except to the extent
waived in writing by the parties thereto).

SECTION IV. - CONDITIONS PRECEDENT
TO THE OBLIGATION OF CLINTEC TO CLOSE

The obligation of Clintec to enter into and complete the Closing is
subject, at the option of Clintec acting in accordance with the provisions
of this Agreement with respect to termination hereof, to the fulfillment of
the following conditions, any one or more of which may be waived:

A. DELIVERY OF ASSUMPTION AGREEMENT. FRS shall have delivered or
caused to be delivered to Clintec an agreement for assumption of the
Assumed Liabilities by FRS containing provisions (not inconsistent with the
provisions hereof) which are usual and customary for assuming the
liabilities involved.

B. LITIGATION. No action, suit or proceeding shall have been
instituted before any court or governmental or regulatory body, or
instituted or threatened by any governmental or regulatory body, to
restrain, modify or prevent the carrying out of the transactions
contemplated hereby, and such action, suit or proceeding shall not have
been stayed.

C. LICENSE. FRS shall have executed and delivered the License
Agreement.

D. STOCK PURCHASE AGREEMENT. The transactions contemplated by the
Stock Purchase Agreement shall have been consummated, and the other
Financing Documents shall have been executed and delivered by the parties
thereto other than Clintec, Baxter and CNHI (except to the extent waived in
writing by the parties thereto).

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SECTION V. - NON-COMPETITION AND EMPLOYEE NON-SOLICITATION

A. NO COMPETING BUSINESS. Clintec hereby agrees that during the period
commencing on the Closing Date and ending on the fifth anniversary of the
Closing Date (the "Restricted Period"), Clintec will not directly or
indirectly own, manage, operate, control, invest or acquire an interest in,
or otherwise engage or participate in (whether as a proprietor, partner,
stockholder, joint venturer, investor or other participant) in the
development or sale of (i) the Compounds or the Other Compounds, except for
Clinical Nutrition Products (as defined in the License Agreement), in the
field of Nutrition (as defined in the License Agreement), or as otherwise
expressly permitted by the License Agreement, or (ii) products or compounds
that have as their principal purpose Pharmaceutical Applications (as
defined in the License Agreement) for the purpose of manipulating
glutathione levels for human therapeutic, prophylactic or other medical
purposes anywhere in the world, or grant any license to any third party to
do any of the foregoing, except as expressly permitted by the License
Agreement (any such development or sale being herein referred to as a
"Restricted Business"). It is anticipated that a number of products and
compounds may be both a Clinical Nutrition Product and have Pharmaceutical
Applications and this Section 5.1 shall not apply to the development or
sale of such products or compounds. This section only applies to Clintec
and in no way places any restrictions on any of Clintec's general partners
or their affiliates, subsidiaries, and related companies.

B. CERTAIN ACQUISITIONS OF COMPETING BUSINESSES. Notwithstanding the
definition of Restricted Business contained in Section 5.1, the term
Restricted Business shall not include the following business activities:

(a) The acquisition and ownership of not more than 5% of the
outstanding shares of any class of stock or other securities of any
entity which engages in a Restricted Business (a "Competing Business")
if such shares or securities are traded on a national securities
exchange or in the over-the-counter market.

(b) The acquisition and ownership of the outstanding shares of
any class of stock or other securities or assets and properties of a
Competing Business provided that the total fair market value of all
assets and properties of the Competing Business (i) which are
acquired, in the case of an asset purchase, or which are among the
assets and properties

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of such Competing Business, in the case of a stock purchase, and (ii)
which are used by the Competing Business in the Restricted Business,
does not exceed the greater of (A) 5% of the total fair market value
of all stock or other ownership interests or assets or properties of
such Competing Business acquired in such transaction, or (B)
$1,000,000; and provided further that upon acquiring control of such
Competing Business or upon acquiring the assets and properties of such
Competing Business which are used in the Restricted Business, as the
case may be, Clintec shall offer to sell the assets and properties of
the Competing Business which are used in the Restricted Business (the
"Assets") to FRS on the following terms and conditions: Clintec shall
offer the Assets to FRS by giving to FRS prompt written notice of such
offer which offer shall identify, in reasonable detail, the Assets,
the nature and type of transaction which Clintec desires to effect
with respect thereto and, if applicable, any indications of interest
in or offers for the Assets which Clintec has received (the "Notice").
During the 60-day period after receipt of the Notice (the "Negotiation
Period"), FRS shall have the right to negotiate with Clintec, and if
FRS elects to do so based upon such negotiations, to make a written
offer or offers to acquire all of the Assets. During the Negotiation
Period, Clintec agrees to negotiate with FRS in good faith, to make
available such information as FRS may reasonably request with respect
to the Assets (subject to receipt of a customary confidentiality
agreement from FRS) and to respond promptly to any offer made by FRS.
In the event Clintec accepts FRS' offer for the Assets, Clintec and
FRS agree to enter into a mutually acceptable definitive agreement
with respect thereto and to complete the acquisition of the Assets
within 60 days of Clintec's acceptance of FRS' offer (or such longer
period as may be required by regulatory constraints). In the event
that during the Negotiation Period FRS does not make an offer, or
makes an offer or offers which Clintec rejects, Clintec is free to (1)
retain the Assets and operate the business associated therewith or (2)
sell, assign or otherwise transfer the Assets after the expiration of
the Negotiation Period to an unrelated third party on terms which are
no less favorable, considered as a whole, to Clintec than the terms of
FRS' final bona fide offer.

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C. NON-SOLICITATION OF FRS EMPLOYEES. Clintec hereby agrees that
during the Restricted Period it will not (i) directly or indirectly
recruit, solicit or otherwise induce or influence any technical,
professional or managerial employee of FRS to discontinue such employment
with FRS, or (ii) willfully induce any person or firm that performs
consulting services for both Clintec and FRS at the time of the Closing to
discontinue the provision of such services to FRS. Clintec also agrees that
for a period of five (5) years from the Closing Date, it will not hire any
employee of FRS. Nothing herein shall prevent either party from (a) hiring
any employee of the other who was discharged by the other, or (b) hiring
any employee of the other who quit that employment without inducement by
the hiring party.

D. No Disclosure of Proprietary Information.

(a) Clintec hereby agrees that, except as expressly permitted by
the Clinical Nutrition License Agreement, it will not directly or
indirectly disclose to anyone, or use or otherwise exploit for its own
benefit or for the benefit of anyone else, any trade secrets which are
being contributed hereunder as Contributed Assets for as long as they
remain trade secrets.

(b) Clintec hereby agrees that, except as expressly permitted by
the Clinical Nutrition License Agreement, during the Restricted Period it
will not directly or indirectly disclose to anyone, or use or otherwise
exploit for its own benefit or for the benefit of anyone else, any
confidential information which is being contributed hereunder as
Contributed Assets.

(c) Clintec shall use reasonable efforts to require its employees
to abide by the obligations of Sections 5.1, 5.2, 5.3 and 5.4.

E. Remedies. Clintec agrees that (i) if it breaches any provision of
this Section 5, the damage to FRS will be substantial, although difficult
to ascertain, and money damages will not afford FRS an adequate remedy, and
(ii) if it is in breach of this Section 5, or threatens a breach of this
Section 5, FRS shall be entitled, in addition to all other rights and
remedies as may be provided by law and this Agreement, to specific
performance, injunctive and other equitable relief to prevent or restrain a
breach of this Section 5.

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<PAGE> 27

SECTION VI. - INDEMNIFICATION

A. Survival. Notwithstanding any right of any party to fully
investigate the affairs of the other party, each party has the right to
rely fully upon the representations, warranties, covenants and agreements
of each other party in this Agreement or in any Schedule, certificate
(except for certificates delivered by officers of FRS) or financial
statement delivered by any party pursuant hereto. All such representations,
warranties, covenants and agreements shall survive the execution and
delivery hereof and the Closing hereunder and be indemnified in accordance
with this Section 6, and, except as otherwise specifically provided in this
Agreement, shall thereafter:

(a) survive forever, with respect to (i) any claim based
upon, arising out of or otherwise in respect of any inaccuracy in, or
any breach of, any representation or warranty of Clintec contained in
Sections 2.2, 2.4, 2.8 and 2.13 hereof or covenant of Clintec
contained in Sections 1.2, 1.5, and 1.10 (a "Clause (i) Claim") (ii)
any Tax Claim or (iii) any Clinical Testing Claim; and

(b) terminate and expire on the second anniversary of the
Closing Date with respect to any General Claim or Clintec Claim (as
such Terms are hereinafter defined) or on the fifth anniversary of the
Closing Date with respect to a Non-Competition/Non-Solicitation Claim
based upon, arising out of or otherwise in respect of any fact,
circumstance, action or proceeding of which the party asserting such
claim shall have given no notice on or prior to the second anniversary
or, in the case of a Non-Competition/Non-Solicitation Claim, the fifth
anniversary of the Closing Date to the party against which such
General Claim, Clintec Claim or Non-Competition/Non-Solicitation Claim
is asserted; provided, however, once notice of any such claim has been
given hereunder, additional claims based upon, arising out of or
otherwise in respect of such fact, circumstance, action or proceeding
upon which the original claim arose may be made at any time prior to
the final resolution of such claim (by means of a final,
non-appealable judgment of a court of competent jurisdiction, a
binding arbitration decision or a settlement approved by the parties
involved) even if such resolution occurs after the second anniversary
or, in the case of a Non-Competition/Non-Solicitation Claim, the fifth
anniversary of the Closing Date, such date being deemed to have been
extended to the date of such final resolution.

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<PAGE> 28

As used in this Section 6, the following terms have the following meanings:

(i) "General Claim" means any claim (other than a Clause (i)
Claim, a Tax Claim, Clinical Testing Claim or
Non-Competition/Non-Solicitation Claim) based upon, arising out of or
otherwise in respect of any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of Clintec contained
in this Agreement.

(ii) "Tax Claim" means any claim based upon, arising out of
or otherwise in respect of (A) issues raised on audit by Tax
authorities with respect to Clintec's business, (B) any inaccuracy in
or any breach of any representation, warranty, covenant or agreement
of Clintec contained in this Agreement related to Taxes or (C) any
other Tax liabilities of Clintec.

(iii) "Clintec Claim" means any claim based upon, arising
out of or otherwise in respect of any breach of any covenant or
agreement of FRS contained in this Agreement.

(iv) "Non-Competition/Non-Solicitation Claim" means any claim
based upon, arising out of or otherwise in respect of any breach of
any covenant of Clintec contained in Section 5.

(v) "FRS Claim" means any clause (i) Claim, Tax Claim,
Non-Competition/Non-Solicitation Claim, Clinical Testing Claim or
General Claim.

(vi) "Clinical Testing Claim" any claim based upon, arising
out of or otherwise in respect of any liability or obligation of FRS
arising out of, relating to, based upon or otherwise in respect of (i)
violations of any Environmental or Clinical Testing Law prior to the
Closing Date, (ii) products liability for occurrences prior to the
Closing Date or (iii) clinical testing of the Compounds or Other
Compounds prior to the Closing, except for liabilities arising out of
violations of laws other than Environmental or Clinical Testing Laws
or liabilities arising out of labor or employment matters.

B. Obligation of Clintec to Indemnify. Subject to the limitations set
forth below and in Sections 6.5 and 6.6 hereof and to the termination
provisions set forth in Section 6.1, Clintec agrees to indemnify, defend
and hold harmless FRS (and its directors, officers, employees, affiliates
and assigns) from and against all losses, liabilities, damages,
deficiencies, costs

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<PAGE> 29

CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

or expenses (including interest and penalties imposed or assessed by any
judicial or administrative body and reasonable attorneys fees) ("Losses")
based upon, arising out of or otherwise in respect of any FRS Claim.
Clintec shall have no obligation to indemnify FRS unless the total of all
FRS Claims for indemnification under this Section 6.2 exceeds $******* in
the aggregate (the "FRS Threshold"), whereupon the full amount of such
claims shall be recoverable in accordance with the terms hereof. In no
event shall the aggregate amount payable by Clintec pursuant to this
Section 6.2 exceed ********** (the "FRS Cap"). Notwithstanding the
foregoing, the FRS Threshold and the FRS Cap shall not apply to
Non-Competition/Non-Solicitation Claims, and claims based on the failure to
perform the covenants contained in Sections 1.2, 1.4, 1.5, 1.10, 7.9 and
7.10.

C. Obligation of FRS to Indemnify. Subject to the limitations set
forth below and in Sections 6.5 and 6.6 hereof and to the termination
provisions set forth in Section 6.1, FRS agrees to indemnify, defend and
hold harmless Clintec from and against any Losses based upon, arising out
of or otherwise in respect of any Clintec Claim. FRS shall have no
obligation to indemnify Clintec unless the total of all Clintec Claims for
indemnification under this Section 6.3 exceeds $******* (the "Clintec
Threshold") in the aggregate, whereupon the full amount of such claims
shall be recoverable in accordance with the terms hereof. In no event shall
the aggregate amount payable by FRS pursuant to this Section 6.3 exceed
$*********(the "Clintec Cap"). Notwithstanding the foregoing, the Clintec
Threshold and the Clintec Cap shall not apply to claims based on the
failure to perform the covenants in Sections 1.2, 1.9 and 7.9.

D. NOTICE AND OPPORTUNITY TO DEFEND.

1. Notice of Asserted Liability. Promptly after receipt by any
party hereto (the "Indemnitee") of notice of any demand, claim or
circumstances which, with the lapse of time, would give rise to a claim or
the commencement (or threatened commencement) of any action, proceeding or
investigation (an "Asserted Liability") that may result in a Loss, the
Indemnitee shall give notice thereof (the "Claims Notice") to any other
party or parties) obligated to provide indemnification pursuant to Sections
6.2 or 6.3 hereof (the "Indemnifying Party"). The Claims Notice shall
describe the Asserted Liability in reasonable detail, and shall indicate
the amount (estimated, if necessary) of the Loss that has been or may be
suffered by the Indemnitee.

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<PAGE> 30

2. Opportunity to Defend. The Indemnifying Party may elect to
compromise or defend, and control the defense of, at its own expense and by
counsel reasonably satisfactory to the Indemnitee, any Asserted Liability,
provided that the Indemnitee shall have no liability under any compromise
or settlement agreed to by the Indemnifying Party which it has not approved
in writing. If the Indemnifying Party elects to compromise or defend such
Asserted Liability, it shall within 30 days (or sooner, if the nature of
the Asserted Liability so requires) notify the Indemnitee of its intent to
do so, and the Indemnitee shall cooperate upon the request and at the
expense of the Indemnifying Party, in the compromise of, or defense
against, such Asserted Liability. If the Indemnifying Party elects not to
compromise or defend the Asserted Liability, or fails to notify the
Indemnitee of its election as herein provided, the Indemnitee may pay,
compromise or defend such Asserted Liability and receive full
indemnification for its Losses as provided in Sections 6.2 and 6.3 hereof.
In any event, the Indemnitee and the Indemnifying Party may participate, at
their own expense, in the defense of such Asserted Liability by the
Indemnifying Party or the Indemnitee, respectively. If the Indemnifying
Party chooses to defend any claim, the Indemnitee shall make available to
the Indemnifying Party any books, records or other documents within its
control that are reasonably requested for such defense and shall otherwise
cooperate with the Indemnifying Party, in which event the Indemnitee shall
be reimbursed for its out-of-pocket expense.

E. OTHER BENEFITS. In determining the amount of any Loss, there shall
be taken into account any tax benefit, insurance proceeds or other similar
recovery or offset realized, directly or indirectly, by the Indemnitee.

F. LIMITATION ON REPRESENTATIONS AND WARRANTIES. In the event that, as
of the Closing Date, an Indemnitee (or, in the case of FRS, if all of the
purchasers other than Clintec or its affiliates, under the Stock Purchase
Agreement (the "Purchasers")) has(ve) obtained actual knowledge of a breach
of any representation, warranty or covenant made in this Agreement and
has(ve) had a reasonably sufficient time in the circumstances to recognize
and investigate the same, (A) such Indemnitee shall give the Claims Notice
before the Closing (in the event FRS is the Indemnitee, the Purchasers
shall give such Claims Notice on its behalf), (B) the parties shall
thereupon negotiate in good faith to resolve such breach and/or to make
appropriate adjustment to the terms of this Agreement and any related
agreement, and (C) no indemnification shall be available under this Section
6 with respect to any breach as to which the Indemnitee has not complied
with clause (A) of this subsection.

G. EXCLUSION. The provisions of this Section 6 shall not apply to
Sections 1.3(b)-(i), Section 1.7 or Section 7.4.

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<PAGE> 31

SECTION VII. - MISCELLANEOUS

A. PUBLICITY. No publicity release or announcement concerning this
Agreement or the transactions contemplated hereby shall be made without
advance approval thereof by Clintec and FRS.

B. NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be
deemed given when so delivered personally, telegraphed, telexed or sent by
facsimile transmission or, if mailed, two days after the date of deposit in
the United States mails, as follows:

(i) if to FRS, to:

Free Radical Sciences, Inc.
245 First Street
14th Floor
Cambridge, Massachusetts 02142
Attention: Chief Executive Officer
Facsimile: (617) 374-1202

with a copy to:

Palmer & Dodge
One Beacon Street
Boston, MA 02108
Attention: Michael Lytton, Esq.
Facsimile: (617) 227-4420

(ii) if to Clintec:

Clintec Nutrition Company
Three Parkway North
Deerfield, Illinois 60015
Attention: Chief Executive Officer
Facsimile: (708) 317-3182

with a copy to:

Bell, Boyd & Lloyd
Three First National Plaza, 70 W. Madison Street
Chicago, IL 60602
Attention: Paul Strasen, Esq.,
Facsimile: (312) 372-2098

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<PAGE> 32

Any party may by notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices
hereunder.

C. ENTIRE AGREEMENT. This Agreement (including the Schedules), the
Related Agreements and all other documents executed in connection with the
consummation of the transactions contemplated herein contain the entire
agreement among the parties with respect to the purchase of the Shares and
the Contributed Assets and related transactions, and supersedes all prior
agreements, written or oral, with respect thereto. Other than the
purchasers named in the Stock Purchase Agreement, this Agreement is for the
sole benefit of the parties hereto and nothing herein expressed shall give
or be construed to give any person or entity, other than the parties hereto
and the purchasers named in the Stock Purchase Agreement, any legal or
equitable rights hereunder.

D. AUSTRALIAN INSURANCE. Clintec hereby covenants and agrees to
maintain, at its sole expense, in full force and effect the clinical trial
insurance in effect on the Effective Date for the Australian Co-trimoxazole
study (the "Study") through June 30, 1994 (the "Roll-Over Date"). At the
election of FRS, by written notice to Clintec ten days prior to the
Roll-Over Date, Clintec shall renew and maintain such policy in full force
and effect until December 31, 1994. Notwithstanding any provision hereof to
the contrary, FRS's only responsibilities and liabilities with respect to
the Study shall be (i) payment to Clintec of the renewal premium, up to a
maximum of $1,000, on the Roll-Over Date and (ii) payment of any insurance
deductible for third-party claims made after the Closing Date, up to a
maximum of $250,000.

E. CONFIDENTIALITY LETTER. The Letter Agreement, effective as of
January 27, 1994, between Advent International Corporation, Clintec and FRS
shall automatically terminate and be of no further force and effect upon
the Closing.

F. WAIVERS AND AMENDMENTS; NON-CONTRACTUAL REMEDIES; PRESERVATION OF
REMEDIES. This Agreement may be amended, superseded, canceled, renewed or
extended, and the terms hereof may be waived, only by a written instrument
signed by the parties or, in the case of a waiver, by the party waiving
compliance. No delay on the part of any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall
any waiver on the part of any party of any such right, power or privilege,
nor any single or partial exercise of any such right, power or privilege,
preclude any further exercise thereof or the

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<PAGE> 33

exercise of any other such right, power or privilege. The rights and
remedies herein provided are cumulative and are not exclusive of any rights
or remedies that any party may otherwise have at law or in equity. The
rights and remedies of any party based upon, arising out of or otherwise in
respect of any inaccuracy in or breach of any representation, warranty,
covenant or agreement contained in this Agreement shall in no way be
limited by the fact that the act, omission, occurrence or other state of
facts upon which any claim of any such inaccuracy or breach is based may
also be the subject matter of any other representation, warranty, covenant
or agreement contained in this Agreement (or in any other agreement between
the parties) as to which there is not inaccuracy or breach.

G. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of The Commonwealth of Massachusetts, without
regard to the conflicts of law rules of The Commonwealth of Massachusetts.

H. BINDING EFFECT; NO ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
legal representatives. This Agreement is not assignable except by operation
of law or by FRS to any of its affiliates, except that (i) Clintec and FRS
may assign their respective rights under Sections 1.3(b)-(i) and (ii)
Clintec may assign any of its rights hereunder to its partners or their
affiliates (but such assignment shall not release Clintec from its
obligations hereunder). In the event of a sale (which shall be deemed not
to include a license) of a substantial portion of the Technology related to
the AIDS Drugs, FRS shall obtain the agreement of the Transferee of such
Technology to be bound by the provisions of Section 1.3(b)-(i) hereof, as
such provisions would be modified by substituting the name of the
Transferee for FRS therein, and upon obtaining such agreement FRS shall be
released from its obligations under Section 1.3(b)-(i) to the extent such
obligations relate to the sales of AIDS Drugs by the Transferee.

I. EXPENSES. Except as otherwise provided in this Agreement, all costs
and expenses incurred in connection with this Agreement shall be paid by
the party incurring such cost or expense; provided, that, Clintec shall pay
the legal fees and expenses of Palmer & Dodge incurred in connection with
negotiating, drafting and consummation of the transactions contemplated by
this Agreement, up to a maximum amount of $25,000.

J. TAXES. Clintec shall be responsible for the payment of any sales,
transfer, documentary or similar tax due as a result of the transactions
contemplated by this Agreement.

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<PAGE> 34

K. VARIATIONS IN PRONOUNS. All pronouns and any variations thereof
refer to the masculine, feminine or neuter, singular or plural, as the
context may require.

L. COUNTERPARTS. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute
one and the same instrument. Each counterpart may consist of a number of
copies hereof each signed by less than all, but together signed by all of
the parties hereto.

M. EXHIBITS AND SCHEDULES. The Exhibits and Schedules are a part of
this Agreement as if fully set forth herein. All references herein to
Sections, subsections, clauses, Exhibits and Schedules shall be deemed
references to such parts of this Agreement, unless the context shall
otherwise require.

N. HEADINGS. The headings in this Agreement are for reference only,
and shall not affect the interpretation of this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement under
seal as of the date first above written.

Attest: FREE RADICAL SCIENCES, INC.

_________________________ By: /s/ Gary W. Pace
Title: -----------------------------
Name: Gary W. Pace
Title: President

Attest: CLINTEC NUTRITION COMPANY

_________________________ By: /s/ T.C. Rojahn
Title: -----------------------------
Name: T.C. Rojahn
Title: Vice President

-30-
<PAGE> 35

SCHEDULES TO CONTRIBUTION AGREEMENT
-----------------------------------

Schedule 1.1(i) Inventory
Schedule 1.1(ii) Contributed Contracts
Schedule 1.1(iv) Intangible Property
Schedule 1.2 Assumed liabilities
Schedule 2.3 Permits
Schedule 2.4 Consents
Schedule 2.5 Actions and Other Proceedings
Schedule 2.6 Contracts and Other Agreements
Schedule 2.7 Intangible Property

Except as otherwise provided in these Schedules, capitalized terms used
herein shall have the meanings set forth in the Contribution Agreement.

<PAGE> 36

Schedule 1.1(i) Inventory

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<PAGE> 37

Schedule 1.1(ii) Contributed Contracts

-3-

<PAGE> 38

SCHEDULE 1.1 (ii) CONTRIBUTED CONTRACTS
---------------------------------------

1. Contracts relating to Intellectual Property

a. Exclusive License Agreement D-520 by and between Cornell Research
Foundation, Inc. ("Cornell") and Baxter International, Inc.
("Baxter") dated as of July 1,1989.

b. Exclusive License Agreement DA16 by and between Cornell and Baxter
dated as of July 1, 1989.(1)

c. Assignment Agreement (of Exclusive License Agreements D-520 and
D416) among Cornell, Baxter, and Clintec Nutrition Company dated
as of July 1, 1989.*

d. Letter consent of Cornell dated December 1, l993.*

2. Employment Agreements

b. Employment agreements between Baxter or Clintec (and subsequently
FRS) and Gary W. Pace dated August 22, 1989 and January 11, 1994.
Clintec and FRS acknowledge their relative rights and obligations
as set forth in the letter agreement from Clintec and FRS to Gary
W. Pace dated January 11,1994.

3. Research Contracts

a. Research Agreement by and between Clintec, In Vivo, as acting
agent for Clintec, and AIDS Community Research Consortium dated
March 9, 1993.

b. Option Agreement by and between Clintec and Alcon Laboratories
dated August 29, 1991, as amended.

c. Research Agreement by and between Clintec, In Vivo and Cornell
University for its Medical College dated February 25, 1993.

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

(1) To be superseded by an Exclusive License Agreement CRF D-416 and
D-520, D-913, D1069, D-l258, D-1403, D-l426 by and between FRS and Cornell dated
as of the Closing Date.

-4-

<PAGE> 39

d. Consulting Agreement between Clintec (and subsequently FRS) and
Alton Meister dated February 27, 1992, as amended August 31, 1993
and October 15, 1993.

e. Research Agreement between Cornell University for its Medical
College and Clintec dated November 6, 1989.

f. Letter agreement between Clintec and C.S. Barnes & Associated Pty
Ltd. dated June 21, 1993.

g. Consulting Agreement between Clintec and Caron K. Goldberg dated
December 1, 1992.

h. Research Agreement by and between Clintec and Harold Paz and
Hahnemann University Hospital dated June 4, 1992, as amended June
26, 1992.

i. Letter agreement dated February 5, 1991 and Clinical Development
Agreement dated August 20, 1991, both between Health & Sciences
Research, Inc. and Clintec.

j. Research Agreement by and between Clintec, In Vivo, The Johns
Hopkins University and Judith Feinberg dated June 1, 1993.

k. Research Agreement by and between Clintec, In Vivo, and The Johns
Hopkins University dated June 18, 1992 (as agreed to by Paul S.
Lietman).

l. Letter agreement between Clintec and The Johns Hopkins University
dated November 6, 1992.

m. Research Agreement by and between Clintec, Patrick Wright and
Methodist Hospital dated April 30, 1992.

n. Research Agreement by and between Clintec, In Vivo, Robert L.
Murphy and Northwestern University dated February 25, 1993:

o. Research Agreement by and between Clintec, In Vivo, and Paul S.
Berry and Pacific Oaks Medical Group dated February 18, 1993.

p. Research Agreement by and between Clintec, In Vivo, and Gail
Skowron and Roger Williams Medical Center dated April 29, 1992.

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<PAGE> 40

q. Research Agreement by and between Clintec, In Vivo, and Gail
Skowron and Roger Williams Medical Center dated March 15, 1993.

r. Research Agreement by and between Clintec, Rush Presbyterian St.
Luke's Medical Center and Robert Balk dated October 19, 1992.

s. Confidential Disclosure Agreement by and between Clintec
Technologies Inc. and Synthelabo Pharmacie dated June 24, 1991.

t. Research Agreement by and between Clintec and The University of
Texas Health Science Center at San Antonio dated July 26, 1990, as
amended December 19, 1990, and January 29, 1991.

u. Research Agreement by and between Clintec and The University of
Texas Southwestern Medical Center at Dallas dated June 6, 1990.

v. Research Agreement by and between Clintec, James Russell and
University of British Columbia St. Paul's Hospital dated June 24,
1992.

w. Research Agreement by and between Clintec and University of
Florida dated March 14, 1990, as amended February 26, 1991, June
13, 1991, and August 8, 1991.

x. Research Agreement by and between Clintec and University of
Florida dated as of February 9, 1994, as amended February 14,
1994.

y. Research Agreement by and between Clintec, Kenneth Steinberg and
University of Washington dated July 1, 1992.

z. Research Agreement by and between Clintec, Michael Lederman and
the University Hospitals of Cleveland dated September 11, 1991.

aa. Research Agreement by and between Clintec, Michael Lederman and
the University Hospitals of Cleveland dated May 7, 1992.

bb. Research Agreement by and between Clintec, Michael Lederman and
the University Hospitals of Cleveland dated July 15, 1992, as
amended December 8, 1993.

cc. Research Agreement by and between Clintec, Michael Lederman and
the University Hospitals of Cleveland dated August 25, 1992.

dd. Research Agreement by and between Clintec, Michael Lederman and
the University Hospitals of Cleveland dated February 15, 1993.

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<PAGE> 41

ee. Research Agreement by and between Clintec, Gordon Bernard and the
Vanderbilt University Medical Center dated January 24, 1992, as
amended August 3, 1992.

ff. Research Agreement by and between Clintec and Wellington School of
Medicine dated September 20, 1992.

gg. Agreements between Clintec and In Vivo dated December 7,1992,
April 10, 1992 (as amended May 29, 1992 and June 2, 1992), August
5, 1992 (as amended November 2, 1992), December 9, 1992, and March
29, 1993.

hh. Agreement by and between Dickson Research Group and Clintec dated
March 4, 1994.

ii. Contract de Collaboration between Clintec Technologies S.A. and
L'Universite, Joseph Fourier.

jj. Contract de Collaboration between Clintec Technologies S.A. and
L'Institut National de La Recherche Agronomique dated October 25,
1993.

kk. Research Agreement by and between Clintec, Gall Skowron, and the
Roger Williams Medical Center of Brown University dated August 14,
1991.

ll. Research Agreement by and between Clintec and the University of
Florida dated April 1, 1992, as amended May 5, 1992, December 31,
1992, and February 14, 1994.

mm. Research Agreement by and between Clintec and the University of
Florida dated June 2, 1993, as amended August 3, 1993.

nn. Research Agreement by and between Clintec, In Vivo, and Gail
Skowron and Roger Williams Medical Center dated August 6, 1992, as
amended December 8, 1993.

oo. Letter by Clintec dated October 29, 1993 confirming research of
Jewish General Hospital.

4. Supply Contracts

a. Supply Contract by and between Clintec and Ben Venue Laboratories,
Inc. dated September 6, 1990.

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<PAGE> 42

b. Agreements between Central Pharmaceuticals, Inc. and Clintec (and
subsequently FRS) dated August 21, 1991, September 18, 1991,
October 7, 1992, December 9, 1992, and February 16, 1993.

c. Development of New Products Agreement by and between Clintec
Management Services, Inc. and The Medical University of South
Carolina dated May 10, 1991.

5. Other Contracts

a. Letter agreement between Clintec and Bernard Wolnak and Associates
dated October 8, 1992.

b. Letter agreement between Computer Power Group and Clintec dated
September 29, 1992.

-8-

<PAGE> 43

SCHEDULE 1.1(iv) INTANGIBLE PROPERTY

-9-

<PAGE> 44

SCHEDULE 1.1(iv) INTANGIBLE PROPERTY

1. U.S. PATENTS AND CORRESPONDING NON-U.S. PATENT APPLICATIONS

U.S. Patent No. 5,095,027 "Method for Treating Reperfusion, Injury
Employing L-2-oxothiazolidine-4-carboxylic
Acid"

Date Issued: March 10, 1992
<TABLE>

Corresponding Non-U.S. Applications:

<CAPTION>
Country Application No. Filing Date
------- -------------- -----------
<S> <C> <C>
Austria 11,101/92 February 20, 1992
Canada 2061270-3 February 14, 1992
Europe 92301226.4 February 14, 1992
Japan 4-43042 February 28, 1992

</TABLE>

U.S. Patent No. 5,208,249 "Method for Stimulating Intracellular
Synthesis of Glutathione Using Esters of
L-2-Oxothiazolidine-4- Carboxylate"

Date Issued: May 4, 1993

<TABLE>
Corresponding Non-U.S. Applications:

<CAPTION>
COUNTRY APPLICATION NO. FILING DATE
------- -------------- -----------
<S> <C> <C>
Australia 37,181193 April 22, 1993
Canada 2096036 May 12, 1993
Europe 93303213.8 April 23, 1993
Japan 5-205958 August 20, 1993

</TABLE>

U.S. Patent No. 5,214,062 "Method and Composition for Treating
Immune Disorders, Inflammation and Chronic
Infections"

Date issued: May 25, 1993

Corresponding Non-U.S. Applications:

-10-

COUNTRY APPLICATION NO. FILING DATE
------- --------------- -----------
<S> <C> <C>
Australia 34,092/93 March 9, 1993
Canada 2093163 May 12, 1993
Europe 93301861.6 April 1, 1993
Japan 5-81957 April 8, 1993

</TABLE>

2. Pending U.S. Patent Applications and Corresponding Non-U.S. Patent
------------------------------------------------------------------
Applications
------------

Title: "A Method to Enhance Cellular Defense Against Infection"
U.S. Serial No.: 07/682,636
Date Filed: April 8, 1991

Title: "Method of Treatment for Latent Virus Infection"
U.S. Serial No.: 07/769,194
Date Filed: September 30, 1991

<TABLE>
Corresponding Non-U.S. Applications:

<CAPTION>
Country Application No. Filing Date
------- --------------- -----------
<S> <C> <C>
Australia 22,115/92 September 4, 1992
Canada 207796-7 September 10, 1992
Europe 92115046.2 September 3, 1992
Japan 4-26183 September 30, 1992

Title: "Method for Reducing, or Preventing Toxicity Associated
With Antiretroviral Therapy
U.S. Serial No.: 07/872,549
Date Filed: April 23, 1992

<CAPTION>
Corresponding Non-U.S. Applications:

Country Application No. Filing Date
------- --------------- -----------
<S> <C> <C>
Australia 35,357/93 March 22, 1993
Canada 2,094,311 April 19, 1993
Europe 93302218.8 March 23, 1993
Japan 5-94678 April 21, 1993

</TABLE>

-11-

<PAGE> 46

Title: "Method for Preventing and Treating Atherosclerosis"
U.S. Serial No.: 07/930,183
Date Filed: August 17, 1992
Corresponding Non-U.S. Applications:

Country Application No. Filing Date
------- --------------- -----------
<S> <C> <C>
Australia 38,387/93 May 5, 1993
Canada 2103644 August 9, 1993
Europe 93303526.3 May 6, 1993
Japan 5-203491 August 17, 1993

Title: "Method for Optimizing Defensin Synthesis in Vivo and in
Vitro"
U.S. Serial No.: 07/969,412
Date Filed: October 30, 1992

Title: "Method for Treating Systemic Inflammatory Response
Syndrome"
U.S. Serial No.: 07/983,415
Date Filed: November 30, 1992

Corresponding Non-U.S. Applications:

<CAPTION>
Country Application No. Filing Date
------- --------------- -----------
<S> <C> <C>
Austria 50,404/93 November 3, 1993
Canada 2110147 November 26, 1993
Europe 93118259.6 November 11, 1993
Japan 5-298826 November 30, 1993

Title: "Method for Treating Infertility"
U.S. Serial No.: 08/012,006
Date Filed: February 1, 1993

Corresponding Non-U.S. Applications:
PCT/US94/01118 filed January 31, 1994

Title: "Method for Treatment of Pulmonary Disease
U.S. Serial No.: 08/057,122
Date Filed: May 3, 1993

Corresponding Non-U.S. Applications:

</TABLE>

-12-

Country Application No. Filing Date
------- --------------- -----------
<S> <C> <C>
Australia 10,064/92 January 6, 1992
Canada 2058793-8 January 6, 1992
Europe 91121524.2 December 16, 1991
Japan 19504/1992 January 7, 1992

Title: "Method for Treating Acquired Immune Deficiency
Syndrome"
U.S. Serial No.: 08/059,775
Date Filed: May 10, 1993

Title: "Method of Reducing or Preventing Bone Marrow
Hypoplasia"
U.S. Serial No.: 08/068,385
Date Filed: May 28, 1993

Title: "Method and Compositions for Retarding the Aging
Process"
U.S. Serial No.: 08/146,305
Date Filed: November 1, 1993

Title: "Method and Composition for Stimulating Intracellular
Glutathione"
U.S. Serial No.: 08/147,165
Date Filed: November 3, 1993

Title: "Methods of Preventing Hair Loss and of Stimulating New
Hair Growth"
U.S. Serial No.: 08/149,614
Date Filed: November 9, 1993

Title: "Methods of Reducing or Preventing Side Effects of
Chemotherapeutic Agents"
U.S. Serial No.: 08/164,069
Date Filed: December 9, 1993

</TABLE>

The French patent application identified below was filed in the names
Clintec and the L'Institut National De La Recherche Agronornique ("INRA"). The
invention disclosed in such patent application and such patent application
itself cannot be transferred or commercially exploited by Clintec without the
permission of INRA.

French Patent Application No.: 9312884

-13-

<PAGE> 48

Title: "Composition Based on Amino Acids Intended for the
Treatment of Sepsis or of an Attack Bringing About an
Inflammatory Reaction in Animals and Man
Date Filed: October 28, 1993

3. Invention Records
-----------------

Goldberg, "Stimulation of Intracellular Glutathione Synthesis for
Prevention of Diabetic Complications" dated August 8, 1990

Pace et al., "Topical Elevation of Intracellular Glutathione as Treatment
for Psoriasis" dated October 19, 1990

Kamarei, "Diets Containing Glutathione for Hepatic Diseases" dated
December 4, 1990

Mark et al., "Novel Methods for the Reduction of Dilluromethylornithine
Associated Toxicity" dated March 29,1991

Goldberg, "Topical Applications of Glutathione Esters for Treatment of
Local Herpes, Bursus and Inflammations" dated April 8, 1991

Mark et al., "Method of Treatment of Autoimmune Diseases" dated April 11,
1991

Mark et al., "Method of Modifying in Vitro Cell Culture Media to Enhance
Cellular Functions Including Replication" dated July 23, 1991

Rowe et al., "A Solid Oral Dosage Form for Procysteine" dated July 29,
1991

Madsen, "Amelioration of Valproate Toxicity of Co-administration of
Procysteine" dated October 30, 1991

Mark, "Methods of Enhancing the Use of Nitric Oxide to Treat Severe Adult
Respiratory Distress Syndrome" dated November 8, 1991

Goldberg et al., "Method to Reduce Muscle Injury and Damage and Enhance
Recovery from High Intensity Exercise" dated March 31, 1992

Goldberg, "Method for Enhancing Glutathione Synthesis by Concomitant
Administration of Glutamine and Cysteine" dated April 1, 1992

Mark, "Methods of Modifying in Vitro Tissue Culture Media to Enhance
Cellular Functions, Including Replication" dated October 30, 1992

-14-

<PAGE> 49

4. Trademarks
----------

<TABLE>

U.S. Registration No. 1,730,224 - PROCYSTEINE (word)
Corresponding Non-U.S. Filings:

Country Filing Date Serial No. Registration No.
- ------- ----------- --------- ---------------
<S> <C> <C> <C>

Austria 1/7/93 593,720
Austria 1/20/93 AM 223/93 148,335
Benelux 12/30/92 791034 524724
Canada 1/4/93 719,839
Denmark 1/5/93 00032/1993
Finland 12/30/92 926132
France 12/30/92 92/448 247 92 448 247
Germany 1/5/93 C 44522/5 Wz.
Great Britain 1/8/93 1523525
Greece 2/26/93 112,971
Italy 1/19/93 MI93C 000231
Japan 1/11/93 1547/93
Norway 1/5/93 930019
Spain 1/14/93 1739452
Sweden 1/14/93 93-00288
Switzerland 1/4/93 22/1993.5 403,376

U.S. Serial No. 74/320,891 - FREE RADICAL SCIENCES (word)
Corresponding Non-U.S. Filings:

Country Filing Date Serial No. Registration No.
- ------- ----------- --------- ---------------
<S> <C> <C> <C>
Australia 1/7/93 593,721
Austria 1/18/93 AM 177/93 148,334
Benelux 12/30/92 791035 524725
Canada 1/4/93 719840
Denmark 1/5/93 00031/1993. 07635/1993
Finland 12/30/92 926131
France 12/30/92 92/448 246 92 448 246
Germany 1/5/93 C 44523/5 Wz.
Great Britain 1/8/93 1523523
Greece 2/26/93 112,972
Italy 1/19/93 MI93C 000230
Japan 1/11/93 1548/93
Norway 1/5/93 930018
Spain 1/14/93 1739453
Sweden 1/14/93 9300289

</TABLE>

-15-

Switzerland 1/4/93 21/1993.3 403,186

U.S. Serial No. 74/351,496 - FRS & LOGO DESIGN
Corresponding Non-U.S. Filings:

Country Filing Date Serial No. Registration No.
- ------- ----------- ---------- ----------------
<S> <C> <C> <C>
Austria 3/8/93 AM 1030/93 150,121
Benelux 3/2/93 793949 526396
Canada 2/24/93 723331
Denmark 2/23/93 01229/1993 3148/1993
Finland 2/24/93 930795
France 2/26/93 93 457 182 93 457 182
Germany 2/26/93 C44 725/5 Wz.
Great Britain 2/25/93 1527671
Greece 3/18/93 113,315
Italy 3/8/93 MI93C 001629
Japan 3/15/93 25219/93
Norway 3/1/93 930979
Spain 3/15/93 1750468
Sweden 3/2/93 93-01895
Switzerland 2/23/93 1759/1993.6 406,526

</TABLE>

Trademark PROCYSTEINE (word) - U.S. Registration No. 1,730,224

5. See Schedule 1.1(ii), section 1, for a list of documents relating to
licenses arrangements relating to the Technology.

6. See Schedule 1.1(ii), section 3, for a list of research agreements which
contain provisions relating to licenses and ownership of intellectual
property.

-16-

<PAGE> 51

Schedule 1.2 Assumed Liabilities

-17-

<PAGE> 52

SCHEDULE 1.2 ASSUMED LIABILITIES
--------------------------------

All liabilities and obligations arising under the Contributed Contracts the term
of which has not expired but only to the extent that such liabilities or
obligations (i) relate to periods on or after the Closing Date or (li)
constitute payment obligations due for services rendered to FRS and/or Clintec
under such Contributed Contracts. Notwithstanding the foregoing, Clintec and FRS
acknowledge their relative rights and obligation as set forth in the letter
agreement from Clintec and FRS to Gary W. Pace dated January 11, 1994.

-18-

<PAGE> 53

Schedule 2.3 Permits

-19-

<PAGE> 54

SCHEDULE 2.3 PERMITS
--------------------

Investigational New Drug Applications ("IND"):

1. IND Number Assigned: 37,085
Sponsor: Clintec
Name of Drug: Procysteine
Date of Submission: May 31, 1991
Date of Receipt: June 12, 1991

2. IND Number Assigned: 39,329
Sponsor: Clintec
Name of Drug: Procysteine
Date of Submission: March 27, 1992
Date of Receipt: April 6, 1992

3. Clintec has delivered written notice to the FDA of the transfer of assets
pursuant to the Contribution Agreement.

-20-

<PAGE> 55

Schedule 2.4 Consents

-21-

<PAGE> 56

SCHEDULE 2.4 CONSENTS
---------------------

1. The following consents or notification, as applicable, are required as of
the Closing Date:

a. Consent of Clintec International Inc. to the transactions
contemplated by the Contribution Agreement.

b. Consent of Clinical Nutrition Holdings, Inc. to the transactions
contemplated by the Contribution Agreement.

c. Consent to assignment of AIDS Community Research Consortium ("ACRC")
pursuant to Research Agreement by and between Clintec, In Vivo,
acting as agent for Clintec, and ACRC dated March 9, 1993.

d. Consent to assignment of Cornell University for its Medical College
("Medical College") pursuant to Research Agreement between Medical
College and Clintec dated November 6, 1989.

e. Notification of assignment to Health & Sciences Research, Inc.
("HSRI") pursuant to Clinical Development Agreement dated August 20,
1991 between HSRI and Clintec.

f. Consent to assignment of Synthelabo Pharmacie pursuant to
Confidential Disclosure Agreement by and between Clintec
Technologies Inc. and Synthelabo Pharmacie dated June 24, 1991.

g. Consent to assignment of The Medical University of South Carolina
pursuant to Development of New Products Agreement by and between
Clintec Management Services, Inc. and The Medical University of
South Carolina dated May 10, 1991.

2. Upon consummation of the transactions contemplated by the Contribution
Agreement, Central Pharmaceuticals, Inc. ("Central") shall have the right
to terminate the Agreement between Central and Clintec dated October 9,
1992 upon written notice of not less than 120 days, pursuant to Section
10.2 of such Agreement.

3. The following contracts do not require consent for assignment by Clintec
to an affiliate of Clintec. Clintec has delivered written notice to each
of the institutions (and principal investigator, where applicable)
pursuant to the following agreements of the transfer of assets pursuant to
the Contribution Agreement:

-22-

<PAGE> 57

a. Research Agreement by and between Clintec, In Vivo and Cornell
University for its Medical College dated February 25, 1993.

b. Letter agreement between Clintec and C.S. Barnes & Associates Pty
Ltd. dated June 21, 1993.

c. Research Agreement by and between Clintec and Harold Paz and
Hallnemann University Hospital dated June 4, 1992, as amended June
26, 1992.

d. Research Agreement by and between Clintec, In Vivo, The Johns
Hopkins University and Judith Feinberg dated June 1, 1993.

e. Research Agreement by and between Clintec, In Vivo, and The Johns
Hopkins University dated June 18, 1992 (as agreed to by Paul S.
Lietman).

f. Research Agreement by and between Clintec, Patrick Wright and
Methodist Hospital dated April 30, 1992.

g. Research Agreement by and between Clintec, In Vivo, Robert L. Murphy
and Northwestern University dated February 23, 1993.

h. Research Agreement by and between Clintec, In Vivo, and Paul S.
Berry and Pacific Oaks Medical Group dated February 18, 1993.

i. Research Agreement by and between Clintec, In Vivo, and Gail Skowron
and Roger Williams Medical Center dated April 29, 1992.

j. Research Agreement by and between Clintec, In Vivo, and Gail Skowron
and Roger Williams Medical Center dated March 13, 1993.

k. Research Agreement by and between Clintec, Gail Skowron, and the
Roger Williams Medical Center of Brown University dated August 14,
1991.

l. Research Agreement by and between Clintec, In Vivo, and Gail Skowron
and Roger Williams Medical Center dated August 6, 1992, as amended
December 8, 1992.

m. Research Agreement by and between Clintec, Rush Presbyterian St.
Luke's Medical Center and Robert Balk dated October 19, 1992.

-23-

<PAGE> 58

n. Research Agreement by and between Clintec and The University of
Texas Health Science Center at San Antonio dated July 26, 1990, as
amended December 19, 1990, and January 29, 1991.

o. Research Agreement by and between Clintec and The University of
Texas Southwestern Medical Center at Dallas dated June 6, 1990.

p. Research Agreement by and between Clintec, James Russell and
University of British Columbia St. Paul's Hospital dated June 24,
1992.

q. Research Agreement by and between Clintec and University of Florida
dated March 14, 1990, as amended February 26, 1991, June 13, 1991,
and August 8, 1991.

r. Research Agreement by and between Clintec and University of Florida
dated as of February 9, 1994, as amended February 14, 1994.

s. Research Agreement by and between Clintec and the University of
Florida dated April 1, 1992, as amended May 3, 1992, December 31,
1992, and February 14, 1994.

t. Research Agreement by and between Clintec and the University of
Florida dated June 2, 1993, as amended August 3, 1993.

u. Research Agreement by and between Clintec, Kenneth Steinberg and
University of Washington dated July 1, 1992.

v. Research Agreement by and between Clintec, Michael Lederman and the
University Hospitals of Cleveland dated September 11, 1991.

w. Research Agreement by and between Clintec, Michael Lederman and the
University Hospitals of Cleveland dated May 7, 1992.

x. Research Agreement by and between Clintec, Michael Lederman and the
University Hospitals of Cleveland dated July 15, 1992, as amended
December 8, 1993.

y. Research Agreement by and between Clintec, Michael Lederman and the
University Hospitals of Cleveland dated August 25, 1992.

z. Research Agreement by and between Clintec, Michael Lederman and the
University Hospitals of Cleveland dated February 15, 1993.

-24-

<PAGE> 59

aa. Research Agreement by and between Clintec, Gordon Bernard and the
Vanderbilt University Medical Center dated January 24, 1992, as
amended August 3, 1992.

bb. Research Agreement by and between Clintec and Wellington School of
Medicine dated September 20, 1992.

cc. Agreement by and between Dickson Research Group and Clintec dated
March 4, 1994.

-25-

<PAGE> 60

Schedule 2.5 Actions and Other Proceedings

-26-

<PAGE> 61

SCHEDULE 2.5 ACTIONS AND OTHER PROCEEDINGS
------------------------------------------

Clintec believes that In Vivo, a party to the agreements described in
Schedule 2.6, section 2, intends to file for bankruptcy.

-27-

<PAGE> 62

Schedule 2.6 Contracts and Other Agreements

-28-

<PAGE> 63

SCHEDULE 2.6 CONTRACTS AND OTHER AGREEMENTS
-------------------------------------------

1. See Schedule 1.1(ii) for a list of all Contributed Contracts.

2. In Vivo has been, and is, in default of certain obligations under the
Agreements between Clintec and In Vivo dated December 7, 1992, April 10,
1992 (as amended May 29, 1992 and June 2, 1992), August 5, 1992 (as
amended November 2, 1992), December 9, 1992, and March 29, 1993.

3. The following is a list of all contracts not otherwise listed on Schedule
1.1 (ii) of which Clintec is aware, to which FRS is a party immediately
prior to the Closing:

a. Employment letter agreement between Cynthia Leaf and FRS dated
February 22, 1993.

b. Employment letter agreement between I.B. Hendriksen and FRS dated
February 22, 1993.

c. Employment letter agreement between Nick Harvey and FRS dated
January 2, 1993.

d. Employment letter agreement between Sharon Ayd and FRS dated January
2, 1993, as amended August 2, 1993.

e. Employment letter agreement between Judy M. Atkins and FRS dated
March 1, 1993.

f. Employment letter agreement between Elizabeth H. McBride and FRS
dated July 14, 1993.

g. Retainer Agreement by and between FRS and Cato Research Ltd. dated
September 20, 1993.

h. Research Agreement by and between FRS, In Vivo, John C. Pottage and
the Chicago Center for Clinical Research, Inc. dated March 13, 1993.

i. Consulting Agreements between FRS and Elizabeth Dwyer dated March 9,
1993 and June 7, 1993.

j. Consulting Agreement between FRS and Nancy Herring dated March 3,
1993.

-29-

<PAGE> 64

k. Consulting Agreement between FRS and Richard Markham dated February
17, 1993.

l. Consulting Agreement between FRS and David Schwartz dated February
17, 1993.

m. Letter of Clintec dated February 19, 1993 confirming research of
Richard Markham and David Schwartz.

n. Agreement between FRS and L'Oreal dated April 2, 1993, as amended.

o. Consulting Agreement between FRS and Research & Data Systems, Inc.
dated January 11, 1993.

p. Agreement to Provide General Statistical Consulting Services between
Research & Data Services, Inc. and FRS dated November 3, 1993.

q. Consulting Agreement between Kenneth D. Serkes and FRS dated August
10, 1993.

r. Agreement between Rogalands-Forskning and FRS dated May 18, 1993.

s. Letter of Clintec dated February 19, 1993 confirming research grant
to K.S. Srivenugopal.

t. Agreement by and between FRS and Ricerca, Inc. dated November 27,
1993.

u. Agreement by and between FRS and Davos Chemical Corporation dated
November 22, 1993.

v. Agreement for the Provision of Executive Search and Consultant
Services between Levin, Storm & Co. and FRS dated July 7, 1993.

w. Letter agreement between FRS and A.T. Valicenti dated July 1, 1993.

x. Leasing Schedule between Eastman Kodak Credit Corporation and FRS
dated July 13, 1993.

y. Nova Centrex Service Agreement by and between New England Telephone
and Telegraph Company and FRS dated July 8, 1993.

z. Commercial Account agreement between Sprint Communications Company
L.P. and FRS dated September 2, 1993.

-30-

<PAGE> 65

aa. Sublease between Thinking Machines Corporation and FRS dated July
26, 1993.

bb. Employer Agreement by and between Harvard Community Health Plan,
Inc. and FRS dated September 5, 1993.

cc. Term Life, Accidental Death and Dismemberment, and Long Term
Disability Insurance policies through Fortis Benefits Insurance
Company.

dd. Agreement between Quality Process Consulting and FRS dated June 1,
1993.

ee. Agreement between Proskauer Rose Getz & Mendelsohn and FRS dated
March 29, 1993.

ff. Consulting arrangements between William J. Ryan and FRS.

gg. Consulting Agreement between Peggy R. Borum and FRS dated August 11,
1993.

-31-

<PAGE> 66

Schedule 2.7 Intangible Property

-32-

<PAGE> 67

SCHEDULE 2.7 INTANGIBLE PROPERTY
--------------------------------

1. For a list of all Registered Rights, see Schedule 1.1(iv). The invention
disclosed in French Patent Application No. 9312884 (described in Schedule
1.1(iv), section 2) and such Patent Application itself cannot be
transferred or commercially exploited by Clintec without the permission of
INRA.

2. See Schedule 1.1(ii), section 1, for a description of license agreements
relating to certain patents that are Contributed Assets.

3. See Schedule 1.1(il), section 3, for a description of research agreements
which contain provisions relating to licenses and ownership of
intellectual property of FRS and Clintec.

-33-

<PAGE> 1
EXHIBIT 10.5

CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

AMENDED AND RESTATED
--------------------
EXCLUSIVE LICENSE AGREEMENT CRF D-416 AND D-520
-----------------------------------------------
D-913, D-1069, D-1239, D-1258, D-1403, D-1426
---------------------------------------------

THIS AGREEMENT, executed as of August 12, 1996, amends, restates and
supersedes the Exclusive License Agreement CRF D-416 and D-520, D-913,
D-1069, D-1239, D-1258, D-1403, D-1426 dated April 5, 1994 (the "Original
Agreement") by and between the CORNELL RESEARCH FOUNDATION, INC., having
offices at Cornell Business & Technology Park, 20 Thornwood Drive, Suite
105, Ithaca, New York 14850, hereinafter referred to as "FOUNDATION" and
TRANSCEND THERAPEUTICS, INC., having offices at 640 Memorial Drive,
Cambridge, Massachusetts 02139, hereinafter referred to as "LICENSEE." This
Agreement (i) shall be retroactively effective as of April 6, 1994, (ii) is
executed for administrative convenience to avoid the requirement of certain
exhibits attached to the Original Agreement, and (iii) is subject to
agreements executed by FOUNDATION and LICENSEE subsequent to April 6, 1994,
including but not limited to the Letter Agreement dated October 5, 1995
between FOUNDATION and LICENSEE.

W I T N E S S E T H T H A T:
- - - - - - - - - - - - - -
WHEREAS, United States Patent No. 4,710,489, entitled "Glutathione
Delivery System," was issued on December 1, 1987;

<PAGE> 2

CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

WHEREAS, United States Patent No. 4,784,685, entitled "Glutathione
Delivery System," was issued on November 15, 1988;

WHEREAS, United States Patent No. 4,879,370, entitled "Glutathione
Delivery System," was issued on November 7, 1989;

WHEREAS, a United States patent application entitled
*********************************************, as filed in the U.S. Patent
and Trademark Office on ****************;

WHEREAS, a United States patent application entitled
*************************************, was filed in the U.S. Patent and
Trademark Office on **************;

WHEREAS, Japanese Patent No. 1,592,957 was issued on July 11, 1989;

WHEREAS, the above group of patents and patent applications is
hereinafter referred to as the "Glutathione Technology" and includes all
the patents and patent applications presently owned by FOUNDATION that are
necessary to practice the inventions that comprise Glutathione Technology
as well as all patents and patent applications that name Alton Meister as
an inventor and relate to Glutathione Technology;

WHEREAS, United States Patent No. 4,335,210, entitled "Method of
Producing L-Cysteine," was issued on July 15, 1992;

WHEREAS, United States Patent No. 4,434,158 entitled "Cysteine
Delivery System," was issued on February 28, 1984;

-2-

<PAGE> 3

CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

WHEREAS, United States Patent No. 4,647,571, entitled "Cysteine
Delivery Composition," was issued on March 3, 1987;

WHEREAS, United States Patent No. 4,665,082 entitled "Cysteine
Delivery System," was issued on May 12, 1987;

WHEREAS, United States Patent No. 4,438,124 entitled "Cysteine
Delivery System," was issued in March 20, 1984;

WHEREAS, counterpart European Patent No. 0057942 and Canadian Patent
1,167,766, have issued;

WHEREAS, the immediately-above group of patents is hereinafter
referred to as the "Procysteine Technology" and includes all the patents
and patent applications presently owned by FOUNDATION that are necessary to
practice the inventions that comprise Procysteine Technology as well as all
patents and patent applications that name Alton Meister as an inventor an
relate to Procysteine Technology;

WHEREAS, a United States patent application entitled
***************************************************************, was filed
in the U.S. Patent and Trademark Office on ************;

WHEREAS, a United States patent application entitled ******
******************************************************* **********, was
filed in the U.S. Patent and Trademark Office on *************;

WHEREAS, a United States patent application entitled
*************************************************, was filed in the U.S.
Patent and Trademark Office on *************;

-3-

<PAGE> 4

CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

WHEREAS, a patent application is presently being prepared related to
*************************************************************************
********************************************;

WHEREAS, a PCT application equivalent to U.S. Serial No. 07/862,525,
was filed on July 9, 1993;

WHEREAS, the immediately-above group of patent applications is
hereinafter referred to as the "Gene Technology";

WHEREAS, the invention or inventions disclosed and claimed in the
above-listed patents and patent applications are assigned to FOUNDATION and
FOUNDATION is a wholly owned subsidiary corporation of Cornell University
having as one of its principal purposes the holding of ownership interests
of patents issued on inventions made by Cornell University's staff and the
administration of licenses in pursuance thereof in a manner consistent with
the patent policy of Cornell University;

WHEREAS, FOUNDATION represents that it is assignee of the above-listed
patents and patent applications and any patents issuing thereon, and has
the right to grant exclusive worldwide licenses under said patents, it
being pointed out however with respect to U.S. Serial No. SN 07/862,525,
FOUNDATION is the joint assignee thereof with Fox Chase Cancer Center
(hereinafter "Fox");

WHEREAS, FOUNDATION represents that it can grant licenses under U.S.
Serial No. 07/862,525 to LICENSEE without LICENSEE incurring any
obligations or liability to Fox;

-4-

<PAGE> 5

WHEREAS, the work leading to the inventions disclosed and claimed in
above-identified patents and patent applications was supported in part by
an agency of the U.S. Government, FOUNDATION is obligated to comply with
the U.S. Office of Management and Budget Circular No. A-124;

WHEREAS, FOUNDATION is not aware of any patent or patent application
that it owns, controls, or is licensed under with the right to sublicense
that is necessary to manufacture, sell, or use any product that falls
within the scope of any of the patents or patent applications that comprise
Glutathione Technology or Procysteine Technology;

WHEREAS, LICENSEE is desirous of securing an exclusive worldwide
license under the discoveries and inventions embodied in said patents and
patent applications and patents issuing therein to make, use and sell
products;

WHEREAS, FOUNDATION is willing to grant an exclusive worldwide license
in said patents and patent applications and any patents issuing thereon to
LICENSEE upon the terms and conditions hereinafter set forth;

WHEREAS, LICENSEE holds the complete LICENSEE'S interest in two prior
license agreements entitled respectively "Exclusive License Agreement
D-416" and "Exclusive License Agreement D-520" both effective July 1, 1989
(hereinafter collectively referred to as "The Prior Agreements"), with the
LICENSEE on their face being

-5-

<PAGE> 6

CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

Baxter International, Inc., and whereas, LICENSEE and FOUNDATION both
intend that this agreement will supersede and replace The Prior Agreements;

NOW, THEREFORE, in consideration of the covenants and obligations
hereinafter set forth, the parties hereto hereby agree as follows:

DEFINITIONS
-----------

The following definitions will apply throughout this

agreement:

1. IMPROVEMENTS shall mean any patents or patent applications, other
than Licensed Patents or Licensed Patent Applications (as defined
below), relating to any Licensed Product or Procysteine
Technology, Glutathione Technology, or Gene Technology that is
developed during the term of this Agreement, and owned by the
FOUNDATION, which is not committed to a third party by law or
prior research agreement.

2. LICENSED PATENT APPLICATIONS shall mean U.S. Patent applications
S/N's *********************************************************
***** as well as the patent application to be filed on ********
*********************** and any continuation, continuation-
in-part, or

-6-

<PAGE> 7

divisional applications thereof, as well as foreign counterparts
thereof, if any.

3. LICENSED KNOW HOW shall mean any proprietary right other than a
patent or patent application owned by, controlled by, or licensed
to FOUNDATION with right to sublicense that relates to
Procysteine Technology, Glutathione Technology, or Gene
Technology.

4. LICENSED PATENTS shall mean U.S. Patents 4,710,489; 4,784,685;
4,879,370; 4,335,210; 4,434,158; 4,438,124; 4,647,571 and
4,665,082 and European Patent No. 0057942, Canadian Patent No.
1,167,766, and Japanese Patent No. 1,592,957 and any patents
issuing on a Licensed Patent Application and all reissues
thereof, as well as foreign counterparts to a Licensed Patent or
Licensed Patent Application.

5. LICENSED PRODUCTS shall mean a product that would infringe a
valid Licensed Patent in the country it is manufactured, used, or
sold but for the licenses granted herein.

6. LICENSE YEAR shall mean each twelve (12) month period beginning
on the effective date of this Agreement first written above and
thereafter on the anniversary date thereof.

-7-

<PAGE> 8

CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

7. LICENSEE shall mean the above named company and any of its
affiliates in which it owns or controls at least 50 percent of
the voting stock or in the case of a partnership or other entity
50% of the interests in profits or capital of the entity.

8. NET SALES PRICE shall mean the gross amount of money billed by
LICENSEE to its customers on sale or use of Licensed Products
subsequent to the effective date of this Agreement,
**************************************************************
**************************************************************
**************************************************************
**************************************************************
**************************************************************
**************************************************************

9. REDUCTION TO PRACTICE shall mean that the applicable invention is
in such a form as to render it capable of practical and
successful use. For a method of treatment or pharmaceutical
invention, this requires the demonstration of in vivo efficacy.

GRANT
-----

Subject only to the rights of and obligations to the U.S. Government
as set forth in OMB Circular No. A-124 and 37 CFR Part

-8-

<PAGE> 9

CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

401, and existing in Law, and except for application Serial No. **********,
the FOUNDATION hereby grants to the LICENSEE for the term set forth below
and under the royalty basis set forth herein, an exclusive worldwide
license to the Licensed Patents and Licensed Applications including the
right to make, have made, use and/or sell Licensed Products. With respect
to application Serial No. **********, the FOUNDATION hereby grants to the
LICENSEE for the term set forth below and under the royalty basis set forth
herein, a non-exclusive worldwide license to that application and any
patent issuing therefrom including the right to make, have made, use and/or
sell Licensed Products. The period of the license in each country shall be
coextensive with the enforceable life of the patent in that country.
Additionally, FOUNDATION grants to LICENSEE a royalty free non-exclusive
license to Licensed Know How.

III

EQUITY AS CONSIDERATION FOR THE EXECUTION OF THIS AGREEMENT
-----------------------------------------------------------

Provided that FOUNDATION'S equity position is approved in writing by
the Executive Committee of FOUNDATION'S Board of Directors and that the
interaction with LICENSEE of all Cornell University Employees, if any, who
have an interest in LICENSEE, is approved in writing by the Dean of the
Cornell University Medical College, FOUNDATION at its option will receive
from LICENSEE, as consideration for entering into this Agreement an equity
position

-9-

<PAGE> 10

in LICENSEE that is 175,127 shares of the common stock of LICENSEE.

At FOUNDATION'S sole option, should said approval of the Dean and
Board not be obtained in writing six months from the effective date of this
Agreement, FOUNDATION and LICENSEE will negotiate in good faith to
determine a monetary equivalent of equity position referred to above, which
equivalent shall be granted by LICENSEE to FOUNDATION.

In addition, LICENSEE will provide, over a three (3) year period from
the Effective Date of this Agreement, $400,000.00 in cumulative funding for
Dr. Mary Anderson and/or Dr. Alton Meister laboratories for research in the
areas of the subject matter of Licensed patents and Licensed Patent
Applications pursuant to the Research Agreement attached hereto as Exhibit
A. In exchange for supporting such research, LICENSEE shall receive an
exclusive worldwide license to any patentable invention that results from
the research and is conceived or reduced to practice during the term of the
Research Agreement or one (1) year thereafter for the royalty rate set
forth herein. Any patent application filed on such patentable invention
shall become a Licensed Patent Application under this Agreement.
Additionally, LICENSEE shall receive a royalty free exclusive right to any
unpatentable inventions that result from the research and are conceived or
Reduced to Practice during the term of the Research Agreement or one (1)
year thereafter.

-10-

<PAGE> 11

PAYMENT OF EXISTING PATENTS AND APPLICATIONS RENEWAL FEES AND CONTINUING
PROSECUTION COSTS
------------------------------------------------------------------------

Where a Licensed Patent Application is pending in the United States or
a foreign country, LICENSEE agrees to pay all reasonable prosecution costs
for such Licensed Patent Application incurred after the date of this
Agreement and all maintenance fees that become due on Licensed Patents
after the date of this Agreement; provided, however, that LICENSEE shall
have the right to deduct the costs and fees that are paid by LICENSEE from
any royalty that may be due and owing the FOUNDATION. Additionally,
LICENSEE shall have the right to not pay or discontinue payment of said
prosecution costs and/or maintenance fees upon thirty (30) days written
notice to FOUNDATION, in which case said patent application or patent, as
the case may be shall no longer be deemed a Licensed Patent Application or
Licensed Patent and LICENSEE shall have no further license under such
Licensed Patent Application or Licensed Patent.

FOUNDATION agrees to promptly provide LICENSEE with copies of all
Office Actions received from the applicable Patent Office, as well as
proposed responses to same for LICENSEE'S comments, before the responses
are filed. FOUNDATION shall make reasonable efforts to consider LICENSEE'S
comments and revise the proposed response if appropriate.

-11-

<PAGE> 12

CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

Prior to abandoning or failing to prosecute any Licensed Patent or
Licensed Patent Application, FOUNDATION shall advise LICENSEE and provide
LICENSEE with the option to assume financial responsibility for such
Licensed Patent or Licensed Patent Application. If LICENSEE agrees to
assume such financial responsibility, FOUNDATION agrees to transfer all
relevant files to LICENSEE and assign such Licensed Patent or Licensed
Patent Application to LICENSEE and LICENSEE shall therefore not be
obligated to pay royalties under such patent or patent application.

FUTURE FOREIGN PATENTS AND APPLICATIONS AND PAYMENT OF COSTS
------------------------------------------------------------

In the event that after the date of this Agreement an opportunity
arises to file counterpart patent applications to the United States
Licensed Patent Applications in any foreign country, FOUNDATION shall
notify LICENSEE in writing of said opportunity. Within sixty (60) days
after receipt of said notice, LICENSEE shall advise FOUNDATION in which
foreign countries LICENSEE intends to pay all expenses incurred in the
preparation, filing, prosecution, renewal and continuation of the Licensed
Patent Applications , including all taxes, official fees and attorney fees
("Foreign Licensed Patent Application Expenses"); however, LICENSEE shall
have the right to deduct ******************* of any

-12-

<PAGE> 13

CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

such Foreign Licensed Patent Application Expenses from any royalties that
may be due and owing FOUNDATION under this Agreement. In the event that
LICENSEE elects not to pay said Foreign Licensed Patent Application
Expenses in any foreign country, and FOUNDATION elects to pay said Foreign
Licensed Patent Application Expenses, then and in such foreign country,
LICENSEE'S right to the Foreign Licensed Patent or Licensed Patent
Application in that foreign country shall become a non-exclusive license.
Should LICENSEE agree to pay the Foreign Licensed Patent Application
Expenses, FOUNDATION will promptly provide LICENSEE with copies of all
communications from the relevant Patent Offices and proposed responses
thereto for LICENSEE'S comments prior to filing. FOUNDATION shall make
reasonable efforts to consider LICENSEE'S comments and revise the proposed
response if appropriate.

ROYALTIES AND ADVANCE ROYALTIES TO BE PAID DURING THE LICENSE AGREEMENT
-----------------------------------------------------------------------

In consideration for the rights granted herein LICENSEE will pay to
the FOUNDATION in U.S. dollars a royalty on Net Sales Price of Licensed
Products sold by LICENSEE according to the following schedule:
************************************** in annual sales, and ***********
****************** on all annual sales ****************** annually. In
determining annual sales, net sales of Licensed

-13-

<PAGE> 14

CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

Product in each Technology shall be separately considered and shall not be
combined for purposes of the royalty schedule.

LICENSEE'S obligation to pay royalty upon each such Licensed Product
in any country shall cease:

(i) if the applicable claims in the Licensed Patent in that country
are held invalid by an unappealed or unappealable decision of a
court of competent jurisdiction, in that country, or

(ii) upon expiration of the last said Licensed Patent in that country.

On July 1 of each License Year commencing on the effective date of
this Agreement, LICENSEE shall pay FOUNDATION *************************
*********** for each of the Glutathione Technology and the Procysteine
Technology (i.e., a combined total of ********** as an advance royalty
payment for that License Year and such moneys will be considered as a
credit for the royalties due on each respective Technology for that License
Year under this Agreement and the royalty reports should reflect the use of
such credit. Such provision is to be construed as an annual minimum royalty
payment requirement for each Technology and none of the advance royalty
payments are refundable or applicable to succeeding License Years. Payment
of actual royalties in excess of minimum royalties on one Technology does
not remove the obligation to pay minimum royalties on the second
Technology.

-14-

<PAGE> 15

No minimum royalty payment is due for Gene Technology.

FOUNDATION acknowledges the payment due on July 1993 under The Prior
Agreements has been paid and the next annual payment is due July 1, 1994.

VII

ACCOUNTING
----------

LICENSEE will deliver to the FOUNDATION within ninety (90) days after
the end of each License Year a report in writing setting forth sales of
Licensed Products by Technology (including a negative report if
appropriate) and will accompany such report with an appropriate payment of
royalty due for such period. LICENSEE will keep accurate records for at
least three (3) years, certified by it, showing the information by which
LICENSEE arrived at a royalty determination and will permit an auditor
appointed and paid for by the FOUNDATION and acceptable to LICENSEE to make
such inspection of said records as may be necessary to verify royalty
reports made by LICENSEE. However, if such inspection demonstrates that the
royalties paid were less than 90% of the royalties due, and LICENSEE'S Net
Sales of Licensed Product for the applicable year was $500,000.00 or more
than LICENSEE shall reimburse FOUNDATION the reasonable charges charged by
the auditor for such inspection.

-15-

<PAGE> 16

VIII

TERM
----

The aforesaid exclusive license under a Licensed Patent Application or
Licensed Patent shall last for a period of not to exceed the effective life
of the last to expire Licensed Patent. After the last to expire Licensed
patent, LICENSEE shall have a royalty free license to all Licensed Know
How.

DUTY OF DILIGENCE
-----------------

LICENSEE shall exercise due diligence to effect the introduction of
Licensed Product(s) within each Technology group into the commercial market
as soon as practical. FOUNDATION acknowledges that the licensees of The
Prior Agreements have exercised due diligence under each of The Prior
Agreements. LICENSEE agrees to develop and exploit Licensed Product for the
duration of the term of this Agreement, or alternatively by the use of
sublicensing. LICENSEE further agrees to maintain quality control over
Licensed Products and generally attend to proper, safe, fair, lawful and
reasonable development and exploitation of the market for Licensed
Products. Sublicensees, if any will be held to the same standards as
LICENSEE.

At the end of each licensee year, LICENSEE will provide a report on
the progress toward commercialization made within each

-16-

<PAGE> 17

Technology group and a projection of efforts to be made in the coming year.
FOUNDATION'S determination of a lack of due diligence must be made in good
faith and the written notice must specifically state why FOUNDATION
believes LICENSEE has not exercised due diligence. LICENSEE shall have six
(6) months after written notice to exercise due diligence in the relevant
Technology. After the six (6) month period should the FOUNDATION in good
faith using reasonable standards determine that due diligence has not been
exercised by LICENSEE in the relevant technology, FOUNDATION can upon
written notice to LICENSEE convert LICENSEE'S exclusive license to the
Licensed Patents and Applications in the relevant Technology to a
non-exclusive license. Failure to exercise due diligence in one Technology
shall not adversely effect LICENSEE'S exclusive rights in another
Technology under this Agreement.

ENFORCEMENT
-----------

Upon learning of the infringement of a Licensed Patent by a third
party, FOUNDATION shall inform LICENSEE in writing of that fact and shall
supply LICENSEE with any evidence available pertaining to the infringement.
LICENSEE may at its own expense take whatever steps are necessary to stop
any infringement of a Licensed Patent and recover damages therefore, and
shall be

-17-

<PAGE> 18

CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

entitled to retain all damages so recovered except the royalty that would
otherwise be due FOUNDATION had the infringing sales been made by LICENSEE
under this Agreement. FOUNDATION agrees to cooperate at LICENSEE'S expense
to allow LICENSEE to prosecute such action. With respect to royalties
otherwise due and payable by it to FOUNDATION, LICENSEE shall have the
right to use such royalties to pay for or defray the costs of enforcing
said Licensed Patent against the infringement. In withholding royalties to
pay for the cost of enforcing said Licensed Patent, LICENSEE shall only be
entitled to withhold royalties due to FOUNDATION subsequent to the start of
the litigation. During proceedings relating to the enforcement of said
Licensed Patent, LICENSEE shall submit semiannual written reports
accompanying its royalty reports showing royalties accruing to FOUNDATION
and the expenses of enforcing the Licensed Patent against the infringement.
Upon termination of all proceedings involving such claims or allegations,
LICENSEE shall remit the balance, if any, of the royalties accrued but not
yet paid to FOUNDATION. If the withheld royalties have not equalled the
expenses of conducting the suit at the termination of all proceedings in
the suit, LICENSEE shall be entitled to continue withholding **** of the
royalties due until it has recovered all the expenses incurred in
conducting the suit.

If LICENSEE does not undertake within sixty (60) days of

-18-

<PAGE> 19

notice by FOUNDATION to enforce the Licensed Patent against the infringing
party, FOUNDATION shall have the right to take whatever action it deems
appropriate at FOUNDATION'S expense. FOUNDATION shall have the right to
retain all damages it recovers.

Where LICENSEE takes action to enforce the Licensed Patent, LICENSEE
shall hold FOUNDATION harmless from all claims, counterclaims and the like
rising from LICENSEE'S' action.

ASSIGNMENT
----------

The rights and obligations of the LICENSEE are not assignable except
that said rights and obligations may be assigned to its successor to the
entire business to which this agreement pertains.

XII

TERMINATION
-----------

The FOUNDATION may terminate this License Agreement for failure of the
LICENSEE to make a royalty payment or to comply with [Section]XI or the hold
harmless provision on page 21 by giving notice of its intentions to do so six
(6) months before termination. If LICENSEE shall, within the six-month notice
period correct the breach, the notice shall have no further effect and this
License Agreement shall continue.

LICENSEE may terminate this License Agreement by giving notice of its
intentions to do so six (6) months before termination.

-19-

<PAGE> 20

XIII

SUBLICENSING
------------

LICENSEE may sublicense third parties provided that FOUNDATION is
provided with a copy of all sublicense agreements.

With regard to Glutathione Technology and Procysteine Technology, all
such sublicense agreements must insure that FOUNDATION receives the royalty
on all Net Sales that would otherwise be due FOUNDATION under this
Agreement.

However, with respect to Gene Technology, LICENSEE shall pay
FOUNDATION, instead of the royalty set forth in Section VI, one-third of
all financial value received from the sublicensee in consideration for a
sublicense agreement related to Gene Technology be it cash or other things
of value.

XIV

FAVORED NATIONS
---------------

If, under Sections V or IX, LICENSEE'S rights to any Licensed Patent
Application or Licensed Patent become non-exclusive and the FOUNDATION
grants nonexclusive licenses to others under such Licensed Patent
Application or Licensed Patent, such licenses will not be granted at a
royalty rate which is more favorable than the rate herein granted to
LICENSEE unless such more favorable rates are extended to the LICENSEE.
This Favored Nations clause does not apply to License agreements which are
in settlement of patent litigation.

-20-

<PAGE> 21

CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.

RIGHT OF FIRST NEGOTIATION
--------------------------

FOUNDATION grants LICENSEE, to the extent not granted under another
section or paragraph of this Agreement, a right of first negotiation with
respect to any Improvement. LICENSEE shall have an exclusive right to
negotiate an agreement with FOUNDATION for any such Improvement for a
******************************************************* to LICENSEE or
Reduction to Practice of the invention that comprises the Improvement,
whichever is later. FOUNDATION will negotiate in good faith such an
agreement with LICENSEE during this period.

XVI

OTHER
-----

LICENSEE agrees that it will not use the indicia or names FOUNDATION
or of Cornell University or any of their personnel in advertising,
promotion, or labeling of Licensed Products without prior written approval
of the FOUNDATION. Such approval shall not be unreasonably withheld by
FOUNDATION. It is understood, however, that LICENSEE shall be free to
disclose the terms and conditions of this Agreement to any third parties
including potential investors.

FOUNDATION makes no representations other than those

-21-

<PAGE> 22

specified in the WHEREAS clauses. FOUNDATION MAKES NO EXPRESS OR IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

FOUNDATION by this Agreement makes no representation as to the
patentability and/or breadth of the inventions and/or discoveries involved
in a Licensed Patent. FOUNDATION by this Agreement makes no representation
as to patents now held or which will be held by others in the field of the
Licensed Products for a particular purpose.

LICENSEE agrees to defend, indemnify and hold FOUNDATION harmless from
and against all liability, demands, damages, expenses or losses for death,
personal injury, illness or property damage arising (a) out of use by
LICENSEE or its sublicensees of inventions licensed or information
furnished under this Agreement, or (b) out of any use, sale or other
disposition by LICENSEE or its sublicensees of products made by use of such
inventions or information. As used in this clause, FOUNDATION includes its
Trustees, Officers, Agents and Employees, and those of Cornell University,
and "LICENSEE" includes its Affiliates, Subsidiaries, Contractors and
Sub-Contractors.

This Agreement shall be interpreted under the Laws of the State of New
York.

Reports, notices and other communications to the FOUNDATION shall be
addressed to:

-22-

<PAGE> 23

H. Walter Haeussler, President
CORNELL RESEARCH FOUNDATION, INC.
Cornell Business & Technology Park
20 Thornwood Drive, Suite 105
Ithaca, NY 14850

and other notices and other communications to the LICENSEE to:

Dr. Hector J. Gomez, M.D., Ph.D.
TRANSCEND THERAPEUTICS, INC.
640 Memorial Drive
Cambridge, MA 02139

IN WITNESS WHEREOF, the parties have caused this instrument to be
executed in duplicate as of the day and year first above written.

ATTEST: CORNELL RESEARCH FOUNDATION, INC.

/s/ C. E. Casterline By: /s/ H. Walter Haeussler
-------------------------- ------------------------------
H. Walter Haeussler

Title: President
---------------------------

Date: August 12, 1996
---------------------------

ATTEST: TRANSCEND THERAPEUTICS, INC.

/s/ C. E. Casterline By: /s/ Hector J. Gomez
--------------------------- ------------------------------

Title: President
---------------------------

Date: August 12, 1996
---------------------------

-23-

<PAGE> 24

Exhibit A
---------

RESEARCH AGREEMENT
------------------

AGREEMENT between

CORNELL UNIVERSITY, for its Medical College, hereinafter Called "the
Medical College," and FREE RADICAL SCIENCES, INC., an Illinois partnership,
having offices at 245 First Street, Cambridge, Massachusetts 02142,
hereinafter called "FRS".

The Medical College will undertake the following project:

1. Title (protocol number if applicable).

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

2. The Scope of Work. The work to be performed is as described in the
attached scope of work labeled Attachment "A".

3. Principal Investigators. The project will be under the supervision
of:

Mary Anderson, M.D., as Principal Investigator, and Alton Meister,
M.D., as Co-Principal Investigator.

4. Period. The period of performance will be from ______, 1994 to
________, 1997.

5. Payments. The total costs to FRS under the agreement will be four
hundred thousand dollars ($400,000.00). The payment schedule will
be as follows:

$134,000 paid on _________, 1994

$133,000 paid on _________, 1995

$133,000 paid on _________, 1996

6. Applicable Law. FRS and the Medical College agree to comply with all
applicable local, state, and Federal laws, regulations, and guidelines
with respect to the conduct of the study.

A-1

<PAGE> 25

7. Inventions. All inventions, developments, findings and discoveries
conceived solely by the Investigators or other employees of the
Medical College relating to this Agreement ("Inventions") shall be the
property of, and title to reported Inventions will be held by, the
Cornell Research Foundation, Inc. (Foundation), the research and
technology transfer arm of Cornell University. It is hereby
acknowledged that FRS and the Foundation have entered into a License
Agreement to which this Research Agreement is attached as Exhibit R.
The Foundation hereby grants an exclusive license to any such
Inventions to FRS pursuant to the terms of the License Agreement
between Foundation and FRS. This grant shall apply to any invention
that is developed pursuant to this Research Agreement or with any
funding from this Research Agreement, whether such invention is
patentable or not, if such invention is conceived or reduced to
practice during the term of this Agreement or one (1) year thereafter.

8. Proprietary Data. The Medical College's acceptance and use of any
proprietary data which may be supplied by FRS in the course of this
research project shall be subject to the following:

(a) The date must be marked or designated in writing as proprietary
to FRS.

(b) The Medical College retains the right to refuse to accept any
such data which it does not consider to be essential to the
completion of the project or which it believes to be improperly
designated, or for any reason.

(c) Where the Medical College does accept such data as proprietary,
it agrees to exercise its best efforts not to publish or
otherwise reveal the data to others outside the Medical College
without the permission of FRS, unless the data has already been
published or disclosed publicly by third parties or is required
to be disclosed by order of a court of law.

9. Publications and Copyrights. The Medical College will be free to
publish papers dealing with results of research under this Research
Agreement, after giving a copy of the paper to FRS and allowing FRS to
object to the disclosure of proprietary information, which information
will not be disclosed for a period of ninety (90) days or until
appropriate patent applications are filed whichever is sooner. FRS
will be given full credit and acknowledgment for

A-2

<PAGE> 26

the support provided to the Medical College in any publication
resulting from this research. Original research data will belong to
the Medical College. Title to and the right to determine the
disposition of any copyrights, or copyrightable material, first
produced or composed in the performance of this research, shall remain
with the Medical College, provided that the Medical College shall
grant to FRS an irrevocable royalty free, non-exclusive right to
reproduce, translate, and use all such copyrighted material for its
own purposes.

10. Reports. A final report of the progress of the work shall be made to
FRS by the Principal Investigators within three months of completion.
The Principal Investigators shall provide FRS with written interim
reports at no more often than four-month intervals following
initiation of the study as mutually agreed upon by the Principal
Investigators and FRS.

11. Changes. FRS or the Medical College may, at any time, in writing to
each other, suggest and by mutual agreement make changes within the
general scope of the work, including but not limited to (a) revising
or adding to the work or deleting portions thereof, (b) revising the
period or schedule of performance, or (c) increasing or decreasing the
total cost. Upon receipt of such notice of change and their mutual
agreement thereto, the parties shall immediately use their best
efforts to take all necessary steps to comply therewith.

12. On-Site Visits. During normal business hours, FRS representative(s)
will be permitted on-site visits for the purposes of monitoring the
study and conferring with the Investigators. Additional monitoring
activities will include telephone and letter communication.

13. Use of Drugs and/or Chemicals. If drugs and/or chemicals are supplied
by FRS, and if requested by the Medical College, FRS agrees to accept
unused portions of drugs and/or chemicals supplied by FRS under this
agreement, including the containers in which the drugs and/or
chemicals are shipped, provided that said drugs and/or chemicals and
containers are properly labeled by the Medical College, upon the
return to FRS. Further, for each drug and/or chemical supplied under
this agreement, FRS agrees to furnish the Medical College with
sufficient information to permit reasonable interpretation of the
results obtained in the investigations described herein, and to
identify precautions needed to help protect the health and safety of
personnel using the drugs

A-3

<PAGE> 27

and/or chemicals. FRS agrees to indemnify the Medical College, its
officers, trustees, agents, and employees, and hold them harmless from
any and all injury, illness, death, property damage, claim, lawsuit,
judgment thereon, or cause of action which results either in whole or
in part from the use of the drugs and/or chemicals if such use was
pursuant to FRS's directions or reasonable under the circumstances.

14. Indemnification. FRS shall defend, indemnify and hold harmless the
Medical College, its officers, trustees, employees and agents from and
against all claims, liabilities, losses, damages, costs or expenses of
any kind (including attorneys' fees) which may arise as a result of
injuries caused solely by the negligence of FRS. The party to be
indemnified shall notify FRS within ten (10) days of receipt of such
claim and shall cooperation in the defense of the claim.

15. Notices. All communications, reports, and notices required or
permitted hereunder shall be deemed sufficiently given if in writing
and personally delivered or sent by registered mail, postage prepaid,
return receipt requested, addressed to the parties as follows or at
such other address as a party shall have given notice of pursuant
hereto:

If to the Medical College:

Associate Dean for Research and Sponsored Programs
Cornell University Medical College
1300 York Avenue, Room A-131
New York, NY 10021

If to FRS:

Gary W. Pace, Ph.D.
FREE RADICAL SCIENCES, INC.
245 First Street
Cambridge, MA 02142

16. Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the Laws of the State of New York.

17. General Provisions.

(a) This Agreement shall be binding upon, and inure to the benefit of
the parties and their successors and assigns.

A-4

<PAGE> 28

(b) All rights under this Agreement shall be assignable by a party
only with the written consent of the other, except that FRS may assign
this Agreement in whole or in part to any subsidiary or to any entity
that owns at least 50% of FRS's ownership interest.

The respective parties have executed this Agreement on the dates
indicated below:

CORNELL UNIVERSITY FOR ITS FREE RADICAL SCIENCES, INC.
MEDICAL COLLEGE

-------------------------- --------------------------
Medical College Official

-------------------------- --------------------------
Typed Name Typed Name

-------------------------- --------------------------
Title Title

------------------------- --------------------------
Date Date

CORNELL RESEARCH FOUNDATION, INC.

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

---------------------------
Typed Name

---------------------------
Title

---------------------------
Date

We agree to act as Principal
Investigator for the project
described above:

-------------------------- ---------------------------
Principal Investigator Co-Principal Investigator
Mary Anderson, M.D. Alton Meister, M.D.
Chairman and Israel Rogosin
Professor of Biochemistry

-------------------------- ---------------------------
Date Date

A-5

<PAGE> 1
Exhibit 10.10

Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

Final

DEVELOPMENT AND LICENSE AGREEMENT

BETWEEN

TRANSCEND THERAPEUTICS, INC.

AND

BOEHRINGER INGELHEIM INTERNATIONAL GmbH

DATED AS OF FEBRUARY 28, 1997

<PAGE> 2

TABLE OF CONTENTS

ARTICLE 1. DEFINITIONS ....................................... 6
1.1 "ADDITIONAL DEVELOPMENT PROGRAM" ................. 6
1.2. "ADMINISTRATION COSTS" ........................... 6
1.3. "AFFILIATE" ...................................... 7
1.4. "ARDS" ........................................... 7
1.5. "ARDS DEVELOPMENT PROGRAM" ....................... 7
1.6. "ARDS NDA FILING" ................................ 7
1.7. "ARDS PROGRAM PLAN" .............................. 7
1.8. "BI PATENT RIGHTS" ............................... 7
1.9. "BI TECHNOLOGY" .................................. 7
1.10. "CLINICAL NUTRITION .............................. 8
1.11. "COST OF GOODS SOLD" ............................. 8
1.12. "DEVELOPMENT EXPENSES" ........................... 8
1.13. "DEVELOPMENT PROGRAM" ............................ 8
1.14. "DIRECT COSTS" ................................... 8
1.15. "DISTRIBUTION COSTS" ............................. 8
1.16. "EFFECTIVE DATE" ................................. 9
1.17. "E.U." ........................................... 9
1.18. "FDA" ............................................ 9
1.19. "FIELD" .......................................... 9
1.20. "FIRST COMMERCIAL SALE" .......................... 9
1.21. "JOINT DEVELOPMENT TEAM" ......................... 9
1.22. "JOINT MARKETING TEAM" ........................... 9
1.23. "JOINT STEERING COMMITTEE" ....................... 9
1.24. "LICENSED PRODUCT" ............................... 9
1.25. "MAJOR MARKET COUNTRIES" ......................... 9
1.26. "MANUFACTURING COSTS" ............................ 9
1.27. "MARKETING EXCLUSIVITY" .......................... 10
1.28. "MEDICAL COSTS" .................................. 10
1.29. "MOD" ............................................ 10
1.30. "MOD DEVELOPMENT PROGRAM" ........................ 10
1.31. "MOD PIVOTAL TRIAL ............................... 10
1.32. "MOD PIVOTAL TRIAL MILESTONE EVENT" .............. 10
1.33. "MOD PROGRAM PLAN" ............................... 10
1.34. "NDA" ............................................ 11
1.35. "NET CONTRIBUTION" ............................... 11
1.36. "NET SALES" ...................................... 11
1.37. "NUTRITION" ...................................... 12
1.38. "OTHER INDICATION" ............................... 12
1.39. "OTHER INDICATION PROGRAM PLAN" .................. 12
1.40. "PARTY" .......................................... 12
1.41. "PROCYSTEINE" .................................... 12

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<PAGE> 3

1.42. "PROCYSTEINE I.V." ............................... 13
1.43. "PRODUCT-RELATED COSTS" .......................... 13
1.44. "PROGRAM PATENT RIGHTS" .......................... 13
1.45. "PROGRAM PLAN" ................................... 13
1.46. "PROGRAM TECHNOLOGY" ............................. 13
1.47. "PROJECT TEAM" ................................... 13
1.48. "RECOGNIZED AGENT" ............................... 13
1.49. "SALES AND MARKETING COSTS" ...................... 13
1.50. "STOCK PURCHASE AGREEMENT" ...................... 14
1.51. "TERRITORY" ...................................... 14
1.52. "THIRD PARTY ..................................... 14
1.53. "TRANSCEND PATENT RIGHTS" ........................ 14
1.54. "TRANSCEND TECHNOLOGY" ........................... 14
1.55. "VALID PATENT CLAIM" ............................. 14

ARTICLE 2. SCOPE AND STRUCTURE OF THE COLLABORATION .......... 14
2.1. GENERAL .......................................... 14

ARTICLE 3. LICENSE GRANTS; RESERVED RIGHTS ................... 15
3.1. GRANT OF LICENSE RIGHTS BY TRANSCEND TO BI ........ 15
3.1.1 EXCLUSIVE LICENSE TO LICENSED PRODUCTS ... 15
3.1.2 RESERVATION OF RIGHTS ............................. 15
3.2. GRANT OF LICENSE RIGHTS BY BI TO TRANSCEND ........ 15
3.3. LIMITATIONS ON TRANSCEND RESERVED RIGHTS .......... 16
3.3.1. RESERVED RIGHTS ................................... 16
3.3.2. RIGHT OF FIRST NEGOTIATION ............... 16
3.3.3. RESTRICTIONS ............................. 16
3.4. PRESERVATION OF LICENSES IN BANKRUPTCY ............ 16
3.4.1. BANKRUPTCY FILING ........................ 17
3.4.2. INTELLECTUAL PROPERTY FOR PURPOSE OF
BANKRUPTCY CODE .......................... 17

ARTICLE 4. DEVELOPMENT OF LICENSED PRODUCTS .................. 17
4.1. ARDS DEVELOPMENT PROGRAM .......................... 17
4.1.1. TRANSCEND RESPONSIBILITIES ............... 17
4.1.2. BI RESPONSIBILITIES ...................... 17
4.1.3. PROGRAM FUNDING .......................... 18
4.1.4. FILING FOR ARDS APPROVAL IN UNITED STATES ......... 18
4.2. MOD DEVELOPMENT PROGRAM ........................... 19
4.2.1. GENERAL .................................. 19
4.2.2. JOINT DEVELOPMENT PROGRAM ................ 19
4.2.3. NON-JOINT DEVELOPMENT PROGRAM ............ 21
4.3. ADDITIONAL DEVELOPMENT PROGRAM0S .................. 25
4.3.1. GENERAL .................................. 25
4.3.2. NON-JOINT DEVELOPMENT .................... 25

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<PAGE> 4

4.4. ATTENDANCE AT REGULATORY MEETINGS ................. 26
4.5. DEVELOPMENT EXPENSES .............................. 26
4.5.1. TRANSCEND FUNDING ........................ 26
4.5.2. SHARED DEVELOPMENT EXPENSES .............. 26
4.5.3. REIMBURSEMENT OF DEVELOPMENT EXPENSES .... 27
4.6. RECORDS ........................................... 27
4.7. PROGRESS REPORTS .................................. 27
4.8. AVAILABILITY OF EMPLOYEES ......................... 27
4.9. VISIT OF FACILITIES ............................... 28
4.10. DEVELOPMENT INFORMATION ........................... 28
4.11. CESSATION OF TRANSCEND BUSINESS ................... 28

ARTICLE 5. MANAGEMENT ........................................ 28
5.1 JOINT DEVELOPMENT TEAM ............................ 28
5.1.1. GENERAL .................................. 28
5.1.2. RESPONSIBILITIES ......................... 28
5.1.3. MEETINGS ................................. 30
5.1.4. REPRESENTATIVES .......................... 30
5.1.5. ACTIONS .................................. 30
5.2. JOINT MARKETING TEAM .............................. 30
5.2.1. GENERAL .................................. 30
5.2.2. MEETINGS ................................. 30
5.2.3. REPRESENTATIVES .......................... 30
5.2.4. ACTIONS .................................. 31
5.3. JOINT STEERING COMMITTEE .......................... 31
5.3.1. GENERAL .................................. 31
5.3.2. CHAIR .................................... 31
5.3.3. MEETINGS ................................. 31
5.3.4. DISAGREEMENTS ............................ 32

ARTICLE 6. MANUFACTURING AND MARKETING RIGHTS ................ 32
6.1. MANUFACTURING OF LICENSED PRODUCTS ................ 32
6.1.1. TRANSCEND'S EXCLUSIVE RIGHT TO MANUFACTURE 32
6.1.2. TRANSFER PRICE ........................... 32
6.1.3. MANUFACTURING PLANNING ................... 33
6.1.4. BI'S OPTION FOR MANUFACTURING LICENSE .... 33
6.2. MARKETING AND DISTRIBUTION RIGHTS AND OBLIGATIONS . 33
6.2.1. BI MARKETING RIGHT AND DILIGENCE
OBLIGATIONS .............................. 33
6.2.2. TRANSCEND CO-PROMOTION OPTION ............ 35

ARTICLE 7. PAYMENTS .......................................... 36
7.1. LICENSE FEE ....................................... 36
7.2 EQUITY INVESTMENT ................................. 36

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<PAGE> 5

7.3 MILESTONE PAYMENTS ................................ 36
7.4. ROYALTIES ON NET SALES ............................ 39
7.4.1 NET SALES IN THE UNITED STATES ........... 39
7.4.2 NET SALES IN JAPAN ....................... 39
7.4.3 NET SALES OUTSIDE OF THE UNITED STATES AND
JAPAN .................................... 39
7.4.4 DURATION OF ROYALTY PAYMENTS ............. 39
7.4.5 SUBLICENSE ROYALTIES ..................... 39
7.4.6. ROYALTY RATE REDUCTION .................... 39
7.5. ROYALTY REPORTS, EXCHANGE RATES ................... 40
7.6. AUDITS ............................................ 41
7.7. ROYALTY PAYMENT TERMS ............................. 41
7.8. WITHHOLDING TAXES ................................. 41
7.9. APPLICATION FOR TAX EXEMPTION ..................... 42
7.10. INTEREST ON LATE PAYMENTS ......................... 42

ARTICLE 8. INTELLECTUAL PROPERTY RIGHTS ...................... 42
8.1. OWNERSHIP ......................................... 42
8.1.1. OWNERSHIP OF PROGRAM TECHNOLOGY AND
PROGRAM PATENT RIGHTS .................... 42
8.1.2 COOPERATION OF EMPLOYEES ................. 43
8.2. FILING, PROSECUTION AND MAINTENANCE OF PROGRAM
PATENT RIGHTS AND TRANSCEND PATENT RIGHTS ......... 43
8.2.1. FILINGS .................................. 43
8.2.2. PROSECUTION AND MAINTENANCE .............. 44
8.2.3. ABANDONMENT .............................. 44
8.3. COOPERATION ....................................... 44
8.4. NOTIFICATION OF PATENT TERM RESTORATION ........... 44
8.5. NO OTHER TECHNOLOGY RIGHTS ........................ 45
8.6. ENFORCEMENT OF PATENT RIGHTS ...................... 45
8.7. DEFENSE OF INDIVIDUAL INFRINGEMENT ACTIONS ........ 46
8.8. DEFENSE OF JOINT INFRINGEMENT ACTIONS ............. 46
8.9. CONTRIBUTION ...................................... 47

ARTICLE 9. CONFIDENTIALITY ................................... 47
9.1. NONDISCLOSURE OBLIGATIONS ......................... 47
9.1.1. GENERAL ................................... 47
9.1.2. LIMITATIONS ............................... 47
9.2. SAMPLES ........................................... 48
9.3 TERMS OF THIS AGREEMENT ........................... 48
9.4. PUBLICATIONS ...................................... 48
9.4.1. PROCEDURE ................................. 48
9.4.2. DELAY ..................................... 49
9.4.3. RESOLUTION ................................ 49
9.5. INJUNCTIVE RELIEF ................................. 49

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<PAGE> 6

ARTICLE 10. REPRESENTATIONS AND WARRANTIES .................... 49

ARTICLE 11. INDEMNITY ......................................... 50
11.1. BI INDEMNITY OBLIGATIONS ........................... 50
11.2. TRANSCEND INDEMNITY OBLIGATIONS .................... 50
11.3. PROCEDURE .......................................... 51
11.4. INSURANCE .......................................... 51

ARTICLE 12. TERM AND TERMINATION .............................. 51
12.1. EXPIRATION ......................................... 51
12.2. TERMINATION ........................................ 52
12.2.1. MATERIAL BREACH .......................... 52
12.2.2. BY BI .................................... 52
12.3. EFFECT OF EXPIRATION OR TERMINATION GENERALLY ...... 52
12.3.1. EXISTING OBLIGATIONS ..................... 52
12.3.2. SURVIVAL ................................. 52
12.4. EFFECT OF TERMINATION BY TRANSCEND OR TERMINATION BY
BI PURSUANT TO SECTION 12.2.2 ...................... 52
12.4.1. TERMINATION OF LICENSES .................. 52
12.4.2. DISPOSITION OF INVENTORY OF LICENSED
PRODUCTS ................................. 53
12.4.3. ASSIGNMENT OF REGULATORY APPROVALS;
MANUFACTURING RIGHTS ..................... 53
12.5. BI OPTIONS FOLLOWING TRANSCEND BREACH .............. 53
12.5.1. TERMINATION FOR TRANSCEND BREACH ......... 53
12.5.2. BI'S RIGHT TO OFFSET ROYALTIES AND OTHER
PAYMENTS ................................. 53

ARTICLE 13. MISCELLANEOUS ..................................... 54
13.1. FORCE MAJEURE ...................................... 54
13.2. ASSIGNMENT ......................................... 54
13.3. SEVERABILITY ....................................... 55
13.4. NOTICES ............................................ 55
13.5. APPLICABLE LAW ..................................... 56
13.6. DISPUTE RESOLUTION; CHOICE OF FORUM ................ 56
13.7. ENTIRE AGREEMENT ................................... 56
13.8. HEADINGS ........................................... 56
13.9. INDEPENDENT CONTRACTORS ............................ 56
13.10. AGREEMENT NOT TO SOLICIT EMPLOYEES ................. 57
13.11. EXPORTS ............................................ 57
13.12. WAIVER ............................................. 57
13.13. COUNTERPARTS ....................................... 57

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<PAGE> 7

Exhibit A - Program Plan for ARDS Development Program
Exhibit B - Transcend Patent Rights
Exhibit C - Stock Purchase Agreement
Exhibit D - Terms of Supply Agreement

<PAGE> 8

DEVELOPMENT AND LICENSE AGREEMENT
---------------------------------

THIS DEVELOPMENT AND LICENSE AGREEMENT dated as of February 28, 1997 (the
"Agreement") is made between TRANSCEND THERAPEUTICS, INC., a Delaware
corporation having its principal place of business at 640 Memorial Drive,
Cambridge, Massachusetts 02139 U.S.A. ("Transcend"), and BOEHRINGER INGELHEIM
INTERNATIONAL GMBH, a limited liability company organized under the laws of the
Federal Republic of Germany having its principal place of business at D-55216
Ingelheim/Rhein Germany ("BI").

R E C I T A L S

A. Transcend, an emerging pharmaceutical company with a particular
therapeutic focus on critical care, is developing Procysteine(R), a novel
intracellular glutathione-repleting agent for the treatment of diseases caused
by oxidative stress and resultant tissue damage.

B. BI is in the business of discovering, developing and marketing
pharmaceuticals and wishes to establish a collaboration with Transcend for the
worldwide development and marketing of intravenous formulations of Procysteine,
initially for the treatment of acute respiratory distress syndrome.

C. Transcend is willing to enter into a collaboration with BI for the
worldwide development and marketing of intravenous formulations of Procysteine
on the terms and conditions set forth below.

NOW THEREFORE, in consideration of the premises and of the covenants
herein contained, Transcend and BI mutually agree as follows:

ARTICLE 1. DEFINITIONS

For purposes of this Agreement, the Terms defined in this Article shall
have the meanings specified below.

1.1 "ADDITIONAL DEVELOPMENT PROGRAM" shall mean a development program
(which may encompass a complete development program, a clinical protocol or a
protocol outline) for the utilization of Procysteine I.V. for the treatment or
prevention of an Other Indication, as further specified in Section 4.3.

1.2. "ADMINISTRATION COSTS" shall mean, with respect to a Licensed Product
co-promoted in the United States by Transcend pursuant to Section 6.2.2,
allocable

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<PAGE> 9
Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

overhead costs and expenses (including without limitation such items as finance
and accounting costs, legal and tax department costs and other general
administration charges), PROVIDED THAT any allocation of costs and expenses
shall be in accordance with reasonable and customary cost allocation procedures
and shall not exceed ************** of Net Sales of such Licensed Product.

1.3 "AFFILIATE" shall mean any corporation or other entity which controls,
is controlled by, or is under common control with a Party. A corporation or
other entity shall be regarded as in control of another corporation or entity if
it owns or directly or indirectly controls at least fifty percent (50%) of the
voting stock or other ownership interest of the other corporation or entity, or
if it possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of the corporation or other entity or
the power to elect or appoint fifty percent (50%) or more of the members of the
governing body of the corporation or other entity.

1.4. "ARDS" shall mean acute respiratory distress syndrome.

1.5. "ARDS DEVELOPMENT PROGRAM" shall mean the development program for
obtaining regulatory approval for Procysteine I.V. for the treatment of ARDS in
the Territory, undertaken jointly by the Parties in accordance with the ARDS
Program Plan, as further specified in Section 4.1.

1.6. "ARDS NDA FILING" shall mean the filing of an NDA relating to
Procysteine I.V. for the treatment of ARDS.

1.7 "ARDS PROGRAM PLAN" shall mean the development plan for the ARDS
Development Program set forth as Exhibit A to this Agreement (as such plan may
be amended from time to time by the Joint Steering Committee or by mutual
agreement of the Parties).

1.8. "BI PATENT RIGHTS" shall mean any present and future patents, patent
applications, patent extensions, certificates of invention, or applications for
certificates of invention, together with any divisions, continuations or
continuations-in-part thereof, which are owned or controlled by, or licensed
(with the right to sublicense) to, BI that cover BI Technology.

1.9. "BI TECHNOLOGY" shall mean any present and future inventions, trade
secrets, copyrights, data, regulatory submissions and other intellectual
property of any kind (including any proprietary biological materials, compounds
or reagents) including all confidential technical information in the possession
of BI as of the Effective Date and/or during the term of this Agreement, which
are owned or

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<PAGE> 10

controlled by, or licensed (with the right to sublicense) to, BI that (a) are
necessary or useful for the manufacture, use or sale of the Licensed Products,
and (b) BI has elected to disclose to Transcend in the course of, and for use
in, the Program, excluding without limitation any Program Technology owned or
controlled by BI.

1.10. "CLINICAL NUTRITION " shall mean the feeding under professional
supervision of patients requiring special food administration techniques and
devices or nutrients in relation to their medical condition and shall be deemed
to exclude the administration of any product in which Procysteine (i) exceeds
ten percent (10%) by dry weight of the total content of the amino acids, amino
acid precursors and amino acid substrates, or (ii) exceeds one percent (1%) by
weight volume of the product administered in liquid form to patients. Clinical
Nutrition comprises parenteral (intravenous and intraperitoneal) and enteral
(nasogastric, jejunal and oral) nutrition for patient needs in hospitals,
nursing homes, extended care facilities and, if taken under professional
supervision, private residences.

1.11. "COST OF GOODS SOLD" shall mean, with respect to a Licensed Product,
(a) the Manufacturing Costs for such Licensed Product and (b) any royalties or
other amounts payable by Transcend to Third Parties with respect to patents and
other intellectual property rights licensed in connection with the manufacture
or sale of such Licensed Product.

1.12. "DEVELOPMENT EXPENSES" shall mean the external costs and Direct Costs
incurred by BI and/or Transcend following the Effective Date, as applicable, in
connection with the Development Program, including costs relating to the conduct
of clinical trials and compliance with product-related regulatory approval
procedures.

1.13. "DEVELOPMENT PROGRAM" shall mean the ARDS Development Program, MOD
Development Program, if any, and any Additional Development Program.

1.14. "DIRECT COSTS" shall mean the following costs incurred by BI and/or
Transcend, as applicable, in connection with the Development Program: (a) Cost
of Goods Sold for Licensed Products used in the conduct of clinical trials; (b)
allocable compensation costs of personnel (including, research, development and
general and administrative personnel, but excluding manufacturing personnel)
included in the Project Team; and (c) allocable overhead expenses; PROVIDED THAT
any allocation of costs and expenses shall be in accordance with reasonable and
customary costs allocation procedures.

1.15. "DISTRIBUTION COSTS" shall mean, with respect to a Licensed Product
co-promoted in the United States by Transcend pursuant to Section 6.2.2,
allocable indirect distribution costs and expenses (including without limitation
such items as order processing costs, warehousing costs and general insurance
costs), PROVIDED, THAT

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<PAGE> 11

Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

any allocation of costs and expenses shall be in accordance with reasonable and
customary cost allocation procedures and shall not exceed ************* of Net
Sales of such Licensed Product.

1.16. "EFFECTIVE DATE" shall mean the date first written above.

1.17. "E.U." means the countries included in the European Union as of the
Effective Date.

1.18. "FDA" shall mean the United States Food and Drug Administration.

1.19. "FIELD" shall mean the treatment or prevention of all disease
indications, provided, however, that Field shall not include Clinical Nutrition
and Nutrition.

1.20. "FIRST COMMERCIAL SALE" of a Licensed Product in each country shall
mean the first sale for use or consumption by the general public of such
Licensed Product in such country based on the required marketing and pricing
approval granted by the governing health authority of such country.

1.21. "JOINT DEVELOPMENT TEAM" shall mean the joint development team
composed of representatives of BI and Transcend, as more fully described in
Section 5.1 of this Agreement.

1.22. "JOINT MARKETING TEAM" shall mean the joint United States marketing
team composed of representatives of BI and Transcend, as more fully described in
Section 5.2 of this Agreement.

1.23. "JOINT STEERING COMMITTEE" shall mean the joint steering committee
composed of representatives of BI and Transcend, as more fully described in
Section 5.3 of this Agreement.

1.24. "LICENSED PRODUCT" shall mean a pharmaceutical product in finished
packaged form comprising Procysteine I.V.

1.25. "MAJOR MARKET COUNTRIES" shall mean the United States, Canada, the
United Kingdom, Germany, France, Italy, Spain and Japan.

1.26 "MANUFACTURING COSTS" shall mean, with respect to a Licensed Product,
the fully-allocated cost incurred by Transcend in manufacturing (or having
manufactured) and supplying such Licensed Product to BI, which cost shall
include without limitation material costs, allocable compensation costs of
manufacturing

-4-
<PAGE> 12

Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

personnel, manufacturing overhead (including without limitation such items as
rent, utility expenses, depreciation and amortization), but shall not include
any allocation of non-manufacturing managerial or non-manufacturing employee
overhead or of general and administrative expenses.

1.27. "MARKETING EXCLUSIVITY" shall mean the marketing exclusivity afforded
approved drug products pursuant to (a) the exclusivity provisions of the United
States "Drug Price Competition and Patent Term Restoration Act of 1984", or its
equivalent in a country other than the United States, or (b) the exclusivity
provisions of the United States "Orphan Drug Act", or its equivalent in a
country other than the United States.

1.28. "MEDICAL COSTS" shall mean, with respect to a Licensed Product
co-promoted in the United States by Transcend pursuant to Section 6.2.2,
allocable medical costs and expenses (including without limitation such items as
drug registration maintenance and re-registration costs, personnel and material
costs for drug safety and for medical support in the marketing of such Licensed
Product, and costs associated with post-approval clinical trials for such
Licensed Product), provided that any allocation of costs and expenses shall be
in accordance with reasonable and customary cost allocation procedures and
********************************* of Net Sales of such Licensed Product.

1.29. "MOD" shall mean multiple organ dysfunction.

1.30. "MOD DEVELOPMENT PROGRAM" shall mean a development program for
obtaining regulatory approval for Procysteine I.V. for the treatment or
prevention of MOD in the Territory, as further specified in Section 4.2.

1.31. "MOD PIVOTAL TRIAL " shall mean a clinical trial that is conducted as
a part of the MOD Development Program and is designed to obtain regulatory
approval in the United States or the E.U. of Procysteine I.V. for the treatment
or prevention of MOD.

1.32. "MOD PIVOTAL TRIAL MILESTONE EVENT" means (a) in the event that the
MOD Pivotal Trial is undertaken pursuant to Section 4.2.2, the commencement of
the MOD Pivotal Trial, and (b) in the event that the MOD Pivotal Trial is
undertaken pursuant to Section 4.2.3, the completion of the MOD Pivotal Trial.

1.33. "MOD PROGRAM PLAN" shall mean the development plan for the MOD
Development Program to be set forth as an addendum to this Agreement if and when
approved by the Joint Steering Committee pursuant to the provisions of Section
4.2.2 (as such plan may be amended from time to time by the Joint Steering
Committee or by mutual agreement of the Parties).

-5-

<PAGE> 13

Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

1.34. "NDA" shall mean a new drug application filed with the FDA to obtain
marketing approval for a Licensed Product in the United States and any
comparable application filed with the regulatory authorities of the E.U. to
obtain marketing approval for a Licensed Product in the E.U.

1.35. "NET CONTRIBUTION" shall mean, with respect to a Licensed Product,
the Net Sales of such Licensed Product ****************************************
************************* payable to Transcend pursuant to Section 7.4.1 below.

1.36. "NET SALES" shall mean the invoiced sales price charged by BI, its
Affiliates and/or sublicensees for the sale of Licensed Products to independent
Third Parties in the Territory, after deduction of (a) excises, sales taxes or
other taxes imposed upon and paid with respect to such sales (excluding
national, state or local taxes based on income), (b) charge back payments or
rebates granted to managed care organizations or federal, state and local
governments, their agencies, purchasers and reimbursers, and (c)***************
*******************************************************************************
*************************************************** to cover INTER ALIA all bona
fide cash and/or quantity discounts, credits for returns, handling and
transportation charges. With respect to Major Market Countries, should future
changes occur in any such country with regard to reimbursement to social
security or health maintenance organizations that are considerable, the parties
shall in good faith agree to a new definition of "Net Sales" for such country.

The transfer of the Licensed Products by BI or one of its Affiliates to (i)
another Affiliate of BI, or (ii) a permitted sublicensee of BI, or (iii) a
Recognized Agent for resale in a Major Market Country, shall not be considered a
sale; in such cases, Net Sales shall be determined based on the invoiced sales
price by the Affiliate, or permitted sublicensee of BI or any such Recognized
Agent to its customer, less the deductions allowed under this Section. Every
other commercial use or disposition of Licensed Products by BI or its
Affiliates, Recognized Agents (as provided above) or permitted sublicensees of
BI, other than reasonable quantities of promotional samples or bona fide sale to
a bona fide customer shall be considered a sale of the Licensed
Products at the weighted average Net Sales price then being invoiced by the
seller in arm's length transactions.

BI or its Affiliates shall be deemed to have sold a "Bundled Product"
if the Licensed Products are sold by BI or its Affiliates pursuant to an
agreement with an

-6-

<PAGE> 14

Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

independent customer specifying, for a combination of products or services, (i)
a single price, (ii) other terms of purchase not separately identifying either a
price per product or the effective deductions referred to above perproduct or
(iii) a price for units of the Licensed Products which is discounted below BI's
or its Affiliates' standard invoice price per unit of the Licensed Products by
at least ******** *************** more than the amount that any other product or
service in the Bundled Product is discounted below such other product's or
service's standard invoice price. In order to calculate the Net Sales of the
Licensed Products included in a Bundled Product (a) in the case of the foregoing
clauses (i) and (ii), the total Net Sales of the Bundled Product shall be
multiplied by a fraction, the numerator of which shall be the product of the
number of units of the Licensed Products sold multiplied by the standard invoice
price per unit of the Licensed Products, and the denominator of which shall be
the sum, for all products or services included in the Bundled Product, of the
products of the number of units sold for each product or service in the Bundled
Product multiplied by the standard invoice price per unit for each such product
or service and (b) in the case of the foregoing clause (iii), the Parties will
determine whether an adjustment to Net Sales is appropriate and, if so, a
mutually agreeable method of calculation.

1.37. "NUTRITION" shall mean the feeding of individuals and shall include
all products not having therapeutic claims and not included in the definition of
Clinical Nutrition that have as their principal purpose providing nutrients to
an individual.

1.38. "OTHER INDICATION" shall mean any disorder or disease in the Field,
other than ARDS or MOD.

1.39. "OTHER INDICATION PROGRAM PLAN" shall mean the development plan for
an Additional Development Program to be set forth as an addendum to this
Agreement when approved by the Joint Steering Committee pursuant to the
provisions of Section 4.3.1 (as such plan may be amended from time to time by
the Joint Steering Committee or by mutual agreement of the Parties).

1.40. "PARTY" shall mean Transcend or BI; "PARTIES" shall mean Transcend
and BI.

1.41. "PROCYSTEINE" shall mean the intracellular glutathione-repleting
agent, L-2-oxothiazolidine-4-carboxylic acid, that has been researched and
developed by Transcend under the registered trademark "Procysteine(R)".

1.42. "PROCYSTEINE I.V." shall mean formulations of Procysteine to be
administered intravenously.

-7-
<PAGE> 15

Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

1.43. "PRODUCT-RELATED COSTS" shall mean the sum of (a) Cost of Goods Sold,
(b) Sales and Marketing Costs, (c) Medical Costs, (d) Administration Costs and
(e) Distribution Costs.

1.44. "PROGRAM PATENT RIGHTS" shall mean those United States and foreign
patents and patent applications, including any division, continuation,
continuation-in-part, reissue, renewal or extension thereof, or substitute
therefor, and the letters patent that may be issued thereon, that cover the
Program Technology.

1.45. "PROGRAM PLAN" shall mean the ARDS Program Plan, MOD Program Plan
and/or Other Indication Program Plan(s).

1.46. "PROGRAM TECHNOLOGY" shall mean any inventions, discoveries, trade
secrets, copyrightable works, know-how, data, regulatory submissions and other
intellectual property of any kind (including any proprietary biological
materials, compounds or reagents) conceived or reduced to practice by either
Party, solely or jointly, during and as a part of the Development Program.

1.47. "PROJECT TEAM" shall mean those individuals who are employed by
Transcend or BI and who have been assigned responsibility for the development
and commercialization of Procysteine I.V.

1.48. "RECOGNIZED AGENT" shall mean an entity other than an Affiliate of BI
through which BI regularly distributes and sells its products in a particular
country or region.

1.49. "SALES AND MARKETING COSTS" shall mean, with respect to a Licensed
Product co-promoted in the United States by Transcend pursuant to Section 6.2.2,
allocable promotion and field sales force costs (including without limitation
costs associated with publications, mailings, medical symposia and promotional
films, advertising agency fees, field force commissions on sales, field force
management and administration costs, costs of sales offices and costs of
training of field sales force), PROVIDED THAT any allocation of costs and
expenses shall be in accordance with reasonable and customary cost allocation
procedures and (a) over a period commencing on the date of the First Commercial
Sale of such Licensed Product and ending on the ****************** of the date
of such First Commerical Sale (the "Product Launch Period"), shall not exceed an
average of ***************************** of Net Sales of such Licensed Product
per year and (b) following the Product Launch Period, shall not exceed
*************************** of Net Sales of such Licensed Product.

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<PAGE> 16

1.50. "STOCK PURCHASE AGREEMENT" shall mean the Stock Purchase Agreement
dated as of February 28, 1997 attached as EXHIBIT C to this Agreement.

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

1.52. "THIRD PARTY " shall mean any entity other than Transcend or BI,
their respective Affiliates and Recognized Agents.

1.53. "TRANSCEND PATENT RIGHTS" shall mean all present and future patents,
patent applications, patent extensions, certificates of invention, or
applications for certificates of invention, together with any divisions,
continuations or continuations-in-part thereof, which are owned or controlled
by, or licensed (with the right to sublicense) to, Transcend that cover
Transcend Technology. Transcend Patent Rights as of the Effective Date are
listed in EXHIBIT B hereto. Transcend agrees to update Exhibit B at least once
annually.

1.54. "TRANSCEND TECHNOLOGY" shall mean all present and future inventions,
trade secrets, copyrights, data, regulatory submissions and other intellectual
property of any kind (including any proprietary biological materials, compounds
or reagents) including all confidential technical information in the possession
of Transcend as of the Effective Date and during the term of this Agreement,
which are owned or controlled by, or licensed (with the right to sublicense) to,
Transcend that are necessary or useful for the manufacture, use or sale of the
Licensed Products, excluding without limitation any Program Technology owned or
controlled by Transcend.

1.55. "VALID PATENT CLAIM" shall mean either (a) a claim of an issued and
unexpired patent included within the Transcend Patent Rights and/or Program
Patent Rights, which has not been held permanently revoked, unenforceable or
invalid by a decision of a court or other governmental agency of competent
jurisdiction, unappealable or unappealed within the time allowed for appeal, and
which has not been admitted to be invalid or unenforceable through reissue or
disclaimer or otherwise or (b) a claim of a pending patent application included
within the Transcend Patent Rights and/or Program Patent Rights, which claim was
filed in good faith and has not been abandoned or finally disallowed without the
possibility of appeal or refiling of said application.

ARTICLE 2. SCOPE AND STRUCTURE OF THE COLLABORATION

2.1 GENERAL. Transcend and BI wish to establish a collaborative alliance to
develop and market the Licensed Products, initially for the treatment of ARDS
and, subject to Section 4.2 and 4.3, the treatment or prevention of MOD and
Other Indications. During the course of this collaboration, Transcend and BI
shall communicate regularly and shall assume different rights and
responsibilities for the

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<PAGE> 17

development and commercialization of the Licensed Products, based on the phase
of development and commercialization and the country in the Territory involved,
all as more specifically described below.

ARTICLE 3. LICENSE GRANTS; RESERVED RIGHTS

3.1. Grant of License Rights by Transcend to BI
------------------------------------------

3.1.1 EXCLUSIVE LICENSE TO LICENSED PRODUCTS. Transcend hereby grants
to BI, and BI hereby accepts, an exclusive (even as to Transcend, subject to the
Co-Promotion Option, as that term is defined in Section 6.2.2) royalty-bearing
license, under the Transcend Patent Rights and the Transcend Technology and
Transcend's rights in and to Program Patent Rights and the Program Technology,
to import, use, have used, offer to sell, sell and have sold the Licensed
Products in the Field within the Territory. Such license shall include the right
to grant sublicenses, under the Transcend Patent Rights and the Transcend
Technology and Transcend's rights in and to the Program Patent Rights and the
Program Technology, to Affiliates of BI and Recognized Agents and, with the
written consent of Transcend which shall not be unreasonably withheld, to Third
Parties. Transcend reserves the exclusive right to manufacture and have
manufactured the Licensed Products subject to Section 6.1 below.

3.1.2 RESERVATION OF RIGHTS. Notwithstanding the rights granted to BI
under this Article 3, Transcend at all times reserves the right, under the
Transcend Patent Rights and the Transcend Technology and Transcend's rights in
and to Program Patent Rights and the Program Technology, to make and use
reasonable quantities of the Licensed Products for its own research purposes and
development purposes. In the event BI obtains the Manufacturing License under
Section 6.1.4, BI will agree to supply Transcend with reasonable amounts of the
Licensed Products for such purposes at a price equal to the actual cost of
manufacture.

3.2. GRANT OF LICENSE RIGHTS BY BI TO TRANSCEND. BI hereby grants to
Transcend to the extent BI is legally entitled to do so, a worldwide,
non-exclusive, fully paid and royalty-free right and license, under the BI
Patent Rights and the BI Technology and BI's rights in and to the Program Patent
Rights and the Program Technology, to enable Transcend to comply with its
obligations under this Agreement.

3.3. Limitations on Transcend Reserved Rights.
----------------------------------------

3.3.1. RESERVED RIGHTS. Except for the licenses expressly granted by
Transcend to BI pursuant to Section 3.1, Transcend reserves all rights under the
Transcend Patent Rights, the Transcend Technology and Transcend's rights in and
to the Program Patent Rights and the Program Technology. The foregoing reserved

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<PAGE> 18

rights shall include, but not be limited to, the rights to develop, make, use,
sell and import oral formulations of Procysteine (and to sublicense Third
Parties to do so), PROVIDED THAT Transcend shall not grant a license to a Third
Party under Transcend Patent Rights, the Transcend Technology and Transcend's
rights in and to the Program Patent Rights and the Program Technology unless it
first complies with the provisions of Section 3.3.2, and any such license shall
be subject to the restrictions set forth in Section 3.3.3.

3.3.2. RIGHT OF FIRST NEGOTIATION. Transcend agrees that, at such time
as it has a bona fide interest in seeking to enter into a collaborative
development and commercialization arrangement with a Third Party for oral
formulations of Procysteine for use in the Field, it shall first notify BI of
such decision and, at BI's election, shall enter into negotiations with BI
relating to the development and commercialization of oral formulations of
Procysteine for use in the Field. Transcend shall not enter into negotiations
with any Third Party relating to the development and commercialization of oral
formulations of Procysteine for use in the Field for a period of ninety (90)
days following the date it notifies BI of its decision to seek to enter into
such an arrangement.

3.3.3. RESTRICTIONS. Notwithstanding the provisions of Section 3.3.1,
Transcend agrees not to market and sell, or license a third party to market or
sell, an oral formulation of Procysteine for the treatment or prevention of (a)
ARDS, in any country in which BI, at the time that Transcend commences clinical
development of such oral formulation for ARDS, is then developing, marketing or
selling a Licensed Product for the treatment or prevention of ARDS, (b) MOD, in
any country in which BI, at the time that Transcend commences clinical
development of such oral formulation for MOD, is then developing, marketing or
selling a Licensed Product for the treatment or prevention of MOD, and (c) any
Other Indication in any country in which BI, at the time that Transcend
commences clinical development of such oral formulation for such Other
Indication, is then developing, marketing or selling a Licensed Product for the
treatment or prevention of such Other Indication. BI acknowledges that, prior to
the Effective Date, Transcend has commenced clinical development of an oral
formulation of Procysteine for the treatment of amyotrophic lateral sclerosis
and the treatment of atherosclerotic cardiovascular disease, and, therefore,
such indications are excluded from the prohibition set forth in subsection (c)
of this Section 3.3.3.

3.4. Preservation of Licenses in Bankruptcy.
--------------------------------------

3.4.1. BANKRUPTCY FILING. If Transcend should file a petition under
bankruptcy laws, or if any involuntary petition shall be filed against
Transcend, BI shall be protected in the continued enjoyment of BI's rights as
licensee hereunder to the maximum feasible extent including, without limitation,
if it so elects, the protection conferred upon licensees under Section 365(n) of
Title 11 of the U.S. Code,

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<PAGE> 19

or any similar provision of any applicable law. Transcend shall give BI
reasonable prior notice of the filing of any voluntary petition, and prompt
notice of the filing of any involuntary petition, under any bankruptcy laws.

3.4.2. INTELLECTUAL PROPERTY FOR PURPOSE OF BANKRUPTCY CODE. The
Transcend Technology, Transcend Patent Rights, Program Technology and Program
Patent Rights shall be deemed to be "intellectual property" as that term is
defined in 11 U.S.C. Section 101(56) or any successor provision.

ARTICLE 4. DEVELOPMENT OF LICENSED PRODUCTS

4.1. ARDS Development Program
------------------------

4.1.1. TRANSCEND RESPONSIBILITIES. Subject to oversight by the Joint
Development Team, Transcend shall have principal responsibility for, and shall
utilize reasonable diligence in connection with, (a) the conduct of the ARDS
Development Program in the Territory (excluding Japan), in accordance with the
ARDS Program Plan, (b) compliance with required product-related regulatory
approval procedures, and (c) seeking all applicable required regulatory
approvals necessary for the marketing of Licensed Products in the Territory
(excluding Japan) for the treatment or prevention of ARDS.

4.1.2. BI RESPONSIBILITIES. BI shall notify Transcend on or before
May 31, 1997 as to whether or not it intends to commence clinical development
of Procysteine I.V. for ARDS in Japan. In the event that BI notifies Transcend
on or before May 31, 1997 that it intends to commence such clinical
development, the Parties, acting through the Joint Development Team and the
Joint Steering Committee, shall amend the ARDS Program Plan to reflect the
agreed-upon development activities in Japan, and subject to oversight by the
Joint Development Team, BI shall have principal responsibility for (a) the
conduct of the ARDS Development Program in Japan, in accordance with the ARDS
Program Plan (as so amended), (b) compliance with required product-related
regulatory approval procedures, and (c) seeking all applicable required
regulatory approvals necessary for the marketing of Licensed Products in Japan.
In the event that BI fails to notify Transcend on or before May 31, 1997 that
it intends to commence such clinical development, then BI shall be obligated to
use commercially reasonable efforts to identify a sublicensee for Japan and
enter into a sublicense agreement, on or before December 31, 1997, to develop
and commercialize Procysteine I.V. for ARDS in Japan. Transcend agrees to
provide reasonable assistance to BI in identifying such potential sublicensees,
including providing BI with a list of potential sublicensees. Any such
sublicense shall require

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<PAGE> 20

Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

Transcend's prior written consent. In the event that a sublicense agreement is
not entered into on or before December 31, 1997, all rights relating to
Procysteine I.V. in Japan shall revert to Transcend, and the licenses granted
under Section 3.1 shall terminate with respect to Japan.

4.1.3. PROGRAM FUNDING. Transcend shall bear all Development Expenses
relating to the ARDS Development Program and regulatory activities undertaken
pursuant to Section 4.1.1, including, but not limited to, out-of-pocket expenses
incurred by BI in connection with such activities at the request of Transcend.
BI shall bear all Development Expenses relating to the ARDS Development Program
and regulatory activities undertaken pursuant to Section 4.1.2, including, but
not limited to, out-of-pocket expenses incurred by Transcend in connection with
such activities at the request of BI.

4.1.4. FILING FOR ARDS APPROVAL IN UNITED STATES Notwithstanding the
provisions of Section 4.1.1., it is contemplated that the decision to file an
NDA with the FDA for approval of Procysteine I.V. for ARDS will be made by
mutual agreement of the Parties, acting through the Joint Steering Committee. In
the event that BI does not agree that an NDA filing is appropriate and Transcend
wishes to make such a filing, Transcend shall have the right to make such filing
and shall provide written notice of such filing to BI (a "Notice of Transcend
ARDS Filing"). Within thirty (30) days after BI receives a Notice of Transcend
ARDS Filing, it shall elect either (a) to **************************************
********************************************* prior to the expiration of such
30-day period, or (b) ********************************************************
************************** as specified in Section 7.3, in which event all
rights to Procysteine I.V. for the treatment of ARDS shall revert to Transcend,
and the licenses granted under Section 3.1 shall terminate to the extent of such
reversion of rights, provided that BI shall not be required to make the
foregoing election UNLESS the **************************************************
****************** ******************************************* specified by
applicable regulatory authorities. In the event that (a) BI receives a
******************************* (b) BI is not required to make an election under
this subsection due to the proviso in the preceding sentence, and (c) Transcend
*************************************************************************
*********** then BI shall be obligated to pay to Transcend at the time of such
*********** the milestones associated with ************************************.

4.2. MOD DEVELOPMENT PROGRAM.

4.2.1. GENERAL. As of the Effective Date, Transcend and BI have not
agreed to commence a MOD Development Program. The Parties, acting through the
Joint Development Team, shall consider the establishment of a MOD Development

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<PAGE> 21

Program and shall make a determination prior to June 30, 1997 as to whether the
joint conduct of a MOD Development Program is desirable.

4.2.2. JOINT DEVELOPMENT PROGRAM. In the event that the Joint
Development Team determines, on or before June 30, 1997, that the Parties should
jointly undertake a MOD Development Program, the Parties, acting through the
Joint Development Team and the Joint Steering Committee, shall agree upon a MOD
Program Plan to reflect the agreed-upon activities to be conducted pursuant to
the MOD Development Program, and shall append such MOD Program Plan to this
Agreement. In such event, and subject to oversight by the Joint Development
Team:

(a) Transcend shall have principal responsibility for, and
shall utilize reasonable diligence in connection with, (i)
the conduct of the MOD Development Program in the Territory
(excluding Japan), in accordance with the MOD Program Plan,
(ii) compliance with required product-related regulatory
approval procedures, and (iii) seeking all applicable
required regulatory approvals necessary for the marketing of
Licensed Products in the Territory (excluding Japan) for the
treatment or prevention of MOD.

(b) Unless in accordance with Section 4.1.2 BI has elected
not to develop Procysteine I.V. for ARDS in Japan and the
applicable rights have reverted to Transcend, BI shall have
principal responsibility for, and shall utilize reasonable
diligence in connection with, (i) the clinical development
of Procysteine I.V. for the treatment or prevention of MOD
in Japan in accordance with the MOD Program Plan, (ii)
compliance with all required product-related approval
procedures, and (iii) seeking applicable required regulatory
approvals necessary for the marketing of Licensed Products
in Japan for the treatment or prevention of MOD.

(c) All Development Expenses relating to the MOD Development
Program and regulatory activities undertaken pursuant to
Section 4.2.2(a), including, but not limited to,
out-of-pocket expenses incurred by a Party in connection
with such activities at the request of the other Party,
shall be borne fifty percent (50%) by each Party. BI shall
bear all Development Expenses relating to the MOD
Development Program and regulatory activities undertaken
pursuant to Section 4.2.2 (b),

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<PAGE> 22

Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

including, but not limited to, out-of-pocket expenses
incurred by Transcend in connection with such activities at
the request of BI.

(d) In the event that the Parties jointly undertake the MOD
Development Program but the Joint Development Team is unable
to reach agreement on whether to commence Phase III clinical
trials, either Party shall have the right to commence Phase
III clinical trials relating to the use of Procysteine I.V.
for the treatment or prevention of MOD and to seek
regulatory approval therefor in the Territory, and shall
provide written notice of its intent to commence such trials
to the Joint Steering Committee. The Party or Parties
commencing such Phase III clinical trials pursuant to this
subsection (d) is/are referred to as the "Commencing Party".
The Commencing Party shall, except as provided below, pay
***************************** of the Development Expenses
incurred in connection with the Phase III clinical trial or
trials and all regulatory activities in connection
therewith. If the Commencing Party files an NDA in the
United States or a Major Market Country of the E.U. based on
such Phase III clinical trials and receives regulatory
approval for the use of Procysteine I.V. in the treatment or
prevention of MOD, the other Party shall reimburse the
Commencing Party for ******************************* of the
Development Expenses incurred by the Commencing Party
pursuant to this subsection (d). In addition, if the
Commencing Party is Transcend and (i) BI wishes to retain
commercialization rights to Procysteine I.V. for the
treatment or prevention of MOD, BI shall, *****************
************************************ in the United States or
a Major Market Country of the E.U., pay to Transcend
*********************************** with respect to
************************************* (when applicable), the
filing for ************* and the receipt of ***********, as
specified in Section 7.3 below; or (ii) if BI does not wish
to retain commercialization rights to Procysteine I.V. for
the treatment or prevention of MOD, all rights relating to
Procysteine I.V. for the treatment or prevention of MOD in
the Territory shall revert to Transcend, and the licenses
granted under Section 3.1 shall terminate with respect to
Procysteine I.V. for the treatment or

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<PAGE> 23

Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

prevention of MOD in the Territory. BI shall indicate to
Transcend in writing *****************************
*************************************** of its election
concerning retention of commercialization rights, PROVIDED
THAT failure of BI to reimburse Transcend for Development
Expenses and to make *************************************
shall be deemed to be an election by BI under subsection
(d)(ii) above. If BI makes or is deemed to make an election
under subsection (d)(ii) above, Transcend shall have the
right to commercialize, alone or with a Third Party,
Procysteine I.V. in the Territory for the treatment or
prevention of MOD, PROVIDED THAT Transcend or any such Third
Party shall utilize a different product name for Procysteine
I.V. than is being utilized by BI for any Procysteine I.V.
product for ARDS.

4.2.3. Non-Joint Development Program. In the event that the
Joint Development Team does not determine, on or before *************
that the Parties should jointly undertake a MOD Development Program
(whether due to an affirmative decision not to jointly undertake such
a program or due to the inability of the Joint Development Team to
make a determination relating thereto), each Party shall have the
right, but not the obligation, to commence a MOD Development Program.
In the event that either Party decides to undertake such a MOD
Development Program, such Party shall notify the Joint Development
Team and, in consultation with the Joint Development Team, develop
clinical trial plans for such MOD Development Program, PROVIDED THAT
the Party undertaking such program shall have final authority over
such clinical trial plans. All Development Expenses relating to a MOD
Development Program shall be borne by the Party undertaking such
program, except that

(a) If Transcend undertakes a MOD
Development Program pursuantct to this
Section 4.2.3, Transcend shall bear all
Development Expenses of such MOD
Development Program except as follows:

(i) in the event that Transcend
undertakes a Phase II

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<PAGE> 24

Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

clinical study (which is not a MOD
Pivotal Trial) pursuant to the MOD
Development Program, BI shall have the
right (but not the obligation),
exercisable within thirty (30) days
after the occurrence of either (A)
receipt by BI of a full study report on
such Phase II clinical study, or (B) the
NDA Filing relating to Procysteine I.V.
for the treatment of ARDS, to make the
following payments to Transcend:

(x) reimbursement equal to
************************* of
the Development Expenses
incurred by Transcend in such
MOD Development Program prior
to the date of such exercise
made following the occurrence
of one (but not both) of the
events set forth in (A) and
(B) above, or **************
******* of such Development
Expenses if such exercise is
made following the occurrence
of both of the events set
forth in (A) and (B) above,
and

(y) ************************** of
all Development Expenses
incurred in such MOD
Development Program from and
after the date of such
exercise, including without
limitation a MOD Pivotal
Trial, and

(z) the milestone payments set
forth in Section 7.3 with
respect to the **************
**************** the filing
for ************ and the
***********************, when
applicable.

In the event that BI does not exercise
its right to provide such funding
pursuant to this subsection (i), the
provisions of subsection (iii) shall
apply.

(ii) In the event that Transcend undertakes a
Phase II/III clinical study pursuant to
the MOD Development Program, BI shall
have the right (but not the obligation),
exercisable within thirty (30)

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<PAGE> 25

Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

days after the NDA filing relating to
Procysteine I.V. for the treatment of
ARDS, to make the following payments to
Transcend:

(x) reimbursement equal to ******
******of the Development
Expenses incurred by Transcend
in such MOD Development
program prior to the date of
such exercise, and

(y) ******************* of all
Development Expenses incurred
by Transcend in such MOD
Development Program from and
after the date of such
exercise, including without
limitation a MOD Pivotal
Trial, and

(z) the milestone payments set
forth in Section 7.3 with
respect to the **************
**************** the ********
*************receipt of MOD
approval, when applicable.

In the event that BI does not exercise
its right to provide such funding
pursuant to this subsection (ii), the
provisions of subsection (iii) shall
apply.

(iii) In the event that Transcend undertakes a
Phase III clinical study (following a
Phase II clinical study) or a Phase
II/III clinical study pursuant to the
MOD Development Program and BI has not
exercised its funding right pursuant to
subsection (i) or (ii), as applicable,
BI shall have the right (but not the
obligation), exercisable within thirty
(30) days after receipt of regulatory
approval in the United States or a Major
Market Country of the E.U. for the use
of Procysteine I.V. for the treatment or
prevention of MOD, to make the following
payments to Transcend:

(x) reimbursement equal to ******
************** of the
Development Expenses

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<PAGE> 26

Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

incurred by Transcend in such
MOD Development Program prior
to the date of such exercise
(including Development
Expenses incurred in the Phase
II, Phase III and Phase II/III
clinical studies, as
applicable), and

(y) ********************of all
Development Expenses incurred
by Transcend in such MOD
Development Program from and
after the date of such
exercise, and after the date
of such exercise, and

(z) the milestone payments set
forth in Section 7.3 with
respect to the **************
**************** the ********
and the *************** when
applicable.

In the event that BI fails to exercise
the right to provide such funding within
such 30-day period and to make the
payments provided above, all rights
relating to Procysteine I.V. for the
treatment or prevention of MOD in the
Territory shall immediately revert to
Transcend, and the licenses granted
under Section 3.1 shall terminate with
respect to Procysteine I.V. for the
treatment or prevention of MOD in the
Territory (in which event Transcend
shall have the right to commercialize,
alone or with a Third Party, Procysteine
I.V. for the treatment or prevention of
MOD, PROVIDED THAT Transcend or any such
Third Party shall utilize a different
product name for Procysteine I.V. than
is being utilized by BI for any
Procysteine I.V. product for ARDs.

4.3. Additional Development Programs.
-------------------------------

4.3.1. GENERAL. Any plans or intentions of either Party with respect
to the development of Procysteine I.V. for Other Indications shall be proposed
by such Party to the Joint Development Team. Such plans or intentions include
any clinical

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<PAGE> 27

Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

trials conducted under an IND of such Party, or under an investigator IND. The
Joint Development Team shall consider any such proposal and, if it concurs in
such proposal, shall submit such proposal, together with a protocol, protocol
outline, or a complete development plan and a budget, to the Joint Steering
Committee for review. Upon approval by the Joint Steering Committee, the Parties
shall agree upon an Other Indication Program Plan, which shall (a) reflect the
agreed-upon activities to be conducted pursuant to the Additional Development
Program, (b) set forth the respective responsibilities of the Parties relating
to the Additional Development Program and (c) set forth the agreed-upon budget,
respective funding commitments and milestones, if any, relating to the
Additional Development Program. Such Other Indication Program Plan shall be
appended to this Agreement. In addition to the foregoing, each Party shall
advise the Joint Development Team concerning its plans or intentions with
respect to any preclinical use of Procysteine for Other Indications, and the
results of any such uses.

4.3.2. NON-JOINT DEVELOPMENT. In the event that (a) the Joint
Development Team does not reach agreement to approve a proposed Additional
Development Program, or (b) the Joint Steering Committee does not approve a
proposed Additional Development Program, or (c) the Parties are otherwise unable
to reach agreement to commence an Additional Development Program proposed by
either Party, then either Party shall have the right to conduct such Additional
Development Program, and shall provide written notice of its intent to commence
such Additional Development Program to the Joint Steering Committee. The Party
or Parties commencing such Additional Development Program pursuant to this
Section 4.3.2 is/are referred to as the "Developing Party." The Developing Party
shall, except as provided below, pay ************************* of the
Development Expenses incurred in connection with the Additional Development
Program and all regulatory activities in connection therewith. If the Developing
Party files an NDA in the United States or a Major Market Country of the E.U.
and receives regulatory approval for the use of Procysteine I.V. in the
treatment or prevention of the Other Indication specified for the Additional
Development Program, the other Party shall reimburse the Developing Party for
****************** of the Development Expenses incurred by the Developing Party
pursuant to this Section 4.3.2. In addition, if the Developing Party is
Transcend and (i) BI wishes to retain commercialization rights to Procysteine
I.V. for the treatment or prevention of the Other Indication specified for the
Additional Development Program, BI shall, within thirty (30) days after receipt
of regulatory approval in the United States, or a Major Market Country of the
E.U., pay to Transcend any agreed-upon milestone payments set forth in the Other
Indication Program Plan; or (ii) if BI does not wish to retain commercialization
rights to Procysteine I.V. for the treatment or prevention of the Other
Indication specified for the Additional Development Program, all rights relating
to Procysteine I.V. for the

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<PAGE> 28

treatment or prevention of the Other Indication specified for the Additional
Development Program in the Territory shall revert to Transcend, and the licenses
granted under Section 3.1 shall terminate with respect to Procysteine I.V. for
the treatment or prevention of such Other Indication specified for the
Additional Development Program. BI shall indicate to Transcend in writing within
thirty (30) days after receipt of notice of regulatory approval of its election
concerning retention of commercialization rights, PROVIDED THAT failure of BI to
reimburse Transcend for Development Expenses and to make applicable milestone
payments within such 30-day period shall be deemed to be an election by BI under
subsection (ii) above. If BI makes or is deemed to make an election under
subsection (ii) above, Transcend shall have the right to commercialize, alone or
with a Third Party, Procysteine I.V. in the Territory for the treatment or
prevention of the Other Indication specified for the Additional Development
Program, PROVIDED THAT Transcend shall utilize a different product name for
Procysteine I.V. than is being utilized by BI for any Procysteine I.V. product
for ARDS.

4.4. ATTENDANCE AT REGULATORY MEETINGS. BI or Transcend, as the case may
be, will provide the other Party with reasonable prior notice of all meetings
between its representatives and regulatory authorities regarding marketing
approval of the Licensed Products. The recipient of such notice shall have the
right to have a representative present at all important meetings at such
recipient's sole expense; PROVIDED, HOWEVER, that the Party holding such meeting
with a regulatory authority may revoke this right with respect to any particular
meeting if, in its good faith reasonable judgment, the presence of any other
Party will be a detriment to the success of the meeting. Each of BI and
Transcend will furnish, at the other's request, a representative to attend
regulatory meetings of the other regarding marketing approval of the Licensed
Products.

4.5. DEVELOPMENT EXPENSES

4.5.1. TRANSCEND FUNDING. Transcend agrees to use the funds provided
by BI pursuant to Sections 7.1 and 7.2 below exclusively for the ARDS
Development Program, except as otherwise agreed by the Parties.

4.5.2. SHARED DEVELOPMENT EXPENSES. In the event that the Parties are
obligated to share Development Expenses pursuant to Sections 4.2.2(c), 4.2.3(a),
4.2.3(b) or 4.3.1, each Party incurring Development Expenses shall, within
thirty (30) days after the end of each calendar quarter, provide a written
report to the Joint Development Team and the other Party detailing the
Development Expenses incurred in the preceding quarter. Within fifteen (15) days
after the receipt of such report(s), payments shall be made by one Party to the
other Party so that the total Development Expenses incurred in such calendar
quarter shall be shared in the applicable agreed-upon percentages by the
Parties.

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4.5.3. REIMBURSEMENT OF DEVELOPMENT EXPENSES. In the event that one
Party (a "Reimbursing Party") is obligated to reimburse the Development Expenses
incurred by the other Party pursuant to Sections 4.2.2(d), 4.2.3(a) and 4.3.2,
the Party incurring such Development Expenses shall, within thirty (30) days
after the occurrence of the event giving rise to the reimbursement obligation,
provide a written report to the Joint Development Team and the Reimbursing Party
detailing the Development Expenses subject to the applicable reimbursement
obligation. Within fifteen (15) days after the receipt of such report, the
Reimbursing Party shall pay the required amount to the other Party.

4.6. RECORDS. Each Party shall keep complete and accurate records of its
expenditures in connection with the Development Program, which records each
Party shall retain for three (3) years after the end of the calendar year in
which expenses were incurred. The records shall conform to generally accepted
accounting principles consistently applied. Each Party shall have the right
during the Development Program and during the subsequent three (3) year period
to appoint, at its own expense, an independent public accountant reasonably
acceptable to the other Party to inspect said records. Upon reasonable notice
from the other Party (the "Requesting Party"), a Party (the "Reviewed Party")
shall make its records available during regular business hours for inspection by
the independent public accountant at the place or places where the Reviewed
Party customarily keeps such records, to the extent reasonably necessary to
verify the accuracy of the expenditures. The right of inspection shall not be
exercised by a Party more than once in any calendar year and not more than once
with respect to records covering any specific period of time. A Requesting Party
shall hold in strict confidence all information concerning such expenditures and
all information learned in the course of any audit or inspection, except to the
extent necessary for the Requesting Party to enforce any rights it may have
pursuant to this Agreement or if disclosure is required by law. The failure of
either Party to request verification of any expenditures during the period the
other Party is required to retain the records of any calendar year shall be
considered acceptance of the accuracy of the reports concerning such
expenditures.

4.7. PROGRESS REPORTS. Within fifteen (15) days after the end of each
calendar month during the pendency of the Development Program, each Party shall
provide to the Joint Development Team a written report summarizing the
activities undertaken by such Party during the previous calendar month in
connection with the Development Program.

4.8. AVAILABILITY OF EMPLOYEES. Each Party agrees to make its employees and
non-employee consultants reasonably available at their respective places of
employment to consult with the other Party on issues arising during the
Development Program and in connection with (a) any request from any regulatory
agency, including regulatory, scientific, technical and clinical testing issues
or (b) the commercialization of Licensed Products.

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<PAGE> 30

4.9. VISIT OF FACILITIES. Representatives of Transcend and BI may, with the
other Party's prior approval, which approval shall not be unreasonably withheld,
visit the sites of any clinical trials or other experiments being conducted by
such other Party in connection with the Development Program and, subject to any
necessary approvals of the relevant Third Party, manufacturing sites used for
the Licensed Product. If requested by the other Party, Transcend and BI shall
cause appropriate individuals working on the Development Program to be available
for meetings at the location of the facilities where such individuals are
employed at times reasonably convenient to the Party responding to such request.

4.10. DEVELOPMENT INFORMATION. Each Party will (a) provide the other Party
with a copy of all submissions to be made by such Party to regulatory
authorities prior to the date of such submissions in sufficient time to enable
the other Party to comment on such submission, and (b) promptly provide the
other Party with the results of all toxicology and pharmacology studies and
clinical trials conducted by, or under the supervision of, such Party, with
respect to the Licensed Products.

4.11. CESSATION OF TRANSCEND BUSINESS. In the event that Transcend or any
successor to Transcend ceases to conduct business operations, BI shall have the
right, but not the obligation, to assume Transcend's development obligations
under this Agreement. In such event, Transcend or any successor to Transcend
shall provide BI with access to data and regulatory filings, as well as with a
right to cross-reference Transcend's or Transcend's successor's applicable
regulatory filings.

ARTICLE 5. MANAGEMENT

5.1 Joint Development Team.
----------------------

5.1.1. GENERAL. A Joint Development Team comprised of no more than
five (5) named representatives of each Party shall be appointed and shall meet
as needed. The Joint Development Team shall have a Project Leader designated by
mutual agreement of the Parties from time to time.

5.1.2. RESPONSIBILITIES. The Joint Development Team shall have
responsibility for the coordination and review of the Development Program,
including, but not limited to, (a) review of results of clinical trials and
related regulatory matters, (b) review on at least an annual basis of each
Program Plan and recommendation of any proposed changes therein to the Joint
Steering Committee, and (c) recommendations to the Joint Steering Committee
concerning the MOD Development Program and Additional Development Program(s)
pursuant to Sections 4.2.2 and 4.3.1, respectively.

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<PAGE> 31

5.1.3. MEETINGS. Meetings of the Joint Development Team shall be at
times and places or in such form (e.g., in person, telephonic or video
conference) as the members of the Joint Development Team shall agree. The Joint
Development Team shall keep accurate minutes of its deliberations which record
all proposed decisions and all actions recommended or taken. All records of the
Joint Development Team shall be available to both Parties.

5.1.4. REPRESENTATIVES. A Party may change one or more of its
representatives to the Joint Development Team at any time. Members of the Joint
Development Team may be represented at any meeting by another member of the
Joint Development Team, or by a deputy.

5.1.5. ACTIONS. Any approval, determination or other action agreed to
by a majority of the members of the Joint Development Team or their deputies
present at the relevant Joint Development Team meeting shall be the approval,
determination or other action of the entire Joint Development Team. Although the
Parties shall seek to reach agreement on all matters by consensus, in the event
that any approval, determination, or action is not agreed to by a majority of
the members of the Joint Development Team, then such matter shall be referred to
the Joint Steering Committee for resolution pursuant to Section 5.3 of this
Agreement (including the provisions of Section 5.3.4). In addition, the Joint
Development Team may delegate to one Party or to a specific representative the
authority to make certain decisions.

5.2. Joint Marketing Team
--------------------

5.2.1. GENERAL. In the event that Transcend exercises the
Co-Promotion Option (as that term is defined in Section 6.2.2) in accordance
with Section 6.2.2, the Parties shall establish a Joint Marketing Team to
oversee commercialization activities in the United States. The Joint Marketing
Team shall be comprised of no more than three (3) named representatives of each
Party and shall meet as needed. The Joint Marketing Team shall have a Project
Leader designated by BI from time to time.

5.2.2. MEETINGS. Meetings of the Joint Marketing Team shall be at
times and places or in such form (e.g., in person, telephonic or video
conference) as the members of the Joint Marketing Team shall agree. At such
meetings, the Joint Marketing Team will, among other things, discuss and
coordinate the conduct of marketing, promotion, sales and distribution
activities in the United States. The Joint Marketing Team shall keep accurate
minutes of its deliberations which record all proposed decisions and all actions
recommended or taken. All records of the Joint Marketing Team shall be available
to both Parties.

5.2.3. REPRESENTATIVES. A Party may change one or more of its
representatives to the Joint Marketing Team at any time. Members of the Joint

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Marketing Team may be represented at any meeting by another member of the Joint
Marketing Team, or by a deputy.

5.2.4. ACTIONS. Any approval, determination or other action agreed to
by a majority of the members of the Joint Marketing Team or their deputies
present at the relevant Joint Marketing Team meeting shall be the approval,
determination or other action of the entire Joint Marketing Team. Although the
Parties shall seek to reach agreement on all matters by consensus, in the event
that any approval, determination or action is not agreed to by a majority of the
members of the Joint Marketing Team, then the members of the Joint Marketing
Team designated by BI shall make the final determination of such matter. In
addition, the Joint Marketing Team may delegate to one Party or to a specific
representative the authority to make certain decisions.

5.3. Joint Steering Committee.
------------------------

5.3.1. GENERAL. The Joint Steering Committee shall consist of two (2)
senior representatives of each of Transcend and BI. Such committee shall (a)
supervise the Joint Development Team, and, if applicable, the Joint Marketing
Team, including approval of all Program Plans and budgets and any material
amendments thereto, (b) make decisions concerning major development or
commercialization issues (such as the decision to commence or discontinue
clinical trials for any indication), (c) resolve of any disputes within the
Joint Development Team, or, if applicable, the Joint Marketing Team, and (d)
meet as needed. A Party may change one or more of its representatives to the
Joint Steering Committee at anytime.

5.3.2. CHAIR. The Joint Steering Committee shall initially be chaired
by a Transcend representative to the committee. The Transcend representative
shall serve as the Chair of the Joint Steering Committee from the Effective Date
through August 31, 1997. On September 1, 1997, a BI representative shall become
the Chair of the Joint Steering Committee through February 28, 1998. Thereafter,
the Chair of the Joint Steering Committee shall rotate between representatives
of Transcend and BI with each Chair serving for six (6) months.

5.3.3. MEETINGS. Meetings of the Joint Steering Committee shall be at
such times and places or in such form (e.g., in person, telephonic or video
conference) as the members of the Joint Steering Committee shall agree.
Representatives of both Parties shall be present at any meeting of the Joint
Steering Committee. Decisions of the Joint Steering Committee shall be made by
majority vote, except that such majority must include at least one
representative of each Party. The Joint Steering Committee shall keep accurate
minutes of its deliberations which record all proposed decisions and all actions
recommended or taken. All records of the Joint Steering Committee shall at all
times be available to both Parties.

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Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

5.3.4. DISAGREEMENTS. All disagreements within the Joint Steering
Committee shall be subject to the following:

(a) The representatives to the committee will negotiate in
good faith for a period of not less than thirty (30) days to attempt
to resolve the dispute;

(b) If the representatives of the committee are unable to
resolve the dispute by the end of such period, the committee shall
promptly present the disagreement to the Chief Executive Officer of
Transcend and the Member of the Corporate Board of BI responsible for
Pharmaceuticals or their respective designees; and

(c) Such executives shall meet or discuss in a telephone or
video conference each Party's view and explain the basis for such
disagreement and resolve the dispute.

ARTICLE 6. MANUFACTURING AND MARKETING RIGHTS

6.1. Manufacturing of Licensed Products.
----------------------------------
6.1.1. TRANSCEND'S EXCLUSIVE RIGHT TO MANUFACTURE. Subject to Section
6.1.4 below, Transcend shall be responsible for the manufacture and supply of
the Licensed Products in formulated and finished form at the required quality
and in quantities sufficient to conduct the Development Program and for
commercial sale. Transcend may fulfill such responsibility either, at
Transcend's election, by directly manufacturing Licensed Products, by
contracting with BI to do so, by contracting with one or more Third Parties to
do so, or by a combination thereof. Transcend will provide all documentation
regarding manufacture needed to register the Licensed Products and will arrange
for pre-approval inspections. BI shall have the right to inspect any proposed
Transcend or Third Party manufacturing site. For commercial sale, Transcend
shall supply the Licensed Products to BI pursuant to the terms and conditions of
a supply agreement to be negotiated within one hundred eighty (180) days
following the Effective Date (the "Supply Agreement"), which shall reflect the
terms and conditions set forth on EXHIBIT D.

6.1.2. TRANSFER PRICE. BI shall reimburse Transcend for the Cost of
Goods Sold relating to Licensed Products supplied by Transcend to BI and its
Affiliates or sublicensees for any purpose, including clinical trial and
commercial sale purposes, PROVIDED, HOWEVER, that in no event shall BI's
reimbursement payment to Transcend for the Cost of Goods Sold per unit of a
Licensed Product exceed *******************************************************

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Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

***************************************************************** PROVIDED,
FURTHER, that, subject to the relevant terms set forth in Exhibit D, BI's
reimbursement payment to Transcend for each unit of a Licensed Product shall not
be less than *** ********************************************************.
Transcend shall use commercially reasonable efforts to minimize such Cost of
Goods Sold. BI shall make all reimbursement payments due to Transcend pursuant
to this Section 6.1.2 within thirty (30) days after receipt of a reasonably
detailed invoice for Licensed Products previously supplied by Transcend.

6.1.3. MANUFACTURING PLANNING. In order to ensure either an orderly
transition of manufacturing responsibility from Transcend to BI pursuant to
Section 6.1.4 or the continuation of Transcend's manufacturing responsibility,
the Parties agree to engage in joint long-term manufacturing planning.

6.1.4. BI'S OPTION FOR MANUFACTURING LICENSE . Transcend hereby grants
to BI an option to obtain a worldwide right and license, under the Transcend
Patent Rights and the Transcend Technology and Transcend's rights in and to the
Program Patent Rights and the Program Technology, to make and have made the
Licensed Products (the "Manufacturing License"). This option is first
exercisable on the fifth (5th) anniversary of the Effective Date upon written
notice by BI to Transcend. Upon the effective date of the Manufacturing License,
the Supply Agreement will terminate and BI shall become responsible for (a) the
manufacture of the Licensed Products at the required quality and in quantities
sufficient for commercial sale, (b) providing documentation, other than that
provided by Transcend, regarding the manufacture of the Licensed Products for
commercial sale needed to register the Licensed Products and (c) arranging for
pre-approval inspections. Costs incurred by Transcend in connection with (i) the
transition of manufacturing responsibility for the Licensed Products to BI and
(ii) qualifying BI as the manufacturer for registration purposes shall be
reimbursed to Transcend by BI.

6.2. Marketing and Distribution Rights and Obligations.
-------------------------------------------------

6.2.1. BI Marketing Right and Diligence Obligations.
--------------------------------------------

(a) BI'S MARKETING RIGHTS AND OBLIGATIONS TO USE REASONABLE EFFORTS
Except as set forth in Section 6.2.2 below, BI shall have the exclusive right
and responsibility to market and distribute the Licensed Products throughout the
Territory, and shall have responsibility for all pre- and post-approval
marketing, sales and distribution activities. Upon receipt of approval to
commence commercial sale of the Licensed Products in each Major Market Country,
BI agrees, at its own expense, to use reasonable diligence to market the
Licensed Products in each such country

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Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

consistent with those efforts used for other BI products with similar commercial
potential, PROVIDED, HOWEVER, that *******************************
******************************where such election is advisable in BI's
reasonable determination and BI has discussed its decision with Transcend prior
to such election. BI also agrees to use reasonable diligence to market Licensed
Products in all other countries where BI sells other products, consistent with
those efforts used in marketing other BI products with similar commercial
potential. BI also agrees to permit at least one representative of Transcend to
attend periodic strategic marketing meetings conducted by BI relating to the
Licensed Product, which meetings shall occur no less frequently than
semiannually.

(b) TRANSCEND'S REMEDIES FOR BI'S FAILURE TO USE REASONABLE EFFORTS.
In the event of BI's failure to use reasonable efforts to (i) develop the
Licensed Products in any country other than a Major Market Country or (ii)
market the Licensed Products in any country as provided in Section 6.2.1, and BI
fails to remedy or take reasonable action to initiate a remedy of such default
within ninety (90) days after notice thereof by Transcend, Transcend shall have
the right to terminate the licenses and rights of BI under Sections 3.1.1, 3.1.2
and 6.2.1 in such country, but Transcend shall not have the right to terminate
this Agreement in its entirety. If Transcend exercises the said right,

(i) Transcend may continue development of the Licensed
Product for distribution, marketing or sale in
such country or region either itself or with a
Third Party,

(ii) if BI has exercised the option for the
Manufacturing License, (A) BI shall supply
Transcend with reasonable amounts of the Licensed
Products for the aforementioned purposes on terms
consistent with the terms set forth in Section
6.1.1 and the Supply Agreement for so long as BI
is manufacturing, to the specifications required
by Transcend, the Licensed Products for its own
sale or (B) if BI cannot supply Transcend with the
Licensed Products, Transcend shall have the right
to make or have made the Licensed Products for
such indication notwithstanding any license
granted to BI pursuant

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Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

(b) TRANSCEND'S REMEDIES FOR BI'S FAILURE TO USE REASONABLE EFFORTS.
In the event of BI's failure to use reasonable efforts to (i) develop the
Licensed Products in any country other than a Major Market Country or (ii)
market the Licensed Products in any country as provided in Section 6.2.1, and BI
fails to remedy or take reasonable action to initiate a remedy of such default
within **************** after notice thereof by Transcend, Transcend shall have
the right to terminate the licenses and rights of BI under Sections 3.1.1, 3.1.2
and 6.2.1 in such country, but Transcend shall not have the right to terminate
this Agreement in its entirety. If Transcend exercises the said right,

(i) Transcend may continue development of the Licensed
Product for distribution, marketing or sale in
such country or region either itself or with a
Third Party,

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Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

Section 6.1.4 and BI shall grant Transcend a
worldwide, perpetual, non-exclusive, fully-paid
and royalty-free right and license to use in the
manufacture of the Licensed Products any
manufacturing know-how developed by BI since the
effective date of the Manufacturing License that
is necessary or useful in the manufacture of the
Licensed Products.

(iii) to the extent legally permissible, BI shall take
all additional action reasonably necessary to
assign all of its right, title and interest in and
transfer possession and control to Transcend of
the regulatory filings prepared by BI, and
regulatory approvals received by BI, to the extent
that such filings and approvals relate to the
Licensed Products in such country or countries and

(iv) Article 4 will be appropriately amended, but this
Agreement will otherwise remain in effect.

In the event that Transcend enters into an agreement with a Third Party pursuant
to clause (i), and such Third Party will use data generated by BI, then
Transcend shall provide in such agreement that such Third Party will reimburse
BI for the perceived value of such data in such country, such value to be
negotiated in good faith by BI and Transcend, taking into account the financial
contributions of both Parties to the generation of such data.

6.2.2. TRANSCEND CO-PROMOTION OPTION. Transcend shall have the right,
at its option, to co-promote the Licensed Products alongside BI or its United
States Affiliate in the United States (the "Co-Promotion Option"). If Transcend
intends to exercise the Co-Promotion Option, Transcend will so notify BI in
writing prior to the **********************************************************
*****. Failure by Transcend to provide such notice within the time period
described in the preceding sentence shall terminate Transcend's co-promotion
rights under this Section 6.2.2. If Transcend exercises the Co-Promotion Option
in accordance with the

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Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

second sentence of this Section 6.2.2, (a) Transcend shall be obligated to
provide ***********************************************************************
****************************************************************************
(the "Transcend Sales Force"), (b) Transcend and BI shall establish the Joint
Marketing Team pursuant to the provisions of Section 5.2, and (c) Transcend
shall be entitled to receive payments from BI pursuant to the provisions of
Section 7.4.1. Transcend shall bear all costs associated with the Transcend
Sales Force, including all sales and marketing costs. The activities of the
Transcend Sales Force shall be coordinated with BI's sales and marketing team.
Transcend may request that the Joint Marketing Team consider an increase in the
number of full-time equivalent sales specialists that Transcend is entitled to
utilize in co-promoting Licensed Products in the United States. In the event
that the number of full-time equivalent sales specialists utilized by Transcend
falls below ******** at any time, Transcend shall use reasonable efforts to
hire within *********** days sufficient personnel to maintain a Transcend Sales
Force with at least ******** full-time equivalent sales specialists.

ARTICLE 7. PAYMENTS

7.1. LICENSE FEE. BI shall pay to Transcend a non-refundable,
non-creditable license fee in the amount of five million dollars ($5,000,000)
within three (3) business days after the Effective Date.

7.2 EQUITY INVESTMENT. BI shall make a five million dollar ($5,000,000)
investment in Transcend's common stock and/or preferred stock on the terms and
subject to the conditions of the Stock Purchase Agreement.

7.3 MILESTONE PAYMENTS. BI shall make the following milestone payments to
Transcend upon the achievement of the applicable milestones:

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Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

Milestone Payment
--------- -------

1. **************************
**************************
PROVIDED, HOWEVER, that such
payment (a) shall be ********
**********************(with a
********************** made
for any portion of a month), up
to a ***************************
*********for the number of
months or portion thereof, if
any, after ************* that
************ an *************
*******************************
(the "Late Filing Period"),
PROVIDED FURTHER that,
in determining the Late Filing Period,
any ******************************
****************************************
*********************************
pursuant to Exhibit A shall be
********, and (b) shall be
**************************** (with a
************* made for any portion of
a month) for the number of months or
portion thereof, if any, in advance of
************* that **************an
********************* *****************
(the "Early Filing Period"), PROVIDED
FURTHER that in determining the Early
Filing Period, ***********************
************************************
************* of the ***************
pursuant to Exhibit A shall be *******
***********

2.***************************** ***********

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Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

3.*******************************
*******************************
**************************** ***********

4.******************************
*******************************
******* ***********

5.******************************
, PROVIDED that ***********
to make any ******************
*****************************
*********************************
****** ************

6.*********************************
****************************** ************

7.****************************** ************

8.*********************************
**************************************
*********** ************

9.**************************************
**************************************
********* ************

Within forty-five (45) days following the occurrence of each of the
milestones set forth above, BI shall pay to Transcend in United States dollars
by certified or bank check or wire transfer the payments set forth above.
Payments made to Transcend pursuant to this Section 7.3 are not refundable under
any circumstances and will not be credited against royalty payments due
Transcend under Section 7.4.

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Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

7.4. Royalties on Net Sales.
----------------------

7.4.1 NET SALES IN THE UNITED STATES. In consideration of the
licenses granted by Transcend to BI, BI shall pay to Transcend a royalty in the
amount equal to ************************** of Net Sales of a Licensed Product in
the United States. Notwithstanding the foregoing, in the event that Transcend
exercises the Co-Promotion Option, such royalty shall, for the duration of the
co-promotion period, be an amount equal to ******************* of the Net Sales
of Licensed Products in the United States for such indication, plus
**************** of the Net Contribution.

7.4.2 NET SALES IN JAPAN . In consideration of the licenses granted to
BI hereunder, BI shall pay to Transcend a royalty in the amount equal
to**************** ****** of Net Sales of the Licensed Products in Japan.

7.4.3 NET SALES OUTSIDE OF THE UNITED STATES AND JAPAN. In
consideration of the licenses granted to BI hereunder, BI shall pay to Transcend
a royalty in the amount equal to ************* of Net Sales of the Licensed
Products outside of the United States and Japan.

7.4.4 DURATION OF ROYALTY PAYMENTS. Royalties payable pursuant to
Sections 7.4.1, 7.4.2, and 7.4.3 shall be paid to Transcend on a
country-to-country basis from the date of the First Commercial Sale of a
Licensed Product in a country (a) until fifteen (15) years after such First
Commercial Sale or (b) for as long as such Licensed Product, or its manufacture,
use or sale, is covered by a Valid Patent Claim or (c) for as long as the
Licensed Product is afforded Marketing Exclusivity for the applicable indication
in the Field, whichever of (a) or (b) or (c) is longer. In no event shall more
than one royalty be due Transcend for the sale of any Licensed Product.

7.4.5 SUBLICENSE ROYALTIES. If BI grants a sublicense hereunder to
any Third Party to make, have made, use, distribute for sale or sell the
Licensed Products in any country, BI shall pay to Transcend royalties on Net
Sales of the Licensed Products sold by such Third Party in such country at the
royalty rate set forth in Section 7.4.1, 7.4.2 and/or 7.4.3 that would be
applicable had such sales been made by BI.

7.4.6. ROYALTY RATE REDUCTION. Notwithstanding the provisions of
Sections 7.4.1, 7.4.2 and 7.4.3, the royalty rates set forth therein (but not
the percentage of the Net Contribution set forth in Section 7.4.1) shall be
reduced by ************************** of the rates otherwise applicable under
Sections 7.4.1, 7.4.2 and 7.4.3, on a country-by-country basis, with respect to
any Licensed Product that is ****************************** (as defined below)
in a particular country. For purposes of

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Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

this Section, a Licensed Product is **************************************** in
a country if either (i) the manufacture, use or sale of such Licensed Product is
covered by a Valid Patent Claim, or (ii) if the Licensed Product is subject to
Marketing Exclusivity. In addition, the royalty rates set forth in Sections
7.4.1, 7.4.2 and 7.4.3 with respect to a Licensed Product shall be further
reduced on a country-by-country basis in the event that such Licensed Product is
(A) ********************* in a particular country and (B) is subject to a
************************************** (as defined below) in such country. For
purposes of this Section, ***************************** shall mean, with respect
to a Licensed Product in a specific country, a ***************************** of
such Licensed Product ******************************************** with respect
to the market for products with the same or a ********************
********************** as the Licensed Product of greater than ****************
************* in any calendar year over such Licensed Product's market share
during the immediately preceding calendar year (determined on the basis of
commercially available sources). The amount of the royalty reduction shall be
equal to ***************************** of the rates otherwise applicable under
Sections 7.4.1, 7.4.2 and 7.4.3 (e.g., a********************************** for a
Licensed Product that is ***************************** results in a ****
royalty reduction as a result of the absence of ****** *********** and an
additional ****** royalty reduction as a result of the **************
********************** (thus, the *********** royalty in Japan, for example,
would become ***** =royalty). If BI believes that a royalty reduction is
appropriate under this Section 7.4.6 in any country, it shall provide written
notice to Transcend of its proposed reduction, with supporting documentation
sufficient to enable Transcend to evaluate the proposed reduction. If Transcend
objects to such reduction and the Parties are unable to agree in good faith upon
appropriateness of the reduction or the amount thereof, if any, the matter shall
be resolved by arbitration under Section 13.6 hereof.

7.5. ROYALTY REPORTS, EXCHANGE RATES. During the term of this Agreement,
following the First Commercial Sale of the Licensed Products in any country, BI
shall within forty five (45) days after each calendar quarter furnish to
Transcend a written quarterly report showing, on a country by country basis: (a)
the gross sales of the Licensed Products sold by BI and its Affiliates,
Recognized Agents and its permitted sublicensees during the reporting period and
the calculation of Net Sales from such gross sales; (b) withholding taxes, if
any, required by law to be deducted in respect of such sales; (c) the specific
deductions permitted by the definition of "Net Sales" taken in connection with
the calculation of Net Sales; and (d) the exchange rates used in determining the
amount of United States dollars. All sales in currencies other than United
States dollars shall first be converted into German marks and then into United
States dollars using in both cases the average monthly exchange rates as
published regularly by Deutsche Bank in Frankfurt am Main, Germany, and as
customarily

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used by BI in its accounting system. If no royalty is due for any royalty period
hereunder, BI shall so report. BI shall keep complete and accurate records in
sufficient detail to properly reflect all gross sales and Net Sales and to
enable the royalties payable hereunder to be determined.

7.6. AUDITS. Upon the written request of Transcend, BI shall permit an
independent public accountant selected by Transcend and acceptable to BI, which
acceptance shall not be unreasonably withheld, to have access during normal
business hours to such records of BI as may be reasonably necessary to verify
the accuracy of the royalty reports described herein, in respect of any fiscal
year ending not more than thirty-six (36) months prior to the date of such
request. All such verifications shall be conducted at Transcend's expense and
not more than once in each calendar year. In the event such Transcend
representative concludes that additional royalties were owed to Transcend during
such period, the additional royalty shall be paid by BI within thirty (30) days
of the date Transcend delivers to BI such representative's written report so
concluding. The fees charged by such representative shall be paid by Transcend
unless the audit discloses that the royalties payable by BI for the audited
period are incorrect by more than five percent (5%), in which case BI shall pay
the reasonable fees and expenses charged by such representative. BI shall
include in each Third Party sublicense granted by it pursuant to this Agreement
a provision requiring the sublicensee to make reports to BI, to keep and
maintain records of sales made pursuant to such sublicense and to grant access
to such records by Transcend's representatives to the same extent required by BI
under this Agreement. Transcend agrees that all information subject to review
under this Section 7.6 or under any sublicense agreement is confidential and
that Transcend shall cause its representatives to retain all such information in
confidence.

7.7. ROYALTY PAYMENT TERMS. Royalties shown to have accrued by each
royalty report provided for under this Agreement shall be due forty five (45)
days after the end of each calendar quarter. Payment of royalties in whole or in
part may be made in advance of such due date. Royalties determined to be owing
with respect to any prior quarter shall be added, together with interest thereon
accruing under this Agreement from the date of the report for the quarter for
which such amounts are owing, to the next quarterly payment hereunder.

7.8. WITHHOLDING TAXES. BI shall deduct any withholding taxes from the
payments agreed upon under this Agreement and pay them to the proper tax
authorities required by the laws of the Federal Republic of Germany applicable
at the date of payment. BI shall not deduct any other withholding or any other
governmental charges from the payments agreed upon under this Agreement,
including but not limited to any such taxes or charges incurred as a result of
an assignment or sublicense by BI to any Affiliate or any Third Party, except as
noted above. BI shall maintain official receipts of payment of any withholding
taxes and forward these receipts to Transcend. The Parties will exercise their
best efforts to

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ensure that any withholding taxes imposed are reduced as far as
possible under the provisions of the current or any future double taxation
agreement between the United States and the Federal Republic of Germany.
According to existing German Law this reduction requires that the German
Bundesamt fur Finanzen issues a Certificate of Tax Exemption. In order to
achieve such reduction Transcend shall provide BI with the claim for a
certificate of tax exemption in respect of royalties performed on the official
form (Application for Tax Exemption) containing the statement of residence and
indication of the taxpayer's identification number as well as the Certificate of
Filing a Tax Return, in which Transcend confirms that it does not derive the
royalties through a permanent establishment maintained in Germany. BI shall
provide Transcend with the official form.

7.9. APPLICATION FOR TAX EXEMPTION. The payments set forth in the Article
7 (other than the equity investment set forth in Section 7.2) are not due until
Transcend provides BI with the Application for Tax Exemption fulfilling the
prerequisites set out in Section 7.8 of this Agreement. Payments (other than the
equity investment set forth in Section 7.2) arising after expiration of any
Certification of Tax Exemption are not due until the next Application for Tax
Exemption is filed with BI. Notwithstanding the preceding provisions of this
Section 7.9, in the event of any extended delay in approval or effectiveness of
the Application for Tax Exemption, Transcend may require payment of any amounts
due pursuant to this Agreement net of any applicable withholding taxes.
Transcend shall be notified by BI of any changes regarding the filing of
Applications for Tax Exemption.

7.10. INTEREST ON LATE PAYMENTS. Any payments by BI to Transcend that are
not paid on or before the date such payments are due under this Agreement shall
bear interest, to the extent permitted by applicable law, at two (2) percentage
points above the Prime Rate of interest declared from time to time by The First
National Bank of Boston in Boston, Massachusetts, calculated on the number of
days payment is delinquent.

ARTICLE 8. INTELLECTUAL PROPERTY RIGHTS

8.1. Ownership.
---------

8.1.1. OWNERSHIP OF PROGRAM TECHNOLOGY AND PROGRAM PATENT RIGHTS. All
right, title and interest in all Program Technology and Program Patent Rights
that are conceived and reduced to practice during and as a result of the Program
solely by employees of Transcend or others acting on behalf of Transcend shall
be owned by Transcend. All right, title and interest in all Program Technology
and Program Patent Rights that are conceived and reduced to practice during and
as a result of the Program solely by employees of BI or others acting on behalf
of BI shall be owned by BI. All right, title and interest in all Program
Technology and Program Patent Rights

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that are conceived or reduced to practice during and as a result of the Program
jointly by employees of Transcend and BI or others acting on their behalf shall
be jointly owned by Transcend and BI. Each Party shall promptly disclose to the
other Party the conception or reduction to practice of Program Technology and
Program Patent Rights by employees or others acting on behalf of such Party. The
Parties acknowledge that the ownership rights set forth above (a) shall not be
affected by the participation in the discovery or development of an invention by
the Joint Development Team and (b) are subject to the license grants set forth
in Article 3.

8.1.2 COOPERATION OF EMPLOYEES. Each Party represents and agrees that
its employees and consultants shall be obligated (under a binding written
agreement where such a written agreement is legally necessary to bind such
employees and consultants) to assign to such Party, or as such Party shall
direct, all Program Technology and Program Patent Rights conceived or reduced to
practice during and as a result of the Program by such employee or consultant.
In the case of non-employees working for other companies or institutions on
behalf of Transcend or BI, Transcend or BI, as applicable, shall use reasonable
efforts to obtain the right to license all inventions conceived or reduced to
practice by such non-employees on behalf of Transcend or BI, as applicable, in
accordance with the policies of the company or institution employing such
non-employee. Transcend and BI agree to undertake to enforce such agreements
with employees or others or such rights pertaining to non-employees (including,
where appropriate, by legal action) considering, among other things, the
commercial value of such inventions.

8.2. FILING, PROSECUTION AND MAINTENANCE OF PROGRAM PATENT RIGHTS AND
TRANSCEND PATENT RIGHTS .

8.2.1. FILINGS. When any Program Technology may reasonably be
considered to be patentable or when a determination is made that Transcend
Technology used in the Program may reasonably be considered to be patentable, a
patent application shall be filed as soon as reasonably possible. Transcend
shall be responsible for filing such application on Transcend Technology and on
Program Technology owned by it solely or jointly with BI. BI shall be
responsible for filing such application on Program Technology owned solely by
BI. No later than nine (9) months following the filing date of any of such
applications, the Parties shall consult together, through the Joint Development
Team or otherwise, and agree whether such application should be: abandoned with
replacement; abandoned and refiled; proceeded with in the country of filing
only; or used as the basis for a claim of priority under the Paris Convention
for corresponding applications in other countries. Each Party shall give the
other Party an opportunity to review the text of any application before filing
to the extent that the text of such application differs from the previously
agreed upon text, and each Party shall supply the other Party with a copy of the
application as filed, together with a note of its filing date and serial number.

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8.2.2. PROSECUTION AND MAINTENANCE. Transcend shall be responsible
for prosecution and maintenance of Transcend Patent Rights and Program Patent
Rights solely or jointly owned by Transcend. BI shall be responsible for
prosecution and maintenance of patents and patent applications covering Program
Patent Rights owned solely by BI. Each of the Parties hereto shall consult with
the other Party as to the prosecution and maintenance of such patent
applications and patents, shall furnish to the other Party copies of documents
relevant to any prosecution or maintenance sufficiently prior to filing such
document or making any payment due thereunder to allow for review and comment by
the other Party, and shall seriously consider all such comments.

Notwithstanding the foregoing, if either Transcend or BI elects not to
continue to seek or maintain patent protection on any patent or patent
application which makes up the Transcend Patent Rights or the Program Patent
Rights in any country (the "Discontinuing Party"), the other Party shall have
the right, at its option and expense, but on behalf of the Discontinuing Party
to file, prosecute (including oppositions) and maintain such patent applications
and patents; PROVIDED, HOWEVER, that the rights of the Parties as between each
other with respect to any such Transcend Patent Rights and Program Patent Rights
in all other respects shall be as described in this Agreement. The Discontinuing
Party will advise the other Party of all decisions taken with respect to any
such election in a timely manner in order to allow the other Party to protect
its rights under this Section 8.2.2.

8.2.3. ABANDONMENT. BI and Transcend each agree that it will not
abandon the prosecution of any patent applications included within the Transcend
Patent Rights or the Program Patent Rights nor shall it fail to make any payment
or fail to take any other action necessary to maintain a patent under the
Transcend Patent Rights or the Program Patent Rights unless it has notified the
other Party in sufficient time for the other Party to assume such prosecution or
make such payment on behalf of BI or Transcend, as the case may be.

8.3. COOPERATION. Each Party shall make available to the other Party (or to
the other Party's authorized attorneys, agents or representatives), its
employees, agents or consultants to the extent reasonably necessary or
appropriate to enable the appropriate Party to file, prosecute and maintain
patent applications and resulting patents with respect to inventions owned by a
Party and for periods of time reasonably sufficient for such Party to obtain the
assistance it needs from such personnel. Where appropriate, each Party shall
sign or cause to have signed all documents relating to said patent applications
or patents at no charge to the other Party.

8.4. NOTIFICATION OF PATENT TERM RESTORATION. Transcend shall notify BI of
(a) the issuance of each patent included within the Transcend Patent Rights and
the Program Patent Rights, giving the date of issue and patent number for each
such

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patent, and (b) each notice pertaining to any patent included within the
Transcend Patent Rights and the Program Patent Rights which it receives as
patent term restorations. The Parties shall cooperate with each other in
applying for patent term extensions (including Supplementary Protection
Certificates in European Community Countries and administrative/pipeline
protection) where applicable in any country. Transcend shall also notify BI of
each application filed for patent term extension, any allegations of failure to
show due diligence and all awards of patent term extensions with respect to the
Transcend Patent Rights and the Program Patent Rights. Such notices shall be
given promptly, but in any event within ten (10) business days after receipt of
each such notice pursuant to the Drug Price Competition and Patent Term
Restoration Act of 1984 (the "Act") (or comparable laws or regulations in
countries other than the United States). Transcend shall notify BI of each
filing for patent term restoration under the Act (or comparable laws or
regulations in countries other than the United States), any allegations of
failure to show due diligence and all awards of patent term restoration
(extensions) with respect to the Transcend Patent Rights and the Program Patents
Rights.

8.5. NO OTHER TECHNOLOGY RIGHTS. Except as otherwise expressly provided in
this Agreement, under no circumstances shall a Party hereto, as a result of this
Agreement, obtain any ownership interest in or other right to any technology,
know-how, patents, pending patent applications, products, or biological
materials of the other Party, including items owned, controlled or developed by
the other Party, or transferred by the other Party to said Party, at any time
pursuant to this Agreement.

8.6. ENFORCEMENT OF PATENT RIGHTS. Transcend and BI shall each promptly
notify the other in writing of any alleged or threatened infringement of patents
or patent applications included in the Transcend Patent Rights or the Program
Patent Rights of which they become aware. Transcend and BI shall then confer and
may agree jointly to prosecute any such infringement. The Party owning patents
or patent applications alleged or threatened to be infringed shall control the
joint litigation in the event of any dispute between the Parties with respect to
any aspect of the litigation. With respect to Program Patent Rights covering
Program Technology solely or jointly owned by Transcend, Transcend shall control
the litigation. If the Parties do not agree on whether or how to proceed with
enforcement activity within (a) ninety (90) days following the notice of alleged
infringement or (b) ten (10) business days before the time limit, if any, set
forth in the appropriate laws and regulations for the filing of such actions,
whichever comes first, then either Party may act in its own name to commence
litigation with respect to the alleged or threatened infringement. In the event
a Party brings an infringement action, the other Party shall cooperate fully,
including, if required to bring such action, the furnishing of a power of
attorney. Neither Party shall have the right to settle any patent infringement
litigation under this Section in a manner that diminishes the rights or
interests of the other Party without the express written consent of such other
Party.

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The costs of any joint litigation regarding infringement of a Transcend
Patent Right or a Program Patent Right and commenced pursuant to this Section,
including attorneys' fees and expenses, shall be borne by BI and Transcend in
the same ratio as the ratio of the profits received by BI in connection with
sales of the Licensed Products in such country to the royalties paid to
Transcend in connection with the sale of the Licensed Products in such country
added to, in the case of the United States, Transcend's share, if any, of the
Net Contribution. For purposes hereof, only out-of-pocket costs shall be
accounted for and reimbursed under this Section, without any allocation for
internal resources devoted to the litigation. Except as otherwise agreed to by
the Parties as part of a cost sharing arrangement, any recovery realized as a
result of such joint litigation shall be shared in the same manner as costs have
been allocated.

8.7. DEFENSE OF INDIVIDUAL INFRINGEMENT ACTIONS. If Transcend or BI, or
any BI Affiliate or sublicensee, shall be individually named as a defendant in a
legal proceeding by a Third Party for infringement of a patent because of the
manufacture, use or sale of the Licensed Products, the Party which has been sued
shall promptly notify the other Party in writing of the institution of such
suit. The Party which has been sued may, at its option and at its sole expense,
control and defend such suit. The controlling Party may not settle such suit or
otherwise consent to an adverse judgment in such suit that diminishes the rights
or interests of the non-controlling Party without the express written consent of
the non-controlling Party. The Party which has been sued shall keep the other
Party at all times reasonably informed as to the status of the suit. The Party
which is not controlling such legal proceedings shall have the right to be
represented by advisory counsel of its own selection (and such counsel's opinion
shall be reasonably considered by the controlling Party), at its own expense,
and shall cooperate fully in the defense of such suit and furnish to the Party
controlling such legal proceedings all evidence and assistance in its control.

8.8. DEFENSE OF JOINT INFRINGEMENT ACTIONS. If Transcend and BI, or any BI
Affiliate or sublicensee, shall be jointly named as defendants in a legal
proceeding by a Third Party or shall be joined in the same litigation for
infringement of a patent because of the manufacture, use or sale of the Licensed
Products, Transcend shall be entitled to control the defense of such suit, and
all expenses including costs, attorney fees, adverse judgments or settlement
amounts incurred on account of BI or Transcend or both shall be paid as set
forth under Section 8.9 below. BI shall have the right to be represented by
counsel of its own selection, but at its sole expense, and shall cooperate fully
in the defense of such suit and furnish to Transcend all evidence and assistance
in its control. Transcend shall, however, not be entitled to settle such suit or
otherwise consent to an adverse judgment in such suit without the express
written consent of BI if such settlement or adverse judgment diminishes any
right or interest of BI hereunder.

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8.9. CONTRIBUTION. With respect to any judgments, settlements or damages
payable with respect to legal proceedings covered by Section 8.7, and with
respect to all expenses (including costs and attorneys fees), judgments,
settlements or damages payable with respect to legal proceedings covered by
Section 8.8., the Parties shall contribute to the amount owed or expended in the
same ratio as the ratio of the profits received by BI in connection with sales
of the Licensed Products in such country to the royalties paid to Transcend in
connection with the sale of the Licensed Products in such country added to, in
the case of the United States, Transcend's share, if any, of the Net
Contribution.

ARTICLE 9. CONFIDENTIALITY

9.1. Nondisclosure Obligations.

9.1.1. GENERAL. Except as otherwise provided in this Article 9,
during the term of this Agreement and for a period of ten (10) years thereafter,
both Parties shall maintain in confidence and use only for purposes specifically
authorized under this Agreement (a) information and data received from the other
Party resulting from or related to the development of the Licensed Products and
(b) all information and data not described in clause (a) but supplied by the
other Party under this Agreement marked "Confidential." For purposes of this
Article 9, information and data described in clause (a) or (b) shall be referred
to as "Information."

9.1.2. LIMITATIONS. To the extent it is reasonably necessary or
appropriate to fulfill its obligations or exercise its rights under this
Agreement, a Party may disclose Information it is otherwise obligated under this
Section not to disclose to its Affiliates, sublicensees, consultants, outside
contractors and clinical investigators, on a need-to-know basis on condition
that such entities or persons agree to keep the Information confidential for the
same time periods and to the same extent as such Party is required to keep the
Information confidential; and a Party or its sublicensees may disclose such
Information to government or other regulatory authorities to the extent that
such disclosure is reasonably necessary to obtain patents or authorizations to
conduct clinical trials of, and to commercially market, the Licensed Products.
The obligation not to disclose Information shall not apply to any part of such
Information that: (a) is or becomes part of the public domain other than by
unauthorized acts of the Party obligated not to disclose such Information or its
Affiliates or sublicensees; (b) can be shown by written documents to have been
disclosed to the receiving Party or its Affiliates or sublicensees by a Third
Party, provided such Information was not obtained by such Third Party directly
or indirectly from the other Party pursuant to a confidentiality agreement; (c)
prior to disclosure under this Agreement, was already in the possession of the
receiving Party or its Affiliates or sublicensees, provided such Information was
not obtained directly or indirectly from the other Party pursuant to a
confidentiality agreement; (d) can be

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shown by written documents to have been independently developed by the receiving
Party or its Affiliates without breach of any of the provisions of this
Agreement; or (e) is disclosed by the receiving Party pursuant to
interrogatories, requests for information or documents, subpoena, civil
investigative demand issued by a court or governmental agency or as otherwise
required by law; PROVIDED THAT the receiving Party notifies the other Party
immediately upon receipt thereof (and PROVIDED THAT the disclosing Party
furnishes only that portion of the Information which it is advised by counsel is
legally required).

9.2. SAMPLES. Samples of compounds synthesized, purified or developed in
the course of the Development Program shall not be supplied or sent by either
Party to any Third Party, other than to regulatory agencies or for use in
clinical trials, unless protected by an appropriate materials transfer
agreement. Samples of compounds other than those described above provided by one
Party (the "supplying Party") to the other Party (the "receiving Party") in the
course of the Development Program shall not be supplied or sent by the receiving
Party to any Third Party, other than to regulatory agencies or for use in
clinical trials, without the written consent of the supplying Party.

9.3 TERMS OF THIS AGREEMENT. Transcend and BI each agree not to disclose
any terms or conditions of this Agreement to any Third Party without the prior
consent of the other Party, except as required by applicable law. If Transcend
determines that it is required to file with the Securities and Exchange
Commission or other governmental agency this Agreement for any reason, Transcend
shall request confidential treatment of such portions of this Agreement as it
and BI shall together determine. Notwithstanding the foregoing, prior to
execution of this Agreement, Transcend and BI shall agree upon the substance of
information that can be used as a routine reference in the usual course of
business to describe the terms of this transaction, and Transcend and BI may
disclose such information, as modified by mutual agreement from time to time,
without the other Party's consent.

9.4. Publications.
------------

9.4.1. PROCEDURE. Each Party recognizes the mutual interest in
obtaining valid patent protection. In the event that either Party, its employees
or consultants or any other Third Party under contract to such Party wishes to
make a publication (including any oral disclosure made without obligation of
confidentiality) relating to work performed as part of the Development Program
(the "Publishing Party"), such Party shall transmit to the other Party (the
"Reviewing Party") a copy of the proposed written publication at least
forty-five (45) days prior to submission for publication, or an abstract of such
oral disclosure at least thirty (30) days prior to submission of the abstract or
the oral disclosure, whichever is earlier. The Reviewing Party shall have the
right (a) to propose modifications to the publication for patent reasons, (b) to

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request a delay in publication or presentation in order to protect patentable
information, or (c) to request that the information be maintained as a trade
secret and, in such case, the Publishing Party shall not make such publication.

9.4.2. DELAY. If the Reviewing Party requests a delay as described in
subsection 9.4.1(b), the Publishing Party shall delay submission or presentation
of the publication for a period of ninety (90) days to enable patent
applications protecting each Party's rights in such information to be filed.

9.4.3. RESOLUTION. Upon the receipt of written approval of the
Reviewing Party, the Publishing Party may proceed with the written publication
or the oral presentation.

9.5. INJUNCTIVE RELIEF. The Parties hereto understand and agree that
remedies at law may be inadequate to protect against any breach of any of the
provisions of this Article 9 by either Party or their employees, agents,
officers or directors or any other person acting in concert with it or on its
behalf. Accordingly, each Party shall be entitled to the granting of injunctive
relief by a court of competent jurisdiction against any action that constitutes
any such breach of this Article 9.

ARTICLE 10. REPRESENTATIONS AND WARRANTIES

Each Party represents and warrants to the other that it has the legal right
and power to enter into this Agreement, to extend the rights and licenses
granted to the other in this Agreement, and that the performance of such
obligations will not conflict with its charter documents or any agreements,
contracts or other arrangements to which it is a party. BI further represents
and warrants to, and covenants with, Transcend that (a) BI is a limited
liability company duly organized, validly existing and in good standing under
applicable German law and has taken all necessary action to authorize the
execution, delivery and performance of this Agreement and the Stock Purchase
Agreement, and (b) upon the execution and delivery of this Agreement and the
Stock Purchase Agreement, this Agreement and the Stock Purchase Agreement shall
each constitute a valid and binding obligation of BI enforceable in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' and contracting parties' rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
Transcend further represents and warrants to, and covenants with, BI that (i)
Transcend is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has taken all necessary action to
authorize the execution, delivery and performance of this Agreement and the
Stock Purchase Agreement, (ii) as of the Effective Date, Transcend has no
obligations to pay royalties to Third

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Parties for licenses to Transcend Patent Rights or Transcend Technology other
than to (A) Cornell Research Foundation, Inc. ("Cornell") pursuant to a license
agreement between Transcend and Cornell, effective as of April 6, 1994, and (B)
Clintec Nutrition Company ("Clintec") pursuant to a contribution agreement
between Transcend and Clintec, dated as of April 5, 1994, with respect to the
sales of Licensed Products approved by the FDA or another regulatory agency for
the treatment of patients with AIDS, and (iii) upon the execution and delivery
of this Agreement and the Stock Purchase Agreement, this Agreement and the Stock
Purchase Agreement shall each constitute a valid and binding obligation of
Transcend enforceable in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar law affecting creditors' and contracting parties' rights generally and
except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).

ARTICLE 11. INDEMNITY

11.1. BI INDEMNITY OBLIGATIONS. In the absence of Transcend's
negligence or a breach of representation, warranty, covenant or agreement by
Transcend, BI agrees to defend, indemnify and hold Transcend, its Affiliates and
their respective employees and agents harmless from all claims, losses, damages
or expenses arising as a result of: (a) actual or asserted violations of any
applicable law or regulation by BI, its Affiliates or sublicensees by virtue of
which the Licensed Products manufactured, distributed or sold shall be alleged
or determined to be adulterated, misbranded, mislabeled or otherwise not in
compliance with any applicable law or regulation; (b) claims for bodily injury,
death or property damage attributable to the manufacture, distribution, sale or
use of the Licensed Products by BI, its Affiliates or sublicensees; or (c) any
recall of a Licensed Product ordered by a governmental agency or required by a
confirmed failure of a Licensed Product as reasonably determined by the Parties
hereto. Transcend, its Affiliates and their respective employees and agents
shall not be entitled to the indemnities set forth in this Section 11.1 where
the loss, damage or expense for which indemnification is sought was caused by a
failure by Transcend to manufacture (or have manufactured) a Licensed Product in
compliance with agreed-upon product specifications set forth in the Supply
Agreement (a "Manufacturing Failure").

11.2. TRANSCEND INDEMNITY OBLIGATIONS. Should BI be found responsible
for claims, losses or expenses caused by a Manufacturing Failure and not
attributable to other causes for which BI is responsible, BI shall be entitled
to indemnity from Transcend to the same extent as Transcend would be so entitled
from BI under Section 11.1 above.

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11.3. PROCEDURE. A Party or any of its Affiliates or their respective
employees or agents (the "Indemnitee") that intends to claim indemnification
under this Article 11 shall promptly notify the other Party (the "Indemnitor")
of any loss, claim, damage, liability or action in respect of which the
Indemnitee intends to claim such indemnification, and the Indemnitor shall
assume the defense thereof with counsel mutually satisfactory to the Parties;
PROVIDED, HOWEVER, that an Indemnitee shall have the right to retain its own
counsel, with the fees and expenses to be paid by the Indemnitor, if
representation of such Indemnitee by the counsel retained by the Indemnitor
would be inappropriate due to actual or potential differing interests between
such Indemnitee and any other party represented by such counsel in such
proceedings. The indemnity agreement in this Article 11 shall not apply to
amounts paid in settlement of any loss, claim, damage, liability or action if
such settlement is effected without the consent of the Indemnitor, which consent
shall not be withheld unreasonably. The failure to deliver notice to the
Indemnitor within a reasonable time after the commencement of any such action,
if prejudicial to its ability to defend such action, shall relieve such
Indemnitor of any liability to the Indemnitee under this Article 11, but the
omission so to deliver notice to the Indemnitor will not relieve it of any
liability that it may have to any Indemnitee otherwise than under this Article
11. The Indemnitee, its employees and agents, shall cooperate fully with the
Indemnitor and its legal representatives in the investigation of any action,
claim or liability covered by this indemnification. In the event that each Party
claims indemnity from the other and one Party is finally held liable to
indemnify the other, the Indemnitor shall additionally be liable to pay the
reasonable legal costs and attorneys' fees incurred by the Indemnitee in
establishing its claim for indemnity.

11.4. INSURANCE. BI and Transcend shall each maintain appropriate product
liability insurance with respect to development, manufacture and sales of the
Licensed Products by BI or Transcend, respectively, in such amount as BI or
Transcend, respectively, customarily maintains with respect to sales of its
other products. BI and Transcend, as applicable, shall each maintain such
insurance for so long as it continues to manufacture or sell the Licensed
Products, and thereafter for so long as BI or Transcend, as applicable,
maintains insurance for itself covering such manufacture or sales.

ARTICLE 12. TERM AND TERMINATION

12.1. Expiration . Unless terminated earlier pursuant to Section 12.2, this
Agreement shall expire and the licenses granted by Transcend to BI hereunder
shall become fully paid and exclusive, on a country by country basis, upon the
later of (i) fifteen (15) years after the First Commercial Sale of the Licensed
Products in such

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Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

country, (ii) the last to expire of any Valid Patent Claim in such country and
(iii) the expiration in such country of Marketing Exclusivity of Licensed
Products for any indication in the Field. Any Transcend right to co-promote
resulting from its exercise of the option under Section 6.2.2 shall expire upon
the expiration of this Agreement in the United States unless terminated earlier
under the terms of the co-promotion agreement.

12.2. TERMINATION. This Agreement may be terminated in the following
circumstances:

12.2.1. MATERIAL BREACH. By one Party upon written notice by reason
of a material breach by the other Party that the breaching Party fails to remedy
within ninety (90) days after written notice thereof by the non-breaching Party;
and

12.2.2. By BI . By BI (a) at any time within the six month period
following the completion of the first Phase III clinical trials included in the
ARDS Development Program, upon written notice by BI to Transcend, or (b) within
30 days of its receipt of a Notice of Transcend ARDS Filing.

12.3. Effect of Expiration or Termination Generally.
---------------------------------------------

12.3.1. EXISTING OBLIGATIONS. Expiration pursuant to Section 12.1 or
termination pursuant to Section 12.2 of this Agreement for any reason shall not
relieve the Parties of any obligation accruing prior to such expiration or
termination.

12.3.2. SURVIVAL. The provisions of Section 3.2 (with respect only to
licenses granted prior to the time of expiration or termination and subject to
the terms described below) and Article 7 (with respect only to expense
reimbursement payments and royalties accrued at the time of expiration or
termination but not yet paid), Article 8, Article 9, Article 11 and this Section
12.3 shall survive the expiration pursuant to Section 12.1 or termination
pursuant to Section 12.2 of this Agreement.

12.4. EFFECT OF TERMINATION BY TRANSCEND OR TERMINATION BY BI PURSUANT TO
SECTION 12.2.2. In the event that this Agreement is terminated by Transcend
pursuant to Section 12.2.1 or by BI pursuant to Section 12.2.2:

12.4.1. TERMINATION OF LICENSES. All licenses and rights granted to
BI hereunder shall terminate and, except as provided in Section 12.4.2 below, BI
will immediately cease to manufacture and sell the Licensed Products;

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12.4.2. DISPOSITION OF INVENTORY OF LICENSED PRODUCTS. (a) BI may
dispose of its inventory of Licensed Products on hand as of the effective date
of termination, and may fill any orders for Licensed Products accepted prior to
the effective date of termination, for a period of twelve (12) months after the
effective date of termination and (b) within thirty (30) days after disposition
of such inventory and fulfillment of such orders (and in any event within seven
(7) months after termination) BI will forward to Transcend a final report and
pay all royalties due for Net Sales in such period;

12.4.3. ASSIGNMENT OF REGULATORY APPROVALS; MANUFACTURING RIGHTS. BI
shall (a) to the extent legally permissible, take all additional action
reasonably necessary to assign all of its right, title and interest in and
transfer possession and control to Transcend of the regulatory filings prepared
by BI, and regulatory approvals received by BI, to the extent that such filings
and approvals relate to the Licensed Products and (b) if BI has exercised the
manufacturing option under Section 6.1.4, (i) grant Transcend a worldwide,
perpetual, exclusive, fully-paid and royalty free right and license to use in
the manufacture of the Licensed Products any manufacturing know-how developed by
BI since the effective date of the Manufacturing License that is necessary or
useful in the manufacture of the Licensed Products and (ii) agree to supply
Transcend with the Licensed Products on terms consistent with the terms set
forth in Section 6.1.1 and the Supply Agreement for a period of three (3) years.

12.5. BI Options Following Transcend Breach.
-------------------------------------

12.5.1. TERMINATION FOR TRANSCEND BREACH. In the event that BI is
entitled to terminate this Agreement pursuant to Section 12.2.1, BI may elect to
either (a) terminate this Agreement, in which case all licenses and rights
granted to BI shall terminate and BI will immediately cease to manufacture and
sell the Licensed Products except as provided in this Section 12.5.1 and BI
shall be entitled to claim from Transcend all damages which would otherwise be
due to BI under law and equity or (b) not terminate this Agreement and select
the remedy set forth in Section 12.5.2. If BI elects to terminate this Agreement
pursuant to clause (a) above, then (i) BI may dispose of its inventory of
Licensed Products on hand as of the effective date of termination, and may fill
any orders for Licensed Products accepted prior to the effective date of
termination, for a period of twelve (12) months after the effective date of
termination and (ii) within thirty (30) days after disposition of such inventory
and fulfillment of such orders (and in any event within seven (7) months after
termination) BI will forward to Transcend a final report and pay all royalties
due for Net Sales in such period.

12.5.2. BI'S RIGHT TO OFFSET ROYALTIES AND OTHER PAYMENTS. In the
event of a breach by Transcend of any of its obligations hereunder which would
entitle BI to terminate this Agreement pursuant to Section 12.2.1 and Transcend
fails to remedy

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or take reasonable action to initiate a remedy of such default within ninety
(90) days after notice thereof by BI, BI shall have the right and option, if it
has obtained a final judgment or award of monetary damages and/or costs against
Transcend based on such default, to offset the amount of such damages and/or
costs against any amounts otherwise due to Transcend under Article 7.

ARTICLE 13. MISCELLANEOUS

13.1. FORCE MAJEURE. Neither Party shall be held liable or responsible to
the other Party nor be deemed to have defaulted under or breached this Agreement
for failure or delay in fulfilling or performing any term of this Agreement when
such failure or delay is caused by or results from causes beyond the reasonable
control of the affected Party, including but not limited to fire, floods,
embargoes, war, acts of war (whether war is declared or not), insurrections,
riots, civil commotions, strikes, lockouts or other labor disturbances, acts of
God or acts, omissions or delays in acting by any governmental authority or the
other Party; PROVIDED, HOWEVER, that the Party so affected shall use reasonable
commercial efforts to avoid or remove such causes of nonperformance, and shall
continue performance hereunder with reasonable dispatch whenever such causes are
removed. Either Party shall provide the other Party with prompt written notice
of any delay or failure to perform that occurs by reason of force majeure. The
Parties shall mutually seek a resolution of the delay or the failure to perform
as noted above.

13.2. ASSIGNMENT. This Agreement may not be assigned or otherwise
transferred by either Party without the consent of the other Party; PROVIDED,
HOWEVER, that either Transcend or BI may, without such consent, assign its
rights and obligations under this Agreement (a) in connection with a corporate
reorganization, to any Affiliate, all or substantially all of the equity
interest of which is owned and controlled by such Party or its direct or
indirect parent corporation, or (b) in connection with a merger, consolidation
or sale of substantially all of such Party's assets to an unrelated Third Party;
PROVIDED, HOWEVER, that such Party's rights and obligations under this Agreement
shall be assumed by its successor in interest in any such transaction and shall
not be transferred separate from all or substantially all of its other business
assets, including those business assets that are the subject of this Agreement.
Any purported assignment in violation of the preceding sentence shall be void.
Any permitted assignee shall assume all obligations of its assignor under this
Agreement.

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13.3. SEVERABILITY. Each Party hereby agrees that it does not intend to
violate any public policy, statutory or common laws, rules, regulations, treaty
or decision of any government agency or executive body thereof of any country or
community or association of countries. Should one or more provisions of this
Agreement be or become invalid, the Parties hereto shall substitute, by mutual
consent, valid provisions for such invalid provisions which valid provisions in
their economic effect are sufficiently similar to the invalid provisions that it
can be reasonably assumed that the Parties would have entered into this
Agreement with such valid provisions. In case such valid provisions cannot be
agreed upon, the invalidity of one or several provisions of this Agreement shall
not affect the validity of this Agreement as a whole, unless the invalid
provisions are of such essential importance to this Agreement that it is to be
reasonably assumed that the Parties would not have entered into this Agreement
without the invalid provisions.

13.4. NOTICES. Any consent, notice or report required or permitted to be
given or made under this Agreement by one of the Parties to the other shall be
in writing, delivered personally or by facsimile (and promptly confirmed by
telephone, personal delivery or courier) or courier, postage prepaid (where
applicable), addressed to such other Party at its address indicated below, or to
such other address as the addressee shall have last furnished in writing to the
addressor and shall be effective upon receipt by the addressee.

If to Transcend: Transcend Therapeutics, Inc.
640 Memorial Drive
Cambridge, Massachusetts 02139
Attention: President
Tel: (617) 374-1200
Fax: (617) 374-1201

with a copy to: Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Attn: Steven D. Singer, Esq.
Tel: (617) 526-6000
Fax: (617) 526-5000

If to BI: Boehringer Ingelheim International GmbH
Postbox 200
D-55216 Ingelheim, Rhein
Germany
Attention: Corporate Licensing
Telephone: 011 49 61 32 77 34 08
Telecopy: 011 49 61 32 77 35 83

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with a copy to: Boehringer Ingelheim International GmbH
Postbox 200
D-55216 Ingelheim, Rhein
Germany
Attention: Head of Legal Department
Telephone: 011 49 61 32 77 21 06
Telecopy: 011 49 61 32 77 35 83

13.5. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts, without giving
effect to the choice of laws provisions thereof.

13.6. DISPUTE RESOLUTION; CHOICE OF FORUM. Any disputes arising between
the Parties relating to, arising out of or in any way connected with this
Agreement or any term or condition hereof, or the performance by either Party of
its obligations hereunder, whether before or after the expiration pursuant to
Section 12.1 or termination pursuant to Section 12.2 of this Agreement, shall be
promptly presented to the Chief Executive Officer of Transcend and the Member of
the Corporate Board of BI responsible for Pharmaceuticals for resolution and if
they or their designees cannot promptly resolve such disputes, then either Party
shall have the right to bring an action to resolve such dispute before a court
of competent jurisdiction. The Parties hereby submit to the jurisdiction of the
federal or state courts located within the Commonwealth of Massachusetts for the
conduct of any suit, action or proceeding arising out of or relating to this
Agreement.

13.7. ENTIRE AGREEMENT. This Agreement, together with the appendices
hereto and the Stock Purchase Agreement, contains the entire understanding of
the Parties with respect to the subject matter hereof and supersedes the Letter
Agreement dated January 13, 1997, between Transcend and BI. All express or
implied agreements and understandings, either oral or written, heretofore made
are expressly merged in and made a part of this Agreement. This Agreement may be
amended, or any term hereof modified, only by a written instrument duly executed
by both Parties.

13.8. HEADINGS. The captions to the several Articles and Sections hereof
are not a part of this Agreement, but are merely guides or labels to assist in
locating and reading the several Articles and Sections hereof.

13.9. INDEPENDENT CONTRACTORS. It is expressly agreed that Transcend and
BI shall be independent contractors and that the relationship between the two
Parties shall not constitute a partnership, joint venture or agency. Neither
Transcend nor BI shall have the authority to make any statements,
representations or commitments of any kind, or to take any action, which shall
be binding on the other, without the prior consent of the other Party to do so.

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13.10. AGREEMENT NOT TO SOLICIT EMPLOYEES. During the term of this
Agreement and for a period of two (2) years following the expiration pursuant to
Section 12.1 or termination pursuant to Section 12.2 of this Agreement,
Transcend and BI agree not to seek to persuade or induce any employee of the
other company to discontinue his or her employment with that company in order to
become employed by or associated with any business, enterprise or effort that is
associated with its own business.

13.11. EXPORTS. The Parties acknowledge that the export of technical data,
materials or products is subject to the exporting Party receiving any necessary
export licenses and that the Parties cannot be responsible for any delays
attributable to export controls which are beyond the reasonable control of
either Party. Transcend and BI agree not to export or re-export, directly or
indirectly, any information, technical data, the direct product of such data,
samples or equipment received or generated under this Agreement in violation of
any governmental regulations which may be applicable, including, but not limited
to, the Export Administration Act of 1979, as amended, its rules and
regulations, including, but not limited to, Part 779 of the United States Export
Control Regulations, published by the United States Department of Commerce, and
other applicable export control laws. Transcend and BI agree to obtain similar
covenants from their licensees, sublicensees and contractors with respect to the
subject matter of this Section 13.11.

13.12. WAIVER. The waiver by either Party hereto of any right hereunder or
of the failure to perform or of a breach by the other Party shall not be deemed
a waiver of any other right hereunder or of any other breach or failure by said
other Party whether of a similar nature or otherwise.

13.13. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first set forth above.

TRANSCEND THERAPEUTICS, INC.

By:/s/ Hector Gomez
-------------------------------------------
Hector Gomez

Title: President and Chief Executive Officer
-------------------------------------

BOEHRINGER INGELHEIM INTERNATIONAL GmbH

By: /s/ Gieseler By: /s/ Muller
--------------------------- --------------------------------
Gieseler Muller

Title: Director
------------------------- By: --------------------------------
Pharma Business Development Legal Department

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<PAGE> 61

Pages 2 through 9 of Exhibit A
contain Confidential Materials which have been omitted
and filed separately with the Securities and Exchange Commission

EXHIBIT A

PROGRAM PLAN FOR

ARDS DEVELOPMENT PROGRAM

FEBRUARY 1997

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<PAGE> 62

Pages 1 through 4 of Exhibit B
contain Confidential Materials which have been omitted
and filed separately with the Securities and Exchange Commission

EXHIBIT B

TRANSCEND PATENT RIGHTS

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EXHIBIT C

Stock Purchase Agreement

============================================
Stock Purchase Agreement omitted and
filed separately as Exhibit 10.16 to the
Registration Statement on Form S-1
============================================

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<PAGE> 64

Confidential Materials omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.

EXHIBIT D
---------

Terms of Supply Agreement
-------------------------

1. BI and Transcend shall both agree on the choice of any contract
manufacturer to be used by Transcend to supply BI with the Licensed
Product. BI shall retain the right to have direct contact with Transcend's
contract manufacturer.

2. Transcend will supply the Licensed Product to BI in accordance with agreed
testing and manufacturing specifications.

3. BI will purchase all supplies of the Licensed Product exclusively from
Transcend *******************.

4. BI shall provide Transcend with a monthly phased rolling fifteen (15) month
non-binding forecast (the "Forecast"). All firm binding orders will be
placed in writing by BI to provide Transcend with a four (4) month lead
time to supply the Product.

5. BI shall carry out, or have carried out, the quality control tests
specified, from time to time, by Transcend in writing.

6. BI shall reimburse Transcend for the cost of supplying BI with Licensed
Products in accordance with Section 6.1.2. Transcend acknowledges that it
has provided BI with a projection of the Manufacturing Costs of the
Licensed Product for the treatment of ARDS of ****************************
**********************************************************************
*********************************************************** Transcend and
BI shall, at the request of either Party, meet to discuss and review the
supply prices and conditions contained in this Exhibit to take account of
any increases in the cost of labor, materials, conforming to legislation,
increases in the retail price index or for any other reason that leads to
an increase in the cost of production of the Licensed Product. However,
without the prior written consent of BI, which consent shall not be
unreasonably withheld, Transcend shall not have the right to increase the
Manufacturing Costs of the Licensed Product for use in the treatment of
ARDS. In the event that the Licensed Product is developed and
commercialized by the Parties pursuant to this Agreement for the treatment
and/or prevention MOD or an Other Indication, the Parties shall agree in
good faith upon a projection of the Manufacturing Costs of such Licensed
Product for such other indication(s).

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<PAGE> 65

7. Supply terms are F.O.B. Transcend or such other location as Transcend shall
notify BI in writing.

8. Product shall require the approval of BI.

9. Minimum order shall be determined through good faith negotiations between
the Parties.

10. If any payment becomes overdue, without prejudice to any other remedy that
Transcend shall have, it shall be entitled to charge interest in accordance
with Section 7.10 of the Agreement until receipt of the full amount whether
before or after judgment.

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