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<SEC-DOCUMENT>0000927016-01-504430.txt : 20020413
<SEC-HEADER>0000927016-01-504430.hdr.sgml : 20020413
ACCESSION NUMBER:		0000927016-01-504430
CONFORMED SUBMISSION TYPE:	8-K/A
PUBLIC DOCUMENT COUNT:		5
CONFORMED PERIOD OF REPORT:	19991018
ITEM INFORMATION:		Other events
ITEM INFORMATION:		Financial statements and exhibits
FILED AS OF DATE:		20011221

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			SHEFFIELD PHARMACEUTICALS INC
		CENTRAL INDEX KEY:			0000894158
		STANDARD INDUSTRIAL CLASSIFICATION:	PHARMACEUTICAL PREPARATIONS [2834]
		IRS NUMBER:				133808303
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		8-K/A
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-12584
		FILM NUMBER:		1821899

	BUSINESS ADDRESS:	
		STREET 1:		425 WOODSMILL RD
		CITY:			ST LOUIS
		STATE:			MO
		ZIP:			63017
		BUSINESS PHONE:		3145799899

	MAIL ADDRESS:	
		STREET 1:		425 WOODSMILL RD
		CITY:			ST LOUIS
		STATE:			MO
		ZIP:			63017

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	SHEFFIELD MEDICAL TECHNOLOGIES INC
		DATE OF NAME CHANGE:	19940606
</SEC-HEADER>
<DOCUMENT>
<TYPE>8-K/A
<SEQUENCE>1
<FILENAME>d8ka.txt
<DESCRIPTION>FORM 8-K/A
<TEXT>
<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C. 20549


                                  FORM 8-K/A


                                CURRENT REPORT

                        PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934



Date of Report (Date of earliest event reported): October 18, 1999



                         SHEFFIELD PHARMACEUTICALS, INC.
             ------------------------------------------------------
             (Exact name of Registrant as specified in its charter)



          Delaware                       1-12584               13-3808303
- --------------------------------------------------------------------------------
(State or other jurisdiction           (Commission           (I.R.S. Employer
   of incorporation)                   File Number)            Identification
                                                                Number)


               14528 South Outer Forty Road, St. Louis, Missouri 63017
               -------------------------------------------------------
               (Address of Principal executive offices)     (Zip Code)

                                 (314) 579-9899
               --------------------------------------------------
               Registrant's telephone number, including area code


               --------------------------------------------------
          (Former Name or Former Address; if Changed Since Last Report)
<PAGE>

Item 5.  Other Events.

     This amendment is being submitted to file amended forms of Exhibits 10.25,
10.26, 10.27 and 10.28, previously filed in the registrant's Current Report on
Form 8-K on November 2, 1999, which have been revised to include certain
information previously omitted which is no longer the subject of a confidential
treatment request made by the registrant.


Item 7.  Financial Statements, Pro Forma Financial Information and Exhibits.

(c) Exhibits

         (10.25)  Securities Purchase Agreement, dated as of October 18, 1999,
                  by and between the Company and Elan (portions of this exhibit
                  are omitted and were filed separately with the Securities and
                  Exchange Commission pursuant to the Company's application
                  requesting confidential treatment in accordance with Rule 24b-
                  2 as promulgated under the Securities Exchange Act of 1934, as
                  amended).


         (10.26)  Subscription, Joint Development and Operating Agreement dated
                  as of October 18, 1999 by and among Elan Pharma International
                  Limited, Elan, the Company and Newco. (portions of this
                  exhibit are omitted and were filed separately with the
                  Securities and Exchange Commission pursuant to the Company's
                  application requesting confidential treatment in accordance
                  with Rule 24b-2 as promulgated under the Securities Exchange
                  Act of 1934, as amended).

         (10.27)  License Agreement dated October 19, 1999 by and between the
                  Company and Newco (portions of this exhibit are omitted and
                  were filed separately with the Securities and Exchange
                  Commission pursuant to the Company's application requesting
                  confidential treatment in accordance with Rule 24b-2 as
                  promulgated under the Securities Exchange Act of 1934, as
                  amended).

         (10.28)  License Agreement dated October 20, 1999 by and between Elan
                  Pharma International Limited and Newco (portions of this
                  exhibit are omitted and were filed separately with the
                  Securities and Exchange Commission pursuant to the Company's
                  application requesting confidential treatment in accordance
                  with Rule 24b-2 as promulgated under the Securities Exchange
                  Act of 1934, as amended).

                                       -2-
<PAGE>

                                  SIGNATURES


     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.



                                            SHEFFIELD PHARMACEUTICALS INC.

Date: December 21, 2001                     By: /s/ Scott Hoffman
                                                --------------------------------
                                                Scott Hoffman
                                                Vice President and
                                                Chief Financial Officer

                                       -4-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.25
<SEQUENCE>3
<FILENAME>dex1025.txt
<DESCRIPTION>SECURITIES PURCHASE AGREEMENT
<TEXT>
<PAGE>

Exhibit 10.25                               ***TEXT OMITTED AND FILED SEPARATELY
                                            CONFIDENTIAL TREATMENT REQUESTED
                                            UNDER 17 C.F.R. SECTIONS
                                            200.80(B)(4), 200.83 AND 240.24B-2


                         SECURITIES PURCHASE AGREEMENT

SECURITIES PURCHASE AGREEMENT, dated as of October 18, 1999 between Elan
International Services, Ltd., a Bermuda exempted limited liability company
incorporated under the laws of Bermuda ("EIS"), and Sheffield Pharmaceuticals,
Inc., a Delaware corporation (the "Company").

                               R E C I T A L S:

               A.   The Company desires to issue and sell to EIS, and EIS
desires to purchase from the Company, for aggregate consideration of $12,015,000
(the "Original Series D Issue Price"), 12,015 shares of a newly-created series
of cumulative convertible exchangeable preferred stock, par value $0.01 per
share, of the Company (the "Series D Preferred Stock"), which shall be issued to
EIS pursuant to a Certificate of Designations in the form attached hereto as
Exhibit A (the "Series D Certificate of Designations"), at a per share purchase
price of $1,000.

               B.   The Company desires to issue and sell to EIS, and EIS
desires to purchase from the Company, for aggregate consideration that shall not
exceed $4,005,000 (the "Original Series E Issue Price"), up to 4,005 shares of a
newly-created series of cumulative convertible non-exchangeable preferred stock,
par value $0.01 per share, of the Company (the "Series E Preferred Stock"),
which, if issued, shall be issued to EIS pursuant to a Certificate of
Designations in the form attached hereto as Exhibit B (the "Series E Certificate
of Designations"), at a per share purchase price of $1,000.

               C.   The Company desires to issue and sell to EIS, and EIS
desires to purchase from the Company, for aggregate consideration of $5,000,000
(the "Original Series F Issue Price"), (i) 5,000 shares of a newly-created
series of the Company's convertible, non-exchangeable preferred stock, par value
$0.01 per share, of the Company (the "Series F Preferred Stock"), which shall be
issued to EIS pursuant to a Certificate of Designations in the form attached
hereto as Exhibit C (the "Series F Certificate of Designations", and together
with the Series D Certificate of Designations and the Series E Certificate of
Designations, the "Certificates of Designations") and (ii) a warrant to acquire
150,000 shares (subject to adjustment) of the common stock, par value $0.01 per
share, of the Company (the "Sheffield Common Stock"), at an exercise price of
$6.00 per share, pursuant to a warrant certificate in the form attached hereto
as Exhibit D (the "Warrant", and together with the Series D Preferred Stock, the
Series E Preferred Stock and the Series F Preferred, collectively, the
"Securities").

               D.   The Company has previously caused to be formed Sheffield
Newco, Ltd., a Bermuda exempted limited liability company incorporated under the
laws of Bermuda ("Newco"). The Company will acquire from Newco, for an aggregate
purchase price of $12,015,000, (i) 12,000 shares of Newco's voting common stock
(the "Newco Common Stock"), representing 100% of the outstanding shares of such
class of stock, and (ii) 7,224 shares of Newco's non-voting, convertible
preferred stock (the "Newco Preferred Stock"), representing, on a fully diluted
basis, 30.1% of the outstanding shares of such class of stock. EIS will acquire
from Newco, for an aggregate purchase price of $2,985,000, 4,776 shares of Newco
Preferred Stock, representing, on a fully diluted basis, 19.9% of the
outstanding shares of such class of stock. Newco has entered into license
arrangements (the "License Arrangements") with Elan Pharma International
Limited, an Irish private company ("EPIL"), and with the Company for the purpose
of developing and commercializing certain medical products as set forth in the
documents that evidence the License Arrangements.
<PAGE>

               E.   The parties intend, as provided herein, that all of the
proceeds from the sale of (i) the Series D Preferred Stock shall be applied by
the Company solely to fund the Company's initial investment in Newco and (ii)
the Series E Preferred Stock shall be applied by the Company solely to fund the
Company's subsequent development funding obligations in connection with Newco,
in each case, as provided herein and as set forth in the Subscription, Joint
Development and Operating Agreement, dated as of the date hereof, by and between
Newco, Elan Pharma International Limited, EIS and the Company (the "Development
Agreement").

               F.   The Company and EIS are executing and delivering on the date
hereof a Registration Rights Agreement (the "Sheffield Registration Rights
Agreements") in respect of the purchase of the Series D Preferred Stock, Series
E Preferred Stock, Series F Preferred Stock and the Sheffield Common Stock
underlying the Securities and any other shares of Sheffield capital stock
(including shares of preferred stock issued as dividends upon the Series D
Preferred Stock or Series E Preferred Stock) that may, at any time, be acquired
or owned by EIS or its affiliates.

               G.   The Company, EIS and Newco are executing and delivering on
the date hereof a Registration Rights Agreement (the "Newco Registration Rights
Agreements"), in respect of the purchase of Newco Common Stock and Newco
Preferred Stock by the Company and EIS. This Agreement, the Securities, the
Certificates of Designations, the Development Agreement, the Sheffield
Registration Rights Agreements, the Newco Registration Rights Agreements, the
Dividend Notes (as defined below) and each other document, promissory notes or
instrument executed and delivered, or to be executed and delivered as
contemplated hereby or thereby, in connection with the transactions contemplated
hereby, (the "Transaction Documents").

                              A G R E E M E N T:

          The parties agree as follows:

               SECTION 1.  Closings. (a) Time and Place. The closing of the
transactions contemplated hereby (the "Closing") shall occur on the date hereof
(the "Closing Date") at such place as the parties may agree.

               (b)  Issuance of Securities. At the Closing, (x) the Company
shall issue and sell to EIS, and EIS shall purchase from the Company (i) 12,015
shares of Series D Preferred Stock for an aggregate purchase price of
$12,015,000 and (ii) 5,000 shares of Series F Preferred Stock and the Warrant
for an aggregate purchase price of $4,397,500 and the surrender and cancellation
of the Promissory Note, dated September 30, 1999, issued by the Company to EIS
in the principal amount of $600,000.

               (c)  Delivery. At the Closing, EIS shall pay the purchase price
for the Series D Preferred Stock, the Series F Preferred Stock and the Warrant
by wire transfer to an account or accounts designated by the Company and the
parties hereto shall execute and deliver to each other, as applicable: (i) a
certificate or certificates for the shares of Series D Preferred Stock; (ii) the
Warrant; (iii) a certificate or certificates for the shares of the Series F
Preferred Stock; (iv) certificates as to the incumbency of the officers
executing this Agreement; and (v) each of the other documents or instruments
executed in connection herewith. In addition, at the Closing, the Company shall
cause to be delivered to EIS an opinion of counsel in form and substance
satisfactory to EIS.

               (d)  Additional Closings - Series E Preferred Stock. EIS shall be
obligated, subject to the conditions set forth in Section 6, during the first 36
months immediately after the Closing Date, to purchase from the Company all or a
portion of 4,005 shares of the Series E Preferred Stock for a purchase price per
share of $1,000, in accordance with Section 6 hereof.

               (e)  Exemption from Registration. The Securities will be issued
under an exemption or exemptions from registration under the Securities Act of
1933, as amended (the "Securities Act"); accordingly, the certificate or
certificates evidencing the Securities, and any shares of Sheffield Common
Stock, Newco Common

                                      -2-
<PAGE>

Stock or Newco Preferred Stock issuable upon the exercise, exchange or
conversion of any of the Securities shall, upon issuance, contain the following
legend:

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

               (f)  Registration Rights Agreement. On the date hereof, the
Company and EIS shall execute and deliver (i) the Sheffield Registration Rights
Agreement, covering the resale by EIS of the Sheffield Common Stock issuable
upon conversion, exercise or exchange of any of the Securities and (ii) the
Newco Registration Rights Agreement, covering the resale by EIS and the Company
of the Newco Common Stock issuable, directly or indirectly, upon exchange of any
of the Securities.

               SECTION 2.  Representations and Warranties of the Company. (a)
Organization. The Company is duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite corporate
power and authority to own and lease its properties, to carry on its business as
presently conducted and as proposed to be conducted and to consummate the
transactions contemplated hereby. As of the date hereof, the Company is
qualified and in good standing to do business in jurisdictions set forth on
Schedule 2(a), which constitute all of the jurisdictions in which the nature of
the business conducted or the property owned by it requires such qualification,
except where the failure to so qualify would not have a material adverse effect
on the business, prospects, properties or condition (financial or otherwise) of
the Company (a "Material Adverse Effect").

               (b)   Capitalization. As of the date hereof, (i) the authorized
capital stock of the Company consists of (A) 60,000,000 shares of Sheffield
Common Stock, par value $0.01 per share and (B) 3,000,000 shares of Preferred
Stock, par value $0.01 per share, (w) 23,000 shares of which have been
designated as Series C Cumulative Preferred Stock, par value $0.01 per share
("Series C Preferred Stock"), (x) 21,000 shares of which have been designated
Series D Preferred Stock, (y) 9,000 shares of which have been designated as
Series E Preferred Stock and (z) 5,000 shares of which have been designated as
Series F Preferred Stock. As of the date hereof, 27,296,346 shares of Sheffield
Common Stock were issued and outstanding; 12,556 shares of Series C Preferred
Stock were issued and outstanding; and no shares of Series D Preferred Stock,
Series E Preferred Stock or Series F Preferred Stock were issued and
outstanding.

               (ii)  Except as listed in Schedule 2(b), as of the date hereof,
there are no options, warrants or other rights outstanding to purchase or
otherwise acquire, or any securities convertible into, any of the Company's
authorized capital stock. Other than as set forth in this Agreement and as
described in Schedule 2(b), there are no agreements, arrangements or
understandings concerning the voting, acquisition or disposition of any of the
Company's outstanding securities to which the Company is a party or of which it
is otherwise aware entered into since June 30, 1998. Other than as set forth in
Schedule 2(b) or in the Registration Rights Agreements, since June 30, 1998 the
Company has not entered into any agreement to register any of the Company's
outstanding securities under the U.S. federal securities laws relating to
securities that have not already been registered under the Securities Act.

               (iii) All of the outstanding shares of capital stock of the
Company have been issued in accordance with applicable state, federal and
foreign laws and regulations governing the sale and purchase of securities, all
of such shares have been duly and validly issued and all such shares are fully
paid and non-assessable, and none of such shares carries preemptive or similar
rights.

                                      -3-
<PAGE>

               (c)  Authorization of Transaction Documents. The Company has full
corporate power and authority to execute and deliver this Agreement and each of
the other Transaction Documents, and to perform its obligations hereunder and
thereunder. The execution, delivery and performance by the Company of the
Transaction Documents (including the issuance and sale of the Securities) have
been authorized by all requisite corporate actions by the Company; and the
Transaction Documents, including the issuance and sale of the Securities, have
been duly executed and delivered by the Company and are the valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms.

               (d)  No Violation. The execution, delivery and performance by the
Company of the Transaction Documents (including the issuance and sale of the
Securities and the issuance of all securities issuable upon the conversion,
exchange or exercise of any of the Securities), and compliance with the
provisions thereof, will not (i) violate any provision of applicable law,
statute, rule or regulation applicable to the Company or any ruling, writ,
injunction, order, judgment or decree of any court, arbitrator, administrative
agency or other governmental body applicable to the Company or any of their
respective properties or assets or (ii) conflict with or result in a breach of
any of the terms, conditions or provisions of, or constitute (with notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, or result in the creation of, any
Encumbrance (as defined below) upon any of the properties or assets of the
Company under its Certificate of Incorporation, as amended, its Certificates of
Designations (in the various forms to be filed as provided herein) or By-laws,
or any material contract to which the Company is a party, except where such
violation, conflict or breach would not, individually or in the aggregate, have
a Material Adverse Effect. As used herein, "Encumbrance" shall mean any liens,
charges, encumbrances, equities, claims, options, proxies, pledges, security
interests, or other similar rights of any nature, except for such conflicts,
breaches or defaults which would not, individually or in the aggregate, have a
Material Adverse Effect.

               (e)  Approvals. Except as set forth on Schedule 2(e), no material
permit, authorization, consent or approval of or by, or any notification of or
filing with, any person or entity (governmental or otherwise) is required in
connection with the execution, delivery or performance of the Transaction
Documents, including the issuance and sale of the Securities and the securities
issuable upon the conversion, exchange or exercise of any of the Securities, by
the Company. Except as set forth on Schedule 2(e), there is no approval of the
Company's stockholders required under any applicable statute, rule or regulation
in connection with the execution and delivery the Transaction Documents or the
consummation of the transactions contemplated thereby, including the filing of
the Certificates of Designations, the issuance of the Securities and the
securities issuable upon the conversion, exchange or exercise of any of the
Securities and the listing of the shares of Sheffield Common Stock issuable upon
the conversion, exercise or exchange of any of the Securities on the American
Stock Exchange.

               (f)  Filings, Taxes and Financial Statements. (i) The Company has
filed its annual report on Form 10-K for the year ended December 31, 1998 (the
"Annual Report"), its related proxy materials and the quarterly report on Form
10-Q for the quarter ended June 30, 1999 (the "Quarterly Report," together with
the Annual Report, including all exhibits and schedules required to be filed in
connection therewith, the "SEC Filings") with the Securities and Exchange
Commission, the American Stock Exchange, Inc., and any other required person or
entity (governmental or otherwise) in a timely manner and as otherwise required
by applicable laws and regulations, including the federal securities laws. The
audited financial statements of the Company for the fiscal year ended December
31, 1998 included in the Annual Report (the "Audited Financial Statements"), and
the Company's unaudited balance sheet for the period ending June 30, 1999,
together with the accompanying statements of operations and cash flows including
the notes thereto in the Quarterly Report (the "June Financial Statements";
collectively, with the Audited Financial Statements, the "Financial Statements")
are accurate and complete in all material respects and fairly present the
financial condition of the Company as at the dates thereof and have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated (except as may be otherwise
indicated in such financial statements or the notes thereto), subject, in the
case of the June Financial Statements, to normal year-end audit adjustments
(which shall not be material in the aggregate) and the absence of footnote
disclosures.

                                      -4-
<PAGE>

               (ii)  The Company has filed in a timely manner all material
federal, state, local and foreign tax returns, reports and filings
(collectively, "Returns"), including income, franchise, property and other
taxes, and has paid or accrued the appropriate amounts reflected on such
Returns. None of the Returns have been, or as of the date hereof and to the
knowledge of the Company, are currently being, audited or challenged, nor has
the Company received any notice of challenge nor have any of the amounts or
other data included in the Returns been challenged or reviewed by any
governmental authority.

               (iii) Except as disclosed in the SEC Filings or listed in
Schedule 2(f), which sets forth a true and accurate list and description of any
employee benefit plans maintained or sponsored by the Company or to which the
Company is required to make contributions, the Company does not maintain,
sponsor, and is not required to make contributions to or otherwise have any
liability with respect to any pension, profit sharing, thrift or other
retirement plan, employee stock ownership plan, deferred compensation, stock
ownership, stock purchase, performance share, bonus or other incentive plan,
severance plan, health or group insurance plan, welfare plan, or other similar
plan, agreement, policy or understanding (whether written or oral), whether or
not such plan is intended to be qualified under Section 401(a) of the Code,
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended, which plan covers any employee or former employee of
the Company.

               (g)   Absence of Changes. Except as set forth on Schedule 2(g),
since June 30, 1999 there has not been (a) any material adverse change in the
business, properties, condition (financial or otherwise), operations or
prospects of the Company; (b) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the business,
properties, condition (financial or otherwise), operations or prospects of the
Company; (c) any declaration, setting aside or payment of any dividend or other
distribution or payment (whether in cash, stock or property) in respect of the
capital stock of the Company (other than in respect of the Company's outstanding
Series C Preferred Stock), or any redemption or other acquisition of such stock
by the Company; (d) any disposal or lapse of any trade secret, invention,
patent, trademark, trademark registration, service mark, service mark
registration, copyright, copyright registration, or any application therefor or
filing in respect thereof that had a Material Adverse Effect; (e) loss of the
services of any of the key officers or key employees of the Company that had a
Material Adverse Effect; (f) other than with EIS, its subsidiaries and
affiliates, any incurrence of or entry into any liability, mortgage, lien,
commitment or transaction, including without limitation, any borrowing (or
assumption or guarantee thereof) or guarantee of a third party's obligations, or
capital expenditure (or lease in the nature of a conditional purchase of capital
equipment) in excess of $100,000; or (g) any material change by the Company in
accounting methods or principles or (h) any change in the assets, liabilities,
condition (financial or otherwise), results or operations or prospects of the
Company from those reflected on the Quarterly Report, except changes in the
ordinary course of business that have not, individually or in the aggregate, had
a Material Adverse Effect.

               (h)   No Liabilities. Except as set forth in the Quarterly Report
attached hereto, the Company has not incurred or suffered any liability or
obligation, matured or unmatured, contingent or otherwise, except in the
ordinary course of business that have individually or in the aggregate, had a
Material Adverse Effect.

               (i)   Properties and Assets; Etc. (i) The SEC Filings disclose
all patents and other intellectual property material to the business and
operations of the Company and all applications therefore and licenses,
sublicenses or agreements in respect thereof which the Company owns or has the
right to use or to which the Company is a party (the "Proprietary Rights"). The
Proprietary Rights are adequate for the conduct of the Company's business.
Except as set forth in the SEC Filings, the agreements evidencing the License
Arrangements, the licenses of Proprietary Rights to or from Systemic Pulmonary
Delivery, Ltd. or where the absence of which would not have a Material Adverse
Effect, (A) the Company is the sole and exclusive owner of all rights, title and
interest to all Proprietary Rights free and clear of all liens, claims, charges,
equities, rights of use, encumbrances and restrictions whatsoever, (B) the
Company does not have knowledge of any basis for any claim of infringement or
misappropriation contesting the validity or Company's right to use any
Proprietary Rights; (C) all of such patents, trademark registrations, service
mark registrations, trade name registrations and copyrights and copyright
registrations, whether foreign or domestic, have been duly issued and have not
been canceled, abandoned, or otherwise terminated; and (D) all of the Company's
patent applications, trademark applications,

                                      -5-
<PAGE>

service mark applications, trade name applications and copyright applications
have been duly filed.

               (ii)  Each of the contracts listed as an exhibit to the Company's
SEC Filings is a legal and valid agreement binding upon each of the parties
thereto and is in full force and effect except where the expiration or
termination have not, individually or in the aggregate, had a Material Adverse
Effect. To the best knowledge of the Company, there is no breach or default by
any party thereunder that had a Material Adverse Effect. Such contracts
constitute all material agreements, arrangements or understandings required to
be included as an exhibit in such reports under Item 601 of the Securities and
Exchange Commission Regulations.

               (iii) The Company has and maintains adequate and sufficient
insurance, including liability, casualty and products liability insurance,
covering risks associated with its business, properties and assets, including
insurance that is customary for companies similarly situated.

               (iv)  The Company, its business and properties and assets are in
compliance, in all material respects, with all applicable laws and regulations,
including without limitation, those relating to (a) health, safety and employee
relations, (b) environmental matters, including the discharge of any hazardous
or potentially hazardous materials into the environment, and (c) the
development, commercialization and sale of pharmaceutical and biotechnology
products, including all applicable regulations of the U.S. Food and Drug
Administration and comparable foreign regulatory authorities.

               (j)   Legal Proceedings, etc. Except as set forth on Schedule
2(j), there is no legal, administrative, arbitration or other action or
proceeding or governmental investigation pending or, to the Company's best
knowledge, threatened against the Company, or any director, officer or employee
of the Company, which is required to be described in the SEC Filings and is not
so described. The Company is not in violation of, or default under, any material
laws, judgments, injunctions, orders or decrees of any court, governmental
department, commission, agency, instrumentality or arbitrator applicable to its
business.

               (k)   Disclosure. The Company's SEC Filings and periodic reports
subsequently filed under Section 13 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the representations and warranties set forth
herein and the Transaction Documents, when viewed collectively, do not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements contained herein and therein not misleading in
light of circumstances in which they were made.

               (l)   Brokers or Finders. The Company has not retained any
investment banker, broker or finder in connection with the transactions
contemplated by the Transaction Documents, other than Tucker Anthony Cleary
Gull, the fee of which are payable solely by the Company.

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

               (a)   Organization. EIS is a corporation duly organized, validly
existing and in good standing under the laws of Bermuda and has all requisite
corporate power and authority to own and lease its properties, to carry on its
business as presently conducted and as proposed to be conducted and to
consummate the transactions contemplated hereby. EIS is qualified and in good
standing to do business in each jurisdiction in which the nature of the business
conducted or the property owned by it requires such qualification, except where
the failure to so qualify would not reasonably be expected to have a material
adverse effect on the business or condition (financial or otherwise) of EIS.

               (b)   Authorization of Agreement. EIS has full legal right, power
and authority to enter into this Agreement and perform its obligations
hereunder, which have been duly authorized by all requisite corporate action.
This Agreement and the purchase of the Securities are the valid and binding
obligations of EIS, enforceable against them in accordance with their terms.

                                      -6-
<PAGE>

               (c)   No Conflicts. The execution, delivery and performance by
EIS of this Agreement, the purchase and acceptance of the Securities and
compliance with provisions hereof by EIS, will not (i) violate any provisions of
applicable law, statute, rule or regulation applicable to EIS or any ruling,
writ, injunction, order, judgment or decree of any court, arbitration,
administrative agency or other governmental body applicable to EIS or any of its
properties or assets or (ii) conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute (with notice or lapse of time
to both) a default (or give rise to any right of termination, cancellation or
acceleration) under, or result in the creation of any Encumbrance upon any of
the properties or assets of EIS under its Certificate of Incorporation or By-
laws or any material contract to which EIS is party, except where such
violation, conflict or breach would not, individually or in the aggregate, have
a material adverse effect on EIS.

               (d)   Approvals. No permit, authorization, consents or approval
of or by, or any notification of or filing with, any person or entity
(governmental or otherwise) is required in connection with the execution,
delivery or performance of this Agreement (including the funding and acceptance
thereof) by EIS.

               (e)   Investment Representations. (i) EIS is an "accredited
investor" as defined in Rule 501(a) of Regulation D. EIS is sophisticated in
transactions of this type and capable of evaluating the merits and risks of the
transactions described herein and in the other Transaction Documents, has the
capacity to protect its own interests, has reviewed the SEC Filings, and is
aware of the risk factors relating to an investment in the Company as disclosed
in such filings. EIS has not been formed solely for the purpose of entering into
the transactions described herein and therein and is acquiring the Securities
for investment for its own account, not as a nominee or agent, and not with the
view to distribute or sell any part thereof; provided, that EIS shall be
permitted to convert, exchange or exercise such Securities and/or transfer them
as permitted herein and under applicable law. EIS has been afforded the
opportunity to ask questions of, and receive information about, the Company and
its business and prospects, from management and representatives of the Company,
and has relied on its own independent judgment in making a judgment about an
investment in the Securities.

               (ii)  Nothing contained in this Section 3(e) shall limit any of
the Company's representations or warranties or limit EIS's recourse in respect
thereof.

               (iii) EIS has not retained any investment banker, broker or
finder in connection with the transactions contemplated by the Transaction
Documents.

               SECTION 4. Covenants of the Company. (a) Non-disclosure. From and
after the date hereof, neither the Company nor EIS shall disclose to any person
or entity (other than its directors, officers and agents who need to know such
information in connection with the transactions described herein and the other
Transaction Documents, each of whom shall be informed of this confidentiality
provision and in respect of whose breaches the Company shall be responsible) the
content of this Agreement or any of the other Transaction Documents or the
substance of the transactions described herein, without the prior written
consent of the other party (which consent shall not be unreasonably withheld or
delayed), except to the extent required by applicable laws, regulations or
administrative or judicial processes in respect of press releases, periodic
reports or other public disclosure prepared in good faith by the Company or EIS;
provided, that EIS and the Company shall each provide the other with a
reasonable opportunity to review such releases or reports prior to release. This
Section 4(a) shall not be construed to prohibit disclosure of any information
which has not been previously determined to be confidential by EIS or the
Company, or which shall have become publicly disclosed (other than by breach
obligations of the Company or EIS hereunder).

               (b)   Fully-diluted Stock Ownership. (i) Notwithstanding any
other provision of this Agreement, in the event that EIS shall have determined
that at any time it (together with its affiliates, if applicable) holds or has
the right to receive Sheffield Common Stock (or securities or rights, options or
warrants exercisable, exchangeable or convertible for or into Sheffield Common
Stock) representing in the aggregate in excess of 19.9% of the outstanding
Sheffield Common Stock (assuming any such exercise, exchange or conversion, but
not the exercise, exchange or conversion of any other similar securities) or EIS
has otherwise determined that Elan would be required to equity account for its
investment in Sheffield, EIS shall have the right (but not the obligation), in
its sole discretion, rather than acquiring such securities from the Company, to
exchange such number of securities as are

                                      -7-
<PAGE>

necessary so that Elan shall not have to equity account, for non-voting,
convertible, liquidation preferred stock of the Company on terms mutually
acceptable to the Company and EIS such that EIS will not be required to account
for its investments under the equity method. In the event that EIS shall
undertake to exercise such right, EIS shall retain the additional right to
assign all or a portion of such convertible securities (including Sheffield
Common Stock issuable upon conversion thereof) to its affiliates. Each of EIS
and the Company shall use commercially reasonable efforts to effect such
transactions and any required subsequent conversions or adjustments to EIS's
securities position, on a quarterly basis, within 15 business days of the end of
each of EIS's fiscal quarter.

               (ii)  In the event that, after the first anniversary of the date
hereof, the payment to EIS of any dividend in kind upon the Series D Preferred
Stock or the Series E Preferred Stock would result in EIS's fully-diluted
ownership of Sheffield Common Stock to exceed 49.9%, such excess dividends
(I.E., dividends paid in kind, the payment of which would result in EIS's fully-
diluted ownership of Sheffield Common Stock exceeding 49.9%) shall be paid to
EIS through the issuance by the Company to EIS, in lieu of dividends, of
promissory notes with an aggregate principal amount equal to the amount of such
excess dividend that would otherwise be paid in kind (collectively, the
"Dividend Notes"). The Dividend Notes shall (i) bear interest of 7.0% per annum,
compounded semi-annually, compounding to commence six months after issuance,
which shall be payable through the issuance of additional Notes of like tenor
and (ii) mature and become immediately due and payable in full in cash on the
sixth anniversary of the date thereof.

               (c)   Certain Preemptive Rights. For a period of four years from
and after the date hereof, EIS shall be entitled to participate in any
convertible or exchangeable debt, equity, warrant or convertible securities
financing (the "Preemptive Right") undertaken by the Company (each, a "Capital
Raising"), in order that EIS may maintain its then current PRO RATA percentage
equity ownership interest (on a fully diluted basis) of the Company.
Notwithstanding the foregoing, the Preemptive Right shall terminate and be of no
further force and effect at such time as equity ownership interest of EIS and
its affiliates in the Company falls below 5%, on a fully-diluted basis. Such
participation by EIS shall be on terms no less attractive to EIS than those
offered to any other potential investor in a Capital Raising financing;
provided, that such Preemptive Right shall not apply to (i) any BONA FIDE
offering to the public pursuant to the Securities Act, or (ii) an offering of
securities solely in connection with (A) an acquisition of assets, merger,
consolidation or similar transaction with an unaffiliated third party, or (B) an
employee stock option plan.

               (d)   Use of Proceeds. The Company shall use all of the aggregate
proceeds of the sale of the Series D Preferred Stock and the Series E Preferred
Stock solely for the purpose of meeting its capitalization and funding
commitments to Newco.

               SECTION 5. Additional Covenants of the Parties. (a) Right of
Conversion. (i) EIS may, pursuant to the Series D Certificate of Designations,
after the second anniversary of the date hereof and prior to the sixth
anniversary of the date hereof, convert the Series D Preferred Stock into
Sheffield Common Stock as set forth in the Series D Certificate of Designations
(the "Series D Conversion Right").

               (ii)  EIS may, pursuant to the Series E Certificate of
Designations, after the second anniversary of the date hereof and prior to the
sixth anniversary of the date hereof, convert the Series E Preferred Stock into
Sheffield Common Stock as set forth in the Series E Certificate of Designations
(the "Series E Conversion Right", and together with the Series D Conversion
Right, collectively, the "Conversion Rights").

               (b)   Rights of Exchange. (i) NEWCO EQUITY EXCHANGE RIGHT. (A)
EIS may, at its option and in accordance with the Series D Certificate of
Designations, exchange in whole the originally issued shares of Series D
Preferred Stock, any Series D Preferred Stock issued as a dividend upon
outstanding Series D Preferred Stock, and all outstanding Dividend Notes held by
EIS, its subsidiaries and affiliates, for all shares of Newco Preferred Stock
issued by Newco to the Company pursuant to the Development Agreement, thereby
increasing EIS's fully-diluted ownership of outstanding Newco Common Stock to
50%, on a fully converted basis, assuming the conversion of such exchanged
shares of Newco Preferred Stock and all shares of Newco Preferred Stock
previously issued to EIS as described in Recital D above (the "Equity Exchange
Right"). After the exercise of the

                                      -8-
<PAGE>

Equity Exchange Right and the receipt by EIS of Newco Preferred Stock
convertible, together with all shares of Newco Preferred Stock previously issued
to EIS, into 50% of the outstanding Newco Common Stock, (I) the shares of Series
D Preferred Stock exchanged shall be cancelled and no longer entitle the holder
thereof to any rights with respect to the Company, and (II) all Dividend Notes
shall be immediately cancelled.

                     (B) The Equity Exchange Right shall terminate upon the
earlier of (x) exercise of the Series D Conversion Right by EIS and (y) the
sixth anniversary of the date hereof.

                     (C) If EIS exercises the Equity Exchange Right, EIS shall,
at its option, either (i) cause to be paid to the Company within thirty days of
the consummation of such equity exchange an amount equal to 30.1% of the
aggregate amount provided to Newco (by or on behalf of the Company and EIS and
their respective affiliates and subsidiaries) to fund the agreed upon initial
research and development budget of Newco (the "Development Funding") from and
after the Closing Date and prior to the date of exercise of the Equity Exchange
Right, (ii) surrender to the Company for cancellation shares of the Series E
Preferred Stock with an aggregate liquidation preference equal to 30.1% of
the aggregate amount of Development Funding provided to Newco (by or on behalf
of the Company and EIS and their respective affiliates and subsidiaries) from
and after the Closing Date and prior to the date of exercise of the Equity
Exchange Right, or (iii) elect to satisfy such obligation with a combination of
the payment methods set forth in clauses (i) and (ii) above.

               (ii)  SHEFFIELD DEBT EXCHANGE. All shares of Series D Preferred
Stock (including all shares issued as dividends thereon), all shares of Series E
Preferred (including all shares issued as dividends thereon) and all outstanding
Dividend Notes shall be exchanged by the Company for one or more promissory
notes with an aggregate principal amount equal to the sum of (A) the aggregate
principal amount of all outstanding Dividend Notes and all accrued and unpaid
interest thereon, (B) the aggregate liquidation preference of all shares of
Series D Preferred Stock (including all shares issued as dividends thereon and
all accrued but unpaid dividends thereon) and (C) the aggregate liquidation
preference of all shares of Series E Preferred Stock (including all shares
issued as dividends thereon and all accrued but unpaid dividends thereon) (the
"Debt Exchange"), unless on or before the first anniversary of the Closing Date,
the Company has provided to EIS (and any permitted transferee of EIS) written
evidence that (I) the issuance of the Series D Preferred Stock and the Series E
Preferred Stock and the issuance and listing upon the American Stock Exchange
("AMEX") of the shares of Sheffield Common Stock to be issued upon the
conversion of the Series D Preferred Stock and the Series E Preferred Stock has
been approved or ratified by the stockholders of the Company in accordance with
the General Corporation Law of the State of Delaware and the rules and
regulations of the AMEX or (II) that such approval or ratification is not
required by the applicable rules of the AMEX. The promissory notes to be issued
upon the consummation of the Debt Exchange shall be in the form attached to the
Series D Certificate of Designations, the Series E Certificate of Designations
and the Dividend Notes.

               (c)   Further Assurances. From and after the date hereof, each of
the parties hereto agree to do or cause to be done such further acts and things
and deliver or cause to be delivered to each other such additional assignments,
agreements, powers and instruments, as each may reasonably require or deem
advisable, to carry into effect the purposes of this Agreement and the other
Transaction Documents or to better to assure and confirm unto each other their
respective rights, powers and remedies hereunder and thereunder.

                                      -9-
<PAGE>

               SECTION 6. Series E Preferred Stock. (a) Issuance. (i) As of the
date hereof and until the date which is the 36 month anniversary of the date
hereof, EIS shall be required, at the Company's option as exercised by written
notice to EIS, to purchase shares of Series E Preferred Stock, to be issued
pursuant to the Series E Certificate of Designations, for aggregate
consideration of up to $4,005,000, at a price per share of $1,000 and
[REDACTED].

               (b)  Conditions to the Purchase of Series E Preferred Stock. It
shall be a condition to EIS's obligation to purchase the Series E Preferred
Stock that (A) each of the representations and warranties set forth in Section 2
of this Agreement shall be true and correct in all material respects as if the
date hereof were the proposed funding date thereof; provided, that any reference
to the Quarterly Report shall refer to the most recent quarterly report on Form
10-Q and/or any report filed pursuant to Section 13 of the Exchange Act,
required to be filed by the Company under applicable law immediately prior to
such funding date and SEC Filings shall refer to all filings required to be made
by the Company under applicable law on or prior to such date, (B) there shall be
no default or breach in any material respect by the Company or Newco of a
material obligation under any of the Transaction Documents or any other
agreement between the Company or Newco or any of its affiliates, on the one
hand, and EIS or any of their affiliates, on the other hand, and [REDACTED].

               SECTION 7. Survival and Indemnification. (a) Survival Period. The
representations and warranties of the Company and EIS contained herein shall
survive for a period of one year from and after the date hereof.

               (b)  Indemnification. In addition to all rights and remedies
available to the parties hereunder at law or in equity, each party hereto (in
such capacity, an "Indemnifying Party") shall indemnify each other party hereto,
and its respective affiliates, and its respective affiliates' stockholders,
officers, directors, employees, agents, representatives, successors and assigns
(collectively, the "Indemnified Person"), and save and hold each Indemnified
Person harmless from and against and pay on behalf of or reimburse each such
Indemnified Person, as and when incurred, for any and all loss, liability,
demand, claim, action, cause of action, cost, damage, deficiency, tax, penalty,
fine or expense, whether or not arising out of any claims by or on behalf of
such Indemnified Person or any third party, including interest, penalties,
reasonable attorneys' fees and expenses and all amounts paid in investigation,
defense or settlement of any of the foregoing (collectively, "Losses"), that any
such Indemnified Person may suffer, sustain, incur or become subject to, as a
result of, in connection with, relating, or incidental, to or by virtue of:

               (i)  any misrepresentation or breach of warranty on the part of
the Indemnifying Party under Section 2 or 3 of this Agreement; or

               (ii) any nonfulfillment, default or breach of any covenant or
agreement on the part of the Indemnifying Party under Section 4, 5 or 6 of this
Agreement.

               (c)  Maximum Recovery. Notwithstanding anything in this Agreement
to the contrary, in no event shall the Company be liable for indemnification
under this Section 7, the Transaction Documents, or otherwise, in an amount in
excess of [REDACTED] in the aggregate. No Indemnified Party shall assert any
such claim unless Losses in respect thereof incurred by any Indemnified Party,
when aggregated with all previous Losses hereunder, equal or exceed $50,000; and
after the $50,000 threshold is reached, each Indemnified Person shall be
entitled to be indemnified for the amount of all claims arising hereunder in
excess of $50,000.

               (d)  Exception. Notwithstanding the foregoing, and subject to the
following sentence, upon judicial determination that is final and no longer
appealable that the act or omission giving rise to the indemnification set forth
above resulted primarily out of or was based primarily upon the Indemnified
Person's negligence (unless such Indemnified Person's negligence was based upon
the Indemnified Person's reliance in good faith upon any of the representations,
warranties, covenants or promises made by the Indemnifying Party herein) the
Indemnifying Party shall not be responsible for any Losses sought to be
indemnified in connection therewith, and the Indemnifying Party shall be
entitled to recover from the Indemnified Person all amounts previously paid in
full or partial satisfaction of such indemnity, together with all costs and
expenses (including reasonable attorney's fees)

                                      -10-
<PAGE>

of the Indemnifying Party reasonably incurred in connection with the Indemnified
Party's claim for indemnity, together with interest at the rate per annum
publicly announced by Morgan Guaranty Trust Company as its prime rate from the
time of payment of such amounts to the Indemnified Person until repayment to the
Indemnifying Party.

               (e)  Investigation. All indemnification rights hereunder shall
survive the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby to the extent provided in Section 7(b) above,
irrespective of any investigation, inquiry or examination made for or on behalf
of the Indemnified Person or the acceptance of any certificate or opinion.

               (f)  Contribution. If the indemnity provided for in this Section
7 is in whole or in part unavailable to any Indemnified Person due to Section
7(b) being declared unenforceable by a court of competent jurisdiction based
upon reasons of public policy, so that Section 7(b) shall be insufficient to
hold each such Indemnified Person harmless from Losses which would otherwise be
indemnified hereunder, then the Indemnifying Party and the Indemnified Person
shall each contribute to the amount paid or payable for such Loss in such
proportion as is appropriate to reflect not only the relative benefits received
by the Indemnifying Party on the one hand and the Indemnified Person on the
other, but also the relative fault of the Indemnifying Party and be in addition
to any liability that the Indemnifying Party may otherwise have. Subject to
Section 7(g) hereunder, the indemnity, contribution and expense reimbursement
obligations that the Indemnifying Party has under this Section 7 shall survive
the expiration of the Transaction Documents. The parties hereto further agree
that the indemnification and reimbursement commitments set forth in this
Agreement shall apply whether or not the Indemnified Person is a formal party to
any such lawsuit, claims or other proceedings.

               (g)  Limitation. No claim shall be brought by an Indemnified
Person in respect of any misrepresentation or breach of warranty under this
Agreement after one year from and after the date hereof; and any claim for
nonfulfillment, default or breach of any covenant shall be brought within one
year of the date that such Indemnified Person became aware or should have become
aware of the nonfulfillment, default or breach. Except as set forth in the
previous sentence and in Section 7(c) above, this Section 7 is not intended to
limit the rights or remedies otherwise available to any party hereto with
respect to this Agreement or the other Transaction Documents.

               SECTION 8. Notices. All notices, demands and requests of any kind
to be delivered to any party in connection with this Agreement shall be in
writing and shall be deemed to have been duly given if personally or hand
delivered or if sent by an internationally-recognized overnight delivery service
or by registered or certified airmail, return receipt requested and postage
prepaid, addressed as follows:

                         (i)  if to the Company:

                                Sheffield Pharmaceuticals, Inc.
                                South Winton Court
                                3136 Winton Road South
                                Suite 306
                                Rochester, NY 14623
                                Attention: Chairman

                         and

                                Sheffield Pharmaceuticals, Inc.
                                425 South Woodsmill Road
                                St. Louis, Missouri 63017-3441
                                Attention: Chief Executive Officer
                                with a copy to:

                                Olshan Grundman Frome, Rosenzweig & Wolosky LLP
                                505 Park Avenue
                                New York, NY 10022
                                Attention: Daniel J. Gallagher

                                      -11-
<PAGE>

                         (ii)  if to EIS:

                                 Elan International Services, Ltd.
                                 Flatts, Smiths Parish
                                 Bermuda, FL04
                                 Attention: Director

                                 with a copy to:

                                 Brock Silverstein LLC
                                 800 Third Avenue, 21st Floor
                                 New York, New York 10022
                                 Attention: Scott Rosenblatt

or to such other address as the party to whom notice is to be given may have
furnished to the other party hereto in writing in accordance with provisions of
this Section 8. Any such notice or communication shall be deemed to have been
received (i) in the case of personal or hand delivery, on the date of such
delivery, (ii) in the case of an internationally-recognized overnight delivery
service, on the second business day after the date when sent and (iii) in the
case of mailing, on the fifth business day following that day on which the piece
of mail containing such communication is posted. Notice hereunder may be given
on behalf of the parties by their respective attorneys.

               SECTION 9.  Entire Agreement. This Agreement and the other
Transaction Documents contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto.

               SECTION 10. Amendments. This Agreement may not be modified or
amended, or any of the provisions hereof waived, except by written agreement of
the Company and EIS.

               SECTION 11. Counterparts and Facsimile. The Transaction Documents
may be executed in any number of counterparts, and each such counterpart hereof
shall be deemed to be an original instrument, but all such counterparts together
shall constitute one agreement. Each of the Transaction Documents may be signed
and delivered to the other party by facsimile transmission.

               SECTION 12. Headings.  The section and paragraph headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of the Agreement.

               SECTION 13. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
giving effect to principles of conflicts of laws. Each of the parties hereby
irrevocably submits to the jurisdiction of any New York State or United States
Federal court sitting in the county, city and state of New York over any action
or proceeding arising out of or relating to this Agreement or the other
Transaction Documents; and each hereby waives the defense of an inconvenient
forum for the maintenance of such an action.

               SECTION 14. Expenses. Each of the parties hereto shall be
responsible for its own costs and expenses incurred in connection with the
transactions contemplated hereby and by the other Transaction Documents.

               SECTION 15. Public Releases; Etc. The parties shall reasonably
agree upon the contents of any press release or releases and other public
disclosure in respect of the transactions contemplated hereby, and except as may
otherwise be required by applicable law or judicial or administrative process or
which the Company concludes in good faith is required by applicable securities
laws and regulations.

                                      -12-
<PAGE>

               SECTION 16. Schedules, etc. All statements contained in any
exhibit or schedule delivered by or on behalf of the parties hereto, or in
connection with the transactions contemplated hereby, are an integral part of
this Agreement and shall be deemed representations and warranties hereunder.

               SECTION 17. Assignments. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, subject to compliance with
the representations and warranties contained in Section 3(e) of this Agreement.
This Agreement, the Transaction Documents, and the Securities may be assigned by
EIS to its affiliates and subsidiaries.

               SECTION 18. Currency. All references to "$" or dollars herein
shall mean United States dollars.

                                      -13-
<PAGE>

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


                               SHEFFIELD PHARMACEUTICALS, INC.

                               By: /s/ Loren G. Peterson
                                   -------------------------
                                  Name:
                                  Title:


                               ELAN INTERNATIONAL SERVICES, LTD.

                               By:/s/ Kevin Insley
                                  ---------------------------
                                  Name:
                                  Title:

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.26
<SEQUENCE>4
<FILENAME>dex1026.txt
<DESCRIPTION>JOINT DEVELOPMENT & OPERATION AGREEMENT
<TEXT>
<PAGE>

Exhibit 10.26                               ***TEXT OMITTED AND FILED SEPARATELY
                                            CONFIDENTIAL TREATMENT REQUESTED
                                            UNDER 17 C.F.R. SECTIONS
                                            200.80(B)(4), 200.83 AND 240.24B-2


            SUBSCRIPTION, JOINT DEVELOPMENT AND OPERATING AGREEMENT


                       ELAN PHARMA INTERNATIONAL LIMITED



                       ELAN INTERNATIONAL SERVICES, LTD.



                                      AND



                        SHEFFIELD PHARMACEUTICALS, INC.



                                      AND



                             SHEFFIELD NEWCO, LTD.
<PAGE>

                                     INDEX


CLAUSE 1         DEFINITIONS

CLAUSE 2         NEWCO'S BUSINESS

CLAUSE 3         REPRESENTATIONS AND WARRANTIES

CLAUSE 4         AUTHORIZATION AND CLOSING

CLAUSE 5         DIRECTORS; MANAGEMENT AND R&D COMMITTEES

CLAUSE 6         THE BUSINESS PLAN AND REVIEWS

CLAUSE 7         RESEARCH AND DEVELOPMENT

CLAUSE 8         COMMERCIALIZATION

CLAUSE 9         SUBLICENSE AND ASSIGNMENT RIGHTS

CLAUSE 10        OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS/NONCOMPETITION

CLAUSE 11        INTELLECTUAL PROPERTY RIGHTS

CLAUSE 12        CROSS LICENSING/EXPLOITATION OF PRODUCTS OUTSIDE FIELD

CLAUSE 13        REGULATORY

CLAUSE 14        MANUFACTURING

CLAUSE 15        TECHNICAL SERVICES AND ASSISTANCE

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

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

CLAUSE 18        MATTERS REQUIRING PARTICIPANTS' APPROVAL
<PAGE>

CLAUSE 19        DISPUTES

CLAUSE 20        TERMINATION

CLAUSE 21        SHARE RIGHTS

CLAUSE 22        CONFIDENTIALITY

CLAUSE 23        COSTS

CLAUSE 24        GENERAL

                                      iii
<PAGE>

THIS SUBSCRIPTION, JOINT DEVELOPMENT AND OPERATING AGREEMENT made this 18th day
of October, 1999

BETWEEN:

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

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

(3)  SHEFFIELD PHARMACEUTICALS, INC. a corporation duly incorporated and validly
     existing under the laws of Delaware and having its principal place of
     business at 425 South Woodsmill Road, Suite 270, St. Louis, MO 63017,
     United States of America; and

(4)  SHEFFIELD NEWCO, LTD., a private limited company incorporated under the
     laws of Bermuda, and having its registered office at Clarendon House, 2
     Church St., Hamilton, Bermuda ("Newco").


RECITALS:

A.   Newco desires to issue and sell to the Stockholders (as defined below), and
     the Stockholders desire to purchase from Newco, for aggregate consideration
     of $7,500,000 apportioned between them as set forth herein, 12,000 ordinary
     shares of Newco's common stock, par value $1.00 per share (the "Common
     Stock"), allocated to Sheffield. Additionally, Newco desires to issue and
     sell to the Stockholders, and the Stockholders desire to purchase from
     Newco, for aggregate consideration of $7,500,000, apportioned between them
     as set forth herein, 12,000 shares of Newco's preferred stock, par value
     $1.00 per share (the "Preferred Stock"), allocated 7,224 shares to
     Sheffield for aggregate consideration of $4,515,000 and 4,776 shares to EIS
     for aggregate consideration of $2,985,000.

B.   As of the date hereof, EPIL has entered into a license agreement with
     Newco, and Sheffield has entered into a license agreement with Newco, in
     connection with the license to Newco of the Elan Intellectual Property and
     the Sheffield Intellectual Property, respectively (each as defined below).

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

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


NOW IT IS HEREBY AGREED AS FOLLOWS:

                                   CLAUSE 1

                                  DEFINITIONS

1.1  In this Agreement, the following terms shall, where not inconsistent with
     the context, have the following meanings respectively. "Affiliate" shall
     mean any corporation or entity controlling, controlled or under the common
     control of Elan or Sheffield, as the case may be. For the purpose of this
     definition, "control" shall mean direct or indirect ownership of fifty
     percent (50%) or more of the stock or shares entitled to vote for the
     election of directors. Newco is not an Affiliate of Elan or EIS.

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

     "Board" shall mean the board of directors of Newco.

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

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

     "Certificate of Designations" shall mean that certain certificate of
     designations, preferences and rights of the Series D Preferred Stock issued
     on the Closing Date.

     "Closing Date" shall mean the date upon which the Transaction Documents are
     executed and delivered by the Parties and the transactions effected thereby
     are closed.

     "Combined Fields" shall mean Field A, Field B and Field C.

     "Common Stock Equivalents" shall mean any options, warrants, rights or any
     other securities convertible, exercisable or exchangeable, in whole or in
     part, for or into Common Stock.

                                      -2-
<PAGE>

     "Compounds" shall mean the Field A Compound, the Field B Compound and/or
     the Field C Compound.

     "Directors" shall mean, at any time, the directors of Newco.

     "Dividend Notes" shall mean promissory notes issued by Sheffield to holders
     of Series D Preferred Stock as payment for dividends pursuant to the
     Certificate of Designations.

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

     "Elan" shall mean EPIL and Affiliates and includes EIS and subsidiaries of
     Elan Corporation, Plc. within the division of Elan Corporation, Plc.
     carrying on business as Elan Pharmaceutical Technologies but shall not
     include Affiliates and subsidiaries (present or future) of Elan Corporation
     Plc within the division of Elan Corporation, Plc carrying on business as
     Elan Pharmaceuticals which incorporates, inter alia, Targon Corporation,
     Athena Neurosciences, Inc., Elan Pharmaceuticals, Inc., Elan Diagnostics,
     Carnrick Laboratories, and Elan Europe Limited. "Elan Improvements" shall
     mean improvements relating to the Elan Patents and/or the Elan Know-How,
     developed (i) by Elan whether or not pursuant to the Project, (ii) by Newco
     or Sheffield or by a third party (under contract with Newco) whether or not
     pursuant to the Project, and/or (iii) jointly by any combination of Elan,
     Sheffield or Newco pursuant to the Project, except as limited by agreements
     with third Parties. Subject to third party agreements, Elan Improvements
     shall constitute part of Elan Intellectual Property and be included in the
     license of the Elan Intellectual Property pursuant to Clause 2.1 of the
     Elan License Agreement solely for the purposes set forth therein. If the
     inclusion of an Elan Improvement in the license of Elan Intellectual
     Property is restricted or limited by a third party agreement, Elan shall
     use reasonable commercial efforts to minimize any such restriction or
     limitation.

     "Elan Intellectual Property" shall mean the Elan Know-How, the Elan Patents
     and the Elan Improvements. For the avoidance of doubt, Elan Intellectual
     Property shall exclude (i) Elan's patent rights and know-how relating to
     protein or peptide agents or peptodomimetics, derivatives or analogs
     thereof, designed to target a pharmaceutically active agent to a certain
     site or sites in the body (targeting technology) and (ii) inventions,
     patents and know-how owned, licensed or controlled by Axogen Limited and
     Neuralab Limited, and by all Affiliates and subsidiaries (present or
     future) of Elan Corporation, Plc. carrying on business as Elan
     Pharmaceuticals which incorporates, inter alia, Targon Corporation, Athena
     Neurosciences, Inc., Elan Pharmaceuticals, Inc., Elan Diagnostics, Carnrick
     Laboratories, and Elan Europe Limited.

     "Elan Know-How" shall mean any and all rights owned, licensed or controlled
     by Elan to any discovery, invention (whether patentable or not), know-how,
     substances, data, techniques, processes, systems, formulations and designs
     relating to Nanocrystal(TM) Technology.

                                      -3-
<PAGE>

     "Elan License Agreement" shall mean the license agreement between Elan and
     Newco, of even date herewith, attached hereto in Schedule 1.

     "Elan Patents" shall mean any and all rights under any and all patents
     applications and/or patents, now existing, currently pending or hereafter
     filed or obtained by Elan relating to Nanocrystal(TM) Technology as set
     forth in Schedule 1 of the Elan License Agreement, and any foreign
     counterparts thereof and all divisionals, continuations, continuations-in-
     part, any foreign counterparts thereof and all patents issuing on, any of
     the foregoing, together with all registrations, reissues, re-examinations
     or extensions thereof.

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

     "EPIL Patents" shall mean the Elan Patents owned by EPIL.

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

     "Exchange Note" shall mean promissory notes issued by Sheffield to holders
     of the Series D Preferred Stock in exchange for share of Series D Preferred
     Stock pursuant to the Certificate of Designations.

     "Exchange Right" shall mean the Equity Exchange Right (as such term is
     defined in the Certificate of Designations in effect on the date hereof.)

     "Field A" shall mean the topical pulmonary delivery of Formulations of the
     Field A Compound by means of the Field A Device.

     "Field B" shall mean the topical pulmonary delivery of Formulations of the
     Field B Compound by means of the Field B Device.

     "Field C" shall mean the topical pulmonary delivery of Formulations of the
     Field C Compound by means of the Field C Device.

     "Field A Device" shall mean a third party table top unit dose nebulizer
     having a reservoir capable of holding a unit dose (a device and a
     compressor to nebulize a unit dose shall be deemed a device), which is a
     device having any one the following characteristics:

     (i)    [REDACTED]

     (ii)   [REDACTED]

     (iii)  [REDACTED]

                                      -4-
<PAGE>

     (iv)  [REDACTED]

     (v)   [REDACTED]

     For the avoidance of doubt, Field A Device does not include [REDACTED]
     "Field B Device" shall mean the Aerosol Drug Delivery System ("ADDS"),
     owned by Systemic Pulmonary Delivery Limited and exclusively licensed to
     Sheffield for topical pulmonary applications.

     "Field C Device" shall mean the handheld multi-dose nebulizer ("MSI") which
     was licensed exclusively by Siemens to Sheffield pursuant to the Siemens
     Agreements and which was subsequently sub-licensed by Sheffield to Zambon
     (on an exclusive basis for delivery of various medicines for humans in
     treating respiratory disease and/or other lung diseases including, but not
     limited to, anti-infectives) provided that Newco, through the Management
     Committee, is successful in obtaining a sub-license from Zambon to Newco
     enabling the development and use of the Field C Compounds for use with a
     Field C Device, as described in more detail in Clause 2.2 of the Elan
     License.

     "Field A Compound" shall mean [REDACTED.]

     "Field B Compound" shall mean [REDACTED] for therapeutic use to be
     nominated by the Management Committee pursuant to Clause 2.3, and with
     reference to Clause 2.3, any Substitute Field B Compound.

     "Field C Compound" shall mean [REDACTED] and with reference to Clause 2.4,
     any Substitute Field C Compound and/or any Additional Field C Compound".

     "Field A Products" shall mean Formulations of the Field A Compound
     delivered by means of any Field A Device in Field A.

     "Field B Products" shall mean Formulations of the Field B Compound
     delivered by means of the Field B Device in Field B.

     "Field C Products" shall mean Formulations of the Field C Compound
     delivered by means of the Field C Device in Field C.

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

     "Formulations" shall mean Nanocrystal(TM) Technology formulations of
     Compounds for use in Field A, Field B or Field C, as applicable.

                                      -5-
<PAGE>

     "Fully Diluted Common Stock" shall mean all of the issued and outstanding
     Common Stock, assuming the conversion, exercise or exchange of all
     outstanding Common Stock Equivalents.

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

     "License Agreements" shall mean the Elan License Agreement and the
     Sheffield License Agreement.

     "Licensed Technologies" shall mean, collectively, the Elan Intellectual
     Property and the Sheffield Intellectual Property.

     "Nanocrystal(TM) Technology" shall mean the Elan proprietary technology
     directed to nanoparticulate formulations of compounds used in the
     manufacturing and/or formulation process, and methods of making the same.

     "Newco By-Laws" shall mean the By-Laws of Newco.

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

     "Newco Patents" shall mean any and all patents now existing, currently
     pending or hereafter filed or obtained relating to the Newco Intellectual
     Property, and any foreign counterparts thereof and all divisionals,
     continuations, continuations-in-part, any foreign counterparts thereof and
     all patents issuing on, any of the foregoing, together with all
     registrations, reissues, re-examinations or extensions thereof.

     "Participant" shall mean Sheffield or Elan, as the case may be, and
     "Participants" shall mean both Sheffield and Elan together as the context
     requires.

     "Party" shall mean Elan, Sheffield, or Newco, as the case may be, and
     "Parties" shall mean all three together.

     "Permitted Transferee" shall mean any Affiliate or subsidiary of Elan, EIS
     or Sheffield, to whom this Agreement may be assigned, in whole or in part,
     pursuant to the terms hereof or in the case of Elan/EIS, a special purpose
     financing entity created by Elan or EIS provided such are not competitors
     of Sheffield.

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

                                      -6-
<PAGE>

     "Products" shall mean the Field A Products, the Field B Products and/or the
     Field C Products.

     "Project" shall mean all activities as undertaken by or on behalf of Newco
     in order to develop the Products.

     "Registration Rights Agreements" shall mean the Registration Rights
     Agreements of even date herewith relating to the common shares and the
     common stock of Newco and Sheffield, respectively.

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

     "Regulatory Approval" shall mean the final approval to market a Product in
     any country of the Territory, and any other approval which is required to
     launch the Product in the normal course of business.

     "Research and Development Term" shall refer to the period of time from the
     date hereof until the third anniversary of the date hereof.

     "RHA" shall mean any relevant government health authority (or successor
     agency thereof) in any country of the Territory whose approval is necessary
     to market a Product in the relevant country of the Territory.

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

     "R&D Plan" shall mean the program of work, including the budget, agreed by
     the Management Committee as part of the Business Plan that relates to the
     formulation, biopharmaceutical and clinical development of the Products and
     such further research and development work as may be agreed by the
     Management Committee from time to time.

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

     "Series D Preferred Stock" shall mean the Series D Cumulative Convertible
     Exchangeable Preferred Stock, par value $.01 per share, of Sheffield.

     "Shares" shall mean the shares of Common Stock and the shares of Preferred
     Stock issued or issuable (directly or upon conversion) to the Participants
     pursuant to this Agreement or the Newco Bye-Laws.

     "Sheffield" shall mean Sheffield Pharmaceuticals, Inc and its Affiliates.

     "Sheffield Devices" shall mean the Field B Device and the Field C Device.

                                      -7-
<PAGE>

         "Sheffield Directors" has the meaning set forth in Clause 5.

         "Sheffield Improvements" shall mean improvements relating to the
         Sheffield Patents and/or the Sheffield Know-How, developed (i) by
         Sheffield whether or not pursuant to the Project, (ii) by Newco or Elan
         or by a third party (under contract with Newco) whether or not pursuant
         to the Project, and/or (iii) jointly by any combination of Sheffield,
         Elan or Newco pursuant to the Project, except as limited by agreements
         with third Parties.

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

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

         "Sheffield Know-How" shall mean any and all rights owned, licensed or
         controlled by Sheffield to any discovery, invention (whether patentable
         or not), know-how, substances, data, techniques, processes, systems,
         formulations and designs relating exclusively to the Sheffield Devices.

         "Sheffield License Agreement" shall mean the license agreement between
         Sheffield and Newco, of even date herewith, attached hereto in Schedule
         2.

         "Sheffield Patents" shall mean any and all rights under any and all
         patents applications and/or patents, now existing, currently pending or
         hereafter filed or obtained by Sheffield relating to the Sheffield
         Devices and all divisionals, continuations, continuations-in-part, any
         foreign counterparts thereof and all patents issuing on, any of the
         foregoing, together with all registrations, reissues, re-examinations
         or extensions thereof.

         "Sheffield Securities Purchase Agreement" shall mean that certain
         Securities Purchase Agreement, of even date herewith, by and between
         Sheffield and EIS.

         "Siemens" shall mean Siemens Aktiengesellschaft.

         "Siemens Agreements" shall mean the License Agreement (as amended)
         dated 21 March 1997 and the Basic Supply Agreement dated 21 March 1997,
         both between Sheffield Medical Technologies Inc. and Siemens
         Aktiengesellschaft.

         "Stockholder" shall mean any of EIS, Sheffield, any Permitted
         Transferee or any other Person who subsequently becomes bound by this
         Agreement as a holder of the Shares, and

         "Stockholders" shall mean all of the Stockholders together.

                                      -8-
<PAGE>

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

         "Technological Competitor of Elan" shall mean a company, corporation or
         person listed in Schedule 3 and successors thereof or any additional
         broad-based technological competitor of Elan added to such Schedule 3
         from time to time upon mutual agreement of the Parties

         "Technological Competitor of Sheffield" shall mean a company,
         corporation or person listed in Schedule 4 and successors thereof or
         any additional broad-based technological competitor of Sheffield added
         to such Schedule 4 from time to time upon mutual agreement of the
         Parties.

         "Term" shall mean the term of this Agreement.

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

         "Transaction Documents" shall mean this Agreement, the Funding
         Agreement, the Elan License Agreement, the Sheffield License Agreement,
         the Sheffield Securities Purchase Agreement, the Exchange Notes, the
         Dividend Notes, the Registration Rights Agreements, the Certificate of
         Designations and associated documentation of even date herewith, by and
         between Sheffield, Elan, EIS and Newco, as applicable.

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

         "Zambon" shall mean Inpharzam International, S.A..

         "Zambon Agreement" shall mean the agreement dated June 15, 1998 between
         Sheffield and Zambon.

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

         Definition                           Clause

         "AAA"                                20.6
         "Buyout Option"                      20.4
         "Closing"                            4.3
         "Common Stock"                       Recital
         "Confidential Information"           22.1
         "Co-sale Notice"                     17.4
         "Expert"                             19.3
         "Management Committee"               5.2.1
         "Notice of Exercise"                 17.3
         "Notice of Intention"                17.3

                                      -9-
<PAGE>

         "Offered Shares"                     17.3
         "Offer Price"                        17.3
         "Preferred Stock"                    Recital
         "Proposing Participant"              20.4
         "Proposing Participant Price"        20.6
         "Purchase Price"                     20.6
         "R&D Committee"                      5.2.3
         "Recipient Participant"              20.4
         "Recipient Participant Price"        20.6
         "Remaining Stockholders"             17.4
         "Relevant Event"                     20.2
         "Selling Stockholder"                17.3
         "Tag-Along Right"                    17.4
         "Transaction Proposal"               17.3
         "Transfer"                           17.1
         "Transferee Terms"                   17.4
         "Transferring Stockholder"           17.4

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

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

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

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

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

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

                                    CLAUSE 2

                                    BUSINESS

2.1      This Agreement shall regulate the business of the development, testing,
         registration, manufacture, commercialization and licensing of Products
         in the Territory and to achieve the other objectives set out in this
         Agreement. The focus of the Business will be to develop the Products in
         the Combined Fields (subject to the provisions outlined in Clause 2.3
         and Clause 2.4 of this

                                      -10-
<PAGE>

         Agreement and Clause 1 of the Funding Agreement) using the Elan
         Intellectual Property, the Sheffield Intellectual Property and the
         Newco Intellectual Property to agreed upon specifications and
         timelines.

2.2      The central management and control of Newco shall be exercised in
         Bermuda and shall be vested in the Directors and such Persons as they
         may delegate the exercise of their powers in accordance with the Newco
         By-Laws. The Stockholders shall use their best endeavors to ensure that
         to the extent required pursuant to the laws of Bermuda, and to ensure
         the sole residence of Newco in Bermuda, all meetings of the Directors
         are held in Bermuda or other jurisdictions outside the United States
         and generally to ensure that Newco is treated as resident for taxation
         purposes in Bermuda.

2.3      Nomination procedures in Field B

         The Management Committee shall nominate the Field B Compound as soon as
         practicable following the Effective Date provided that the Management
         Committee shall in no circumstances be entitled to nominate [REDACTED]
         as the Field B Compound without the prior consent in writing of Elan.
         Upon nomination of the Field B Compound, the R&D Committee shall carry
         out, or have carried out on its behalf by a third party agreed by the
         R&D Committee, a feasibility study ("Field B Feasibility Study") to
         determine the feasibility of the Field B Compound initially nominated
         for an R&D Program in Field B.

         Subject to Clause 6.3 and Clause 1 of the Funding Agreement, if the
         Management Committee is satisfied with the results of the Field B
         Feasibility Study, the Management Committee will consider whether and
         when Newco will commence an R&D Program in Field B with such Field B
         Compound having regard to the other R&D Programs being undertaken by
         Newco and the personnel resources and funding which Newco has allocated
         thereto. If the Management Committee determines that such Field B
         Compound represents a more valuable opportunity for Newco than Field A,
         the

                                      -11-
<PAGE>

         Management Committee, to the extent necessary, will re-prioritize any
         R&D Program(s) already commenced in Field A or proposed to be commenced
         by Newco in such Field.

         If the Management Committee is not satisfied with the results of the
         Field B Feasibility Study, no R&D Program will be commenced by Newco in
         respect of such Field B Compound and the Management Committee will
         nominate a substitute [REDACTED] for therapeutic use in Field B (the
         "Substitute Field B Compound") (provided that the Management Committee
         shall in no circumstances be entitled to nominate [REDACTED] as the
         Field B Compound without the prior consent in writing of Elan) which
         will be subject to a new Field B Feasibility Study and all other
         applicable provisions of this Clause 2.3.

         Prior to Newco commencing any R&D Program in Field B with the Field B
         Compound, or the Substitute Field B Compound, the Parties shall
         negotiate in good faith such amendments as are required to the Licenses
         and/or the Development Agreement, such as amending the provisions
         regulating non-competition.

         The Management Committee shall not be entitled to nominate more than
         one Substitute Field B Compound hereunder.

         With reference to Clause 6.3 and Clause 1 of the Funding Agreement, in
         the event that either Elan or Sheffield determines not to fund any
         amounts required for an R&D Program in Field B, but the other Party
         desires to fund such R&D Program in Field B, the Party desiring to
         continue such funding shall be entitled to enter into an agreement with
         Newco to obtain the relevant R&D Program in Field B from Newco and to
         enter into any necessary license agreements with Newco which will be
         negotiated in good faith with Newco and based on the then current fair
         market value of such R&D Program in Field B and other customary terms.

2.4      Nomination procedures in Field C

         As provided in Clause 2.2 of the Elan License Agreement, on the date
         which is [REDACTED] days following the Effective Date, or such extended
         date as may be agreed in writing by Elan and Newco, Elan shall, at its
         sole discretion, be entitled forthwith to terminate the license to
         Newco described in Clause 2.1.3 of the Elan License, upon notice in
         writing to Newco, in the event that Newco has not, prior to such date,
         executed a written sub-license with Zambon for the development by Newco
         of the Field C Formulation in Field C.

         Prior to the execution by Newco of the written sub-license with Zambon,
         as described herein, within the period specified herein, the Management
         Committee will consider whether and when Newco will commence an R&D
         Program in Field C having regard to the other R&D Programs being
         undertaken by Newco and the personnel resources which Newco has
         allocated thereto and the funding available from Zambon for such
         proposed R&D Program.

         If Newco commences an R&D Program in Field C with the Field C Compound
         under this Clause 2.4 and such R&D Program is subsequently terminated
         by the Management Committee within one year of commencement because the
         Field C Compound cannot be

                                      -12-
<PAGE>

         formulated in a manner suitable for delivery with the Field C Device,
         the Management Committee will consider the nomination of a substitute
         [REDACTED] in Field C (the "Substitute Field C Compound").

         After a period of 1 year following the later of the commencement date
         of the R&D Program commenced by Newco for the Field C Compound or the
         Substitute Field C Compound, on a semi-annual basis, the Management
         Committee will consider whether it should nominate and consider one
         additional [REDACTED] in Field C ("Additional Field C Compound") for an
         one additional R&D Program in Field C having regard to the other R&D
         Programs being undertaken by Newco and the personnel resources and
         funding which Newco has allocated thereto and the funding available
         from Zambon for such an additional R&D Program.

         Prior to Newco commencing any R&D Program in Field C with a Substitute
         Field C Compound or with an Additional Field C Compound, the Parties
         shall negotiate in good faith such amendments as are required to the
         Licenses and/or the Development Agreement, such as amending the
         provisions regulating non-competition and as are required to the
         agreement between Newco and Zambon described herein (assuming that such
         agreement has been executed in accordance with the provisions hereof).

                                   CLAUSE 3

                        REPRESENTATIONS AND WARRANTIES

3.1      Representations and Warranties of Newco: Newco hereby represents and
         warrants to each of the Stockholders as follows, as of the date hereof:


         3.1.1   Organization: Newco is an exempted company duly organized,
                 validly existing and in good standing under the laws of
                 Bermuda, and has all the requisite corporate power and
                 authority to own and lease its properties, to carry on its
                 business as presently conducted and as proposed to be
                 conducted.

         3.1.2   Capitalization: As of the date hereof, the authorized capital
                 stock of Newco consists of 12,000 shares of Common Stock and
                 12,000 shares of Preferred Stock. Prior to the date hereof, no
                 shares of capital stock of Newco have been issued.

         3.1.3   Authorization: The execution, delivery and performance by Newco
                 of this Agreement, including the issuance of the Shares, have
                 been duly authorized by all requisite corporate actions; this
                 Agreement has been duly executed and delivered by Newco and is
                 the valid and binding obligation of Newco, enforceable against
                 it in accordance with its terms except as limited by applicable
                 bankruptcy, insolvency, reorganization, moratorium and other
                 laws of general application affecting the enforcement of
                 creditors' rights generally, and except as enforcement of
                 rights to indemnity and contribution hereunder may be limited
                 by United States federal or state securities laws or principles
                 of public policy. The Shares, when issued as

                                      -13-
<PAGE>

                 contemplated hereby or in the Newco By-Laws, will be validly
                 issued and outstanding, fully paid and non-assessable and not
                 subject to preemptive or any other similar rights of the
                 Stockholders or others.

         3.1.4   No Conflicts: The execution, delivery and performance by Newco
                 of this Agreement, the issuance, sale and delivery of the
                 Shares, and compliance with the provisions hereof by Newco,
                 will not:

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

                 (ii)      conflict with or result in any breach of any of the
                           terms, conditions or provisions of, or constitute
                           (with notice or lapse of time or both) a default (or
                           give rise to any right of termination, cancellation
                           or acceleration) under its charter or organizational
                           documents or any material contract to which Newco is
                           a party, except where such violation, conflict or
                           breach would not, individually or in the aggregate,
                           have a material adverse effect on Newco; or

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

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

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

         3.1.7   No Business; No Liabilities: Newco has not conducted any
                 business or incurred any liabilities or obligations prior to
                 the date hereof, except solely in connection with its
                 organization and formation.

         3.2     Representations and Warranties of the Stockholders: Each of the
                 Stockholders hereby severally represents and warrants to Newco
                 as follows as of the date hereof:

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

                 3.2.2     Authority: Such Stockholder has full legal right,
                           power and authority to enter into this Agreement and
                           to perform its obligations hereunder, which have been
<PAGE>

                           duly authorized by all requisite corporate action.
                           This Agreement is the valid and binding obligation of
                           such Stockholder, enforceable against it in
                           accordance with its terms except as limited by
                           applicable bankruptcy, insolvency, reorganization,
                           moratorium and other laws of general application
                           affecting the enforcement of creditors' rights
                           generally, and except as enforcement of rights to
                           indemnity and contribution hereunder may be limited
                           by United States federal or state securities laws or
                           principles of public policy.

                 3.2.3     No Conflicts: The execution, delivery and performance
                           by such Stockholder of this Agreement, purchase of
                           the Shares, and compliance with the provisions hereof
                           by such Stockholder will not:

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

                           (ii)   conflict with or result in any breach of any
                                  of the terms, conditions or provisions of, or
                                  constitute (with notice or lapse of time or
                                  both) a default (or give rise to any right of
                                  termination, cancellation or acceleration)
                                  under the charter or organizational documents
                                  of such Stockholder or any material contract
                                  to which such Stockholder is a party, except
                                  where such violation, conflict or breach would
                                  not, individually or in the aggregate, have a
                                  material adverse effect on such Stockholder;
                                  or

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

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

                 3.2.5     Investment Representations: Such Stockholder is
                           sophisticated in transactions of this type and
                           capable of evaluating the merits and risks of its
                           investment in Newco. Such Stockholder has not been
                           formed solely for the purpose of making this
                           investment and such Stockholder is acquiring the
                           Common Stock and/or Preferred Stock for investment
                           for its own account, not as a nominee or agent, and
                           not with the view to, or for resale in connection
                           with, any distribution of any part thereof. Such

                                      -15-
<PAGE>

                           Stockholder understands that the Shares have not been
                           registered under the Securities Act or applicable
                           state and foreign securities laws by reason of a
                           specific exemption from the registration provisions
                           of the Securities Act and applicable state and
                           foreign securities laws, the availability of which
                           depends upon, among other things, the bona fide
                           nature of the investment intent and the accuracy of
                           such Stockholders' representations as expressed
                           herein. Such Stockholder understands that no public
                           market now exists for any of the Shares and that
                           there is no assurance that a public market will ever
                           exist for such Shares.

                                   CLAUSE 4

                           AUTHORIZATION AND CLOSING


4.1      Newco has authorized the issuance to (i) EIS of 4,776 shares of
         Preferred Stock and (ii) Sheffield of 12,000 shares of Common Stock and
         7,224 shares of Preferred Stock, issuable as provided in Clause 4.3
         hereof.

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

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

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

         4.4.1    Newco shall issue and sell to EIS, and EIS shall purchase from
                  Newco, upon the terms and subject to the conditions set forth
                  herein, 4,776 shares of Preferred Stock for an aggregate
                  purchase price of $2,985,000 Newco shall issue and sell to
                  Sheffield, and Sheffield shall purchase from Newco, upon the
                  terms and conditions set forth herein, (i) 12,000 shares of
                  Common Stock for an aggregate purchase price of $7,500,000 and
                  (ii) 7,224 shares of Preferred Stock for an aggregate purchase
                  price of $4,515,000;

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

                                      -16-
<PAGE>

         4.4.3.   the adoption by the Newco of Newco's By-Laws;

         4.4.4.   the appointment of Kevin Insley, Loren G. Peterson, and Thomas
                  M. Fitzgerald as Directors of Newco; and

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

4.5      Exemption from Registration:

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

         THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
         SECURITIES ACT OF 1933, AS AMENDED, OR ANY SECURITIES LAWS OF A STATE
         OR OTHER JURISDICTION AND MAY NOT UNDER ANY CIRCUMSTANCES BE SOLD,
         TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (i) AN
         EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY
         APPLICABLE STATE SECURITIES OR BLUE SKY LAWS, (ii) TO THE EXTENT
         APPLICABLE, RULE 144 UNDER THE SECURITIES ACT (OR ANY SIMILAR RULE
         UNDER THE SECURITIES ACT RELATING TO THE DISPOSITION OF SECURITIES) OR
         ANY OTHER AVAILABLE EXCEPTION TO OR EXEMPTION FROM THE REGISTRATION
         REQUIREMENTS OF SUCH ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE
         SKY LAWS, TOGETHER WITH AN OPINION OF COUNSEL REASONABLY SATISFACTORY
         TO THE CORPORATION THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR
         APPLICABLE STATE SECURITIES LAWS.

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

4.7.     In the event that EIS exercises the Exchange Right prior to the second
         anniversary of the Closing Date and Sheffield is required to transfer
         to EIS any shares of Common Stock (in addition to the shares of
         Preferred Stock otherwise transferable), Newco shall, immediately upon
         such exercise, take all necessary steps to ensure that each share to be
         transferred by Sheffield to EIS upon the exercise of the Exchange Right
         is a duly and validly issued share

                                      -17-
<PAGE>

         of Preferred Stock (including the conversion of existing shares of
         Common Stock held by Sheffield prior to the exercise of the Exchange
         Right for newly created shares of Preferred Stock for purposes of the
         exercise of the Exchange Right) and that EIS shall have full legal
         right, title and interest in and to such shares of Preferred Stock
         thereby exchanged. All shares of Newco capital stock transferred by
         Sheffield to EIS upon exercise of the Exchange Right prior to the
         second anniversary of the Closing Date shall be (or pursuant to this
         clause 4.7, shall be converted from common into) shares of Preferred
         Stock.


                                   CLAUSE 5

                   DIRECTORS; MANAGEMENT AND R&D COMMITTEES

5.1.     Directors:

         Prior to the exercise of the Exchange Right, the Board shall be
         composed of three Directors. Sheffield shall have the right to nominate
         two directors of Newco ("Sheffield Directors") and EIS shall have the
         right to nominate one Director of Newco ("EIS Director"), which
         Director, save as further provided herein, shall only be entitled to
         15% of the votes of the Board. To the extent required by applicable
         Bermuda law, in the event that the EIS Director is not a resident of
         Bermuda, at least one of the Sheffield Directors shall be a resident of
         Bermuda. Sheffield may appoint one of the Sheffield Directors to be the
         chairman of Newco. In the event that the Exchange Right is exercised by
         EIS within 2 years following the Closing Date, the EIS Director shall
         only be entitled to 15% of the votes of the Board until the expiry of 2
         years from the Closing Date.

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

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

         5.1.2   The Directors shall meet not less than three times in each
                 Financial Year and Board meetings shall be held in Bermuda to
                 the extent required pursuant to the laws of Bermuda or to
                 ensure the sole residence of Newco in Bermuda.

         5.1.3   At any such meeting, the presence of at least one EIS Director
                 and at least one Sheffield Director shall be required to
                 constitute a quorum and, subject to Clause 18 hereof, the
                 affirmative vote of a majority of the Directors present at a
                 meeting at which such a quorum is present shall constitute an
                 action of the Directors. In the event of any meeting being

                                     -18-
<PAGE>

                 inquorate, the meeting shall be adjourned for a period of seven
                 days. A notice shall be sent to the EIS Director(s) and the
                 Sheffield Directors specifying the date, time and place where
                 such adjourned meeting is to be held and reconvened.

         5.1.4   The chairman of Newco shall hold office until the first meeting
                 of the Board after the exercise by EIS of the Exchange Right,
                 provided that the Exchange Right is exercised by EIS at any
                 time after two years from the date hereof. If the Exchange
                 Right is exercised by EIS within two years from the date
                 hereof, the chairman of Newco shall continue to hold office. If
                 the chairman is unable to attend any meeting of the Board, the
                 Sheffield Directors shall be entitled to appoint another
                 Director to act as chairman in his place at the meeting. After
                 exercise of the Exchange Right by EIS, each of EIS and
                 Sheffield, beginning with EIS, shall have the right,
                 exercisable alternatively, of nominating one Director to be
                 chairman of Newco for a term of one year. If the chairman of
                 Newco is unable to attend any meeting of the Board held after
                 the exercise of the Exchange Right by EIS, the Directors shall
                 be entitled to appoint another Director to act as chairman of
                 Newco in his place at the meeting.

         5.1.5.  In case of an equality of votes at a meeting of the Board, the
                 chairman of Newco shall not be entitled to a second or casting
                 vote. In the event of continued deadlock, the Board shall
                 resolve the deadlock pursuant to the provisions set forth in
                 Clause 19.

5.2      Management and R&D Committees:

         5.2.1   The Board shall appoint a management committee (the "Management
                 Committee") to consist initially of four members, two of whom
                 shall be nominated by Elan and two of whom shall be nominated
                 by Sheffield, and each of whom shall be entitled to one vote,
                 whether or not present at any Management Committee meeting.
                 Decisions of the Management Committee shall require approval of
                 at least one Elan nominee on the Management Committee and one
                 Sheffield nominee on the Management Committee.

         5.2.2   Each of Elan and Sheffield shall be entitled to remove any of
                 their nominees to the Management Committee and appoint a
                 replacement in place of any nominees so removed. The number of
                 members of the Management Committee may be altered if agreed to
                 by a majority of the Directors; provided that, each of Elan and
                 Sheffield shall be entitled to appoint an equal number of
                 members to the Management Committee. The Management Committee
                 shall be responsible for, inter alia, devising, implementing
                 and reviewing strategy for the Project.

         5.2.3   The Management Committee shall appoint a research and
                 development committee (the "R&D Committee"), which shall
                 initially be comprised of four members, two of whom shall be
                 nominated by Elan and two of whom shall be nominated by
                 Sheffield, and each of whom shall have one vote, whether or not
                 present at an R&D Committee meeting during which research and
                 development issues are discussed. Decisions of the R&D
                 Committee shall require approval of at least one Elan nominee

                                     -19-
<PAGE>

                 on the R&D Committee and one Sheffield nominee on the R&D
                 Committee.

         5.2.4   Each of Elan and Sheffield shall be entitled to remove any of
                 their nominees to the R&D Committee and appoint a replacement
                 in place of any nominees so removed. The number of members of
                 the R&D Committee may be altered if agreed to by a majority of
                 the Directors provided that each of Elan and Sheffield shall be
                 entitled to appoint an equal number of members to the R&D
                 Committee.

         5.2.5   The Management Committee shall be responsible for the
                 preparation of the Business Plan. The Management Committee
                 shall also be responsible for monitoring and conducting
                 periodic reviews of Elan Intellectual Property and Sheffield
                 Intellectual Property.

         5.2.6   The R&D Committee shall be responsible for:-
                 (i)       designing that portion of the Business Plan that
                           relates to the Project for consideration by the
                           Management Committee;

                 (ii)      establishing a joint Project team consisting of an
                           equal number of team members from Elan and Sheffield,
                           including one Project leader from each of Elan and
                           Sheffield; and

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

         5.2.7   In the event of any dispute amongst the R&D Committee, the R&D
                 Committee shall refer such dispute to the Management Committee
                 whose decision on the dispute shall be binding on the R&D
                 Committee.

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

         5.2.8   Elan and Sheffield shall permit Newco or its duly authorized
                 representative on reasonable notice and at any reasonable time
                 during normal business hours to have access to inspect and
                 audit the accounts and records of Elan or Sheffield and any
                 other book, record, voucher, receipt or invoice relating to the
                 calculation or the cost of the R&D Program and to the accuracy
                 of the reports which accompanied them. Any such inspection of
                 Elan's or Sheffield's records, as the case may be, shall be at
                 the expense of Newco, except that if such inspection reveals an
                 overpayment in the amount paid to Elan or Sheffield, as the

                                     -20-
<PAGE>

                 case may be, for the R&D Program hereunder in any Financial
                 Year of 5% or more of the amount due to Elan or Sheffield, as
                 the case may be, then the expense of such inspection shall be
                 borne solely by Elan or Sheffield, as the case may be, instead
                 of by Newco. Any surplus over the sum properly payable by Newco
                 to Elan or Sheffield, as the case may be, shall be paid
                 promptly by Elan or Sheffield, as the case may be, to Newco. If
                 such inspection reveals a deficit in the amount of the sum
                 properly payable to Elan or Sheffield, as the case may be, by
                 Newco, Newco shall pay the deficit to Elan or Sheffield, as the
                 case may be.

                                   CLAUSE 6

                         THE BUSINESS PLAN AND REVIEWS

6.1      The Directors shall meet together as soon as reasonably practicable
         after the Closing Date hereof and shall agree upon and approve the
         Business Plan for the current Financial Year within 90 days of the
         Closing Date.

6.2.     The Business Plan shall be reviewed and mutually agreed to by the
         unanimous approval of the EIS Director and the Sheffield Directors on a
         semi-annual basis.

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

6.4.     Future Business Plans prepared pursuant to Clause 5 shall be reviewed
         and mutually agreed to by the EIS Director and the Sheffield Directors.

                                   CLAUSE 7

                         RESEARCH AND DEVELOPMENT WORK

7.1      Subject to Clause 6.3, Elan and Sheffield, at Newco's request, may
         undertake research and development work related to the development and
         commercialization of the Products, at the request of Newco and as
         articulated in the Business Plan, in furtherance of the development and
         commercialization of the Products and cultivation of patent rights and
         know-how related to the Elan Intellectual Property, Sheffield
         Intellectual Property and Newco Intellectual Property.

7.2      Elan and Sheffield shall use reasonable efforts in undertaking any such
         research and development work undertaken for Newco hereunder to conduct
         such research and development work in a professional and timely manner,
         in accordance with relevant RHA guidelines and regulations.

                                     -21-
<PAGE>

7.3      The cost of such development work shall be Elan's and Sheffield's, as
         the case may be, fully-burdened actual costs in respect thereof, plus
         [REDACTED] of such costs. Research and development work that is sub-
         contracted by Elan or Sheffield to third party providers and/or any
         other materials or other services purchased from a third party provider
         on Newco's behalf shall be charged by Elan or Sheffield to Newco at the
         amount invoiced by the relevant third party provider.

                                   CLAUSE 8

                               COMMERCIALIZATION

8.1      Newco shall diligently pursue the research, development, prosecution
         and commercialization of the Products, as provided in the Business
         Plan.

8.2      Subject to Clause 2 of the Sheffield License Agreement, at any time
         during the development of the Products, Newco may, subject to the
         Licenses and Clause 8.3, license the marketing rights to the Products
         to one or more marketing partners, or otherwise commercialize the
         Products under an alternative strategy to be agreed upon by Elan and
         Sheffield.

8.3      Newco shall be responsible for negotiating with third Parties
         commercially reasonable terms (including, inter alia, royalties,
         milestones, fees, profit sharing, manufacturing rights, supply terms)
         for the rights to be granted, but shall do so under the commercial
         strategy agreed with Elan and Sheffield and shall keep Elan and
         Sheffield informed throughout the negotiation process.

                                   CLAUSE 9

                       SUBLICENSE AND ASSIGNMENT RIGHTS

9.1      Newco shall not be permitted to assign, license or sublicense any of
         its rights in respect of the Newco Intellectual Property without the
         prior written consent of Elan and Sheffield which consent will not be
         unreasonably withheld or delayed; provided that:

         9.1.1    Elan shall in all cases, in its sole discretion, be entitled
                  to withhold its consent in the case of a proposed sublicense
                  to any Technological Competitor of Elan;

         9.1.2    Sheffield shall in all cases, in its sole discretion, be
                  entitled to withhold its consent in the case of a proposed
                  sublicense to any Technological Competitor of Sheffield
                  provided that for the avoidance of doubt, this Clause 9.1.2
                  shall not impact in any way Elan's right to grant sub-licenses
                  of Newco Intellectual Property pursuant to Clause 12.

                                     -22-
<PAGE>

9.2      The Parties acknowledge and agree to be bound by the provisions of
         Clause 2.7 of the Elan License Agreement and the provisions of Clause
         2.7 of the Sheffield License Agreement which set forth the agreement
         between the Parties thereto in relation to sub-licensing of the Elan
         Intellectual Property and the Sheffield Intellectual Property
         respectively.

                                   CLAUSE 10

           OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS/NON-COMPETITION

10.1.    The Parties acknowledge and agree to be bound by the provisions of
         Clause 3.1 of the Elan License Agreement and Clause 3.1 of the
         Sheffield License Agreement set forth the agreement between the parties
         thereto in relation to the ownership of the Elan Intellectual Property,
         the Sheffield Intellectual Property and the Newco Intellectual property
         respectively.

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

                                   CLAUSE 11

                         INTELLECTUAL PROPERTY RIGHTS

11.1     Newco shall remain the owner of the Newco Intellectual Property.

         11.1.1   Each Party shall be responsible for the preparation,
                  prosecution and maintenance of all patent applications and
                  issued patents relating to its own intellectual property.
                  Prior to filing for any patent protection on any Newco
                  Intellectual Property, Newco shall inform Elan and Sheffield
                  of its intention to do so.

         11.1.2   Upon request, Elan or Sheffield shall provide information
                  regarding its activities set forth in 11.1.1.

11.2     Enforcement of Intellectual Property Rights; third party infringement

         11.2.1   Sheffield, Newco and Elan shall promptly inform the other in
                  writing of any alleged infringement or unauthorized use of
                  which it shall become aware by a third party of Newco

                                     -23-
<PAGE>

                  Intellectual Property, Elan Intellectual Property or Sheffield
                  Intellectual Property, and provide such other with any
                  available evidence of such unauthorized activity.

         11.2.2   Elan shall have the right to pursue at its own expense any
                  enforcement activities of the Elan Intellectual Property.
                  Sheffield shall have the right to pursue at its own expense
                  any enforcement activities of the Sheffield Intellectual
                  Property. Both Elan and Sheffield agree to reasonably co-
                  operate with each other in any such action. Any expenses borne
                  by the co-operating party shall be reimbursed by the enforcing
                  party. Should either Elan or Sheffield decide not to enforce
                  the Elan Intellectual Property or the Sheffield Intellectual
                  Property as the case may be within the Combined Fields, Newco
                  may do so at its expense and for its own benefit, and the
                  parties will reasonably co-operate with such action. If an
                  enforcement action is successful, the Party taking such
                  enforcement action shall be entitled to any proceeds
                  recovered.

11.3     Infringement of third party patents

         11.3.1   In the event that a claim or proceeding is brought against
                  Newco by a third party alleging that the manufacture, use,
                  offer for sale, sale or other activity relating to any of the
                  Products constitute an unauthorized use of an intellectual
                  property right owned by such a third party in the Territory,
                  Newco shall promptly advise Elan and Sheffield of such threat
                  or suit.

         11.3.2   Newco shall indemnify, defend and hold Elan and Sheffield
                  harmless against all actions, losses, claims, demands,
                  damages, costs and liabilities (including reasonable attorneys
                  fees) relating directly or indirectly to all such claims or
                  proceedings directed to Products; provided that Elan or
                  Sheffield shall not acknowledge to the third party or to any
                  other person the validity of any claims of such a third party,
                  and shall not compromise or settle any claim or proceedings
                  relating thereto without the prior written consent of Newco,
                  not to be unreasonably withheld or delayed. At its option, in
                  the event the claim is directed primarily to Compounds, Elan
                  may elect to take over the conduct of such proceedings from
                  Newco, or in the event the claim is directed primarily at
                  Sheffield Devices, Sheffield may elect to take over the
                  conduct of such proceedings from Newco; provided that Newco's
                  indemnification obligations shall continue; the costs of
                  defending such claim shall be borne by the Party assuming
                  control over such proceedings; and Elan or Sheffield shall not
                  compromise or settle any such claim or proceeding without the
                  prior written consent of Newco, not to be unreasonably
                  withheld or delayed.

                                     -24-
<PAGE>

                                   CLAUSE 12

       CROSS-LICENSES/EXPLOITATION OF PRODUCTS OUTSIDE FIELDS A, B AND C

12.1     Solely for the purpose of and insofar as is necessary, in each case,
         for Elan to perform its obligations under the Elan License Agreement,
         Newco shall grant to Elan a non-exclusive, worldwide, royalty-free,
         fully paid-up license for the term of the License Agreements:

         12.1.1   to use the Newco Intellectual Property in the Combined Fields,
                  and

         12.1.2   subject to the terms and conditions of the Sheffield License
                  Agreement, a sublicense to use the Sheffield Intellectual
                  Property in the Combined Fields.

12.2     Solely for the purpose of and insofar as is necessary, in each case,
         for Sheffield to perform its obligations under the Sheffield License
         Agreement, Newco shall grant to Sheffield a non-exclusive, worldwide,
         royalty-free, fully paid-up license for the term of the Licenses:

         12.2.1   to use the Newco Intellectual Property in the Combined Fields,
                  and

         12.2.2   subject to the terms and conditions of the Elan License
                  Agreement, a sublicense to use the Elan Intellectual Property
                  in the Combined Fields.

12.3     Elan shall be entitled to exploit the Newco Intellectual Property in
         Field B and/or Field C outside Field B and/or Field C respectively
         subject to the Parties negotiating a license agreement in good faith
         (including all material provisions thereof, including as to whether the
         license should be exclusive or non-exclusive), pursuant to which Newco
         will grant Elan a license under the Newco Intellectual Property in
         Field B and/or Field C outside Field B and/or Field C respectively on a
         Product by Product basis. The financial terms of the said license
         agreement shall have regard, inter alia, to:

         12.3.1   the amount of monies expended by Newco in developing the Newco
                  Intellectual Property;

         12.3.2   the materiality of the Newco Intellectual Property in Field B
                  and/or Field C by comparison to the further research and
                  development work to be conducted, and of the Elan Intellectual
                  Property and the Sheffield Intellectual Property; and

         12.3.3   the financial return likely to be earned by Elan from the
                  proposed exploitation outside Field B and/or Field C; and

         12.3.4   the impact of the proposed exploitation of the Newco
                  Intellectual Property in Field B and/or Field C outside Field
                  B and/or Field C respectively on the exploitation of the Newco
                  Intellectual Property in Field B and/or Field C within Field B
                  and/or Field C respectively.

12.4     Sheffield shall be entitled to exploit the Newco Intellectual Property
         in Field B and/or Field C outside Field B and/or Field C respectively
         subject to the Parties negotiating a license agreement in good faith
         (including all material provisions thereof, including as to whether the
         license should be exclusive or non-exclusive), pursuant to which Newco
         will grant Sheffield a license under the Newco Intellectual Property

                                     -25-
<PAGE>

         outside Field B and/or Field C respectively on a Product by Product
         basis. The financial terms of the said license agreement shall have
         regard, inter alia, to:

         12.4.1   the amount of monies expended by Newco in developing the Newco
                  Intellectual Property;

         12.4.2   the materiality of the Newco Intellectual Property in Field B
                  and/or Field C by comparison to the further research and
                  development work to be conducted, and of the Elan Intellectual
                  Property and the Sheffield Intellectual Property; and

         12.4.3   the financial return likely to be earned by Sheffield from the
                  proposed exploitation of outside Field B and/or Field C; and

         12.4.4   the impact of the proposed exploitation of the Newco
                  Intellectual Property in Field B and/or Field C outside Field
                  B and/or Field C respectively on the exploitation of the Newco
                  Intellectual Property in Field B and/or Field C within Field B
                  and/or Field C respectively.

12.5     Newco hereby grants to Elan a worldwide, perpetual, fully-paid and
         royalty-free license, with the right to grant sublicenses, to the Newco
         Intellectual Property in Field A for use outside Field A.

                                   CLAUSE 13

                                  REGULATORY

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

13.2     Newco shall, at its own cost, file, prosecute and maintain any and all
         Regulatory Applications for the Products in the Territory in accordance
         with the Business Plan, except where such obligations are by contract
         undertaken by a third party.

13.3     Subject to Clause 13.5, and subject to a determination by Newco that
         one or more regulatory approvals should be held in the name of Newco's
         commercial partner such as a sub-licensee, any and all Regulatory
         Approvals obtained hereunder for any Product shall be prosecuted and
         owned by Newco, provided that Newco shall allow Elan and Sheffield
         access thereto to enable Elan and Sheffield to fulfill their respective
         obligations and exercise their respective rights under this Agreement.
         Newco shall maintain such Regulatory Approvals at its own cost.

                                     -26-
<PAGE>

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

13.5     The DMF (Drug Master File) relating to Formulations shall be processed
         by and be the property of Elan and at all times held in Elan's sole
         name. Elan grants Newco for Field A, Field B and Field C, a right to
         reference Elan's DMF, as described herein, with the FDA to the extent
         necessary for Newco's regulatory purposes. Elan grants Sheffield for
         Field B and Field C a right to reference Elan's DMF, as described
         herein, with the FDA to the extent necessary for Sheffield's regulatory
         purposes.

                                   CLAUSE 14

                                 MANUFACTURING

Elan will supply Nanocrystal Compounds to Newco at Elan's fully burdened cost
plus [REDACTED] of such cost; provided, however, that Elan shall have the right
to subcontract the manufacture and supply of the Nanocrystal Compounds. Elan
shall have the first right to manufacture and supply, and/or subcontract the
manufacture and supply of Formulations, subject to the Zambon Agreement.

Any such supply agreement shall be negotiated and agreed by the Parties not
later than the date of completion of Phase II (as such term is commonly used in
connection with FDA applications) of the R&D Program. The terms of the said
supply agreements shall be on Elan's normal commercial terms, and shall be
negotiated in good faith by the Parties thereto provided that Elan agrees that
the cost which would to be invoiced by Elan to Newco in respect of such
manufacture would be Elan's fully-burdened actual costs plus [REDACTED] of such
costs.

If Elan does not exercise its first right hereunder to manufacture and supply,
and/or subcontract the manufacture and supply of Formulations, then Newco shall
be free to enter into negotiations with a third party (other than a
Technological Competitor of Elan) to agree to terms upon which the third party
would be licensed by Elan (on licensing terms satisfactory to Elan) and by Newco
to the extent necessary (on licensing terms satisfactory to Newco) to
manufacture the relevant Formulation(s) in the Territory, which terms when taken
as a whole, are not more favourable to the third party than the principal terms
of the last written proposal offered by Newco to Elan or by Elan to Newco, as
the case may be.

                                     -27-
<PAGE>

                                    CLAUSE 15

                       TECHNICAL SERVICES AND ASSISTANCE

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

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

       15.2.1  accounting, financial and other services;

       15.2.2  tax services;

       15.2.3  insurance services;

       15.2.4  human resources services;

       15.2.5  legal and company secretarial services;

       15.2.6  patent and related intellectual property services; and

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

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

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

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

15.5   The employees received by Elan or Sheffield, as the case may be, shall be
       subject to obligations of confidentiality no less stringent than those
       set out in Clause 22 and such employees shall observe the rules,
       regulations and systems adopted by the Party receiving the said employees
       for its own employees or visitors.

                                     -28-
<PAGE>

                                   CLAUSE 16

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

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

16.1   the auditors of Newco shall be Ernst & Young or as designated by the
       Directors;

16.2   the bankers of Newco shall be as designated by the Directors; there shall
       be established at a U.S. bank mutually agreed to by the parties a bank
       account managed by Sheffield for the benefit of Newco;

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

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

                                   CLAUSE 17

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

General:

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

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

       Notwithstanding anything contained herein to the contrary (i) at all
       times, EIS and/or Sheffield shall have the right to Transfer any Shares

                                     -29-
<PAGE>

       to their Affiliates provided, however, that such assignment does not
       result in adverse tax consequences for any other Parties and (ii)
       Sheffield may not Transfer or allow any Encumbrance in, or to, any Shares
       that are subject to the Exchange Right, other than to EIS or its
       Affiliates. EIS shall have the right to Transfer any Shares to an
       affiliate; provided, that such Affiliates shall agree to be expressly
       subject to and bound by all the limitations and provisions which are
       embodied in this Agreement.

17.2   No Stockholder shall, except with the prior written consent of the other
       Stockholder, create or permit to subsist any pledge, lien or charge over,
       or grant any option or other rights or Encumbrance in, or to, all or any
       of the Shares held by it (other than by a Transfer of such Shares in
       accordance with the provisions of this Agreement) made by it to Newco
       unless any Person in whose favour any such pledge, lien, or charge is
       created or permitted to subsist or such option or rights are granted or
       such interest is disposed of shall be expressly subject to and bound by
       all the limitations and provisions which are embodied in this Agreement.

17.3   Rights of First Offer:

       If, at any time after the end of the Research and Development Term, a
       Stockholder shall desire to Transfer any Shares owned by it (a "Selling
       Stockholder"), in any transaction or series of related transactions other
       than a Transfer to an Affiliate or subsidiary or in the case of EIS
       permitted by the Agreement to a special purpose financing or similar
       entity established by EIS, then such Selling Stockholder shall deliver
       prior written notice of its desire to Transfer (a "Notice of Intention")
       (i) to Newco and (ii) to the Stockholders who are not the Selling
       Stockholder (and any transferee thereof permitted hereunder, if any), as
       applicable, setting forth such Selling Stockholder's desire to make such
       Transfer, the number of Shares proposed to be transferred (the "Offered
       Shares") and the proposed form of transaction (the "Transaction
       Proposal"), together with any available documentation relating thereto,
       if any, and the consideration to be paid and the terms and conditions, at
       which such Selling Stockholder proposes to Transfer the Offered Shares
       (the "Offer Price"). The "Right of First Offer" provided for in this
       Clause 17 shall be subject to any "Tag Along Right" benefiting a
       Stockholder which may be provided for by Clause 17, subject to the
       exceptions set forth therein. Upon receipt of the Notice of Intention,
       the Stockholders who are not the Selling Stockholder shall have the right
       to purchase at the Offer Price the Offered Shares, exercisable by the
       delivery of notice to the Selling Stockholder (the "Notice of Exercise"),
       with a copy to Newco, within 10 business days from the date of receipt of
       the Notice of Intention. If no such Notice of Exercise has been delivered
       by the Stockholders who are not the Selling Stockholder within such 10-
       business day period, or such Notice of Exercise does not relate to all of
       the Offered Shares covered by the Notice of Intention, then the Selling
       Stockholder shall be entitled to Transfer all of the Offered Shares to
       the intended transferee. In the event that all of the Offered Shares are
       not purchased by the non-selling Stockholders, the Selling Stockholder
       shall sell the available Offered Shares within 30 days after the delivery
       of such Notice of Intention on terms no more favorable to a third party
       than those presented to the non-selling

                                     -30-
<PAGE>

       Stockholders. If such sale does not occur, the Offered Shares shall again
       be subject to the Right of First Refusal set forth in Clause 17.3.

       In the event that any of the Stockholders who are not the Selling
       Stockholder exercise their right to purchase all of the Offered Shares
       (in accordance with this Clause 17), then the Selling Stockholder shall
       sell all of the Offered Shares to such Stockholder(s), in the amounts set
       forth in the Notice of Intention, after not less than 20 business days
       and not more than 30 business days from the date of the delivery of the
       Notice of Exercise. In the event that more than one of the Stockholders
       who are not the Selling Stockholders wish to purchase the Offered Shares,
       the Offered Shares shall be allocated to such Stockholders on the basis
       of their pro rata equity interests in Newco, taken as a whole.

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

       At the closing of the purchase of all of the Offered Shares by the
       Stockholders who are not the Selling Stockholder (scheduled in accordance
       with Clause 17), the Selling Stockholder shall deliver certificates
       evidencing the Offered Shares being sold, duly endorsed, or accompanied
       by written instruments of transfer in form reasonably satisfactory to the
       Stockholders who are not the Selling Stockholder, duly executed by the
       Selling Stockholder, free and clear of any adverse claims, against
       payment of the purchase price therefor in cash, and such other customary
       documents as shall be necessary in connection therewith.

17.4   Tag Along Rights:

       Subject to Clause 17.3, a Stockholder (the "Transferring Stockholder")
       shall not Transfer (either directly or indirectly), in any one
       transaction or series of related transactions, to any Person or group of
       Persons, any Shares, unless the terms and conditions of such Transfer
       shall include an offer to the other Stockholders (the "Remaining
       Stockholders"), to sell Shares at the same price and on the same terms
       and conditions as the Transferring Stockholder has agreed to sell its
       Shares (the "Tag Along Right").

       In the event a Transferring Stockholder proposes to Transfer any Shares
       in a transaction subject to this Clause 17.4, it shall notify, or cause
       to be notified, the Remaining Stockholders in writing of each such
       proposed Transfer. Such notice shall set forth: (i) the name of the
       transferee and the amount of Shares proposed to be transferred, (ii) the
       proposed amount and form of consideration and terms and conditions of
       payment offered by the transferee (the "Transferee Terms") and (iii) that
       the transferee has been informed of the Tag Along Right provided for in
       this Clause 17, if such right is applicable, and the total number of
       Shares the transferee has agreed to purchase from the Stockholders in
       accordance with the terms hereof.

       The Tag Along Right may be exercised by each of the Remaining
       Stockholders by delivery of a written notice to the Transferring
       Stockholder (the "Co-sale Notice") within 20 business days following

                                     -31-
<PAGE>

       receipt of the notice specified in the preceding subsection. The Co-sale
       Notice shall state the number of Shares owned by such Remaining
       Stockholder which the Remaining Stockholder wishes to include in such
       Transfer; provided, however, that without the written consent of the
       Transferring Stockholder, the amount of such securities belonging to the
       Remaining Stockholder included in such Transfer may not be greater than
       such Remaining Stockholder's percentage beneficial ownership of Fully
       Diluted Common Stock multiplied by the total number of shares of Fully
       Diluted Common Stock to be sold by both the Transferring Stockholder and
       all Remaining Stockholders. Upon receipt of a Co-sale Notice, the
       Transferring Stockholder shall be obligated to transfer at least the
       entire number of Shares set forth in the Co-sale Notice to the transferee
       on the Transferee Terms; provided, however, that the Transferring
       Stockholder shall not consummate the purchase and sale of any Shares
       hereunder if the transferee does not purchase all such Shares specified
       in all Co-sale Notices. If no Co-sale Notice has been delivered to the
       Transferring Stockholder prior to the expiration of the 20 business day
       period referred to above and if the provisions of this Section have been
       complied with in all respects, the Transferring Stockholder shall have
       the right for a 45-day period to Transfer Shares to the transferee on the
       Transferee Terms without further notice to any other party, but after
       such 45-day period, no such Transfer may be made without again giving
       notice to the Remaining Stockholders of the proposed Transfer and
       complying with the requirements of this Clause 17. At the closing of any
       Transfer of Shares subject to this Clause 17, the Transferring
       Stockholder, and the Remaining Stockholder, in the event such Tag Along
       Right is exercised, shall deliver certificates evidencing such securities
       as have been Transferred by each, duly endorsed, or accompanied by
       written instruments of transfer in form reasonably satisfactory to the
       transferee, free and clear of any adverse claim, against payment of the
       purchase price therefor. Notwithstanding the foregoing, this Clause 17
       shall not apply to any sale of Common Stock pursuant to an effective
       registration statement under the Securities Act in a bona fide public
       offering.

                                   CLAUSE 18

                   MATTERS REQUIRING PARTICIPANTS' APPROVAL

18.1   Subject to the provisions of Clause 18.2, in consideration of Sheffield
       and Elan agreeing to enter into the License Agreements, the Parties
       hereby agree that Newco shall not without the prior approval of the EIS
       Director and the Sheffield Directors:

       18.1.1.  make a material Newco determination outside the ordinary course
                of business, including, among other things, acquisitions or
                dispositions of intellectual property and licenses or
                sublicenses, changes in the Business or the Newco budget; entry
                into joint ventures and similar arrangements as they relate to
                the Licensed Technologies and changes to the Business Plan as
                they relate to the Licensed Technologies;

                                      -32-
<PAGE>

       18.1.2.  issue any unissued Shares or unissued Common Stock Equivalents,
                or create, authorize or issue any new shares (including a split
                of the Shares) or Common Stock Equivalents, except as expressly
                permitted by the Newco By-Laws in effect as of the date hereof;

       18.1.3.  alter any rights attaching to any class of share in the capital
                of Newco or alter the Newco By-Laws;

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

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

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

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

       18.1.8.  license or sub-license any of the Elan Intellectual Property,
                Sheffield Intellectual Property, Newco Intellectual Property;

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

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

       18.1.11. approve, amend or vary the Business Plan or the Newco budget;
                and

       18.1.12. alter the number of Directors.

                                   CLAUSE 19

                                   DISPUTES

19.1   Should any dispute or difference arise between Elan and Sheffield, or
       between Elan or Sheffield and Newco, during the period that this
       Agreement is in force, other than a dispute or difference relating to (i)
       the interpretation of any provision of this Agreement, (ii) the
       interpretation or application of law, or (iii) the ownership of any
       intellectual property, then any Party may forthwith give notice to the

                                      -33-
<PAGE>

       other Parties that it wishes such dispute or difference to be referred to
       the Chief Executive Officer of Sheffield and the President of Elan
       Pharmaceutical Technology, a division of Elan Corporation, Plc ("EPT").

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

19.3   In the event the chief executive officers of the Participants are unable
       to resolve a dispute or difference when it is referred to them under
       Clause 19.1 which relates to the interpretation of this Agreement or any
       other Transaction Document or the compliance of the Parties with their
       legal obligations thereunder, such dispute or difference shall be
       referred to arbitration in accordance with Clause 24.8.3 hereof. If the
       dispute or difference does not relate to the interpretation of this
       Agreement or any other Transaction Document or the compliance of the
       Parties with their legal obligations thereunder, the provisions of Clause
       24.8.2 shall govern.

                                   CLAUSE 20

                                  TERMINATION

20.1   This Agreement shall govern the operation and existence of Newco until
       20.1.1 terminated by written agreement of all Parties hereto or 20.1.2
       otherwise terminated in accordance with this Clause 20.

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

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

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

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

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

                                      -34-
<PAGE>

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

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

       20.4    If either Participant commits or suffers a Relevant Event, the
               other Participant shall be entitled, within three months of the
               occurrence of the Relevant Event, to require the defaulting
               Participant (the "Recipient Participant") to sell on reasonable
               terms of payment to the non-defaulting Participant (the
               "Proposing Participant") all (but not some only) of the Shares,
               held or beneficially owned by the Recipient Participant for an
               amount equal to 90% of the fair market value of the Shares of the
               Recipient Participant (the "Buyout Option").

       20.5    The Proposing Participant shall notify the Recipient Participant
               of the exercise of the Buyout Option, no later than 30 business
               days prior to the proposed exercise thereof, by delivering
               written notice to the Recipient Participant stating that the
               Buyout Option is exercised and the price at which the Proposing
               Participant is willing to purchase the Shares of the Recipient
               Participant.

       20.6    In the event that the Participants do not agree upon a purchase
               price for the Shares within five Business Days following the
               receipt by the Recipient Participant of written notice from the
               Proposing Participant pursuant to Clause 20.5 above, the
               Proposing Participant may contact the American Arbitration
               Association ("AAA"), sitting in New York City and request that an
               independent US-based arbitrator who is expert in the
               pharmaceutical/biotechnology industry be appointed within 10
               Business Days. The AAA shall endeavor to select an arbitrator who
               is technically knowledgeable in the pharmaceutical/biotechnology
               industry

                                      -35-
<PAGE>

       (and who directly and through his affiliates, has no business
       relationship with, or shareholding in, either the Proposing Participant
       or the Recipient Participant). Promptly upon being notified of the
       arbitrator's appointment, the Proposing Participant and the Recipient
       Participant shall submit to the arbitrator details of their assessment of
       the fair market value for the Shares of the Recipient Participant
       together with such information as they think necessary to validate their
       assessment. The arbitrator shall notify the Recipient Participant of 90%
       of the fair market value assessed by the Proposing Participant (the
       "Proposing Participant Price") and shall notify the Proposing Participant
       of 90% of the fair market value assessed by the Recipient Participant
       (the "Recipient Participant Price"). The Proposing Participant and the
       Recipient Participant shall then be entitled to make further submissions
       to the arbitrator within five Business Days explaining why the Recipient
       Participant Price or the Proposing Participant Price, as the case may be,
       is unjustified. The arbitrator shall thereafter meet with the Proposing
       Participant and the Recipient Participant and shall thereafter choose
       either the Recipient Participant Price or the Proposing Participant Price
       (but not any other price) as the purchase price for the Shares (the
       "Purchase Price") on the basis of which price the Expert determines to be
       closer to 90% of the fair market value for the Shares of the Recipient
       Participant. The arbitrator shall use his best efforts to determine the
       Purchase Price within 30 Business Days of his appointment. The Proposing
       Participant and the Recipient Participant shall bear the costs of the
       arbitrator equally provided that the arbitrator may, in his discretion,
       allocate all or a portion of such costs to one Party. Any decision of the
       arbitrator shall be final and binding.

20.7   The Proposing Participant shall purchase the Shares of the Recipient
       Participant by delivery of the Purchase Price in cash no later than the
       15th Business Day following determination of the Purchase Price by the
       Expert.

20.8   The Shares of the Recipient Participant so transferred shall be sold by
       the transferor as beneficial owner with effect from the date of such
       transfer free from any lien, charge or encumbrance with all rights and
       restrictions attaching thereto. If the Proposing Participant elects to
       purchase the Shares of the Recipient Participant, the Shares of the
       Recipient Participant shall be sold by the Recipient Participant as
       beneficial owner for a price equal to 90% of the Purchase Price with
       effect from the date specified by the Proposing Participant in its notice
       of election free from any lien, charge or encumbrance together with all
       rights attaching thereto.

20.9   If the Proposing Participant exercises the Buyout Option, both parties
       will negotiate in good faith to agree to additional reasonable provisions
       and/or amendments to the License Agreements to protect the intellectual
       property rights of the Recipient Party.

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

                                      -36-
<PAGE>

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

20.12  The provisions of Clauses 1.1, 18, 19, 20 and 22 shall survive the
       termination of this Agreement under this Clause 20.10 or by mutual
       consent pursuant to Clause 20.1 in accordance with their terms; all other
       terms and provisions of this Agreement shall cease to have effect and be
       null and void upon the termination of this Agreement under this Clause
       20.10 or by mutual consent pursuant to Clause 20.1.

                                   CLAUSE 21

                                 SHARE RIGHTS

       The following is a summary of the terms of the capital stock of Newco.
This summary does not purport to be complete and is qualified in all respects by
reference to the Newco By-laws, which are hereby incorporated by reference.

       Each share of Common Stock is entitled to one vote on all matters on
which the stockholders of Newco are entitled to vote. Subject to the Bermuda
Companies Act of 1981 (or any successor legislation), shares of Preferred Stock
shall not be entitled to vote on any matters brought before the shareholders of
Newco. At any time after to the second anniversary of the date hereof each share
of Preferred Stock may be converted into shares of Common Stock at a one-for-one
ratio, subject to adjustment for stock splits, stock dividends and similar
events. The Preferred Stock and the Common Stock rank pari passu with respect to
the payment of dividends, which shall be paid to the holders thereof on a pro
rata basis. Upon any liquidation, dissolution or winding up of Newco or the sale
of substantially all of the assets of Newco, or the merger of Newco with and
into another Person, the Preferred Stock shall rank prior to the Common Stock
and the holders of Preferred Stock shall be entitled to be paid, prior to any
distribution to any holders of Common Stock, an amount in cash equal the
aggregate purchase price paid by the Stockholders for the Preferred Stock,
pursuant to Clause 4.41 hereof.

                                   CLAUSE 22

                                CONFIDENTIALITY

22.1   The Parties and/or Newco acknowledge and agree that it may be necessary,
       from time to time, to disclose to each other confidential and/or
       proprietary information, including without limitation, inventions, works
       of authorship, trade secrets, specifications, designs, data, know-how and
       other information, relating to the Combined Fields, the Products, present
       or future products, the Newco Intellectual Property, the Elan
       Intellectual Property or the Sheffield Intellectual Property, as the case
       may be, methods, compounds, research

                                     -37-
<PAGE>

         projects, work in process, services, sales suppliers, customers,
         employees and/or business of the disclosing Party, whether in oral,
         written, graphic or electronic form (collectively "Confidential
         Information").

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

         22.2.1   information that is generally available to the public;

         22.2.2   information that is made public by the disclosing Party;

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

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

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

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

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

                  (ii)     other requirement of law;

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

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

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

                                      -38-
<PAGE>

22.3     Each Party agrees to disclose Confidential Information of another Party
         only to those employees, representatives and agents requiring knowledge
         thereof in connection with their duties directly related to the
         fulfilling of the Party's obligations under this Agreement, so long as
         such persons are under an obligation of confidentiality no less
         stringent than as set forth herein. Each Party further agrees to inform
         all such employees, representatives and agents of the terms and
         provisions of this Agreement and their duties hereunder and to obtain
         their consent hereto as a condition of receiving Confidential
         Information. Each Party agrees that it will exercise a reasonable
         degree of care and protection to preserve the proprietary and
         confidential nature of the Confidential Information disclosed by a
         Party. Each Party agrees that it will, upon request of another Party,
         return all documents and any copies thereof containing Confidential
         Information belonging to or disclosed by such other Party. Each Party
         shall promptly notify the other Parties upon discovery of any
         unauthorized use or disclosure of the other Parties' Confidential
         Information.

22.4     Notwithstanding the above, each Party may use or disclose Confidential
         Information disclosed to it by another Party to the extent such use or
         disclosure is reasonably necessary in filing or prosecuting patent
         applications, prosecuting or defending litigation, complying with
         patent applications, prosecuting or defending litigation, complying
         with applicable governmental regulations or otherwise submitting
         information to tax or other governmental authorities, conducting
         clinical trials, or granting a permitted sub-license or otherwise
         exercising its rights hereunder; provided, that if a Party is required
         to make any such disclosure of the other Party's Confidential
         Information, other than pursuant to a confidentiality agreement, such
         Party shall inform the third party recipient of the terms and
         provisions of this Agreement and their duties hereunder and shall
         obtain their commitment to abide by the confidentiality provisions of
         this Clause 22 as a condition of releasing to the third party recipient
         the Confidential Information.

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

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

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

                                      -39-
<PAGE>

                                   CLAUSE 23

                                     COSTS

22.1     Each Stockholder shall bear its own legal and other costs incurred in
         relation to preparing and concluding this Agreement and the Transaction
         Documents.

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


                                   CLAUSE 24

                                    GENERAL

24.1     Good Faith:

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

24.2     Further Assurance:

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

24.3     No Representation:

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

24.4     Force Majeure:

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

                                      -40-
<PAGE>

24.5     Relationship of the Parties:

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

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

24.6     Counterparts:

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

24.7     Notices:

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

         Elan/EIS at:

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

         and

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

                                      -41-
<PAGE>

         Sheffield at:

         Sheffield Pharmaceuticals Inc.
         425 South Woodsmill Road
         St. Louis, MO 63017
         Attention:  President
         Telephone:  314-579-9899
         Fax:  314-579-9799

         and

         3136 Winton Road, Suite 306
         Rochester, NY 14623
         Attention:  Chairman
         Telephone:  716-292-0310
         Fax:  716-292-0522

         with a copy to:

         Daniel J. Gallagher, Esq.
         Olshan, Grundman, Frome, Rosenzweig & Wolosky LLP
         505 Park Avenue
         New York, NY 10022
         Telephone:  212-753-7200
         Fax:  212-935-1787

         Newco at:

         102 St. James Court
         Flatts, Smiths FL04
         Bermuda
         Attention:   Secretary
         Telephone:   441-292-9169
         Fax:         441-292-2224

         and to

         Clarendon House
         2 Church St.
         Hamilton, Bermuda

         or to such other address(es) as may from time to time be notified by
         any Party to the others hereunder.

                                      -42-
<PAGE>

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

24.8     Governing Law; Arbitration

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

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

         24.8.3   Any dispute under this Agreement which is not settled by
                  mutual consent under Clause 24.8.2 shall be finally settled by
                  binding arbitration, conducted in accordance with the
                  Commercial Arbitration Rules of the American Arbitration
                  Association by one arbitrator appointed in accordance with
                  said rules. Such arbitrator shall be reasonably satisfactory
                  to each of the Parties; provided, that if the Parties are
                  unable to agree upon the identity of such arbitrator within 15
                  days of demand by either Party, then either Party shall have
                  the right to petition a presiding justice of the Supreme Court
                  of New York, New York County, to appoint an arbitrator.

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

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

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

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

                                     -43-
<PAGE>

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

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

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

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

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

24.9     Severability:

         If any provision in this Agreement is agreed by the Parties to be,
         deemed to be or becomes invalid, illegal, void or unenforceable under
         any law that is applicable hereto, such provision will be deemed
         amended to conform to applicable laws so as to be valid and enforceable
         or, if it cannot be so amended without materially altering the
         intention of the Parties, it will be deleted, with effect from the date
         of such agreement or such earlier date as the Parties may agree, and
         the validity, legality and enforceability of the remaining provisions
         of this Agreement shall not be impaired or affected in any way.

24.10    Amendments:

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

24.11    Waiver:

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

                                     -44-
<PAGE>

24.12    Assignment:

         None of the Parties shall be permitted to assign its rights or
         obligations hereunder without the prior written consent of the other
         Parties except as follows (in which case, written notice shall be
         delivered by the assigning Party to the other Parties):

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

         24.12.2  Elan and EIS shall have the right to assign their rights and
                  obligations hereunder to any Affiliate. Each assignee must
                  comply with the representations and warranties in clause 3.5
                  hereof.

24.13    Whole Agreement/No Effect on Other Agreements:

         This Agreement (including the Schedules attached hereto) and the
         Transaction Documents set forth all of the agreements and
         understandings between the Parties with respect to the subject matter
         hereof, and supersedes and terminates all prior agreements and
         understandings between the Parties with respect to the subject matter
         hereof. There are no agreements or understandings with respect to the
         subject matter hereof, either oral or written, between the Parties
         other than as set forth in this Agreement and the Transaction
         Documents.

         In the event of any ambiguity or conflict arising between the terms of
         this Agreement and those of the Newco Bye-Laws, the terms of this
         Agreement shall prevail, except with respect to Clause 21, in which
         case the terms of the Newco Bye-laws shall govern.

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

24.14    Successors:

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

                                     -45-
<PAGE>

                                  SCHEDULE 1

                            ELAN LICENSE AGREEMENT
<PAGE>

                                  SCHEDULE 2

                          SHEFFIELD LICENSE AGREEMENT
<PAGE>

                                  SCHEDULE 3

                       TECHNOLOGICAL COMPETITORS OF ELAN


[REDACTED]
<PAGE>

                                  SCHEDULE 4

                    TECHNOLOGICAL COMPETITORS OF SHEFFIELD


[REDACTED]
<PAGE>

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

                                          SIGNED


                                          BY:/s/
                                             -----------------------------------
                                          for and on behalf of
                                          ELAN PHARMA INTERNATIONAL LTD.
                                          in the presence of:__________________

                                          SIGNED

                                          BY:/s/
                                             -----------------------------------
                                          for and on behalf of
                                          ELAN INTERNATIONAL SERVICES, LTD.
                                          in the presence of:__________________

                                          SIGNED

                                          BY:/s/
                                             -----------------------------------
                                          for and on behalf of
                                          SHEFFIELD PHARMACEUTICALS, INC.
                                          in the presence of:__________________

                                          SIGNED

                                          BY:/s/
                                             -----------------------------------
                                          for and on behalf of
                                          SHEFFIELD NEWCO, LTD.
                                          in the presence of:__________________

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.27
<SEQUENCE>5
<FILENAME>dex1027.txt
<DESCRIPTION>LICENSE AGREEMENT
<TEXT>
<PAGE>

Exhibit 10.27                               ***TEXT OMITTED AND FILED SEPARATELY
                                            CONFIDENTIAL TREATMENT REQUESTED
                                            UNDER 17 C.F.R. SECTIONS
                                            200.80(B)(4), 200.83 AND 240.24B-2








                               LICENSE AGREEMENT


                                    BETWEEN


                        SHEFFIELD PHARMACEUTICALS, INC.


                                      AND


                            SHEFFIELD NEWCO LIMITED
<PAGE>

                               TABLE OF CONTENTS


1.        DEFINITIONS
2.        SHEFFIELD LICENSE TO NEWCO
3.        INTELLECTUAL PROPERTY
4.        NON-COMPETITION/AFTER ACQUIRED TECHNOLOGY
5.        FINANCIAL PROVISIONS
6.        RIGHT OF INSPECTION AND AUDIT
7.        REPRESENTATIONS AND WARRANTIES
8.        TERM AND TERMINATION
9.        CONFIDENTIAL INFORMATION
10.       GOVERNING LAW AND JURISDICTION
11.       IMPOSSIBILITY OF PERFORMANCE - FORCE MAJEURE
12.       ASSIGNMENT
13.       NOTICES
14.       MISCELLANEOUS

                                       2
<PAGE>

THIS AGREEMENT made this 19 October 1999

between:

(1)    Sheffield Pharmaceuticals, Inc., a corporation duly incorporated and
       validly existing under the laws of Delaware and having its principal
       place of business at 425 S. Woodsmill Road, Suite 270, St. Louis, MO
       63017, USA("Sheffield");

(2)    Newco Limited, a private limited company incorporated under the laws of
       Bermuda and having its registered office at Clarendon House, 2 Church
       Street, Hamilton, Bermuda ("Newco"); and

(3)    Elan Pharma International Limited incorporated under the laws of Ireland,
       and having its registered office at WIL House, Shannon Business Park,
       Shannon, County Clare, Ireland ("EPIL").

RECITALS:

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

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

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

1      DEFINITIONS

1.1    In this Agreement unless the context otherwise requires:

       "Affiliate" shall mean any corporation or entity controlling, controlled
       or under the common control of Elan or Sheffield, as the case may be,
       excluding Systemic Pulmonary Delivery Ltd.. For the purpose of this
       definition, "control" shall mean direct or indirect ownership of fifty
       percent (50%) or more of the stock or shares entitled to vote for the
       election of directors. Newco is not an Affiliate of Sheffield.

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

                                       3
<PAGE>

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

       "Combined Fields" shall mean Field A, Field B and Field C.

       "Compounds" shall mean the Field A Compound, the Field B Compound and/or
       the Field C Compound.

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

       "Definitive Documents" shall mean the definitive agreements relating to
       the transaction including finance, stock purchase, research and license
       agreements.

       "Elan" shall mean EPIL and Affiliates and subsidiaries of Elan
       Corporation, Plc. within the division of Elan Corporation, Plc. carrying
       on business as Elan Pharmaceutical Technologies but shall not include
       Affiliates and subsidiaries (present or future) of Elan Corporation Plc
       within the division of Elan Corporation, Plc carrying on business as Elan
       Pharmaceuticals which incorporates, inter alia, Targon Corporation,
       Athena Neurosciences, Inc., Elan Pharmaceuticals, Inc., Elan Diagnostics,
       Carnrick Laboratories, and Elan Europe Limited. "EIS" shall mean Elan
       International Services, Limited, a private limited company incorporated
       under the laws of Bermuda and having its registered office at St James
       Court, Flatts, Smiths, FL04 Bermuda.

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

       "Elan Intellectual Property" shall mean the Elan Know-How, the Elan
       Patents and the Elan Improvements, as such terms are defined in the Elan
       License Agreement.

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

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

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

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

       "Field A" shall mean the topical pulmonary delivery of Formulations of
       the Field A Compound by means of the Field A Device.

       "Field B" shall mean the topical pulmonary delivery of Formulations of
       the Field B Compound by means of the Field B Device.

                                       4
<PAGE>

       "Field C" shall mean the topical pulmonary delivery of Formulations of
       the Field C Compound by means of the Field C Device.

       "Field A Device" shall mean a third party table top unit dose nebulizer
       having a reservoir capable of holding a unit dose (a device and the
       compressor to nebulize a unit dose shall be deemed a device), which is a
       device having any one the following characteristics:

       (i)    [REDACTED]

       (ii)   [REDACTED]

       (iii)  [REDACTED]

       (iv)   [REDACTED]

       (v)    [REDACTED]

       For the avoidance of doubt, the Field A Device does not include
       [REDACTED].

       "Field B Device" shall mean the Aerosol Drug Delivery System ("ADDS"),
       owned by Systemic Pulmonary Delivery Limited and exclusively licensed to
       Sheffield for topical pulmonary applications.

       "Field C Device" shall mean the handheld multi-dose nebulizer ("MSI")
       which was licensed exclusively by Siemens to Sheffield pursuant to the
       Siemens Agreements and which was subsequently sub-licensed by Sheffield
       to Zambon (on an exclusive basis for delivery of various medicines for
       humans in treating respiratory disease and/or other lung diseases
       including, but not limited to, anti-infectives) provided that Newco,
       through the Management Committee, is successful in obtaining a sub-
       license from Zambon to Newco enabling the development and use of the
       Field C Compound for use with the Field C Device , as described in more
       detail in Clause 2.2.

       "Field A Compound" shall mean [REDACTED].

       "Field B Compound" shall mean [REDACTED] for therapeutic use to be
       nominated by the Management Committee pursuant to the JDOA and with
       reference to the JDOA, any Substitute Field B Compound.

       "Field C Compound" shall mean [REDACTED] and with reference to the JDOA,
       any Substitute Field C Compound and/or any Additional Field C Compound.

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

       "Formulations" shall mean Nanocrystal(TM) Technology formulations of
       Compounds for use in Field A, Field B or Field C, as applicable.

                                       5
<PAGE>

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

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

       "Licenses" shall mean the Elan License and the Sheffield License.
       "Management Committee" shall have the meaning, as such term is defined in
       the JDOA.

       "Nanocrystal(TM) Technology" shall mean the Elan proprietary technology
       directed to nanoparticulate formulations of compounds used in the
       manufacturing and/or formulation process, and methods of making the same.

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

       "Newco Patents" shall mean any and all patents now existing, currently
       pending or hereafter filed or obtained relating to the Newco Intellectual
       Property, and any foreign counterparts thereof and all divisionals,
       continuations, continuations-in-part, any foreign counterparts thereof
       and all patents issuing on, any of the foregoing, together with all
       registrations, reissues, re-examinations or extensions thereof.

       "Party" shall mean Sheffield or Newco, as the case may be, and "Parties"
       shall mean Sheffield and Newco.

       "Products" shall mean the Field A Products, the Field B Products and/or
       the Field C Products, as follows:

       "Field A Products" shall mean Formulations of the Field A Compound
       delivered by means of any Field A Device in Field A.

       "Field B Products" shall mean Formulations of the Field B Compound
       delivered by means of the Field B Device in Field B.

       "Field C Products" shall mean Formulations of the Field C Compound
       delivered by means of the Field C Device in Field C.

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

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

                                       6
<PAGE>

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

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

       "Sheffield" shall mean Sheffield Pharmaceuticals, Inc and its Affiliates,
       excluding Newco.

       "Sheffield Devices" shall mean the Field B Device and the Field C Device.

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

       "Sheffield Know-How" shall mean any and all rights owned, licensed or
       controlled by Sheffield to any discovery, invention (whether patentable
       or not), know-how, substances, data, techniques, processes, systems,
       formulations and designs relating exclusively to the Sheffield Devices.

       "Sheffield Licenses" shall have the meaning set forth in Clause 2.1.

       "Sheffield Patents" shall mean any and all rights under any and all
       patents applications and/or patents, now existing, currently pending or
       hereafter filed or obtained by Sheffield relating to the Sheffield
       Devices and all divisionals, continuations, continuations-in-part, any
       foreign counterparts thereof and all patents issuing on, any of the
       foregoing, together with all registrations, reissues, re-examinations or
       extensions thereof.

       "Sheffield Improvements" shall mean improvements relating to the
       Sheffield Patents and/or the Sheffield Know-How, developed (i) by
       Sheffield whether or not pursuant to the Project, (ii) by Newco or Elan
       or by a third party (under contract with Newco) whether or not pursuant
       to the Project, and/or (iii) jointly by any combination of Sheffield,
       Elan or Newco pursuant to the Project, except as limited by agreements
       with third Parties.

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

       "Siemens" shall mean Siemens Aktiengesellschaft.

       "Siemens Agreements" shall mean the License Agreement dated 21 March 1997
       and the Basic Supply Agreement dated 21 March 1997, both between
       Sheffield Medical Technologies Inc. and Siemens Aktiengesellschaft.

       "Technological Competitor of Sheffield" shall mean a company, corporation
       or person listed in Schedule 1 and successors thereof or

                                       7
<PAGE>

       any additional broad-based technological competitor of Sheffield added to
       such Schedule 1 from time to time upon mutual agreement of the Parties.

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

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

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

       "Zambon" shall mean Inpharzam International, S.A.

       "Zambon Agreement" shall mean the agreement dated 15 June 1998 between
       Sheffield and Zambon.

1.2    In this Agreement:

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

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

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

2.     SHEFFIELD LICENSE TO NEWCO

2.1.   Sheffield hereby grants to Newco for the Term the following licenses:

       2.1.1   a non-exclusive license (including the right to grant sublicenses
               subject to the limitations of Clause 2.7) of the Sheffield
               Intellectual Property solely to make, have made, import, use,
               offer for sale and sell the Field B Products in the Territory in
               Field B;

       2.1.2   subject to the execution by Newco of a written sub-license with
               Zambon as more fully described in Clause 2.2 for the development
               by Newco of the Field C Formulations in accordance with Clause
               2.2, a non-exclusive license (including the right to grant
               sublicenses subject to the limitations of Clause 2.7 and the
               Zambon Agreement) of the Sheffield Intellectual Property solely
               to make and have made, import, use, offer for sale and sell the
               Field C Products in the Territory in Field C

       (the "Sheffield Licenses").

                                       8
<PAGE>

2.2    On the date which is 180 days following the Effective Date, or such
       extended date as may be agreed in writing by Elan and Newco pursuant to
       Clause 2.2 of the Elan License Agreement, Sheffield shall, at its sole
       discretion, be entitled forthwith to terminate the license to Newco
       described in Clause 2.1.2, upon notice in writing to Newco, in the event
       that Newco has not, prior to such date, executed a written sub-license
       with Zambon for the development by Newco of the Field C Formulations in
       Field C.

       Sheffield shall use reasonable commercial efforts to procure that Zambon
       executes such written sub-license with Newco in a timely manner and in
       any event within 180 days following the Effective Date, or such extended
       date as may be agreed in writing by Elan and Newco pursuant to Clause 2.2
       of the Elan License Agreement.

       Such written sub-license will be subject to the approval of the
       Management Committee and will include authority from Zambon to Newco to
       the extent necessary for Newco to develop, make, have made and use the
       Field C Formulations in the Territory, general financial terms,
       development schedule, and terms governing the funding by Zambon of any
       R&D Program(s) in Field C, together with such other substantive issues as
       the Management Committee shall deem appropriate and customary terms. For
       the avoidance of doubt, to the extent royalty or other compensation
       obligations are payable to Zambon in respect of any license or sub-
       license from Zambon to Newco of intellectual property rights necessary
       for Newco to develop, make, have made and use the Field C Formulations in
       the Territory, Sheffield shall be responsible for same and shall
       indemnify Newco in respect of any such royalty or other compensation
       obligations payable to Zambon.

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

       For the avoidance of doubt, royalties, milestones or other payments which
       arise from the process of the commercialization or exploitation of
       products under the Sheffield Effective Date Agreements (for example, a
       milestone payment payable upon successful completion of Phase II clinical
       trials, the filing of an NDA application, obtaining NDA approval, or
       first commercial sale) shall be payments for which Sheffield will be
       responsible under this Clause 2.1.

2.4    Subject to Sheffield's obligations and indemnity set forth in Clause 2.2
       to the extent royalty or other compensation obligations are payable to
       Zambon in respect of any license or sub-license from Zambon to Newco of
       intellectual property rights necessary for Newco to develop, make, have
       made and use the Field C Formulations in the Territory, to the extent
       royalty or other compensation obligations that are payable to third
       parties with respect to the Sheffield Intellectual Property would

                                       9
<PAGE>

       be triggered after the Effective Date under any third party agreement
       entered into by Sheffield after the Effective Date (the "Sheffield Post-
       Effective Date Agreements"), by a proposed use of such Sheffield
       Intellectual Property in connection with the Project, Sheffield will
       inform Newco of such royalty or compensation obligations. If Newco agrees
       to utilise such Sheffield Intellectual Property in connection with the
       Project, Newco will be responsible for the payment of such royalty or
       other compensation obligations relating thereto. For the avoidance of
       doubt, royalties, milestones or other payments which arise from the
       process of the commercialization or exploitation of products under the
       Sheffield Post-Effective Date Agreements (for example, a milestone
       payment payable upon successful completion of Phase II clinical trials,
       the filing of an NDA application, obtaining NDA approval, or first
       commercial sale) shall be payments for which Newco will be responsible
       under this Clause 2.4.

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

2.6    Notwithstanding anything contained in this Agreement to the contrary,
       Sheffield shall have the right outside the Field B and Field C and
       subject to the non-competition provisions of Clause 4 to exploit and
       grant licenses and sublicenses of the Sheffield Intellectual Property.
       For the avoidance of doubt, Newco shall have no right to use the
       Sheffield Intellectual Property outside Field B or Field C.

2.7    Newco shall not be permitted to assign or sublicense any of its rights
       under the Sheffield Intellectual Property without the prior written
       consent of Sheffield, which consent shall not be unreasonably withheld or
       delayed provided that Sheffield shall in all cases, in its sole
       discretion, be entitled to withhold its consent in the case of a proposed
       sublicense to any Technological Competitor to Sheffield.

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

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

3      INTELLECTUAL PROPERTY

3.1    Ownership of Intellectual Property:

       3.1.1   Newco shall own the Newco Intellectual Property.

                                       10
<PAGE>

         3.1.2    Sheffield shall own the Sheffield Intellectual Property.

3.2      Trademarks:

         3.2.1    Sheffield hereby grants to Newco for the Term a non-exclusive,
                  royalty free license in the Territory to use and display the
                  Sheffield Trademarks to promote, offer for sale and sell the
                  Products in Field B in the Territory and the following
                  provisions shall apply as regards the use of the Sheffield
                  Trademarks by Newco hereunder:

                  (1)   Newco shall ensure that each reference to and use of an
                        Sheffield Trademark by Newco is in a manner approved by
                        Sheffield and accompanied by an acknowledgement, in a
                        form approved by Sheffield, that the same is a trademark
                        (or registered trademark) of Sheffield. From time to
                        time, upon the reasonable request of Sheffield, Newco
                        shall submit samples of the Product to Sheffield or its
                        duly appointed agent to ensure compliance with quality
                        standards and specifications. Sheffield, or its duly
                        appointed agent, shall have the right to inspect the
                        premises of Newco where the Products are manufactured,
                        held or stored, and Newco shall permit such inspection,
                        upon advance notice at any reasonable time, of the
                        methods and procedures used in the manufacture, storage
                        and sale of the Product. Newco shall not sell or
                        otherwise dispose of any Product under the Sheffield
                        Trademarks that fails to comply with the quality
                        standards and specifications referred to in this Clause
                        3.2, as determined by Sheffield.

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

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

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

                  (5)   Newco shall promptly notify Sheffield in writing of any
                        alleged infringement or unauthorised use of which it

                                      11
<PAGE>

                        becomes aware by a third party of the Sheffield
                        Trademarks and provide Sheffield with any applicable
                        evidence of infringement or unauthorised use.

                  (6)   Newco shall not be permitted to assign or sublicense any
                        of its rights under the Sheffield Trademarks without the
                        prior written consent of Sheffield, which consent shall
                        not be unreasonably withheld or delayed.

         3.2.2    Sheffield shall, at its expense and sole discretion, file and
                  prosecute applications to register and maintain registrations
                  of the Sheffield Trademarks in the Territory. Newco shall
                  reasonably co-operate with Sheffield in such efforts. In the
                  event Sheffield decides not to file or prosecute such
                  Sheffield Trademark, Newco may request Sheffield to do the
                  same at Newco's expense, and Sheffield shall file or prosecute
                  such Sheffield Trademark at Newco's request and expense unless
                  Sheffield believes such action is without merit.

         3.2.3    Sheffield will be entitled to conduct all enforcement
                  proceedings relating to the Sheffield Trademarks and shall at
                  its sole discretion decide what action, if any, to take in
                  respect to any enforcement proceedings of the Sheffield
                  Trademarks or any other claim or counter-claim brought in
                  respect to the use or registration of the Sheffield
                  Trademarks. Any such proceedings shall be conducted at
                  Sheffield's expense and for its own benefit. Newco and
                  Sheffield shall reasonably cooperate with Sheffield in such
                  efforts. In the event Sheffield decides not to engage in
                  enforcement proceedings of the Sheffield Trademarks, Newco may
                  request Sheffield to do the same at Newco's expense unless
                  Sheffield believes the basis for such enforcement proceedings
                  is without merit. In such a case, Sheffield shall have the
                  sole discretion not to engage in any such enforcement
                  proceedings

         3.2.4    Save where Newco adopts its own mark under Clause 3.2.4, in
                  the event Newco becomes aware that any Sheffield Trademark has
                  been challenged by a third party in a judicial or
                  administrative proceeding in a country in the Territory as
                  infringing on the rights of a third party Newco shall promptly
                  notify Sheffield in writing and Sheffield shall have the first
                  right to decide whether or not to defend such allegations, or
                  to adopt an alternative mark, or allow Newco to adopt an
                  alternative mark. If Sheffield decides not defend the
                  Sheffield Trademark, then Newco may request Sheffield to
                  defend the Sheffield Trademark, at Newco's expense, unless
                  such requested defense is reasonably believed by Sheffield to
                  be unsubstantiated and without merit. In such a case,
                  Sheffield may elect not to initiate defence proceedings.

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

         3.2.6    Nothing in this Agreement shall be construed as a warranty on
                  the part of Sheffield regarding the Sheffield Trademarks,

                                      12
<PAGE>

                  including without limitation, that use of the Sheffield
                  Trademarks in the Territory will not infringe the rights of
                  any third parties. Accordingly, Newco acknowledges and agrees
                  that Sheffield makes no such warranty.

         3.2.7    Sheffield assumes no liability to Newco or to any third
                  parties with respect to the quality, performance or
                  characteristics of any of the goods manufactured or sold by
                  Newco under the Sheffield Trademarks pursuant to this
                  Agreement.


4        NON-COMPETITION/AFTER ACQUIRED TECHNOLOGY

4.1      Subject to Clause 4.2 and Clause 8.6, during the period during which
         the license described in Clause 2.1.1 of the Elan License Agreement has
         not been terminated, Sheffield shall not, alone or in conjunction with
         a third party, develop or commercialize any unit dose steroid listed in
         Schedule 2 for topical pulmonary delivery using a Field A Device,
         subject to written agreements between Sheffield and unaffiliated third
         parties in effect on the Effective Date.

         Sheffield hereby confirms that no such agreements are in effect on the
         date hereof between Sheffield and an unaffiliated third party.

4.2      If, after the Effective Date, Sheffield acquires know-how or patent
         rights relating to the Field A, Field B or Field C (in the case of
         Field C, subject to the Zambon Agreement), or acquires or merges with a
         third party entity that has know-how or patent rights relating to the
         Field A, Field B or Field C (in the case of Field C, subject to the
         Zambon Agreement), Sheffield shall offer to license such know-how and
         patent rights to Newco (subject to existing contractual obligations),
         on commercially reasonable terms on an arm's length basis for a
         reasonable period under the prevailing circumstances.

         If Newco determines that Newco should not acquire such license,
         Sheffield shall be free to fully exploit such know-how and patent
         rights with the Sheffield Intellectual Property then licensed to Newco,
         whether inside or outside the Field A, Field B or Field C, as
         applicable, and to grant to third parties licenses and sublicenses with
         respect thereto.


5        FINANCIAL PROVISIONS

5.1      Royalties:

         Prior to the commercialization of the Products, the Management
         Committee shall consider and if appropriate, determine reasonable
         royalties with respect to the commercialization of the Products by
         Newco that shall be payable by Newco to Elan and Sheffield, and shared
         by Elan and Sheffield equally.

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

                                       13
<PAGE>

5.2      Payment of any royalties pursuant to Clause 5.1 shall be made quarterly
         in arrears during each Financial Year within 30 days after the expiry
         of the calendar quarter. The method of payment shall be by wire
         transfer to an account specified by Sheffield. Each payment made to
         Sheffield shall be accompanied by a true accounting of all Products
         sold by Newco's permitted sublicensees, if any, during such quarter.

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

5.3      Newco shall maintain and keep clear, detailed, complete, accurate and
         separate records for a period of 3 years:

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

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

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

5.5      If, at any time, legal restrictions in the Territory prevent the prompt
         payment when due of royalties or any portion thereof, the Parties shall
         meet to discuss suitable and reasonable alternative methods of paying
         Sheffield the amount of such royalties. In the event that Newco is
         prevented from making any payment under this Agreement by virtue of the
         statutes, laws, codes or government regulations of the country from
         which the payment is to be made, then such payments may be paid by
         depositing them in the currency in which they accrue to Sheffield's
         account in a bank acceptable to Sheffield in the country the currency
         of which is involved or as otherwise agreed by the Parties.

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

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

                                       14
<PAGE>

6        RIGHT OF INSPECTION AND AUDIT

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

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

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

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

 7       REPRESENTATIONS AND WARRANTIES

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

         7.1.1    Sheffield has the right to grant the Sheffield Licenses
                  subject to the Zambon Agreement in the case of the license
                  described in Clause 2.1.2;

         7.1.2    there are no agreements with any third parties that conflict
                  with the Sheffield Licenses.

7.2      Sheffield further agrees and represents and warrants to Newco and Elan
         as follows:

         7.2.1    as of the Effective Date, each of the Siemens Agreements is
                  valid and in full force and effect;

         7.2.2    as of the Effective Date, there are no existing or claimed
                  defaults by Sheffield, and to Sheffield's best knowledge by

                                       15
<PAGE>

                  any other party, under any of the Siemens Agreements and no
                  event, act or omission has occurred which (with or without
                  notice, lapse of time or the happening or occurrence of any
                  other event) would result in a default under the Siemens
                  Agreements by Sheffield, or to Sheffield's best knowledge by
                  any other party;

         7.2.3    during the Term, Sheffield will fully comply with all of the
                  terms and conditions of the Siemens Agreements. Sheffield will
                  enforce its rights under the Siemens Agreements and save with
                  the prior approval in writing of the Management Committee
                  which shall not unreasonably be withheld, Sheffield will not
                  assign its rights under the Siemens Agreements; and

         7.2.4    during the Term, Sheffield will keep Newco and Elan fully
                  informed with respect to Sheffield's transactions,
                  arrangements and business under the Siemens Agreements that
                  relate to Newco and/or the transactions contemplated
                  hereunder, and Sheffield shall provide Newco and Elan with any
                  written notices delivered by any party thereunder that relate
                  to Newco and/or the transactions contemplated hereunder, or
                  that may affect Newco.

7.3      During the Term, Sheffield shall not terminate, amend, modify, or waive
         any of its rights under the Siemens Agreements without the prior
         written consent of the Management Committee (by the unanimous vote of
         its members) provided, however, that such consent will not be required
         if such termination, amendment, modification, or waiver would not have
         a material adverse effect, individually or in the aggregate, on the
         financial condition, results of operation, business and/or assets of
         Newco.

7.4      Sheffield shall indemnify Newco and Elan against all costs claims and
         liabilities which may arise in any way in relation to or in connection
         with the Siemens Agreements and/or any sub-license agreement or
         agreements entered into by Newco pursuant to Clause 2.2.

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

         7.5.1    breach of any representation, covenant, warranty or obligation
                  by Sheffield hereunder; or

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

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

                                       16
<PAGE>

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

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

7.7      The Party seeking an indemnity shall:

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

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

         7.7.3    co-operate in the investigation and defence of such claim or
                  proceeding;

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

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

7.8      EXCEPT AS SET FORTH IN THIS CLAUSE 7, SHEFFIELD IS GRANTING THE
         LICENSES HEREUNDER ON AN "AS IS" BASIS WITHOUT REPRESENTATION OR
         WARRANTY WHETHER EXPRESS OR IMPLIED INCLUDING WARRANTIES OF
         MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR INFRINGEMENT OF
         THIRD PARTY RIGHTS, AND ALL SUCH WARRANTIES ARE EXPRESSLY DISCLAIMED.

7.9      EXCEPT AS SET FORTH IN CLAUSE 7.4, NOTWITHSTANDING ANYTHING TO THE
         CONTRARY IN THIS AGREEMENT, SHEFFIELD AND NEWCO SHALL NOT BE LIABLE TO
         THE OTHER BY REASON OF ANY REPRESENTATION OR WARRANTY, CONDITION OR
         OTHER TERM OR ANY DUTY OF COMMON LAW, OR UNDER THE EXPRESS TERMS OF
         THIS AGREEMENT, FOR ANY CONSEQUENTIAL, SPECIAL OR INCIDENTAL OR
         PUNITIVE LOSS OR DAMAGE (WHETHER FOR LOSS OF PROFITS OR OTHERWISE) AND
         WHETHER OCCASIONED BY THE NEGLIGENCE OF THE RESPECTIVE PARTIES, THEIR
         EMPLOYEES OR AGENTS OR OTHERWISE.

                                       17
<PAGE>

8.       TERM AND TERMINATION

8.1      The term of this Agreement shall commence as of the Effective Date and
         shall, subject to the rights of termination outlined in this Clauses 8,
         expire on a Product-by-Product basis and on a country-by-country basis
         on the last to occur of:

         8.1.1    15 years starting from the date of the first commercial sale
                  of the Product in the country concerned; or

         8.1.2    the date of expiration of the last to expire of the patents
                  included in the Elan Patents and/or the Elan Improvements
                  and/or the Sheffield Patents and/or the Elan Improvements that
                  relate to the Product.

         ("the Term")

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

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

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

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

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

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

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

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

                                       18
<PAGE>

8.4      Sheffield shall be entitled to forthwith terminate this Agreement if
         Elan elects to terminate the Elan License Agreement under Clause 8.4 of
         the Elan License Agreement.

8.5      Upon expiration or termination of the Agreement:

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

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

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

         8.5.4    the rights of inspection and audit set out in Clause 6 shall
                  continue in force for a period of one year; and

         8.5.5    all rights and licenses granted pursuant to this Agreement and
                  to the Sheffield Intellectual Property pursuant to the JDOA
                  (including the rights of Newco pursuant to Clause 11 of the
                  JDOA) shall cease for the Territory or for such particular
                  country or countries in the Territory (as the case may be) and
                  shall revert to or be transferred to Sheffield, and Newco
                  shall not thereafter use in the Territory or in such
                  particular country or countries in the Territory (as the case
                  may be) any rights covered by this Agreement;

         8.5.6    subject to Clause 8.5.7 and to such license, if any, granted
                  by Newco to Sheffield pursuant to the provisions of Clause 12
                  of the JDOA, all rights to Newco Intellectual Property shall
                  be transferred to and jointly owned by Sheffield and Elan and
                  may only be exploited by either Elan or Sheffield with the
                  consent of the other Party pursuant to a written agreement to
                  be negotiated in good faith;

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

                                       19
<PAGE>

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

8.6      In the event that the Parties and Elan mutually agree to terminate the
         portion of the Project (as defined in the JDOA) which relates to Field
         A, the provisions of Clause 4.1 and the provisions of Clause 4.2
         (insofar as the provisions of Clause 4.2 relate to Field A) shall
         automatically terminate.


9        CONFIDENTIAL INFORMATION

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

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

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

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

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

9.5      Confidential Information shall not be deemed to include:

         9.5.1    information that is in the public domain;

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

                                       20
<PAGE>

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

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

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

            (i)   a valid order of a court or other governmental body; or
            (ii)  any other requirement of law;

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

9.6  The provisions relating to confidentiality in this Clause 9 shall remain in
     effect during the term of this Agreement, and for a period of 7 years
     following the expiration or earlier termination of this Agreement.

9.7  The Parties agree that the obligations of this Clause 9 are necessary and
     reasonable in order to protect the Parties' respective businesses, and each
     Party agrees that monetary damages would be inadequate to compensate a
     Party for any breach by the other Party of its covenants and agreements set
     forth herein.

     Accordingly, the Parties agree that any such violation or threatened
     violation shall cause irreparable injury to a Party and that, in addition
     to any other remedies that may be available, in law and equity or
     otherwise, each Party shall be entitled to obtain injunctive relief against
     the threatened breach of the provisions of this Clause 9, or a continuation
     of any such breach by the other Party, specific performance and other
     equitable relief to redress such breach together with its damages and
     reasonable counsel fees and expenses to enforce its rights hereunder,
     without the necessity of proving actual or express damages.

10   GOVERNING LAW AND JURISDICTION

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

                                       21
<PAGE>

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

          In the event that the Parties fail to agree on a mutually acceptable
          dispute resolution mechanism, any such dispute shall be finally
          settled by the courts of competent jurisdiction. For the purposes of
          this Agreement the parties submit to the non-exclusive jurisdiction of
          the courts of the State of New York.

11        IMPOSSIBILITY OF PERFORMANCE - FORCE MAJEURE

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

12        ASSIGNMENT

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

13        NOTICES

13.1      Any notice to be given under this Agreement shall be sent in writing
          in English by registered airmail or telefaxed to the following
          addresses: If to Newco at:

          102 St. James Court
          Flatts,
          Smiths FL04
          Bermuda
          Attention:  Secretary
          Telephone:  441 292 9169
          Fax:        441 292 2224

          with a copy to Elan and Sheffield at the addresses listed below:

                                       22
<PAGE>

          If to Sheffield at:
          Sheffield Pharmaceuticals, Inc.
          425 S. Woodsmill Road
          Suite 270
          St Louis
          MO 63017

          USA.

          Attn: Chief Executive Officer
          Telephone  001 314 579 9899
          Fax:       001 314 579 9799

          with a copy to:

          Daniel Gallagher, Esq.
          Olshan, Grundman, Trome
          Rosenzeig, LLP
          505 Park Avenue
          New York, NY 10022

          Telephone   002 212 753 7200
          Fax:        001 212 935 1787

          If to Elan at:

          Elan Corporation, plc
          Lincoln House,
          Lincoln Place,
          Dublin 2,
          Ireland.

          Attention: Vice President, General Counsel,
          Elan Pharmaceutical Technologies,
          a division of Elan Corporation, plc
          Telephone:  + 353 1 709 4000
          Telefax:      + 353 1 709 4124

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

13.2      Any notice sent by mail shall be deemed to have been delivered within
          seven 7 working days after dispatch and any notice sent by telex or
          telefax shall be deemed to have been delivered within twenty 24 hours
          of the time of the dispatch. Notice of change of address shall be
          effective upon receipt.

                                       23
<PAGE>

14        MISCELLANEOUS

14.1      Waiver:

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

14.2      Severability:

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

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

          14.2.2   if it cannot be so amended without materially altering the
                   intention of the Parties, it will be deleted, with effect
                   from the date the Parties may agree, and the validity,
                   legality and enforceability of the remaining provisions of
                   this Agreement shall not be impaired or affected in any way.

14.3      Further Assurances:

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

14.4      Successors:

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

14.5      No Effect on Other Agreements/Conflict:

          No provision of this Agreement shall be construed so as to negate,
          modify or affect in any way the provisions of any other agreement
          between the Parties unless specifically referred to, and solely to the
          extent provided herein.

          In the event of a conflict between the provisions of this Agreement
          and the provisions of the JDOA, the terms of the JDOA shall prevail
          unless this Agreement specifically provides otherwise.

                                       24
<PAGE>

14.6      Amendments:

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

14.7      Counterparts:

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

14.8      Good Faith:

          Each Party undertakes to do all things reasonably within its power
          which are necessary or desirable to give effect to the spirit and
          intent of this Agreement.

14.9      No Reliance:

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

14.10     Relationship of the Parties:

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

          Neither Party hereto shall have any express or implied right or
          authority to assume or create any obligations on behalf of or in the
          name of the other Party or to bind the other Party to any contract,
          agreement or undertaking with any third party.

                                       25
<PAGE>

                                  SCHEDULE 1

                    TECHNOLOGICAL COMPETITORS OF SHEFFIELD

[REDACTED]
<PAGE>

                                  SCHEDULE 2

                        List of Steroids for Clause 4.1


[REDACTED]
<PAGE>

IN WITNESS WHEREOF the Parties hereto have executed this Agreement.



/s/
SIGNED BY
for and on behalf of
SHEFFIELD PHARMACEUTICALS, INC.





/s/
SIGNED BY
For and on behalf of
SHEFFIELD NEWCO LIMITED




/s/
AGREED TO AND ACCEPTED BY
ELAN PHARMA INTERNATIONAL LIMITED

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.28
<SEQUENCE>6
<FILENAME>dex1028.txt
<DESCRIPTION>LICENSE AGREEMENT
<TEXT>
<PAGE>

Exhibit 10.28                               ***TEXT OMITTED AND FILED SEPARATELY
                                            CONFIDENTIAL TREATMENT REQUESTED
                                            UNDER 17 C.F.R. SECTIONS
                                            200.80(B)(4), 200.83 AND 240.24B-2










                               LICENSE AGREEMENT


                                    BETWEEN


                       ELAN PHARMA INTERNATIONAL LIMITED


                                      AND


                            SHEFFIELD NEWCO LIMITED
<PAGE>

                               TABLE OF CONTENTS



1.    DEFINITIONS
2.    ELAN LICENSE TO NEWCO
3.    INTELLECTUAL PROPERTY
4.    NON-COMPETITION/AFTER ACQUIRED TECHNOLOGY
5.    FINANCIAL PROVISIONS
6.    RIGHT OF INSPECTION AND AUDIT
7.    REPRESENTATIONS AND WARRANTIES
8.    TERM AND TERMINATION
9.    CONFIDENTIAL INFORMATION
10.   GOVERNING LAW AND JURISDICTION
11.   IMPOSSIBILITY OF PERFORMANCE - FORCE MAJEURE
12.   ASSIGNMENT
13.   NOTICES
14.   MISCELLANEOUS
<PAGE>

THIS AGREEMENT made this 20 October 1999

between:

(1)      Elan Pharma International Limited incorporated under the laws of
         Ireland, and having its registered office at WIL House, Shannon
         Business Park, Shannon, County Clare, Ireland ("EPIL");

(2)      Newco Limited, a private limited company incorporated under the laws of
         Bermuda and having its registered office at Clarendon House, 2 Church
         Street, Hamilton, Bermuda ("Newco"); and

(3)      Sheffield Pharmaceuticals, Inc., a corporation duly incorporated and
         validly existing under the laws of Delaware and having its principal
         place of business at 425 S. Woodsmill Road, Suite 270, St. Louis, MO
         63017, USA("Sheffield").


RECITALS:

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

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

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

1        DEFINITIONS

1.1      In this Agreement unless the context otherwise requires:

         "Affiliate" shall mean any corporation or entity controlling,
         controlled or under the common control of Elan or Sheffield, as the
         case may be, excluding Systemic Pulmonary Delivery Ltd.. For the
         purpose of this definition, "control" shall mean direct or indirect
         ownership of fifty percent (50%) or more of the stock or shares
         entitled to vote for the election of directors. Newco is not an
         Affiliate of Sheffield.

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

                                       3
<PAGE>

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

         "Change of Control of Sheffield/Newco" shall mean circumstances where:

         (i)      a Technological Competitor of Elan shall, directly or
                  indirectly, acquire [REDACTED] or more of the voting stock of
                  Sheffield or Newco, or otherwise control or influence in any
                  material respect their management or business or otherwise
                  have entered into any joint venture, collaboration, license or
                  other arrangement with Sheffield or Newco, as the case may be,
                  to such an extent that such a Technological Competitor of Elan
                  is materially engaged or involved with the business or
                  development of Sheffield or Newco, as the case may be; or

         (ii)     any person other than a Technological Competitor of Elan
                  shall, directly or indirectly, acquire [REDACTED] or more of
                  the then voting stock of Sheffield or Newco, or otherwise
                  merge, consolidate or enter into any similar transaction (or
                  binding agreement in respect thereof) with Sheffield or Newco.

         "Combined Fields" shall mean Field A, Field B and Field C.

         "Compounds" shall mean the Field A Compound, the Field B Compound
         and/or the Field C Compound.

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

         "Definitive Documents" shall mean the definitive agreements relating to
         the transaction including finance, stock purchase, research and license
         agreements.

         "Elan" shall mean EPIL and Affiliates and subsidiaries of Elan
         Corporation, Plc. within the division of Elan Corporation, Plc.
         carrying on business as Elan Pharmaceutical Technologies but shall not
         include Affiliates and subsidiaries (present or future) of Elan
         Corporation Plc within the division of Elan Corporation, Plc carrying
         on business as Elan Pharmaceuticals which incorporates, inter alia,
         Targon Corporation, Athena Neurosciences, Inc., Elan Pharmaceuticals,
         Inc., Elan Diagnostics, Carnrick Laboratories, and Elan Europe Limited.

         "EIS" shall mean Elan International Services, Limited, a private
         limited company incorporated under the laws of Bermuda and having its
         registered office at Clarendon House, 2 Church Street, Hamilton,
         Bermuda.

         "Effective Date" shall mean the date of this Agreement.
         "Elan Intellectual Property" shall mean the Elan Know-How, the Elan
         Patents and the Elan Improvements.

         For the avoidance of doubt, Elan Intellectual Property shall exclude
         (i) Elan's patent rights and know-how relating to protein or peptide
         agents or peptodomimetics, derivatives or analogs thereof, designed to

                                       4
<PAGE>

         target a pharmaceutically active agent to a certain site or sites in
         the body (targeting technology) and (ii) inventions, patents and know-
         how owned, licensed or controlled by Axogen Limited and Neuralab
         Limited, and by all Affiliates and subsidiaries (present or future) of
         Elan Corporation, Plc. carrying on business as Elan Pharmaceuticals
         which incorporates, inter alia, Targon Corporation, Athena
         Neurosciences, Inc., Elan Pharmaceuticals, Inc., Elan Diagnostics,
         Carnrick Laboratories, and Elan Europe Limited.

         "Elan Know-How" shall mean any and all rights owned, licensed or
         controlled by Elan to any discovery, invention (whether patentable or
         not), know-how, substances, data, techniques, processes, systems,
         formulations and designs relating to Nanocrystal(TM) Technology.

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

         "Elan Patents" shall mean any and all rights under any and all patents
         applications and/or patents, now existing, currently pending or
         hereafter filed or obtained by Elan relating to Nanocrystal(TM)
         Technology as set forth in Schedule 1, and any foreign counterparts
         thereof and all divisionals, continuations, continuations-in-part, any
         foreign counterparts thereof and all patents issuing on, any of the
         foregoing, together with all registrations, reissues, re-examinations
         or extensions thereof.

         "EPIL Patents" shall mean the Elan Patents owned by EPIL.

         "Elan Improvements" shall mean improvements relating to the Elan
         Patents and/or the Elan Know-How, developed (i) by Elan whether or not
         pursuant to the Project, (ii) by Newco or Sheffield or by a third party
         (under contract with Newco) whether or not pursuant to the Project,
         and/or (iii) jointly by any combination of Elan, Sheffield or Newco
         pursuant to the Project, except as limited by agreements with third
         Parties.

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

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

         "Field A" shall mean the topical pulmonary delivery of Formulations of
         the Field A Compound by means of the Field A Device.

         "Field B" shall mean the topical pulmonary delivery of a Formulations
         of the Field B Compound by means of the Field B Device.

                                       5
<PAGE>

         "Field C" shall mean the topical pulmonary delivery of a Formulations
         of the Field C Compound by means of the Field C Device.

         "Field A Device" shall mean a third party table top unit dose nebulizer
         having a reservoir capable of holding a unit dose (a device and the
         compressor to nebulize a unit dose shall be deemed a device), which is
         a device having any one the following characteristics:

         (i)      [REDACTED]

         (ii)     [REDACTED]

         (iii)    [REDACTED]

         (iv)     [REDACTED]

         (v)      [REDACTED]

         For the avoidance of doubt, the Field A Device does not include
         [REDACTED]

         "Field B Device" shall mean the Aerosol Drug Delivery System ("ADDS"),
         owned by Systemic Pulmonary Delivery Limited and exclusively licensed
         to Sheffield for topical pulmonary applications.

         "Field C Device" shall mean the handheld multi-dose nebulizer ("MSI")
         which was licensed exclusively by Siemens to Sheffield pursuant to the
         Siemens Agreements and which was subsequently sub-licensed by Sheffield
         to Zambon (on an exclusive basis for delivery of various medicines for
         humans in treating respiratory disease and/or other lung diseases
         including, but not limited to, anti-infectives) provided that Newco,
         through the Management Committee, is successful in obtaining a sub-
         license from Zambon to Newco enabling the development of the Field C
         Compound for use with the Field C Device, as described in more detail
         in Clause 2.2.

         "Field A Compound" shall mean [REDACTED]

         "Field B Compound" shall mean [REDACTED] for therapeutic use to be
         nominated by the Management Committee pursuant to the JDOA and with
         reference to the JDOA, any Substitute Field B Compound.

         "Field C Compound" shall mean [REDACTED] and with reference to the
         JDOA, any Substitute Field C Compound and/or any Additional Field C
         Compound.

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

         "Formulations" shall mean Nanocrystal(TM) Technology formulations of
         Compounds for use in Field A, Field B or Field C, as applicable.

                                       6
<PAGE>

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

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

         "Licenses" shall mean the Elan License and the Sheffield License.
         "Management Committee" shall have the meaning, as such term is defined
         in the JDOA.

         "Nanocrystal(TM) Technology" shall mean the Elan proprietary technology
         directed to nanoparticulate formulations of compounds used in the
         manufacturing and/or formulation process, and methods of making the
         same.

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

         "Newco Patents" shall mean any and all patents now existing, currently
         pending or hereafter filed or obtained relating to the Newco
         Intellectual Property, and any foreign counterparts thereof and all
         divisionals, continuations, continuations-in-part, any foreign
         counterparts thereof and all patents issuing on, any of the foregoing,
         together with all registrations, reissues, re-examinations or
         extensions thereof.

         "Party" shall mean Elan or Newco, as the case may be, and "Parties"
         shall mean Elan and Newco.

         "Products" shall mean the Field A Products, the Field B Products and/or
         the Field C Products, as follows:

         "Field A Products" shall mean Formulations of the Field A Compound
         delivered by means of any Field A Device in Field A.

         "Field B Products" shall mean Formulations of the Field B Compound
         delivered by means of the Field B Device in Field B.

         "Field C Products" shall mean Formulations of the Field C Compound
         delivered by means of the Field C Device in Field C.

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

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

                                       7
<PAGE>

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

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

         "Sheffield" shall mean Sheffield Pharmaceuticals, Inc and its
         Affiliates, excluding Newco.

         "Sheffield Intellectual Property" shall mean the Sheffield Know-How,
         the Sheffield Patents and the Sheffield Improvements, as such terms are
         defined in the Sheffield License Agreement.

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

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

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

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

         "Siemens" shall mean Siemens Aktiengesellschaft.

         "Siemens Agreements" shall mean the License Agreement dated 21 March
         1997 and the Basic Supply Agreement dated 21 March 1997, both between
         Sheffield Medical Technologies Inc. and Siemens Aktiengesellschaft.

         "Technological Competitor of Elan" shall mean a company, corporation or
         person listed in Schedule 2 and successors thereof or any additional
         broad-based technological competitor of Elan added to such Schedule
         from time to time upon mutual agreement of the Parties.

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

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

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

         "Zambon" shall mean Inpharzam International, S.A.

                                       8
<PAGE>

1.2      In this Agreement:

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

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

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

2.       ELAN LICENSE TO NEWCO

2.1.     Elan hereby grants to Newco for the Term the following licenses subject
         to any contractual obligations that Elan has as of the Effective Date,
         including but not limited to the Development License and Supply
         Agreement dated 26 July 1999 between EPIL and Merck Corporation:

         2.1.1    an exclusive license (including the right to grant sublicenses
                  subject to the limitations of Clause 2.7) of the Elan
                  Intellectual Property solely to make, have made, import, use,
                  offer for sale and sell the Field A Products in the Territory
                  in Field A;

         2.1.2    a non-exclusive license (including the right to grant
                  sublicenses subject to the limitations of Clause 2.7) of the
                  Elan Intellectual Property solely to make, have made, import,
                  use, offer for sale and sell the Field B Products in the
                  Territory in Field B;

         2.1.3    subject to the execution by Newco of a written sub-license
                  with Zambon as more fully described in Clause 2.2 for the
                  development by Newco of the Field C Formulations in accordance
                  with Clause 2.2, a non-exclusive license (including the right
                  to grant sublicenses subject to the limitations of Clause 2.7)
                  of the Elan Intellectual Property solely to make, have made,
                  import, use, offer for sale and sell the Field C Formulations
                  in the Territory in Field C;

         (the "Elan Licenses").

2.2      On the date which is 180 days following the Effective Date, or such
         extended date as may be agreed in writing by Elan and Newco, Elan
         shall, at its sole discretion, be entitled forthwith to terminate the
         license to Newco described in Clause 2.1.3, upon notice in writing to
         Newco, in the event that Newco has not, prior to such date, executed a
         written sub-license with Zambon for the development by Newco of the
         Field C Formulations in Field C.

         Such written sub-license will be subject to the approval of the
         Management Committee and will include authority from Zambon to Newco to

                                       9
<PAGE>

         the extent necessary for Newco to develop, make, have made and use the
         Field C Formulations in the Territory, general financial terms,
         development schedule, and terms governing the funding by Zambon of any
         R&D Program(s) in Field C, together with such other substantive issues
         as the Management Committee shall deem appropriate and customary terms.
         For the avoidance of doubt, to the extent royalty or other compensation
         obligations are payable to Zambon in respect of any license or sub-
         license from Zambon to Newco of intellectual property rights necessary
         for Newco to develop, make, have made the Field C Formulations in the
         Territory, Sheffield shall be responsible for same and shall indemnify
         Newco in respect of any such royalty or other compensation obligations
         payable to Zambon.

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

         For the avoidance of doubt, royalties, milestones or other payments
         which arise from the process of the commercialization or exploitation
         of products under the Elan Effective Date Agreements (for example, a
         milestone payment payable upon successful completion of Phase II
         clinical trials, the filing of an NDA application, obtaining NDA
         approval, or first commercial sale) shall be payments for which Elan
         will be responsible under this Clause 2.1.

2.4      To the extent royalty or other compensation obligations that are
         payable to third parties with respect to the Elan Intellectual Property
         would be triggered after the Effective Date under any third party
         agreement entered into by Elan after the Effective Date (the "Elan
         Post-Effective Date Agreements"), by a proposed use of such Elan
         Intellectual Property in connection with the Project, Elan will inform
         Newco of such royalty or compensation obligations. If Newco agrees to
         utilise such Elan Intellectual Property in connection with the Project,
         Newco will be responsible for the payment of such royalty or other
         compensation obligations relating thereto.

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

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

2.6      Notwithstanding anything contained in this Agreement to the contrary,
         Elan shall have the right outside the Field A, Field B and Field C and

                                       10
<PAGE>

         subject to the non-competition provisions of Clause 4 to exploit and
         grant licenses and sublicenses of the Elan Intellectual Property. For
         the avoidance of doubt, Newco shall have no right to use the Elan
         Intellectual Property outside Field A, Field B or Field C.

2.7      Newco shall not be permitted to assign or sublicense any of its rights
         under the Elan Intellectual Property without the prior written consent
         of Elan, which consent shall not be unreasonably withheld or delayed
         provided that Elan shall in all cases, in its sole discretion, be
         entitled to withhold its consent in the case of a proposed sublicense
         to any Technological Competitor to Elan.

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

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


3        INTELLECTUAL PROPERTY

3.1      Ownership of Intellectual Property:

         3.1.1     Newco shall own the Newco Intellectual Property.

         3.1.2     Elan shall own the Elan Intellectual Property.

3.2      Trademarks:

         3.2.1     Elan hereby grants to Newco for the Term a non-exclusive,
                   royalty free license in the Territory to use and display the
                   Elan Trademarks to promote, offer for sale and sell the
                   Products in Field A, Field B and the Formulations in Field C
                   in the Territory and the following provisions shall apply as
                   regards the use of the Elan Trademarks by Newco hereunder:

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

                         From time to time, upon the reasonable request of Elan,
                         Newco shall submit samples of the Product to Elan or
                         its duly appointed agent to ensure compliance with
                         quality standards and specifications. Elan, or its duly
                         appointed agent, shall have the right to inspect the
                         premises of Newco where the Products are manufactured,
                         held or stored, and Newco shall permit such inspection,

                                       11
<PAGE>

                         upon advance notice at any reasonable time, of the
                         methods and procedures used in the manufacture, storage
                         and sale of the Product. Newco shall not sell or
                         otherwise dispose of any Product under the Elan
                         Trademarks that fails to comply with the quality
                         standards and specifications referred to in this Clause
                         3.2, as determined by Elan.

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

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

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

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

                   (6)   Newco shall not be permitted to assign or sublicense
                         any of its rights under the Elan Trademarks without the
                         prior written consent of Elan, which consent shall not
                         be unreasonably withheld or delayed.

         3.2.2     Elan shall, at its expense and sole discretion, file and
                   prosecute applications to register and maintain registrations
                   of the Elan Trademarks in the Territory. Newco shall
                   reasonably co-operate with Elan in such efforts. In the event
                   Elan decides not to file or prosecute such Elan Trademark,
                   Newco may request Elan to do the same at Newco's expense, and
                   Elan shall file or prosecute such Elan Trademark at Newco's
                   request and expense unless Elan believes such action is
                   without merit.

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

                                       12
<PAGE>

                   such efforts. In the event Elan decides not to engage in
                   enforcement proceedings of the Elan Trademarks, Newco may
                   request Elan to do the same at Newco's expense unless Elan
                   believes the basis for such enforcement proceedings is
                   without merit. In such a case, Elan shall have the sole
                   discretion not to engage in any such enforcement proceedings

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

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

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

         3.2.7     Elan assumes no liability to Newco or to any third parties
                   with respect to the quality, performance or characteristics
                   of any of the goods manufactured or sold by Newco under the
                   Elan Trademarks pursuant to this Agreement.

4        NON-COMPETITION/AFTER ACQUIRED TECHNOLOGY

4.1      Subject to Clause 4.2 and Clause 4.3 and Clause 8.6, during the period
         during which the license described in Clause 2.1.1 has not been
         terminated, Elan shall not, alone or in conjunction with a third party,
         develop or commercialize any of the unit dose steroids listed in
         Schedule 3 for topical pulmonary delivery using a Field A Device and
         utilizing the Nanocrystal(TM)Technology, subject to written agreements
         between Elan and unaffiliated third parties on the Effective Date,
         including but not limited to the Development License and Supply
         Agreement dated 26 July 1999 between EPIL and Merck Corporation. For
         the avoidance of doubt, the non-compete obligation set forth in this
         Clause 4 shall not prevent or restrict EPIL (as the owner of
         intellectual property related to Nanocrystal(TM) Technology) from
         entering into any agreement with any third party to license the
         Nanocrystal(TM) Technology, such license being limited to compounds

                                       13
<PAGE>

         owned, acquired, in-licensed or otherwise proprietary to such third
         party but not including any of the unit dose steroids listed in
         Schedule 3 for topical pulmonary delivery using a Field A Device and
         utilizing the Nanocrystal(TM) Technology.

         The provisions of this Clause 4.1 shall only act as a restriction upon
         Affiliates and subsidiaries of Elan Corporation, Plc. within the
         division of Elan Corporation, Plc. carrying on business as Elan
         Pharmaceutical Technologies and shall not act as a restriction upon,
         nor in any way affect, Affiliates and subsidiaries (present or future)
         of Elan Corporation Plc within the division of Elan Corporation, Plc
         carrying on business as Elan Pharmaceuticals which incorporates, inter
         alia, Targon Corporation, Athena Neurosciences, Inc., Elan
         Pharmaceuticals, Inc., Elan Diagnostics, Carnrick Laboratories, and
         Elan Europe Limited.

4.2      Notwithstanding the provisions of Clause 4.1, the non-competition
         obligations of Elan set forth in Clause 4.1 shall not restrict Elan
         from entering into an agreement with [REDACTED] during the period of
         [REDACTED] following the Effective Date, or such longer period as may
         be agreed by Elan and Newco, for the development of a unit dose of
         [REDACTED], for topical pulmonary delivery using a Field A Device and
         utilizing the Nanocrystal(TM)Technology subject to the following
         conditions:

         4.2.1   if such agreement is not executed by Elan and [REDACTED] within
                 the period of [REDACTED] following the Effective Date, or such
                 longer period as may be agreed by Elan and Newco, this
                 exception to the non-competition obligations of Elan set forth
                 in Clause 4.1 shall expire and be of no further force or
                 effect;

         4.2.2   if such agreement is agreed for execution by Elan and [REDATED]
                 within the period of [REDACTED] following the Effective Date,
                 or such longer period as may be agreed by Elan and Newco, Newco
                 and Sheffield shall forthwith sign an amendment to this License
                 Agreement (and any of the other Definitive Documents, if
                 necessary) terminating the non-competition obligations of Elan
                 set forth in Clause 4.1 insofar as such obligations relate to
                 [REDACTED] and the Parties shall agree in good faith and on
                 reasonable commercial and customary terms what portion of the
                 royalties payable by [REDACTED] to Elan under the agreement
                 proposed for execution should be payable to Newco in return for
                 such amendment to this License Agreement (and any of the other
                 Definitive Documents, if necessary).

4.3      If, after the Effective Date, Elan acquires know-how or patent rights
         relating to the Field A, Field B or Field C, or acquires or merges with
         a third party entity that has know-how or patent rights relating to the
         Field A, Field B or Field C, Elan shall offer to license such know-how
         and patent rights to Newco (subject to existing contractual
         obligations), on commercially reasonable terms on an arm's length basis
         for a reasonable period under the prevailing circumstances. If Newco
         determines that Newco should not acquire such license, Elan shall be
         free to fully exploit such know-how and patent rights with the Elan
         Intellectual Property then licensed to Newco, whether inside or outside
         the Field A, Field B or Field C, as applicable, and to grant to third
         parties licenses and sublicenses with respect thereto.

                                       14
<PAGE>

5        FINANCIAL PROVISIONS

5.1      License Fee:

         In consideration of the license by EPIL to Newco of the EPIL Patents
         under Clause 2, Newco shall pay to EPIL a non-refundable license fee of
         $15 million in cash (the "License Fee"), the receipt of which is hereby
         acknowledged by EPIL.

         The License Fee shall not be subject to future performance obligations
         of Elan to Newco or Sheffield and shall not be applicable against
         future services provided by Elan to Newco or Sheffield. For the
         avoidance of doubt, in the event that Elan terminates the license to
         Newco described in Clause 2.1.3 pursuant to the provisions of Clause
         2.2, no part of the License Fee described in this Clause 5.1 shall
         become refundable to Sheffield.

5.2      Royalties:

         Prior to the commercialization of the Products, the Management
         Committee shall consider and if appropriate, determine reasonable
         royalties with respect to the commercialization of the Products by
         Newco that shall be payable by Newco to Elan and Sheffield, and shared
         by Elan and Sheffield equally.

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

5.3      Payment of any royalties pursuant to Clause 5.2 shall be made quarterly
         in arrears during each Financial Year within 30 days after the expiry
         of the calendar quarter. The method of payment shall be by wire
         transfer to an account specified by Elan. Each payment made to Elan
         shall be accompanied by a true accounting of all Products sold by
         Newco's permitted sublicensees, if any, during such quarter.

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

5.4      Newco shall maintain and keep clear, detailed, complete, accurate and
         separate records for a period of 3 years:

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

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

                                       15
<PAGE>

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

5.6      If, at any time, legal restrictions in the Territory prevent the prompt
         payment when due of royalties or any portion thereof, the Parties shall
         meet to discuss suitable and reasonable alternative methods of paying
         Elan the amount of such royalties. In the event that Newco is prevented
         from making any payment under this Agreement by virtue of the statutes,
         laws, codes or government regulations of the country from which the
         payment is to be made, then such payments may be paid by depositing
         them in the currency in which they accrue to Elan's account in a bank
         acceptable to Elan in the country the currency of which is involved or
         as otherwise agreed by the Parties.

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

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


6        RIGHT OF INSPECTION AND AUDIT

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

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

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

                                       16
<PAGE>

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

 7       REPRESENTATIONS AND WARRANTIES

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

         7.1.1    Elan has the right to grant the Elan Licenses;

         7.1.2    there are no agreements with any third parties that conflict
                  with the Elan Licenses.

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

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

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

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

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

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

7.4      The Party seeking an indemnity shall:

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

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

                                       17
<PAGE>

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

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

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

7.5      EXCEPT AS SET FORTH IN THIS CLAUSE 7, ELAN IS GRANTING THE LICENSES
         HEREUNDER ON AN "AS IS" BASIS WITHOUT REPRESENTATION OR WARRANTY
         WHETHER EXPRESS OR IMPLIED INCLUDING WARRANTIES OF MERCHANTABILITY OR
         FITNESS FOR A PARTICULAR PURPOSE, OR INFRINGEMENT OF THIRD PARTY
         RIGHTS, AND ALL SUCH WARRANTIES ARE EXPRESSLY DISCLAIMED.

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

8.       TERM AND TERMINATION

8.1      The term of this Agreement shall commence as of the Effective Date and
         shall, subject to the rights of termination outlined in this Clauses 8,
         expire on a Product-by-Product basis and on a country-by-country basis
         on the last to occur of:

         8.1.1    [REDACTED] years starting from the date of the first
                  commercial sale of the Product in the country concerned; or

         8.1.2    the date of expiration of the last to expire of the patents
                  included in the Elan Patents and/or the Elan Improvements
                  and/or the Sheffield Patents and/or the Elan Improvements that
                  relate to the Product.

         ("the Term")

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

                                       18
<PAGE>

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

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

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

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

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

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

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

8.4      Elan shall be entitled to forthwith terminate this Agreement in the
         event of a Change of Control of Sheffield/Newco.

         As provided in Clause 8.4 of the Sheffield License Agreement, Sheffield
         shall be entitled to terminate the Sheffield License Agreement if Elan
         elects to terminate the Elan Licenses hereunder.

8.5      Upon expiration or termination of the Agreement:

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

                                       19
<PAGE>

                  termination of this Agreement for the Territory or for such
                  particular country or countries in the Territory (as the case
                  may be);

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

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

         8.5.4    the rights of inspection and audit set out in Clause 6 shall
                  continue in force for a period of one year; and

         8.5.5    all rights and licenses granted pursuant to this Agreement and
                  to the Elan Intellectual Property pursuant to the JDOA
                  (including the rights of Newco pursuant to Clause 11 of the
                  JDOA) shall cease for the Territory or for such particular
                  country or countries in the Territory (as the case may be) and
                  shall revert to or be transferred to Elan, and Newco shall not
                  thereafter use in the Territory or in such particular country
                  or countries in the Territory (as the case may be) any rights
                  covered by this Agreement;

         8.5.6    subject to Clause 8.5.7 and to such license, if any, granted
                  by Newco to Elan pursuant to the provisions of Clause 12 of
                  the JDOA, all rights to Newco Intellectual Property shall be
                  transferred to and jointly owned by Sheffield and Elan and may
                  only be exploited by either Elan or Sheffield with the consent
                  of the other Party pursuant to a written agreement to be
                  negotiated in good faith;

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

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

8.6      In the event that the Parties and Sheffield mutually agree to terminate
         the portion of the Project (as defined in the JDOA) which relates to
         Field A, the license described in Clause 2.1.1, the provisions of
         Clause 4.1 and the provisions of Clause 4.3 (insofar as the provisions
         of Clause 4.3 relate to Field A) shall automatically terminate.

                                       20
<PAGE>

9        CONFIDENTIAL INFORMATION

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

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

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

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

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

9.5      Confidential Information shall not be deemed to include:

         9.5.1    information that is in the public domain;

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

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

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

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

                  (i)   a valid order of a court or other governmental body; or
                  (ii)  any other requirement of law;

                                       21
<PAGE>

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

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

9.7      The Parties agree that the obligations of this Clause 9 are necessary
         and reasonable in order to protect the Parties' respective businesses,
         and each Party agrees that monetary damages would be inadequate to
         compensate a Party for any breach by the other Party of its covenants
         and agreements set forth herein.

         Accordingly, the Parties agree that any such violation or threatened
         violation shall cause irreparable injury to a Party and that, in
         addition to any other remedies that may be available, in law and equity
         or otherwise, each Party shall be entitled to obtain injunctive relief
         against the threatened breach of the provisions of this Clause 9, or a
         continuation of any such breach by the other Party, specific
         performance and other equitable relief to redress such breach together
         with its damages and reasonable counsel fees and expenses to enforce
         its rights hereunder, without the necessity of proving actual or
         express damages.

9.8      For the avoidance of doubt, all Confidential Information of Newco
         received by Elan hereunder shall not be disclosed by Elan to Affiliates
         and/or subsidiaries (present or future) of Elan Corporation, Plc.
         within the division of Elan Corporation, Plc. carrying on business as
         Elan Pharmaceuticals which incorporates, inter alia, Targon
         Corporation, Athena Neurosciences, Inc., Elan Pharmaceuticals, Inc.,
         Elan Diagnostics, Carnrick Laboratories, and Elan Europe Limited.

10       GOVERNING LAW AND JURISDICTION

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

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

                                       22
<PAGE>

         dispute resolution mechanism, any such dispute shall be finally settled
         by the courts of competent jurisdiction. For the purposes of this
         Agreement the parties submit to the non-exclusive jurisdiction of the
         courts of the State of New York.

11       IMPOSSIBILITY OF PERFORMANCE - FORCE MAJEURE

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

12       ASSIGNMENT

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

13       NOTICES

13.1     Any notice to be given under this Agreement shall be sent in writing in
         English by registered airmail or telefaxed to the following addresses:
         If to Newco at:

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

         with a copy to Elan and Sheffield at the addresses listed below:
         If to Sheffield at:
         Sheffield Pharmaceuticals, Inc.
         425 S. Woodsmill Road
         Suite 270
         St Louis
         MO 63017
         USA.

                                       23
<PAGE>

         Attn: Chief Executive Officer
         Telephone   001 314 579 9899
         Fax:        001 314 579 9799

         with a copy to:

         Daniel Gallagher, Esq.
         Olshan, Grundman, Trome
         Rosenzeig, LLP
         505 Park Avenue
         New York, NY 10022
         Telephone    002 212 753 7200
         Fax:         001 212 935 1787


         If to Elan at:

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

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

13.2     Any notice sent by mail shall be deemed to have been delivered within
         seven 7 working days after dispatch and any notice sent by telex or
         telefax shall be deemed to have been delivered within twenty 24 hours
         of the time of the dispatch. Notice of change of address shall be
         effective upon receipt.

14       MISCELLANEOUS

14.1     Waiver:

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

                                       24
<PAGE>

14.2     Severability:

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

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

         14.2.2   if it cannot be so amended without materially altering the
                  intention of the Parties, it will be deleted, with effect from
                  the date the Parties may agree, and the validity, legality and
                  enforceability of the remaining provisions of this Agreement
                  shall not be impaired or affected in any way.

14.3     Further Assurances:

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

14.4     Successors:

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

14.5     No Effect on Other Agreements/Conflict:

         No provision of this Agreement shall be construed so as to negate,
         modify or affect in any way the provisions of any other agreement
         between the Parties unless specifically referred to, and solely to the
         extent provided herein.

         In the event of a conflict between the provisions of this Agreement and
         the provisions of the JDOA, the terms of the JDOA shall prevail unless
         this Agreement specifically provides otherwise.

14.6     Amendments:

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

14.7     Counterparts:

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

                                       25
<PAGE>

14.8     Good Faith:

         Each Party undertakes to do all things reasonably within its power
         which are necessary or desirable to give effect to the spirit and
         intent of this Agreement.

14.9     No Reliance:

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

14.10    Relationship of the Parties:

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

         Neither Party hereto shall have any express or implied right or
         authority to assume or create any obligations on behalf of or in the
         name of the other Party or to bind the other Party to any contract,
         agreement or undertaking with any third party.

                                       26
<PAGE>

                                  SCHEDULE 1

                                 ELAN PATENTS


                                  [REDACTED]
<PAGE>

                                  SCHEDULE 2

                       TECHNOLOGICAL COMPETITORS OF ELAN


                                  [REDACTED]
<PAGE>

                                  SCHEDULE 3

                        List of Steroids for Clause 4.1




                                  [REDACTED]
<PAGE>

IN WITNESS WHEREOF the Parties hereto have executed this Agreement.



/S/
SIGNED BY
for and on behalf of
ELAN PHARMA INTERNATIONAL LIMITED




/S/
SIGNED BY
For and on behalf of
SHEFFIELD NEWCO LIMITED




/S/
AGREED TO AND ACCEPTED BY
SHEFFIELD PHARMACEUTICALS, INC.

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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