DEVELOPMENT AGREEMENT
                                     (AAI)


         This Agreement is made and entered into as of the 4th day of April,
1995, by and between Applied Analytical Industries, Inc. (hereinafter, "AAI"),
a Delaware corporation, having its principal place of business at 1206 North
23rd Street, Wilmington, North Carolina, 28405, and Aesgen, Inc. (hereinafter,
the "Company"), a Delaware corporation having its principal place of business
at 5051 New Centre Drive, Wilmington, North Carolina 28403.


                              W I T N E S S E T H

         WHEREAS, the Company has requested AAI to assist it in the development
of certain pharmaceutical products by providing pharmaceutical services; and

         WHEREAS, AAI has agreed to assist the Company in the development of
said pharmaceutical products by providing requested pharmaceutical services.

         NOW THEREFORE, for and in consideration of the mutual covenants and
agreements set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto do
hereby agree as follows:


                                   ARTICLE I

                                  DEFINITIONS

         DEFINED TERMS.  As used in this Development Agreement (hereinafter
"Agreement"), the following terms shall have the meanings described below:

         1.1     "AAI INVENTIONS" shall mean any and all new and useful
compositions of matter, articles of manufacture, processes, methods of
manufacture, methods of analysis or methods of use pertaining to ACTIVE
INGREDIENTS or NEW PRODUCTS, or methods of manufacture or use of any thereof,
which directly relate to or are based on AAI TECHNICAL INFORMATION and which
are conceived and/or first reduced to practice during the conduct of the
DEVELOPMENT SERVICES pursuant to this Agreement by AAI.

         1.2     "AAI TECHNICAL INFORMATION" shall mean all of the intellectual
property rights developed, owned or possessed by AAI and related to any NEW




<PAGE>   2

DEVELOPMENT AGREEMENT
Page 2 of 26


PRODUCT, including, without limitation, the information, technology, trade
secrets, copyrights, patents, commercial and technical know how, methods of
synthesis, methods of analysis, manufacturing processes, designs, data,
specifications and any discoveries and inventions whether patentable or not,
utilized in making, formulating, compounding, mixing, processing, testing,
controlling, developing, improving, modifying, preserving, storing, finishing,
packaging, using or selling each NEW PRODUCT, but excepting NEW PRODUCT
SUBMISSION PACKAGES, COMPANY TECHNICAL INFORMATION and COMPANY INVENTIONS.

         1.3     "ACT" shall mean the Federal Food Drug and Cosmetic Act, as
amended.

         1.4     "ACTIVE INGREDIENTS" shall mean one or more ingredients
contained in a NEW PRODUCT which provide an intended pharmacologic or
therapeutic effect.

         1.5     "ANDA" shall mean an Abbreviated New Drug Application as
provided for in Section 505(j) of the ACT and as set forth in 21 CFR Part 314,
as amended.

         1.6     "ANNUAL BUDGET" shall mean a budget prepared by AAI and the
Company which establishes the Company's estimated monthly requirements of
DEVELOPMENT SERVICES and related expenses for the upcoming calendar year.  The
ANNUAL BUDGET shall be submitted on or prior to December 31, of each calendar
year and shall be attached hereto and incorporated herein as part of EXHIBIT
"A."  The initial ANNUAL BUDGET for the period ending December 31, 1995, which
has been approved by the parties hereto, is attached as Exhibit "A".

         1.7     "BIOEQUIVALENCE" shall mean the absence of a significant
difference in the rate and extent to which the active ingredient or active
moiety in PHARMACEUTICAL EQUIVALENTS or PHARMACEUTICAL ALTERNATIVES becomes
available at the site of drug action when administered at the same molar dose
under similar conditions; or, in the case of PHARMACEUTICAL EQUIVALENTS or
PHARMACEUTICAL ALTERNATIVES with an intentionally different rate (e.g., certain
controlled release dosage forms) that is not essential to the attainment of
effective body drug concentrations on chronic use and is considered medically
insignificant for the drug, the absence of a significant difference in the
extent to which the active ingredient or moiety from each product becomes
available at the site of drug action, as more fully set forth and described in
21 CFR Part 320, as amended.

         1.8     "CLINICAL STUDIES" shall mean bioequivalence studies and/or
pilot studies designed to provide clinical information to assist in the
development of clinical bioequivalence protocols and bioanalytical methods as
more fully described in each SERVICE ESTIMATE.





<PAGE>   3

DEVELOPMENT AGREEMENT
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         1.9     "CLINICAL SUPPLIES" shall mean NEW PRODUCTS, ACTIVE
INGREDIENTS, COMPARATIVE INGREDIENTS, or PLACEBOS prepared for administration
to patients in CLINICAL STUDIES or use in cGMP stability studies furnished by
the Company directly, or manufactured, acquired or segregated by AAI for the
account of the Company as herein provided.

         1.10    "COMMERCIALIZE" shall mean the commercial exploitation of a
NEW PRODUCT through (i) manufacturing and selling the NEW PRODUCT (ii)
licensing some or all the commercial rights to the NEW PRODUCT to third
parties, (iii) entering into a joint venture, partnership or other business
combination regarding the manufacture and/or marketing of a NEW PRODUCT, or
(iv) some other arrangement to produce revenue from a NEW PRODUCT.

         1.11    "COMPANY INVENTIONS" shall mean any and all new and useful
compositions of matter, articles of manufacture, processes, methods of
manufacture, methods of analysis or methods of use pertaining to ACTIVE
INGREDIENTS or NEW PRODUCTS, or methods of manufacture or use of any thereof,
which directly relate to or are based on COMPANY TECHNICAL INFORMATION and
which are conceived and/or first reduced to practice during the conduct of the
DEVELOPMENT SERVICES pursuant to this Agreement by AAI.

         1.12    "COMPANY TECHNICAL INFORMATION" shall mean that portion of the
intellectual property rights developed, owned or possessed by the Company that
are disclosed to AAI by the Company and related to any NEW PRODUCT, including,
without limitation, the information, technology, trade secrets, copyrights,
patents, commercial and technical know how, methods of synthesis, methods of
analysis, manufacturing processes, designs, data, specifications and any
discoveries and inventions whether patentable or not, utilized in making,
formulating, compounding, mixing, processing, testing, controlling, developing,
improving, modifying, preserving, storing, finishing, packaging, using or
selling each NEW PRODUCT, but excepting AAI TECHNICAL INFORMATION and AAI
INVENTIONS.

         1.13    "COMPARATIVE INGREDIENTS" shall mean either ACTIVE INGREDIENTS
or pharmaceutical products containing ACTIVE INGREDIENTS which are intended to
be compared to one or more NEW PRODUCTS.

         1.14    "CURRENT GOOD MANUFACTURING PRACTICES" or "cGMP" shall mean
those current good manufacturing practice regulations established in 21 CFR
Parts 210 and 211, as amended.





<PAGE>   4

DEVELOPMENT AGREEMENT
Page 4 of 26


         1.15    "DEVELOPMENT SERVICES" shall mean those formulation
development, clinical production, pharmaceutical testing, regulatory,
consulting and project management services which AAI may provide to the Company
upon request under the terms and conditions of this Agreement.

         1.16    "FDA" shall mean the United States Food and Drug
           Administration.

         1.17    "FDA APPROVAL" shall mean a marketing approval for commercial
distribution of a NEW PRODUCT in the United States pursuant to Section 505 of
the ACT, as amended.

         1.18    "INITIAL PRODUCTS" shall mean the NEW PRODUCTS which the
Company and AAI have initially agreed to develop for and on behalf of the
Company pursuant to the terms and conditions of this Agreement and which are
set forth on Schedule 1 attached hereto and incorporated herein.

         1.19    "MANUFACTURING MATERIALS" shall mean all ACTIVE INGREDIENTS,
COMPARATIVE INGREDIENTS and PLACEBOS in bulk or semi-finished state, inactive
materials, ingredients, excipient, capsules, etc., and all packaging and
labeling components and materials furnished by the Company directly, or
manufactured, acquired or segregated by AAI for the account of the Company as
herein provided, for use in the preparation of CLINICAL SUPPLIES.

         1.20    "NEW PRODUCT" or collectively "NEW PRODUCTS" shall mean any
one or more pharmaceutical products as AAI and the Company may mutually agree
upon in writing from time to time, to be developed by AAI pursuant to the terms
and conditions of this Agreement for and on behalf of the Company, including
the INITIAL PRODUCTS.  NEW PRODUCTS shall be set forth on Schedule 1 attached
hereto and incorporated herein as amended.

         1.21    "NEW PRODUCT SUBMISSION PACKAGE" or collectively "NEW PRODUCT
SUBMISSION PACKAGES" shall mean those documents relating to a NEW PRODUCT,
produced or prepared by AAI in the performance of DEVELOPMENT SERVICES,
including written or otherwise recorded records, reports, test results, data,
batch records, regulatory applications and filings.

         1.22    "PHARMACEUTICAL ALTERNATIVE" shall mean a product that, in
comparison to a lawfully marketed product, contains the identical therapeutic
moiety, or its precursor, but not necessarily in the same amount or dosage form
or as the same salt or ester, and that individually meets either the identical
or its own respective compendial or other applicable standard of identity,
strength, quality, and





<PAGE>   5

DEVELOPMENT AGREEMENT
Page 5 of 26


purity, including potency and, where applicable, content uniformity,
disintegration times and/or dissolution rates.

         1.23    "PHARMACEUTICAL EQUIVALENT" shall mean a product that, in
comparison to a lawfully marketed product, contains identical amounts of the
identical active drug ingredient, i.e., the same salt or ester of the same
therapeutic moiety, in identical dosage forms, but not necessarily containing
the same inactive ingredients, and that meets the identical compendial or other
applicable standard of identity, strength, quality, and purity, including
potency and, where applicable, content uniformity, disintegration times and/or
dissolution rates.

         1.24  "PLACEBOS" shall mean one or more compositions in dosage form
having no predicted therapeutic or prophylactic effect.

         1.25  "SERVICE ESTIMATE" shall mean a written agreement between the
Company and AAI covering the scope and total estimated cost of DEVELOPMENT
SERVICES to be performed on an individual NEW PRODUCT.  Each SERVICE ESTIMATE
will be appended to and made part of this Agreement.

         1.26  "THERAPEUTICALLY EQUIVALENT" shall mean a pharmaceutically
equivalent product meeting the necessary requirements set forth by the FDA to
qualify as therapeutically equivalent to a marketed comparison product as
published in the current issue of the FDA Approved Products with Therapeutic
Equivalence Evaluations or equivalent publication.


                                   ARTICLE II

                              DEVELOPMENT SERVICES

         Section 2.0      DEVELOPMENT SERVICES.  AAI agrees to utilize best
commercially reasonable efforts, consistent with sound scientific principles,
in providing DEVELOPMENT SERVICES for and on behalf of the Company to develop
and obtain regulatory approval for NEW PRODUCTS within the United States.
DEVELOPMENT SERVICES for each NEW PRODUCT will be performed in a commercially
reasonable manner pursuant to a SERVICE ESTIMATE and all DEVELOPMENT SERVICES
shall be performed in accordance with applicable CURRENT GOOD MANUFACTURING
PRACTICES and other agreed upon specifications, terms and conditions as set
forth in each SERVICE ESTIMATE.  AAI shall notify the Company in advance of any
anticipated material changes in the scope of services provided under a SERVICE
ESTIMATE.  The Company shall have the right to accept





<PAGE>   6

DEVELOPMENT AGREEMENT
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or reject any such proposed deviations from the then current SERVICE ESTIMATE.
No material change of the scope of services provided under a SERVICE ESTIMATE
and associated change in the estimated cost thereof shall be implemented before
AAI has received from the Company written agreement to such change and to any
resulting change in the ANNUAL BUDGET.  Similarly, the Company shall notify AAI
of any anticipated material changes in the scope of the DEVELOPMENT SERVICES
under a SERVICE ESTIMATE it desires to effect.  The material change will only
be effected upon the mutual written agreement of the parties which shall
constitute an amendment to the SERVICE ESTIMATE's scope of work and estimated
cost.  Subject to the foregoing, the Company reserves the right to alter the
DEVELOPMENT SERVICES being conducted under any SERVICE ESTIMATE subject to its
agreement to the resulting change in estimated cost.  AAI shall provide the
Company with progress reports with regard to its DEVELOPMENT SERVICES at such
times and in such manner as the Company may reasonably request.  AAI shall
promptly advise the Company in writing at any time that it determines that the
estimated costs of performing services under a SERVICE ESTIMATE will exceed by
20% or more the costs set forth in such SERVICE ESTIMATE.

         The parties may mutually agree to develop pharmaceutical products in
addition to the INITIAL PRODUCTS, in which case, the parties shall amend
Schedule 1 of this Agreement accordingly.

         During the term of this Agreement, AAI shall not develop, for its own
account or for any person or entity (other than the Company), any formulation
of a product intended to be THERAPEUTICALLY EQUIVALENT to the reference product
of a NEW PRODUCT; provided, however, that the foregoing restriction shall not
apply:  (i) with respect to a NEW PRODUCT, if the Company has terminated the
development of such NEW PRODUCT hereunder pursuant to Section 7.2 hereof, (ii)
in any country at any time one and one-half years after the first commercial
sale of such NEW PRODUCT in such country if the applicable government authority
has approved ANDA's (or similar documents applicable in such country) for two
or more products in addition to the NEW PRODUCT THERAPEUTICALLY EQUIVALENT to
the reference product of such NEW PRODUCT, (iii) with respect to services
performed by AAI pursuant to an agreement entered into by AAI prior to the
execution of the written agreement by AAI and the Company identifying such NEW
PRODUCT as contemplated by Section 1.20 or (iv) with respect to any NEW PRODUCT
that the Company shall have retained any other firm to perform the services
contemplated hereby pursuant to Section 2.8.  Subject to the foregoing sentence
and Articles III and VIII herein, the parties hereto acknowledge that AAI is
not restricted hereby from performing non-formulation services for its own
account or for third parties with respect to pharmaceutical products.  The
parties further acknowledge that AAI may also provide services




<PAGE>   7

DEVELOPMENT AGREEMENT
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(including formulation services) similar to those contemplated herein for other
parties or for its own account with respect to pharmaceutical products other
than products that are intended to be THERAPEUTICALLY EQUIVALENT to the
reference product of any of the NEW PRODUCTS.  In providing DEVELOPMENT
SERVICES herein, AAI may, but shall not be obligated to, consider appropriate
third-party technologies for use in one or more NEW PRODUCT, and AAI shall
promptly advise the Company on each occasion of its consideration of using such
technologies and the anticipated costs and benefits of the use of such
technologies.  AAI shall not acquire or license such third-party technology for
use in a NEW PRODUCT unless AAI and the Company mutually agree to the terms and
conditions of such acquisition or license, including AAI's reimbursement for
any AAI cost associated with the same.

         Section 2.1      DEVELOPMENT ACTIVITIES.  As requested by the Company,
AAI will provide DEVELOPMENT SERVICES for each NEW PRODUCT including, but not
limited to, (i) drug substance and raw material characterizations; (ii)
formulation development; (iii) analytical method development and validation;
(iv) sourcing and auditing raw material suppliers; (v) establishing raw
material, finished product and packaging specifications; (vi) producing
laboratory scale development batches; and (vii) finished dosage form
characterizations and stability studies.  Data generated from development
activities will be collected and presented in a format suitable for support of
a NEW PRODUCT ANDA.

         Section 2.2      CLINICAL PRODUCTION.  As requested by the Company and
subject to AAI's existing production capability and capacity, AAI shall produce
quantities of a NEW PRODUCT as mutually agreed upon for use in CLINICAL
STUDIES.  Clinical production services shall be provided in accordance with
CURRENT GOOD MANUFACTURING PRACTICES and shall include developing manufacturing
procedures, batch records, packaging and labeling instructions, release
specifications, and quality assurance procedures.

                 (a)      INFORMATION.  As requested by the Company, AAI shall
         submit relevant production records to the Company, including the
         product formulation, master batch record, specifications, analytical
         results and related supporting documentation.

                 (b)      MANUFACTURING MATERIALS.  AAI shall acquire
         MANUFACTURING MATERIALS identified by the Company required for the
         preparation of CLINICAL SUPPLIES.  AAI's obligation to obtain said
         MANUFACTURING MATERIALS or CLINICAL SUPPLIES on behalf of the Company
         is subject to market availability.





<PAGE>   8

DEVELOPMENT AGREEMENT
Page 8 of 26


                 (c)      VENDOR AUDITS.  As requested by the Company, AAI
         will, at the Company's expense, conduct MANUFACTURING MATERIALS vendor
         audits.

                 (d)      CONTROL SAMPLES.  AAI shall retain control samples for
         lots of CLINICAL SUPPLIES which it has produced for appropriate
         inspection by the Company or the FDA.

                 (e)      DISPOSAL OF MANUFACTURING MATERIALS AND CLINICAL
         SUPPLIES.  AAI shall safely dispose of, and the Company shall pay the
         cost for the safe disposal of, any MANUFACTURING MATERIALS or CLINICAL
         SUPPLIES requiring disposal according to all applicable federal, state
         and local laws and regulations.

                 (f)      MANUFACTURING SITE.  As requested by the Company, AAI
         shall, at the Company's expense, assist the Company in qualifying
         manufacturing sites for production.

         Section 2.3      CLINICAL STUDIES.  The Company shall select suitable
clinical research organizations ("CRO") to conduct appropriate CLINICAL
STUDIES; it being understood at this time that the Company has retained
Minservco, Inc. to perform such CLINICAL STUDIES.  AAI shall assist with
coordinating material requirements of the CLINICAL STUDIES, including CLINICAL
SUPPLIES, with the CRO.

         Section 2.4      REGULATORY SERVICES.  AAI shall (i) respond to
regulatory questions related to services performed by AAI; (ii) attend meetings
with appropriate regulatory agencies, if necessary, to facilitate FDA APPROVAL
of the NEW PRODUCT ANDA; and, (iii) upon successful conclusion of the CLINICAL
STUDIES demonstrating a NEW PRODUCT's BIOEQUIVALENCE, prepare an ANDA for such
NEW PRODUCT.  Subject to Section 8.1, AAI will provide necessary authorization
letters to government agencies granting the Company the right to reference
appropriate AAI Drug Master Files.  At least five (5) business days prior to
the intended submission to the FDA by AAI of any substantive correspondence,
documentation or other information ("Communications") regarding the NEW
PRODUCTS or the ANDAs with respect thereto, AAI shall submit copies of such
Communications to the Company for review and inform the Company of the intended
date of submission of the same to the FDA.  Prior to such date, the Company
shall have the right to comment on such Communications and to suggest
reasonable changes thereto, and the parties shall negotiate in good faith with
respect to the inclusion in the Communications of any such requested changes.
Anything herein to the contrary notwithstanding, AAI shall not submit any
Communications to the FDA regarding the NEW PRODUCTS or the ANDA's with respect
thereto without the prior written approval of the Company,



<PAGE>   9

DEVELOPMENT AGREEMENT
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except such Communications (i) as are required by applicable regulatory
requirements, (ii) which relate solely to AAI, or (iii) which are routine
nonsubstantive communications with the FDA.  Within three (3) business days of
receipt from the FDA or submission to the FDA of any Communications relating to
the NEW PRODUCTS or the ANDA's, AAI shall provide copies of the same to the
Company.

         Section 2.5      PROJECT MANAGEMENT.  Both parties recognize that
providing DEVELOPMENT SERVICES will require AAI project management services
including (i) project oversight through a multidisciplinary management team
responsible for evaluating and approving development protocols prior to
implementation and (ii) individual project coordination through project teams.
Each such project shall be assigned an AAI team leader who will maintain
overall responsibility for coordination of the project.  The AAI team leaders
will coordinate their efforts with the project manager appointed by the
Company.  Anything herein to the contrary notwithstanding, the Company shall
have ultimate responsibility and authority over the design and development of
any NEW PRODUCTS.

         Section 2.6      AUDIT RIGHTS.  The Company shall have the right to
audit all services performed by AAI on the Company's behalf, including, but not
limited to, (i) the right to review all medical standards, medical practices
and medical ethics as they relate to the performance of the DEVELOPMENT
SERVICES; and (ii) the right to examine and assess compliance with timelines
and cost estimates set forth in each SERVICE ESTIMATE.  Such an audit will be
conducted according to reasonable notice and at a reasonable time specified by
AAI.

         Section 2.7      INSPECTIONS.  Both parties recognize that the FDA may
request AAI, or other persons or entities engaged by or working under the
directions of AAI, to produce records, data and materials relating to NEW
PRODUCTS and CLINICAL SUPPLIES as the result of ANDA submissions or as the
subject of FDA inspections.  In such instances, AAI shall notify the Company of
such requests, and the Company shall have the right, to the extent practicable,
to send a representative immediately to participate in the compilation of such
records, data and materials as well as be present during FDA inspections in so
far as the subject matter of the inspections relates to the MANUFACTURING
MATERIALS, NEW PRODUCTS or CLINICAL SUPPLIES, or any of the DEVELOPMENT
SERVICES to be provided hereunder.

         Section 2.8      EXCLUSIVITY; RIGHT OF FIRST REFUSAL.  AAI shall be
the Company's exclusive provider of DEVELOPMENT SERVICES for the INITIAL
PRODUCTS during the term of this Agreement; provided, however, that in the
event that the board of directors of the Company, prior to the execution of a
SERVICE ESTIMATE for a NEW PRODUCT, determines in good faith following
reasonable




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DEVELOPMENT AGREEMENT
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investigation that the expense to the Company for services provided or to be
provided by AAI hereunder with respect to such NEW PRODUCT have or would
significantly exceed the price of reasonably comparable services available from
a reasonably comparable firm, the Company may retain any such other firm to
perform the services contemplated hereunder with respect to such NEW PRODUCT.
Except as permitted by the proviso of the foregoing sentence, the Company shall
not contract with any third party to obtain services to develop any product
that the Company wishes to design or develop, unless the Company shall have
first negotiated on an exclusive basis with AAI for a period of not less than
sixty (60) days as to a good faith proposal for the performance by AAI of
DEVELOPMENT SERVICES on terms and conditions substantially identical to those
to be provided hereunder.

         Section 2.9      PRIOR SERVICES.  Prior to the execution of this
Agreement, AAI has performed DEVELOPMENT SERVICES with respect to certain of
the INITIAL PRODUCTS at the Company's request.  AAI hereby transfers and
assigns to the Company all such intellectual property rights as the Company
would have obtained pursuant to this Agreement if all such services had been
performed hereunder.  The parties agree that they shall execute such further
agreements, documents and instruments necessary to effect such transfer.  In
addition, the Company shall promptly pay to AAI an amount equal to the amount
that would be chargeable by AAI hereunder if such services had been performed
pursuant to the terms hereof, except that the hourly rates for services
performed prior to March 1, 1995 shall be chargeable at the rates originally
agreed upon by AAI and the Company as set forth in Schedule 2.9 attached
hereto.


                                  ARTICLE III

                             OWNERSHIP AND LICENSES

         SECTION 3.1      COMPANY RIGHTS.  The Company shall have the sole and
exclusive worldwide right, title and interest in and to the NEW PRODUCT
SUBMISSION PACKAGES, MANUFACTURING MATERIALS, CLINICAL SUPPLIES and all other
physical materials and specimens produced for or acquired by AAI on behalf of
the Company.  The Company shall retain all rights, title and interest to
COMPANY TECHNICAL INFORMATION and COMPANY INVENTIONS and shall have the
exclusive right to use, sell and otherwise COMMERCIALIZE the COMPANY TECHNICAL
INFORMATION and COMPANY INVENTIONS for any and all purposes.  AAI grants to the
Company an irrevocable, perpetual, royalty-free, nonexclusive, worldwide
license, with the right to sublicense, in and to the AAI TECHNICAL INFORMATION
and AAI INVENTIONS to the extent necessary to test, make, have made, use, sell,
and





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DEVELOPMENT AGREEMENT
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otherwise COMMERCIALIZE the NEW PRODUCTS.  The COMPANY shall not have title or
any ownership right or interest in AAI TECHNICAL INFORMATION or AAI INVENTIONS,
and shall not utilize AAI TECHNICAL INFORMATION or AAI INVENTIONS except to
test, make, have made, use and sell the NEW PRODUCTS pursuant to the license
granted in this Section 3.1.

         SECTION 3.2      AAI RIGHTS.  AAI shall retain all rights, title and
interest in and to AAI TECHNICAL INFORMATION and AAI INVENTIONS and shall
retain the sole and exclusive right to use, sell and otherwise COMMERCIALIZE
the AAI TECHNICAL INFORMATION and AAI INVENTIONS except as expressly provided
for in Section 3.1 above. AAI shall have no license, right or interest
whatsoever in or to any NEW PRODUCT SUBMISSION PACKAGES, COMPANY TECHNICAL
INFORMATION or COMPANY INVENTIONS, except to the extent necessary for AAI to
provide DEVELOPMENT SERVICES hereunder for and on behalf of the COMPANY.
Notwithstanding the foregoing, the parties recognize that AAI shall have the
right to independently develop, without reference to any NEW PRODUCT SUBMISSION
PACKAGE, COMPANY TECHNICAL INFORMATION or COMPANY INVENTIONS, documents which
are substantially similar to the documents within a NEW PRODUCT SUBMISSION
PACKAGE for its own account or on behalf of third parties.

         The Company shall have full responsibility and authority for the
COMMERCIALIZATION of any NEW PRODUCT to or with third parties, and this
Agreement shall not create in the Company any continuing obligation to promote,
market, sell, license or otherwise exploit any NEW PRODUCT.  AAI shall not
promote, market, sell or otherwise seek to COMMERCIALIZE any NEW PRODUCT.
Nothing in this Agreement shall restrict AAI from developing competing
technologies or products for its own account or for and on behalf of third
parties, subject to the ownership and confidentiality provisions set forth in
this Article III and Article VIII, respectively, and the restriction on the
formulation of certain products that may compete with the NEW PRODUCTS as set
forth in Section 2.0.

         Neither party may publicly use any trademark, servicemark, trade name
or logo (or any adaptation thereof) of the other party or any affiliate,
employee or agent thereof, without prior written consent of such other party
which consent may be withheld by such other party in its sole and absolute
discretion.  The foregoing notwithstanding, it is understood and agreed that
reports resulting from services provided hereunder may identify AAI as the
source of the reports.

         Section 3.3      NEW PRODUCT SUBMISSION PACKAGE CONFIDENTIALITY. Each
NEW PRODUCT SUBMISSION PACKAGE will be subject to the confidentiality
obligations of Article VIII herein.





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DEVELOPMENT AGREEMENT
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                                   ARTICLE IV

                      SERVICES PERFORMED BY THIRD PARTIES

         The parties hereto recognize that AAI may have to subcontract with
third party contractors for the performance of certain services agreed upon
hereunder.  AAI shall be permitted to do so provided AAI gives the Company
prior written notice of its intention to do so and the Company approves such
subcontractors and the fees and compensations to be paid to them.  The Company
shall not unreasonably withhold or delay its approval.

         Section 4.1      SUBCONTRACTOR CONFIDENTIALITY.  Subcontractors shall
be hired on an independent contractor basis and shall be bound to maintain all
information, methodologies and technologies relating to the Company's projects
as confidential.  AAI will procure confidentiality agreements from
subcontractors protecting the Company's proprietary and confidential
information prior to disclosure of such information and providing that services
performed thereunder are performed as a "work-for-hire" and that all data,
information, discoveries and inventions, whether patentable or not, and related
documentation generated by the subcontractors for and on behalf of AAI shall be
the exclusive property of AAI, or the Company where COMPANY TECHNICAL
INFORMATION is involved, subject to the license in AAI INVENTIONS and AAI
TECHNICAL INFORMATION granted by AAI to the Company pursuant to Article III
hereof.

         Section 4.2      MONITORING SUBCONTRACTORS.  AAI shall monitor
subcontractors during the course of performance of contracted work and shall
incorporate the results of those services into its development efforts and
regulatory submissions as appropriate.


                                   ARTICLE V

                         PUAYMENT FOR SERVICES RENDERED

         Section 5.1      FEES AND EXPENSES.  The Company shall pay for
services rendered and related expenses hereunder according to the following
terms and conditions:

                 (a)      SERVICE CHARGES.  AAI shall charge the Company for
         DEVELOPMENT SERVICES rendered according to an annual schedule of
         hourly





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DEVELOPMENT AGREEMENT
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         rates.  At the commencement of this Agreement, the following schedule
         of hourly rates are in effect:

<TABLE>
<CAPTION>
                 Position                                       Hourly Rate
                 --------                                       -----------
                 <S>                                                <C>
                 Senior Formulator  . . . . . . . . . . . . . . .   $165
                 Senior Chemist . . . . . . . . . . . . . . . . .   $150
                 Chemist  . . . . . . . . . . . . . . . . . . . .   $125
                 Regulatory Affairs Support . . . . . . . . . . .   $150
                 FDL Technician . . . . . . . . . . . . . . . . .   $125
                 Management and Project Team Meetings . . . . . .   $500
</TABLE>

         Beginning December 1995 and in each subsequent December during the
         term of this Agreement, the parties will review the schedule of rates
         then in effect pursuant to this Agreement and negotiate in good faith
         any prospective adjustment to the rates to be charged hereunder;
         provided, however, that during the annual periods ending December 31,
         1997 and thereafter, the percentage increase in the hourly rates to be
         charged hereunder in any year from the hourly rates in effect for the
         immediately preceding year shall not exceed the greater of (i) the
         percentage increase between the same periods in the all-cities
         Consumer Price Index as published by the United States Bureau of Labor
         Statistics, or (ii) the percentage increase between the same periods
         in AAI's wage and employee benefit expenses for its employees
         performing services at the hourly rates set forth above.  AAI shall
         furnish the Company such information as the Company may reasonably
         request to support any increase under the preceding clause (ii).

         The parties recognize that certain routine technical functions are
         charged according to standard fractional hourly units (e.g., 0.2
         hours) for administrative convenience.

                 (b)      TRAVEL AND OUT-OF-POCKET EXPENSES.  AAI anticipates
         that certain travel and out-of-pocket expenses will be incurred during
         the performance of its duties hereunder.  The Company agrees to pay
         for ordinary and necessary travel and other incidental expenses
         incurred in providing DEVELOPMENT SERVICES provided however that AAI
         shall not incur any such individual expense greater then Five Thousand
         Dollars ($5,000) without the Company's prior approval which shall not
         unreasonably be withheld.





<PAGE>   14

DEVELOPMENT AGREEMENT
Page 14 of 26


                 (c)      FACILITIES CHARGES.  The Company agrees to pay
         standard flat rate daily fees for utilization of production and
         storage facilities temporarily dedicated exclusively to the
         development of NEW PRODUCTS hereunder.

                 (d)      MATERIALS AND HANDLING CHARGES.  The Company agrees
         to pay a fifteen percent (15%) handling fee for all MANUFACTURING
         MATERIALS or supplies acquired, pursuant to Section 2.2(b) of this
         Agreement, for or on behalf of the Company by AAI.

                 (e)      SUBCONTRACTORS.  The Company agrees to pay AAI for
         approved subcontracted services at cost and the supervision, auditing,
         and coordination of such subcontractors at the hourly rates set forth
         in Section 5.1(a).

                 (f)      RATES AND CHARGES.  AAI represents, warrants and
         covenants that the hourly rates, facilities charges and material
         handling charges to be charged to the Company for services hereunder,
         as the same shall change from time to time, shall be reasonably within
         the range of rates normally charged to AAI's customers for whom AAI
         provides services comparable to those to be provided to the Company
         hereunder.

                 (g)      ACQUISITION OR LICENSE OF THIRD PARTY TECHNOLOGY.
         The Company agrees to pay any costs (including royalty obligations)
         AAI may sustain based on the acquisition or licensing of any
         third-party technology related to the DEVELOPMENT SERVICES as mutually
         agreed to pursuant to Article II hereof.

         Section 5.2      ANNUAL BUDGET.  Prior to January 1 of each calendar
year during the term of this Agreement, AAI agrees to use reasonable and
diligent efforts to prepare, and submit to the Company for review and approval,
an ANNUAL BUDGET establishing in reasonable detail the Company's estimated
monthly requirements of DEVELOPMENT SERVICES for the upcoming calendar year
based on approved SERVICE ESTIMATES.  Upon approval by the Company, the ANNUAL
BUDGET will be attached hereto and incorporated herein as EXHIBIT "A."  AAI
shall provide notice to the Company of any significant variance from the
current ANNUAL BUDGET.

                 (a)      MONTHLY PAYMENT.  On or before the first day of each
         month, AAI shall invoice the Company for budgeted service fees and
         expenses for that month as established in the then current approved
         ANNUAL BUDGET.  The invoiced amount will be due thirty days after
         receipt.  AAI shall apply these funds against amounts due and payable
         to AAI by the Company under the





<PAGE>   15

DEVELOPMENT AGREEMENT
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         terms and conditions of this Agreement.  AAI shall maintain accurate
         accounting records of the Company's monthly payments and deductions
         therefrom for services rendered and expenses incurred.

                 (b)      RECONCILIATION OF MONTHLY PAYMENTS AND CHARGES.
         Monthly payments shall be reconciled against AAI's cumulative service
         fees and expenses semi-annually on each July 15 and January 15 during
         the term for the preceding months of this Agreement.  In the event a
         reconciliation results in a credit or debit balance to the Company's
         account, it shall be handled as follows:

                          (i)     Credit Balances.  In the event the Company's
                 cumulative monthly payment to AAI exceeds the cumulative
                 service fees and expenses accrued through the date of
                 reconciliation,  AAI shall issue a credit to the Company in
                 the amount of the overpayment which shall be applied to the
                 Company's succeeding monthly payment obligations pursuant to
                 the ANNUAL BUDGET until such credit is exhausted.  In the
                 event that there are no remaining monthly payment obligations
                 to be performed by the Company, AAI shall pay the Company the
                 credit balance immediately upon demand by the Company.

                          (ii)    Debit Balances.  In the event the Company's
                 cumulative monthly payments to AAI are less than the
                 cumulative service fees and expenses accrued through the date
                 of reconciliation, the Company shall pay AAI the debit balance
                 within thirty (30) days of the Company's receipt of an invoice
                 for such underpayment amount.

                          (iii)   Should any part of the reconciliation be in
                 dispute, the Company and AAI, as the case may be, covenants to
                 pay or credit the undisputed amount according to the terms and
                 conditions described herein while said dispute is being
                 resolved.

         Section 5.3      AUDIT RIGHTS.  The Company shall have the right, upon
reasonable notice and at its own expense, during AAI's performance of
DEVELOPMENT SERVICES, and for a period of three (3) years thereafter, to
conduct an audit of services fees and expenses charged to the Company for such
services.  The audit shall be conducted by a certified public accountant
selected by the Company.  AAI shall keep a complete and accurate account of
expenses charged to the Company and shall allow the examination of such records
by the selected accountant during regular business hours.  Such audits shall be
performed no more frequently than annually.





<PAGE>   16

DEVELOPMENT AGREEMENT
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                                   ARTICLE VI

                         LIABILITY AND INDEMNIFICATION

         Section 6.1      LIABILITY OF AAI FOR DEVELOPMENT SERVICES.  The
parties agree that AAI's liability to the Company for claims arising from or
relating to the DEVELOPMENT SERVICES with respect to each single NEW PRODUCT
dosage form under this Agreement shall be limited to the amount of compensation
which AAI has received from the Company for DEVELOPMENT SERVICES rendered
hereunder relating to that particular NEW PRODUCT dosage form.  AAI shall not
be liable to the Company for injuries sustained by third parties;  special,
indirect or consequential damages; or any cost associated with a NEW PRODUCT's
recall.  Any test results, reports or analysis provided by AAI shall only be
for consideration and use by the Company in the design and development of the
NEW PRODUCTS, and AAI shall not be responsible for the adoption, use,
implementation or results of such test results, reports or analysis.

         Section 6.2      INDEMNIFICATION OF AAI.  The Company shall indemnify
and hold harmless AAI, its directors, officers, shareholders, agents, employees
and affiliates from any loss, expense and liability, including reasonable
attorney's fees arising from or in connection with the use or application by
the Company or any third party of any formulas, test results, analysis or other
information furnished by AAI hereunder or with the distribution or sale of any
NEW PRODUCT or CLINICAL SUPPLIES developed under this Agreement; provided,
however, that the Company shall not be obligated to provide such
indemnification if, when and to the extent that it is finally judicially
determined that the loss, expense or liability results from the gross
negligence or willful misconduct of AAI.  Each person or entity seeking
indemnification hereunder shall promptly notify the Company of any loss,
expense or liability for which the Company may be liable hereunder and shall
permit the Company a reasonable opportunity to cure any underlying problem to
mitigate actual or potential damages, and to participate in, or assume the
defense of, any third-party claim or action.  In the event that the Company
chooses to assume the defense of any third-party claim or action, the Company
shall provide the indemnified persons with notice of the progress of such
defense.  The Company further agrees that it will not, without prior written
consent of the indemnified persons, which consent shall not be unreasonably
withheld or delayed, settle, compromise or consent to the entry of any judgment
or award in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder.  The rights of AAI
hereunder shall be an addition to any other rights that AAI or any other
indemnified





<PAGE>   17

DEVELOPMENT AGREEMENT
Page 17 of 26


person may have, at law or otherwise, including, but not limited to, any right
to contribution.

         Section 6.3      SURVIVAL.  The covenants and obligations of
indemnification set forth herein shall survive the expiration or termination of
this Agreement.

         Section 6.4      INSURANCE.

                 (a)      At AAI's written request prior to commencing CLINICAL
         STUDIES, the Company agrees that it will acquire and maintain clinical
         research insurance coverage reasonably satisfactory to AAI, but not
         less than $10,000,000 per occurrence, which indemnifies AAI for any
         and all liability arising out of defects in the design, marketing,
         promotion, sale, delivery, resale or use of any NEW PRODUCT.

                 (b)      At AAI's written request prior to commencing
         COMMERCIALIZATION of a NEW PRODUCT, the Company agrees that it will
         acquire and maintain product liability insurance coverage reasonably
         satisfactory to AAI, but not less than $10,000,000 per occurrence,
         which indemnifies AAI for any and all liability arising out of defects
         in the design, marketing, promotion, sale, delivery, resale or use of
         any NEW PRODUCT.

                 (c)  All policies of insurance obtained pursuant to Section
         6.4(a)-(c) shall be primary and non- participating and shall name AAI
         and any affiliate identified by AAI as additional insureds thereunder.
         Additionally, all such policies shall include an endorsement waiving
         the insurance company's rights of subrogation against AAI and any
         affiliates identified by AAI.  The policies of insurance required
         under this Section 6.4 shall be valid and enforceable policies issued
         by insurers of recognized responsibility.  The Company shall deliver
         to AAI evidence of the insurance required by this Section 6.4 at AAI's
         request.

                 (d)  AAI shall purchase and maintain at all times during the
         term of this Agreement key man life insurance on the life of Frederick
         D. Sancilio in a death benefit amount of not less than $1,000,000.
         AAI shall deliver to the Company evidence of such insurance at the
         Company's request.





<PAGE>   18

DEVELOPMENT AGREEMENT
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                                  ARTICLE VII

                              TERM AND TERMINATION

         Section 7.1      TERM OF AGREEMENT.  Unless sooner terminated in a
manner herein provided, this Agreement shall continue for a period of eight (8)
years.

         Section 7.2      TERMINATION.  The rights and obligations of the
Company and AAI under this Agreement can be terminated in accordance with
Section 7.1 or:

                 (a)      upon the written consent of both the Company and AAI;

                 (b)      by either party, if the other applies for, consents
         to or acquiesces in the appointment of a trustee or a receiver for
         itself or its property, or in the absence of such application, consent
         or acquiescence, a trustee or receiver is appointed for the other
         party or for the property of the other party or if any bankruptcy,
         reorganization or other proceeding under any bankruptcy or insolvency
         law is instituted by or against the other party;

                 (c)      by either party, upon the failure of the other to
         comply with any of the material provisions of this Agreement provided,
         however, no such right of termination shall be available under this
         Section 7.2(c) unless the aggrieved party has first served upon the
         non-complying party written notice of such non-compliance and such
         non-compliance remains uncorrected for a period of sixty (60) days
         after receipt of such notice; or

                 (d)      by AAI, upon AAI's determination in its reasonable
         judgment that its performance hereunder or any of its affiliates,
         whether considered alone or in combination with other activities and
         services provided by AAI or its affiliates, conflicts with or violates
         (i) any statute, rule, regulation or decree of any court,
         administrative agency or government body (including, without
         limitation, the National Institutes of Health) to which it may be
         subject, or (ii) ethical standards or principles applicable to the
         pharmaceutical industry.


In addition to the foregoing, the development of any NEW PRODUCT and any
SERVICE ESTIMATE related thereto may be terminated by the Company at any time
by written notice to AAI.  Unless otherwise agreed by the parties hereto, at
the date of the termination of this Agreement subject to Section 8.1 hereof,
AAI shall deliver to the Company copies of, and transfer rights as contemplated
hereby in, all written or otherwise recorded records, reports, test results,
data, batch records, regulatory





<PAGE>   19

DEVELOPMENT AGREEMENT
Page 19 of 26


applications and filings prepared by or on behalf of AAI with respect to all
NEW PRODUCTS then in development under this Agreement, and, unless directed in
writing by the Company to dispose of any of the following in accordance with
the procedures set forth in Section 2.2(e) hereof, all specimens and samples of
formulation prepared by or on behalf of AAI in the development of NEW PRODUCTS,
all control samples for lots of Clinical Supplies, and all Manufacturing
Materials, to the extent the foregoing is then in the possession or control of
AAI.  Upon termination by the Company of the development of any NEW PRODUCT and
any SERVICE ESTIMATE related thereto, or upon termination of the Agreement by
either party pursuant to this Article VII, the Company shall be obligated to
pay the cost of all work completed and expenses incurred through the effective
date of termination in accordance with this Agreement, including AAI's cost of
all materials and services previously acquired or contracted for which AAI
cannot readily utilize in other day-to-day operations, net of the proceeds of
sale or salvage, and, subject to the foregoing, the parties agree to make
appropriate adjustments to the ANNUAL BUDGET and to reduce the Company's
monthly payment obligations thereunder.  Except for termination by AAI pursuant
to Section 7.2(b) or (c), the license granted by AAI pursuant to Section 3.1
shall survive the expiration or termination of this Agreement.


                                  ARTICLE VIII

                                CONFIDENTIALITY

         Section 8.1      NONDISCLOSURE.  The following provided by one party
to this Agreement (the "Disclosing Party") and received by the other party to
this Agreement (the "Receiving Party") shall be deemed confidential:

                 (i)      All confidential and proprietary business or
         technical documentation, materials, knowledge or other information
         directly or indirectly related to the Company or its business which is
         provided by the Company to AAI pursuant to this Agreement;

                 (ii)     All AAI  TECHNICAL INFORMATION, AAI INVENTIONS,
         COMPANY TECHNICAL INFORMATION, COMPANY INVENTIONS, NEW PRODUCT
         SUBMISSION PACKAGES, MANUFACTURING MATERIALS or CLINICAL SUPPLIES; and

                 (iii)    Any other AAI or Company proprietary information or
         trade secrets of a party to this Agreement provided to the other party
         during the term of this Agreement.





<PAGE>   20

DEVELOPMENT AGREEMENT
Page 20 of 26



         Such confidential information shall be safeguarded by the Receiving
Party, shall not be disclosed to third parties or used for any purpose other
than as permitted herein and shall be made available only to the Receiving
Party employees, subcontractors or consultants who have a need to know for the
purposes specified under this Agreement.  These obligations of confidentiality
shall apply during the term of this Agreement, and shall survive the
termination of this Agreement, but such obligations shall not apply to any
information to the extent that such information:

                 (a)      is or hereafter becomes generally available to the
         public other than by reason of any default with respect to a
         confidentiality obligation under this Agreement;

                 (b)      is disclosed to the Receiving Party by a third party
         who is not in default of any confidentiality obligation to the
         Disclosing Party; or

                 (c)      is conceived by the Receiving Party independent of
         the DEVELOPMENT SERVICES being provided pursuant to this Agreement.

         Notwithstanding the restrictions on confidential information set forth
above, either party may use or disclose confidential information to the extent
that such confidential information:

                 (a)      is submitted to governmental agencies to facilitate a
         NEW PRODUCT's FDA APPROVAL hereunder or to support the marketing of an
         approved NEW PRODUCT provided that reasonable measures shall be taken
         to assure confidential treatment of such information;

                 (b)      is provided to third party subcontractors under
         appropriate terms and conditions including confidentiality provisions
         at least as stringent as those in this Agreement;

                 (c)      is required to be disclosed in compliance with
         applicable laws or regulations in connection with the manufacture or
         sale of a NEW PRODUCT; provided that the Receiving Party provides the
         Disclosing Party with notice of intended disclosure as far in advance
         as possible under the circumstances; or

                 (d)      is otherwise required to be disclosed in compliance
         with applicable laws, regulations or policies of the FDA or any other
         applicable governmental agency or authority or order by a court or
         other regulatory body having competent jurisdiction; provided that the
         Receiving Party provides the





<PAGE>   21

DEVELOPMENT AGREEMENT
Page 21 of 26


         Disclosing Party with notice of intended disclosure as far in advance
         as possible under the circumstances.

Upon expiration or earlier termination of this Agreement and upon payment in
full under Article V and Section 7.2 hereto, but subject to Articles III and IV
hereof, the Receiving Party shall return to the Disclosing Party all records
and any compositions, articles, devices, equipment and other items which
disclose or embody all of the Disclosing Party's confidential information,
including all copies or specimens thereof, whether prepared by the Receiving
Party, any subcontractors or others, except for such records and other items
which the Receiving Party or such third-parties, as the case may be, are
required to retain in accordance with applicable law including FDA guidelines
or information subject to FDA review.  Notwithstanding the foregoing, the
Receiving Party may retain  copies of such records for archival purposes only.
The Receiving Party agrees that the provisions of this Article VIII are
necessary and reasonable to protect the Disclosing Party (or any other entity
which succeeds, in whole or in part, to the Disclosing Party) in the conduct of
its business.  The Receiving Party acknowledges that damages at law may be an
inadequate remedy for the breach of any of the covenants contained in this
Article VIII and, accordingly, in addition to any of the remedies which the
Disclosing Party would otherwise be entitled, the Disclosing Party shall be
entitled to seek injunctive relief for breach by the Receiving Party of any of
the provisions contained herein.


                                   ARTICLE IX

                         REPRESENTATIONS AND WARRANTIES

         Section 9.1      MUTUAL REPRESENTATIONS AND WARRANTIES.  Each of AAI
and the Company represents and warrants to the other that:

                 (a)  it is a corporation duly organized, validly existing and
         in good standing under the laws of the State of its incorporation,
         with all requisite corporate power and authority to consummate the
         transactions contemplated hereunder;

                 (b)  the execution, delivery and performance of this Agreement
         have been duly authorized by all necessary corporate action;

                 (c)  this Agreement has been duly executed and delivered and
         constitutes a valid and legally binding agreement and obligation of
         such party, enforceable against it in accordance with the terms
         thereof;





<PAGE>   22

DEVELOPMENT AGREEMENT
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                 (d)  the execution and delivery of this Agreement and the
         consummation of the transactions contemplated hereunder do not and
         will not conflict with or violate any provisions of law or the
         Certificate of Incorporation or By-laws of such party, and do not and
         will not conflict with or result in the breach of any condition or
         provision of, or constitute a default under, or result in the creation
         or imposition of any lien upon any of the property or assets of such
         party by reason of the terms of any contract, mortgage, lien, lease,
         agreement, indenture, instrument or judgment to which it is a party,
         or which is, or purports to be, binding upon it, or which affects, or
         purports to affect, any of its properties or assets, and no action by
         any governmental department, commission, board, bureau or
         instrumentality is necessary to make this Agreement valid and binding
         upon such party hereto in accordance with its terms; and

                 (e)  it possesses all permits, licenses and other governmental
         approvals necessary to perform its obligations hereunder and will
         comply fully with the terms and conditions of all such permits,
         licenses and other approvals and with all federal, state and local
         statutes and regulations applicable to its facilities and the
         performance of its obligations hereunder.

         Section 9.2      ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
OF AAI.  AAI further represents, warrants and covenants to the Company that (i)
all DEVELOPMENT SERVICES shall be performed in accordance with all applicable
federal, state and local laws, codes, ordinances, rules and regulations
(including cGMP) and (ii) in its performance of DEVELOPMENT SERVICES and the
preparation and delivery to the Company of any test results, reports, analysis
or other work product, AAI shall not willfully infringe, misappropriate or
otherwise willfully violate any patents, patent applications, trademarks,
copyrights, trade secrets, know-how or other intellectual property rights of
any third party recognized in any jurisdiction.

         Section 9.3      CONTINUING NATURE OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties contained herein shall be true and correct
as of the date hereof and at all times during the term of this Agreement or any
extensions or renewals thereof as though continuously made.





<PAGE>   23

DEVELOPMENT AGREEMENT
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                                   ARTICLE X

                           CORRESPONDENCE AND NOTICE

         Until advised in writing to the contrary by the intended recipient,
documentation, reports, communications, and notices hereunder shall be
effective upon receipt and shall be addressed to:

         Aesgen:          Aesgen, Inc.
                          5051 New Centre Drive
                          Wilmington, NC  28403
                          (Attention:  President)

         AAI:             Applied Analytical Industries, Inc.
                          1206 North 23rd Street
                          Wilmington, NC 28405
                          (Attention:  General Counsel)


                                   ARTICLE XI

                                 GOVERNING LAW

         This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of North Carolina.


                                  ARTICLE XII

                                 MISCELLANEOUS

         Section 12.1     LIMITATIONS OF RIGHTS.  Except as expressly provided
for in this Agreement, nothing contained herein shall be construed as
conferring any license or other rights, by implication, estoppel or otherwise,
under any patent (including design and utility patents) or patent applications,
or any copyrights, trademarks, trade names or trade dress.  This Agreement is
made only to benefit the parties hereto, and no third party shall have any
rights, interests or benefits hereunder.

         Section 12.2     WAIVER.  The failure of either party hereto at any
time or times to require performance of any provision hereof shall in no manner
affect the right of such party at a later time to enforce the same.  No waiver
by any party hereto





<PAGE>   24

DEVELOPMENT AGREEMENT
Page 24 of 26


of any condition, or of the breach of any provision, term, covenant,
representation, or warranty contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be or construed as
a further or continuing waiver of any such condition or of the breach of any
other provision, term, covenant, representation or warranty of this Agreement.

         Section 12.3     PAROL EVIDENCE.  This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof as of
its date and supersedes all prior agreements, negotiations, representations and
proposals, written and oral, relating to its subject matter.

         Section 12.4     SEVERABILITY. If a court or other tribunal of
competent jurisdiction holds any term or provision, or portion thereof, of this
Agreement to be invalid, void or unenforceable, the remaining provisions of
this Agreement shall remain in full force and effect.  It is the parties'
intention that if a court or other tribunal holds any term or provision of this
Agreement to be excessive in scope, such term or provision shall be adjusted
rather than voided, if possible.

         Section 12.5     MODIFICATION.  This Agreement may not be amended or
modified except by written instrument signed by AAI and the Company.

         Section 12.6      COOPERATION.  Each party will execute and deliver
all such instruments and perform all such other acts as the other party may
reasonably request to carry out the transactions contemplated by this
Agreement.

         Section 12.7     FORCE MAJEURE.  Neither AAI nor the Company shall be
liable for delay or failure in the performance of the obligations contained in
this Agreement caused solely by any one or more of the following:  (a) acts of
God, or public enemy or war (declared or undeclared); (b) acts of governmental
or quasi-governmental authorities of the United States, or any political
subdivision thereof, or of any department or agency thereof, or regulations or
restrictions imposed by law or by court action, except as they may result from
the unreasonable failure of AAI or the Company to perform as required
hereunder; (c) acts of persons engaged in subversive activities or sabotage;
(d) fires, floods, explosions or other catastrophes; (e) strikes or similar
labor disruptions; (f) epidemics or quarantines restrictions; (g) freight
embargoes or interruption of transportation; (h) unusually severe weather; (i)
delays of a supplier of either party due to any of the above causes or events;
or (j) any other extraordinary causes, similar or dissimilar, beyond the
reasonable control of the party concerned; and provided that due diligence is
exercised to cure such cause and resume performance, and the time for
performance by such party shall be extended by the period of any such delay.





<PAGE>   25

DEVELOPMENT AGREEMENT
Page 25 of 26



         Section 12.8     BINDING EFFECT.  Subject to the restrictions on
transfers, assignments and encumbrances set forth herein, this Agreement shall
inure to the benefit of and be binding upon the undersigned parties, their
respective legal successors and assigns.

         Section 12.9     ASSIGNMENT.  Neither party shall assign its rights
under this Agreement without the prior written consent of the other party.

         Section 12.10    FURTHER ASSURANCES.  Each of the parties hereto
agrees to execute such instruments and take such further action, if any, as may
be reasonably requested by the other party to assure such requesting party of
the rights and benefits intended by this Agreement.

         Section 12.11    RELATIONSHIP.  The relationship between the parties
established by this Agreement is solely that of independent contractors.
Neither party is in any way the legal representative, partner or agent of the
other, nor is either party authorized or empowered to create or assume any
obligation of any kind, implied or expressed, on behalf of the other party,
without the prior written consent of the other.

         Section 12.12    ARBITRATION.  Any controversy or claim arising out of
or relating to this Agreement or the transactions contemplated hereby, or the
breach hereof or thereof, shall be settled by arbitration in Wilmington, North
Carolina in accordance with the Rules of the American Arbitration Association
by an Arbitrator appointed in accordance with the Rules.  The Arbitrator shall
follow the law governing this Agreement.  Judgment upon the award may be
entered by any court having jurisdiction.

         Section 12.13    OWNERSHIP OF OTHER ENTITIES.  During the term of this
Agreement, AAI shall not own or acquire an ownership interest in any entity
principally engaged in the business of developing or manufacturing generic
pharmaceutical products, other than ownership of shares of capital stock of
GenerEst, Inc., a Delaware corporation, or of any entity that is not controlled
by AAI.  For the purposes hereof, an entity shall be deemed to be controlled by
AAI if AAI has the power or authority to direct the management or policies of
such entity, whether through voting control, the ability to designate the
directors or general partners or persons exercising similar managerial
authority over such entity, by contract or otherwise.

         Section 12.14    COUNTERPARTS.  This Agreement may be executed in one
or more counterparts, each of which will be considered one and the same
Agreement.





<PAGE>   26

DEVELOPMENT AGREEMENT
Page 26 of 26


                  [Remainder of page left blank intentionally]





<PAGE>   27

DEVELOPMENT AGREEMENT
Page 27 of 26


         IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the date and year first
written above.



APPLIED ANALYTICAL INDUSTRIES, INC.


By:      /s/ Frederick D. Sancilio
------------------------------------------
         Frederick D. Sancilio, Ph.D.
         President

Attest

By:      /s/ R. Forrest Waldon
------------------------------------------
         R. Forrest Waldon
         Secretary



AESGEN, INC.


BY:      /s/ Richard F. Brubaker
------------------------------------------
         Chief Executive Officer

Attest:


By:      /s/ R. Forrest Waldon
------------------------------------------
         R. Forrest Waldon
         Secretary

Source: OneCLE Business Contracts.