10-K405

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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
         For the fiscal year ended DECEMBER 31, 1996

   

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
         For the transition period from _______________ to _______________

Commission file number 0-24274

                         LA JOLLA PHARMACEUTICAL COMPANY
             (Exact name of registrant as specified in its charter)

                                                                            
                             DELAWARE                                                       33-0361285
(State or other jurisdiction of incorporation of organization)                 (I.R.S. Employer Identification No.)



                   6455 NANCY RIDGE DRIVE, SAN DIEGO, CA 92121
                     Address of principal executive offices
                                 (619) 452-6600
               Registrant's telephone number, including area code

                                                                      
Securities registered pursuant to Section 12(b) of the Act:              None

Securities registered pursuant to Section 12(g) of the Act:              Common Stock, par value $0.01
                                                                         Warrants



         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [X]

         The aggregate market value of the voting stock held by non-affiliates
of the Registrant, computed by reference to the closing price of such stock on
the Nasdaq Stock Market on March 17, 1997, was $84,239,488. The number of shares
of the Registrant's common stock, $.01 par value, outstanding at March 17, 1997
was 17,279,895.


                       DOCUMENTS INCORPORATED BY REFERENCE

         Part III incorporates certain information by reference from the
Registrant's definitive proxy statement for its annual meeting of stockholders
to be held on May 13, 1997, which proxy statement will be filed on or about
March 31, 1997.

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                           FORWARD-LOOKING STATEMENTS


         This Report includes forward-looking statements, including without
limitation those dealing with the Company's drug development plans and clinical
trials, its relationship with Abbott Laboratories ("Abbott"), and other matters
described in terms of the Company's plans and expectations. The forward-looking
statements in this Report involve risks and uncertainties, and a number of
factors, both foreseen and unforeseen, which could cause actual results to
differ from the Company's current expectations. The Company's ongoing Phase
II/III clinical trial of LJP 394, the Company's drug candidate for the treatment
of lupus, could result in a finding that LJP 394 is not effective in producing a
sustained reduction of dsDNA antibodies in large patient populations or does not
provide a meaningful clinical benefit. The Company's other potential drug
candidates are at earlier stages of development and involve comparable risks.
Payments by Abbott to the Company are contingent upon progress of clinical
trials and the Company's achievement of certain other milestones that might not
be met. The relationship with Abbott could be terminated by either party for
various reasons. Clinical trials could be delayed and could have negative or
inconclusive results. Additional risk factors include the uncertainty of future
revenue from product sales or other sources such as collaborative relationships,
the uncertainty of future profitability, the Company's dependence on patents and
other proprietary rights, the Company's limited manufacturing capabilities and
the Company's lack of marketing experience. Readers are cautioned not to place
undue reliance upon forward-looking statements, which speak only as of the date
hereof, and the Company undertakes no obligation to update forward-looking
statements to reflect events or circumstances occurring after the date hereof.
Interested parties are urged to review the risks described below under the
heading "Certain Risk Factors" and elsewhere in this Report and in other reports
and registration statements of the Company filed with the SEC from time to time.



                                     PART I

ITEM 1.  BUSINESS

OVERVIEW

         La Jolla Pharmaceutical Company is a biopharmaceutical company focused
on the research and development of highly specific therapeutics for the
treatment of certain life-threatening antibody-mediated diseases. These
diseases, including autoimmune conditions such as lupus and antibody-mediated
stroke, are caused by abnormal B cell production of antibodies that attack
healthy tissues. Current therapies for these autoimmune disorders only address
symptoms of the disease or nonspecifically suppress the normal operation of the
immune system, which often results in severe, adverse side effects and
hospitalization. The Company believes that its drug candidates, called
Toleragens, will treat the underlying cause of many antibody-mediated diseases
without these severe, adverse side effects. The Company is currently conducting
a Phase II/III pivotal clinical trial initiated in December 1996 for its lupus
drug candidate, LJP 394.

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ANTIBODY-MEDIATED DISEASES

         The immune system is the major biological defense mechanism responsible
for recognizing and fighting disease. The immune system identifies antigens,
such as bacteria, viruses and other disease-causing substances, and seeks to rid
the body of these antigens. There are two fundamental types of immune responses:
cell-mediated and antibody-mediated. Cell-mediated immunity is primarily
responsible for ridding the body of cells that have become infected.
Antibody-mediated immunity is primarily responsible for eliminating circulating
antigens. These immune responses are controlled by the activities of white blood
cells called T cells and B cells. T cells provide cell-mediated immunity and
regulate B cells. B cells produce antibodies that recognize and help to
eliminate antigens.

         Each B cell produces antibodies against a specific structure on the
antigen's surface called an epitope. The B cell is triggered to produce
antibodies when the specific epitope is recognized by and binds to the antibody
receptors on the surface of the B cell and only when the B cell receives an
appropriate signal from a T cell. When an epitope binds to the B cell with no
corresponding T cell signal, the B cell may become "tolerized" and cease to
produce antibodies.

         A properly functioning immune system distinguishes between antigens and
the body's healthy tissues. In a malfunctioning immune system, healthy tissue
may trigger an immune response that causes B cells to produce disease-causing
antibodies, resulting in antibody-mediated autoimmune disease. For example, B
cells can produce disease-causing antibodies that are associated with the
destruction of the kidneys in lupus and the wasting of muscles in myasthenia
gravis. Other antibody-mediated disorders include antibody-mediated stroke,
heart attacks, deep vein thrombosis, recurrent fetal loss, Rh hemolytic disease
of the newborn and Graves' disease.

         Current therapies for antibody-mediated diseases have significant
shortcomings, including severe side effects and a lack of specificity. Mild
forms of antibody-mediated diseases are generally treated with drugs that
address only the disease symptoms and fail to suppress disease progression
because they do not control the production of disease-causing antibodies. Severe
antibody-mediated diseases are generally treated with high levels of steroids
and immunosuppressive therapy (primarily anti-cancer drugs) which broadly
suppress the normal function of the entire immune system. These therapies can
leave patients susceptible to potentially life-threatening infections that may
require hospitalization. Repeated dosing with steroids may cause other serious
conditions, including diabetes, hypertension, cataracts, osteoporosis and
psychosis, that may limit the use of this therapy. The use of chemotherapy may
lead to acute problems, including weight loss and nausea, and long-term adverse
effects, including sterility and an increased risk of malignancies.

LJP'S TOLERANCE TECHNOLOGY PROGRAM

         The Company's Tolerance Technology program focuses on the discovery and
development of proprietary therapeutics, called Toleragens, which target and
suppress the production of specific disease-causing antibodies without affecting
the protective functions of the immune system. The Company believes that its
Toleragens will treat the underlying causes of antibody-mediated diseases, and
that its Tolerance Technology can be applied broadly wherever antibodies are
involved in the disease process.

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         Toleragens are composed of disease-specific epitopes and a carrier
platform, which are proprietary chemical structures developed and synthesized by
the Company. To mimic the unique epitopes on an antigen's surface, LJP
identifies and synthesizes epitopes specific to particular antibody-mediated
diseases and attaches or conjugates these epitopes to the carrier platform,
which serves as a vehicle for presenting the epitopes to the antibody receptors
on the targeted B cell. When the epitope binds to the antibody receptors on the
B cell in the absence of a T cell signal, the B cell may become tolerized and
cease to produce disease-causing antibodies. The Company believes that the
Toleragen carrier platform, or a modification thereof, can be used with epitopes
specific to other diseases to create additional therapeutics targeted at
different antibody-mediated diseases.

         The Company designs its Toleragens to bind selectively to
disease-causing B cells without affecting the function of disease-fighting B
cells. This process involves: (i) collecting and purifying the disease-causing
antibodies from patients with the targeted disease; (ii) generating and
selecting an epitope that strongly binds to the purified antibodies; (iii)
modifying the epitope's structure to maximize its binding properties
(optimization) and (iv) linking the optimized epitope to the carrier platform.
The Company believes this process enables the Company to create Toleragens that
will preferentially tolerize and shut down B cells that generate antibodies with
the highest binding affinity, which are believed to be the most harmful. To
achieve this process, the Company utilizes advanced technologies in order to
identify suitable epitopes that will bind to targeted disease-causing B cells.
These technologies include:

         Combinatorial Epitope Libraries. Since 1991, the Company has been
developing epitope libraries to provide a large and diverse pool of epitope
candidates for screening. Each library is a collection of billions of different
epitopes that are created by introducing random sequences of DNA into bacterial
viruses. These DNA sequences direct the viruses to express a wide variety of
epitopes on their surfaces. LJP has used these libraries in the development of
drug candidates for lupus, antibody-mediated stroke, heart attack, deep vein
thrombosis, recurrent fetal loss, Rh hemolytic disease and myasthenia gravis.

         Molecular Modeling Capabilities. The Company uses nuclear magnetic
resonance spectroscopy (NMR) and molecular modeling software to determine and
analyze important three-dimensional structural features of epitopes and the
related disease-causing antibodies. These capabilities permit further
optimization of epitopes to increase their binding to targeted B cells.

         Disease-Specific Screening Methods and Assays. The Company clones and
expresses receptors that are associated with the targeted disease to screen the
disease-causing antibodies from patient blood. After screening, these antibodies
are presented to the epitope libraries through a series of assays in order to
identify suitable epitope candidates. Using these methods, the Company more
rapidly and efficiently selects lead epitope candidates with the highest
antibody binding affinity.

         Chemical Optimization Expertise. The Company optimizes each lead
epitope candidate by changing its chemical structure. These changes to the
molecule increase its binding affinity and stability. The Company then attaches
multiple copies of the lead epitope to the carrier platform to create a
Toleragen. The Company's carrier platform technology provides a stable
presentation of multiple copies of the epitope in an optimal configuration that
increases binding affinity and thus tolerization of B cells.

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BUSINESS STRATEGY

         The Company's objective is to become the leading developer of highly
specific therapeutics for the treatment of life-threatening antibody-mediated
disorders such as lupus, antibody-mediated stroke, recurrent fetal loss, deep
vein thrombosis, Rh hemolytic disease of the newborn, myasthenia gravis, heart
attack and Graves' disease. The Company's strategy includes the following key
elements:

         Complete Clinical Development of LJP 394. The Company's primary
near-term goal is to complete development of LJP 394 to treat lupus. The Company
initiated a pivotal Phase II/III clinical trial in December 1996 to evaluate the
safety and efficacy of the drug in a larger population of patients.

         Apply Tolerance Technology to Life-threatening Antibody-mediated
Diseases. The Company is focusing on chronic, life-threatening antibody-mediated
diseases, such as lupus, for which there are no existing treatments or for which
current therapeutics have significant limitations. The Company intends to use
its Tolerance Technology to design therapeutics that specifically address other
targeted antibody-mediated diseases without adversely affecting normal immune
system function.

         Utilize Strategic Alliances to Develop and Commercialize Product
Candidates. The Company has a strategic alliance with Abbott for the worldwide
development and commercialization of LJP 394, and intends to seek appropriate
collaborations with other pharmaceutical companies to provide support for its
research programs and the clinical development and commercialization of other
drug candidates.

         Exploit Proprietary Manufacturing Technology. Through the production of
LJP 394 for clinical trials, the Company has developed proprietary synthesis and
conjugation technologies that are being used in the development of its other
Toleragen candidates. The Company intends to further develop these technologies
in order to increase manufacturing efficiencies and to apply its know-how to the
development and manufacture of other potential products.

         Expand Intellectual Property Leadership Position. The Company owns nine
issued patents and has filed 37 patent applications covering the Company's
Tolerance Technology and its lupus and antibody-mediated stroke drug candidates.
The Company plans to broaden this position with further discoveries and patent
filings.

PRODUCTS UNDER DEVELOPMENT

         The Lupus Program

         Lupus is a life-threatening antibody-mediated disease in which
disease-causing antibodies damage various tissues. According to recent
information compiled by the Lupus Foundation of America and other sources and
epidemiological studies conducted in the 1970s, the number of lupus patients in
the United States is between 250,000 and 1,000,000, with 16,000 new cases
diagnosed each year. Approximately nine out of 10 lupus patients are women, who
usually develop the disease during their childbearing years. Lupus is
characterized by a number of symptoms, including chronic kidney inflammation,
which can lead to kidney failure, and serious episodes of cardiac and central
nervous system inflammation, as well as arthritis and


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rashes. Approximately 80% of patients will progress to more serious disease
symptoms, and approximately 50% of lupus patients have renal involvement.

         Antibodies to double-stranded DNA ("dsDNA") can be detected in
approximately 90% of untreated lupus patients, and are widely believed to cause
kidney disease (nephritis), often resulting in morbidity and mortality in lupus
patients. These antibodies are also associated with episodes of potentially
life-threatening inflammation called flares, which may occur more than once per
year and usually require intensive care hospitalization. Significant kidney
destruction occurs during flares. Lupus nephritis can lead to deterioration of
kidney function and end-stage kidney disease, requiring long-term renal dialysis
or kidney transplantation.

         Current treatments for lupus patients with kidney disease and other
serious symptoms usually include repeated administration of steroids, often at
high levels that can have toxic effects when used as a chronic treatment
regimen. Many patients with advanced disease are also treated with
immunosuppressive therapy, including anti-cancer drugs, that have a general
suppressive effect on the immune system and may be carcinogenic. This
immunosuppressive treatment leaves the patient vulnerable to serious infection
and is a significant cause of morbidity and mortality.

         The Company has designed LJP 394 to suppress the production of
antibodies to dsDNA in lupus patients without suppressing the normal function of
the immune system. The design of LJP 394 is based upon scientific evidence of
the role of antibodies to dsDNA in lupus. A recent study indicated that a rise
in the level of antibodies to dsDNA may be predictive of flares in lupus
patients with renal involvement, and that suppressing antibodies to dsDNA by
treating these patients with steroids that non-specifically lower antibody
levels prevents relapses in a majority of patients. In a mouse model of lupus
nephritis that generates elevated levels of antibodies to dsDNA, administration
of LJP 394 reduced the production of antibodies to dsDNA, reduced the number of
antibody forming cells, and reduced kidney disease while extending the life of
the animals. The Company believes that its own and other studies provide
evidence that inhibiting antibodies to dsDNA may provide an effective therapy
for lupus nephritis.

         Certain studies of lupus patients indicate that antibodies to dsDNA
with the highest binding affinity are associated with the most damage to the
kidneys. The Company believes that its Tolerance Technology process
preferentially targets these antibodies.

         Results of Clinical Trials

         Based on its preclinical findings, the Company filed an IND application
for LJP 394 with the FDA in August 1994. In a double-blind, placebo-controlled
Phase I clinical trial in December 1994, healthy volunteers received LJP 394 and
displayed no significant drug-related adverse effects and no immune reaction to
the drug.

         The Company's Phase II clinical trials included a single-dose trial, a
repeat escalating-dose trial, and a dose-ranging trial. The single-dose clinical
trial evaluated the safety of a single, 100 mg intravenous dose of LJP 394 in
four female lupus patients by monitoring antibody levels, blood chemistry, vital
signs and complement (inflammation-promoting proteins) levels for 28 days after
dosing. LJP 394 was well tolerated by all four patients, with no drug-related
adverse clinical symptoms and no clinically significant complement level
changes. In addition, no clinically significant immune complex formation
(inflammation-promoting accumulation of


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antibodies and antigens) was observed, indicating the absence of an adverse
immune response to LJP 394. A transient reduction in dsDNA antibody levels was
also observed. These results were presented at the American College of
Rheumatology Conference in October 1995.

         The repeat escalating-dose clinical trial involved two female patients,
each receiving doses of 10, 10, 50, 50, 100 and 100 mg of LJP 394 at two-week
intervals. After the 10-week dosing regimen, patients were followed for six
weeks. LJP 394 was well tolerated with no drug-related adverse clinical
symptoms, no clinically significant complement changes, and no significant
immune complex formation. Six weeks after the last dose, the antibody levels in
both patients remained suppressed below baseline levels.

         The dose-ranging trial evaluated 58 patients with mild lupus symptoms
(53 females and five males). All patients were clinically stable and had dsDNA
antibody levels exceeding those generally found in healthy individuals. The
patients were organized into nine treatment groups at three dose levels (1 mg,
10 mg and 50 mg), and three frequencies (once per week, once every two weeks and
once every four weeks). Patients were randomized to one of the nine treatment
groups so that at each dose and frequency, four to seven patients received LJP
394 and one patient received a placebo.

         Patients in the weekly treatment groups showed a dose-response
correlation between increasing doses of LJP 394 and reductions of levels of
dsDNA antibodies. In patients treated weekly with 10 mg or 50 mg doses of LJP
394, antibodies to dsDNA were reduced by statistically significant levels and
remained suppressed in certain patients for up to two months after the last
dose. In the patient group treated weekly with 50 mg, the reductions in median
levels of dsDNA antibodies were accompanied by increases in median levels of two
important inflammation-related complement proteins, C3 and C4, which normally
decrease during active lupus renal disease and increase with clinical
improvement. These study data suggest that complement levels and antibody levels
were normalizing in parallel.

         Throughout the dose-ranging trial, the drug was well tolerated with no
clinically significant dose-related adverse reactions observed. Three patients
who began the study experienced lupus flares, and three other patients were
hospitalized as a result of transient adverse events that the treating
clinicians believed were unrelated to the underlying disease or LJP 394. Two of
the patients with flares withdrew from the study, as did four patients who
experienced exacerbations of lupus and one patient with herpes rash. However, no
relationship was observed between the development of an adverse event and the
dose or frequency of administration of LJP 394.

         In December 1996, the Company initiated a pivotal, multicenter Phase
II/III clinical trial of LJP 394 in an expanded population of approximately 300
lupus patients. The purpose of the trial is to evaluate the safety of the drug
and its potential to prevent renal flares, reduce disease severity and the need
for immunosuppressive steroids/chemotherapy drugs and hospitalization, and
improve patients' quality of life. The trial is being conducted in collaboration
with Abbott and is expected to take at least two years. This is a double-blind
trial and the Company does not expect to announce interim results. The trial and
the development of LJP 394 in general involve many risks and uncertainties, and
there can be no assurance that any interim clinical results can be replicated in
further clinical testing or that LJP 394 will be effective in inducing and
sustaining antibody suppression, will prove to be clinically safe or effective,
or will receive required regulatory approvals. If the Phase II/III trial
produces negative or inconclusive results,


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the Company's business and financial condition will be adversely affected and it
may be difficult or impossible for the Company to survive.

         Antibody-Mediated Stroke and Recurrent Fetal Loss

         Researchers believe that anticardiolipin antibodies promote arterial
and venous blood clots, which can cause a variety of life-threatening medical
problems. For example, blood clots that lodge in the brain cause stroke and
those that lodge in the legs cause deep vein thrombosis. There are at least six
diseases associated with these antibodies: antibody-mediated stroke, heart
attack, recurrent fetal loss, thrombocytopenia (platelet deficiencies), deep
vein thrombosis, and complications following cardiovascular surgery. The
Company's program to develop a Toleragen to treat anticardiolipin antibodies
targets stroke, myocardial infarction, deep vein thrombosis, post operative
complications, and recurrent fetal loss. These antibodies have been shown to
promote the formation of blood clots leading to multiple, recurring, and
potentially life threatening conditions.

         Stroke is a leading cause of death in the United States. In 1994, there
were approximately two million stroke patients in the United States,
approximately 500,000 new episodes occurred and approximately 150,000 people
died from stroke. This debilitating condition results from acute neurological
injury caused by the blockage or rupture of blood vessels in the brain. Many of
the blockages are caused by thromboses (blood clots), which clinicians believe
may be caused by a number of factors including a class of antibodies called
anticardiolipin antibodies, which can be identified and measured by a clinical
laboratory assay. It is estimated that 5 to 10% of the strokes in the United
States (affecting 100,000 to 200,000 patients) are caused by these antibodies.
Antibody-mediated stroke is thought to occur in younger individuals and with
greater frequency than non-antibody-mediated stroke. The cost of treatment for a
survivor of a serious stroke is approximately $30,000 per year for life,
consisting of hospitalization and home nursing care costs.

         Anticardiolipin antibodies are also associated with recurrent fetal
loss, a major cause of repeated miscarriage. Published clinical reports estimate
that many women with elevated anticardiolipin antibody levels experience
multiple miscarriages, delayed fetal development or premature childbirth.
Elevated levels of anticardiolipin antibodies are also found in approximately
30% of patients with other clotting disorders, including myocardial infarction
(heart attack), deep vein thrombosis, thrombocytopenia (platelet deficiency),
cardiac valve lesion as well as in approximately 30% of lupus patients. In
myocardial infarction, the relative risk of having an event or death is twice as
high in people with high anticardiolipin antibodies and this risk is independent
of other risk factors. In deep vein thrombosis, anticardiolipin antibody
positive patients have recurring deep vein thromboses twice as often as
anticardiolipin antibody-negative patients.

         Current treatments for antibody-mediated thrombosis involve the use of
steroids and chronic, potentially life-long anticoagulant therapy with drugs
such as heparin or warfarin to prevent the formation of blood clots. Patients
must be carefully monitored to minimize serious bleeding episodes which can
occur because of the therapy. If patients are removed from anticoagulant
therapy, they are at an increased risk of stroke or another thrombotic episode.
Warfarin is not recommended in the treatment of recurrent fetal loss because it
is toxic to the developing fetus.

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         The Company believes that a Toleragen that binds to B cells producing
anticardiolipin antibodies may suppress antibody production and prevent or
reduce antibody-associated blood clots. To develop such a Toleragen, the Company
established a supply of blood samples from representative stroke and recurrent
fetal loss patients and purified antibodies from these samples. We have used
these blood samples to identify several epitopes that react with a subset of
patients and have built one Tolergen candidate. We continue our efforts to
identify and optimize more broadly cross-reactive epitopes prior to developing a
potential Toleragen candidate.

         Rh Hemolytic Disease of the Newborn

         Rh hemolytic disease of the newborn is a life-threatening fetal
condition characterized by the hemolysis (destruction) of fetal red blood cells.
This condition occurs in Rh incompatible pregnancies in which maternal
antibodies to Rh cross the placenta, bind to fetal red blood cells and cause
their destruction. Rh is a family of proteins on the surface of red blood cells.
When the most common form of these proteins is present, the blood type is Rh(+),
and when it is absent, the blood type is Rh(-). A pregnancy is "Rh incompatible"
when the fetus is Rh(+) and the mother is Rh(-).

         Each year approximately 500,000 women in the United States have Rh
incompatible pregnancies. Despite current treatments that attempt to control
maternal immune systems with immunoglobulin, approximately 5,000 of these women
each year begin producing antibodies against fetal red blood cells and therefore
become part of the existing pool of patients who are at risk of developing Rh
hemolytic disease in a subsequent pregnancy. Every year approximately 5,000
women from this pool of patients have pregnancies that result in severe cases of
Rh hemolytic disease, which can result in loss of the fetus. This condition is
treated by intrauterine fetal blood transfusions and associated amniocentesis
procedures, which are usually repeated several times prior to birth, are risky
to the fetus and mother, and can cost more than $30,000 during the course of a
pregnancy. The Company believes that these women, as well as others who produce
Rh antibodies and avoid pregnancy altogether, could be treated with an Rh
Toleragen.

         The Company believes that a Toleragen that binds to the appropriate
maternal B cells will suppress Rh antibody production, and that once the level
of antibodies to Rh(+) red blood cells is reduced, the risk of life-threatening
hemolysis will be eliminated. LJP has purified antibodies to Rh from blood
samples taken from sensitized patients and has identified several epitopes bound
by antibodies to Rh. The Company is currently using its epitope libraries to
screen and further define these epitopes, with the expectation of using selected
epitopes to synthesize lead Toleragens.



         Other Antibody-Mediated Diseases

         The Company believes its Tolerance Technology may be applicable to many
diseases and conditions caused by the production of disease-causing antibodies,
including myasthenia gravis and Graves' disease. Myasthenia gravis is a form of
muscular paralysis in which neuromuscular receptors are attacked by antibodies,
which can lead to a wasting of muscles, progressive loss of strength and
life-threatening respiratory arrest. This disease affected an estimated 20,000
people in the United States in 1994. Graves' disease is caused by antibodies


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that bind to the thyroid stimulating hormone receptor and stimulate excessive
production of thyroid hormones, which results in hyperthyroidism (including
potentially life-threatening increases in heart rate, blood pressure and body
temperature). Graves' disease affected over one million people in the United
States in 1987. The Company has cloned human receptors for acetylcholine (for
myasthenia gravis) and thyroid stimulating hormone (for Graves' disease), which
can be used to purify antibodies from the blood of patients in order to identify
potential epitope candidates.

COLLABORATIVE ARRANGEMENTS

         As part of its business strategy, the Company pursues collaborations
with pharmaceutical companies in an effort to access their research, drug
development, manufacturing, marketing and financial resources. In December 1996,
the Company entered into a collaborative relationship with Abbott for worldwide
development and commercialization of LJP 394. Under the terms of a license and
supply agreement between Abbott and the Company, Abbott obtained the exclusive
right to market and sell LJP 394 throughout the world, and the Company retained
manufacturing rights and ownership of all of its patents relating to the drug.
Abbott will pay escalating royalties to the Company on sales of LJP 394, with
additional premiums payable if specified sales levels are achieved. Abbott will
also purchase the drug in bulk form from the Company at prices calculated as a
percentage of Abbott's net sales.

         Abbott will pay future clinical development costs and is responsible
for obtaining worldwide regulatory approvals. Pending regulatory approval,
Abbott and the Company will cooperate in development and clinical trials for the
drug, and Abbott will pay development costs incurred by the Company in
accordance with a development plan and budgets to be mutually agreed upon.
Abbott will handle marketing activities throughout the world, with cooperation
and assistance from the Company. The Company is obligated to develop appropriate
manufacturing capabilities and conduct patent prosecution in the major markets
of the world.

         Concurrently with the formation of the collaborative relationship,
Abbott made an initial $4 million license payment to the Company and purchased
1,000,050 shares of LJP's common stock for gross proceeds of $4.0 million.
Abbott is obligated to make milestone payments upon the attainment of various
performance and regulatory objectives and the Company has the right to require
Abbott to purchase up to $4.0 million in LJP common stock in each of calendar
1997 and 1998. Both Abbott and the Company have the right to terminate the
agreement under certain circumstances.

         The Company intends to pursue collaborative arrangements with other
pharmaceutical companies to assist in its research programs and the clinical
development and commercialization of other drug candidates. There can be no
assurance that the Company will be able to negotiate arrangements with any other
collaborative partners on acceptable terms, if at all, and any additional
collaborative relationships are likely to include contingencies comparable to
those affecting the Abbott relationship. Once a collaborative relationship is
established, there can be no assurance that the collaborative partner will
continue funding any particular program or will not pursue alternative
technologies or develop alternative drug candidates, either individually or in
collaboration with others, including the Company's competitors, as a means for
developing treatments for the diseases targeted by the Company. Furthermore,
competing products, either developed by a collaborative partner or to which a
collaborative partner has rights, may result in


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the withdrawal of support by the collaborative partner with respect to all or a
portion of the Company's technology.

         Failure to establish or maintain collaborative arrangements will
require the Company to fund its own research and development activities,
resulting in accelerated depletion of the Company's capital, and will require
the Company to develop its own marketing capabilities for any drug candidate
that may receive regulatory approval. The failure of any collaborative partner
to continue funding any particular program of the Company or to commercialize
successfully any product could delay or halt the development or
commercialization of any products involved in such program. As a result, failure
to establish or maintain collaborative arrangements could have a material
adverse effect on the Company's business, financial condition and results of
operations.

MANUFACTURING

         The Company has constructed and is presently operating a pilot
production plant for the manufacture of LJP 394 for clinical trials. Through
internal development programs and external collaborations, the Company has made
several improvements to the manufacturing process for LJP 394 that have reduced
costs and increased capacity, and the Company believes sufficient capacity now
exists to meet its anticipated research and clinical trial needs for LJP 394.
The Company has developed proprietary synthesis and conjugation technologies
that are being used in the development of its other Toleragen candidates. The
Company intends to further develop these technologies in order to increase
manufacturing efficiencies and apply its know-how to the development and
manufacture of other potential products.

         However, the Company's current facilities are not yet adequate for
commercial production. In order to meet its obligations to supply all LJP 394 in
bulk form to Abbott for packaging and commercial resale, the Company will be
required to invest substantial amounts of capital in the expansion of its
facilities. The manufacture of the Company's potential products for clinical
trials and the manufacture of any resulting products for commercial purposes is
subject to cGMP as defined by the FDA. The Company has never operated an
FDA-approved manufacturing facility, and there can be no assurance that it will
obtain the necessary approvals. The Company has limited manufacturing
experience, and no assurance can be given that it will be able to make the
transition to commercial production successfully. The Company may enter into
arrangements with contract manufacturers to expand its own production capacity
in order to meet requirements for its products, or to attempt to improve
manufacturing efficiency. If the Company chooses to contract for manufacturing
services and encounters delays or difficulties in establishing relationships
with manufacturers to produce, package and distribute its finished products,
clinical trials, market introduction and subsequent sales of such products would
be adversely affected. Moreover, contract manufacturers must operate in
compliance with the FDA's cGMP requirements. The Company's potential dependence
upon third parties for the manufacture of its products may adversely affect the
Company's profit margins and its ability to develop and deliver such products on
a timely and competitive basis.

MARKETING AND SALES

         In order to commercialize any drug candidate approved by the FDA, the
Company must either develop a marketing and sales force or enter into marketing
arrangements with third parties. Such arrangements may be exclusive or
nonexclusive and may provide for marketing


                                       11
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rights worldwide or in a specific market. Abbott has agreed to be responsible
for worldwide marketing of LJP 394, but the Abbott agreement may terminate under
certain circumstances and the Company has no arrangements with third parties for
marketing of any other drug candidates. There can be no assurance that the
Company will be able to enter into any additional marketing agreements on terms
favorable to the Company, if at all, or that any such agreements that the
Company may enter into will result in payments to the Company. Under the Abbott
agreement and any co-promotion or other marketing and sales arrangements that
may be entered into with other companies, any revenues to be received by the
Company will be dependent on the efforts of others and there can be no assurance
that such efforts will be successful. To the extent that the Company chooses to
attempt to develop its own marketing and sales capability, it will compete with
other companies that currently have experienced and well-funded marketing and
sales operations. Furthermore, there can be no assurance that the Company or any
collaborative partner will be able to establish sales and distribution
capabilities without undue delays or expenditures or gain market acceptance for
any of the Company's drug candidates.

PATENTS AND PROPRIETARY TECHNOLOGIES

         The Company files patent applications in the United States and in
foreign countries, as it deems appropriate, for protection of its proprietary
technologies and drug candidates. The Company owns nine issued patents and has
filed 37 patent applications covering its Tolerance Technology and its lupus and
antibody-mediated stroke drug candidates. The Company's issued patents include
four issued United States patents and one issued Australian patent concerning
its lupus Toleragens (expiring in 2009, 2011, 2013, 2014 and 2011,
respectively), one issued United States patent concerning its overall Tolerance
Technology (expiring in 2010) and one United States patent (expiring in 2012) on
linkage chemistries for its Toleragens. The Company has received Notices of
Intent to grant a European patent (expiring in 2011) on its lupus Toleragens and
a European patent (expiring in 2012) on its overall Tolerance Technology, and
has also received a Notice of Allowance from the Japanese patent office
(expiring in 2012) on its overall Tolerance Technology. The Company also has an
option to obtain the exclusive license to several issued United States patents
and related technology concerning compounds that may be used in the potential
treatment of muscular dystrophies or myasthenia gravis. The Company's decision
to exercise the option, which will require payment of a nonrefundable advance
against future royalties of $100,000, will be made based upon the results of
future studies of this technology.

         The Company's success will depend upon its ability to obtain patent
protection for its therapeutic approaches and for any developed products, to
preserve its trade secrets and to operate without infringing the proprietary
rights of third parties. While the Company has received patents covering certain
aspects of its technology, there can be no assurance that any additional patents
will be issued, that the scope of any patent protection will be sufficient, or
that any current or future issued patents will be held valid if subsequently
challenged.

         There is a substantial backlog of biotechnology patent applications at
the USPTO that may delay the review and issuance of any patents. The patent
position of biotechnology firms generally is highly uncertain and involves
complex legal and factual questions, and no consistent policy has emerged
regarding the breadth of claims covered in biotechnology patents or protection
afforded by such patents. To date, the Company has rights to certain United
States and foreign issued patents and has filed or participated as a licensee in
the filing of a number of patent applications in the United States relating to
the Company's technology, as well as foreign


                                       12
   13
counterparts of certain of these applications in certain countries. The Company
intends to continue to file applications as appropriate for patents covering
both its products and processes. There can be no assurance that patents will
issue from any of these applications, or that claims allowed under issued
patents will be sufficient to protect the Company's technology. Patent
applications in the United States are maintained in secrecy until a patent
issues, and the Company cannot be certain that others have not filed patent
applications for technology covered by the Company's pending applications or
that the Company was the first to invent, or to file patent applications for,
such technology. Competitors may have filed applications for, or may have
received patents and may obtain additional patents and proprietary rights
relating to, compounds or processes that block or compete with those of the
Company.

         A number of pharmaceutical and biotechnology companies and research and
academic institutions have filed or may file patent applications, and have
received or may receive patents, in the fields being pursued by the Company.
Certain of these applications or patents may be competitive with the Company's
applications or conflict in certain respects with claims made under the
Company's applications. In particular, the Company is aware of one currently
pending United States patent application that, if allowed, may contain claims
covering subject matter that may be competitive or conflicting with the
Company's patents and patent applications. Any conflict between the Company's
patents and patent applications and patents or patent applications of third
parties could result in a significant reduction of the coverage of the Company's
existing patents or any future patents that may be issued. In addition, to
determine the priority of inventions, the Company may have to participate in
interference proceedings declared by the USPTO or in opposition, nullity or
other proceedings before foreign agencies with respect to any of its existing
patents or patent applications or any future patents or applications, which
could result in substantial cost to the Company. Further, the Company may have
to participate at substantial cost in International Trade Commission proceedings
to abate importation of goods which would compete unfairly with products of the
Company. If patents containing competitive or conflicting claims are issued to
other parties and such claims are ultimately determined to be valid, there can
be no assurance that the Company would be able to obtain licenses to these
patents at a reasonable cost, if at all, or be able to develop or obtain
alternative technology.

         The Company also relies upon unpatented trade secrets and improvements,
unpatented know-how and continuing technological innovation to develop and
maintain its competitive position, which it seeks to protect, in part, by
confidentiality agreements with its commercial partners, collaborators,
employees and consultants. The Company also has invention or patent assignment
agreements with its employees and certain consultants. There can be no assurance
that relevant inventions will not be developed by a person not bound by an
invention assignment agreement, or that binding agreements will not be breached,
that the Company will have adequate remedies for any breach, or that the
Company's trade secrets will not otherwise become known or be independently
discovered by competitors. In addition, the Company could incur substantial
costs in defending against suits brought against it by others for infringement
of intellectual property rights or in prosecuting suits which the Company might
bring against other parties to protect its intellectual property rights.

COMPETITION

         The biotechnology and pharmaceutical industries are subject to rapid
technological change. Competition from domestic and foreign biotechnology
companies, large pharmaceutical


                                       13
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companies and other institutions is intense and expected to increase. A number
of companies are pursuing the development of pharmaceuticals in the Company's
targeted areas. [These include Genelabs Technologies, Inc., which is conducting
Phase III clinical trials of a hormone for the treatment of lupus, and other
competitors that are working on third-generation steroids.] Other companies are
in earlier stages of developing other potential therapies for lupus.

         In addition, there are many academic institutions, both public and
private, engaged in activities relating to research and development of
therapeutics for autoimmune, inflammatory and other diseases. Most of these
companies and institutions have substantially greater facilities, resources,
research and development capabilities, regulatory compliance expertise, and
manufacturing and marketing capabilities than the Company. In addition, other
technologies may in the future be the basis of competitive products. There can
be no assurance that the Company's competitors will not develop or obtain
regulatory approval for products more rapidly than the Company, or develop and
market technologies and products that are more effective than those being
developed by the Company or that would render the Company's technology and
proposed products obsolete or noncompetitive.

         The Company believes that its ability to compete successfully will
depend upon its ability to attract and retain experienced scientists, develop
patented or proprietary technologies and products, obtain regulatory approvals,
manufacture and market products either alone or through third parties, and
secure additional capital resources to fund anticipated net losses for at least
the next several years. The Company expects that competition among products
approved for marketing will be based in large part upon product safety,
efficacy, reliability, availability, price and patent position.

GOVERNMENT REGULATION

         The Company's research and development activities and the future
manufacturing and marketing of any products developed by the Company are subject
to significant regulation by numerous government authorities in the United
States and other countries. In the United States, the Federal Food, Drug and
Cosmetic Act and the Public Health Service Act govern the testing, manufacture,
safety, efficacy, labeling, storage, record keeping, approval, advertising and
promotion of any products the Company may develop. In addition to FDA
regulations, the Company is subject to other federal, state and local
regulations such as the Occupational Safety and Health Act and the Environmental
Protection Act as well as regulations governing the handling, use and disposal
of radioactive and other hazardous materials used by the Company in its research
activities. Product development and approval within this regulatory framework
takes a number of years and involves the expenditure of substantial resources.
In addition, this regulatory framework is subject to changes that may affect
approval, delay an application or require additional expenditures by the
Company.

         The steps required before a pharmaceutical compound may be marketed in
the United States include (i) preclinical laboratory and animal testing, (ii)
submission to the FDA of an IND application, which must become effective before
clinical trials may commence, (iii) adequate and well-controlled clinical trials
to establish the safety and efficacy of the drug, (iv) submission to the FDA of
an NDA and (v) FDA approval of the NDA prior to any commercial sale or shipment
of the drug. In addition to obtaining FDA approval for each product, each
domestic drug manufacturing establishment must be registered with, and approved
by, the FDA. Drug


                                       14
   15
product manufacturing establishments located in California also must be licensed
by the State of California in compliance with separate regulatory requirements.

         Preclinical testing includes laboratory evaluation of product chemistry
and animal studies to assess the safety and efficacy of the product and its
formulation. The results of preclinical testing are submitted to the FDA as part
of an IND and, unless the FDA objects, the IND will become effective 30 days
following its receipt by the FDA.

         Clinical trials involve administration of the drug to healthy
volunteers or to patients diagnosed with the condition for which the drug is
being tested under the supervision of a qualified clinical investigator.
Clinical trials are conducted in accordance with protocols that detail the
objectives of the study, the parameters to be used to monitor safety and the
efficacy criteria to be evaluated. Each protocol is submitted to the FDA as part
of the IND. Each clinical trial is conducted under the auspices of an
independent Institutional Review Board (the "IRB"). The IRB will consider, among
other matters, ethical factors, the safety of human subjects and the possible
liability of the institution.

         Clinical trials are typically conducted in three sequential phases, but
the phases may overlap. In Phase I, the initial introduction of the drug into
healthy human subjects, the drug is tested for safety (adverse effects), dosage
tolerance, metabolism, distribution, excretion and clinical pharmacology. Phase
II involves trials in a limited patient population to (i) characterize the
actions of the drug in targeted indications, (ii) determine drug tolerance and
optimal dosage and (iii) identify possible adverse side effects and safety
risks. When a compound is found to be effective and to have an acceptable safety
profile in Phase II clinical trials, Phase III clinical trials are undertaken to
further evaluate and confirm clinical efficacy and safety within an expanded
patient population at multiple clinical trial sites. The FDA reviews both the
clinical plans and the results of the trials and may discontinue the trials at
any time if significant safety issues arise.

         The results of preclinical testing and clinical trials are submitted to
the FDA in the form of an NDA or Product License Application for marketing
approval. The testing and approval process is likely to require substantial time
and effort and there can be no assurance that any approval will be granted on a
timely basis, if at all. In addition, the Company will be required to obtain
separate regulatory approval for each indicated use of a drug. The approval
process is affected by a number of factors, including the severity of the
disease, the availability of alternative treatments and the risks and benefits
demonstrated in clinical trials.

         Additional preclinical testing or clinical trials may be requested
during the FDA review period and may delay marketing approval. After FDA
approval for the initial indications, further clinical trials may be necessary
to gain approval for the use of the product for additional indications. The FDA
mandates that adverse effects be reported to the FDA and may also require
post-marketing testing to monitor for adverse effects, which can involve
significant expense.

         Among the conditions for FDA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
to the FDA's cGMP requirements. Domestic manufacturing facilities are subject to
biennial FDA inspections and foreign manufacturing facilities are subject to
periodic inspections by the FDA or foreign regulatory authorities.

                                       15
   16
         The Company is also subject to numerous and varying foreign regulatory
requirements governing the design and conduct of clinical trials and marketing
approval for pharmaceutical products to be marketed outside of the United
States. The approval procedure varies among countries and can involve additional
testing, and the time required to obtain approval may differ from that required
to obtain FDA approval. The foreign regulatory approval process includes all of
the risks associated with obtaining FDA approval, and approval by the FDA does
not ensure approval by the health authorities of any other country.

EMPLOYEES

         The Company has 84 full-time employees (including 18 Ph.D.s and
M.D.s.), 69 of whom are involved full-time in research, development and
manufacturing scale-up activities. All of the Company's management have had
prior experience with pharmaceutical, biotechnology or medical product
companies. The Company believes that it has been successful in attracting
skilled and experienced scientific personnel, but competition for such personnel
is intense and there can be no assurance that the Company will be able to
attract and retain the individuals needed. None of the Company's employees are
covered by collective bargaining agreements, and management considers relations
with the Company's employees to be good.

LEGAL PROCEEDINGS

         The Company is not a party to any legal proceedings.



                              CERTAIN RISK FACTORS

         The Company's business is subject to a number of risks, including but
not limited to the following. Additional risks related to the Company are
described in the preceding sections of this Report and in the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

UNCERTAINTIES RELATED TO CLINICAL TRIALS

         The Company must demonstrate that LJP 394, the Company's only drug
candidate in clinical trials, is safe and effective for use in each target
indication prior to applying for any regulatory approvals in any market. The
results from preclinical testing and clinical trials of LJP 394 conducted to
date may not be indicative of results that may be obtained in further clinical
trials. A number of companies in the biopharmaceutical industry have suffered
significant setbacks in advanced clinical trials, even after promising results
in earlier trials. The rate of completion of the Company's clinical trials may
be delayed by many factors, including slower than anticipated patient
enrollment, a slower timetable as determined by the Company or a collaborative
partner, or any other adverse event. During the course of clinical trials,
patients can die or suffer other adverse medical effects for reasons that may
not be related to the pharmaceutical agent being tested but which can
nevertheless affect clinical trial results. There can be no assurance that the
Company will be permitted by regulatory authorities in the U.S. or any other
country to undertake additional clinical trials of LJP 394 or to initiate
clinical trials of any other drug candidates, or that any clinical trials
undertaken by the Company will be completed successfully within any particular
time period, if at all. Any delays in, or termination of, the Company's
clinical trial efforts would have a material adverse effect on the Company's


                                       16
   17
business, financial condition and results of operations. There also can be no
assurance that LJP 394 or any other drug candidate of the Company will prove to
be safe or effective in clinical trials, that LJP 394 or any other drug
candidate of the Company will receive regulatory approval in any market for any
indication, or that any clinical trials undertaken by the Company will result in
marketable products. If LJP 394 is not shown to be safe and effective in
clinical trials, the resulting delays in developing any other drug candidate and
conducting related preclinical testing and clinical trials, as well as the need
for additional financing, would have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business --
Products Under Development -- Results of Clinical Trials."

EARLY STAGE OF PRODUCT DEVELOPMENT; TECHNOLOGICAL UNCERTAINTIES

         All of the Company's product development efforts are based upon
unproven technologies and therapeutic approaches that have not been widely
tested or used. To date, the Company's Tolerance Technology has been used only
in the preclinical tests and clinical trials of LJP 394 conducted by the
Company. Application of Tolerance Technology to antibody-mediated diseases other
than lupus is in earlier discovery or preclinical research stages. LJP 394 and
any other potential drug candidates of the Company will require significant
additional research and development and are subject to significant risks.
Potential products that appear to be promising at early stages of development
may be ineffective or cause harmful side effects during preclinical testing or
clinical trials, fail to receive necessary regulatory approvals, be difficult to
manufacture, be uneconomical to produce (particularly if high doses are
required), fail to achieve market acceptance or be precluded from
commercialization by proprietary rights of third parties. There can be no
assurance that the Company's product development efforts with respect to LJP 394
or any other drug candidate will be successfully completed, that required
regulatory approvals will be obtained or that any product, if introduced, will
be successfully marketed or achieve commercial acceptance.

         The mechanism of action utilized by LJP 394 is unproven in humans, and
to date, no therapeutic products have been developed that target the activity of
specific B cells. There can be no assurance that LJP 394 will reliably induce or
sustain suppression of disease-causing antibodies, or that LJP 394 will prove to
be safe or effective. Furthermore, clinical trials of LJP 394 may be viewed as a
test of the Company's entire Tolerance Technology approach. If these clinical
trials encounter problems or are otherwise unsuccessful, the applicability of
the Company's Tolerance Technology to other antibody-mediated diseases will be
highly uncertain. Therefore, there is significant risk that the Company's
therapeutic approaches will not prove to be successful, and there can be no
assurance that the Company's drug discovery technologies will result in any
commercially successful products. See "Business -- Products Under Development."

UNCERTAINTY OF COLLABORATIVE ARRANGEMENTS

         As part of its business strategy, the Company pursues collaborations
with pharmaceutical companies in an effort to access their research, drug
development, manufacturing, marketing and financial resources. In December 1996
the Company entered into a collaborative agreement with Abbott pursuant to which
Abbott obtained the exclusive right to market and sell LJP 394 throughout the
world in exchange for royalties on sales, development financing, and certain
milestone payments. Abbott's obligations to make payments to the Company and to
conduct development activities are contingent upon the progress of clinical
trials and the


                                       17
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attainment of certain milestones related to regulatory approvals and sales
levels. There can be no assurance that these contingencies will be met.
Furthermore, Abbott has the right to terminate the relationship at any time
based on documented safety or efficacy issues, and without cause within 90 days
of receipt of the results of the pending Phase II/III clinical trial that was
initiated in December 1996 and is expected to be completed some time in 1999.

         The Company intends to pursue collaborative arrangements with other
pharmaceutical companies to assist in its research programs and the clinical
development and commercialization of its other drug candidates. There can be no
assurance that the Company will be able to negotiate arrangements with any other
collaborative partners on acceptable terms, if at all, and any additional
collaborative relationships are likely to include contingencies comparable to
those affecting the Abbott arrangement. Once a collaborative arrangement is
established, there can be no assurance that the collaborative partner will
continue funding any particular program or will not pursue alternative
technologies or develop alternative drug candidates, either individually or in
collaboration with others, including the Company's competitors, as a means for
developing treatments for the diseases targeted by the Company. Furthermore,
competing products, either developed by a collaborative partner or to which a
collaborative partner has rights, may result in the withdrawal of support by the
collaborative partner with respect to all or a portion of the Company's
technology.

         Failure to establish or maintain collaborative arrangements will
require the Company to fund its own research and development activities,
resulting in accelerated depletion of the Company's capital, and will require
the Company to develop its own marketing capabilities for any drug candidate
that may receive regulatory approval. The failure of any collaborative partner
to continue funding any particular program of the Company or to commercialize
successfully any product could delay or halt the development or
commercialization of any products involved in such program. As a result, failure
to establish or maintain collaborative arrangements would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Collaborative Arrangements."

NEED FOR ADDITIONAL FUNDING; UNCERTAIN ACCESS TO CAPITAL

         The Company's operations to date have consumed substantial capital
resources, and LJP will continue to require substantial and increasing amounts
of capital to support research, product development, preclinical testing and
clinical trials of its drug candidates, to establish commercial-scale
manufacturing capabilities, and to market its potential products. The Company's
future capital requirements will depend on many factors, including continued
scientific progress in its research and development programs, the size and
complexity of these programs, the scope and results of preclinical testing and
clinical trials, the time and costs involved in applying for regulatory
approvals, the costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims, competing technological and market developments, the
ability of the Company to establish and maintain collaborative research and
development arrangements and the cost of manufacturing scale-up and effective
commercialization activities and arrangements. The Company expects financing
provided by Abbott for development, commercialization and marketing of LJP 394
to reduce the Company's rate of consumption of its own funds in the short term.
However, Abbott's financing is subject to various conditions and may be
unavailable if conditions and milestones are not met or if Abbott decides not to
pursue development of LJP 394 after the results of the pending Phase II/III


                                       18
   19
clinical trial are reviewed. In addition, initiation and progress of additional
drug development programs is expected to result in increased expenditures of the
Company's funds. Accordingly, the Company expects to incur significant losses
each year for at least the next several years as its clinical trial, research,
development and manufacturing scale-up activities increase, and losses may
exceed those experienced in prior years if the scope of the Company's programs
reaches expected levels, if Abbott does not provide all financing currently
anticipated for development of LJP 394, or if the Company is not successful in
establishing additional collaborative relationships to help finance other drug
discovery programs. The Company expects its existing capital resources, together
with anticipated financing from Abbott, to be sufficient to fund the Company's
activities, as currently planned, through 1998. However, the amounts expended by
the Company for various purposes may vary significantly and Abbott's financial
support for development of LJP 394 may terminate under certain circumstances. It
is therefore possible that the Company's cash requirements will exceed current
projections and that the Company will therefore need additional financing sooner
than currently expected. There can be no assurance that the Company will have
adequate resources to support its existing or future business activities.

         The Company actively seeks additional funding, including through
collaborative arrangements and public and private financings. The Company's
choice of financing alternatives may vary from time to time depending upon
various factors, including the market price of the Company's securities,
conditions in the financial markets, and the interest of other entities in
strategic transactions with the Company. There can be no assurance that
additional financing will be available on acceptable terms, if at all, whether
through collaborative arrangement, issuance of securities, or otherwise. If
adequate funds are not available, the Company may be required to delay, scale
back or eliminate one or more of its research and development programs or obtain
funds through arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its technologies or
potential products, which could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY

         The Company has incurred operating losses each year since its inception
in 1989 and had an accumulated deficit of approximately $48.4 million as of
December 31, 1996. The continued development of the Company's products will
require the commitment of substantial resources to conduct expanded research and
preclinical and clinical development programs, to enhance manufacturing
capabilities, and to establish additional quality control, regulatory,
administrative and marketing and sales capabilities. The Company expects to
incur significant losses each year for at least the next several years as its
research, development, clinical trial and manufacturing scale-up activities
increase, and losses may exceed those experienced in prior years if the scope of
the Company's programs reaches expected levels, if Abbott does not provide all
financing currently anticipated for development of LJP 394, or if the Company is
not successful in establishing additional collaborative relationships to help
finance other drug discovery programs. To achieve profitability the Company
must, among other things, complete development of its products, obtain
regulatory approvals and establish commercial manufacturing and marketing
capabilities. The amount of net losses and the time required by the Company to
reach sustained profitability are highly uncertain, and the Company does not
expect to generate revenues from the sale of products, if any, for at least
several years. There can be no assurance that the


                                       19
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Company will obtain required regulatory approvals, or successfully develop,
manufacture, commercialize and market products or that the Company will ever
achieve product revenues or profitability. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL

         Prior to marketing, any potential product developed by the Company must
undergo an extensive regulatory approval process that includes preclinical
testing and clinical trials and may include post-marketing surveillance of each
compound to establish its safety and efficacy. This regulatory process can take
many years and require the expenditure of substantial resources. Data obtained
from the Company's preclinical and clinical activities are susceptible to
varying interpretations which could delay, limit or prevent regulatory approval.
In addition, delays or rejections may be encountered based upon changes in
policies of the United States Food and Drug Administration ("FDA") for drug
approval during the period of product development and FDA regulatory review of
each submitted new drug application ("NDA"). Similar delays may also be
encountered in foreign countries. Regulatory approval for a drug may entail
limitations on its indicated uses. In addition, the Company will be required to
obtain separate regulatory approval for each indicated use of a drug. Even if
regulatory approval is obtained, a marketed drug and its manufacturer are
subject to continuing review, and discovery of previously unknown problems with
a product or manufacturer may have adverse effects on the Company's business,
financial condition and results of operations, including withdrawal of the
product from the market. Violations of regulatory requirements at any stage,
including preclinical testing and clinical trials, the approval process or
post-approval surveillance, may result in various adverse consequences including
the FDA's delay in approving or its refusal to approve a product, withdrawal of
an approved product from the market and the imposition of criminal penalties
against the manufacturer and NDA holder. The Company has not submitted any
Investigational New Drug ("IND") application for any drug candidate other than
LJP 394, and none of the Company's drug candidates has been approved for
commercialization in the United States or elsewhere. There can be no assurance
that regulatory approval will be obtained for any drugs developed by the
Company. Failure to obtain requisite government approvals or approvals of the
scope requested would delay or preclude the Company or any licensees or
marketing partners from marketing the Company's potential products or limit the
commercial use of such products and will have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
is also subject to numerous and varying foreign regulatory requirements
governing the design and conduct of clinical trials and marketing approval for
pharmaceutical products to be marketed outside of the United States. The
regulatory procedures vary among countries and can involve additional testing,
and the time required to obtain approval may differ from that required to obtain
FDA approval. The foreign regulatory approval process includes all of the risks
associated with obtaining FDA approval, and if approval by the FDA were granted,
such approval does not ensure approval by the health authorities of any other
country. See "Business -- Government Regulation."

PATENTS AND PROPRIETARY TECHNOLOGY

         The Company's success will depend heavily upon its ability to obtain
patent protection for its therapeutic approach and for any developed products,
to preserve its trade secrets and to operate without infringing the proprietary
rights of third parties. While the Company has received nine United States
patents and one Australian patent covering certain aspects of its


                                       20
   21
technology, there can be no assurance that any additional patents will be
issued, or that the scope of any patent protection will be sufficient, or that
any current or future issued patent will be held valid if subsequently
challenged. There is a substantial backlog of biotechnology patent applications
at the United States Patent and Trademark Office ("USPTO") that may delay the
review and issuance of any patents. The patent position of biotechnology firms
generally is highly uncertain and involves complex legal and factual questions,
and no consistent policy has emerged regarding the breadth of claims covered in
biotechnology patents or protection afforded by such patents. To date, the
Company has rights to certain United States and foreign issued patents and has
filed or participated as a licensee in the filing of a number of patent
applications in the United States relating to the Company's technology, as well
as foreign counterparts of certain of these applications in certain countries.
The Company intends to continue to file applications as appropriate for patents
covering both its products and processes. There can be no assurance that patents
will issue from any of these applications, or that claims allowed under issued
patents will be sufficient to protect the Company's technology. Patent
applications in the United States are maintained in secrecy until a patent
issues, and the Company cannot be certain that others have not filed patent
applications for technology covered by the Company's pending applications or
that the Company was the first to invent, or to file patent applications for,
such technology. Competitors may have filed applications for, or may have
received patents and may obtain additional patents and proprietary rights
relating to, compounds or processes that block or compete with those of the
Company.

         A number of pharmaceutical and biotechnology companies and research and
academic institutions have filed or may file patent applications, and have
received or may receive patents, in the fields being pursued by the Company.
Certain of these applications or patents may be competitive with the Company's
applications or conflict in certain respects with claims made under the
Company's applications. In particular, the Company is aware of one currently
pending United States patent application that, if allowed, may contain claims
covering subject matter that may be competitive or conflicting with certain of
the Company's patents and patent applications. Any conflict between the
Company's patents and patent applications, and patents or patent applications of
third parties, could result in a significant reduction of the coverage of the
Company's existing patents or any future patents that may be issued. In
addition, to determine the priority of inventions, the Company may have to
participate in interference proceedings declared by the USPTO or in opposition,
nullity or other proceedings before foreign agencies with respect to any of its
existing patents or patent applications or any future patents or applications,
which could result in substantial cost to the Company. Further, the Company may
have to participate at substantial cost in International Trade Commission
proceedings to abate importation of goods which would compete unfairly with
products of the Company. If patents containing competitive or conflicting claims
are issued to other parties and such claims are ultimately determined to be
valid, there can be no assurance that the Company would be able to obtain
licenses to these patents at a reasonable cost, if at all, or be able to develop
or obtain alternative technology.

         The Company also relies upon unpatented trade secrets and improvements,
unpatented know-how and continuing technological innovation to develop and
maintain its competitive position, which it seeks to protect, in part, by
confidentiality agreements with its commercial partners, collaborators,
employees and consultants. The Company also has invention or patent assignment
agreements with its employees and certain consultants. There can be no assurance
that relevant inventions will not be developed by a person not bound by an
invention assignment agreement, or that binding agreements will not be breached,
that the Company will have


                                       21
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adequate remedies for any breach, or that the Company's trade secrets will not
otherwise become known or be independently discovered by competitors. In
addition, the Company could incur substantial costs in defending against suits
brought against it by others for infringement of intellectual property rights or
in prosecuting suits which the Company might bring against other parties to
protect its intellectual property rights. See "Business -- Patents and
Proprietary Technologies."

COMPETITION AND TECHNOLOGICAL CHANGE

         The biotechnology and pharmaceutical industries are subject to rapid
technological change. Competition from domestic and foreign biotechnology
companies, large pharmaceutical companies and other institutions is intense and
expected to increase. A number of companies are pursuing the development of
pharmaceuticals in the Company's targeted areas. [These include Genelabs
Technologies, Inc., which is conducting Phase III clinical trials of a hormone
for the treatment of lupus, and other competitors that are working on
third-generation steroids.] Many other companies are in earlier stages of
developing other potential therapies for lupus.

         In addition, there are many academic institutions, both public and
private, engaged in activities relating to research and development of
therapeutics for autoimmune, inflammatory and other diseases. Most of these
companies and institutions have substantially greater facilities, resources,
research and development capabilities, regulatory compliance expertise, and
manufacturing and marketing capabilities than the Company. In addition, other
technologies may in the future be the basis of competitive products. There can
be no assurance that the Company's competitors will not develop or obtain
regulatory approval for products more rapidly than the Company, or develop and
market technologies and products that are more effective than those being
developed by the Company or that would render the Company's technology and
proposed products obsolete or noncompetitive. See "Business -- Competition."

LIMITED MANUFACTURING CAPABILITIES

         The manufacture of the Company's potential products for clinical trials
and the manufacture of any approved products for commercial purposes is subject
to current Good Manufacturing Practices ("cGMP") as defined by the FDA. While
the Company is producing limited quantities of LJP 394 for clinical trials, its
current facilities are not adequate for commercial production of its potential
products. Pursuant to its agreement with Abbott, the Company is responsible for
manufacturing LJP 394 and selling it in bulk form to Abbott for packaging and
commercial resale. Substantial capital investment in the expansion and build-out
of the Company's manufacturing facilities will be required to enable manufacture
of any products in commercial quantities. The Company has never operated an
FDA-approved manufacturing facility, and there can be no assurance that it will
obtain necessary approvals. The Company has limited manufacturing experience,
and no assurance can be given that it will be able to make the transition to
commercial production successfully. The Company may enter into arrangements with
contract manufacturing companies to expand its own production capacity in order
to meet requirements for its products, or to attempt to improve manufacturing
efficiency. If the Company chooses to contract for manufacturing services and
encounters delays or difficulties in establishing relationships with
manufacturers to produce, package and distribute its finished products, clinical
trials, market introduction and subsequent sales of such products would be
adversely affected. Moreover, contract manufacturers must operate in compliance
with the FDA's cGMP requirements. The Company's potential dependence upon third
parties for the


                                       22
   23
manufacture of its products may adversely affect the Company's profit margins
and its ability to develop and deliver such products on a timely and competitive
basis. See "Business -- Manufacturing."

LACK OF MARKETING EXPERIENCE

         In order to commercialize any drug candidate approved by the FDA, the
Company must either develop a marketing and sales force or enter into marketing
arrangements with third parties. Abbott has agreed to be responsible for
worldwide marketing of LJP 394, but the Abbott agreement may terminate under
certain circumstances, and the Company has no arrangements with third parties
for marketing of any of its other drug candidates. There can be no assurance
that the Company will be able to enter into any additional marketing agreements
on terms favorable to the Company, if at all, or that any such agreements that
the Company may enter into will result in payments to the Company. Under the
Abbott agreement and any co-promotion or other marketing and sales arrangements
that may be entered into with other companies, any revenues to be received by
the Company will be dependent on the efforts of others and there can be no
assurance that such efforts will be successful. To the extent that the Company
chooses to attempt to develop its own marketing and sales capabilities, it will
compete with other companies that currently have experienced and well-funded
marketing and sales operations. Furthermore, there can be no assurance that the
Company or any collaborative partner will be able to establish sales and
distribution capabilities without undue delays or expenditures or gain market
acceptance for any of the Company's drug candidates. See "Business -- Marketing
and Sales."

UNCERTAINTIES RELATED TO PHARMACEUTICAL PRICING AND REIMBURSEMENT

         The continuing efforts of government and third-party payors to contain
or reduce the costs of health care through various means may have a material
adverse effect on the Company's business, financial condition and results of
operations. For example, in certain foreign markets, pricing and/or
profitability of prescription pharmaceuticals are subject to government control.
In the United States, the Company expects that there will continue to be a
number of federal and state proposals to implement similar government control.
In addition, increasing emphasis on managed care in the United States will
continue to put pressure on pharmaceutical pricing. Cost control initiatives
could decrease the price that the Company receives for any products it may
develop and sell in the future and have a material adverse effect on the
Company's business, financial condition and results of operations. Further, to
the extent that cost control initiatives have a material adverse effect on the
Company's commercial partners, the Company's ability to commercialize its
products may be adversely affected.

         The Company's ability to commercialize pharmaceutical products may
depend in part on the extent to which reimbursement for the products will be
available from government health administration authorities, private health
insurers and other third-party payors. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and third-party
payors, including Medicare, are increasingly challenging the prices charged for
medical products and services. There can be no assurance that any third-party
insurance coverage will be available to patients for any products developed by
the Company. Government and other third-party payors are increasingly attempting
to contain health care costs by limiting both coverage and the level of
reimbursement for new therapeutic products and by refusing in some cases to
provide coverage for uses of approved products for disease indications for which


                                       23
   24
the FDA has not granted labeling approval. If adequate coverage and
reimbursement levels are not provided by government and other third-party payors
for the Company's products, the market acceptance of these products would be
adversely affected.

POTENTIAL PRODUCT LIABILITY; UNCERTAINTIES RELATED TO INSURANCE

         The Company has not received marketing approval from the FDA for any of
its drug candidates and currently uses LJP 394 only in clinical trials. The use
of LJP 394 or any of the Company's other potential products in such clinical
trials and the sale of any approved products may expose the Company to liability
claims resulting from the use of products or product candidates and associated
negative publicity. These claims might be made directly by consumers,
pharmaceutical companies or others. The Company maintains product liability
insurance coverage for claims arising from the use of its products in clinical
trials in the amount of $3.0 million. However, coverage is becoming increasingly
expensive, and there can be no assurance that the Company will be able to
maintain insurance or, if maintained, that insurance can be acquired at a
reasonable cost or in sufficient amounts to protect the Company against losses
due to liability that could have a material adverse effect on the Company's
business, financial conditions and results of operations. There can be no
assurance that the Company will be able to obtain product liability insurance on
commercially reasonable terms for any product approved for marketing in the
future or that insurance coverage and the resources of the Company would be
sufficient to satisfy any liability resulting from product liability claims. A
successful product liability claim or series of claims brought against the
Company could have a material adverse effect on its business, financial
condition and results of operations.

DEPENDENCE UPON KEY EMPLOYEES AND CONSULTANTS

         The Company is highly dependent upon the principal members of its
scientific and management staff, the loss of whose services would delay the
achievement of its research and development objectives. The Company's
anticipated growth and expansion into areas and activities requiring additional
expertise, such as clinical trials, government approvals, manufacturing, and
marketing, are expected to place increased demands on the Company's resources
and require the addition of new management personnel as well as the development
of additional expertise by existing management personnel. Retaining the
Company's current key employees and recruiting additional qualified scientific
personnel to perform research and development work in the future will also be
critical to the Company's success. Because competition for experienced
scientists among numerous pharmaceutical and biotechnology companies and
research and academic institutions is intense, there can be no assurance that
the Company will be able to attract and retain such personnel.

         In addition, the Company relies upon consultants and advisors to assist
the Company in formulating its research and development, clinical, regulatory
and manufacturing strategies. All of the Company's consultants and advisors are
employed outside the Company and may have commitments or consulting or advisory
contracts with other entities that may affect their ability to contribute to the
Company.

ENVIRONMENTAL MATTERS AND HAZARDOUS MATERIALS

         Due to the nature of its manufacturing processes, the Company is
subject to stringent federal, state and local laws, rules, regulations and
policies governing the use, generation,


                                       24
   25
manufacture, storage, air emission, effluent discharge, handling and disposal of
certain materials and wastes. There can be no assurance that the Company will
not be required to incur significant costs to comply with environmental
regulations as manufacturing is increased to commercial volumes, or that the
operations, business or assets of the Company will not be materially and
adversely affected by current or future environmental laws, rules, regulations
and policies or by any releases or discharges of hazardous material.

         In its research activities, the Company utilizes radioactive and other
materials that could be hazardous to human health, safety or the environment.
These materials and various wastes resulting from their use are stored at the
Company's facility pending ultimate use and disposal. The risk of accidental
injury or contamination from these materials cannot be eliminated. In the event
of such an accident, the Company could be held liable for any resulting damages,
and any such liability could exceed the Company's resources.

VOLATILITY OF COMMON STOCK PRICE

         The market prices for securities of biotechnology and pharmaceutical
companies, including the Company, have historically been highly volatile, and
the market has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. Factors such as fluctuations in the Company's operating results,
announcements of technological innovations or new therapeutic products by the
Company or others, clinical trial results, developments concerning agreements
with collaborators, government regulation, developments in patent or other
proprietary rights, public concern as to the safety of drugs discovered or
developed by the Company or others, future sales of substantial amounts of
Common Stock by existing stockholders, comments by securities analysts and
general market conditions can have an adverse effect on the market price of the
Common Stock. The realization of any of the risks described in these "Risk
Factors" could have an adverse effect on market price of the Company's Common
Stock. See "Market for Registrant's Common Equity and Related Stockholder
Matters."

POTENTIAL ADVERSE EFFECTS OF SHARES ELIGIBLE FOR FUTURE SALE

         Sales of the Company's Common Stock in the public market, or the
perception that such sales could occur, could adversely affect the prevailing
market price of the Company's securities and impair the Company's ability to
complete equity financings. The Company has outstanding approximately 8,902,000
shares of Common Stock that have been issued in registered public offerings,
pursuant to the Company's Employee Stock Purchase Plan or upon exercise of stock
options and are freely tradable in the public markets, and approximately
5,310,000 shares of Common Stock currently eligible for resale in the public
market pursuant to Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"). An additional 2,000,000 shares issued to an overseas investor
pursuant to Regulation S under the Securities Act may also be resold. An
additional 1,000,050 shares issued to Abbott may also be resold after a
specified period. In addition, an aggregate of 4,170,853 shares of Common Stock
are issuable upon exercise of warrants and stock options outstanding as of
December 31, 1996, as follows: (i) 1,494,550 shares issuable upon exercise of
the Company's publicly traded Redeemable Common Stock Purchase Warrants at an
exercise price of $6.00 per share; (ii) 961,219 shares issuable upon exercise of
various privately held warrants and options at a weighted average exercise price
of $6.54 per share, and (iii) 1,715,084 shares issuable upon exercise of stock
options outstanding under the Company's various stock option plans at a


                                       25
   26
weighted average exercise price of $3.00 per share. The Company has in effect or
intends to file registration statements under the Securities Act registering
approximately 2,454,000 shares of Common Stock reserved under its employee stock
option and purchase plans, up to 1,494,550 shares of Common Stock reserved for
issuance upon exercise of the Company's publicly traded Redeemable Common Stock
Purchase Warrants, and resale of approximately 701,219 shares of Common Stock
issuable upon exercise of privately held warrants. Approximately 931,465 shares
of Common Stock issuable upon future exercise of outstanding stock options will
be available for public resale under Rule 144 pursuant to Rule 701 under the
Securities Act. The Company is unable to estimate the number of shares of Common
Stock that may actually be resold in the public market because this will depend
upon the market price for the Common Stock, the individual circumstances of the
sellers and other factors. The Company has a number of institutional
stockholders that own significant blocks of the Company's Common Stock. If such
stockholders sell large portions of their holdings in a relatively short time,
for liquidity or other reasons, the prevailing market price of the Company's
Common Stock could be negatively affected.

ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCES OF PREFERRED STOCK

         Certain provisions of the Delaware General Corporation Law may have the
effect of deterring hostile takeovers or delaying or preventing changes in the
control or management of the Company, including transactions in which
stockholders might otherwise receive a premium for their shares over
then-current market prices. The Company may also issue shares of Preferred Stock
without stockholder approval and upon such terms as the Company's Board of
Directors may determine. The issuance of Preferred Stock could have the effect
of making it more difficult for a third party to acquire a majority of the
Company's outstanding stock, and the holders of such Preferred Stock could have
voting, dividend, liquidation and other rights superior to those of holders of
the Common Stock.

ABSENCE OF DIVIDENDS

         The Company has not paid any cash dividends since its inception and
does not anticipate paying any cash dividends in the foreseeable future.


ITEM 2.  PROPERTIES


         The Company leases two adjacent buildings in San Diego, California for
a total of approximately 54,000 square-feet. Each building is subject to a
lease, one that expires in 2001 and one that expires in 2004. Each lease
includes an option exercisable by the Company to extend the term of the
agreement for an additional five years and are subject to escalation clauses
that provide for annual rent increases based on the consumer price index. The
Company believes that these facilities will be adequate to meet its needs for
the near term. Over the longer term, management believes additional space can be
secured at commercially reasonable rates.


ITEM 3.  

LEGAL PROCEEDINGS


         The Company is not a party to any legal proceedings.

                                       26
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ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


         No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the year ended December 31, 1996.

EXECUTIVE OFFICERS OF THE REGISTRANT

         The executive officers and key employees of the Company and their ages
are set forth below.

                               
Steven B. Engle                42    Chairman of the Board, Chief Executive Officer, and
                                     Assistant Secretary

Stephen M. Coutts, Ph.D.       56    Executive Vice President of Research and Development

Peter G.  Ulrich               44    Senior Vice President of Corporate Development and
                                     Marketing

Bonnie Hepburn, M.D.           56    Vice President of Clinical Development

Mark  T. Edgar, Ph.D.          46    Vice President of Operations

Wood C. Erwin, CPA             46    Vice President of Finance, Chief Financial Officer and
                                     Secretary

Andrew Wiseman, Ph.D.          48    Director of Business Development





         STEVEN B. ENGLE, Chairman of the Board and Chief Executive Officer,
joined the Company as Executive Vice President and Chief Operating Officer in
1993, became President and a Director in 1994, Chief Executive Officer in 1995
and Chairman of the Board in 1997. From 1991 to 1993, Mr. Engle served as Vice
President of Marketing, Acting Vice President of Manufacturing and Acting Chief
Executive Officer for Cygnus Inc., a publicly held company that develops drug
delivery systems. From 1987 to 1991, he was Chief Executive Officer of Quantum
Management Company, a management consulting firm serving the pharmaceutical and
biotechnology industry. From 1984 to 1987, he was Vice President of Marketing
and Divisional General Manager for Micro Power Systems Inc., a privately held
company that manufactures high technology products including medical devices. He
holds an MSEE and a BSEE in Biomedical Engineering from the University of Texas.

         STEPHEN M. COUTTS, Ph.D., has served as the Executive Vice President of
Research and Development of the Company since its formation in May 1989. From
1987 until 1989, Dr. Coutts was Vice President of Therapeutics Research &
Development for Quidel Corporation, a publicly held company that markets human
diagnostic kits. From 1986 to 1987 he served as Executive Director of Scientific
Research of the Purdue Frederick Company, a pharmaceutical company, and from
1976 to 1986 he held various positions with the Revlon Health Care Group,
including Director of Revlon's Department of Immunobiology. From 1968 to 1976,
Dr. Coutts


                                       27
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held academic research and teaching positions at The Institute for Molecular
Biology (Braunschweig, Germany) and Princeton University. Dr. Coutts holds an
MBA from New York University and a Ph.D. in Biochemistry from Harvard
University.

         PETER G. ULRICH joined the Company in December 1995 as Senior Vice
President of Corporate Development and Marketing. Mr. Ulrich has served as
President and Chief Executive Officer of three biotechnology companies:
MedClone, Inc., a biotechnology company developing therapuetics for autoimmune
diseases from 1991 to 1994, LipoGen, Inc. from 1988 to 1990, and BIOTX from 1985
to 1988. From 1982 to 1985, he was the Vice President of Marketing at Analytical
Luminescence Laboratory, and from 1974 to 1982 he held various positions with
Baxter Travenol Laboratories, including International Marketing Manager and
National Sales Manager. Before joining the Company, Mr. Ulrich served for one
year as Assistant Vice President of Technology Development for the University of
Alabama at Birmingham. Mr. Ulrich holds a B.A. from the University of Texas at
Austin and a Masters Degree in International Business Administration from the
University of Dallas.

         BONNIE HEPBURN, M.D, a practicing rheumatologist, joined the Company in
April 1996 as Vice President of Clinical Development. Prior to joining the
Company, from 1994 to 1995, Dr. Hepburn served as Director of Immunology
Clinical Research for Centocor. From 1987 to 1994, Dr. Hepburn held several
positions with Ciba-Geigy Ltd., including Head of Inflammation/Bone/Allergy
Clinical Research, Executive Director of Anti-Inflammatory/Pulmonary Clinical
Research, and Director of Regulatory Affairs. She served as a member and
chairman on the FDA Arthritis Advisory Committee from 1980 to 1983 and also on
the Committee for Revision of FDA Antirheumatic Drug Guidelines. Since 1975, Dr.
Hepburn has held a faculty position at UMDNJ-Robert Wood Johnson Medical School
(formerly Rutgers Medical School). Dr. Hepburn received her B.A. from Wellesley
College and her M.D. from the University of Pennsylvania School of Medicine, and
completed her medical residency and fellowship in rheumatology at the Mayo
Clinic.

         MARK T. EDGAR, Ph.D. Vice President of Operations, joined the Company
in May 1995 as Vice President of Manufacturing. Prior to joining the Company,
Dr. Edgar was with Syntex Corp. for 15 years, during which time he served in a
variety of capacities, including as Vice President and Director of the CNTF
Program Management Team at Syntex Development Research from 1993 to 1995;
Director of Operations at Syntex Bahamas Chemical from 1990 to 1993; and
Director of Manufacturing Engineering and Materials at Syntex Laboratories, Inc.
from 1987 to 1990. Dr. Edgar holds a Ph.D. in organic chemistry from Arizona
State University and an MBA from the University of Colorado.

         WOOD C. ERWIN joined the Company as Vice President of Finance and Chief
Financial Officer in January 1996. Before joining the Company, Mr. Erwin served
during 1995 as Vice President of Finance and Chief Financial Officer of Resource
Optimization, Inc., a software company. From 1992 to 1995 he served as Chief
Financial Officer of MedClone, Inc., a biotechnology company developing
therapeutics for autoimmune diseases. From 1991 to 1992, Mr. Erwin served as
Vice President of Finance and Chief Financial Officer of Med Images, Inc., a
provider of computerized services to hospitals; and from 1986 to 1991 as Chief
Financial Officer and Director of Operations of LipoGen, Inc., a biotechnology
company. Mr. Erwin was also the Controller of Plasti-Line, Inc., a publicly
traded manufacturer of illuminated signs; Vice President of Finance of Kusan,
Inc., a subsidiary of Bethlehem Steel Corp.; and Cost


                                       28
   29
Analyst for Oscar Meyer Company. Mr. Erwin holds BS and MBA degrees from the
University of Tennessee and is a Certified Public Accountant and Certified
Management Accountant.

         ANDREW WISEMAN, Ph.D., has served as the Director of Business
Development for the Company since its formation in May 1989. From 1983 to 1989,
Dr. Wiseman held several positions with Quidel Corporation, including Senior
Research Scientist, Project Manager in Diagnostic Research and Development and
Manager of Business Development. Dr. Wiseman was an Associate Member (Professor)
at the Medical Biology Institute and an Assistant Member at the Scripps Clinic
and Research Foundation and holds a Ph.D. in Genetics from Duke University.

                                       29
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                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         The Company's Common Stock trades on the Nasdaq National Market under
the symbol "LJPC". Set forth below are the high and low sales prices for the
Company's Common Stock for each full quarterly period within the two most recent
fiscal years.



                                             High                    Low
                                             ----                    ---
                                                              
Year Ended December 31, 1996
            First Quarter                    9-3/8                   4-7/8
            Second Quarter                   8-7/8                   5-1/8
            Third Quarter                    6-7/16                  3-7/8
            Fourth Quarter                   6-5/16                  3-1/2

Year Ended December 31, 1995
            First Quarter                    3-5/8                   1-3/4
            Second Quarter                   4                       2-3/4
            Third Quarter                    5-5/8                   3-11/16
            Fourth Quarter                   5                       3-3/4

         The Company has not paid dividends on its Common Stock and does not
anticipate paying dividends in the foreseeable future.

         The approximate number of holders of record the Company's Common Stock
as of March 17, 1997, was 288.

         In December 1996, the Company sold 1,000,050 shares of its Common Stock
to Abbott for an aggregate price of $4.0 million. The sale was a privately
negotiated sale to a single buyer and was exempt from registration under Section
4(2) of the Securities Act of 1933, as amended, and there were no underwriters
involved.

                                       30
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ITEM 6.  SELECTED FINANCIAL DATA.

         The following Selected Financial Data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in Item 7 below and the financial statements of the Company
and related notes thereto beginning at page F-1 of this Report.



                                                                      Years Ended December 31,
                                                                      ------------------------
                                                1992            1993            1994            1995            1996
                                                ----            ----            ----            ----            ----
                                                              (In thousands, except per share data)
                                                                                                
STATEMENT OF OPERATIONS DATA:

Revenue from collaborative agreements          $      -        $      -        $      -        $  3,000        $  4,000

Expenses:
     Research and development                     4,425           6,737           8,499           9,804          11,663
     General and administrative                   1,052           1,386           2,049           2,390           2,920
                                               --------        --------        --------        --------        --------
Loss from operations                             (5,477)         (8,123)        (10,548)         (9,194)        (10,583)

Interest expense                                     --            (145)           (364)           (301)           (183)
Interest income                                     705             321             599             941           1,170
                                               --------        --------        --------        --------        --------

Net loss                                       $ (4,772)       $ (7,947)       $(10,313)       $ (8,554)       $ (9,596)
                                               ========        ========        ========        ========        ========

Net loss per share                             $   (.96)       $  (1.58)       $  (1.44)       $   (.79)       $   (.63)
                                               ========        ========        ========        ========        ========

Shares used in computing net loss per
     share (1)                                    4,949           5,016           7,137          10,883          15,150
                                               ========        ========        ========        ========        ========

BALANCE SHEET DATA:

Working capital                                $ 13,237        $  6,314        $ 12,643        $ 21,949        $ 25,886
Total assets                                   $ 15,269        $ 10,102        $ 17,094        $ 26,375        $ 31,687
Noncurrent portion of obligations under
     capital leases                            $     --        $  1,595        $  1,628        $    892        $    168
Stockholders' equity                           $ 14,855        $  6,938        $ 13,810        $ 23,568        $ 27,938


(1)  See Note 1 of Notes to Financial Statements for an explanation of the
     computation of per share data.

                                       31
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

         Since its inception in May 1989, the Company has devoted substantially
all of its resources to the research and development of technology and potential
drugs to treat antibody-mediated diseases. The Company has never generated any
revenue from product sales and has relied upon private and public investors,
equipment lease financings, revenues from collaborative agreements, and interest
income on invested cash balances for its working capital. The Company has been
unprofitable since inception and expects to incur substantial additional
operating losses for at least the next several years as it increases
expenditures on research and development and allocates significant and
increasing resources to its clinical trials, manufacturing and marketing
activities. The Company's activities to date are not as broad in depth or scope
as the activities it must undertake in the future, and the Company's historical
operations and the financial information included in this Report are not
indicative of its future operating results or financial condition.

         The Company expects that losses will fluctuate from quarter to quarter
as a result of differences in the timing of expenses incurred and potential
revenues from collaborative arrangements. Some of these fluctuations may be
significant. The Company's research and development expenses are expected to
increase significantly in the future as the Company increases its development
efforts. As of December 31, 1996, the Company's accumulated deficit was
approximately $48.4 million.

         The Company's business is subject to significant risks including, but
not limited to, the risks inherent in its research and development efforts,
including clinical trials, uncertainties associated with both obtaining and
enforcing its patents and with the patent rights of others, the lengthy,
expensive and uncertain process of seeking regulatory approvals, uncertainties
regarding government reforms and of product pricing and reimbursement levels,
technological change and competition, manufacturing uncertainties and dependence
on its collaborative relationship with Abbott. Even if the Company's product
candidates appear promising at an early stage of development, they may not reach
the market for numerous reasons. Such reasons include the possibilities that the
products will be ineffective or unsafe during clinical trials, will fail to
receive necessary regulatory approvals, will be difficult to manufacture on a
large scale, will be uneconomical to market or will be precluded from
commercialization by proprietary rights of third parties.

RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994

         Revenue. The Company had revenue of $4.0 million and $3.0 million in
the years ended December 31, 1996 and 1995, respectively, and no revenue in the
year ended December 31, 1994 (or at any other time since inception). In December
1996 the Company entered into a collaborative agreement with Abbott for the
worldwide development and commercialization of LJP 394, the Company's lupus drug
candidate. Revenue in 1996 is attributable solely to an up front license fee
upon the signing of its collaborative agreement with Abbott. Revenue in 1995 was
attributable solely to a one-time initial license fee under a prior
collaborative agreement which was terminated in May 1996. The collaborative
agreement with Abbott obligates Abbott to make further development funding and
milestone payments, but both Abbott and the Company


                                       32
   33
have the right to terminate the agreement under certain circumstances.
Accordingly, there is no assurance that the Company will realize any further
revenue from this arrangement or any other collaborative arrangement.

         Research and Development Expenses. The Company's research and
development expenses increased to $11.7 million for the year ended December 31,
1996 from $9.8 million in 1995 and $8.5 million in 1994. Several factors
contributed to this increase, including additions to research and development
personnel, expansion of the Company's research and development programs,
manufacturing scale-up activities, conduct of the Company's toxicology and
clinical programs including Phase II/III clinical trials of LJP 394, and
increased facilities expenditures. The Company's research and development
expenses are expected to increase significantly in the future as the
organization grows, efforts to develop additional drug candidates are
intensified and potential products progress into and through clinical trials.

         General and Administrative Expenses. The Company's general and
administrative expenses increased to $2.9 million for the year ended December
31, 1996 from $2.4 million in 1995 and $2.0 million in 1994. Several factors
contributed to this increase, including increased personnel to support increased
research and development and clinical activities, increased facilities
expenditures and expanded business development activities. The Company expects
general and administrative expenses to increase at a greater rate in the future
because, among other reasons, the Company has leased additional space to house
expanded research and development and manufacturing activities.

         Interest Income and Expense. The Company's interest income increased to
$1.2 million for the year ended December 31, 1996 from $941,000 in 1995 and
$599,000 in 1994. The increase in interest income in 1996 as compared to 1995
was due to the investment of the proceeds from the Company's additional public
offering in July and August 1996. The increase in interest income in 1995 as
compared to 1994 was due to the investment of the proceeds from the Company's
public offering in June 1995, its sale of stock to a private investor in October
1995, and an initial payment from a former collaborative agreement in September
1995. Interest expense decreased to $183,000 for the year ended December 31,
1996 from $301,000 in 1995 and $364,000 in 1994. The decrease in interest
expense was the result of decreases in the Company's capital lease obligations.

         Net Operating Loss Carryforwards. At December 31, 1996, the Company had
available net operating loss carryforwards and research credit carryforwards of
approximately $45.0 million and $2.3 million, respectively, for federal income
tax purposes, which will begin to expire in 2004 unless previously utilized.
Because of "change in ownership" provisions of the Tax Reform Act of 1986, the
Company's net operating loss and tax credit carryforwards will be subject to an
annual limitation regarding utilization against taxable income in future
periods. The Company believes that such limitation will not have a material
impact on the benefits that may arise out of its net operating loss and tax
credit carryforwards, but there can be no assurance that additional limitations
arising from any future changes in ownership will not have a material impact on
the Company. For more information concerning the provision for income taxes, see
Note 7 of the Notes to Financial Statements.

                                       33
   34
LIQUIDITY AND CAPITAL RESOURCES

         From inception through December 31, 1996, the Company had incurred a
cumulative net loss of approximately $48.4 million, and financed its operations
through private and public offerings of its securities, capital and operating
lease transactions, the payment from its previous collaborative partner, and
interest income on its invested cash balances. As of December 31, 1996, the
Company had raised $75.6 million in net proceeds since inception from sales of
equity securities.

         At December 31, 1996, the Company had $24.2 million in cash, cash
equivalents and short-term investments, as compared to $23.7 million at December
31, 1995. The Company's working capital at December 31, 1996 was $25.9 million,
as compared to $21.9 million at December 31, 1995. The increases in cash, cash
equivalents and short-term investments and in working capital resulted from the
completion of its follow-on public offering in July and August 1996 and its sale
of stock to Abbott in December 1996, partially offset by the continued use of
the Company's cash toward expenses of ongoing research and development and
clinical programs and related general and administrative expenses. The Company
invests its cash in corporate and U.S. Government backed debt instruments.

         As of December 31, 1996, the Company had acquired an aggregate of $4.5
million in property and equipment, of which approximately $3.2 million had been
acquired through capital lease obligations. In addition, the Company leases its
office and laboratory facilities and certain equipment under operating leases.
The Company has no material commitments for the acquisition of property and
equipment but anticipates increasing investment in property and equipment in
connection with the enhancement of its manufacturing capabilities.

         The Company intends to use its financial resources to fund clinical
trials, research and development, manufacturing scale-up, and for working
capital and other general corporate purposes. Anticipated near-term expenses
include costs of additional clinical trials for LJP 394, the production of LJP
394 for clinical and toxicology studies, and the expansion of manufacturing and
research activities. The amounts actually expended for each purpose may vary
significantly depending upon numerous factors, including the results of clinical
studies, the timing of regulatory applications and approvals, and technological
advances. Expenditures will also depend upon the establishment and progress of
collaborative arrangements, contract research and the availability of other
financings. There can be no assurance that these funds will be available on
acceptable terms, if at all.

         The Company anticipates that its existing capital and interest earned
thereon will be sufficient to fund the Company's operations as currently planned
through 1998. The Company's future capital requirements will depend on many
factors, including continued scientific progress in its research and development
programs, the size and complexity of these programs, the scope and results of
clinical trials, the time and costs involved in applying for regulatory
approvals, the costs involved in preparing, filing, prosecuting, maintaining and
enforcing patent claims, competing technological and market developments, the
ability of the Company to maintain its collaborative arrangement with Abbott and
to establish and maintain additional collaborative relationships and the cost of
manufacturing scale-up and effective commercialization activities and
arrangements. The Company expects to incur significant losses each year for at
least the


                                       34
   35
next several years as it expands its current research and development programs
and invests increasing amounts of capital in clinical trials, manufacturing
scale-up, and administration of a more complex organization. It is possible that
the Company's cash requirements will exceed current projections and that the
Company will therefore need additional financing sooner than currently expected.

         The Company has no current means of generating cash flow from
operations, and its lead drug candidate, LJP 394, will not generate revenues, if
at all, until it has been proven safe and effective, has received regulatory
approval, and has been successfully commercialized, a process that is expected
to take at least the next several years. The Company's other drug candidates are
much less developed than LJP 394. There can be no assurance that the Company's
product development efforts with respect to LJP 394 or any other drug candidate
will be successfully completed, that required regulatory approvals will be
obtained, or that any product, if introduced, will be successfully marketed or
achieve commercial acceptance. Accordingly, the Company must continue to rely
upon outside sources of financing to meet its capital needs for the foreseeable
future.

         Abbott's funding of the development costs for LJP 394 and milestone
payments are expected to enhance the Company's short-term liquidity by
minimizing the expenditure of the Company's own funds on further development of
LJP 394. However, the Company anticipates increasing expenditures on
manufacturing activities and the development of other drug candidates, and in
the long run, the Company's consumption of cash will necessitate additional
sources of financing. Furthermore, the Company has no internal sources of
liquidity, and termination of the Abbott arrangement would have a serious
adverse effect on the Company's ability to generate sufficient cash to meet its
needs.

         The Company will continue to seek capital through any appropriate
means, including issuance of its securities and establishment of additional
collaborative arrangements. However, there can be no assurance that additional
financing will be available on acceptable terms, and the Company's negotiating
position in its capital-raising efforts may worsen as it continues to use its
existing resources. Financing through collaborative arrangements is uncertain
because payments under the Company's collaborative agreement with Abbott are
subject to certain termination rights, including related to progress in clinical
trials for LJP 394, and there is no assurance that the Company will be able to
enter into further collaborative relationships.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


         The financial statements and supplementary data required by this item
are at the end of this Report beginning on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

         None.

                                       35
   36
                                    PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.


         Information concerning the Company's executive officers is included
under the caption "Executive Officers" following Part I, Item 4 of this Report.
Other information for Item 10 is incorporated by reference from the portions of
the Registrant's definitive proxy statement for its annual meeting of
stockholders to be held on May 13, 1997 entitled "Proposal 1 - Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance".

ITEM 11.   EXECUTIVE COMPENSATION.


         Information for Item 11 is incorporated by reference from the portions
of the Registrant's definitive proxy statement for its annual meeting of
stockholders to be held on May 13, 1997 entitled "Executive Compensation and
Other Information," "Report of the Compensation Committee on Executive
Compensation," "Compensation Committee Interlocks and Insider Participation,"
and "Stock Performance Graph."

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.


         Information for Item 12 is incorporated by reference from the portion
of the Registrant's definitive proxy statement for its annual meeting of
stockholders to be held on May 13, 1997 entitled "Security Ownership of Certain
Beneficial Owners and Management."

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.


         No disclosures are required.

                                       36
   37
                                     PART IV

ITEM 14.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.


         (a)      Documents filed as part of this Report:

                  1.       Financial Statements.

                  The following financial statements of La Jolla Pharmaceutical 
                  Company are included in Item 8:

                  Report of Ernst & Young LLP, Independent
                  Auditors................................................ F-1

                  Balance Sheets at December 31, 1996 and
                  1995.....................................................F-2

                  Statements of Operations for the fiscal years ended
                  December 31, 1996, 1995 and 1994.........................F-3

                  Statements of Stockholders' Equity for the fiscal years
                  ended December 31, 1996, 1995 and 1994...................F-4

                  Statements of Cash Flows for the fiscal years ended
                  December 31, 1996, 1995 and 1994.........................F-5

                  Notes to Financial Statements............................F-6

                  2.       Financial Statement Schedules.

                 No financial statement schedules are required.

                                       37
   38
         3. Exhibits.

Exhibit
Number   Description
- ------   -----------
3.1      Intentionally omitted

3.2      Bylaws of the Company (1)

3.3      Restated Certificate of Incorporation of the Company (3)

10.1     Intentionally omitted

10.2     Stock Option Agreement dated February 4, 1993 entitling Joseph Stemler
         to purchase 35,000 shares of Common Stock (1) *

10.3     Letter regarding terms of employment and potential severance of Stephen
         M. Coutts (1) *

10.4     Intentionally omitted

10.5     Intentionally omitted

10.6     Steven B. Engle Employment Agreement (1) *

10.7     Form of Directors and Officers Indemnification Agreement (1)

10.8     Intentionally omitted

10.9     Exclusive License Agreement dated September 1, 1991 regarding PLA2
         inhibition technology between the Company and the Regents of the
         University of California (1)

10.10    Option and Collaborative Research Agreement dated June 10, 1991
         regarding certain compounds for potential treatment of muscular
         dystrophies or myasthenia gravis between the Company and CepTor
         Corporation (1)

10.11    Consulting Agreement dated September 1, 1991 between the Company and
         Dr. Edward A. Dennis (1)

10.12    Agreement dated September 1, 1991 regarding stock purchase between the
         Company and Dr. Edward A. Dennis (1)

10.13    Form of Employee Invention and Confidential Information Agreement (1)

10.14    Industrial Real Estate Lease (1)

10.15    Intentionally omitted

10.16    Master Lease Agreement dated June 22, 1993 with Aberlyn Capital
         Management Limited Partnership ("ACM") and related Agreements to Issue
         Warrant with Warrants issued to ACM and Aberlyn Holding Company, Inc.
         (1)

10.17    La Jolla Pharmaceutical Company 1989 Incentive Stock Option Plan and
         1989 Nonstatutory Stock Option Plan (1) *

10.18    Form of Stock Option Agreement under the 1989 Nonstatutory Stock Option
         Plan (1)

10.19    La Jolla Pharmaceutical Company 1994 Incentive Stock Option Plan (1) *

10.20    Intentionally omitted

10.21    Letter Agreement dated June 7, 1993 between the Company and Vector
         Securities International regarding Vector's engagement as financial
         advisor to the Company with respect to potential corporate strategic
         alliances (1)

                                       38
   39
10.22    Letter Agreement dated December 23, 1993 between the Company and
         Aberlyn Holding Company, Inc. regarding Aberlyn's engagement as
         financial and investment banking advisor to the Company with respect to
         potential strategic alliances with Korean pharmaceutical companies (1)

10.23    Intentionally omitted

10.24    Intentionally omitted

10.25    Second Amendment to Lease dated June 30, 1994 by and between the
         Company and BRE Properties, Inc. (2)

10.26    Intentionally omitted

10.27    Third Amendment to Lease dated January 26, 1995 by and between the
         Company and BRE Properties, Inc. (4)

10.28    Intentionally omitted

10.29    Master Lease Agreement dated September 13, 1995 by and between the
         Company and Comdisco Electronics Group (5)

10.30    Intentionally omitted

10.31    Agreement dated September 22, 1995 between the Company and Joseph
         Stemler regarding option vesting *(6)

10.32    Consulting Agreement dated January 1, 1996 between the Company and
         Joseph Stemler*(6) 

10.33    Building Lease Agreement effective November 1, 1996 by and 
         between the Company and WCB II-S BRD Limited Partnership
         (7)

10.34    Master Lease Agreement dated December 20, 1996 by and between the
         Company and Transamerica Business Credit Corporation

10.35    License and Supply Agreement dated December 23, 1996 by and between the
         Company and Abbott Laboratories (8)

10.36    Stock Purchase Agreement dated December 23, 1996 by and between the
         Company and Abbott Laboratories

23.1     Consent of Ernst & Young LLP, Independent Auditors

27       Financial Data Schedule

__________________

*     This exhibit is a management contract or compensatory plan or arrangement.
(1)   Previously filed with the Company's Registration Statement on Form S-1
      (No. 33-76480) as declared effective by the Securities and Exchange
      Commission on June 3, 1994.
(2)   Previously filed with the Company's quarterly report on Form 10-Q for the
      quarter ended June 30, 1994 and incorporated by reference herein.
(3)   Previously filed with the Company's annual report on Form 10-K for the
      fiscal year ended December 31, 1994 and incorporated by reference herein.
(4)   Previously filed with the Company's quarterly report on Form 10-Q for the
      quarter ended March 31, 1995 and incorporated by reference herein.
(5)   Previously filed with the Company's quarterly report on Form 10-Q for the
      quarter ended September 30, 1995 and incorporated by reference herein.
(6)   Previously filed with the Company's annual report on Form 10-K for the
      fiscal year ended December 31, 1995 and incorporated by reference herein.

                                       39
   40
(7)   Previously filed with the Company's quarterly report on Form 10-Q for the
      quarter ended September 30, 1996 and incorporated by reference herein.
(8)   Portions of the Exhibit 10.35 have been omitted pursuant to a request for
      confidential treatment under Rule 24b-2 of the Securities Exchange Act of
      1934.

(b)   Reports on Form 8-K:

      The Company did not file any reports on Form 8-K during the three months
ended December 31, 1996.

                                       40
   41
                Report of Ernst & Young LLP, Independent Auditors

The Board of Directors and Stockholders
La Jolla Pharmaceutical Company

We have audited the accompanying balance sheets of La Jolla Pharmaceutical
Company as of December 31, 1996 and 1995, and the related statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of La Jolla Pharmaceutical Company
at December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.



                                                               ERNST & YOUNG LLP


San Diego, California
January 30, 1997

                                      F-1
   42
                         La Jolla Pharmaceutical Company

                                 Balance Sheets

                 (In thousands, except share and per share data)



                                                                       DECEMBER 31,
                                                                   1996            1995
                                                               ----------------------------
                                                                           
ASSETS
Current assets:
   Cash and cash equivalents                                    $  6,613         $ 19,804
   Short-term investments                                         17,621            3,847
   Receivable                                                      4,000               --
   Other current assets                                            1,233              213
                                                               ----------------------------
     Total current assets                                         29,467           23,864

Property and equipment, net                                        1,361            1,925

Patent costs and other assets, net                                   859              586
                                                               ----------------------------
                                                                $ 31,687         $ 26,375
                                                               ============================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                             $  1,539         $    333
   Accrued expenses                                                1,106              493
   Accrued payroll and related expenses                              294              310
   Current portion of obligations under capital leases               642              779
                                                               ----------------------------
     Total current liabilities                                     3,581            1,915

Noncurrent portion of obligations under capital leases               168              892

Commitments

Stockholders' equity:
   Common stock, $.01 par value; 32,000,000 shares
     authorized, 17,279,195 and 14,046,712 shares issued
     and outstanding at December 31, 1996 and 1995,
     respectively                                                    173              140
   Additional paid-in capital                                     76,307           62,647
   Note receivable from stockholder                                   --              (14)
   Deferred compensation                                            (169)            (428)
   Accumulated deficit                                           (48,373)         (38,777)
                                                               ----------------------------
     Total stockholders' equity                                   27,938           23,568
                                                               ----------------------------
                                                                $ 31,687         $ 26,375
                                                               ============================


See accompanying notes.

                                      F-2
   43
                         La Jolla Pharmaceutical Company

                            Statements of Operations

                      (In thousands, except per share data)





                                                                   YEARS ENDED DECEMBER 31,
                                                            1996             1995              1994
                                                     ------------------------------------------------------

                                                                                   
Revenue from collaborative agreements                    $       4,000     $       3,000    $         -

Expenses:
   Research and development                                     11,663             9,804            8,499
   General and administrative                                    2,920             2,390            2,049
                                                     ------------------------------------------------------
     Total expenses                                             14,583            12,194           10,548

                                                     ------------------------------------------------------
Loss from operations                                           (10,583)           (9,194)         (10,548)

Interest expense                                                  (183)             (301)            (364)
Interest income                                                  1,170               941              599

                                                     ------------------------------------------------------
Net loss                                                 $      (9,596)    $      (8,554)   $     (10,313)
                                                     ======================================================

Net loss per share                                       $        (.63)    $       (.79)    $       (1.44)
                                                     ======================================================

Shares used in computing net loss per share                     15,150            10,883            7,137
                                                     ======================================================


See accompanying notes.

                                      F-3
   44
                         La Jolla Pharmaceutical Company

                       Statements of Stockholders' Equity

              For the years ended December 31, 1994, 1995 and 1996
                                 (In thousands)



                                                      CONVERTIBLE
                                                    PREFERRED STOCK             COMMON STOCK         ADDITIONAL
                                               -----------------------------------------------------   PAID-IN
                                                  SHARES      AMOUNT        SHARES       AMOUNT        CAPITAL
                                               -------------------------------------------------------------------
                                                                                        
Balance at December 31, 1993                          39,411  $     394            787   $        8    $   26,784
   Issuance of common stock upon initial
     public offering, net of issuance costs                -           -         2,990           30        12,672
   Conversion of preferred stock to common
     stock                                           (39,411)      (394)         3,941           39           355
   Conversion of bridge notes and accrued
     interest to common stock                              -           -           833            8         4,159
   Exercise of stock options                               -           -            65            1            64
   Payment on note receivable                              -           -             -            -             -
   Deferred compensation related to grant of
     stock options                                         -           -             -            -           656
   Amortization of deferred compensation                   -           -             -            -             -
   Net loss                                                -           -             -            -             -
                                               -------------------------------------------------------------------
Balance at December 31, 1994                               -           -         8,616           86        44,690
   Issuance of common stock upon secondary
     public offering, net of issuance costs                -           -         3,400           34         9,852
   Issuance of common stock                                -           -         2,000           20         8,120
   Exercise of stock options                               -           -            31            -            30
   Payment on note receivable                              -           -             -            -             -
   Amortization of deferred compensation                   -           -             -            -             -
   Adjustment to deferred compensation for
     terminations                                          -           -             -            -           (45)
   Net loss                                                -           -             -            -             -
                                               -------------------------------------------------------------------
Balance at December 31, 1995                               -           -        14,047          140        62,647
   Issuance of common stock upon  additional 
     public offering, net of issuance costs                -           -         2,140           21         9,753
   Issuance of common stock                                -           -         1,000           10         3,790
   Issuance of common stock under Employee
     Stock Purchase Plan                                   -           -            27            1            97
   Exercise of stock options and warrants                  -           -            65            1            85
   Payment on note receivable                              -           -             -            -             -
   Amortization of deferred compensation                   -           -             -            -             -
   Adjustment to deferred compensation
     for terminations                                      -           -             -            -           (65)
   Net loss                                                -           -             -            -             -
                                               ==================================================== ==============
Balance at December 31, 1996                               -  $        -        17,279    $     173     $  76,307
                                               ==================================================== ==============





                                               NOTE RECEIVABLE                                        TOTAL
                                                    FROM         DEFERRED         ACCUMULATED     STOCKHOLDERS'
                                                 STOCKHOLDER    COMPENSATION        DEFICIT          EQUITY
                                               -------------------------------------------------------------------
                                                                                       
Balance at December 31, 1993                       $     (39)    $     (299)      $  (19,910)      $    6,938
   Issuance of common stock upon initial
     public offering, net of issuance costs                -              -                -           12,702
   Conversion of preferred stock to common
     stock                                                 -              -                -                -
   Conversion of bridge notes and accrued
     interest to common stock                              -              -                -            4,167
   Exercise of stock options                               -              -                -               65
   Payment on note receivable                             12              -                -               12
   Deferred compensation related to grant of
     stock options                                         -           (656)               -                -
   Amortization of deferred compensation                   -            239                -              239
   Net loss                                                -              -          (10,313)         (10,313)
                                               -------------------------------------------------------------------
Balance at December 31, 1994                             (27)          (716)         (30,223)          13,810
   Issuance of common stock upon secondary
     public offering, net of issuance costs                -              -                -            9,886
   Issuance of common stock                                -              -                -            8,140
   Exercise of stock options                               -              -                -               30
   Payment on note receivable                             13              -                -               13
   Amortization of deferred compensation                   -            243                -              243
   Adjustment to deferred compensation for
     terminations                                          -             45                -                -
   Net loss                                                -              -           (8,554)          (8,554)
                                               -------------------------------------------------------------------
Balance at December 31, 1995                             (14)          (428)         (38,777)          23,568
   Issuance of common stock upon  additional
     public offering, net of issuance costs                -              -                -            9,774
   Issuance of common stock                                -              -                -            3,800
   Issuance of common stock under Employee
     Stock Purchase Plan                                   -              -                -               98
   Exercise of stock options and warrants                  -              -                -               86
   Payment on note receivable                             14              -                -               14
   Amortization of deferred compensation                   -            194                -              194
   Adjustment to deferred compensation
     for terminations                                      -             65                -                -
   Net loss                                                -              -           (9,596)          (9,596)
                                               ===================================================================
Balance at December 31, 1996                       $       -     $     (169)      $  (48,373)      $   27,938
                                               ===================================================================


See accompanying notes.

                                      F-4
   45
                         La Jolla Pharmaceutical Company

                            Statements of Cash Flows
                                 (In thousands)



                                                                             YEARS ENDED DECEMBER 31,
                                                                        1996             1995            1994
                                                                  ----------------------------------------------
                                                                                         
OPERATING ACTIVITIES
Net loss                                                            $     (9,596)   $     (8,554) $    (10,313)
Adjustments to reconcile net loss to net cash used for operating
   activities:
     Write-off of patent costs                                                89               -             -
     Depreciation and amortization                                           754             784           683
     Deferred compensation amortization                                      194             243           239
     Common stock issued for interest                                          -               -            11
     Changes in operating assets and liabilities:
       Receivable                                                         (4,000)              -             -
       Other current assets                                               (1,020)             89          (148)
       Accounts payable and accrued expenses                               1,819               3          (147)
       Accrued payroll and related expenses                                  (16)            145            28
                                                                  ----------------------------------------------
          Net cash used for operating activities                         (11,776)         (7,290)       (9,647)

INVESTING ACTIVITIES
Increase in short-term investments                                       (13,774)         (1,304)       (2,543)
Additions to property and equipment                                         (161)           (248)         (288)
Increase in patent costs and other assets                                   (391)            (83)         (120)
                                                                  ----------------------------------------------
          Net cash used for investing activities                         (14,326)         (1,635)       (2,951)

FINANCING ACTIVITIES
Payment on note receivable from stockholder                                   14              13            12
Net proceeds from issuance of common stock                                13,758          18,056        12,767
Proceeds from bridge notes                                                     -               -         4,156
Payments on obligations under capital leases                                (861)           (757)         (619)
                                                                  ----------------------------------------------
          Net cash provided by financing activities                       12,911          17,312        16,316

                                                                  ----------------------------------------------
(Decrease) increase in cash and cash equivalents                         (13,191)          8,387         3,718
Cash and cash equivalents at beginning of period                          19,804          11,417         7,699
                                                                  ----------------------------------------------
Cash and cash equivalents at end of period                          $      6,613    $     19,804  $     11,417
                                                                  ==============================================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid                                                       $        183    $        301  $        353
                                                                  ==============================================

SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Capital lease obligations incurred for property and equipment       $          --   $        132  $        858
                                                                  ==============================================
Adjustment to deferred compensation for terminations                $          65   $         45  $         --
                                                                  ==============================================


See accompanying notes.

                                      F-5
   46
                         La Jolla Pharmaceutical Company

                          Notes to Financial Statements



1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BUSINESS ACTIVITY

La Jolla Pharmaceutical Company (the "Company") is a biopharmaceutical company
focused on the research and development of highly specific therapeutics for the
treatment of certain life-threatening antibody-mediated diseases. These
diseases, including autoimmune conditions such as systemic lupus erythematosus
("lupus") and antibody-mediated stroke, are caused by abnormal B cell production
of antibodies that attack healthy tissues. In the fourth quarter of 1996, the
Company initiated a Phase II/III clinical trial for its lupus drug candidate,
LJP 394.

The Company was classified as a development stage company through the fourth
quarter of 1996. All of the Company's revenues to date have been derived from
its recent collaborative agreement with Abbott Laboratories ("Abbott") in
December 1996 and its former collaborative agreement with Leo Pharmaceutical
Products Ltd., a Danish company ("Leo Pharmaceutical"). (See Note 2.) As part of
its planned business operations, the Company pursues collaborations with
pharmaceutical companies in an effort to access their research, drug
development, manufacturing and financial resources. Prior to generating product
revenues, the Company must complete the development of its products, including
several years of clinical testing, and receive regulatory approvals prior to
selling these products commercially. There can be no assurance that the
Company's product development efforts with respect to LJP 394 or any other drug
candidate will be successfully completed, that required regulatory approvals
will be obtained, or that any product, if introduced, will be successfully
marketed or achieve commercial acceptance. In addition, there can be no
assurance that the Company can successfully manufacture and market any such
products at prices that would permit the Company to operate profitably.

The Company actively seeks additional financing to fund its research and
development efforts and commercialize its technologies. There is no assurance
such financing will be available to the Company when required or that such
financing would be available under favorable terms.

The Company believes that patents and other proprietary rights are important to
its business. The Company's policy is to file patent applications to protect
technology, inventions and improvements to its inventions that are considered
important to the development of its business. The patent positions of
biotechnology firms, including the Company, are uncertain and involve complex
legal and factual questions for which important legal principles are largely
unresolved. There can be no assurance that any additional patents will be
issued, or that the scope of any patent protection will be sufficient, or that
any current or future issued patent will be held valid if subsequently
challenged.

                                      F-6
   47
                         La Jolla Pharmaceutical Company

                          Notes to Financial Statements



1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and disclosures made in
the accompanying notes to the financial statements. Actual results could differ
from those estimates.

RECLASSIFICATION

Certain amounts in the 1995 and 1994 financial statements have been reclassified
to conform with December 31, 1996 presentation.

REVENUE RECOGNITION

Revenue from collaborative agreements is recorded when earned as defined under
the terms of the agreements.

NET LOSS PER SHARE

Net loss per share is computed using the weighted average number of common
shares outstanding during the periods, as adjusted for the effects of certain
rules of the Securities and Exchange Commission for the periods prior to the
Company's initial public offering in June 1994. In addition, the calculation of
the shares used in computing net loss per share includes shares of convertible
preferred stock that converted into common stock in conjunction with the
Company's initial public offering as if they had converted into common stock as
of the original dates of issuance.

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Cash and cash equivalents consist of cash and highly liquid investments which
include debt securities with remaining maturities when acquired of three months
or less and are stated at market. Short-term investments mainly consist of debt
securities with maturities greater than three months. Management has classified
the Company's cash equivalents and short-term investments as available-for-sale
securities in the accompanying financial statements. Available-for-sale
securities are carried at fair value, with unrealized gains and losses reported
in a separate component of stockholders' equity. Realized gains and losses and
declines in value judged to be other-than-temporary on available-for-sale
securities are included in investment income. The cost of securities sold is
based on the specific identification method. Interest and dividends on
securities classified as available-for-sale are included in investment income.

                                      F-7
   48
                         La Jolla Pharmaceutical Company

                          Notes to Financial Statements



1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

CONCENTRATION OF CREDIT RISK

Cash, cash equivalents and short-term investments are financial instruments
which potentially subject the Company to concentrations of credit risk. The
Company deposits its cash in financial institutions. At times, such deposits may
be in excess of insured limits. The Company invests its excess cash in U.S.
Government securities and debt instruments of financial institutions and
corporations with strong credit ratings. The Company has established guidelines
relative to diversification of its cash investments and their maturities in an
effort to maintain safety and liquidity. These guidelines are periodically
reviewed and modified to take advantage of trends in yields and interest rates.
To date, the Company has not experienced any losses on its cash, cash
equivalents and short-term investments.

PROPERTY AND EQUIPMENT

Property and equipment is stated at cost and depreciated using the straight-line
method over the estimated useful lives of the assets (primarily five years).
Leasehold improvements are stated at cost and amortized on a straight-line basis
over the shorter of the estimated useful life or the lease term. Equipment under
capital leases is amortized over the shorter of the estimated useful life of the
assets or the lease term and such amortization is included in depreciation in
the accompanying financial statements.

Property and equipment is comprised of the following (in thousands):



                                                                  DECEMBER 31,
                                                             1996               1995
                                                       ------------------------------------

                                                                     
Laboratory equipment                                      $       3,384    $       3,450
Computer equipment                                                  511              389
Furniture and fixtures                                              597              547
Leasehold improvements                                               55                -
                                                       ------------------------------------
                                                                  4,547            4,386
Less: accumulated depreciation and amortization                  (3,186)          (2,461)
                                                       ------------------------------------
                                                          $       1,361    $       1,925
                                                       ====================================


                                      F-8
   49
                         La Jolla Pharmaceutical Company

                          Notes to Financial Statements



1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

IMPAIRMENT OF LONG-LIVED ASSETS

Effective January 1, 1996, the Company adopted SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS 121"), which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
estimated undiscounted cash flows to be generated by those assets are less than
the assets' carrying amount. SFAS 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The adoption of the SFAS
121 had no material effect on the Company's financial position or results of
operations.

PATENTS

The Company has filed several patent applications in the United States Patent
and Trademark Office and in foreign countries. Legal costs and expenses incurred
in connection with pending patent applications have been deferred. Costs related
to successful patent applications are amortized using the straight-line method
over the lesser of the remaining useful life of the related technology or the
remaining patent life, commencing on the date the patent is issued. Accumulated
amortization at December 31, 1996 and 1995 was $49,000 and $75,000,
respectively. Deferred costs related to patent applications are charged to
operations at the time a determination is made not to pursue such applications.

STOCK OPTIONS

Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting and
Disclosure of Stock-Based Compensation" ("SFAS 123"). As allowed under SFAS 123,
the Company has elected to continue to account for stock option grants in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25") and related interpretations. The Company
generally grants stock options for a fixed number of shares to employees with an
exercise price equal to the fair value of the shares at the date of grant and,
under APB 25, recognizes no compensation expense for such stock option grants.
The adoption of SFAS 123 had no material effect on the financial statements.

                                      F-9
   50
                         La Jolla Pharmaceutical Company

                          Notes to Financial Statements



2.  COLLABORATIVE AGREEMENTS

In December 1996, the Company entered into a collaborative agreement with
Abbott, a diversified healthcare company. Under this agreement, in exchange for
an exclusive, worldwide license to market and sell LJP 394, Abbott agreed to pay
an initial license fee of $4,000,000 upon signing, and agreed to fund the
development of the Company's lupus drug candidate, LJP 394, and to make certain
payments to the Company upon the attainment of specific milestones. In addition,
Abbott has agreed to make royalty and sales incentive payments to the Company on
sales of LJP 394 while the Company retains worldwide manufacturing rights and
ownership rights of all of its patents relating to the drug. Abbott also
purchased common stock of the Company for an aggregate purchase price of
$4,000,000 in December 1996, and the Company has the right to require Abbott to
purchase up to $8,000,000 of additional shares of the Company's common stock
over the next two years (up to $4,000,000 each year). Both Abbott and the
Company have the right to terminate the agreement under certain circumstances.

In May 1996, the Company terminated its agreement with Leo Pharmaceutical which
was signed in September 1995. Under the original agreement, the Company had
granted to Leo the exclusive rights to distribute LJP 394 in Europe and the
Middle East. The Company terminated the relationship with Leo Pharmaceutical
because the Company and Leo Pharmaceutical could not reach agreement regarding
the timing and allocation of resources with respect to further clinical trials
of LJP 394. Under the termination provisions of the original agreement, the
Company retained the $3,000,000 payment previously received from Leo
Pharmaceutical, and neither the Company nor Leo Pharmaceutical has any further
obligations.

3. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

The following is a summary of the estimated fair value of available-for-sale
securities (in thousands):



                                                                         DECEMBER 31,
                                                                     1996             1995
                                                              ------------------------------------
                                                                              
Money market accounts                                             $        460      $     13,400
U.S. corporate debt securities                                          10,901             9,805
Government asset backed securities                                      10,999                 -
U.S. Treasury securities and obligations of the U.S.
     government agencies                                                   249                 -
                                                              ------------------------------------
                                                                  $     22,609      $     23,205
                                                              ====================================


                                      F-10
   51
                         La Jolla Pharmaceutical Company

                          Notes to Financial Statements



3. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS (CONTINUED)

As of December 31, 1996 and 1995, the difference between cost and estimated fair
value of available-for-sale securities was not significant. Included in cash and
cash equivalents at December 31, 1996 and 1995 were $4,988,000 and $19,358,000,
respectively, of securities classified as available-for-sale. As of December 31,
1996, available-for-sale securities of $20,596,000 are due in one year or less
and $2,013,000 are due after one year through two years.

4. COMMITMENTS

LEASES

In July 1992, the Company entered into a non-cancellable operating lease for the
rental of its office and research and development facilities which expires in
July 2004. The lease is subject to an escalation clause that provides for annual
increases based on the consumer price index (CPI). The lease also contains an
option to extend the lease term for an additional five years and a one-time
cancellation option effective any time after August 1, 1998 with the payment of
certain penalties. The lease also contains a construction allowance in the
amount of $1,434,000 for approved tenant improvements to the facility.

In June 1993, the Company entered into an equipment lease financing facility to
finance up to $4,000,000 of equipment which was available until March 1995. As
of December 31, 1996, the total amount of equipment financed under this capital
lease was $3,188,000.

In September 1995, the Company entered into an equipment lease financing
facility to finance up to $1,500,000 of equipment which was available until
December 1996. As of December 31, 1996, the total amount of equipment financed
under this operating lease was $954,000.

In October 1996, the Company entered into a non-cancellable operating lease for
the rental of office and research and development facilities which expires in
October 2001. The lease contains a provision for scheduled annual rent increases
and an option to extend the lease term for an additional five years. The lease
also contains a construction allowance in the amount of $168,000 for approved
tenant improvements to the facility.

In December 1996, the Company entered into an equipment and leasehold
improvement lease financing facility to finance up to $4,000,000 of equipment
and $1,000,000 of leasehold improvements which is available until December 1997.
As of December 31, 1996, the total amount of equipment financed under this
operating lease was $390,000.

                                      F-11
   52
                         La Jolla Pharmaceutical Company

                          Notes to Financial Statements



4. COMMITMENTS (CONTINUED)

Annual future minimum lease payments as of December 31, 1996, which include
$994,000 for the effect of exercising the facility operating lease cancellation
option, are as follows (in thousands):



                                                           OPERATING         CAPITAL
                                                            LEASES            LEASES
                                                       ------------------------------------
                                                                     
1997                                                       $      1,247    $         696
1998                                                              1,826              168
1999                                                                324                9
2000                                                                269               --
2001                                                                134               --
                                                       ------------------------------------
Total                                                      $      3,800              873
                                                       ==================
Less amount representing interest                                                    (63)
                                                                        -------------------
Present value of net minimum lease payments                                          810
Less current portion                                                                (642)
                                                                        -------------------
Noncurrent portion of capital lease obligations                            $         168
                                                                        ===================


Rent expense under all operating leases totaled $952,000, $545,000, and $485,000
for the years ended December 31, 1996, 1995 and 1994, respectively. Equipment
under capital leases totaled $1,201,000 and $1,859,000 (net of accumulated
amortization of $2,021,000 and $1,363,000) at December 31, 1996 and 1995,
respectively.

LICENSE AGREEMENT

In September 1991, the Company entered into an exclusive license agreement for
certain technology related to its inflammation program with The Regents of the
University of California. Under the agreement, the Company is required to pay
royalties on the sale of approved drugs employing the technology subject to a
minimum annual royalty. To retain its exclusive license rights, the Company must
meet and satisfy certain development milestones in addition to its royalty and
other obligations under this agreement. The Company has the right to terminate
the agreement at any time and failure to meet the above conditions could result
in termination of the license.

PURCHASE AGREEMENT

In June 1994, the Company purchased certain scientific equipment. In connection
with the purchase agreement, the Company may be required to make annual payments
of $200,000 for a period of up to ten years, in the event that the equipment is
used to produce materials for sale.

                                      F-12
   53
                         La Jolla Pharmaceutical Company

                          Notes to Financial Statements



5. STOCKHOLDERS' EQUITY

PREFERRED STOCK

As of December 31, 1996, the Company is authorized to issue 8,000,000 shares of
preferred stock, in one or more series.

PUBLIC OFFERINGS

In June 1994, the Company completed an initial public offering of 2,990,000
Units (the "IPO") at a price of $5.00 per Unit. Each Unit consisted of one share
of common stock and one redeemable warrant to purchase one-half of one share of
common stock. The Company received net proceeds from the IPO of $12,702,000.
Upon the closing of the IPO, all outstanding shares of preferred stock
automatically converted into an aggregate of 3,941,063 shares of common stock
and shareholder bridge notes and accrued interest totaling $4,167,000 converted
into 833,517 Units. In connection with the IPO, the Underwriter was granted the
option to purchase up to 260,000 additional Units at $8.00 per Unit. The
purchase option expires on June 3, 1999.

In June 1995, the Company completed a secondary public offering of 3,400,000
shares of common stock for net cash proceeds of $9,886,000. In October 1995, the
Company issued 2,000,000 shares of common stock to an institutional investor for
cash proceeds of $8,140,000.

In July and August 1996, the Company completed an additional public offering of
2,140,000 shares of common stock for net cash proceeds of $9,774,000. In
December 1996, the Company issued 1,000,050 shares of common stock to Abbott for
total proceeds of $4,000,000. (See Note 2.)

STOCKHOLDER BRIDGE NOTES

In May 1994, the Company issued $4,156,000 of 8% bridge notes to existing
stockholders. The terms of the bridge notes required the automatic conversion of
the principal and accrued interest to Units at the price paid in the IPO. In
addition, the notes provided for the granting of additional warrants to the
holders equal to 20% of the Units into which the debt was converted. Those
additional warrants permit the holders to purchase 166,697 shares of common
stock at $5.00 per share through June 1999. At December 31, 1996, warrants to
purchase 154,460 shares of common stock were outstanding.

                                      F-13
   54
                         La Jolla Pharmaceutical Company

                          Notes to Financial Statements



5. STOCKHOLDERS' EQUITY (CONTINUED)

WARRANTS

In connection with the IPO and the conversion of bridge notes, the Company
issued 3,823,517 redeemable warrants. The redeemable warrant holders are
entitled to purchase one-half of one share of common stock for each warrant at
an exercise price of $3.00 per one-half share, subject to adjustment. The
warrants are exercisable beginning June 3, 1995 until June 3, 1999. The Company
is entitled to redeem the warrants on not less than 30 days written notice at
$0.05 per warrant if the average closing bid price of the common stock exceeds
150% of the then-effective warrant exercise price for one share of common stock,
over a period of 20 consecutive trading days, ending within 15 days of the date
of notice of redemption. At December 31, 1996, 3,822,617 redeemable warrants
were outstanding.

In connection with capital lease agreements entered into during 1993 and 1994,
the Company issued warrants to purchase 20,690 shares of the Company's common
stock at $8.43 per share and 20,000 shares of the Company's common stock at
$5.00 per share, respectively. These warrants expired on June 10 and June 3,
1996, respectively.

As of December 31, 1996, 4,237,077 warrants were outstanding and 2,195,769
shares of common stock are reserved for issuance upon exercise of warrants.

STOCK OPTION PLANS

In May 1989, the Company adopted the 1989 Stock Option Plan and the 1989
Nonstatutory Stock Option Plan (the "1989 Plan"), under which 904,000 shares of
common stock are reserved for issuance upon exercise of options granted by the
Company.

In June 1994, the Company adopted the 1994 Stock Incentive Plan (the "1994
Plan"), under which 1,250,000 shares of common stock are reserved for issuance
upon exercise of options granted by the Company. The 1994 Plan provides for the
grant of incentive and non-qualified stock options, as well as other stock based
awards, to employees, consultants and advisors of the Company with various
vesting periods as determined by the compensation committee, as well as
automatic fixed grants to non-employee directors of the Company.

                                      F-14
   55
                         La Jolla Pharmaceutical Company

                          Notes to Financial Statements



5. STOCKHOLDERS' EQUITY (CONTINUED)


A summary of the Company's stock option activity, and related data follows:





                                                                               OUTSTANDING OPTIONS
                                                                     --------------------------------------
                                                         OPTIONS
                                                        AVAILABLE        NUMBER OF          PRICE PER
                                                        FOR GRANT          SHARES             SHARE
                                                    -------------------------------------------------------
                                                                                  
Balance at December 31, 1993                                 187,933          753,011         $1.00
     Additional shares authorized                            750,000    
     Granted                                                (566,280)         566,280      $1.00-$5.25
     Exercised                                                                (65,055)     $1.00-$5.25
     Cancelled                                                53,362          (53,362)     $1.00-$2.00
                                                    -------------------------------------------------------

Balance at December 31, 1994                                 425,015        1,200,874      $1.00-$5.25
     Granted                                                (336,195)         336,195      $2.25-$4.31
     Exercised                                                                (30,541)        $1.00
     Cancelled                                                44,490          (44,490)     $1.00-$4.13
                                                    -------------------------------------------------------
Balance at December 31, 1995                                 133,310        1,462,038      $1.00-$5.25
     Additional shares authorized                            500,000
     Granted                                                (426,750)         426,750      $3.75-$8.31
     Exercised                                                                (52,722)     $1.00-$5.03
     Cancelled                                               120,982         (120,982)     $1.00-$7.88
                                                    =======================================================
Balance at December 31, 1996                                 327,542        1,715,084      $1.00-$8.31
                                                    =======================================================




                                                            YEARS ENDED DECEMBER 31,
                                                   1996                                1995
                                     ------------------------------------ ----------------------------------
                                                           WEIGHTED-                          WEIGHTED-
                                                           AVERAGE                            AVERAGE
                                         OPTIONS        EXERCISE PRICE       OPTIONS       EXERCISE PRICE
                                     ---------------- ------------------- -------------- -------------------
                                                                               
Outstanding - beginning of year          1,462,038             $2.40        1,200,874             $1.92
Granted                                    426,750              4.91          336,195              3.94
Exercised                                  (52,722)             1.58          (30,541)             1.00
Forfeited                                 (120,982)             2.98          (44,490)             2.26
                                     --------------                        -----------
Outstanding -end of year                 1,715,084             $3.00        1,462,038             $2.40
                                     ==============                        ===========

Exercisable at end of year                 931,465                            720,588

Weighted-average fair value of
   options granted during the year
                                             $3.08                              $2.48


                                      F-15
   56
                         La Jolla Pharmaceutical Company

                          Notes to Financial Statements



5. STOCKHOLDERS' EQUITY (CONTINUED)

Exercise prices and weighted-average remaining contractual lives for the options
outstanding as of December 31, 1996 follows:



                                                       WEIGHTED-AVERAGE
       OPTIONS          RANGE OF EXERCISE                 REMAINING                    WEIGHTED-AVERAGE
     OUTSTANDING             PRICES                    CONTRACTUAL LIFE                 EXERCISE PRICE
- ----------------------- -------------------------- -------------------------- ------------------------------

                                                                                
           712,385                $1.00                      5.37                                 $1.00
           430,230            $2.00 - $4.25                  8.87                                  3.46
           495,669            $4.31 - $5.25                  8.59                                  4.79
            76,800            $6.75 - $8.31                  9.15                                  7.44
- -----------------------

         1,715,084            $1.00 - $8.31                  7.35                                 $3.00
=======================


For certain options granted, the Company recognizes as compensation expense the
excess of the deemed value for accounting purposes of the common stock issuable
upon exercise over the aggregate exercise price of such options. Compensation
expense is amortized ratably over the vesting period of each option.

EMPLOYEE STOCK PURCHASE PLAN

Effective August 1, 1995, the Company adopted the 1995 Employee Stock Purchase
Plan (the "Purchase Plan") which was amended in July 1996. Under the amended
Purchase Plan, a total of 300,000 shares of common stock are reserved for sale
to full-time employees with six months of service. Employees may purchase common
stock under the Purchase Plan every six months (up to but not exceeding 10% of
each employee's earnings) over the offering period at 85% of the fair market
value of the common stock at certain specified dates. The offering period may
not exceed 24 months. For the year ended December 31, 1996, 27,658 shares of
common stock had been issued under the Purchase Plan and 272,342 shares of
common stock are available for issuance.

STOCK-BASED COMPENSATION

Pro forma information regarding net income and earnings per share is required by
SFAS 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted after December 31,
1994 under the fair value method of that statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for both 1996 and 1995:
risk-free interest rate of 6%; dividend yield of 0%; volatility factor of the
expected market price of the Company's common stock of .70 ; and a
weighted-average expected life of the option of five years.

                                      F-16
   57
                         La Jolla Pharmaceutical Company

                          Notes to Financial Statements



5. STOCKHOLDERS' EQUITY (CONTINUED)

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

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows (in thousands except for earnings per share
information):

                                            YEARS ENDED DECEMBER 31,
                                          1996                  1995
                                   -------------------- ----------------------

Pro forma net loss                    $      (9,970)        $       (8,613)
                                   ==================== ======================

Pro forma net loss per share         $         (.66)        $         (.79)
                                   ==================== ======================

Because SFAS 123 is applicable only to options granted subsequent to December
31, 1994, its pro forma effect will not be fully recognized until 1997.

6.  401(k) PLAN

The Company has established a 401(k) defined contribution retirement plan (the
"401(k) Plan"), which was amended in July 1996, to cover all employees with one
year of service. The Plan provides for voluntary employee contributions up to
20% of annual compensation (as defined). The Company does not match employee
contributions or otherwise contribute to the Plan.

7. INCOME TAXES

At December 31, 1996, the Company had federal and California income tax net
operating loss carryforwards of approximately $44,997,000 and $3,709,000,
respectively. The difference between the federal and California tax loss
carryforwards is primarily attributable to the capitalization of research and
development expenses for California income tax purposes and the 50% percent
limitation on California loss carryforwards. The Company also had federal and
California research tax credit carryforwards of $2,282,000 and $979,000,
respectively. The federal net operating loss and tax credit carryforwards will
begin to expire in 2004 unless previously utilized, while the California net
operating loss carryforwards will begin to expire in 1997.

                                      F-17
   58
                         La Jolla Pharmaceutical Company

                          Notes to Financial Statements



7. INCOME TAXES (CONTINUED)

In accordance with certain provisions of the Internal Revenue Code, a change in
ownership of greater than 50% within a three-year period will place an annual
limitation on the Company's ability to utilize its existing net operating loss
and tax credit carryforwards. Due to the completion of the initial public
offering in June 1994, the Company is subject to these annual limitations.
However, the annual limitations are not expected to have a material effect on
the Company's ability to utilize its net operating loss and tax credit
carryforwards.

Significant components of the Company's deferred tax assets are shown below (in
thousands):



                                                             DECEMBER 31,
                                                         1996             1995
                                                  ------------------------------------
                                                                
Deferred tax assets:
   Net operating loss carryforwards                  $      16,000    $      13,000
   Research and development credits                          3,000            3,000
   Capitalized research and development                      2,000            2,000
                                                  ------------------------------------
Total deferred tax assets                                   21,000           18,000
Valuation allowance for deferred tax assets                (21,000)         (18,000)
                                                  ------------------------------------
Net deferred tax assets                              $           -    $           -
                                                  ====================================


A valuation allowance of $21,000,000 has been recognized to offset the deferred
tax assets as realization of such assets is uncertain.

                                      F-18
   59
                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized.

                                        LA JOLLA PHARMACEUTICAL COMPANY
                                        By: /s/ Steven B. Engle 
                                           ____________________________________
                                        Name:  Steven B. Engle
                                        Title: Chairman of the Board and
                                               Chief Executive Officer

March 27, 1997

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.




                Signature                                            Title                              Date
                ---------                                            -----                              ----
                                                                                              
PRINCIPAL EXECUTIVE OFFICER AND DIRECTOR:

/s/Steven B. Engle                                           Chairman of the Board and              March  27, 1997
______________________________                               Chief Executive Officer
Steven B. Engle

PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:

/s/Wood C. Erwin                                             Chief Financial Officer and            March  27, 1997
______________________________                               Secretary
Wood C. Erwin

/s/Joseph Stemler                                            Former Chairman of the Board           March  27, 1997
______________________________                               and Director
Joseph Stemler                                              

/s/Thomas H. Adams                                           Director                               March  27, 1997
______________________________
Thomas H. Adams, Ph.D.

/s/William E. Engbers                                        Director                               March  27, 1997
______________________________
William E. Engbers

/s/Robert A. Fildes                                          Director                               March  27, 1997
______________________________
Robert A. Fildes, Ph.D.

/s/W. Leigh Thompson                                         Director                               March  27, 1997
______________________________
W. Leigh Thompson, M.D., Ph.D.


                                       41
   60
                         La Jolla Pharmaceutical Company

                                  Exhibit Index


Exhibit Number                           Description
- --------------    --------------------------------------------------------------

10.34             Master Lease Agreement dated December 20, 1996 by and between
                  the Company and Transamerica Business Credit Corporation

10.35             License and Supply Agreement dated December 23, 1996 by and
                  between the Company and Abbott Laboratories

10.36             Stock Purchase Agreement dated December 23, 1996 by and
                  between the Company and Abbott Laboratories

23.1              Consent of Ernst & Young LLP, Independent Auditors

27                Financial Data Schedule

                                       42

EX-10.34

   1

                                  EXHIBIT 10.34

                             MASTER LEASE AGREEMENT


Lessor:     TRANSAMERICA BUSINESS CREDIT CORPORATION
            RIVERWAY II
            WEST OFFICE TOWER
            WEST HIGGINS ROAD

Lessee:     LA JOLLA PHARMACEUTICAL COMPANY
            6455 NANCY RIDGE DRIVE
            SAN DIEGO, CALIFORNIA  92121


The lessor pursuant to this Master Lease Agreement ("Agreement") dated December
20, 1996 is Transamerica Business Credit Corporation ("Lessor"). All equipment,
together with all present and future additions, parts, accessories, attachments,
substitutions, repairs, improvements and replacements thereof or thereto, which
are the subject of a Lease (as defined in the next sentence) shall be referred
to as "Equipment." Simultaneously with the execution and delivery of this
Agreement, the parties are entering into one or more Lease Schedules (each, a
"Schedule") which refer to and incorporate by reference this Agreement, each of
which constitutes a lease (each, a "Lease") for the Equipment specified therein.
Additional details pertaining to each Lease are specified in the applicable
Schedule. Each Schedule that the parties hereafter enter into shall constitute a
Lease. Lessor has no obligation to enter into any additional leases with, or
extend any future financing to, Lessee.

            1.    LEASE. Subject to and upon all of the terms and conditions of
this Agreement and each Schedule, Lessor hereby agrees to lease to Lessee and
Lessee hereby agrees to lease from Lessor the Equipment for the Term (as defined
in Paragraph 2 below) thereof.

            2.    TERM. Each Lease shall be effective and the term of each Lease
("Term") shall commence on the commencement date specified in the applicable
Schedule, as the same may be adjusted, in the sole discretion of Lessor pursuant
to an Adjustment Letter (the "Adjustment Letter") (but in no event shall any
Lease have a commencement date of later than December 30, 1997) and, unless
sooner terminated (as hereinafter provided), shall expire at the end of the term
specified in such Schedule; provided, however, that obligations due to be
performed by the Lessee during the Term shall continue until they have been
performed in full. Schedules will only be executed after the delivery of the
Equipment to Lessee or upon completion of deliveries of items of such Equipment
with aggregate cost of not less than $50,000.00.

            3.    RENT. Lessee shall pay as rent to Lessor, for use of the
Equipment during the Term or Renewal Term (as defined in Paragraph 8), rental
payments equal to the sum of all rental payments including without limitation,
security deposits, advance rents and interim rents payable in the amounts and on
the dates specified in the applicable Schedule ("Rent"). If any Rent or other
amount payable by Lessee is not paid within three days after the day on which it
becomes payable, Lessee will pay on demand, as a late charge, an amount equal to
5% of such unpaid Rent or other amount but only to the extent permitted by
applicable law. All payments provided for herein shall be payable to Lessor at
its address specified above, or at any other place designated by Lessor.

            4.    LEASE NOT CANCELABLE; LESSEE'S OBLIGATIONS ABSOLUTE. No Lease 
may be canceled or terminated except as expressly provided herein. Lessee's
obligation to pay all Rent due or to become due hereunder shall be absolute and
unconditional and shall not be subject to any delay, reduction, set-off,
defense, counterclaim or recoupment for any reason whatsoever, including any
failure of the Equipment or any representations by the manufacturer or the
vendor thereof. If the Equipment is unsatisfactory for any reason, Lessee shall
make any claim solely against the manufacturer or the vendor thereof and shall,
nevertheless, pay Lessor all Rent payable hereunder.
   2
            5.    SELECTION AND USE OF EQUIPMENT.  Lessee agrees that it shall
be responsible for the selection, use of, and results obtained from, the
Equipment and any other associated equipment or services.

            6.    WARRANTIES. LESSOR MAKES NO REPRESENTATION OR WARRANTY, 
EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION,
THE DESIGN OR CONDITION OF THE EQUIPMENT OR ITS MERCHANTABILITY, SUITABILITY,
QUALITY OR FITNESS FOR A PARTICULAR PURPOSE, AND HEREBY DISCLAIMS ANY SUCH
WARRANTY. LESSEE SPECIFICALLY WAIVES ALL RIGHTS TO MAKE A CLAIM AGAINST LESSOR
FOR BREACH OF ANY WARRANTY WHATSOEVER. LESSEE LEASES THE EQUIPMENT "AS IS." IN
NO EVENT SHALL LESSOR HAVE ANY LIABILITY FOR, NOR SHALL LESSEE HAVE ANY REMEDY
AGAINST LESSOR FOR, ANY LIABILITY, CLAIM, LOSS, DAMAGE OR EXPENSE CAUSED
DIRECTLY OR INDIRECTLY BY THE EQUIPMENT OR ANY DEFICIENCY OR DEFECT THEREOF OR
THE OPERATION, MAINTENANCE OR REPAIR THEREOF OR ANY CONSEQUENTIAL DAMAGES AS
THAT TERM IS USED IN SECTION 2-719(3) OF THE MODEL UNIFORM COMMERCIAL CODE OR
SIMILAR STATUTE ("UCC"). Lessor grants to Lessee, for the sole purpose of
prosecuting a claim, the benefits of any and all warranties made available by
the manufacturer or the vendor of the Equipment to the extent assignable.

            7.    DELIVERY.  Lessor hereby appoints Lessee as Lessor's agent for
the sole and limited purpose of accepting delivery of the Equipment from each
vendor thereof. Lessee shall pay any and all delivery and installation charges.
Lessor shall not be liable to Lessee for any delay in, or failure of, delivery
of the Equipment.

            8.    RENEWAL. So long as no Event of Default or event, which with 
the giving of notice, the passage of time, or both, would constitute an Event of
Default, shall have occurred and be continuing, or the Lessee shall not have
exercised its purchase option under Paragraph 9 hereof, the Lease will
automatically renew for a term of twelve months (the "Renewal Term") on the
terms and conditions set forth in the applicable Schedule, provided, however,
that obligations due to be performed by the Lessee during the Renewal Term shall
continue until they have been performed in full. The monthly rental payments for
the Renewal Term shall be equal to 1.25% of the equipment cost plus any monthly
sales or use tax.

            9.    PURCHASE OPTION. So long as no Event of Default or event 
which, with the giving of notice, the passage of time, or both, would constitute
an Event of Default, shall have occurred and be continuing, Lessee may, upon
written notice to Lessor received at least one hundred eighty days before the
expiration of a Term, purchase all, but not less than all, the Equipment covered
by the applicable Lease on the date specified therefor in the applicable
Schedule ("Purchase Date"). The purchase price for such Equipment shall be its
fair market value on an "In-place, In-use" basis, as mutually agreed by Lessor
and Lessee, or, if they cannot agree, as determined by an independent appraiser
selected by Lessor and approved by Lessee, which approval will not be
unreasonably delayed or withheld. Lessee shall pay the cost of any such
appraisal. Notwithstanding the generality of the foregoing, Lessor and Lessee
agree that on the Purchase Date, the fair market value of the Equipment shall
not be less than 12.5% of equipment cost. So long as no Event of Default or
event which, with the giving of notice, the passage of time, or both, would
constitute an Event of Default, shall have occurred and be continuing, Lessee
may, upon written notice to Lessor received at least one hundred eighty days
prior to the expiration of the Renewal Term, purchase all, but not less than
all, the Equipment covered by the applicable Schedule by the date specified
therein (the "Second Purchase Date") at a purchase price equal to its then fair
market value on an "In-place, In-use" basis. On the Purchase Date or the Second
Purchase Date, as the case may be, for any Equipment, Lessee shall pay to Lessor
the applicable purchase price, together with all sales and other taxes
applicable to the transfer of such Equipment and any other amount payable
hereunder, in immediately available funds, whereupon Lessor shall transfer to
Lessee, without recourse or warranty of any kind, express or implied, all of the
Lessor's right, title and interest in and to such Equipment on an "As is, Where
is" basis.

            10.   OWNERSHIP; INSPECTION; MARKING; FINANCING STATEMENTS. Lessee
shall affix to the Equipment any labels supplied by Lessor indicating ownership
of such Equipment. The Equipment is and shall be the sole property of Lessor.
Lessee shall have no right, title or interest therein, except as lessee under a
Lease. The Equipment is and shall at all times be and remain personal property
and 

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shall not become a fixture, other than Equipment consisting of tenant
improvements. Lessee shall obtain and record such instruments and take such
steps as may be necessary to prevent any Person from acquiring any rights in the
Equipment, other than Equipment consisting of tenant improvements, by reason of
the Equipment being claimed or deemed to be real property. Upon request by
Lessor, Lessee shall obtain and deliver to Lessor valid and effective waivers,
in recordable form, by the owners, landlords and mortgagees of the real property
upon which the Equipment is located or certificates of Lessee that it is the
owner of such real property or that such real property is neither leased nor
mortgaged. Lessee shall make the Equipment and its maintenance records available
for inspection by Lessor at reasonable times and upon reasonable notice. Lessee
shall execute and deliver to Lessor for filing any UCC financing statements or
similar documents Lessor may request.

            11.   EQUIPMENT USE. Lessee agrees that the Equipment will be 
operated by competent, qualified personnel in connection with Lessee's business
for the purpose for which the Equipment was designed and in accordance with
applicable operating instructions, laws and government regulations, and that
Lessee shall use every reasonable precaution to prevent loss or damage to the
Equipment from fire and other hazards. Lessee shall procure and maintain in
effect all orders, licenses, certificates, permits, approvals and consents
required by federal, state or local laws or by any governmental body, agency or
authority in connection with the delivery, installation, use and operation of
the Equipment.

            12.   MAINTENANCE. Lessee, at its sole cost and expense, shall keep
the Equipment in a suitable environment as specified by the manufacturer's
guidelines or the equivalent and meet all recertification requirements, and
shall maintain the Equipment in its original condition and working order,
ordinary wear and tear excepted. At the request of Lessor, Lessee shall furnish
all proof of maintenance.

            13.   ALTERATION; MODIFICATIONS; PARTS. Lessee may alter or modify 
the Equipment only with the prior written consent of Lessor. Any alteration
shall be removed and the Equipment restored to its normal, unaltered condition
at Lessee's expense (without damaging the Equipment's originally intended
function or its value) prior to its return to Lessor. Any part installed in
connection with warranty or maintenance service or which cannot be removed in
accordance with the preceding sentence shall be the property of Lessor.

            14.   RETURN OF EQUIPMENT. Except for Equipment that has suffered a
Casualty Loss (as defined in Paragraph 15 below) and is not required to be
repaired pursuant to Paragraph 15 below or Equipment purchased by Lessee
pursuant to Paragraph 9 above, upon expiration or termination of the Term or the
Renewal Term of a Lease, or upon demand by Lessor pursuant to Paragraph 22
below, Lessee shall contact Lessor for shipping instructions and, at Lessee's
own risk, immediately return the Equipment, freight prepaid, to a location in
the continental United States specified by Lessor. At the time of such return to
Lessor, the Equipment shall (i) be in the operating order, repair and condition
as required by or specified in the original specifications and warranties of
each manufacturer and vendor thereof, ordinary wear and tear excepted, and meet
all recertification requirements and (ii) be capable of being immediately
assembled and operated by a third party purchaser or third party lessee without
further repair, replacement, alterations or improvements, and in accordance and
compliance with any and all statutes, laws, ordinances, rules and regulations of
any governmental authority or any political subdivision thereof applicable to
the use and operation of the Equipment. Except as otherwise provided under
Paragraph 9 hereof, at least one hundred eighty days before the expiration of
the Renewal Term, Lessee shall give Lessor notice of its intent to return the
Equipment at the end of such Renewal Term. During the one hundred eighty-day
period prior to the end of a Term or the Renewal Term, Lessor and its
prospective purchasers or lessees shall have the right of access to the premises
on which the Equipment is located to inspect the Equipment, and Lessee shall
cooperate in all other respects with Lessor's remarketing of the Equipment. The
provisions of this Paragraph 14 are of the essence of the Lease, and upon
application to any court of equity having jurisdiction in the premises, Lessor
shall be entitled to a decree against Lessee requiring specific performance of
the covenants of Lessee set forth in this Paragraph 14. If Lessee fails to
return Equipment when required, the terms and conditions of the Lease shall
continue to be applicable and Lessee shall continue to pay Rent until the
Equipment is received by Lessor.

            15.   CASUALTY INSURANCE; LOSS OR DAMAGE. Lessee will maintain, at 
its own expense, liability and property damage insurance relating the Equipment,
insuring against such risks as are customarily insured against on the type of
equipment leased hereunder by businesses in which Lessee is engaged in such
amounts, in such form, and with insurers satisfactory to Lessor; provided,
however, that the 

                                       3
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amount of insurance against damage or loss shall not be less than the greater of
(a) the replacement value of the Equipment and (b) the stipulated loss value of
the Equipment specified in the applicable Schedule ("Stipulated Loss Value").
Each liability insurance policy shall provide coverage (including contractual
and personal injury coverage) of not less than $1,000,000 for each occurrence,
name Lessor as an additional insured and be primary as respects of any other
insurance. Each property damage policy shall name Lessor as sole loss payee and
all policies shall contain a clause requiring the insurer to give Lessor at
least thirty days prior written notice of any alteration in the terms or
cancellation of the policy. Lessee shall furnish a copy of each insurance policy
(with endorsements) or other evidence satisfactory to Lessor that the required
insurance coverage is in effect; provided, however, Lessor shall have no duty to
ascertain the existence of or to examine the insurance policies to advise Lessee
if the insurance coverage does not comply with the requirements of this
Paragraph. If Lessee fails to insure the Equipment as required, Lessor shall
have the right but not the obligation to obtain such insurance, and the cost of
the insurance shall be for the account of Lessee due as part of the next due
Rent. Lessee consents to Lessor's release, upon its failure to obtain
appropriate insurance coverage, of any and all information necessary to obtain
insurance with respect to the Equipment or Lessor's interest therein.

            Until the Equipment is returned to and received by Lessor as
provided in Paragraph 14 above, Lessee shall bear the entire risk of theft or
destruction of, or damage to, the Equipment including, without limitation, any
condemnation, seizure or requisition of title or use ("Casualty Loss"). No
Casualty Loss shall relieve Lessee from its obligations to pay Rent except as
provided in clause (b) below. When any Casualty Loss occurs, Lessee shall
immediately notify Lessor and, at the option of Lessor, shall promptly (a) place
such Equipment in good repair and working order; or (b) pay Lessor an amount
equal to the Stipulated Loss Value of such Equipment and all other amounts
(excluding Rent) payable by Lessee hereunder, together with a late charge on
such amounts at a rate per annum equal to the rate imputed in the Rent payments
hereunder (as reasonably determined by Lessor) from the date of the Casualty
Loss through the date of payment of such amounts, whereupon Lessor shall
transfer to Lessee, without recourse or warranty (express or implied), all of
Lessor's interest, if any, in and to such Equipment on an "AS IS, WHERE IS"
basis. The proceeds of any insurance payable with respect to the Equipment shall
be applied, at the option of Lessor, either towards (i) repair of the Equipment
or (ii) payment of any of Lessee's obligations hereunder. Lessee hereby appoints
Lessor as Lessee's attorney-in-fact to make claim for, receive payment of, and
execute and endorse all documents, checks or drafts issued with respect to any
Casualty Loss under any insurance policy relating to the Equipment.

            16.   TAXES. Lessee shall pay when due, and indemnify and hold 
Lessor harmless from, all sales, use, excise and other taxes, charges, and fees
(including, without limitation, income, franchise, business and occupation,
gross receipts, sales, use, licensing, registration, titling, personal property,
stamp and interest equalization taxes, levies, imposts, duties, charges or
withholdings of any nature), and any fines, penalties or interest thereon,
imposed or levied by any governmental body, agency or tax authority upon or in
connection with the Equipment, its purchase, ownership, delivery, leasing,
possession, use or relocation of the Equipment or otherwise in connection with
the transactions contemplated by each Lease or the Rent thereunder, excluding
taxes on or measured by the net income of Lessor. Upon request, Lessee will
provide proof of payment. Unless Lessor elects otherwise, Lessor will pay all
property taxes on the Equipment for which Lessee shall reimburse Lessor promptly
upon request. Lessee shall timely prepare and file all reports and returns which
are required to be made with respect to any obligation of Lessee under this
Paragraph 16. Lessee shall, to the extent permitted by law, cause all billings
of such fees, taxes, levies, imposts, duties, withholdings and governmental
charges to be made to Lessor in care of Lessee. Upon request, Lessee will
provide Lessor with copies of all such billings.

            17.   LESSOR'S PAYMENT. If Lessee fails to perform its obligations
under Paragraph 15 or 16 above, or Paragraph 23 below, Lessor shall have the
right to substitute performance, in which case, Lessee shall immediately
reimburse Lessor therefor.

            18.   GENERAL INDEMNITY. Each Lease is a net lease. Therefore, 
Lessee shall indemnify Lessor and its successors and assigns against, and hold
Lessor and its successors and assigns harmless from, any and all claims,
actions, damages, obligations, liabilities and all costs and expenses,
including, without limitation, legal fees, incurred by Lessor or its successors
and assigns arising out of each Lease including, without limitation, the
purchase, ownership, delivery, lease, possession, maintenance, condition, use or
return of the Equipment, or arising by operation of law. Lessee agrees that upon
written 

                                       4
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notice by Lessor of the assertion of any claim, action, damage, obligation,
liability or lien, Lessee shall assume full responsibility for the defense
thereof. Any payment pursuant to this Paragraph (except for any payment of Rent)
shall be of such amount as shall be necessary so that, after payment of any
taxes required to be paid thereon by Lessor, including taxes on or measured by
the net income of Lessor, the balance will equal the amount due hereunder. The
provisions of this Paragraph with regard to matters arising during a Lease shall
survive the expiration or termination of such Lease.

            19.   ASSIGNMENT BY LESSEE.  Lessee shall not, without the prior 
written consent of Lessor, (a) assign, transfer, pledge or otherwise dispose of
any Lease or Equipment, or any interest therein; (b) sublease or lend any
Equipment or permit it to be used by anyone other than Lessee and its employees;
or (c) move any Equipment from the location specified for it in the applicable
Schedule, except that Lessee may move Equipment to another location within the
United States provided that Lessee has delivered to Lessor (A) prior written
notice thereof and (B) duly executed financing statements and other agreements
and instruments (all in form and substance satisfactory to Lessor) necessary or,
in the opinion of the Lessor, desirable to protect Lessor's interest in such
Equipment. Notwithstanding anything to the contrary in the immediately preceding
sentence, Lessee may keep any Equipment consisting of motor vehicles or rolling
stock at any location in the United States.

            20.   ASSIGNMENT BY LESSOR. Lessor may assign its interest or grant 
a security interest in any Lease and the Equipment individually or together, in
whole or in part. If Lessee is given written notice of any such assignment, it
shall immediately make all payments of Rent and other amounts hereunder directly
to such assignee. Each such assignee shall have all of the rights of Lessor
under each Lease assigned to it. Lessee shall not assert against any such
assignee any set-off, defense or counterclaim that Lessee may have against
Lessor or any other person.

            21.   DEFAULT; NO WAIVER. Lessee or any guarantor of any or all of 
the obligations of Lessee hereunder (together with Lessee, the "Lease Parties")
shall be in default under each Lease upon the occurrence of any of the following
events (each, an "Event of Default"): (a) Lessee fails to pay when due any
amount required to be paid by Lessee under or in connection with any Lease; (b)
any of the Lease Parties fails to perform any other provisions under or in
connection with a Lease or violates any of the covenants or agreements of such
Lease Party under or in connection with a Lease; (c) any representation made or
financial information delivered or furnished by any of the Lease Parties under
or in connection with a Lease shall prove to have been inaccurate in any
material respect when made; (d) any of the Lease Parties makes an assignment for
the benefit of creditors, whether voluntary or involuntary, or consents to the
appointment of a trustee or receiver, or if either shall be appointed for any of
the Lease Parties or for a substantial part of its property without its consent
and, in the case of any such involuntary proceeding, such proceeding remains
undismissed or unstayed for forty-five days following the commencement thereof;
(e) any petition or proceeding is filed by or against any of the Lease Parties
under any Federal or State bankruptcy or insolvency code or similar law and, in
the case of any such involuntary petition or proceeding, such petition or
proceeding remains undismissed or unstayed for forty-five days following the
filing or commencement thereof, or any of the Lease Parties takes any action
authorizing any such petition or proceeding; (f) any of the Lease Parties fails
to pay when due any indebtedness for borrowed money or under conditional sales
or installment sales contracts or similar agreements, leases or obligations
evidenced by bonds, debentures, notes or other similar agreements or instruments
to any creditor (including Lessor under any other agreement) after any and all
applicable cure periods therefor shall have elapsed; (g) any judgment shall be
rendered against any of the Lease Parties which shall remain unpaid or unstayed
for a period of sixty days; (h) any of the Lease Parties shall dissolve,
liquidate, wind up or cease its business, sell or otherwise dispose of all or
substantially all of its assets make any material change in its capital
structure or lines of business, amend or modify its name, merge or consolidate
with any other entity, suffer any loss or suspension of any license, permit or
other right or asset necessary to the profitable conduct of its business, fail
to pay its debts as they mature, or call a meeting for purposes of compromising
its debts; (i) any of the Lease Parties shall deny or disaffirm its obligations
hereunder or under any of the documents delivered in connection herewith; (j)
there is a change in the ownership of any equity or ownership interest of any of
the Lease Parties or any such interest becomes subject to any contractual,
judicial or statutory lien, charge, security interest or encumbrance; or (k)
Lessor, in its reasonable judgment, shall deem itself insecure.

                                       5
   6
            22.   REMEDIES. Upon the occurrence and continuation of an Event of
Default, Lessor shall have the right, in its sole discretion, to exercise any
one or more of the following remedies: (a) terminate each Lease; (b) declare any
and all Rent and other amounts then due and any and all Rent and other amounts
to become due under each Lease immediately due and payable; (c) take possession
of any or all items of Equipment, wherever located, without demand, notice,
court order or other process of law, and without liability for entry to Lessee's
premises, for damage to Lessee's property or otherwise; (d) demand that Lessee
return any or all Equipment to Lessor in accordance with Paragraph 14 above,
and, for each day that Lessee shall fail to return any item of Equipment, Lessor
may demand an amount equal to the Rent payable for such Equipment in accordance
with Paragraph 14 above; (e) lease, sell or otherwise dispose of the Equipment
in a commercially reasonable manner, with or without notice and on public or
private bid; (f) recover the following amounts from the Lessee (as damages,
including reimbursement of costs and expenses, liquidated for all purposes and
not as a penalty): (i) all costs and expenses of Lessor reimbursable to it
hereunder, including, without limitation, expenses of disposition of the
Equipment, legal fees and all other amounts specified in Paragraph 23 below;
(ii) an amount equal to the sum of (A) any accrued and unpaid Rent through the
later of (1) the date of the applicable default or (2) the date that Lessor has
obtained possession of the Equipment or such other date as Lessee has made an
effective tender of possession of the Equipment to Lessor (the "Default Date")
and (B) if Lessor resells or re-lets the Equipment, Rent at the periodic rate
provided for in each Lease for the additional period that it takes Lessor to
resell or re-let all of the Equipment; (iii) the present value of all future
Rent reserved in the Leases and contracted to be paid over the unexpired Term of
the Leases discounted at five percent simple interest per annum; (iv) the
residual value of the Equipment as of the expiration of the Term of the
applicable Lease, which the parties agree to be twenty-five percent (25%) of the
original cost of the Equipment; and (v) any indebtedness for Lessee's indemnity
under Paragraph 18 above, plus a late charge at the rate specified in Paragraph
3 above, less the amount received by Lessor, if any, upon sale or re-let of the
Equipment; and (g) exercise any other right or remedy to recover damages or
enforce the terms of the Leases. Lessor may pursue any other rights or remedies
available at law or in equity, including, without limitation, rights or remedies
seeking damages, specific performance and injunctive relief. Any failure of
Lessor to require strict performance by Lessee, or any waiver by Lessor of any
provision hereunder or under any Schedule, shall not be construed as a consent
or waiver of any other breach of the same or of any other provision. Any
amendment or waiver of any provision hereof or under any Schedule or consent to
any departure by Lessee herefrom or therefrom shall be in writing and signed by
Lessor.

            No right or remedy is exclusive of any other provided herein or
permitted by law or equity. All such rights and remedies shall be cumulative and
may be enforced concurrently or individually from time to time.

            23.   LESSOR'S EXPENSE. Lessee shall pay Lessor on demand all fees 
and expenses in protecting and enforcing Lessor's rights and interests in each
Lease and the Equipment, including, without limitation, legal, collection and
remarketing fees and expenses incurred by Lessor in enforcing the terms,
conditions or provisions of each Lease upon the occurrence and continuation of
an Event of Default.

            24.   LESSEE'S WAIVERS. To the extent permitted by applicable law,
Lessee hereby waives any and all rights and remedies conferred upon a lessee by
Sections 2A-508 through 2A-522 of the UCC. To the extent permitted by applicable
law, Lessee also hereby waives any rights now or hereafter conferred by statute
or otherwise which may require Lessor to sell, lease or otherwise use any
Equipment in mitigation of Lessor's damages as set forth in Paragraph 22 above
or which may otherwise limit or modify any of Lessor's rights or remedies under
Paragraph 22. Any action by Lessee against Lessor for any default by Lessor
under any Lease shall be commenced within one year after any such cause of
action accrues.

            25.   NOTICES; ADMINISTRATION. Except as otherwise provided herein,
all notices, approvals, consents, correspondence or other communications
required or desired to be given hereunder shall be given in writing and shall be
delivered by overnight courier, hand delivery or certified or registered mail,
postage prepaid, if to Lessor, then to Technology Finance Division, 406
Farmington Avenue, Farmington, Connecticut 06032, Attention: Assistant Vice
President, Lease Administration, with a copy to Lessor at Riverway II, West
Office Tower, 9399 West Higgins Road, Rosemont, Illinois 60018, Attention: Legal
Department, if to Lessee, then to La Jolla Pharmaceutical Company, 6455 Nancy
Ridge Drive, San Diego, California 92121, Attention: Vice President and Chief
Financial Officer or such other address as shall be 

                                       6
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designated by Lessee or Lessor to the other party. All such notices and
correspondence shall be effective when received.

            26.   REPRESENTATIONS. Lessee represents and warrants to Lessor that
(a) Lessee is duly organized, validly existing and in good standing under the
laws of the State of its incorporation; (b) the execution, delivery and
performance by Lessee of this Agreement are within Lessee's powers, have been
duly authorized by all necessary action, and do not contravene (i) Lessee's
organizational documents or (ii) any law or contractual restriction binding on
or affecting Lessee; (c) no authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by Lessee of this
Agreement; and (d) each Lease constitutes the legal, valid and binding
obligations of Lessee enforceable against Lessee in accordance with its terms.

            27.   FURTHER ASSURANCES. Lessee, upon the request of Lessor, will
execute, acknowledge, record or file, as the case may be, such further documents
and do such further acts as may be reasonably necessary, desirable or proper to
carry out more effectively the purposes of this Agreement. Lessee hereby
appoints Lessor as its attorney-in-fact to execute on behalf of Lessee and
authorizes Lessor to file without Lessee's signature any UCC financing
statements and amendments Lessor deems advisable.

            28.   FINANCIAL STATEMENTS. Lessee shall deliver to Lessor; (a) as
soon as available, but not later than 120 days after the end of each fiscal year
of Lessee and its consolidated subsidiaries, the consolidated balance sheet,
income statement and statements of cash flows and shareholders equity for Lessee
and its consolidated subsidiaries (the "Financial Statements") for such year,
reported on by independent certified public accountants without an adverse
qualification; and (b) as soon as available, but not later than 60 days after
the end of each of the first three fiscal quarters in any fiscal year of Lessee
and its consolidated subsidiaries, the Financial Statements for such fiscal
quarter, together with a certification duly executed by a responsible officer of
Lessee that such Financial Statements have been prepared in accordance with
generally accepted accounting principles and are fairly stated in all material
respects (subject to normal year-end audit adjustments).

            29.   CONSENT TO JURISDICTION. Lessee irrevocably submits to the
jurisdiction of any Illinois state or federal court sitting in Illinois for any
action or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby, and Lessee irrevocably agrees that all claims
in respect of any such action or proceeding may be heard and determined in such
Illinois state or federal court.

            30.   WAIVER OF JURY TRIAL.  LESSEE AND LESSOR IRREVOCABLY WAIVE ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF 
OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

            31.   FINANCE LEASE. Lessee and Lessor agree that each Lease is a
"Finance Lease" as defined by Section 2A-103(g) of the UCC. Lessee acknowledges
that Lessee has reviewed and approved each written Supply Contract (as defined
by UCC 2A-103(y)) covering Equipment purchased from each "Supplier" (as defined
by UCC 2A-103(x)) thereof.

            32.   NO AGENCY. Lessee acknowledges and agrees that neither the
manufacturer or supplier, nor any salesman, representative or other agent of the
manufacturer or supplier, is an agent of Lessor. No salesman, representative or
agent of the manufacturer or supplier is authorized to waive or alter any term
or condition of this Agreement or any Schedule and no representation as to the
Equipment or any other matter by the manufacturer or supplier shall in any way
affect Lessee's duty to pay Rent and perform its other obligations as set forth
in this Agreement or any Schedule.

            33.   SPECIAL TAX INDEMNIFICATION. Lessee acknowledges that Lessor, 
in determining the Rent due hereunder, has assumed that certain tax benefits as
are provided to an owner of property under the Internal Revenue Code of 1986, as
amended (the "Code"), and under applicable state tax law, including, without
limitation, depreciation deductions under Section 168(b) of the Code, and
deductions under Section 163 of the Code in an amount at least equal to the
amount of interest paid or accrued by Lessor with respect to any indebtedness
incurred by Lessor in financing its purchase of the Equipment, are available to

                                       7
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Lessor as a result of the lease of the Equipment. In the event Lessor is unable
to obtain such tax benefits for any reason, is required to include in income any
amount other than the Rent or is required to recognize income in respect of the
Rent earlier than anticipated pursuant to this Agreement, Lessee shall pay
Lessor additional rent ("Additional Rent") in a lump sum in an amount needed to
provide Lessor with the same after-tax yield and after-tax cash flow as would
have been realized by Lessor had Lessor (i) been able to obtain such tax
benefits, (ii) not been required to include any amount in income other than the
Rent and (iii) not been required to recognize income in respect of the Rent
earlier than anticipated pursuant to this Agreement. The Additional Rent shall
be computed by Lessor, which computation shall be binding on Lessee. The
Additional Rent shall be due immediately upon written notice by Lessor to Lessee
of Lessor's inability to obtain tax benefits, the inclusion of any amount in
income other than the rent or the recognition of income in respect of the Rent
earlier than anticipated pursuant to the Agreement. The provisions of this
Paragraph 33 shall survive the termination of this Agreement.

            34.   GOVERNING LAW; SEVERABILITY.  EACH LEASE SHALL BE GOVERNED BY 
THE LAWS OF THE STATE OF ILLINOIS. IF ANY PROVISION SHALL BE HELD TO BE INVALID
OR UNENFORCEABLE, THE VALIDITY AND ENFORCEABILITY OF THE REMAINING PROVISIONS
SHALL NOT IN ANY WAY BE AFFECTED OR IMPAIRED.

LESSEE ACKNOWLEDGES THAT LESSEE HAS READ THIS AGREEMENT AND THE SCHEDULE HERETO,
UNDERSTANDS THEM, AND AGREES TO BE BOUND BY THEIR TERMS AND CONDITIONS. FURTHER,
LESSEE AND LESSOR AGREE THAT THIS AGREEMENT AND THE SCHEDULES DELIVERED IN
CONNECTION HEREWITH FROM TIME TO TIME ARE THE COMPLETE AND EXCLUSIVE STATEMENT
OF THE AGREEMENT BETWEEN THE PARTIES, SUPERSEDING ALL PROPOSALS OR PRIOR
AGREEMENTS, ORAL OR WRITTEN, AND ALL OTHER COMMUNICATIONS BETWEEN THE PARTIES
RELATING TO THE SUBJECT MATTER HEREOF.

            IN WITNESS WHEREOF, the parties hereto have executed or caused this
Master Lease Agreement to be duly executed by their duly authorized officers as
of this 20th day of December, 1996.

                           LA JOLLA PHARMACEUTICAL COMPANY
                           By   /s/ Wood C. Erwin
                              ----------------------------------
                              Title: Vice President and Chief Financial Officer
                              FED ID NO. 330-36-128
                                         ----------

                           TRANSAMERICA BUSINESS CREDIT
                           CORPORATION
                           By   /s/ Gary P. Moro
                              ----------------------------------
                              Title:  Vice President

                                       8

EX-10.35

   1

                                                                   EXHIBIT 10.35

***   DESIGNATED PORTIONS OF THIS EXHIBIT 10.35 HAVE BEEN OMITTED AND FILED
      SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
      REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 24b-2 OF THE SECURITIES AND
      EXCHANGE ACT OF 1934.


                          LICENSE AND SUPPLY AGREEMENT

      This License and Supply Agreement ("Agreement") is made and entered into
as of the 23rd day of December, 1996 ("Effective Date") by and between LA JOLLA
PHARMACEUTICAL COMPANY, a corporation organized and existing under the laws of
the State of Delaware and having its principal office at 6455 Nancy Ridge Drive,
San Diego, California, USA 92121 ("LJP"), and ABBOTT LABORATORIES, a corporation
organized and existing under the laws of the State of Illinois, and having its
principal office at 100 Abbott Park Road, Abbott Park, Illinois, USA 60064-3500
("Abbott").

      WHEREAS, LJP has expertise regarding research and development and has
developed a novel and patented technology for the treatment of Systemic Lupus
Erythematosus ("SLE");

      WHEREAS, Abbott has expertise regarding research and development, clinical
development, marketing and sale of pharmaceutical products;

      WHEREAS, LJP has identified a candidate compound (LJP 394) currently in
Phase II/III clinical trials and suitable for further development as a drug for
the treatment of SLE; and

      WHEREAS, Abbott and LJP are interested in collaborating in the development
and marketing of LJP 394 and/or related compounds thereof;

      NOW, THEREFORE, for and in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:


                                       1
   2
                                    ARTICLE I
                                   DEFINITIONS

      For purposes of this Agreement, the following terms shall be defined as
set forth below. Additional terms used in specific Sections of this Agreement
shall be defined in such Sections .

      1.1 "ABBOTT REGULATORY KNOW-HOW" shall mean all Abbott owned or controlled
present and future non-patented and unpublished regulatory documentation,
information and data, as well as the organization and compilation of the data,
including but not limited to all the data and information contained in
governmental registrations required for marketing Product.

      1.2 "ABBOTT TRADEMARKS" shall mean the trademarks Abbott selects for and
applies to the Product in the Territory in accordance with Section 9.1 of this
Agreement.

      1.3 "AFFILIATE" shall mean any business entity controlled by a Party (as
defined below), or which controls a Party, or which is under common control with
a Party. "Control" herein means the direct or indirect ownership of more than
fifty percent (50%) of the authorized issued voting shares in such entity, or
such other relationship as results in effective control over the management,
business and affairs of such entity or Party, as the case may be. A business
entity shall be deemed an Affiliate of a Party only so long as such control
relationship exists. For purposes of this Agreement, Abbott Affiliates shall
also include the following entities: ***. For purposes of this Agreement, Abbott
Affiliates shall exclude TAP Holdings, Inc., and TAP Pharmaceuticals, Inc.

      1.4 "ANNUAL NET SALES" shall mean Net Sales (as defined below) recorded in
any calendar year.

      1.5   "BACK-UP COMPOUNDS" shall mean compounds other than LJP 394 that
***.


                                       2
   3
      1.6 "CALENDAR QUARTER" shall mean each of the three (3) month periods
beginning on January 1, April 1, July 1 and October 1 of each year during the
Term (as defined below).

      1.7 "COMBINATION PRODUCT" shall mean a pharmaceutical product containing
the Product (as defined below) and at least one (1) other therapeutically active
ingredient.

      1.8 "COMMERCIALLY REASONABLE EFFORTS" shall mean a level of effort by a
Party equivalent to the degree of the effort the Party uses to develop (for
purposes of Section 6.1), file and obtain Regulatory Approvals (for purposes of
Section 6.1(A and C)), launch (for purposes of Section 7.1), market (for
purposes of Section 7.2), obtain patent extension for (for purposes of Section
11.1), prevent unauthorized export or sale of (for purposes of Section 20.1
(D)), or manufacture and supply (for purposes of Sections 1.2, 4.2 (D) and 5 of
the Supply Agreement), as applicable, products having a comparable proprietary
position and market potential as the Product in the applicable countries during
the same time period.

      1.9   "COMPETING PRODUCT" shall mean ***.


                                       3
   4
      1.10 "COMPETITION" shall mean the presence on the market in a given
country where no Valid Claims exist of a product chemically similar or
functionally equivalent to the Product marketed and sold by one or more third
parties.

      1.11 "DEVELOPMENT PLAN" shall mean the Product Development Plan pursuant
to Section 6.3 (A) as the same may be modified from time to time pursuant to
Section 6.3 (B). The plan will include all development activities including, but
not limited to, ***.

      1.12 "EFFECTIVE DATE" shall mean the date set forth on the first page of
this Agreement.

      1.13 "EMEA" shall mean European Medicines Evaluation Agency or any
successor agency thereto.

      1.14 "FULLY-BURDENED DEVELOPMENT COST" shall have the meaning set forth in
Appendix B attached hereto and made a part hereof.

      1.15 "FULLY-BURDENED MANUFACTURING COST" shall have the meaning set forth
in Appendix C attached hereto and made a part hereof.

      1.16 "INITIAL COMMERCIAL SALE" shall mean the first commercial sale by
Abbott, or any Abbott Affiliate of Product to any third party customer.

      1.17 "INTERIM PRODUCT" shall mean the Substance formulated, filled and
packaged for development studies by LJP or its approved subcontractors.


                                       4
   5
      1.18 "LJP COMPOSITION PATENTS" shall mean (A) the LJP Patents (as defined
below) identified as LJP Composition Patents in Part I of Appendix D attached
hereto and made a part hereof (including any divisions, continuations,
continuations-in-part, reexaminations, reissues, additions, renewals and
extensions thereof), (B) any LJP Patents issued at any time during the Term from
LJP Patent Applications (as defined below) identified as LJP Compositions Patent
Applications in Part II of Appendix D (including any divisions, continuations,
continuations-in-part, reexaminations, reissues, additions, renewals and
extensions thereof) and (C) any composition of matter patents of LJP and its
Affiliates in the Territory issued at any time during the Term that claim the
priority of a United States LJP Composition Patent (including any divisions,
continuations, continuations-in-part, reexaminations, reissues, additions,
renewals and extensions thereof).

      1.19 "LJP MANUFACTURING KNOW-HOW" shall mean all non-patented and
unpublished documentation, information, and data relating to the formulation,
manufacture and/or quality control of the Substance or the Interim Product owned
or controlled by LJP and its Affiliates which LJP is not prohibited from
disclosing as of the Effective Date or at any time during the Term.

      1.20 "LJP NON-MANUFACTURING KNOW-HOW" shall mean any non-patented and
unpublished nonclinical, preclinical and clinical documentation, information and
data relating to the Substance or the Interim Product owned or controlled by LJP
and its Affiliates, which LJP is not prohibited from disclosing as of the
Effective Date or at anytime during the Term, including but not limited to,
documentation, information and data pertaining to development, Regulatory
Approval, quality control, quality assurance, formulation, marketing or sales of
the Substance, Interim Product or Product.

      1.21 "LJP PATENTS" shall mean the LJP patents identified in Part I of
Appendix D attached hereto and made a part hereof and all other issued patents
of LJP and its Affiliates in the Territory as of the Effective Date and other
patents of LJP and its Affiliates in the Territory issued at any time during the
Term that in each case would be infringed by the use, manufacture, having
manufactured, importation, offer for sale or sale or development of the
Substance or Product in the Territory (including any divisions, continuations,
continuations-in-part, reexaminations, reissues, additions, renewals and
extensions thereof). It is understood and agreed that where an LJP patent as
described above contains multiple claims, such patent shall be considered an LJP
Patent only with respect to the claims that would be


                                       5
   6
infringed by the use, manufacture, having manufactured, importation, offer for
sale, sale or development of the Substance (including as an element of the
Product) in the Territory , and LJP shall retain all right, title and interest
in and to the remaining claims of any such patent, free and clear of any rights
on the part of Abbott. LJP Patents in existence as of the Effective Date are set
forth in Part I of Appendix D and such Appendix shall be amended by LJP from
time to time during the Term to include future LJP Patents issuing from LJP
Patent Applications.

      1.22 "LJP PATENT APPLICATIONS" shall mean the LJP patent applications
identified in Part II of Appendix D and all other patent applications of LJP and
its Affiliates in the Territory as of the Effective Date and other patent
applications of LJP and its Affiliates in the Territory filed at any time during
the Term that could issue patents that, in each case would be infringed by the
use, manufacture, having manufactured, importation, offer for sale, sale or
development of the Substance or Product in the Territory including any
divisions, continuations, continuations-in-part, reexaminations, reissues,
additions, renewals and extensions thereof. LJP Patent Applications in existence
as of the Effective Date are set forth in Part II of Appendix D, and such
Appendix shall be amended by LJP from time to time during the Term to include
future LJP Patent Applications. It is understood and agreed that where an LJP
patent or patent application as describe above contains multiple claims, such
patent or patent application shall be considered an LJP Patent or LJP Patent
Application only with respect to the claims that would be infringed by the use,
manufacture, having


                                       6
   7
manufactured, importation, offer for sale, sale or development of the Substance
(including as an element of the Product) in the Territory, and LJP shall retain
all right, title and interest in and to the remaining claims of any such patent
or patent application, free and clear of any rights on the part of Abbott.

      1.23 "LJP PATENT RIGHTS" shall mean LJP Patents and LJP Patent
Applications.

      1.24  "MAJOR COUNTRIES" shall mean the following countries individually
or collectively, as applicable: France, Germany, Spain, the United Kingdom,
Italy.

      1.25  "MANUFACTURING SCALE-UP" shall mean: the definition as provided
in Appendix, B.

      1.26 "MANUFACTURING PLAN" shall mean the manufacturing plan as defined in
Section 3 of the Supply Agreement, Appendix G.

      1.27  "NET SALES" shall mean

            (A) With respect to the Product sold alone, the gross sales of the
Product in the Territory by Abbott, and its Affiliates to unrelated third party
customers (as defined below) to any national or local governments, hospitals,
drug wholesalers, pharmacies, and other third party customers (such as
distributors, agents, or Unaffiliated Sublicensees, surgicenters and other
institutions, the primary business of which is providing medical care), which
are not (except as otherwise provided in Section 4.5) Abbott Affiliates, less
the following deductions ("Deductions"): ***.


                                       7
   8
            (B) With respect to a Combination Product, the gross sales of such
Combination Product in the Territory by Abbott and its Affiliates to unrelated
third party customers except as otherwise provided in Section 4.5 less the
Deductions referenced in (A) above, multiplied by a fraction ***. The royalty
paid to LJP on the Combination Product will not be less than the royalty paid to
LJP on the Product sold alone. *** Notwithstanding the foregoing, in no event
shall the amount computed in accordance with the first sentence of this clause
(B) be less than ***.


                                       8
   9
             (C) With respect to the product when it is sold in a Premium
Delivery System (as defined below), an amount equal to ***. As used herein,
"Premium Delivery System" means a drug delivery system which comprises *** An
example calculation is provided in Appendix I.

      1.28 "PARTY" (and "PARTIES") shall mean either LJP or Abbott (or both), as
the context requires.

      1.29 "PRODUCT(S)" shall mean formulated, filled and packaged
pharmaceutical compositions and dosage units and the like containing the
Substance.

      1.30 "REGULATORY APPROVAL" shall mean all governmental approvals required
to market and sell the Product in any given country in the Territory, including
but not


                                       9
   10
      limited to, product registrations, medical approvals, and price and
marketing approvals. Such approvals must be based upon (i) LJP or any LJP
Affiliates or approved subcontractors as an approved manufacturer of the
Substance at LJP's or any LJP Affiliates' or approved subcontractor's
manufacturing facilities and (ii) to the extent required by applicable laws and
regulations such approvals must be based upon approval of Abbott with respect to
Abbott's finished Product filling, packaging and labeling facilities pursuant to
the Supply Agreement, Appendix G.

      1.31 "RENAL CARE" shall mean the field of care covering products ***.

      1.32 "SPECIFICATIONS" shall mean the quality and other specifications for
the Substance and the Interim Product to be manufactured by LJP or its
Affiliates or approved subcontractors for supply to Abbott, its Affiliates and
Unaffiliated Sublicensees, which Specifications shall comply with applicable
regulatory requirements and shall be based upon LJP's current specifications for
the Substance and the Interim Product included with LJP's U.S. IND (as defined
below). A copy of such current specifications is set forth in Appendix E
attached hereto and made a part hereof. Such Specifications shall be agreed upon
by the Parties in writing as soon as practicable after the Effective Date, but
in no event later than six (6) months thereafter, and may be amended from time
to time during the Term by written agreement of the Parties.

      1.33 "STOCK PURCHASE AGREEMENT" shall mean that certain Stock Purchase
Agreement between the Parties bearing even date herewith under which Abbott
shall purchase certain LJP common stock as described therein.


                                       10
   11
      1.34 "SUBSTANCE" shall mean LJP 394 as defined in Appendix A to this
Agreement, in bulk drug form.

      1.35 "TERM" shall mean the period commencing on the Effective Date and
continuing until ***.

      1.36  "TERRITORY" shall mean all countries, territories and other areas
of the world.

      1.37 "UNAFFILIATED SUBLICENSEE" shall mean any sublicensee of Abbott under
this Agreement other than an Abbott Affiliate.

      1.38  "U.S. FDA" shall mean the United States Food and Drug
Administration and any successor regulatory agency.

      1.39 "U.S. FD&C ACT" shall mean the United States Food, Drug and Cosmetic
Act, including any amendments thereto and all regulations promulgated
thereunder.

      1.40  "U.S. IND" shall mean an Investigational New Drug Application
filed with the U.S. FDA.

      1.41  "U.S. NDA" shall mean a New Drug Application filed with the U.S.
FDA.

      1.42 "VALID CLAIM" shall mean one (1) or more claims of an issued and
unexpired LJP Patent which neither has been held unenforceable, unpatentable or
invalid by a decision of a court or governmental agency of competent
jurisdiction, unappealable or unappealed within the time allowed for appeal, nor
has been admitted


                                       11
   12
by the holder of the LJP Patent to be invalid or unenforceable through reissue,
disclaimer, abandonment or otherwise.


                                   ARTICLE II
                        GRANT AND SCOPE OF RIGHTS GRANTED

      2.1 License Rights Granted - LJP hereby grants to Abbott and Abbott
Affiliates an exclusive license under LJP Patent Rights and LJP Non
Manufacturing Know-How to use, import, offer for sale, and sell the Product in
the Territory, which license shall be exclusive even as to LJP and its
Affiliates, except as provided in Section 2.2. LJP also hereby grants to Abbott
and Abbott Affiliates a non-exclusive, limited license under LJP Patent Rights
and LJP Manufacturing Know-How to make and have made the Substance and Product
in the Territory, solely in accordance with Article XIV, and Appendix G (Supply
Agreement).

      2.2 Manufacturing and Use Rights Reserved - Except as otherwise provided
in Article XIV and Appendix G (Supply Agreement), LJP retains the exclusive
right to manufacture or have manufactured the Substance, provided that Abbott
and its Affiliates shall have the right during the Term to use Substance
supplied by LJP hereunder ***. Notwithstanding Section 2.1, LJP retains the
right to use, but not market or sell the Substance, the Interim Product and the
Product and practice the LJP Patents to develop any product or to develop any
product or compound, including (without limitation) any Back-Up Compounds
subject to Sections 2.5 and 12.1.

      2.3 Use of LJP Non-Manufacturing Know-How and LJP Manufacturing Know-How -
Under the license granted pursuant to Section 2.1, Abbott shall have the right
to use and reference LJP Non-Manufacturing Know-How provided to Abbott by LJP in


                                       12
   13
support of ***. Under the license granted pursuant to Section 2.1, Abbott may
use LJP Manufacturing Know-How only upon receipt thereof in accordance with
Article XIV below and solely for the manufacture of the Substance and the
Product only to the extent authorized under Article XIV. Abbott shall limit
access to LJP Non-Manufacturing Know-How and LJP Manufacturing Know-How to those
Abbott personnel with a need to know at the time of disclosure to such
personnel, and such access shall be limited to the duration of such need to
know. Subject to the license rights granted hereunder, LJP retains all ownership
rights to all LJP Patent Rights, LJP Non-Manufacturing Know-How and LJP
Manufacturing Know-How.

      2.4 Sub-licensing - Abbott shall have the right to sublicense its rights
under this Agreement to Unaffiliated Sublicensees, provided that Abbott has
obtained LJP's prior written consent on a case-by-case basis, which consent
shall not be unreasonably withheld, and that such sub-licensing of Abbott's
rights shall not relieve Abbott of any obligations hereunder, including
obligations hereunder relating to the activities of its Unaffiliated
Sublicensees.

      2.5 Back up Compounds - During the Term, Abbott shall also have the right
to exclusively license from LJP and develop with LJP, Back up Compounds ***. LJP
shall give Abbott prompt written notice of any such Back up Compounds when
nominated for preclinical development. Abbott shall have *** from receipt of
such notice to give LJP written notice of Abbott's intention to negotiate with
LJP for rights to such Back up Compound.

      2.6 Other Compounds - During the Term, Abbott shall also have the right of
first negotiation to exclusively license compounds ***.


                                       13
   14
      LJP shall give Abbott prompt written notice of any such compounds when
nominated for preclinical development.  ***

      2.7 No Implied Licenses - Any rights not expressly granted by either Party
to the other Party in this Agreement are expressly reserved by the Party owning
or controlling such rights and, accordingly, no licenses other than those
specified herein shall be deemed granted by this Agreement by implication,
estoppel or otherwise.

      2.8   Affiliate Performance:  Abbott hereby guarantees the performance
of its Affiliates of all Abbott obligations under this Agreement.


                                   ARTICLE III
                               MILESTONE PAYMENTS

      3.1 Payments - In consideration of LJP's entering into this Agreement and
the rights and licenses granted to Abbott hereunder, during the Term Abbott
shall pay LJP milestone payments according to the following payment schedule,
consisting of the following milestone payments:

            (1) Effective Date - Within ten (10) business days after the
Effective Date, Abbott shall pay LJP Four Million Dollars ($4,000,000).


                                       14
   15
            (2)   ***

            (3)   ***

            (4)   ***

            (5)   ***


                                       15
   16
                  (a)   ***

                  (b)   ***

                  (c)   ***

      3.2 No Refundability - All milestone payments which Abbott is required to
make to LJP pursuant to Section 3.1 shall become payable upon the occurrence of
the applicable event, and shall be non-refundable once paid. However, if this
Agreement is terminated for any reason prior to a given milestone payment
becoming due or if the events specified for a given milestone payment do not
occur, then Abbott shall have no obligation to make such milestone payment.

                                   ARTICLE IV

                      ROYALTY RATES AND INCENTIVE PAYMENTS

      4.1 Royalty Rates - in further consideration of the rights and licenses
granted to Abbott hereunder, Abbott shall pay LJP royalties at the rates set
forth below:


                                       16
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            (A) The royalties shall apply on a country-by-country basis (i) ***
from Initial Commercial Sale in a Major Country or the United States or (ii)
***, or (iii) ***.

            (B) Countries without Competition - Abbott shall pay LJP an annual
royalty ("Full Royalty") calculated on the total worldwide aggregate Annual Net
Sales in the Territory excluding Net Sales in any country in which royalties are
no longer payable pursuant to Section 4.1 (A) during the time in which no
Competition exists in a particular country as follows:

                  (1)   on the portion less than ***

                  (2)   on the portion between ***

                  (3)   on the portion between ***; and

                  (4)   on the portion greater than ***.

             (C) Countries With Competition - In countries where Competition
exists, the "Full Royalty" shall be reduced, but only for so long as such
Competition exists, in a manner reflective of ***. Royalties shall be payable at
the Full Royalty rate until ***


                                       17
   18
      Any adjustments to the Full Royalty rate based on the existence of
Competition shall be calculated in accordance with the following formula:
                  (1) where Abbott's market share is *** than Abbott's market
share prior to the existence of Competition, the royalty shall be *** of the
applicable Full Royalty


                                       18
   19
                  (2) where Abbott's market share is *** of Abbott's market
share prior to the existence of Competition, the royalty shall be *** of the
applicable Full Royalty;

                  (3) where Abbott's market share is *** of Abbott's market
share prior to the existence of Competition, the reduced royalty shall be *** of
the applicable Full Royalty;

                  (4) where Abbott's market share is *** of Abbott's market
share prior to the existence of Competition, the royalty shall be *** of the
applicable Full Royalty, and

                  (5) where Abbott's market share is less than *** of Abbott's
market share prior to the existence of Competition, the reduced royalty shall be
*** of the applicable Full Royalty.

       ***

      Total worldwide aggregate Annual Net Sales figure shall determine the
applicable Full Royalty rate. The applicable Full Royalty rate shall then be
applied to Annual Net Sales in a particular country on a country-by-country
basis in accordance with the level of patent protection and Competition set
forth above.

            (D)      Royalty Calculation Example for Countries without
Competition

For illustration purposes, in a calendar year when Annual Net Sales in the
entire Territory are ***, the aggregate total royalty to LJP for countries
without Competition would be ***, calculated as follows:


                                       19
   20
***                     x           ***         =  ***

***                     x           ***         =  ***

***                     x           ***         =  ***

***                     x           ***         =  ***
                                    ---            ---
                                    ***            ***

            (E)   Royalty Calculation Example for Countries with Competition

For illustration purposes, in a calendar year when Annual Net Sales in the
entire Territory are ***, the aggregate total royalty to LJP for countries
without Competition would be ***, calculated as follows:

***                     x           ***         =  ***

***                     x           ***         =  ***

***                     x           ***         =  ***

***                     x           ***         =  ***
                                    ---            ---
                                    ***            ***

Average Royalty Rate                               ***

Royalty adjustments shall be made by Abbott on a country-by-country basis using
the average royalty rate reduced by the Abbott's local market share as follows:


                                       20
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Sales in Countries with Competition ***

Applicable Full Royalty Rate        ***

Royalty Due Before Adjustments      ***

            Market Share            Adjustment              Royalty Due

            ***                     ***                           ***



         4.2       Incentive Payments -

      (A) Incentive Payments Schedule - Abbott also shall pay LJP the following
one time only sales incentive payments for the first year during the Term in
which total worldwide aggregate Annual Net Sales achieve each of the following
milestone levels:


MILESTONE LEVEL                         INCENTIVE PAYMENT

Upon reaching Annual Net                ***
Sales levels of ***

Upon reaching Annual Net                ***
Sales levels of ***

Upon reaching Annual Net                ***
Sales levels of ***


                                       21
   22
Upon  reaching Annual Net               ***
Sales levels of ***

Upon  reaching Annual Net               ***
Sales levels of ***

TOTAL                                   ***


      Abbott shall make incentive payments within thirty (30) days of the end of
the Calendar Quarter in which the applicable milestone level is achieved.


      (B)   Incentive Payments Example



For illustration purposes, one time incentive payments shall be paid for the
calendar year in which the total worldwide aggregate Annual Net Sales achieve
the designated milestone levels as shown below:



Year                               Yr. 1   Yr.2   Yr. 3   Yr. 4   Yr. 5   Yr. 6   Yr. 7
                                   -----   ----   -----   -----   -----   -----   -----

                                                               
Annual Net Sales ($MM)              ***     ***     ***      ***     ***    ***     ***

One Time Incentive Payments ($MM)   ***     ***     ***      ***     ***    ***     ***



      4.3 Royalty Reports and Payments - Commencing with the first Calendar
Quarter in which Abbott, and its Affiliates make the Initial Commercial Sale,
Abbott shall provide LJP with a written report of Net Sales on a
country-by-country basis within *** after the last day of March, June, September
and December for royalties accruing on Net Sales in the United States during the
*** preceding calendar months and within *** after the last day of February,
May, August and


                                       22
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November for royalties accruing on Net Sales in the Territory outside of the
United States during the *** preceding calendar months. Concurrently with the
submission of each such written report, Abbott shall pay or cause to be paid to
LJP the total amount of royalties shown to be due thereon. In addition, Abbott
shall provide LJP with a total worldwide monthly preliminary sales estimate for
Product within *** after the last day of each ***.

      4.4 Currency- Abbott shall make all royalty and cost of goods payments to
LJP pursuant to Section 4.3 and all other payments due hereunder in U.S.
Dollars. Royalty and cost of goods and other payments earned shall be first
determined by Abbott in the currency of the country where the Net Sales were
made and then converted by Abbott directly to its equivalent in U.S. Dollars.
The rates of exchange for converting the currencies involved to U.S. Dollars as
quoted by the Wall Street Journal (Midwest Edition) as Foreign Exchange Rates
quoted in New York as market rate (bid) on the last business day of the
quarterly period in which the royalty and cost of goods payments were earned
shall be used by Abbott to determine such conversion rates.

      4.5 No Royalties Payable Between Affiliates - No royalties shall be
payable to LJP on sales between Abbott and its Affiliates or between Abbott
Affiliates unless the purchaser is the end user of the Product, in which case
royalties shall be payable as provided above.

      4.6 No Multiple Royalties - No multiple royalties shall be payable because
the Product, its manufacture, use, import, offer for sale or sale is or shall be
covered by multiple LJP Patents.


                                    ARTICLE V
                    PAYMENT, RECORD KEEPING AND AUDIT RIGHTS

      5.1 Method of Payment - All payments by either Party to the other Party
hereunder (including, but not limited to, Abbott's milestone and incentive
payments


                                       23
   24
under Sections 3.1 and 4.2 and royalty and costs of goods payments under Section
4.1 and Sections 6.2, 6.3, and 6.4 of Appendix G.) shall be made in U.S. Dollars
and without deduction of any withholdings for any purposes other than taxes, if
applicable, to the extent required by law. In the event of any tax withholding,
the paying Party will provide the receiving Party with any relevant certificates
or documents required for national, state or local tax credit and reporting
purposes. Payments hereunder shall not be creditable against any other amounts
payable by the other Party under this Agreement. Payments to LJP shall be made
by wire transfer to LJP's bank as follows:

         ***

Abbott shall provide LJP with appropriate wire transfer instructions for
payments to Abbott. Either Party may change wire instructions for payments to
that Party upon written notice to the other Party.
      5.2 Record Keeping and Audit Rights - Each Party shall keep or cause to be
kept accurate records relating to Net Sales, royalties, Fully Burdened
Development Costs, Fully-Burdened Manufacturing Costs, and any other costs and
expenses subject to payment or reimbursement by either Party to the other Party
in sufficient detail to enable the amounts payable hereunder to be determined.
Upon the written request of either Party (but not more frequently than once in
any calendar year), the requesting Party may retain a nationally-recognized,
independent certified public accountant,


                                       24
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subject to written approval by the other Party (which approval shall not be
unreasonably withheld), to review such records to verify the accuracy of the
payments made or payable hereunder. Such accountant shall be required to execute
a confidentiality agreement in a form reasonably acceptable to the audited Party
and shall report to the auditing Party only the amount of any underpayment or
overcharge. Within *** after completion of such review, the Parties shall
reconcile any underpayment or overcharge. The auditing Party shall pay the cost
of any review of records conducted at its request under this Section . However,
if the review establishes underpayment or overcharge by the audited Party of
over *** during the period of the review, the audited Party shall promptly
reimburse the auditing Party for the fees and expenses of the accountant. Such
audit rights shall survive termination or expiration of this Agreement, but may
be exercised by the Parties only with respect to records for the current
calendar year and the preceding ***.


                                   ARTICLE VI
                      PRODUCT DEVELOPMENT AND REGISTRATIONS

      6.1   Development and Registration Activities

            (A) Abbott Activities - In accordance with the Development Plan,
Abbott shall undertake development and registration activities for the Product
in the Territory, including but not limited to conducting or having conducted,
and completing or having completed, all clinical studies and other activities
required for Regulatory Approvals under the Development Plan. Abbott shall use
Commercially Reasonable Efforts to pursue such development and registration
activities under the Development Plan with the objective of filing applications
for Regulatory Approval throughout the Territory. Abbott's Regulatory Approvals
in the Territory shall be owned solely by Abbott.


                                       25
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            (B) LJP Access to Data - Abbott shall provide LJP, within a
reasonable time, with access to information and data reasonably requested by LJP
relating to Abbott's development and registration activities, including but not
limited to, medical and statistical study reports for individual studies,
clinical data summaries, and expert reports, but excluding Product registration
packages and registrations.

            (C) LJP Activities - Pursuant to the Development Plan, LJP shall use
Commercially Reasonable Efforts to assist Abbott in performing development and
registration activities for the Product in the Territory.

             (D) Health registrations - Abbott shall use Commercially Reasonable
Efforts to obtain all necessary Regulatory Approvals in the Territory taking
into account the relative importance of the individual markets on a per country
basis. Abbott and LJP shall keep each other informed concerning regulatory
filings for the Product. The parties agree that they will work together to
minimize regulatory issues that may become problems for one another. Abbott and
LJP also agree to keep one another fully informed of changes in the manufacture
of Substance or Products that may create regulatory issues for one another and
will work with one anther to minimize these issues. Abbott further agrees to use
its Commercially Reasonable Efforts to file for all Regulatory Approvals in the
United States and Major Countries for Products within *** from the Effective
Date.

            (E) Decision on United States/European Clinical Trials - Within ***
of the availability of the final Abbott approved scientific report from the
90-05 study, and any other United States or European major clinical study,
Abbott will inform LJP whether it has decided to file for Regulatory Approval,
initiate additional studies or terminate the Agreement pursuant to Section
19.4(C) or take other action after review with LJP, provided that any other
actions shall be mutually agreed upon.


                                       26
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      6.2 Development Costs - Commencing as of January 1, 1997 and continuing
for the remainder of the Term, Abbott shall bear the costs and expenses related
to clinical development for the Product, including toxicology, carcinogenicity,
process development, registration and regulatory activities, including costs of
filing, obtaining and maintaining all Regulatory Approvals throughout the
Territory, including existing obligations, such as the LJP 90-05 Study. Abbott
will transfer funds to LJP at LJP's Fully Burdened Development Cost as defined
in Appendix B, and excluding the activities being directly funded by Abbott.
Abbott will transfer these funds, as needed, at least *** in advance, on a
monthly rolling basis for each subsequent time period based on the approved
budget, except for the first payment, which shall be due on *** upon completion
of the Development Plan for the first Calendar Quarter. LJP shall bear the cost
of providing manufacturing capacity and Manufacturing Scale Up subject to
Appendix B and the Supply Agreement, Appendix G.

      6.3   Development Plan

            (A) Completion of Development Plan - The Parties shall in good faith
agree upon and complete the Development Plan within *** days after the Effective
Date. The Development Plan shall cover the detailed plans for various studies
including costs, timing, data management, adverse event reporting, etc., as well
as include language concerning diligence, delays and remedies for potential
problems. ***


                                       27
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            (B) Changes - The Parties recognize that LJP has developed a level
of clinical development capability, expertise and staffing and that it is LJP's
intention to maintain a clinical development team and it is Abbott's intention
to access the capabilities of this team in support of development of the
Product. Abbott may make any changes to the Development Plan as Abbott deems
necessary or appropriate, provided that Abbott will not, if at all practical,
adversely impact LJP clinical development capability and shall give due
consideration to the intentions of the Parties under the preceding sentence and
that LJP has been given a reasonable opportunity to review and consult with
Abbott as to any such changes.

      6.4   Executive Committee and Development Team

            (A) Within *** of the Effective Date, the Parties shall form an
executive committee ("Committee"), which shall be primarily responsible to ***.
The Committee shall consist of *** members from Abbott and *** members from LJP.
Each Party shall notify the other Party in writing of its designated members and
any replacements.

            (B) The Parties shall also appoint a project team ("Development
Team") to ***. The Development Team shall report to the Committee on the
progress of the Development Plan on a *** basis.

            (C) The Parties shall also designate a key contact person at each
company who will be responsible for managing all communications between the
Parties.

      6.5   Development Team Responsibilities

            (A)   As part of its responsibilities, the Development Team shall


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                  (1)   ***;

                  (2)   ***;

                  (3)   ***;

                  (4)   ***. The Party hosting each meeting of the Development
Team promptly shall prepare, and deliver to the other Party within *** after the
date of such meeting, minutes of such meeting setting forth all decisions of the
Development Team relating to the Development Plan in a form and content
reasonably acceptable to the other Party.

            (B) The Development Team shall meet at least once every *** during
the term of the development of the Product(s), at such times and places as
agreed to by LJP and Abbott, alternating between San Diego and Abbott Park, or
such other locations as the parties shall agree. Meetings of the Development
Team may be attended by such other directors, officers, employees, consultants
and other agents of LJP and Abbott as the Parties from time to time reasonably
agree.

      6.6      Research and Development Budget

            (A) The Development Team shall be responsible for reviewing and
proposing timelines for research and development activities as well as an annual
research and development budget ("Annual R&D Budget"). The Parties shall prepare
general timelines and detailed budget estimates for all research and development
activities as part of the Development Plan. In addition, the Development Plan
shall also contain the agreed upon Annual R&D Budget for 1997. Within *** of the


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            Effective Date, the Development Team will prepare a detailed budget
for 1997 ***.

            (B) For 1998 and every year of the Development Plan thereafter, the
Development Team shall propose an Annual R&D Budget to the Committee for
approval by *** of the preceding year. On or before *** of the preceding year,
the Committee shall review the Development Team's proposed Annual R&D Budget and
submit it, together with any recommended changes for Abbott's final review and
approval.

            (C) The Development Team may propose adjustments to the Annual R&D
Budget up to two (2) times per year, using the same mechanism referenced above
in (B) for the initial Annual R&D Budget, in accordance with the following time
frames:



      Development Team              Committee Review
      Proposes                      and Proposes               Abbott Approves
      ----------------              ----------------           ---------------

                                                               
      1.  ***                          ***                           ***

      2.  ***                          ***                           ***


            (D) Subject to Abbott's obligations under Sections 6.1A Abbott shall
have the ultimate right to approve the Annual R&D Budget (and any adjustments
thereto) for each year during the Development Plan.

      6.7   LJP Documentation and Data

            (A) LJP Non-Manufacturing Know-How - As soon as practicable after
the Effective Date, but in no event later than *** thereafter, LJP shall provide
Abbott with the LJP Non-Manufacturing Know-How, primarily the data included in
LJP's United States IND, and all other documentation, information and data
listed


                                       30
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or referenced in the Development Plan, but not LJP Manufacturing Know-How and
Abbott shall be authorized to use and reference the same solely as provided in
Section 2.3 above. Any Product Drug Master Files ("DMFs") compiled or owned by
LJP shall remain the property of LJP, but LJP shall provide appropriate
authorization letters to relevant regulatory bodies in the Territory within ***
after the Effective Date to enable Abbott to reference such DMFs for purposes of
Abbott's applications for Regulatory Approval and regulatory compliance
activities in the Territory. At Abbott's option, LJP shall also take all actions
necessary or appropriate to transfer the sponsor obligation for the U.S. IND and
equivalent regulatory filings for the Product in the Territory to Abbott within
*** after the Effective Date. Abbott agrees not to access the proprietary
information in the CMC section of the existing or previous INDs, except as
provided in Article XIV but will be able to access the non-proprietary CMC
sections which LJP shall supply to Abbott. If Abbott requests LJP to transfer
the sponsor obligation to Abbott, LJP shall create a DMF for the proprietary
section information and file the DMF and provide Abbott the DMF's reference
number. At Abbott's option, Abbott may require LJP to support the U.S. IND and
file the U.S. NDA with the FDA. Abbott shall still maintain all responsibility
and control of this NDA filing, subject to Sections 6.1A and 6.1D.

            (B) Abbott Access to Data - During the Term, LJP shall provide
Abbott, within a reasonable time, with access to all clinical documentation,
information and data resulting from LJP's Product research and development
activities in the Territory which Abbott requires for regulatory filings in the
Territory or which Abbott may reasonably request, including but not limited to,
case report forms, monitoring documents, patient informed consents,
institutional review board approvals, medical and statistical study reports for
individual studies, clinical data summaries, and expert reports. Upon Abbott's
request, LJP shall provide Abbott with copies of such documentation and data.


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            (C) Information and Documentation for LJP Patent Extensions - Abbott
shall notify and provide to LJP, within *** after each Regulatory Approval in
the Territory has been received in writing by Abbott, written confirmation of
such Regulatory Approval to enable LJP to fulfill its obligations with respect
to seeking LJP Patent extensions pursuant to Section 11.1. Abbott, shall also
provide to LJP any other documentation required by the relevant patent
authorities, as requested by LJP, as soon as practical.


                                   ARTICLE VII
                     PRODUCT MARKETING AND SALES ACTIVITIES

      7.1 Product Launch - Abbott shall use Commercially Reasonable Efforts to
launch the Product or cause the Product to be launched as soon as practical in
every country of the Territory where Abbott or its Affiliates or Unaffiliated
Sublicensees have obtained Regulatory Approval. Notwithstanding the foregoing,
Abbott may, acting in good faith in the exercise of its reasonable business
judgment, determine either to delay the launch of the Product or not to launch
the Product in any given country of the Territory, which decision shall not be
deemed a failure by Abbott to use Commercially Reasonable Efforts in such
country and also shall not be deemed an abandonment of Abbott's rights in such
country. If Abbott or its Affiliates or Unaffiliated Sublicensees delay the
launch of the Product in any country for more than *** after Abbott or its
Affiliates or Unaffiliated Sublicensees have obtained Regulatory Approval in
such country, LJP may commence dispute resolution proceedings against Abbott
pursuant to Article XXIV and Abbott shall have the burden of proving that such
delay was attributable to bona fide business reasons affecting the Product.

      7.2 Abbott Sales and Marketing Activities - During the period commencing
with Regulatory Approval in each country of the Territory on a
country-by-country basis and for the remainder of the Term, Abbott shall use
Commercially Reasonable Efforts to promote, market and sell the Product in the
Territory.


                                       32
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      7.3 Marketing Costs and Expenses - Except as provided in Section 7.4 and
as otherwise agreed in writing by the Parties, Abbott shall bear all costs and
expenses related to sales and marketing activities for the Product under this
Agreement.

      7.4   Cooperative Marketing Activities

            (A) LJP, at its option and its own expense, may hire marketing
   support specialists to assist Abbott in educating the rheumatologists, in
   their offices in the U.S. All activities will be coordinated with Abbott and
   agreed by the Parties in writing. All educational and promotional material
   must have Abbott medical, regulatory, and commercial approval and comply with
   all regulatory filings, approvals and requirements.

            (B) Abbott will be solely responsible for calls on nephrologists,
   managed care, integrated systems, family practitioners, and the acute
   hospital setting.

      7.5 Marketing Review Meetings - At least once each *** after Abbott's
first Regulatory Approval, for a period of *** thereafter, and at least once
each *** after such *** period, representatives of the Parties shall review
Abbott sales and marketing activities and LJP cooperative activities.

      7.6 Export Control Laws - Abbott shall comply with all applicable export
laws and restrictions and regulations of the Department of Commerce or other
United States or foreign agency or authority, shall not export, or allow the
export or re-export of any Confidential Information or Products or any direct
product thereof in violations of any such restrictions, laws or regulations or,
without obtaining all necessary approvals and authorizations if any, to
Afghanistan, the People's Republic of China or any Group Q, S, W, Y or Z country
specified in the then current Supplement No. 1 to Section 770 of the U.S. Export
Administration Regulations or any successor supplement or regulations);


                                       33
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Abbott shall obtain and bear all expenses relating to any necessary licenses
and/or exemptions with respect to the export from the U.S. of all material or
items deliverable by LJP to any location and shall at LJP's request demonstrate
to LJP compliance with all applicable laws and regulations prior to delivery
thereof by LJP.

      7.7 Abbott Product Claims - Abbott shall only make claims, representations
or warranties directly or indirectly to any third party about the Product that
are consistent with the Product's Regulatory Approvals and other scientific
literature.

      7.8 Sample Distribution - Abbott shall be solely responsible for complying
with all laws and regulations related to the distribution of samples of Products
in any part of the Territory. Any fines and/or penalties for failure by Abbott
to comply with any requirement or regulation shall be the sole responsibility of
Abbott


                                  ARTICLE VIII
                          CONFIDENTIALITY AND PUBLICITY

      8.1 Confidentiality Obligation - Each Party shall hold the other Party's
Confidential Information (as defined below) of which it becomes informed in
connection with this Agreement in strictest confidence and shall not disclose
such Confidential Information to third parties or otherwise use it, except to
the extent such use or disclosure is expressly permitted by the terms of this
Agreement or is reasonably necessary for the performance of this Agreement.

      8.2 Permitted Disclosures - Permitted disclosures of Confidential
Information hereunder include, but are not limited to: (A) disclosures to
regulatory agencies to the extent required for Regulatory Approval, including
but not limited to, Abbott Product registrations and applications in the
Territory and (B) disclosures to the Parties' Affiliates, employees, agents and
independent approved subcontractors (including clinical investigators,
consultants and contract research organizations) who have a bonafide "need to
know," and Unaffiliated Sublicensees (in the case of Abbott),


                                       34
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provided that for disclosures to parties other than Affiliates the disclosing
Party shall obligate the recipients to maintain the confidentiality of
Confidential Information under terms substantially similar to those contained in
this Article VIII.

      8.3 Confidential Information - "Confidential Information" includes, but is
not limited to, any information relating to the terms of this Agreement, the
Product, LJP Non-Manufacturing Know-How, LJP Manufacturing Know-How, the
Development Plan, Abbott Regulatory Know-How, clinical and non-clinical studies
involving the Product, and all sales and marketing plans for the Product, as
well as information concerning all other products and the business affairs,
manufacturing processes and other activities of the disclosing Party that are
designated as confidential in writing or orally disclosed, provided such oral
disclosure is confirmed as confidential in writing within thirty (30) days
thereafter. However, Confidential Information shall not include any information:

            (A) Publicly Available Information - Which at the time of disclosure
is or later comes into public domain by publication or otherwise through no
fault of the receiving Party;

            (B) Previously Known Information - Which can be demonstrated by
documentation or other competent proof to have been in the receiving Party's
possession prior to disclosure hereunder;

            (C) Subsequently Received Information - Which is subsequently
received by the receiving Party from a third party who is not bound by any
confidentiality undertaking to the disclosing Party or to any of its Affiliates
with respect to said information;

            (D) Independently Developed Information - Which can be demonstrated
by documentation or other competent proof to have been independently


                                       35
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developed by or for the receiving Party without reference to the disclosing
Party's Confidential Information, or

            (E) Legally Required Disclosures of Information - Which is legally
required to be disclosed pursuant to any statute or regulation or any judicial
or administrative order.

      8.4 Duration of Confidentiality Obligation - The confidentiality
obligations of the Parties hereunder shall remain in effect during the Term and
for *** thereafter.

      8.5 Publicity and Announcements - It is recognized by the Parties that LJP
may under certain circumstances need to disclose development and
commercialization activities and Abbott will not unreasonably withhold its
approval and support of the LJP development and commercial activities necessary
to generate and disclose this information. Unless agreed upon in writing by the
Parties, neither Party shall originate any publicity, news release or other
public announcement, written or oral, whether to the public press, stockholders
or otherwise, relating to this Agreement, any amendment hereto, performance by
the Parties hereunder, or the Product, except where a Party believes in good
faith that disclosure is required or advisable under applicable laws or
regulations in which event such Party shall give the other Party *** to review
the form and content of any written announcement before such legally required or
advisable disclosure is made. Except for customary discussions with current or
prospective investors and analysts, or at securities, industry, scientific, or
similar


                                       36
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conferences or as required or advisable under applicable laws or regulations,
each Party shall give the other Party a reasonable opportunity (not to exceed
***) to review the content of any oral announcement before it is made.
Notwithstanding the foregoing, however, where urgent, unusual and rare
circumstances required immediate disclosure in the opinion of the Parties'
counsel, the Parties shall use their best efforts to provide advanced notice to
each other, but the *** notice requirement shall not apply.

            8.6 Scientific Media Plan and Publication - Abbott shall develop a
media strategy for the Product and shall consult with LJP for its input. The
objective of the media strategy shall be to detail the publication of the
Product's clinical data and to present the clinical data at the appropriate
marketing meetings/targets. The media strategy shall focus on primary
presentations and journal submissions of the clinical and preclinical studies of
the Product to be submitted as part of the U.S. NDA. Specific end point for
media targets shall be defined so that abstract and manuscript concepts may be
developed and authors determined. LJP and Abbott employees may be considered as
authors in addition to investigators and outside experts. Abbott shall have the
responsibility to maintain and update the media strategy. Abbott shall consult
with LJP, but Abbott shall have the final responsibility, except in the 90 - 05
study, where the authorship mechanism has already been defined, to assign
authors, draft publications, and submit to journals. Following the Effective
Date, LJP shall not submit scientific publications on the Substance or the
Product without Abbott's prior written approval within ***, which approval shall
not be unreasonably withheld.


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                                   ARTICLE IX

                                   TRADEMARKS

            9.1 Abbott Trademarks - Abbott and its Affiliates shall market and
sell the Product in the Territory under Abbott Trademarks to be selected and
owned by Abbott and its Affiliates. Abbott and its Affiliates shall, at its
expense, file applications for registration, prosecute and maintain the Abbott
Trademarks.

      9.2 Use of LJP Trademarks and LJP Tradedress - At each Party's option, the
Products may bear the tradedresses of Abbott and LJP wherever possible. The name
of LJP as manufacturer will appear on the Product's package label and insert.
LJP's name as a manufacturer will appear on certain promotion materials, except
where prohibited by law or regulation. Abbott shall have a royalty free license
to use those LJP technology related trademarks that LJP uses or intends to use
with products. If Abbott abandons a market, or the Agreement is terminated in
its entirety or in any country, except by Abbott under Section 19.2 for breach
by LJP, LJP shall have the option to obtain a royalty bearing license on the
Abbott Trademark, for use exclusively with the Product upon reasonable terms to
be negotiated and if LJP so elects, then LJP shall pay the applicable
maintenance fees and enforcement costs.


                                       38
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      9.3 No Inconsistent Actions - Neither Party shall take any actions
inconsistent with the other Party's ownership of such other Party's trademarks,
trade names, logos or the like, including (without limitation) by registering or
attempting to register the same. Neither Party shall use any trademarks, trade
names, logos or the like that are confusingly similar to the trademarks, trade
names, logos or the like of the other Party for any Product. Each Party shall
obtain the prior written consent of the other Party, not to be unreasonably
withheld or delayed, to such Party's manner of using the other Party's
trademarks, trade names, logos and the like.


                                    ARTICLE X
                    PATENT OWNERSHIP, KNOW-HOW AND WARRANTIES

      10.1 LJP Patent Rights Ownership - Subject to the license rights granted
to Abbott hereunder, LJP retains all ownership of all LJP Patent Rights and
shall be responsible for filing, prosecuting, maintaining and defending LJP
Patent Rights pursuant to Article XI.

      10.2 Ownership of Joint Inventions - For all inventions (if any), made
jointly by the Parties according to the named inventors therefor, which
inventions arise from the performance of this Agreement, the Parties shall apply
for patent protection therefor upon the written request of either Party. Patent
protection for such invention(s) shall be applied for jointly in the name of the
Parties as co-assignees and co-owners of such invention(s) and all patent
application preparation, filing, maintenance and prosecution responsibilities
and costs thereof in the Territory shall be shared equally by the Parties. If
one of the Parties does not wish to share equally in the patent application and
related costs and expenses in any country of the Territory, then the other Party
may seek, obtain and maintain such patent(s) solely in its own name and at its
sole expense and shall have sole and exclusive rights to use the inventions
covered by such patent(s) without payment of any royalties or compensation to
the non-paying Party. Without limiting the generality of the foregoing, in the
event that either party does not wish to


                                       39
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share in such cost and expenses, then notwithstanding anything to the contrary
contained in this Agreement, such party shall have no license or other rights in
respect of such patent(s). Joint Inventions pursuant to this Section shall not
be included within LJP Patent Rights.

      10.3 LJP Patent Warranties - LJP warrants and represents that: (A)
Appendix D sets forth all of the LJP Patent Rights as of the Effective Date; (B)
LJP has not granted any licenses or other rights to any third party inconsistent
with the licenses and other rights granted to Abbott hereunder; and (C) to the
best of LJP's knowledge, LJP is not aware of any prior art which would cause LJP
Patent Rights to be invalid and unenforceable, (D) to the best of LJP's
knowledge there are no existing valid third party patents or other proprietary
rights in the Territory that might be infringed by the manufacture, marketing,
sale or use of the Product (excluding any aspects thereof other than Substance)
in the Territory by Abbott, its Affiliates and Unaffiliated Sublicensees or by
the manufacture of the Substance in the Territory by LJP and its Affiliates and
approved subcontractors.

      10.4 Know-How - LJP warrants and represents that as of the Effective Date,
it is not subject to any legal or contractual obligations that would prohibit it
from licensing or disclosing to Abbott any LJP Non-Manufacturing Know-How or LJP
Manufacturing Know-How in accordance with the terms of this Agreement.

      10.5 Abbott Intellectual Property - Except as expressly stated in Article
IX, Section 10.2 and section 20.1 (C), Abbott Trademarks, Abbott Regulatory
Know-How and all other Abbott owned or controlled trademarks, copyrights and
patents shall remain the sole and exclusive property of Abbott and LJP shall
acquire no rights thereto.


                                       40
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                                   ARTICLE XI
                       PATENT PROSECUTION AND INFRINGEMENT

      11.1 Patent Filing and Prosecution - During the Term, except as otherwise
provided in Section 10.2, LJP shall, at its sole expense, file, prosecute,
maintain and defend LJP Patent Rights in the countries listed in Appendix D and
LJP shall control all LJP Patent Rights filings and actions. LJP shall file and
prosecute to obtain extensions of all LJP Patents included in LJP Patent Rights
in any countries in which such extensions are available. Notwithstanding the
foregoing, LJP shall not be required to file, maintain or defend any LJP Patent
Rights or to obtain any LJP Patent extensions where LJP does not believe that
such activities are commercially justified, except that LJP shall not, without
Abbott's prior written consent, abandon (i) any currently issued LJP Patents, or
(ii) any LJP Patent Applications or (iii) petitions for extensions of LJP Patent
Rights. In the event that LJP determines that any of the foregoing activities
are not commercially justified, LJP shall promptly notify Abbott, and Abbott
shall have the right, at its sole expense, to undertake such activities. LJP
shall assist Abbott, as reasonably requested by Abbott and at Abbott's expense,
in the event Abbott determines to undertake such activities.

      11.2 Notification of Infringement - The Parties shall promptly inform each
other of any information that comes to their attention involving actual or
apparent infringements or misappropriations of LJP Patent Rights, LJP
Manufacturing Know-How, LJP Non-Manufacturing Know-How, Abbott Regulatory
Know-How or Abbott Trademarks by any third party, or claims of alleged
infringement made by any third party in the Territory against LJP, LJP
Affiliates, Abbott, Abbott Affiliates, or any Unaffiliated Sublicensees
resulting from the manufacture, import, offer for sale, sale or use of the
Substance or the Product.

      11.3 Infringement of Third Party Rights - LJP shall direct or defend in
its own name and at its own expense any legal or other action or proceeding,
including any


                                       41
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settlement or negotiation, with respect to any alleged infringement of a third
party patent or other proprietary right as a result of Abbott, its Affiliates or
Unaffiliated Sublicensees making, having made, using or selling the Product in
the Territory (but only to the extent relating to the Substance) or LJP or its
Affiliates or approved subcontractors manufacturing the Substance.
Notwithstanding the foregoing, LJP may elect, following consultations with
Abbott, not to defend any such action based on an analysis of the market
potential in the affected country. During the pendency of any such proceeding or
any appeal thereof, *** of royalties payable under Section 4.1 in the country in
which such proceeding is pending shall be paid by Abbott into an
interest-bearing escrow account pending the outcome of such proceeding. Upon a
favorable final resolution of such proceeding or any appeal thereof, Abbott
shall resume paying LJP full royalties in such country, and all funds in such
escrow account shall be paid to LJP. Upon an unfavorable final resolution of
such proceeding or any appeal thereof or if LJP fails to defend such action, the
funds in such escrow account shall be applied toward the damage award in such
action, if any, and the balance, if any, paid to LJP.

      11.4 Termination for Infringement - Should Abbott be prevented by reason
of a non-appealable judgment of a court of competent jurisdiction against it
from making pursuant to Section 14.1 using or selling the Product in the United
States or any Major Country, then, as to that part of the Territory so affected,
Abbott may terminate this Agreement upon written notice to LJP, and the Parties
shall make a final transition accounting and settlement for outstanding bona
fide costs, payments and expenses to which each Party is entitled hereunder.

      11.5  Third- Party Infringement of LJP Patents

            (A) LJP Enforcement - LJP shall, at its own expense, have the first
right to commence appropriate measures to enforce LJP Patents against third
party infringements after LJP becomes aware of such infringement including, but
not limited to,


                                       42
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notifying the infringing third party of such infringement and demanding that
such third party cease and desist from such infringement within the following
time frames: (i) with respect to LJP Composition Patents, *** (ii) all other LJP
Patents, *** in any of the countries listed in Appendix H. If such infringement
does not cease, LJP shall commence a legal proceeding to enforce LJP Patents
against third party infringements within *** of the date LJP becomes aware of
such infringement. Upon LJP's request, Abbott shall provide reasonable
assistance in pursuing infringers. LJP shall, at its own expense, use
Commercially Reasonable Efforts to enforce its patents against unlicensed third
parties selling Competing Products not encompassed by the LJP Patent Rights
granted to Abbott. If LJP elects not to enforce such patents, Abbott shall have
the option to commence legal proceedings pursuant to Section 11.5(B).

            (B) Abbott Enforcement - If within *** of the date LJP becomes aware
of any alleged third party infringement, either directly or by notice from
Abbott, LJP fails to commence a legal proceeding pursuant to Section 11.5A, or
if at any time LJP discontinues such proceeding, Abbott may, at its option,
commence, continue or intervene, as the case may be, in such proceeding.
Abbott's commencement, continuation or intervention in such proceeding shall be
at Abbott's own expense, provided that Abbott shall be entitled to retain all
recoveries in such proceeding or any appeal thereof. Such commencement,
continuation or intervention by Abbott shall not relieve LJP of its obligations
under Section 11.5(A) provided that in any dispute resolution proceeding brought
by Abbott against LJP for a breach of


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            Section 11.5(A) Abbott shall not be entitled to recover the costs of
such commencement, continuation or intervention.

            (C) Notwithstanding (A) and (B) above, where statutory notice
provisions apply, LJP shall have *** after LJP becomes aware of third party
infringement to commence appropriate measures to enforce the Patents against
third party infringement. After ***, provided LJP has not commenced legal
actions, Abbott may at its option take action under 11.5 (B).


      11.6 Allocation of Recoveries - In any action brought by or against a
third party infringer, any monetary damages or compensation recoveries obtained
in LJP's and/or Abbott's favor in connection with such actions shall be
allocated as follows: (A) first, the prosecuting Party or Parties shall recover
reasonable attorneys' fees and expenses and (B) the remainder shall be allocated
between Abbott and LJP so as to fairly reflect (i) Abbott's lost profits and
other damages, and (ii) the amounts that LJP would have been paid hereunder had
Abbott made the lost sales for which Abbott is being compensated through such
damage award.

      11.7 Mutual Cooperation - In the event of any patent infringement
litigation in the Territory involving the Product and any LJP Patent Rights, the
non-prosecuting or non-defending Party shall render such reasonable assistance
as may be requested by the prosecuting or defending Party in connection with
such infringement actions. If one party requests the other Party's reasonable
assistance in connection with such infringement claims or actions, the
requesting Party shall reimburse the other Party for such direct, documented
out-of-pocket expenses as are reasonably incurred during the course of its
providing such requested assistance. Before incurring such expenses, the Parties
shall in good faith agree in writing on the nature and extent of assistance to
be


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rendered, and an estimate of the total expenses, which expenses shall be
monitored periodically.


                                   ARTICLE XII
                               COMPETING PRODUCTS

      12.1 Obligations With Respect to Competing Products - For a period from
the Effective Date until (a) *** after the first Regulatory Approval in any
country in the Territory, or (b) expiration or Termination of the Agreement,
whichever is sooner, each Party and its Affiliates shall not ***.

                                  ARTICLE XIII
                     PRODUCT WARRANTIES AND INDEMNIFICATION

      13.1  Warranties and Limitations

            (A) LJP Warranties - LJP warrants and represents that the Substance
and Interim Product manufactured by LJP, its Affiliates or approved
subcontractors and delivered to Abbott, its Affiliates or Unaffiliated
Sublicensees hereunder shall (i) from the date of shipment until the end of the
specified shelf life conform to the Specifications and all applicable laws and
regulations relating to the manufacture of the Substance and Interim Product,
including, but not limited to, applicable supranational, national and local laws
in the country where manufacturing occurs and U.S. FDA Good Manufacturing
Practices and equivalent Good Manufacturing Practices in Europe and Japan to the
extent applicable to LJP, its Affiliates or approved subcontractors as the


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manufacturer(s) of the Substance and Interim Product and (ii) be transferred
free and clear of any security interests, liens and encumbrances.

                  (B) Limitations - Except as otherwise expressly stated herein,
no warranties or representations, express or implied, including the warranties
of fitness for a particular purpose and merchantability, regarding the Product,
the Substance and Interim Product, or any other matters are made or shall be
deemed to have been made by LJP. Subject to LJP's warranty and indemnification
obligations hereunder for the Substance and Interim Product, LJP shall have no
responsibility or liability for Product used, supplied, marketed, or sold by
Abbott, its Affiliates or Unaffiliated Sublicensees after the Substance has been
incorporated into Product by Abbott, its Affiliates or Unaffiliated
Sublicensees.

      13.2  Reciprocal Indemnification Provisions

            (A) LJP Indemnification - LJP shall defend, indemnify and hold
Abbott, its Affiliates, and Unaffiliated Sublicensees, and the officers,
directors, employees and agents of each, harmless from and against any and all
liabilities, damages, claims, demands, costs, or expenses (including reasonable
attorneys' fees) claimed by any third party for any property or other economic
loss or damage or injury or death suffered by it to the extent the same is
determined to have been caused by the negligence, fault, willful wrongdoing or
any other act or omission or breach of this Agreement relating to LJP's, its
Affiliates' or approved subcontractors' manufacture of the Substance and Interim
Product supplied to Abbott, its Affiliates and Unaffiliated Sublicensees,
subject to the conditions of indemnification set forth in Section 13.3.

            (B) Abbott Indemnification - Abbott shall defend, indemnify and hold
LJP, its Affiliates and approved subcontractors, and the officers, directors,
employees and agents of each, harmless from and against any and all liabilities,
damages, claims, demands, or costs, or expenses (including reasonable attorneys'
fees) claimed by any


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third party for any property or other economic loss or damage, injury or death
suffered by it to the extent the same is determined to have been caused by the
negligence, fault, willful wrongdoing or any other act or omission, or breach of
this Agreement relating to Abbott's, its Affiliates' or Unaffiliated
Sublicensees' manufacture, development, registration, marketing or sale
activities involving the Product, subject to the conditions of indemnification
set forth in Section 13.3.

      13.3 Conditions of Indemnification - With respect to any indemnification
obligations of either Party to the other Party under this Agreement, including
but not limited to the indemnification obligations of the Parties under Sections
13.2(A) and 13.2(B), the following conditions must be met for such
indemnification obligations to become applicable: (A) the indemnified Party
shall notify the indemnifying Party promptly in writing of any claim which may
give rise to an obligation on the part of the indemnifying Party hereunder; (B)
the indemnifying Party shall be allowed to timely undertake the sole control of
the defense of any such action and claim, including all negotiations for the
settlement, or compromise of such claim or action at its sole expense; and (C)
the indemnified Party shall render reasonable assistance, information,
co-operation and authority to permit the indemnifying Party to defend such
action, it being agreed that any out-of-pocket expenses or other expenses
incurred by the indemnified Party in rendering the same shall be borne or
reimbursed promptly by the indemnifying Party.


                                   ARTICLE XIV
                          STANDBY MANUFACTURING RIGHTS

      14.1 Inability to Manufacture - LJP shall promptly notify Abbott in
writing of any circumstances rendering it unable to manufacture or supply the
Substance and the Interim Product for more than *** pursuant to its obligation
under the Supply Agreement, Appendix G, and the estimated duration of such
circumstances. If LJP is unable to supply the Substance and the Interim Product
pursuant to its obligations


                                       47
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under the Supply Agreement, Appendix G, *** or more consecutive days for any
reason (including but not limited to a Force Majeure event), representatives of
the Parties shall meet to review the reasons for the inability to supply and
discuss whether LJP, Abbott or a third party would be in the better position to
resume or commence (as applicable) manufacture of the Substance and Interim
Product as expeditiously as possible. If LJP (A) does not inform Abbott that LJP
believes it (or its approved subcontractor) is in the better position to do so,
with reasonable technical assistance from Abbott, or (B) LJP cannot demonstrate
to Abbott's reasonable satisfaction that LJP (or its approved subcontractor) is
in a better position to do so, with reasonable technical assistance from Abbott,
then Abbott may, at its option and expense, elect to manufacture or have a third
party manufacture subject to the limitations of this paragraph. Within *** after
the Effective Date, and with updates as appropriate thereafter, LJP will place
all regulatory filing documentation including the drug master file for Substance
and Interim Product and all LJP Manufacturing Know-How documentation necessary
for Abbott to manufacture the Substance and the Interim Product with an
independent third party escrow agent for Abbott's use under this standby right.
To the extent necessary to implement such standby manufacturing rights, LJP
hereby grants Abbott a contingent non-exclusive license under LJP's Patent
Rights and LJP Manufacturing Know-How to make, have made, use, import, the
Substance and Interim Product in the Territory, which license shall become
effective only under the circumstances specified in this Section 14, and LJP
shall provide Abbott with such manufacturing assistance and documentation as
Abbott may require in connection therewith. To the extent that Abbott's use of
LJP's Manufacturing Know-How results in a liability for LJP to pay royalties to
a third party, Abbott shall bear the expense of such royalties for the duration
of Abbott's use of LJP's Manufacturing Know-


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How. Abbott's exercise of this right will not supersede LJP's obligation to
manufacture all of Abbott's requirements for Substance and the Interim Product.
LJP shall notify Abbott when it can manufacture all of Abbott's requirements for
Substance and the Interim Product, and then Abbott shall cease to manufacture or
have manufactured within a reasonable time period, except where Abbott has
incurred a substantial and irrevocable investment in facilities and equipment
that is not reimbursed by LJP. LJP will also provide Abbott, at its expense,
reasonable manufacturing support during the time when Abbott is exercising these
standby manufacturing rights.

      14.2 Mutual Agreement - In addition, LJP may, at any time, grant Abbott
the option to exercise standby manufacturing rights for the Substance and the
Interim Product upon such terms as shall be agreed upon in writing by the
Parties, provided that such grant to Abbott shall not relieve LJP of its supply
obligations under the Supply Agreement, Appendix G.


                                   ARTICLE XV
                      MANUFACTURING INSPECTIONS AND CHANGES

      15.1 Inspections - Each Party reserves the right to inspect the other
Party's manufacturing facilities for the Substance, Interim Product and Product
and related books and records at any time upon reasonable prior notice to the
extent necessary or appropriate to ensure the other Party's compliance with the
terms of this Agreement relating to the manufacture of Substance Interim Product
and Product and prior to any Regulatory Approval and prior to LJP's commencement
of manufacturing operations. The books and records subject to inspection
include, but are not limited to, batch records, manufacturing procedures and
guidelines, and all quality assurance/quality control documentation. Each party
shall furnish to the other copies of all reports prepared concerning these
inspections or audits. The foregoing books and records, and all information and
data contained therein, shall be deemed LJP Confidential Information or Abbott
Confidential Information hereunder, as applicable, and shall not


                                       49
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be used for any purpose other than as provided in the Section 15.1 or as
otherwise expressly authorized in this Agreement.

      15.2 Regulatory Inspections - LJP shall allow representatives of the U.S.
FDA and any other regulatory agency or authority with jurisdiction over the
manufacture of Substance or Interim Product to tour and inspect all facilities
utilized by LJP in the manufacture, testing, packaging, storage, and shipment of
the Substance Product or Interim Product sold under this Agreement, upon prior
reasonable notice, and shall cooperate with such representatives in every
reasonable manner. LJP shall notify Abbott promptly whenever LJP receives notice
of a pending inspection of its manufacturing facilities by any regulatory
agency. LJP shall also provide Abbott with a copy of any U.S. FDA Form 483
notices of adverse findings, regulatory letters or similar notifications it
receives from any other governmental authority setting forth adverse findings or
non-compliance with any applicable laws, regulations or standards relating to
the items supplied by it hereunder within *** of its own receipt thereof. LJP
shall also provide Abbott with a copy of LJP's proposed written response to such
governmental authority before submission and shall incorporate any changes
thereto which Abbott may reasonably and timely request.

      15.3  Manufacturing Changes

            (A) Required Manufacturing Changes - Such changes that are required
to comply with applicable laws and regulations shall be deemed "Required
Manufacturing Changes." LJP shall implement Required Manufacturing Changes
as soon as practicable in a reasonable time period, after receipt of Abbott's
request or within the time frame required by the U.S. FDA or any corresponding
regulatory authority in the Territory. If LJP does not implement Required
Manufacturing Changes


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within the time frame referenced in the preceding sentence or notify Abbott in
writing that LJP disputes whether Abbott's requested changes are Required
Manufacturing Changes, then Abbott shall have the option to exercise standby
manufacturing rights for the Substance and the Product pursuant to Section 14.1
until such time as LJP implements such Required Manufacturing Changes except
where Abbott shall incur a substantial and irrevocable investment in facilities
and equipment which is not reimbursed by LJP. If LJP notifies Abbott in writing
that LJP disputes whether Abbott's requested changes are Required Manufacturing
Changes, then LJP shall implement such changes at Abbott's expense such changes
at Abbott's expense and the Parties shall resolve such dispute by reference to a
mutually agreed upon independent third party regulatory expert as soon as
possible for a binding determination of whether the requested changes are
Required Manufacturing Changes. If such independent third party regulatory
expert determines that Abbott's requested changes are Required Manufacturing
Changes, LJP shall repay Abbott for such changes as soon as possible.

            (B) Abbott-Initiated Manufacturing Changes - Abbott may, from time
to time during the Term, make a written request for changes in LJP's
manufacturing operations for the Substance or Interim Product that are not
Required Manufacturing Changes, but that are intended to promote quality
control/quality assurance and/or achieve greater efficiency or cost savings in
the manufacturing process ("Other Manufacturing Changes"). These Other
Manufacturing Changes are at Abbott's own expense except to the extent of
manufacturing changes necessary to meet LJP's obligations under the Supply
Agreement, Appendix G, Section 6.3 A. LJP shall give due consideration to making
Other Manufacturing Changes. LJP shall have *** from receipt of Abbott's written
request for Other Manufacturing Changes to provide Abbott a written response to
such request indicating whether LJP shall comply with such request.


                                       51
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            (C) LJP-Initiated Manufacturing Changes - During the Term, LJP shall
not make any changes to its manufacturing operations for the Substance and
Interim Product that could reasonably be expected to prevent LJP from complying
with its regulatory obligations hereunder without the prior written consent of
Abbott, which consent shall not be unreasonably withheld. Abbott shall provide,
at LJP's request, reasonable regulatory assistance to implement such changes and
the parties shall use their best efforts to effectively manage the frequency of
these changes.


                                   ARTICLE XVI
                                 PRODUCT RECALLS

      16.1 Recall Notification and Implementation - Each Party shall promptly
notify the other Party in writing of any facts relating to the advisability of
the recall, destruction or withholding from the market of the Product anywhere
in the world (collectively, "Recall"). If at any time (A) any governmental or
regulatory authority in the Territory issues a request, directive or order for a
Recall; (B) a court of competent jurisdiction orders a Recall in the Territory;
or (C) Abbott determines, following consultation with LJP (except in emergency
situations in which there is insufficient time for such consultation), that a
Recall in the Territory is necessary or advisable, Abbott shall take all
appropriate corrective actions to effect the Recall and LJP shall provide Abbott
with such cooperation in connection with the Recall as Abbott may reasonably
request.

      16.2 Recall Costs and Expenses - Each Party shall bear the costs and
expenses of any Recall in the Territory to the extent such Recall is the result
of any fault attributable to that Party or its Affiliates.

      16.3 Records of Sales - Both Parties shall keep for *** after termination
of this Agreement records of their respective sales and customers and batch
reports of


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Products sufficient to adequately administer a recall of any Product
and to fully cooperate in any decision to recall, retrieve and/or replace any
Product.


                                  ARTICLE XVII

                            ADVERSE DRUG EXPERIENCES

      During the Term, each Party shall promptly inform the other Party of any
information it obtains or develops regarding the safety of the Product anywhere
in the world and shall promptly report to the other Party any information
regarding serious adverse reactions or side effects related to the use of the
Product. The responsibility for determining the Party informing the appropriate
regulatory authority will be defined in the Developmental Plan. To allow the
Parties to comply with the adverse drug experience reporting requirements for
the Product to the U.S. FDA and its counterpart regulatory agencies around the
world, each Party shall notify the other Party in writing of any "adverse drug
experience" that is considered "serious" and adverse as defined in U.S. FDA
regulations (21 CFR 314.80) or the comparable regulations of other regulatory
agencies, regardless of source, so that the other Party will receive such notice
within *** of a Party's first having "obtained or otherwise received" such
"adverse drug experience" from "any source", or in a time period for expedited
reporting as agreed to by the appropriate regulatory authority as those terms
are defined in U.S. FDA regulations (21 CFR 314.80) and other equivalent country
regulations. Such information shall be communicated by the Parties to each other
at the following addresses:

      To Abbott:  Abbott Laboratories
      Attn: Manager, Medical Product Complaints
      Dept. 98Q, Bldg.  AP30
      200 Abbott Park Road
      Abbott Park, Illinois, USA  60064-3500
      Telephone:  (847) ***
      Facsimile:  (847) ***

      To LJP:     La Jolla Pharmaceutical Company
      Attn: Vice President, Clinical Development


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      6455 Nancy Ridge Drive,
      San Diego, California, USA  92121
      Telephone:  (619) ***
      Facsimile:  (619) ***

      Each Party shall provide the other with copies of all adverse drug
experience reports on the Product filed with the U.S. FDA or other regulatory
agencies in the Territory.


                                  ARTICLE XVIII
                  REPRESENTATIONS, WARRANTIES AND COVENANTS

      18.1 Mutual Representations and Warranties Each Party hereby represents
and warrants to the other Party as follows:

            (A) Corporate Status - It is a corporation duly organized and
   validly existing under the laws of its state or other jurisdiction of
   incorporation or formation;

            (B) Authority - It has the power and authority to execute and
   deliver this Agreement, and to perform its obligations hereunder;

            (C) No Conflicts - The execution, delivery and performance by it of
   this Agreement and its compliance with the terms and provisions hereof does
   not and will not conflict with or result in a breach of any of the terms and
   provisions of or constitute a default under (i) any loan agreement, guaranty,
   financing agreement, agreement affecting a product or other agreement or
   instrument binding or affecting it or its property; (ii) the provisions of
   its charter documents or by-laws; or (iii) any order, writ, injunction or
   decree of any court or governmental authority entered against it or by which
   any of its property is bound;

            (D) No Approvals - Except for the regulatory filings and approvals
   for the Product referenced herein, no authorization, consent or approval of
   any


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governmental authority or third party is required on the part of such Party for
the execution, delivery or performance by it of this Agreement, and the
execution, delivery or performance of this Agreement on the part of such Party
will not violate any law, rule or regulation applicable to such Party;

            (E) Enforceability - This Agreement has been duly authorized,
   executed and delivered on the part of such Party and constitutes its legal,
   valid and binding obligation enforceable against it in accordance with its
   terms subject, as to enforcement, to bankruptcy, insolvency, reorganization
   and other laws of general applicability relating to or affecting creditors'
   rights and to the availability of particular remedies under general equity
   principles; and

            (F) Compliance With Laws - It shall comply with all applicable laws
   and regulations relating to its activities under this Agreement.

      18.2  Each Party covenants:

            (A) To keep the other Party informed as to any material problems
discovered by that Party relating to the Substance, the Interim Product or the
Product and any resolutions implemented for such problems; and

            (B) To promptly notify the other Party of any actual or potential
government action relating to the Substance, the Interim Product or the Product
and to discuss with the other Party the appropriate response to such action.


                                   ARTICLE XIX
                        TERM AND EARLY TERMINATION RIGHTS

      19.1  Term - The Term shall be as stated in Section 1.35

      19.2 Termination for Cause - Either Party shall have the right, without
prejudice to any other rights or remedies available to it, to terminate this
Agreement for cause by written notice to the other Party in any of the following
events:


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            (A) Bankruptcy - If the other Party is unable to fulfill its
obligations and becomes insolvent, is adjudged bankrupt, applies for judicial or
extra-judicial settlement with its creditors, makes an assignment for the
benefit of its creditors, voluntarily files for bankruptcy or has a receiver or
trustee (or the like) in bankruptcy appointed by reason of its insolvency, or in
the event an involuntary bankruptcy action is filed against the other Party and
not dismissed within ninety (90) days, or if the other Party becomes the subject
of liquidation or dissolution proceedings, which proceedings are not dismissed
within ninety (90) days, or otherwise discontinues business.

            (B) Material Breach - If the other Party commits a Material Breach
of this Agreement (as defined in Section 24.2 (C) ) and the Party alleged to be
in breach fails to either (i) cure such breach within *** after receipt of
written notice from the Party asserting the breach, or (ii) commence dispute
resolution proceedings under Article XXIV contesting whether a breach has
occurred and/or whether such breach is a Material Breach within *** after
receipt of written notice from the Party asserting the breach.

      19.3 Termination by Mutual Agreement - This Agreement may be terminated at
any time by written agreement of the Parties.

      19.4  Termination by Abbott

             (A) FDA or other Regulatory Authority Decision - If at any time
during the Term, the U.S. FDA or other Major Country Regulatory Authority
reaches a final decision, not subject to further action or discussion within the
U.S. FDA, or other Major


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Country Regulatory Authority that there can be no further testing or use of the
Substance, Interim Product, or Product in humans, then Abbott shall have the
right at any time within *** following such decision, to terminate this
Agreement at Abbott's option either in its entirety or on a country by country
basis, upon *** prior written notice to LJP.

            (B) Safety or Efficacy - In addition, if at any time during the
Term, but in no event prior to the first anniversary of the Effective Date (i)
Abbott decides not to file an application for Regulatory Approval in the United
States or a Major Country or decides to withdraw such applications previously
filed in the United States or in a Major Country in each case due to documented
adverse reactions or other safety issues based on a scientifically documented
test with the Product or the Product's lack of efficacy or limited efficacy
(collectively, "Safety or Efficacy Issues") or (ii) Abbott's application for
Regulatory Approval in the United States or a Major Country is rejected due to
Safety or Efficacy Issues or (iii) Abbott's application(s) for Regulatory
Approval in the United States or a Major Country is subsequently withdrawn
because of Safety or Efficacy Issues or (iv) the Product is withdrawn or
recalled from the market in the United States or a Major Country because of
Safety or Efficacy Issues, then Abbott may, at its option, terminate this
Agreement with respect only to the affected country upon sixty (60) days prior
written notice to LJP. If Abbott does so, Abbott's termination notice shall
specify the country or countries of the Territory affected.

             (C) Without Cause - Within *** of the availability of the final
Abbott approved scientific report of the 90 - 05 Study, Abbott shall have the
right to terminate this Agreement without cause upon *** prior written notice to
LJP.


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                                   ARTICLE XX

                           CONSEQUENCES OF TERMINATION

      20.1  Effect of Termination

             (A) Termination or expiration of this Agreement in its entirety or
on a country-by-country basis through any means and for any reason shall not
relieve the Parties of any obligations, including without limitation all payment
obligations accruing prior to termination or expiration, including, but not
limited to, milestone and incentive payments, Abbott purchase of Substance and
Interim Product which have been properly ordered, funding of all approved
ongoing development expenses which cannot be canceled, and royalties accrued and
unpaid at the effective date of such termination, and shall be without prejudice
to the rights and remedies of either Party with respect to any prior breach of
any of the provisions of this Agreement.

             (B) In case of termination of this Agreement, Abbott shall retain
no rights whatsoever to Products, Substance, LJP Patent Rights, LJP
Manufacturing Know-How and LJP Non-Manufacturing Know-How, LJP Inventions or LJP
Confidential Information relating thereto

            (C) If this Agreement is terminated, for any reason other than by
Abbott pursuant to Section 19.2, (i) the parties shall work together to stop or
transfer to LJP, at LJP's option, in an efficient and effective manner, all
recently started or ongoing joint programs and not to initiate any new joint
programs; (ii) Abbott will fully cooperate with LJP in the rapid transfer of all
available Confidential Information to LJP, as well as all appropriate
information concerning ongoing clinical studies, regulatory and marketing
matters, etc; (iii) the parties will agree on appropriate terms of a
non-exclusive license with a reasonable royalty which shall enable LJP to
exploit any Inventions in relation to Substance or Products made by Abbott
hereunder; and (iv) Abbott will also transfer to LJP the ownership and title and
all documentation related to all pending and approved


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regulatory filings, registration documents, information, and data for Products
in the Territory. If Abbott chooses to terminate this Agreement, LJP will have
the right to review and preapprove within *** the text and timing of all
announcements related to termination, provided that such approval shall not be
unreasonably withheld.

             (D) In the event of a termination of this Agreement as to a
particular country, and not as a whole, the reciprocal non-competition
obligations of the Parties under Section 12.1 shall no longer apply to that
country, provided that each party shall use Commercially Reasonable Efforts,
consistent with any applicable laws or regulations, to ensure that Competing
Products are not developed, marketed or sold in that country for export, to or
sale in another country to which the reciprocal non-competition obligations of
the Parties under Section 12.1 remain applicable.

             (E) The Party's respective indemnification obligations hereunder
shall survive any expiration or termination of this Agreement. The limitation of
damages set forth in Article 25 hereof shall survive expiration or termination
of this Agreement.

      20.2 License Rights - If Abbott terminates this Agreement pursuant to
Section 19.4 or if LJP terminates this Agreement pursuant to Section 19.2,
Abbott's license rights in LJP Patent Rights and LJP Manufacturing Know How and
LJP Non-Manufacturing Know How hereunder shall terminate.

      20.3 Fully Paid-Up License - Except as otherwise provided in Section 4.1
or 20.2, upon expiration of the Term of this Agreement, Abbott's license rights
in LJP Patent Rights and LJP Non-Manufacturing Know-How hereunder shall become
nonexclusive, fully paid-up and irrevocable.

      20.4 Mutual Agreement - If the Parties terminate this Agreement by mutual
written agreement pursuant to Section 19.3, the Parties shall specify the
consequences of such termination in such written agreement.


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                                   ARTICLE XXI

                                     NOTICES

      21.1 Manner of Giving Notices - All notices required or permitted in
connection with this Agreement shall be writing and may be given by personal
delivery, prepaid registered or certified mail, telegram, telex or telecopier,
addressed to the Party to receive the same at its address set forth below, or to
such other address as it shall later designate by like notice to the other
Party. Notice of termination of this Agreement if given by telex, telegram or
telecopier, shall be confirmed by prepaid registered or certified mail dated and
posted within twenty-four (24) hours. The effective date of receipt of any
notice if served by telegram, telex or telecopier shall be deemed the first
business day in the city of destination following the dispatch thereof and if
given by mail only, it shall, unless earlier received, be deemed effective not
later than five (5) days after the date of posting. Notice by personal delivery
shall be effective as of the date of such delivery.

      21.2  Addresses for Notices

                  Notices to LJP shall be sent to:

                  La Jolla Pharmaceutical Company
                  Attn: President and CEO
                  6455 Nancy Ridge Drive
                  San Diego, California, USA  92121
                  Facsimile:  (619) ***

                  With a copy to:
                  Morrison & Foerster, LLP
                  755 Page Mill Road
                  Palo Alto, California, USA  94304


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                  Attn: Thomas E. Ciotti, Esq.
                  Facsimile:  (415) ***

                  Notices to Abbott shall be sent to:

                  Abbott Laboratories
                  Hospital Products Division
                  Attn: President
                  Dept. 0960, Bldg. AP30
                  200 Abbott Park Road
                  Abbott Park, Illinois, USA  60064-3500
                  Facsimile:  (847) ***
                  and

                  Abbott Laboratories
                  Abbott International
                  Attn: President
                  Dept. 06WP, Bldg. AP30
                  200 Abbott Park Road
                  Abbott Park, Illinois, USA 60064-3500
                  Facsimile: (847) ***

                  With a copy to:


                  Abbott Laboratories
                  General Counsel
                  Dept. 364, Bldg.  AP6C
                  100 Abbott Park Road
                  Abbott Park, Illinois, USA 60064-3500
                  Facsimile: (847) ***


      21.3 Notification - Abbott shall also be responsible for notifying,
reporting or registering this Agreement or the business relationship created
hereby with any government authorities in the Territory to the extent legally
required. LJP shall provide Abbott with such assistance as Abbott may reasonably
request in connection therewith.


                                  ARTICLE XXII

                                   INTEGRATION

      This Agreement and the Stock Purchase Agreement represent the entire
Agreement between the Parties relating to the subject matter hereof and
supersedes all


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prior understandings, and agreements between the Parties, whether written or
oral, including, but not limited to the confidentiality agreements between the
Parties dated November 20, 1995 and January 25, 1996. No supplement,
modification or amendment of this Agreement shall be binding unless executed by
the Parties in writing and signed by the duly authorized representatives of both
Parties.



                                  ARTICLE XXIII

                                   ASSIGNMENT

Neither Party may assign this Agreement or any of its rights hereunder, nor
delegate any of its duties or obligations hereunder, to any third party without
the prior written consent of the other Party, except (i) to an Affiliate, or
(ii), in connection with the acquisition of either Party, whether by merger,
consolidation, or sale of all or substantially all of its assets. It shall be a
condition to the effectiveness of any permitted assignment that the assignee
agree in writing to be bound by all terms and conditions of this Agreement and
to assume all of the assignor's obligations hereunder. In the case of an
assignment to an Affiliate, the assignor shall remain liable for all of its
obligations hereunder. Any attempted assignment in violation of the foregoing
shall be null and void. In the event that LJP decides to sell or otherwise
dispose of its manufacturing operations relating to the supply of the Substance,
including, but not limited to in connection with an acquisition of LJP as a
whole, LJP shall provide Abbott with notice thereof and an opportunity to make
an offer to acquire such operations, subject in each case to any legal or
contractual restrictions on LJP's ability to provide such notice and
opportunity.



                                  ARTICLE XXIV

                      GOVERNING LAW AND DISPUTE RESOLUTION

      24.1 Governing Law - This Agreement, including the validity, construction,
interpretation and performance thereof, shall be governed entirely by the laws
of the State of California, USA, without regard to its conflict of laws
provisions. It is the


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specific intent and agreement of the Parties that the United Nations Convention
on the International Sale of Goods shall not apply to this Agreement.

      24.2 Dispute Resolution - All disputes arising out of or in connection
with this Agreement, except those involving actions commenced by or involving
third parties and affecting or involving only one of the Parties or involving a
breach of Section 8.1, 8.2 and 8.3, shall be resolved with the following
mechanism:

            (A) Attempted Amicable Resolution - The Parties shall promptly give
each other written notice of any disputes requiring resolution hereunder, which
written notice shall specify the Section (s) of this Agreement the other Party
is alleged to have breached and shall briefly state the initiating Party's
claims, and the Parties shall use reasonable efforts to resolve any such
disputes in an amicable manner.

      Any disputes arising in connection with this Agreement which cannot be
resolved in an amicable manner by representatives of the Parties shall be
referred, not later than thirty (30) days after initiation of dispute resolution
proceedings under this Section 24.2, to the following corporate officers of the
Parties for resolution:

      For Abbott:

      President of the Hospital Products Division or Abbott International
President as determined by Abbott (or his or her designee)


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      For LJP:
      President and CEO of LJP (or his or her designee)

      Such officers (or their designees) shall attempt to resolve the dispute
and shall communicate with each other by facsimile or telephone or in personal
meetings in an effort to resolve the dispute.

            (B) Alternative Dispute Resolution - Any disputes arising in
connection with this Agreement which cannot be resolved by the Parties within
twenty eight (28) days after initiation of dispute resolution proceedings under
Section 24.2 shall be finally settled by binding Alternative Dispute Resolution
in accordance with the procedure set forth in Appendix F. Judgment upon any
award rendered by the neutral in such proceedings may be issued and enforced by
any court having competent jurisdiction.

            (C) ADR Ruling - The neutral in any ADR proceeding under Section
24.2 shall determine and advise the Parties in writing:

               (i)  whether either Party has committed a breach of any of its
obligations under this Agreement; and

               (ii) if either Party has committed a breach;

                  (a)   whether such breach is a Material Breach or a breach
other than a Material Breach; and

                  (b)   the appropriate remedy for any such breach pursuant
to Section 24.2 D.

      As used herein, "Material Breach" by Abbott shall mean (i) a failure by
Abbott to pay any milestone or incentive payments pursuant to Section 3.1 or 4.2
or any royalty payments pursuant to Section 4.1 or any other amount owing to LJP
hereunder within *** of written notice of breach from LJP, or (ii) a failure by
Abbott to purchase LJP


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common stock required to be purchased under the Stock Purchase Agreement within
*** of Abbott's receipt of written notice of breach from LJP, or (iii) any
breach by Abbott of its non-competition obligations under Section 12.1 that is
not remedied within *** of Abbott's receipt of written notice of breach from
LJP. As used herein, "Material Breach" by LJP shall mean (i) a failure by LJP to
pay any amount owing to Abbott that is not remedied within *** of LJP's receipt
of written notice of breach from Abbott, or (ii) any breach by LJP of its
non-competition obligations under Section 12.1 that is not remedied within ***
of LJP's receipt of written notice of breach from Abbott. If either Party is
alleged to have committed a Material Breach as defined above and disputes in
good faith whether a Material Breach has occurred, the affected Party may
initiate an ADR proceeding hereunder within the above *** notice period without
having this Agreement terminated, provided the affected Party complies with the
ruling of the ADR neutral with respect to the alleged Material Breach.

            (D) Remedies - The neutral in any ADR proceeding under Section 24.2
shall have the authority to award the non-breaching Party the following relief
(except as otherwise provided in Section 24.2F):

               (i) for a Material Breach, an order to pay the amount due, an
award of damages, if any, and equitable relief, if appropriate, and termination
of this Agreement; and

               (ii) for a breach other than a Material Breach, an award of
damages and/or equitable relief.

            (E) Dispute Resolution for Sections 7.1 and 7.2 - LJP shall be
entitled to commence dispute resolution proceedings pursuant to Section 24.2 to
challenge


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Abbott's compliance with its Commercially Reasonable Efforts obligations in the
United States or any Major Country pursuant to Sections 7.1 and 7.2, not more
than once every *** for each respective country. The determination of whether
Abbott has used its Commercially Reasonable Efforts in each respective country
shall be based on the totality of circumstances. If LJP successfully establishes
that Abbott has failed to use its Commercially Reasonable Efforts, in any given
country (i) for *** such violations, the ADR neutral shall have the authority to
award damages or equitable relief to LJP (but not termination of Abbott's
license rights in such country) and (ii) for *** violations in the same country,
the ADR neutral shall have the authority to award, in the ADR neutral's
discretion, damages, equitable relief and/or termination of Abbott's license
rights in the country where such breach occurs.

       (F) Breach of Confidentiality Obligation - For an alleged breach of
Sections 8.1, 8.2 or 8.3, either Party may, at its option, initiate judicial
proceedings to seek injunctive relief against the breaching Party, but not any
other type of relief, provided that the injured Party may also seek money
damages in an ADR proceeding.

      24.3 Effect of Commencing Dispute Resolution - If either Party in good
faith commences dispute resolution proceedings under Section 24.2, (A) any
applicable notice periods or cure periods hereunder shall be temporarily
suspended pending the outcome of such dispute resolution proceedings and (B) the
initiating Party may, at its option, pay any amounts payable to the other Party
that are in dispute into an interest-bearing escrow account pending the outcome
of such dispute resolution proceedings.



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                                   ARTICLE XXV
                              LIMITATION OF DAMAGES

      In no event shall either Party be liable to the other Party for any
indirect, incidental or consequential damages in connection with the performance
of this Agreement or any breach of this Agreement.


                                  ARTICLE XXVI
                                  FORCE MAJEURE

      Neither Party shall be held in breach of this Agreement for failure to
perform any of its obligations hereunder (other than the payment of amounts due
hereunder) to the extent and for the time period such performance is prevented
in whole or in part by reason of any Force Majeure event, including but not
limited to industrial disputes, strikes, lockouts, riots, mobs, fires, floods,
and other natural disasters and Acts of God, wars declared or undeclared, civil
strife, embargo, delays in delivery or defects or shortages of raw materials
from suppliers, loss or breakdown of any production equipment, losses or
shortage of power, damage to or loss of goods in transit, currency restrictions,
or events caused by reason of laws, regulations or orders by any government,
governmental agency or instrumentality or by any other supervening unforeseeable
circumstances whatsoever beyond the control of the Party so affected. The Party
so affected shall (A) give prompt written notice to the other Party of the
nature and date of commencement of the Force Majeure event and its expected
duration and (B) use its reasonable efforts to avoid or remove the Force Majeure
event as soon as possible to the extent it is so able to do.


                                  ARTICLE XXVII
                             RELATIONSHIP OF PARTIES

      The relationship of the Parties under this Agreement is that of
independent contractors. Nothing contained in this Agreement shall be construed
so as to constitute


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the Parties as partners, joint venturers or agents of the other. Neither Party
has any express or implied right or authority under this Agreement to assume or
create any obligations or make any warranties and representations 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, and no conduct of the Parties
pursuant to the terms of this Agreement shall be deemed to establish such right
or authority. Neither Party shall make any representation to third parties that
the relationship created hereby constitutes a partnership, joint venture or
agency relationship.


                                 ARTICLE XXVIII
                             SEVERABILITY OF CLAUSES

      In case one or more of the provisions contained in this Agreement shall,
for any reason, be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provisions
of this Agreement, but this Agreement shall be construed by limiting such
invalid, illegal or unenforceable provision, if such is not possible, by
deleting such provision from this Agreement.


                                  ARTICLE XXIX
                                   NON-WAIVER

      The failure by either Party at any time to enforce any of the terms or
provisions or conditions of this Agreement or exercise any right hereunder shall
not constitute a waiver of the same or affect that Party's rights thereafter to
enforce or exercise the same. No waiver of any of the provisions of this
Agreement shall be deemed binding unless executed in writing by the Party to be
bound by it.


                                   ARTICLE XXX
                                    HEADINGS

      The headings in this Agreement are for convenience of reference only and
shall not be used in the interpretation of any provisions hereof.


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                                  ARTICLE XXXI
                                    EXECUTION

      This Agreement shall be executed by the Parties in two (2) original
counterparts, one (1) original counterpart being retained by each Party and
either of which shall be deemed sufficient to prove the existence and terms and
conditions hereof. This Agreement may be executed by the Parties by the exchange
of facsimile signature pages, with signed original counterparts of the Agreement
to be exchanged by the Parties promptly thereafter.

IN WITNESS WHEREOF, the Parties' duly authorized representatives hereto have
executed this Agreement as of the Effective Date.
LA JOLLA PHARMACEUTICAL                ABBOTT LABORATORIES
COMPANY

By: /s/ Steven B. Engle                By: /s/ Robert L. Parkinson, Jr.
   ---------------------------            ----------------------------------
Title: President & CEO                 Title: Senior Vice President,
                                              International Operations

Date: 12/23/96                         Date: 12/23/96


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                                   APPENDIX A

                             DEFINITION OF SUBSTANCE

                                     ***


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                                   APPENDIX B

                         FULLY BURDENED DEVELOPMENT COST

                                     ***


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                                     ***


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                                     ***


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                                     ***


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                                     ***


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                                     ***


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                                   APPENDIX C

                        FULLY BURDENED MANUFACTURING COST

Definitions

***


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                                     ***


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                                     ***


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                                     ***


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                                   APPENDIX D
                                     PART I
                                   LJP PATENTS

                                     ***


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                                     ***


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                                   APPENDIX D
                                     PART II
                             LJP PATENT APPLICATIONS

                                     ***


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                                   APPENDIX D
                                PART II (CONT'D)
                             LJP PATENT APPLICATIONS

                                     ***


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                                   APPENDIX E

                                 SPECIFICATIONS

1.0  SPECIFICATIONS FOR INTERIM PRODUCT



Test                          Specification


***                              ***


2.0  SPECIFICATIONS FOR SUBSTANCE

Test                          Specification


***                              ***


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***                              ***


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                                   APPENDIX F

                         ALTERNATIVE DISPUTE RESOLUTION


The parties recognize that a bona fide dispute as to certain matters may arise
from time to time during the term of this Agreement which relates to either
party's rights and/or obligations. To have such a dispute resolved by the
Alternative Dispute ("ADR") provision, a party first must send written notice of
the dispute to the other party for attempted resolution by good faith
negotiations between their respective presidents (or their equivalents) of the
affected subsidiaries, divisions, or business units within twenty-eight (28)
days after such notice is received (all references to "days" in this ADR
provision are to calendar days).

If the matter has not been resolved within twenty-eight (28) days of the notice
of dispute, or if the parties fail to meet within such twenty-eight (28) days,
either party may initiate an ADR proceeding as provided herein. The parties
shall have the right to be represented by counsel in such a proceeding.

1.    To begin an ADR proceeding, a party shall provide written notice to the
      other party of the issues to be resolved by ADR. Within fourteen (14) days
      after its receipt of such notice, the other party may, by written notice
      to the party initiating the ADR, add additional issues to be resolved
      within the same ADR.

2.    Within twenty-one (21) days following receipt of the original ADR
      notice, the parties shall select a mutually acceptable neutral to
      preside in the resolution of any disputes in this ADR proceeding.  If
      the parties are unable to agree on a mutually acceptable neutral within
      such period, either party may request the President of the CPR
      Institute for Dispute Resolution ("CPR"), 366 Madison Avenue, 14th
      Floor, New York, New York 10017, to select a neutral pursuant to the
      following procedures:

            (a)   The CPR shall submit to the parties a list of not less than
                  five (5) candidates within fourteen (14) days after receipt of
                  the request, along with a Curriculum Vitae for each candidate.
                  No candidate shall be an employee, director, or shareholder of
                  either party or any of their subsidiaries or affiliates.

            (b)   Such list shall include a statement of disclosure by each
                  candidate of any circumstances likely to affect his or her
                  impartiality.

            (c)   Each party shall number the candidates in order of preference
                  (with the number one (1) signifying the greatest preference)
                  and shall deliver the list to the CPR within seven (7) days
                  following receipt of


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                  the list of candidates. If a party believes a conflict of
                  interest 18 exists regarding any of the candidates, that party
                  shall provide a written explanation of the conflict to the CPR
                  along with its list showing its order of preference for the
                  candidates. Any party failing to return a list of preferences
                  on time shall be deemed to have no order of preference.

            (d)   If the parties collectively have identified fewer than
                  three (3) candidates deemed to have conflicts, the CPR
                  immediately shall designate as the neutral the candidate
                  for whom the parties collectively have indicated the
                  greatest preference.  If a tie should result between two
                  candidates, the CPR may designate either candidate.  If the
                  parties collectively have identified three (3) or more
                  candidates deemed to have conflicts, the CPR shall review
                  the explanations regarding conflicts and, in its sole
                  discretion, may either (i) immediate designate as the
                  neutral the candidate for whom the parties collectively
                  have indicated the greatest preference, or (ii) issue a new
                  list of not less than five (5) candidates, in which case
                  the procedures set forth in subparagraphs 2(a) - 2(d) shall
                  be repeated.

3.    No earlier than twenty-eight (28) days or later than fifty-six (56)
      days after selection, the neutral shall hold a hearing to resolve each
      of the issues identified by the parties.  The ADR proceeding shall take
      place at a location agreed upon by the parties.  If the parties cannot
      agree, the neutral shall designate a location other than the principal
      place of business of either party or any of their subsidiaries or
      affiliates.  Each party to the proceeding shall be entitled to make one
      document request to the other party, subject to the right of the
      neutral to rule on any objections to such request, which shall not be
      subject to appeal.

4.    At least seven (7) days prior to the hearing, each party shall submit
      the following to the other party and the neutral:

            (a)   a copy of all exhibits on which such party intends to rely
                  in any oral or written presentation to the neutral;

            (b)   a list of any witnesses such party intends to call at the
                  hearing, and a short summary of the anticipated testimony
                  of each witness;

            (c)   a proposed ruling on each issue to be resolved, together with
                  a request for a specific damage award or other remedy for each
                  issue. The proposed rulings and remedies shall not contain any
                  recitation of the facts or any recitation of the facts or any
                  legal arguments and shall not exceed one (1) page per issue.


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            (d)   a brief in support of such party's proposed rulings and
                  remedies, provided that the brief shall not exceed twenty (20)
                  pages. This page limitation shall apply regardless of the
                  number of issues raised in the ADR proceeding.

5.    The hearing shall be conducted on two (2) consecutive days and shall
      be governed by the following rules:

            (a)   Each party shall be entitled to five (5) hours of hearing time
                  to present its case. The neutral shall determine whether each
                  party has had the five (5) hours to which it is entitled.

            (b)   Each party shall be entitled, but not required, to make an
                  opening statement, to present regular and rebuttal testimony,
                  documents or other evidence, to cross-examine witnesses, and
                  to make a closing argument. Cross-examination of witnesses
                  shall occur immediately after their direct testimony, and
                  cross-examination time shall be charged against the party
                  conducting the cross-examination.

            (c)   The party initiating the ADR shall begin the hearing and, if
                  it chooses to make an opening statement, shall address not
                  only issues it raised but also any issues raised by the
                  responding party. The responding party, if it chooses to make
                  an opening statement, also shall address all issues raised in
                  the ADR. Thereafter, the presentation of regular and rebuttal
                  testimony and documents, other evidence, and closing arguments
                  shall proceed in the same sequence.

            (d)   Except when testifying, witnesses shall be excluded from the
                  hearing until closing arguments.

            (e)   Settlement negotiations, including any statements made
                  therein, shall not be admissible under any circumstances.
                  Affidavits prepared for purposes of the ADR hearing also shall
                  not be admissible. As to all other matters, the neutral shall
                  have sole discretion regarding the admissibility of any
                  evidence.

6.    Within seven (7) days following completion of the hearing, each party may
      submit to the other party and the neutral a post-hearing brief support of
      its proposed rulings and remedies, provided that such brief shall not
      contain or discuss any new evidence and shall not exceed ten (10) pages.
      This page limitation shall apply regardless of the number of issues raised
      in the ADR proceeding.


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7.    The neutral shall rule on each disputed issue within fourteen (14) days
      following completion of the hearing. Such ruling shall adopt in its
      entirety the proposed ruling and remedy of one of the parties on each
      disputed issue but may adopt one party's proposed rulings and remedies on
      some issues and the other party's proposed rulings and remedies on other
      issues. The neutral shall not issue any written opinion or otherwise
      explain the basis of the ruling.

8.    The neutral shall be paid a reasonable fee plus expenses. These fees and
      expenses, along with the reasonable legal fees and expenses of the
      prevailing party (including all expert witness fees and expenses), the
      fees and expenses of a court reporter, and any expenses for a hearing
      room, shall be paid as follows:

            (a)   If the neutral rules in favor of the one party on all disputed
                  issues in the ADR, the losing party shall pay 100% of such
                  fees and expenses.

            (b)   If the neutral rules in favor of one party on some issues and
                  the other party on other issues, the neutral shall issue with
                  the rulings a written determination as to how such fees and
                  expenses shall be allocated between the parties. The neutral
                  shall allocate fees and expenses in a way that bears a
                  reasonable relationship to the outcome of the ADR, with the
                  party prevailing on more issues, or on issues of greater value
                  or gravity, recovering a relatively larger share of its legal
                  fees and expenses.

1.    The rulings of the neutral and the allocation of fees and expenses shall
      be binding, non-reviewable, and non-appealable, and may be entered as a
      final judgment in any court having jurisdiction.

2.    Except as provided in paragraph 9 or as required by law, the existence of
      the dispute, any settlement negotiations, the ADR hearing, any submissions
      (including exhibits, testimony, proposed rulings, and briefs), and the
      rulings shall be deemed Confidential Information. The neutral shall have
      the authority to impose sanctions for unauthorized disclosure of
      Confidential information.


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                                   APPENDIX G
                                SUPPLY AGREEMENT


            1.    LJP Supply Obligations

            1.1 Substance and Interim Product Supply - Subject to the terms and
conditions of this Supply Agreement prior to Initial Commercial Sales of
Product, LJP shall supply Abbott, its Affiliates and Unaffiliated Sublicensees
with their requirements of Interim Product. Subject to the terms and conditions
of this Supply Agreement during the Term, LJP shall supply Abbott, its
Affiliates and Unaffiliated Sublicensees with their requirements of Substance.

            1.2 Delivery - LJP shall supply the Substance and the Interim
Product to Abbott only against receipt of Abbott's written purchase orders.
Except as otherwise provided herein or as otherwise expressly agreed in writing
by the Parties, delivery shall be within *** from receipt and acceptance of
Abbott's purchase order or later as specified in the written purchase order from
Abbott. LJP shall accept and confirm in writing the delivery dates within ***
after receipt of Abbott's purchase orders and, subject to the provisions of
Section 5.1, LJP shall use Commercially Reasonable Efforts to fill such orders
on the requested delivery dates, but shall in any event fill such orders to the
extent consistent with the forecast described below within *** from receipt and
acceptance of Abbott's purchase order, unless the Abbott written purchase order
requests delivery for a later date. LJP shall deliver the Substance and the
Interim Product F.O.B. plant to a carrier designated by Abbott. Abbott shall pay
shipping costs and shall assume title to and risk of loss for the Substance and
the Interim Product purchased hereunder upon delivery to Abbott's designated
carrier.


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      1.3 Acknowledgment - Within *** after receipt of any Purchase Order from
Abbott, LJP shall respond in writing confirming Abbott's Purchase Order (an
"Acknowledgment"), provided that such Purchase Order is consistent with the
terms of this Agreement. LJP's failure to acknowledge a written purchase order
within *** of receipt shall be deemed to be acceptance of such Purchase Order in
its entirety, subject to all conditions in this Agreement. Purchase Orders may
be made in any form including computer-generated reports and telefaxes. Abbott
shall use Commercially Reasonable Efforts to schedule orders to avoid creating
over or under capacity problems for LJP.

      1.4 Shipping Instructions - Abbott shall provide LJP with appropriate
instructions for each shipment of the Substance and the Interim Product
hereunder designating the desired carrier, destination and method of transport.
If LJP becomes aware that the designated carrier is unable to accept the desired
shipment within the requested delivery period, LJP shall promptly notify Abbott
and Abbott shall promptly designate another carrier or carriers.

      2. LJP Affiliates and Approved Subcontractors - LJP may satisfy its supply
obligations under this Agreement either directly or through any LJP Affiliate,
provided that each manufacturing site utilized by such LJP Affiliate has
received all required regulatory approvals and that LJP guarantees the
performance of such Affiliate, and such supply by LJP or by LJP Affiliates shall
not be deemed an infringement of Abbott's exclusive rights hereunder. LJP may
not subcontract its supply obligations under this Agreement to any party other
than an LJP Affiliate without Abbott's prior written consent, not to be
unreasonably withheld.

      3. LJP Manufacturing Capabilities: Manufacturing Plan - LJP shall be
responsible for developing capabilities to manufacture Substance and the Interim


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Product, filing manufacturing-related regulatory documents (e.g., drug master
file), Manufacturing Scale Up and the capital investment in a commercial
manufacturing facility based on progress under the Development Plan, clinical
testing results, and Abbott's market forecasts. Abbott and LJP shall jointly
develop a manufacturing plan for the Substance and the Product ("Manufacturing
Plan") which shall contain equipment throughput, yield and capacity assumptions,
capital requirements and timing associated with manufacturing. Abbott and LJP
shall update the Manufacturing Plan at least semi-annually and upon reviewing
the dose maintenance results.

      4.        Forecasts and Ordering

          4.1 Intent - LJP will attempt to meet all of Abbott's requirements for
Substance. Abbott and LJP recognize that it is difficult to accurately forecast
new product material requirements, especially during the launch of a new
product. Nonetheless, the parties understand that this Appendix is designed to
permit LJP to plan the size of its manufacturing facility, and its production
schedules to meet Abbott's needs in an uncertain situation. The parties agree to
cooperate closely in order to assure an efficient and effective process. LJP
will, with the assistance of Abbott, identify and qualify back-up vendors in the
DMF and U.S. NDA and other equivalent regulatory filings as deemed necessary by
the parties. It is recognized that LJP may have certain limitations during
manufacturing start-up including a manufacturing learning curve, staffing, and
raw material lead times. Abbott shall provide purchase orders and forecasts to
LJP with sufficient notice and in sufficient quantities to allow LJP to meet its
obligation to supply Substance.

             4.2 Forecasts and Ordering - All forecasts will be reasonable and
made in good faith with the understanding that LJP will rely on these forecasts
for planning its


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production infrastructure.  With respect to the development and sale of
Product in the Territory, Abbott shall deliver to LJP:

            (A) Preliminary Forecast - For clinical and manufacturing
   development planning purposes, and within *** of the Effective Date, a
   preliminary marketing forecast of Substance from Abbott. This forecast will
   be updated *** by Abbott until Abbott receives its initial Regulatory
   Approval.

            (B) Long Term Forecast - For long-term marketing and plant capacity
   planning purposes, within *** of the Effective Date a *** sales forecast for
   the Territory. This forecast will include a detailed projection of the
   quantities needed for launch and will be updated every *** by Abbott until
   *** years after the Initial Commercial Sale of the product, after which
   Abbott shall *** update such forecast.

            (C) Delivery Forecast - A *** rolling delivery forecast for the
   Territory. This Delivery forecast will be updated every *** by Abbott and
   used to determine orders for Substance as provided in Section 5 below. If a
   required forecast or order for any *** is not submitted for Substance within
   the required time frame, the immediately preceding forecast or order for that
   *** shall become the new forecast or order.

            (D) Orders Exceeding Forecast - Subject to the lead times associated
   with plant construction, equipment deliveries and other required deliveries,
   if orders exceed the forecast in Section 4.2 (B), then LJP is not obligated
   to supply Substance in excess of LJP's capacity. However, LJP will use
   Commercially Reasonable Efforts in cooperation with Abbott, to supply Abbott
   with Substance, in excess of the forecasted amounts.


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       (E) Manufacturing Plan - Based on the Manufacturing Plan, the parties
will determine the timing, size and capacity of LJP's existing and future
facilities as well as LJP approved subcontractors. The orders specified in the
following sections shall conform to the plant capacities and timing of the
Manufacturing Plan. Commencing not later than *** prior to Abbott's first
commercial delivery date of the Substance from LJP for Abbott's Product launch
anywhere in the Territory, Abbott will provide the *** , a firm purchase order
for next *** and a *** forecast which is updated ***. Following the initial
forecasts, an additional firm purchase order for at least *** (*** in the
future) as well as an updated *** rolling forecast will be provided by Abbott.
LJP shall not have to deliver an amount of Substance in excess of the forecast
except when sufficient raw materials and manufacturing capacity are available.
LJP will supply Abbott with forecasts for raw ingredients necessary to meet the
*** forecast. During the first *** following Initial Commercial Sale, Abbott
will purchase these specified raw ingredients and place them on consignment at
LJP. LJP shall manufacture Substance for Abbott from raw ingredients supplied
and paid for by Abbott. Such material supplied by Abbott shall be utilized by
LJP solely for the purpose of formulating Abbott's requirements of the
Substance. The raw materials shall be delivered F.O.B. LJP's plant pursuant to
no cost purchase orders issued by LJP to Abbott. LJP shall render quarterly
reports to Abbott accounting for the disposition of the raw materials supplied
hereunder. LJP shall, for a period of *** after delivery, maintain accurate
books and records showing raw ingredients in inventory, in process and shipments
to Abbott. Abbott shall be permitted to conduct a physical inventory of the
consigned inventory ***. LJP will deduct the cost of Abbott's supplied raw
ingredients used to manufacture Substance from the price of Substance specified
in Section 6 of this Supply Agreement.


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       LJP shall have the risk of loss or damage to the raw materials supplied
hereunder from the time it is delivered to LJP and until the Substance is
delivered to Abbott. LJP shall procure and maintain sufficient insurance to
cover the cost of replacing consigned Inventory.

      5. Supply - Subject to the terms and conditions of this Agreement, LJP
shall use Commercially Reasonable Efforts to fill (by full or partial shipment)
Abbott's orders for Substance for the Territory.

           5.1 Purchase Orders - During the Term of this Agreement, Abbott may
order Substance in amounts specified in Section 4.2(E) from LJP by submitting
written Purchase Orders to LJP specifying the amount of Substance ordered, the
location for delivery of such Substance (the "Delivery Location") and the
required date(s) of delivery (the "Delivery Date"). A purchase order must be
approved and signed by a representative of Abbott. LJP agrees to manufacture and
sell to Abbott all Substance properly ordered and to deliver all such Substance
to Abbott at the Delivery Location by the Delivery Date. LJP shall not be
required to accept any purchase orders that are inconsistent with the terms of
this Supply Agreement. Notification of non-acceptance of purchase orders must be
provided to Abbott within *** after receipt of the Abbott purchase order. Each
Purchase Order shall be governed by and subject to all the terms and conditions
of this Agreement. LJP agrees to accept all properly placed Purchase Orders from
Abbott for Substance.

      6. Prices and Payment

            6.1 Price of Substance and Interim Product for Development The price
of the Substance or Interim Product sold by LJP to Abbott shall be ***.


                                       96
   97
            6.2 Price of Substance for Product For Sale prior to Initial
Commercial Sale - Prior to launch, the price of Substance shall be LJP's Fully
Burdened Manufacturing Cost as specified in Appendix C, which will then be
adjusted as specified in Section 8 of this Supply Agreement, Appendix G.

            6.3 Price of Substance For Commercial Sale After Initial Commercial
Sale - After the Initial Commercial Sale, the price of Substance sold for
commercial sale anywhere in the Territory to Abbott by LJP shall be ***.

        (A)  ***


                                       97
   98
        (B)  ***

             6.4     ***

        (A)       ***;

                   or

        (B)      ***.

      7. Payments - Payments for Substance shipped to Abbott will be due within
*** of invoice as described in Section 5.1 of the Agreement, which LJP shall 
issue when or after it ships Substance to Abbott.

      8. Unit Net Sales Price - Abbott will provide good faith reasonable
estimates of unit Net Sales price for Product at ***. Bona fide sample units and
clinical trial units of Product will not be included in any calculations of
average per unit Net Sales prices. Within *** of the end of each *** as
specified in Section 4.3 of the Agreement for the reporting of royalties, Abbott
shall provide a revised estimated unit Net Sales price for Products based on the
***. All such average unit Net Sales


                                       98
   99
prices will be based on ***. Accounts will be reconciled promptly within *** of
the end of each *** during the first *** and then at the end of each ***
thereafter to reflect actual Net Sales or costs and balancing payments which
include ***.

          9.      Shipments

          9.1. Delivery Location - LJP shall ship all Substance F.O.B. Plant to
the Delivery Location specified in the Purchase Order or, unless the Substance
has already been shipped, to such other location as may be requested by Abbott
in writing not less than *** prior to the scheduled Delivery Date. Partial
delivery of Substance shall not be permitted unless specifically authorized in
writing by Abbott and LJP.

          9.2. Other Delivery Costs - The price and payments for the Substance
shall be exclusive of all insurance, shipping, import duties and taxes,
inventory storage, disposal of returns, withholding and the like. These costs
shall be added to the invoice and paid by Abbott.

          9.3 Title and Risk of Loss - Title and risk of loss of Product sold
under this Agreement shall pass to Abbott upon delivery of the same at the LJP
shipping site to the carrier designated by Abbott, or, if no carrier is chosen
by Abbott, upon delivery by LJP to a carrier chosen by LJP in a commercially
reasonable manner. Thereafter, in addition to assuming all risk of loss, Abbott
shall be responsible for compliance with all


                                       99
   100
governmental regulations and ordinances with regard to storage or placement of
Products. LJP warrants that, upon delivery and acceptance of any Substance,
title will pass to Abbott free and clear of all liens, claims, security
interests or encumbrances and that no Substance purchased hereunder shall be
subject to any agreement under which any interest therein or encumbrance thereon
is retained by any third party.

          10. Delivery - Substance delivered to Abbott pursuant to the terms
hereof shall be deemed accepted by Abbott upon the earlier of (i) receipt by LJP
of a written notice of acceptance from Abbott or (ii) expiration of the
Inspection Period (as defined below) without rejection by Abbott of any such
Substance. Abbott shall have the right to inspect the Substance at the Delivery
Location within *** after delivery to the Abbott U.S. plants and *** after
receipt at Abbott International plants before accepting such Substance (the
"Inspection Period"). If any Substance is found to be defective in material or
workmanship, or otherwise not in conformity with the mutually agreed upon
requirements of the applicable Purchase Order, Abbott, in addition to any other
rights it may have under warranty or otherwise, shall have the right to reject
and return any or all such Substance on a carrier selected by LJP at LJP's
expense and risk.

          11. Certificate of Analysis - LJP shall furnish Abbott with one or
more certificates of analysis, in the form required by law in each country of
the Territory where the Product is marketed, for each batch of the Substance or
the Interim Product supplied hereunder with shipment of each such batch.

          12.     Product Inspections

          12.1 Abbott Inspection and Analysis - Abbott and LJP shall agree on
validated test methods and shall work together to confirm the performance of
these methods. Abbott shall inspect and analyze a representative sample of the
Substance


                                      100
   101
from batches supplied by LJP promptly after receipt. If, after inspection,
Abbott reasonably believes the shipment does not meet the Specifications, Abbott
shall notify LJP in writing within *** after Abbott's receipt of such Substance.
If Abbott does not so notify LJP, Abbott shall be deemed to have waived all
claims against LJP for said quantity delivered, except for any latent deviations
from the Specifications that could not have been reasonably discovered upon such
inspection. Any claims by Abbott regarding Substance delivered shall specify in
reasonable detail the nature and basis for the claim and cite relevant LJP lot
numbers or other information to enable specific identification of the Substance
involved. After stability data has been developed for the Substance, the Parties
will agree on an acceptable expiration dating for Substance shipped to Abbott
from LJP.

          12.2 LJP Response - LJP shall respond to all claims made by Abbott on
a case-by-case basis during which time LJP shall have the right to first inspect
any Substance involved before being required to take any action with respect
thereto. LJP shall review any such claim of nonconformity made by Abbott within
*** of receipt and conduct any required testing of the Substance involved as
soon as possible, but in no event later than *** after receipt thereof or
earlier if the U.S. FDA or any corresponding regulatory authority in the
Territory requires an earlier response from LJP. If such review and testing by
LJP (or testing by an independent laboratory as set forth below) confirms that a
claimed quantity does not meet the Specifications, then, at LJP's expense,
Abbott shall dispose of or return such quantity involved as LJP shall direct in
writing and LJP shall replace such quantity with conforming Substance as soon as
possible, using Commercially Reasonable Efforts which shall be Abbott's sole and
exclusive remedy for such non-conformity. If the Parties fail to agree as to
whether a delivered quantity meets the Specifications, then the Parties shall
have the batch in dispute analyzed by a mutually agreed upon


                                      101
   102
independent testing laboratory. Such laboratory's determination shall be deemed
final as to any dispute over the Specifications and the non-prevailing Party
shall bear the costs of such independent laboratory's testing.

         13. Product Storage - Each Party shall properly store the Substance
   under conditions that will not adversely affect the quality or normal shelf
   life thereof.

         14. Abbott Obligations - Abbott shall formulate fill, package Substance
   into Product to current Good Manufacturing Practices (CGMP) or equivalent
   standards. Abbott shall maintain *** of Substance and Product inventory.

         15. Abbott's Labeling Obligation - Abbott shall be responsible for
   all labeling, inserts, promotional materials and any other materials which
   accompany, are distributed with, used or referred to in any way by Abbott,
   its Affiliates or Unaffiliated Sublicenses in connection with the Product.
   Such materials shall conform to all legal requirements in each country of the
   Territory in which the Product is sold.


                                      102
   103
                                   APPENDIX H

                                 CORE COUNTRIES


                                     ***


                                      103
   104
                                   APPENDIX I

ROYALTY CALCULATION ASSOCIATED WITH PREMIUM DELIVERY SYSTEM EXAMPLE

Basic Product
   Basic Product Selling Price                        ***
   Royalty Rate                                       ***
   Royalty paid on sale                               ***

Premium Delivery System Calculation Example 1
   Basic Product Selling Price                        ***
   Premium System Selling Price                       ***
   Contribution of Basic Product                      ***
   Calculation of Basic Product Contribution          ***
   Royalty calculation                                ***

Premium Delivery System Calculation Example 2
   Basic Product Selling Price                        ***
   Premium System Selling Price                       ***
   Contribution of Basic Product                      ***
   Calculation of Basic Product Contribution          ***
   Royalty calculation                                ***


                                      104

EX-10.36

   1

                                                                   EXHIBIT 10.36

                            STOCK PURCHASE AGREEMENT

         This Stock Purchase Agreement (this "AGREEMENT") is made and entered
into as of December 23, 1996  by and between La Jolla Pharmaceutical Company, a
Delaware corporation (the "COMPANY"), and Abbott Laboratories, an Illinois
corporation (the "PURCHASER").

                 A.       The Company and the Purchaser are parties to that
certain License and Supply Agreement of even date herewith (the "LICENSE
AGREEMENT") pursuant to which the Company and the Purchaser will cooperate in
the development and marketing of LJP 394, the Company's drug candidate for
lupus erythematosus.

                 B.       The purchase by the Purchaser of capital stock from
the Company as described herein is an essential inducement to the Company to
enter into the License Agreement.

                 NOW, THEREFORE, in consideration of the foregoing premises and
the mutual covenants hereinafter set forth, the Company and the Purchaser
hereby agree as follows:

                 1.  DEFINITIONS.  Capitalized terms used herein and not
otherwise defined shall have the meanings set forth below:

                 "ADDITIONAL INVESTMENT RIGHT" has the meaning set forth in
Section 2(b)(i).

                 "ADDITIONAL SHARES" has the meaning set forth in Section
2(b)(i).

                 "AFFILIATE" of a party means any person or entity controlling,
controlled by, or under common control with such party, whether directly or
indirectly through one or more intermediaries.  For purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as used with
respect to any person, shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of
such person, whether through the ownership of voting securities, by agreement
or otherwise.

                 "BENEFICIAL OWNERSHIP"  shall have the meaning provided in
Rule 13d-3 under the Exchange Act.

                 "BOARD" means the board of directors of the Company.

                 "BUSINESS DAY" means any day other than a Saturday, Sunday, or
other day on which commercial banking institutions in California or Illinois
are authorized or obligated by law to be closed.

                 "COMMON STOCK" means the Company's common stock, par value
$.01 per share.
   2

                 "EQUITY SECURITY" means any Voting Stock and any options,
warrants, convertible securities, or other rights to acquire Voting Stock, but
excluding any rights issued by the Company under any stockholder rights plan
that may be implemented by the Company and securities issuable upon exercise of
such rights.

                 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

                 "FAIR MARKET VALUE" of the Common Stock as of any date of
determination means the arithmetic mean of the reported last sale price of the
Common Stock regular way on each of the 20 trading days immediately preceding
such date of determination or, if no such sale takes place on any of such days,
the average of the reported closing bid and asked prices regular way, in each
case on the principal national securities exchange on which the Common Stock is
listed or admitted to trading, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, the closing sales
prices, or, if there are no closing sales prices on any such days, the average
of the closing bid and asked prices, in the Nasdaq Stock Market or other
over-the-counter market as reported by the National Association of Securities
Dealers Automated Quotation System, or, if not so reported, the fair market
value of the Common Stock as estimated by a nationally recognized investment
banking firm selected by Purchaser and acceptable to the Company in the
exercise of its reasonable discretion, which estimate shall be prepared at the
expense of the Company.

                 "GOVERNMENTAL AUTHORITY" means any governmental,
quasi-governmental, judicial, or regulatory agency or entity or subdivision
thereof with jurisdiction over the Company or the Purchaser or any of their
subsidiaries or any of the transactions contemplated by this Agreement.

                 "INITIAL SHARES" has the meaning set forth in Section 2(a).

                 "MATERIAL ADVERSE EFFECT" means a material adverse effect on
the business, assets, results of operations, properties, or financial or
operating condition of the Company, or the ability of the Company to perform
its obligations under this Agreement or the License Agreement or consummate the
transactions contemplated hereby.

                 "PURCHASER INTEREST" means, as of any date, the percentage of
the Total Voting Power Beneficially Owned by the Purchaser on such date.

                 "REGISTRATION STATEMENT" means the Company's registration
statement on Form S-3, Registration No. 333-04943, including all exhibits
thereto and the final prospectus included therein.

                 "SEC" means the Securities and Exchange Commission.

                 "SEC REPORTS" means the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 and quarterly reports on Form 10-Q for the
quarters ended March 31, 1996, June 30, 1996 and September 30, 1996, each as
filed with the SEC and including all exhibits thereto.


                                       2

   3

                 "SECURITIES ACT" means the Securities Act of 1933, as amended.

                 "SHARES" means the Initial Shares and any and all Additional
Shares purchased pursuant to this Agreement.

                 "STANDSTILL PERIOD" means the period beginning on the date of
this Agreement and ending on the third anniversary of the date of this
Agreement.

                 "TOTAL VOTING POWER" means, at any date, the total number of
votes that may be cast in the election of directors of the Company at any
meeting of stockholders of the Company held on such date assuming all shares of
Voting Stock were present and voted at such meeting, other than votes that may
be cast only by one class or series of stock (other than Common Stock) or upon
the happening of a contingency.

                 "VOTING STOCK" means Common Stock and all other securities of
the Company, if any, entitled to vote generally in the election of the Board.

                 2.  SALE AND PURCHASE OF STOCK.

                 (a)  Initial Purchase.

                          (i)  Subject to Section 2(d),  the Company shall sell
and issue to the Purchaser, and the Purchaser shall purchase from the Company,
One Million Fifty (1,000,050) shares of Common Stock (the "INITIAL SHARES") for
an aggregate purchase price of Four Million Dollars ($4,000,000) (the "INITIAL
PURCHASE PRICE").  The closing of the issuance and sale to the Purchaser of the
Initial Shares (the "INITIAL CLOSING") shall occur at the Company's
headquarters, or such other place as the parties may mutually agree, five
Business Days after the execution and delivery of this Agreement by the
Purchaser and the Company, or, if all of the conditions set forth in Section
2(d) have not been satisfied or waived as of that date, on the first Business
Day thereafter that all of the conditions set forth in Section 2(d) have been
satisfied or waived (the "INITIAL CLOSING DATE").  At the Initial Closing, the
Purchaser shall deliver the Initial Purchase Price to the Company by wire
transfer to the account specified on Schedule 1, and in exchange therefor the
Company shall issue the Initial Shares to the Purchaser and deliver to the
Purchaser's representative present at the Initial Closing or mail to the
Purchaser, at the Purchaser's discretion, a valid stock certificate registered
in the name of the Purchaser representing the Initial Shares.  If the Purchaser
elects to have the stock certificate mailed, the Company shall telecopy to the
Purchaser a copy of such certificate concurrently with the Purchaser's delivery
of the Initial Purchase Price.





                                       3
   4
                 (b)  Additional Purchases.

                          (i)  Subject to the limitations set forth in Section
2(b)(ii), the Company shall have the right (the "ADDITIONAL INVESTMENT RIGHT")
to require the Purchaser to purchase additional shares of Common Stock
("ADDITIONAL SHARES") during the 1997 and 1998 calendar years (the "EXERCISE
PERIOD").  The Company, acting in its sole discretion, may exercise the
Additional Investment Right at any time and from time to time during the
Exercise Period by delivering a written notice (an "EXERCISE NOTICE") to the
Purchaser stating the total consideration to be paid by the Purchaser for the
Additional Shares being sold pursuant to such exercise of the Additional
Investment Right (an "ADDITIONAL PURCHASE PRICE") and the date (which shall be
a Business Day not fewer than five Business Days or more than ten Business Days
after the Purchaser's receipt of the Exercise Notice) on which the purchase and
sale of the Additional Shares subject to that notice is expected to take place.
Each closing of the issuance and sale to the Purchaser of Additional Shares
(each an "ADDITIONAL CLOSING")  shall occur at the Company's headquarters, or
such other place as the parties may mutually agree, on the date specified in
the applicable Exercise Notice, or, if all of the conditions set forth in
Section 2(e) have not been satisfied or waived as of that date, on the first
Business Day thereafter that all of the conditions set forth in Section 2(e)
have been satisfied or waived (each an "ADDITIONAL CLOSING DATE").  At each
Additional Closing, the Purchaser shall deliver the Additional Purchase Price
specified in the applicable Exercise Notice to the Company by wire transfer to
the account specified in Schedule 1, and in exchange therefor the Company shall
issue to the Company that number of Additional Shares as is determined by
dividing the Additional Exercise Price delivered by the Fair Market Value of
the Common Stock on such Additional Closing Date, and deliver to the
Purchaser's representative present at the Additional Closing or mail to the
Purchaser, at the Purchaser's discretion, a valid stock certificate registered
in the name of the Purchaser representing such Additional Shares.  If the
Purchaser elects to have the stock certificate mailed, the Company shall
telecopy to the Purchaser a copy of such certificate concurrently with the
Purchaser's delivery of the Additional Purchase Price.

                          (ii)  Notwithstanding anything herein to the
contrary, each exercise of the Additional Investment Right is subject to the
following limitations:

                                  (A)  The Purchaser shall not be obligated to
pay more than Four Million Dollars ($4,000,000) in aggregate Additional
Purchase Price in any calendar year, except as set forth in Section 2(b)(ii)(C)
and except that if any Exercise Notice delivered after October 1, 1997 and
before January 1, 1998 does not result in payment by Abbott of the Additional
Purchase Price specified therein because the condition to Abbott's purchase
obligation set forth in Section 2(e)(i)(E) is not satisfied or waived, then the
amount of such unpaid Additional Purchase Price (the "UNPAID PRICE") shall be
added to the maximum aggregate Additional Purchase Price that the Purchaser may
(subject to satisfaction of the applicable conditions herein, including the
condition in Section 2(e)(i)(E)) be obligated to pay in the calendar year of
1998, but only if the Company delivers before March 31, 1998 an Exercise Notice
or Exercise Notices specifying, in the aggregate, an Additional Purchase Price
at least equal to the Unpaid Price.





                                       4
   5

                                  (B)  In any calendar year that the Company
exercises the Additional Investment Right, the aggregate Additional Purchase
Price specified in any Exercise Notice delivered in that year must be at least
Two Million Dollars ($2,000,000).

                                  (C)  In no event shall the Purchaser be
required to purchase pursuant to this Section 2(b) a number of Shares that,
together with the Shares then owned by the Purchaser, would exceed 19% of the
then outstanding shares of Common Stock of the Company (giving effect to the
issuance to Purchaser), and the number of Additional Shares to be purchased on
any Additional Closing Date shall, at the Purchaser's option, be reduced by
such excess number of shares, provided that the Fair Market Value of the Shares
not sold to the Purchaser in 1997 as a result of any such reduction shall be
added to the maximum aggregate Additional Purchase Price that the Purchaser may
(subject to satisfaction of the applicable conditions herein, including the
condition in Section 2(b)(ii)(C)) be obligated to pay in 1998.

                 (c)      Company Discretion.  The Purchaser acknowledges that
exercise of the Additional Investment Right is within the Company's sole
discretion, and that the Purchaser may be required to purchase Additional
Shares at times when the Fair Market Value thereof is relatively high.  The
Purchaser has no right to purchase Additional Shares at any particular price
other than as set forth in Section 2(e)(i)(E).

                 (d)      Conditions to the Purchase and Sale of the Initial
Shares.

                          (i)     Conditions to the Purchaser's Obligation.
The obligation of the Purchaser to purchase and pay for the Initial Shares
shall be subject to the satisfaction (or waiver in writing by the Purchaser) on
or prior to the Initial Closing Date of the following conditions.

                                  (A)      The representations and warranties
contained in Section 3 shall be true and correct in all material respects as of
the Initial Closing Date, and the covenants and agreements contained herein to
be performed by the Company on or prior to the Initial Closing Date shall have
been performed in all material respects on or prior to the Initial Closing
Date.

                                  (B)      The Company shall have entered into,
or be entering into concurrently herewith, the License Agreement.

                                  (C)      The Company shall have delivered to 
the Purchaser the following documents:

                                        (1)     a certificate signed by the
Company's Chief Executive Officer, dated the Initial Closing Date, certifying
that the conditions specified in Section 2(d)(i)(A) have been satisfied;

                                        (2)     certified copies of resolutions
duly adopted by the Company's Board of Directors authorizing the execution,
delivery and performance of this





                                       5
   6

Agreement, the License Agreement, and the other transactions contemplated
hereby and thereby;

                                        (3)     certified copies of the
Certificate of Incorporation and By-laws of the Company, each as in effect on
the Initial Closing Date;

                                        (4)     copies of any third party and
governmental consents, approvals and filings required in connection with the
consummation of the transactions contemplated hereby.

                                  (D)      The purchase of the Initial Shares
by the Purchaser hereunder, and the performance of the transactions
contemplated hereby and by the License Agreement, shall not be prohibited by
any applicable law, administrative or governmental rule or regulation or order
of a court of competent jurisdiction; and no action, suit or proceeding shall
exist or be threatened that would prevent, restrain or condition in any
material respect the consummation of the transactions contemplated hereby or by
the License Agreement.

                                  (E)      All material consents and approvals
of, or filings with, any third party or Governmental Authority required in
connection with the execution and delivery of this Agreement and the License
Agreement and the consummation of the transactions contemplated hereby and
thereby shall have been obtained.

                          (ii)    Conditions to the Company's Obligation.  The
obligation of the Company to issue and sell the Initial Shares shall be subject
to the satisfaction (or waiver in writing by the Company) on or prior to the
Initial Closing Date of the following conditions:

                                  (A)      The representations and warranties
contained in Section 4 shall be true and correct in all material respects as of
the Initial Closing Date, and the covenants and agreements contained herein to
be performed by the Purchaser on or prior to the Initial Closing Date shall
have been performed in all material respects on or prior to the Initial Closing
Date.

                                  (B)      The issuance and sale of the Initial
Shares by the Company hereunder, and the performance of the transactions
contemplated hereby and by the License Agreement, shall not be prohibited by
any applicable law, administrative or governmental rule or regulation or order
of a court of competent jurisdiction; and no action, suit or proceeding shall
exist or be threatened that would prevent, restrain or condition in any
material respect the consummation of the transactions contemplated hereby or by
the License Agreement.

                                  (C)      All material consents and approvals
of, or filings with, any third party or Governmental Authority required in
connection with the execution and delivery of this Agreement and the License
Agreement and the consummation of the transactions contemplated hereby and
thereby shall have been obtained





                                       6
   7

                                  (D)      The Purchaser shall have entered
into, or be entering into concurrently herewith, the License Agreement.

                 (e)      Conditions to the Purchase and Sale of the Additional
Shares.

                          (i)     Conditions to the Purchaser's Obligation.
The obligation of the Purchaser to purchase and pay for the Additional Shares
shall be subject to the satisfaction (or waiver in writing by the Purchaser) on
or prior to the applicable Additional Closing Date of the following conditions:

                                  (A)      The purchase of the Additional
Shares by the Purchaser hereunder shall not be prohibited by any applicable
law, administrative or governmental rule or regulation or order of a court of
competent jurisdiction; and no action, suit or proceeding shall exist or be
threatened that would prevent, restrain or condition in any material respect
the consummation of such purchase.

                                  (B)      All material consents and approvals
of, or filings with, any third party or Governmental Authority required in
connection with the purchase of the Additional Shares shall have been obtained.

                                  (C)      On and prior to the Additional
Closing Date, the License Agreement shall remain in full force and effect and
no notice of termination of the License Agreement shall have been delivered by
the Purchaser or the Company (and not cured or withdrawn) in accordance with
the terms of the License Agreement.

                                  (D)      The Company shall have delivered to
the Purchaser a certificate signed by each of the Company's President and Chief
Financial Officer, dated the date of the Exercise Notice, certifying, as of the
date of the Exercise Notice, that each such officer knows of no event,
condition or pending announcement that (1) has not been publicly disclosed, (2)
is specifically applicable to the Company (as opposed to events, conditions or
announcements likely to affect generally the market or companies similar to the
Company), and (3) would reasonably be expected to have a material adverse
effect on the Fair Market Value of the Common Stock.

                                  (E)      The Fair Market Value of the Common
Stock as of the applicable Additional Closing Date shall be at least $2.00 per
share, provided that this condition shall not be applicable if the fact that
the Fair Market Value of the Common Stock is less than $2.00 per share is
attributable to (1) factors having an adverse effect on the public securities
markets generally, (2) factors having an adverse effect on biotechnology or
pharmaceutical stocks generally or stocks of biotechnology companies similar to
the Company in terms of market capitalization, product mix or development stage
or pipeline, or financial condition, or (3) any action or inaction of the
Purchaser or any transaction between the Purchaser and any third party.

                          (ii)    Conditions to the Company's Obligation.  The
obligation of the Company to issue and sell the Additional Shares shall be
subject to the satisfaction (or waiver





                                       7
   8

in writing by the Company) on or prior to the applicable Additional Closing
Date of the following conditions:

                                  (A)      The representations and warranties
contained in Section 4 shall be true and correct in all material respects as of
the Additional Closing Date, and the covenants and agreements contained herein
to be performed by the Purchaser on or prior to the Additional Closing Date
shall have been performed in all material aspects on or prior to the Additional
Closing Date.

                                  (B)      The issuance and sale of the
Additional Shares by the Company hereunder shall not be prohibited by any
applicable law, administrative or governmental rule or regulation or order of a
court of competent jurisdiction; and no action, suit or proceeding shall exist
or be threatened that would prevent, restrain or condition in any material
respect the consummation of such issuance and sale.

                                  (C)      All material consents and approvals
of, or filings with, any third party or Governmental Authority required in
connection with the issuance and sale of the Additional Shares shall have been
obtained.

                                  (D)      On and prior to the Additional
Closing Date, the License Agreement shall remain in full force and effect and
no notice of termination of the License Agreement shall have been delivered by
the Purchaser or the Company (and not cured or withdrawn) in accordance with
the terms of the License Agreement.

                 3.  REPRESENTATIONS AND WARRANTIES OF THE COMPANY.  The
Company represents and warrants to the Purchaser as follows:

                 (a)  Organization and Standing: Articles and Bylaws.  The
Company (i) is a corporation duly incorporated, validly existing, and in good
standing under the laws of Delaware, (ii) is qualified, licensed or
domesticated as a foreign corporation in all jurisdictions where such
qualification, license or domestication is required to own and operate its
properties and conduct its business in the manner and at the places presently
conducted; (iii) holds all franchises, grants, licenses, certificates, permits,
consents and orders, all of which are valid and in full force and effect, from
all state, federal and other domestic and foreign regulatory authorities
necessary to own and operate its properties and to conduct its business in the
manner and at the places presently conducted; and (iv) has full corporate power
and authority to own, lease and operate its properties and assets and to carry
on its business as presently conducted and as proposed to be conducted, except
where the failure to be so qualified, licensed or domesticated, or to hold such
franchises, grants, licenses, certificates, permits, consents and orders or to
have such power and authority would not reasonably be expected to have a
Material Adverse Effect.

                 (b)  Authorization.  The Board has approved this Agreement and
the License Agreement and the transactions contemplated hereby and thereby, and
the Company has all requisite corporate power and authority to execute, enter
into and carry out the terms and conditions of this Agreement and the License
Agreement and to perform its obligations





                                       8
   9

hereunder and thereunder.  This Agreement and the License Agreement have been
duly executed and delivered by the Company and (assuming this Agreement and the
License Agreement, as the case may be, constitute legal, valid, and binding
obligations of the Purchaser) constitute legal, valid and binding obligations
of the Company, enforceable in accordance with their respective terms, except
that the enforceability of this Agreement and the License Agreement may be
subject to bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally, and
except that the remedy of specific performance and injunctive and other forms
of equitable relief may be subject to equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.

                 (c)  Capital Stock.  The authorized, issued and outstanding
capital stock of the Company consists solely of 32,000,000 shares of Common
Stock and 8,000,000 shares of undesignated preferred stock, par value $0.01 per
share, of which approximately 16,262,491 shares of Common Stock and no shares
of preferred stock were issued and outstanding as of the date hereof.  In
addition, approximately 4,022,476 shares of Common Stock were reserved for
issuance upon exercise of options and warrants outstanding as of the date
hereof.  All of the issued and outstanding securities of the Company have been
duly authorized and validly issued, are fully paid and nonassessable, and were
issued in compliance with all applicable state and federal laws regulating the
offer, sale or issuance of securities (assuming, in the case of issuances not
effected pursuant to an effective registration statement under the Securities
Act, compliance with all such laws by the persons to whom such securities were
issued or sold and by any transferee of such persons).  No person or entity has
or will have any right of first refusal or any preemptive rights in connection
with the issuance of the Shares.  The Shares have been duly authorized and,
when delivered pursuant to this Agreement  will be duly and validly issued and
outstanding, fully paid and nonassessable, and free of any liens or
restrictions (unless created by the Purchaser or any of its Affiliates), other
than restrictions under applicable securities laws.  Since the date of the
final prospectus included in the Registration Statement, the Company has not
granted any (i) shares of capital stock or Voting Stock of the Company, or (ii)
securities of the Company convertible into or exchangeable for shares of
capital stock or Voting Stock of the Company, other than options issued
pursuant to the Company's 1994 Stock Incentive Plan with exercise prices equal
to the fair market value of the Common Stock on the date of grant, and shares
of Common Stock issued pursuant to the exercise of outstanding warrants or
options.  The Company does not own shares of capital stock or other equity
interests in any other entity.  There are no outstanding obligations of the
Company or any of its subsidiaries to repurchase, redeem or otherwise acquire
any securities.

                 (d)  No Violation.  Neither the execution and delivery of this
Agreement and the License Agreement nor the consummation and performance of the
transactions contemplated hereby and thereby will (i) conflict with or result
in a breach of the terms, conditions or provisions of, (ii) constitute a
default under, (iii) result in the creation of any lien, claim or encumbrance
upon the Company's capital stock or assets pursuant to, (iv) give any third
party the right to accelerate any obligation under, (v) result in a violation
of, or (vi) require any authorization, consent, approval, exemption or other
action by or notice to any Governmental Authority pursuant to, the Certificate
of Incorporation or By-Laws of the





                                       9
   10

Company, or any law, statute, rule or regulation to which the Company or any of
its properties or assets are subject, or any agreement, instrument, order,
judgment or decree to which the Company or any of its properties or assets are
subject except where the event or circumstance described above would not have a
Material Adverse Effect.

                 (e)  Reports and Financial Statements.  The Company has
furnished the Purchaser with copies of its Certificate of Incorporation, as
amended to date, its Bylaws, as currently in effect, the Registration
Statement, and the SEC Reports.  The documents so furnished are true, correct
and complete copies of the original documents.  The Registration Statement and
the SEC Reports, when filed with the Securities and Exchange Commission,
complied in all material respects with all applicable federal securities laws
and regulations.  None of the SEC Reports or the Registration Statement,
including, without limitation, any financial statements or schedules included
or incorporated by reference therein, contained when filed any untrue statement
of a material fact, or omitted when filed to state a material fact required to
be stated or incorporated by reference therein or necessary in order to make
the statements therein, in light of the circumstances under which made, not
misleading.  The audited financial statements of the Company included in the
Registration Statement and the SEC Reports and the unaudited financial
statements of the Company included in its quarterly reports on Form 10-Q for
the quarters ended March 31, 1996, June 30, 1996 and September 30, 1996 fairly
present, in conformity with generally accepted accounting principles applied on
a consistent basis (except as may be indicated in the notes thereto), the
financial position of the Company as of the dates thereof and the results of
operations and changes in financial position of the Company for the periods
then ended (subject, in the case of unaudited financial statements, to normal
year-end audit adjustments).  Except as set forth in the financial statements
(and the footnotes thereto) included in the SEC Reports, there are no material
liabilities, debts, claims or obligations, whether accrued, absolute,
contingent or otherwise, of or affecting the Company or any of its properties
or assets.

                 (f)  Absence of Changes.  Since September 30, 1996, (i) the
Company has not entered into any transaction that was not in the ordinary
course of its business; and (ii) there has been no Material Adverse Effect.

                 (g)  Litigation.  There is no litigation, claim, action,
proceeding or investigation pending against the Company or, to the knowledge of
the Company, any basis therefor or threat thereof.

                 (h)  Tax Matters.  The Company has (i) timely filed all tax
returns that are required to have been filed by it with all appropriate
federal, state, county and local governmental agencies (and all such returns
are true and correct in all material respects) and (ii) timely paid all taxes
owed by it or which it is obligated to withhold from amounts owing to any
employee (including, but not limited to, social security taxes), creditor or
third party.

                 (i)  Offering.  Subject to the accuracy of the Purchaser's
representations in Section 4, the offer, issuance and sale of the Shares
constitute transactions exempt from the registration and prospectus delivery
requirements of Section 5 of the Securities Act and the





                                       10
   11

Company has obtained (or is exempt from the requirement to obtain) all
qualifications, permits, and other consents required by all applicable U.S.
state laws governing the offer, sale or issuance of securities.

                 (j)  Compliance with Laws.  The Company is not in violation of
any applicable law or any regulation or requirement (including, but not limited
to, any law, regulation or requirement governing the quality of the
environment), the violation of which might have a Material Adverse Effect, and
the Company has not received notice of any such violation.

                 (k)  Environmental Matters.  The Company has obtained all
Environmental Permits and is in compliance with all Environmental Laws and
Environmental Permits, except where failure to have obtained such permits or to
have so complied would not result in any Material Adverse Effect.  There is no
civil, criminal or administrative claim, suit, proceeding or investigation
pending or, to the best knowledge of the Company, threatened against the
Company relating in any way to any Environmental Laws or Environmental Permits
and the Company knows of no fact or circumstance (including, without
limitation, any notice of potential liability) that would give rise to any such
claim, suit, proceeding or investigation.

                 "Environmental Laws" mean all laws applicable to the Company
relating to pollution or protection of the environment or human safety
including, without limitation, laws relating to emissions, discharges, releases
of pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes or otherwise regulated substances or wastes into the
environment (including, without limitation, ambient air, surface water, ground
water or land), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or industrial, toxic, hazardous or other
regulated substances or wastes.

                 "Environmental Permits" mean all permits, licenses and
authorizations required for the operation of the business of the Company under
applicable Environmental Laws.

                 (l)  Patents, Copyrights and Trademarks.  To the Company's
knowledge after due investigation, (i) the Company owns or is licensed under
all patents, patent applications, licenses, trademarks, trade names, brand
names, inventions and copyrights necessary for the operation of its business as
now conducted and as proposed to be conducted, with no infringement of or
conflict with the rights of others, except where the failure so to own or be
licensed would not have a Material Adverse Effect; and (ii) there have been no
claims made against the Company for the assertion of the invalidity, abuse,
misuse or unenforceability of any of its patent, trademark, copyright, trade
secret or other proprietary rights and to the Company's knowledge there are no
grounds for the same.

                 (m)  Disclosure.  This Agreement does not contain any untrue
statement of any material fact or omit to state a material fact necessary in
order to make the statements contained herein, in light of the circumstances
under which they were made, not misleading.





                                       11
   12

                 4.  REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.  The
Purchaser represents and warrants to the Company and its officers, directors
and agents as follows:

                 (a)  Organization, Good Standing, and Qualification.  The
Purchaser is a corporation duly incorporated, validly existing, and in good
standing under the laws of Illinois, and has all necessary power and authority
under applicable law to own its property and to conduct its business as now
owned and conducted.

                 (b)  Authority.  The Purchaser has all requisite corporate
power and authority to execute, enter into and carry out the terms and
conditions of this Agreement and the License Agreement, and to perform its
obligations hereunder and thereunder.  This Agreement and the License Agreement
have been duly executed and delivered by the Purchaser and (assuming this
Agreement and the License Agreement, as the case may be, constitute the legal,
valid, and binding obligations of the Company) constitute the legal, valid and
binding obligations of the Purchaser, enforceable in accordance with their
respective terms, except that the enforceability of this Agreement and the
License Agreement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally, and except that the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding
therefor may be brought.

                 (c)  No Violation.  Neither the execution and delivery of this
Agreement and the License Agreement nor the consummation of the transactions
contemplated hereby and thereby will conflict with or result in the material
breach of any term or provision of, or constitute a default under, any charter
provision, bylaw, material contract, order, law or regulation to which the
Purchaser or any of its Affiliates is a party or by which the Purchaser or any
of its Affiliates or any of their respective material assets or properties is
in any way bound or obligated.

                 (d)  Governmental Consents.  No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any Governmental Authority having jurisdiction over the business
of the Purchaser or any of its Affiliates is required in connection with the
transactions contemplated by this Agreement or the License Agreement, except
where failure to obtain such would not have a Material Adverse Effect.

                 (e)  Brokers.  No finder, broker, agent, financial advisor, or
other intermediary has acted on behalf of the Purchaser or any of its
Affiliates in connection with any of the transactions contemplated by this
Agreement or the License Agreement or is entitled to any payment in connection
herewith or therewith.

                 (f)  Ownership of Voting Stock.  Neither the Purchaser nor any
person with whom the Purchaser is acting as a partnership, limited partnership,
syndicate or other group (within the meaning of Section 13(d)(3) of the
Exchange Act) for the purpose of acquiring, holding or disposing of securities
issued by the Company Beneficially Owns (directly or indirectly) any Common
Stock as of the date of this Agreement other than the Shares being purchased by
the Purchaser hereunder.





                                       12
   13

                 (g)  Securities Matters.

                      (i)   The Purchaser acknowledges that an investment in
the Company involves an extremely high degree of risk and that the Purchaser
may lose its entire investment in the Shares.

                      (ii)  The Purchaser is acquiring the Shares without
having been furnished any offering literature or prospectus specifically
prepared in connection with the offer and sale of the Shares pursuant hereto.
The Purchaser has received the SEC Reports and the Registration Statement and
all additional information requested from the Company and acknowledges that the
Company has made available to it or its advisors the opportunity to obtain
additional information to evaluate the merits and risks of the purchase of the
Shares.  The Purchaser has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's management and to
conduct such investigations and inquiries as the Purchaser deems appropriate
for purposes of investment in the Shares pursuant to this Agreement.  The
Purchaser has read and understands the SEC Reports and the prospectus contained
in the Registration Statement, including without limitation the "Risk Factors"
section thereof, and acknowledges that the disclosures included therein
constitute risks to the Purchaser in connection with the purchase of the
Shares.  The Purchaser has also read and understands the section of the
prospectus contained in the Registration Statement entitled "Description of the
Company's Securities" and understands the Company's capital structure and the
substantial dilution to the Purchaser's interest in the Company that can occur
upon the exercise of warrants and stock options.  Without limiting the
foregoing, the Purchaser acknowledges its understanding that (A) the Company
will need substantial additional capital, which may be raised through sale of
additional securities, thereby further diluting the Purchaser's interest in the
Company, (B) the Company's drug candidate for the treatment of lupus
erythematosus, LJP 394, may not prove effective in producing a sustained
reduction of antibodies to double-stranded DNA and may not provide a meaningful
clinical benefit, and (C) the Company's other drug candidates are at earlier
stages of development and involve comparable risks.

                    (iii)   The Purchaser understands that (A) the Shares are
neither registered under the Securities Act nor under the securities laws of
any state or foreign country, (B) the certificates evidencing the Shares will
bear a legend to the effect set forth in Section 5(b) (relating to restrictions
on transfer), and (C) appropriate stop transfer instructions against the Shares
will be placed with the Company's transfer agent.

                      (iv)  The Purchaser has expertise in evaluating and
investing in companies like the Company and is able to assess the relative
merits and risks of an investment in the Company and to sustain a total loss on
such investment.

                      (v)   The Purchaser understands that, in addition to the
contractual restrictions on transfer set forth in this Agreement, the Shares
cannot be offered, sold or transferred unless the Shares are registered under
the Securities Act or an exemption from the registration requirements of the
Securities Act is available, or such registration requirements





                                       13
   14

are inapplicable, as reflected in an opinion of counsel to the Purchaser in
form and substance reasonably satisfactory to the Company, in which case the
Company agrees to cooperate reasonably with the Purchaser, including but not
limited to, executing, acknowledging or delivering any documents which in the
opinion of the Purchaser or its counsel may be reasonably necessary,
appropriate or desirable in order to render such an opinion.

                      (vi)  The Purchaser is purchasing the Shares for its own
account, for investment, not as a nominee or agent, and not with a view to
their sale or distribution.

                 5.  COVENANTS.

                 (a)  SEC Reports and Other Information.  As soon as available
(but in any event within five days after filing with the SEC or release), the
Company shall deliver to the Purchaser copies of (i) all registration
statements and all special or periodic reports relating to the Company that the
Company files with the SEC or with any regional or national securities exchange
or quotation system and (ii) all press releases.

                 (b)  Restrictions on Transfer.

                      (i)   During the Standstill Period, the Purchaser shall
not offer, sell or transfer any Shares or any interest therein except as
follows (provided that all such sales or transfers made during the Standstill
Period, other than pursuant to Section 5(b)(i)(B) or (D), shall be subject to
the Company's right of first refusal set forth in Section 5(c)):

                            (A)   to any person, entity or group approved in 
writing by the Company;

                            (B)   to any Affiliate of the Purchaser, if such
Affiliate agrees in writing to hold such Shares subject to all the provisions
of this Agreement and agrees to transfer such Shares to the Purchaser if it
ceases to be an Affiliate of the Purchaser;

                            (C)   in response to an offer to purchase or
exchange for cash or other consideration any Voting Stock that is made by or on
behalf of the Company or by another person or group not opposed by the Board
within the time the Board is required, pursuant to applicable rules under the
Exchange Act, to advise the Company's stockholders of the Board's position on
such offer;

                            (D)   pursuant to a bona fide pledge of such Shares
to an institutional lender to secure a loan, guaranty or other financial
support, provided that such lender agrees in writing to hold such Shares
subject to all provisions of this Agreement; or

                            (E)   in the event of a merger or consolidation of
the Company in which the holders of Voting Stock prior to the merger or
consolidation cease to hold at least a majority of the Voting Stock of the
surviving entity, or pursuant to a plan of liquidation of the Company.





                                       14
   15

                      (ii)  After the Standstill Period and before the fifth
anniversary of the date of this Agreement, the Purchaser shall not, directly or
indirectly, sell or transfer any Shares except as allowed during the Standstill
Period and as follows (provided that all such sales or transfers shall be
subject to the Company's right of first refusal set forth in Section 5(c)):

                            (A)   pursuant to a bona fide public offering
registered under the Securities Act, including an offering made through an
underwriter or broker that takes the Shares for its own account with a view to
the public distribution thereof, if the Purchaser takes and requires the
underwriter or broker to take reasonable precautions to insure that such
offering will not result in a sale of Beneficial Ownership of Voting Stock with
aggregate voting power of five percent (5%) or more of the Total Voting Power
then in effect to any single person or group;

                            (B)   into the public market pursuant to SEC Rule
144 under the Securities Act, if the Purchaser takes reasonable precautions to
insure that such offering will not result in a sale by it or any underwriter,
broker, or other person or entity acting on its behalf of Beneficial Ownership
of Voting Stock with aggregate voting power of five percent (5%) or more of the
Total Voting Power then in effect to any single person or group; or

                            (C)   in transactions not otherwise described
herein if such transactions do not result, to Purchaser's knowledge, in any
single person or group having Beneficial Ownership of Voting Stock with
aggregate voting power of five percent (5%) or more of the Total Voting Power
then in effect or increasing its Beneficial Ownership of Voting Stock by such
amount.

                    (iii)   No transfer by the Purchaser of any Shares that is
otherwise permissible hereunder shall be made unless (A) the Shares are
registered under the Securities Act, (B) such transfer complies with the
provisions of Rule 144 under the Securities Act or (C) an exemption from the
registration requirements of the Securities Act is available and the Purchaser
has provided to the Company (at the Purchaser's expense) an opinion of counsel
to the Purchaser in form and substance reasonably satisfactory to the Company
that such an exemption is available.  The certificate or certificates
evidencing the Shares will bear the restrictive legend set forth below.  The
legend imprinted on the certificates shall be removed and the Company shall
issue a new certificate without such legend to the holder of such security if
such security is registered under the Securities Act, the conditions for a
permissible sale or transfer under Rule 144 have been complied with or in the
opinion of counsel to the Purchaser reasonably satisfactory to the Company such
legend is no longer required under the Securities Act.

                          THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT
         BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND THE
         TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT
         TO CERTAIN CONDITIONS SPECIFIED IN THE STOCK PURCHASE AGREEMENT, DATED
         AS OF DECEMBER 23, 1996, BETWEEN THE ISSUER (THE





                                       15
   16

         "COMPANY") AND ABBOTT LABORATORIES, AND THE COMPANY RESERVES THE RIGHT
         TO REFUSE THE TRANSFER OF SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE
         BEEN FULFILLED WITH RESPECT TO SUCH TRANSFER.  A COPY OF SUCH
         CONDITIONS SHALL BE FURNISHED BY THE COMPANY TO THE HOLDER HEREOF UPON
         WRITTEN REQUEST AND WITHOUT CHARGE.

                      (iv)  The Company may give stop transfer and other
instructions to its transfer agent to effect the provisions of this Section
5(b).

          (c)  Company Right of First Refusal.  If the Purchaser proposes to
transfer any Shares at any time and from time to time before the fifth
anniversary of the date of this Agreement, the Purchaser shall first give the
Company written notice of its intention, describing the price and general terms
of the proposed transfer and the identity of the proposed transferee, if known.
The Company or its designee shall have fifteen (15) Business Days from the date
of receipt of any such notice to agree to purchase all of the Shares proposed
to be transferred for the price per Share and upon the general terms specified
in the notice by giving written notice to the Purchaser.  If the Purchaser
proposes any transfer of Shares for consideration other than cash, the Company
may exercise its right of first refusal and purchase such Shares for cash in an
amount equal to the fair market value of the proposed non-cash consideration.
If the Company does not exercise its right of first refusal, the Purchaser may
transfer any Shares not purchased by the Company at the price and upon the
general terms described in the notice provided to the Company, provided that if
the Purchaser has not transferred such Shares within 120 days after the Company
received notice of the Purchaser's intention to transfer Shares, or entered
into a binding agreement within such 120-day period to transfer such Shares and
transferred such Shares within 120 days of entering into such agreement, the
Purchaser shall not thereafter transfer any Shares without first offering such
Shares to the Company in the manner provided above.

                 (d)  Proxy Solicitations.  Prior to the end of the Standstill
Period, neither the Purchaser nor its Affiliates shall, directly or indirectly,
(i) solicit, initiate or participate in any "solicitation" of "proxies" or
become a "participant" in any "election contest" (as such terms are defined or
used in Regulation 14A under the Exchange Act); call, or in any way participate
in a call for, any special meeting of stockholders of the Company (or take any
action with respect to acting by written consent of the Company's
stockholders); request, or take any action to obtain or retain any list of
holders of any securities of the Company; or initiate or propose any
stockholder proposal or participate in the making of, or solicit stockholders
for the approval of, one or more stockholder proposals; (ii) deposit any Voting
Stock in a voting trust or subject them to any voting agreement or
arrangements; (iii) form, join or in any way participate in a "group" (within
the meaning of Section 13(d)(3) of Exchange Act) with respect to any Voting
Stock (or any securities the ownership of which would make the owner thereof a
Beneficial Owner of Voting Stock); (iv) otherwise act to control or influence
the Company or its management, Board, policies or affairs in a manner not
specifically contemplated by this Agreement or the License Agreement,
including, without limitation, (A) soliciting or





                                       16
   17

proposing (other than on a non-public basis directly to the Company) to effect
or negotiate any form of business combination, restructuring, recapitalization
or other extraordinary transaction involving, or any change in control of, the
Company, its Affiliates or any of their respective securities or assets, or (B)
seeking Board representation or the removal of any of the Company's directors
or a change in the composition or size of the Board; (v) disclose (other than
non-public disclosure to the Company) any intent, purpose, plan or proposal
with respect to this Agreement, the Company or its Affiliates or the Board,
management, policies, affairs, securities or assets of the Company or its
Affiliates that is inconsistent with this Agreement, including any intent,
purpose, plan or proposal that is conditioned on, or would require the Company
or any of its Affiliates to make any public disclosure relating to, any such
intent, purpose, plan, proposal or condition; or (vi) assist, advise, encourage
or act in concert with any person with respect to, or seek to do, any of the
foregoing.  Notwithstanding anything in the foregoing to the contrary, however,
nothing in this Section 5(d) shall prohibit the Purchaser from engaging in any
of the activities set forth in Section 5(d) in response and opposition to
activities of the kind described in Section 5(d) initiated by any third party,
provided that Purchaser shall not engage in any of the activities described in
this Section 5(d) beyond the time such third party ceases such activities.

                 (e)  Covenants to Bind Purchasers.  Until the fifth
anniversary of the date of this Agreement, the Purchaser shall cause any
acquiror or acquirors (including without limitation Affiliates) to whom or
which the Purchaser transfers any Shares in any transaction or series of
related transactions not made through The Nasdaq National Market (or such stock
exchange as may be the primary exchange upon which the Company's common stock
may trade from time to time) of any interest in Voting Stock with aggregate
voting power of three percent (3%) or more of the Total Voting Power then in
effect to agree to be bound by subsections (b), (c), and (d) of this Section 5,
and the legend required by Section 5(b)(iii) shall not be removed from such
shares.

                 (f)  Nasdaq Listing.  The Company shall use its best efforts
to keep effective the registration of the Common Stock under the Exchange Act
with the SEC and maintain the listing or inclusion for quotation on the Nasdaq
Stock Market of the Common Stock, and shall use its best efforts to file timely
such information, documents and reports as the SEC or such other Governmental
Authority may require or prescribe that the Company file in connection
therewith.  The Company will, at the request of the Purchaser or any of its
Affiliates, advise in writing as to whether all reports required to be filed
under the Exchange Act have been timely filed, and will file any other
information which may be reasonably required in order to comply with Rule 144
under the Securities Act, or any other comparable rule or Securities Act
exemption, as then in effect.

                 (g)  Public Announcements.  Neither the Purchaser nor the
Company shall issue any press release or other public statement with respect to
the transactions contemplated by this Agreement without the prior written
consent of the other, except as may be required by applicable law or by
obligations pursuant to any listing agreement with a securities exchange or
quotation system upon which the Purchaser's or the Company's securities are
traded, provided that if either party believes that any press release or other
public statement is so





                                       17
   18

required, such party shall promptly notify and consult with the other party
with respect thereto.  Without limitation of the foregoing, the Company shall
not publicly announce any exercise of the Additional Investment Right until
after the Additional Closing of the purchase and sale of the Additional Shares
for which the Additional Investment Right was exercised.

                 (h)  Purchaser Right of First Refusal.  If the Company
proposes to issue or sell, at any time and from time to time before the fifth
anniversary of the date of this Agreement, to any Designated Investor (as
defined below), shares of Common Stock with aggregate voting power of 5% or
more of the Total Voting Power (giving effect to such issuance or sale to such
Designated Investor), the Company shall first give the Purchaser written notice
of its intention, describing the price per share and general terms of the
proposed transfer and the identity of the proposed transferee.  The Purchaser
or its designee shall have 15 Business Days from the date of receipt of any
such notice to agree to purchase all of the shares of Common Stock proposed to
be issued or sold for the price per share and upon the general terms specified
in the notice by giving written notice to the Company.  If the Company proposes
any issuance or sale of shares of Common Stock for consideration other than
cash, the Purchaser may exercise its right of first refusal and purchase such
shares for cash in an amount equal to the fair market value of the proposed
non-cash consideration.  If the Purchaser does not exercise its right of first
refusal, the Company may issue and sell the shares of Common Stock not
purchased by the Purchaser at the price and upon the general terms described in
the notice provided to the Purchaser, provided that if the Company has not
transferred such shares within 120 days after the Purchaser received notice of
the Company's intention to sell shares, or entered into a binding agreement
within such 120-day period to issue and sell such shares and issued and sold
such shares within 120 days after entering into such agreement, the Company
shall not thereafter issue and sell any shares without first offering such
shares to the Purchaser in the manner provided above.  For purposes hereof,
"DESIGNATED INVESTOR" means a pharmaceutical manufacturing or distribution
company with operations in the field of care covering products specifically
used to treat end-stage renal dialysis patients and patients with impaired
renal function, such as polycystic disease, anemia, acute renal failure or
glomerulonephritis, but not including renal transplantation ("RENAL CARE").
Notwithstanding the foregoing, however, the Purchaser's rights under this
Section 5(h) shall not apply in the case of a sale of stock by the Company as
part of a collaborative relationship involving research, development,
manufacturing or marketing activities (a "PROPOSED COLLABORATION") unless the
primary focus of the Proposed Collaboration is Renal Care, in which case the
Purchaser's rights under this Section 5(h) will apply only if the Purchaser,
through exercise of its right of first negotiation under Section 2.5 or Section
2.6 of the License Agreement, enters into a collaborative agreement with the
Company with respect to the Proposed Collaboration, in which case the Purchaser
shall have the right pursuant to this Section 5(h) to purchase any stock
proposed to be sold as part of that Proposed Collaboration.





                                       18
   19
                 6.       REGISTRATION RIGHTS.

                 (a)      Demand Registration Rights.

                          (i)     Demand; Obligations of the Company. At any
time and from time to time after the third anniversary of the date of this
Agreement, the Purchaser may request registration of all or any part of the
Registrable Securities (a "DEMAND REGISTRATION"), and the Company will use its
reasonable best efforts to effect the registration of such Registrable
Securities under the Securities Act (including, if so requested by the
Purchaser, Rule 415 thereunder), all in accordance with the following
provisions.  "REGISTRABLE SECURITIES" shall mean those shares of the Company's
Common Stock acquired or acquirable by the Purchaser pursuant to this
Agreement, any additional shares of Common Stock or other securities which
subsequently may be issued with respect to such stock as a result of a stock
split or dividend or any sale, transfer, assignment or other transaction
involving such Common Stock or securities and any securities into which such
Common Stock or securities may thereafter be exchanged or converted as a result
of merger, consolidation, recapitalization or otherwise.

                          (ii)    Company's Ability to Postpone.  The Company
shall have the ability to postpone the filing of a registration statement under
this Section 6(a) for a reasonable period of time (not exceeding 60 days) if
the Company furnishes the Purchaser with a certificate signed by the President
of the Company stating that the Company's board of directors has determined in
good faith that effecting the registration at such time would adversely affect
a material financing, acquisition, disposition of assets of stock, merger or
other comparable transaction or would require the Company to make public
disclosure of information the public disclosure of which could have a Material
Adverse Effect.

                          (iii)   Number of Demand Registrations.  If no
Additional Shares have been issued, the Purchaser shall be entitled to an
aggregate of two Demand Registrations.  If any Additional Shares have been
issued, the Purchaser shall be entitled to an aggregate of three Demand
Registrations.

                 (b)      Demand Registration Procedures.  If and whenever the
Company is required under Section 6(a) to use its reasonable best efforts to
effect the registration of any of the Registrable Securities under the
Securities Act, the Company will (except as otherwise provided in this
Agreement), as expeditiously as practicable:

                          (i)     prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its reasonable
best efforts to cause such registration statement to become effective and
remain effective for the lesser of nine months or as long as shall be necessary
to complete the distribution of the Registrable Securities so registered;

                          (ii)    prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for the lesser of nine months or as long





                                       19
   20

as shall be necessary to complete the distribution of the Registrable
Securities so registered and to comply with the provisions of the Securities
Act with respect to the sale or other disposition of all Registrable Securities
covered by such registration statement whenever the Purchaser shall desire to
sell or otherwise dispose of the same;

                          (iii)   furnish to the Purchaser such numbers of
copies of a prospectus, including a preliminary prospectus and any amendment or
supplement to any prospectus, in conformity with the requirements of the
Securities Act, and such other documents, as the Purchaser may reasonably
request in order to facilitate the public sale or other disposition of the
Registrable Securities owned by the Purchaser;

                          (iv)    use its reasonable best efforts to register
and qualify the Registrable Securities covered by such registration statement
under such other securities or blue sky laws of such jurisdictions as the
Purchaser shall reasonably request, and do any and all other acts and things
reasonably requested by the Purchaser to assist such holder to consummate the
public sale or other disposition in such jurisdictions of the Registrable
Securities, except that the Company shall not for any such purpose be required
to qualify to do business as a foreign corporation in any jurisdiction wherein
it is not so qualified or to file therein any general consent to service of
process;

                          (v)     otherwise use its reasonable best efforts to
comply with all applicable rules and regulations of the SEC, and make available
to its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, beginning with the
first fiscal quarter beginning after the effective date of the registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder with respect to the offer
and sale of the Registrable Securities;

                          (vi)    use its reasonable best efforts to list such
Registrable Securities on any securities exchange (or obtain approval for
trading on the Nasdaq Stock Market) on which any securities of the same class
of the Company are then listed (or approved for listing), if the listing (or
approval for listing) of such Registrable Securities is then permitted under
the rules of such exchange (or the Nasdaq Stock Market);

                          (vii)   if so requested by the Purchaser in
connection with an underwritten offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form, with
the managing underwriter or underwriters, including, without limitation, to
enter into customary representations, warranties, covenants and indemnification
and contribution provisions and deliver an opinion of counsel to the Company
and a "comfort letter" from the independent public accountants to the Company
in the usual and customary form respecting such underwritten offering;

                          (viii)    notify the Purchaser promptly (i) when a
prospectus or any prospectus supplement or post-effective amendment with
respect to the registration of such Registrable Securities, or any report
incorporated by reference therein, has been filed, (ii)  of any request by the
SEC for an amendment or supplement to a registration statement or the





                                       20
   21

prospectus used in connection therewith with respect to the Registrable
Securities, or any report incorporated by reference therein, (iii) of the
issuance by the SEC of any stop order suspending the effectiveness of a
registration statement relating to the Registrable Securities or the initiation
of any proceedings for that purpose, and (iv) of the receipt by the Company of
any notification with respect to the suspension of the qualification of any of
the Registrable Securities covered by such registration statement for sale in
any jurisdiction or the initiation or threatening of any proceeding for that
purpose;

                          (ix)    in the event of the issuance of a stop order
suspending the effectiveness of a registration statement with respect to the
Registrable Securities or the suspension of the qualification of any of the
Registrable Securities covered by such registration statement for sale in any
jurisdiction, use its reasonable best efforts to obtain the withdrawal of such
stop order or the lifting of such suspension at the earliest possible moment;
and

                          (x)     notify the Purchaser, at any time when a
prospectus relating to the Registrable Securities covered by such registration
statement is required to be delivered under the Securities Act, of the
happening of any event of which it has knowledge as a result of which the
prospectus included in such registration statement, as then in effect, contains
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing and promptly prepare
and furnish to the Purchaser (and the underwriters, if any) a reasonable number
of copies of a supplement to or an amendment of the prospectus as may be
necessary so that, as thereafter delivered to the purchasers of the Registrable
Securities, the prospectus shall not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.

                 (c)      Incidental Registration Rights.

                          (i)     If the Company proposes to register any of
its securities under the Securities Act (other than on Form S-4, Form S-8 or
any successor forms thereto), whether in connection with a primary or secondary
offering (a "PROPOSED OFFERING"), the Company shall give written notice to the
Purchaser at least 30 days prior to the initial filing of the registration
statement with the SEC pertaining to such Proposed Offering informing the
Purchaser of its intent to file such registration statement and of the
Purchaser's rights under this Section 6(c).  Upon the written request of the
Purchaser made within 15 days after any such notice is received by the
Purchaser (which request shall specify the Registrable Securities intended to
be disposed of by the Purchaser), the Company shall use its reasonable best
efforts to effect the registration (an "INCIDENTAL REGISTRATION") under the
Securities Act of all the Registrable Securities which the Company has been so
requested to register by the Purchaser.  The registration rights granted
pursuant to this Section 6(c) shall be in addition to the registration rights
granted pursuant to the other provisions of this Agreement.  The Company
further agrees, if necessary, to supplement or amend the Incidental
Registration statement, if required by the rules, regulations or instructions
applicable to the registration form used by the Company for such Incidental
Registration statement or by the Securities Act or by any other





                                       21
   22

rules and regulations thereunder for registration.  The Purchaser shall be
permitted to withdraw all of the Registrable Securities from an Incidental
Registration statement at any time prior to the effective date of the
Incidental Registration statement; provided, however, that any withdrawal shall
be irrevocable with respect to such Incidental Registration statement.  Any
request by the Purchaser to include Registrable Securities pursuant to this
Section 6(c) shall not be deemed a Demand Registration.

                          (ii)    If the managing underwriter or underwriters
of a Proposed Offering delivers a written opinion to the Purchaser that the
success of the Proposed Offering would be materially and adversely affected by
inclusion of any or all of the Registrable Securities requested to be included,
then the amount of Registrable Securities included in the Incidental
Registration may in the Company's discretion be reduced to the extent
(including reduction to zero) recommended by such underwriter or underwriters.
Notwithstanding the foregoing, however,  if securities are being offered for
the account of persons other than the Company or the Purchaser, then, with
respect to the Registrable Securities to be offered for the account of the
Purchaser, the proportion by which the amount of such Registrable Securities
intended to be offered by the Purchaser is reduced shall not exceed the
proportion by which the amount of such class of securities intended to be
offered by such other persons is reduced.

                          (iii)   If at any time after giving written notice of
its intent to register any securities and prior to the effective date of the
Incidental Registration statement filed in connection with such registration,
the Company shall determine for any reason not to register any such securities
or to delay registration of all such securities, the Company may, at its
election, give written notice of such determination to the Purchaser and,
thereupon, (A) in the case of a determination not to register, the Company
shall be relieved of its obligation to register any Registrable Securities in
connection with such registration, and (B) in the case of a determination to
delay registering, the Company shall be permitted to delay registering any
Registrable Securities for the same period as the delay in registering such
other securities.

                 (d)      Expenses.

                          (i)     All expenses incurred in a Demand
Registration or an Incidental Registration (or any attempted Demand
Registration or Incidental Registration which does not become effective) of
Registrable Securities under this Agreement shall be paid by the Company,
except as set forth in Section 6(d)(iii).

                          (ii)    The expenses to be paid in connection with a
registration under Sections 6(a), 6(b) and 6(c) shall include all out-of-pocket
expenses, including, without limitation, printing and photocopying expenses,
fees and disbursements of counsel for the Company, accountants' fees and
expenses, including expenses of any special audits to which the Company shall
agree or which shall be necessary to comply with governmental requirements in
connection with any such registration, as applicable, all registration and
filing fees under federal and state securities laws, fees and expenses
(including fees and disbursements of counsel for the Company) of complying with
the securities or blue sky laws





                                       22
   23

of any jurisdictions and listing or qualification fees or other expenses
(including fees and disbursements of counsel for the Company) of complying with
the listing, qualification or other rules of any national securities exchange
or any other self regulatory organization.

                          (iii)   Notwithstanding the foregoing provisions of
this Section 6(d), the Purchaser shall pay fees and disbursements of its own
counsel and all underwriting discounts and commissions and transfer taxes, if
any, relating to the sale or disposition of securities by the Purchaser
pursuant to a Demand Registration or an Incidental Registration.

                 (e)      Indemnification.  If any Registrable Securities are
included in a registration statement pursuant to a request under this Section
6:

                          (i)     Indemnity by Company.  Without limitation of
any other indemnity provided to the Purchaser, to the extent permitted by law,
the Company shall indemnify and hold harmless the Purchaser, the officers and
directors of the Purchaser, each underwriter (as defined in the Securities Act)
for the Purchaser, and each person, if any, who controls (within the meaning of
the Securities Act or Exchange Act) the Purchaser or any such underwriter,
against any losses, claims, damages, liabilities and expenses (joint or
several) to which they may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages, liabilities and expenses (or actions in respect thereof) arise out of
or are based upon any of the following statements, omissions or violations
(collectively, a "Violation"):  (A) any untrue statement or alleged untrue
statement of a material fact contained in such registration statements
(including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto); (B) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading; or (C) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any state blue sky or
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state blue sky or securities law, and the company shall
reimburse the Purchaser, each officer or director of the Purchaser, each such
underwriter for the Purchaser, and each person, if any, who controls (within
the meaning of the Securities Act or Exchange Act) the Purchaser or any such
underwriter for any expenses incurred by them (including reasonable fees and
disbursements of counsel) in connection with investigating or defending any
such loss, claim, damage, liability, expense or action; provided, however, that
the Company shall not be liable to the Purchaser, the officers or directors of
the Purchaser, any such underwriter for the Purchaser, or any person who
controls (within the meaning of the Securities Act or Exchange Act) the
Purchaser or any such underwriter, in any such case for any such loss, claim,
damage, liability, expense or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by the Purchaser, any officer or director of the Purchaser, any
underwriter for the Purchaser or any controlling person of the Purchaser or any
such underwriter.





                                       23
   24

                          (ii)    Indemnity by the Purchaser.  In connection
with any registration statement, as applicable, in which the Purchaser is
participating, the Purchaser shall furnish to the Company in writing such
information as the Company reasonably requests for use in connection with any
such registration statement or prospectus, and, to the extent permitted by law,
shall indemnify the Company, its directors and officers and each person, if
any, who controls the Company (within the meaning of the Securities Act or
Exchange Act) against any losses, claims, damages, liabilities and expenses
resulting from any Violation, but only to the extent that such Violation is
contained in or results from any information so furnished in writing by the
Purchaser.

                          (iii)   Notice; Right to Defend.  Promptly after
receipt by an indemnified party under this Section 6(e) of notice of the
commencement of any action (including any governmental action), such
indemnified party shall, if a claim in respect thereof is to be made against
any indemnifying party under this Section 6(e), deliver to the indemnifying
party a written notice of the commencement thereof and the indemnifying party
shall have the right to participate in, and, if the indemnifying party agrees
in writing that it will be responsible for any costs, expenses, judgments,
damages and losses incurred by the indemnified party with respect to such
claim, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to retain its
own counsel, with the fees and expenses to be paid by the indemnifying party,
if the indemnified party reasonably believes that representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding.  The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action shall relieve
such indemnifying party of any liability to the indemnified party under this
Section 6(e) only if and to the extent that such failure is prejudicial to its
ability to defend such action, and the omission so to deliver written notice to
the indemnifying party shall not relieve it of any liability that it may have
to any indemnified party other than under this Section 6(e).

                          (iv)    Contribution.  If the indemnification
provided for in this Section 6(e) is held by a court of competent jurisdiction
to be unavailable to an indemnified party with respect to any loss, liability,
claim, damage or expense referred to therein, then the indemnifying party, in
lieu of indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by such indemnified party as a result of such loss,
liability, claim, damage or expense in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other hand in connection with the statements or
omissions or Violations which resulted in such loss, liability, claim, damage
or expense as well as any other relevant equitable considerations.  The
relative fault of the indemnifying party and the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the indemnifying party
or by the indemnified party and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission.





                                       24
   25

Notwithstanding the foregoing, the amount the Purchaser shall be obligated to
contribute pursuant to this Section 6(e)(iv) shall be limited to an amount
equal to the proceeds to the Purchaser of the Common Stock sold pursuant to the
registration statement, which gives rise to such obligation to contribute (less
the aggregate amount of any damages which the Purchaser has otherwise been
required to pay in respect of such loss, claim, damage, liability or action or
any substantially similar loss, claim, damage, liability or action arising from
the sale of such Common Stock).

                          (v)     Survival of Indemnity.  The indemnification
provided by this Section 6(e) shall be a continuing right to indemnification
and shall survive the registration and sale of any securities by any person
entitled to indemnification hereunder and the expiration or termination of this
Agreement.

                 (f)      Rule 144.  In order to permit the Purchaser to sell
the Common Stock it holds, if it so desires, from time to time pursuant to Rule
144 promulgated by the SEC or any successor to such rule or any other rule or
regulation of the SEC that may at any time permit the Purchaser to sell its
Common Stock to the public without registration (the "RESALE RULES"), the
Company shall:

          (i)     comply with all rules and regulations of the SEC applicable in
connection with use of the Resale Rules;

                          (ii)    make and keep adequate and current public
information available (within the meaning of the Resale Rules) at all times;

                          (iii)   file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act
and the Exchange Act;

                          (iv)    furnish to the Purchaser so long as it owns
any Common Stock, forthwith upon request, (A) a written statement by the
Company that it has complied with the reporting requirements of the Resale
Rules, the Securities Act and the Exchange Act, (B) a copy of the most recent
annual or quarterly report of the Company and any other reports and documents
so filed by the Company, and (C) such other information as may be reasonably
requested in availing the Purchaser of any rule or regulation of the SEC which
permits the selling of any such Common Stock without registration; and

                          (v)     take any action (including cooperating with
the Purchaser to cause the transfer agent to remove any restrictive legend on
certificates evidencing shares of Common Stock) as shall be reasonably
requested by the Purchaser or which shall otherwise facilitate the sale of
Common Stock from time to time by the Purchaser pursuant to the Resale Rules.





                                       25
   26
                 7.  TERMINATION.

                 (a)  Termination Events.  The Purchaser or the Company may
terminate this Agreement without liability:

                          (i)     to the extent that performance thereof is
prohibited, enjoined or otherwise materially restrained by any final,
non-appealable judgment, ruling, order or decree of any Governmental Authority,
provided that the party seeking to terminate its obligations hereunder pursuant
to this Section 7(a)(i) shall have used its best efforts to avoid and remove
such prohibition, injunction, or restraint; or

                          (ii)    if the terminating party shall not have
committed a material uncured breach of any of its representations, warranties
or covenants hereunder and the other party shall have breached any of its
representations, warranties or covenants hereunder in any material respect,
which breach in the case of a covenant is not cured within thirty (30) days
after the breaching party has received notice of the terminating party's intent
to terminate this Agreement pursuant to this Section 7(a)(ii).

                 (b)  Effect of Termination.  In the event of termination of
this Agreement pursuant to Section 7(a), neither the Purchaser nor the Company
shall have any obligation to perform hereunder from and after the date of such
termination,  except that (i) Sections 8(a) and 8(b) shall survive such
termination and continue in effect, (ii) Section 5 shall survive such
termination and continue in effect if the termination is for any reason other
than a material breach by the Company, and (iii) no termination hereof shall
relieve the Purchaser or the Company from liability for any breach of this
Agreement.

                 8.  MISCELLANEOUS PROVISIONS.

                 (a)  Survival of Representations and Warranties.  Regardless
of any party's investigations prior to the date hereof, the representations and
warranties contained herein shall survive the execution and delivery hereof and
the purchase and sale of the Shares and shall terminate and expire on the first
anniversary of the date of this Agreement, unless on or before such first
anniversary, either party has notified the other party in writing of a claim
with respect to such representation or warranty in which case such
representation or warranty shall survive until termination or resolution of
such claim, and provided that notwithstanding the foregoing, the
representations and warranties of the Purchaser set forth in Section 4(g) shall
be deemed to be made by the Purchaser at the time of and in connection with
each acquisition of Shares hereunder.

                 (b)  Governing Law; Consent to Jurisdiction.  This Agreement
shall be governed by and construed under and enforced in accordance with the
laws of the State of California without regard to its conflicts-of-laws
principles.

                 (c)  Expenses.  Except as set forth in Section 6(d), each of
the parties shall pay its own expenses incurred in connection with the
negotiation and preparation of this Agreement and the License Agreement, the
performance of its covenants herein, and the effectuation of





                                       26
   27

the transactions contemplated hereby including, without limitation, all fees
and disbursements of its respective legal counsel, advisors, and accountants.
Each party to this Agreement shall indemnify and hold harmless the other
against any claim for fees or commissions of brokers, finders, agents, or
bankers retained or purportedly retained by the indemnifying party in
connection with the transactions contemplated by this Agreement and the License
Agreement.

                 (d)  Notices.  In case of any event or circumstance giving
rise to an obligation of the Purchaser or the Company to provide notice
hereunder, such notice shall be delivered within the time specifically set
forth herein or therein, as the case may be, or, if no such time is specified,
then as promptly as practicable after becoming aware of such event or
circumstance.  Any notice required or permitted to be given under this
Agreement shall be written, and may be given by personal delivery, by cable,
telecopy, telex or telegram (with a confirmation copy mailed as follows), by a
reputable commercial delivery service, or by registered or certified mail,
first-class postage prepaid, return receipt requested.  Notice shall be deemed
given upon actual receipt.  Mailed notices shall be addressed as follows, but
each party may change address by written notice in accordance with this
paragraph.

                        To the Company:      La Jolla Pharmaceutical Company
                                             6455 Nancy Ridge Drive
                                             San Diego, California 92121
                                             Attention:  Chief Executive Officer
                                             Facsimile: (619) 452-6893

                        with a copy to:      Gibson, Dunn & Crutcher LLP
                                             4 Park Plaza, Suite 1800
                                             Irvine, CA 92614
                                             Facsimile: (714) 451-4220
                                             Attention:  Brian W. Copple, Esq.

                        To the Purchaser:    Abbott Laboratories
                                             Hospital Products Division
                                             Attn:  President
                                             Dept. 0960, Bldg. AP30
                                             200 Abbott Park Road
                                             Abbott Park, Illinois 60064-3500
                                             Facsimile: (847) 937-2927



                                             and





                                       27
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                                                Abbott Laboratories
                                                Abbott International
                                                Attn: President
                                                Dept. 06WP, Bldg. AP30
                                                200 Abbott Park Road
                                                Abbott Park, Illinois 60064-3500
                                                Facsimile: (847) 938-8325

                        with a copy to:         Abbott Laboratories
                                                General Counsel
                                                Dept. 364, Bldg AP6C
                                                100 Abbott Park Road
                                                Abbott Park, Illinois 60064-3500
                                                Facsimile: (847) 938-1206



                 (e)  Waiver.  Each party hereto may in its sole discretion (i)
extend the time for the performance of any of the obligations or other acts of
the other party hereunder, (ii) waive any inaccuracies in the representations
and warranties of the other party contained herein or in any document,
certificate or writing delivered pursuant hereto or thereto or (iii) waive
compliance by the other party with any of the agreements contained herein.  No
term or provision hereof shall be deemed waived and no breach hereof or thereof
excused unless such waiver or consent shall be in writing and signed by the
party claimed to have waived or consented.  No waiver hereunder shall apply or
be construed to apply beyond its expressly stated terms.  No failure to
exercise and no delay in exercising any right, remedy, power or privilege
hereunder shall operate as a waiver thereof, and no single or partial exercise
of any right, remedy, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, remedy, power or
privilege.  No failure to insist upon strict performance of any term or
provision of this Agreement, or to exercise any right hereunder, shall be
construed as a waiver or as a relinquishment of such term, provision, or right.

                 (f)  Entire Agreement.  This Agreement and the License
Agreement constitute the entire agreement between the Purchaser and the Company
with respect to the subject matter hereof and thereof and the transactions
contemplated hereby and thereby and supersede all prior or contemporaneous,
written or oral agreements or understandings with respect thereto.  The parties
acknowledge that their agreements hereunder were not procured through
representations or agreements not set forth herein or therein.

                 (g)  Amendment.  This Agreement may be amended only to the
extent permissible under applicable law and only by a written instrument
executed and delivered by a duly authorized officer of each of the parties
hereto.

                 (h)  Severability.  The provisions set forth in this Agreement
are severable.  If any provision of this Agreement is held invalid or
unenforceable in any jurisdiction, the





                                       28
   29

remainder of this Agreement and the application of such provision to other
persons or circumstances, shall not be affected thereby, and shall remain valid
and enforceable in such jurisdiction, and any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

                 (i)  Successors and Assigns.  This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their successors and
assigns, provided that neither party may assign this Agreement without the
written consent of the other party; provided, however, that (i) either party
hereto may assign this Agreement to any person or entity with or into which
such party may merge or consolidate or to whom all or substantially all of its
assets or businesses may be sold and (ii) the Purchaser may assign its rights
under this Agreement to any subsidiary of the Purchaser if the Purchaser
remains responsible for the subsidiary's performance and liable for its
breaches of this Agreement.

                 (j)  Fair Construction.  This Agreement shall be deemed the
joint work product of the parties hereto without regard to the identity of the
draftsperson, and any rule of construction that a document shall be interpreted
or construed against the drafting party shall not be applicable.

                 (k)  Headings; References.  Headings used in this Agreement
are inserted as a matter of convenience and for reference, do not constitute a
part of this Agreement for any other purpose, and shall not affect the
interpretation or enforcement hereof.  References herein to Sections and
Schedules are, unless otherwise designated, references to the specified Section
or Schedule hereof or hereto.

                 (l)  Counterparts.  This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

                 IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the date first above written.

LA JOLLA PHARMACEUTICAL COMPANY                    ABBOTT LABORATORIES


By: /s/ Steven B. Engle                       By: /s/ Robert L. Parkinson, Jr.
   ---------------------                         -----------------------------
   
Name:  Steven B. Engle                        Name:  Robert L. Parkinson, Jr.

Title:  President & Chief Executive Officer   Title:  Senior Vice-President,
                                                       International Operations





                                       29

EX-23.1

   1
                                  EXHIBIT 23.1

               CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the incorporation by reference in (i) the Registration Statement
(Form S-8 No. 33-82664) pertaining to the 1994 Stock Incentive Plan, (ii) the
Registration Statement (Form S-8 No. 33-94830) pertaining to the 1995 Employee
Stock Purchase Plan, and (iii) the Registration Statement (Form S-8 No.
333-14285) pertaining to the 1994 Stock Incentive Plan of La Jolla
Pharmaceutical Company of our report dated January 30, 1997 with respect to the
financial statements of La Jolla Pharmaceutical Company included in this Annual
Report (Form 10-K) for the year ended December 31, 1996.



                                          ERNST & YOUNG LLP

San Diego, California
March 27, 1997

EX-27

 

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