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WWW.EXFILE.COM -- 12617 -- VIVUS, INC. -- FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2004

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10–Q


[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004


[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .

COMMISSION FILE NUMBER: 0–23490

VIVUS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


DELAWARE (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)		94–3136179 (I.R.S. EMPLOYER IDENTIFICATION NUMBER)

1172 CASTRO STREET
MOUNTAIN VIEW, CALIFORNIA 94040
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)

(650) 934–5200
(REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE)

N/A
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT)

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 whether Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.) Yes [X] No [ ]

At April 30, 2004, 38,644,570 shares of common stock were outstanding.

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VIVUS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)

ASSETS

	MARCH 31			DECEMBER 31
	2004			2003

	(UNAUDITED)
Current assets:
Cash and cash equivalents	$	4,081		$	13,097
Available-for-sale securities		34,460			21,488
Accounts receivable, net		680			2,623
Inventories		3,415			3,109
Prepaid expenses and other assets		1,036			1,108

Total current assets		43,672			41,425
Property and equipment, net		7,756			8,220
Restricted cash		3,324			3,324
Available-for-sale securities, non-current		5,841			13,763

Total assets	$	60,593		$	66,732

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,056		$	2,917
Accrued and other liabilities		8,357			8,409

Total current liabilities		12,413			11,326
Notes payable
		316			—
Accrued and other long-term liabilities		6,843			4,171

Total liabilities		19,572			15,497

Stockholders’ equity:
Preferred stock; $1.00 par value; shares authorized 5,000; shares issued and
outstanding — 0 at March 31, 2004 and December 31, 2003		—			—
Common stock; $.001 par value; shares authorized 200,000; shares
issued and outstanding — 37,996 at March 31, 2004 and
37,788 at December 31, 2003		38			38
Additional paid-in capital		152,790			152,093
Accumulated other comprehensive income		52			64
Accumulated deficit		(111,859	)		(100,960	)

Total stockholders’ equity		41,021			51,235

Total liabilities and stockholders’ equity	$	60,593		$	66,732

See accompanying notes to condensed consolidated financial statements.

VIVUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

	THREE MONTHS ENDED

	MARCH 31			MARCH 31
	2004			2003

	(UNAUDITED)			(UNAUDITED)
Revenue
United States product	$	663		$	3,808
International product		1,370			878
Returns provision		(91	)		(417	)

Total revenue		1,942			4,269
Cost of goods sold		2,280			2,784

Gross profit (loss)		(338	)		1,485

Operating expenses:
Research and development		7,721			2,284
Selling, general and administrative		3,008			2,572

Total operating expenses		10,729			4,856

Loss from operations		(11,067	)		(3,371	)
Interest and other income:
Interest income		160			187
Gain (loss) on disposal of property and equipment		1			(1	)
Foreign exchange gain (loss)		10			(6	)

Loss before provision for income taxes		(10,896	)		(3,191	)
Provision for income taxes		(3	)		—

Net loss	$	(10,899	)	$	(3,191	)

Net loss per share:
Basic	$	(0.29	)	$	(0.10	)
Diluted	$	(0.29	)	$	(0.10	)
Shares used in per share computation:
Basic		37,881			33,011
Diluted		37,881			33,011

See accompanying notes to condensed consolidated financial statements.

VIVUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)
(In thousands)

	THREE MONTHS ENDED

	MARCH 31			MARCH 31
	2004			2003

	(UNAUDITED)			(UNAUDITED)
Net loss	$	(10,899	)	$	(3,191	)
Other comprehensive (loss):
Unrealized (loss) on securities		(12	)		(72	)

Comprehensive loss	$	(10,911	)	$	(3,263	)

See accompanying notes to condensed consolidated financial statements.

VIVUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

	THREE MONTHS ENDED MARCH 31

	2004			2003

	(UNAUDITED)			(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(10,899	)	$	(3,191	)
Adjustments to reconcile net loss to net cash (used for)
provided by operating activities:
Provision for doubtful accounts		(89	)		(81	)
Depreciation and amortization		490			555
Stock compensation costs		10			—
(Gain) loss on disposal of property and equipment		(1	)		1
Changes in assets and liabilities:
Accounts receivable		2,032			2,406
Inventories		(306	)		(223	)
Prepaid expenses and other assets		72			525
Accounts payable		1,139			404
Accrued and other liabilities		2,620			(379	)

Net cash (used for) provided by operating activities		(4,932	)		17

CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment purchases		(26	)		(34	)
Proceeds from sale of property and equipment		1			—
Investment purchases		(14,226	)		(5,147	)
Proceeds from sale/maturity of securities		9,164			3,016

Net cash used for investing activities		(5,087	)		(2,165	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing under note agreements		316			—
Exercise of common stock options		687			39

Net cash provided by financing activities		1,003			39

NET DECREASE IN CASH		(9,016	)		(2,109	)
CASH:
Beginning of period		13,097			12,296

End of period	$	4,081		$	10,187

NON-CASH INVESTING ACTIVITIES:
Unrealized (loss) on securities	$	(12	)	$	(72	)
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Income taxes paid	$	13		$	2

See accompanying notes to condensed consolidated financial statements.

VIVUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulations S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. For further information, refer to the financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

2. SIGNIFICANT ACCOUNTING POLICIES

Stock Options

The Company applies the intrinsic-value-based method of accounting prescribed by Accounting Principles Board, or APB, Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including Financial Accounting Standards Board, or FASB, Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, an Interpretation of APB Opinion No. 25, issued in March 2000, to account for its fixed-plan stock options. Under this method, compensation expense is recorded on the date of the grant only if the current market price of the underlying stock exceeds the exercise price. SFAS No. 123, Accounting for Stock Based Compensation, establishes accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic-value-based method of accounting described above, and has adopted only the disclosure requirements of SFAS No. 123. The following table illustrates the effect on net income if the fair-value-based method has been applied to all outstanding and unvested awards during the three months ended March 31, 2004 and 2003.

	Three months ended
	March 31			March 31
	2004			2003

Net (loss), as reported	$	(10,899	)	$	(3,191	)
Deduct total stock-based employee compensation
expense determined under fair-value-based method for
all rewards, net of tax		(401	)		(426	)

Pro forma net (loss)	$	(11,300	)	$	(3,617	)

Pro forma net (loss) per share:
Basic	$	(0.30	)	$	(0.11	)
Diluted	$	(0.30	)	$	(0.11	)

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in the first quarter of 2004 and 2003: no dividend yield, expected volatility of 71% and 72%, respectively, risk-free interest rates of between 1% to 5% and 1% to 4%, respectively and an expected life of 5 years for both periods.

3. INVENTORIES

Inventories are recorded net of reserves of $5.3 million and $5.6 million as of March 31, 2004 and December 31, 2003, respectively, and consist of:

	MARCH 31, 2004		DECEMBER 31, 2003

	(000’s)
Raw materials	$	2,303	$	2,370
Work in process		52		81
Finished goods		1,060		658

Inventory, net	$	3,415	$	3,109

As noted above, the Company has recorded significant reserves against the carrying value of its inventories. The reserves relate primarily to raw materials inventory that the Company previously estimated would not be used. The Company now estimates that at least some portion of the fully reserved inventory will be used in production. The Company used $256,000 and $190,000 of its fully reserved raw materials inventory during the first quarter of 2004 and 2003, respectively. The fully reserved used raw materials were charged to cost of goods sold at a zero basis, which had a favorable impact on gross profit.

4. NOTES PAYABLE

In the first quarter of 2004, we signed an agreement for a line of credit with Tanabe Holding America, Inc. or Tanabe, allowing us to borrow up to $8.5 million to be used for the development of avanafil (TA-1790), our erectile dysfunction compound currently in Phase 2 clinical trials. The secured line of credit may be drawn upon quarterly and each quarterly borrowing will have a 48-month term and will bear interest at the annual rate of two percent. As of March 31, 2004 we had a long-term notes payable balance of $316,000.

5. ACCRUED AND OTHER LIABILITIES

Accrued and other liabilities as of March 31, 2004 and December 31, 2003 consist of:


Short-term accrued and other liabilities	MARCH 31, 2004		DECEMBER 31, 2003
	(000'S)

Product returns	$	2,876	$	2,932
Income taxes		1,185		1,216
Research and clinical expenses		866		458
Royalties		320		629
Deferred revenue		281		281
Employee compensation and benefits		1,113		1,249
Chargebacks and rebates		835		900
Customer liabilities		550		135
Other		331		609

Total short-term accrued and other liabilities	$	8,357	$	8,409


Long-term accrued and other liabilities	MARCH 31, 2004		DECEMBER 31, 2003

	(000'S)

Restructuring	$	3,021	$	3,021
Research and clinical expenses		2,710		—
Deferred revenue		1,112		1,150

Total long-term accrued and other liabilities	$	6,843	$	4,171

6. RESTRUCTURING RESERVE

During 1998, VIVUS, Inc. experienced a significant decline in market demand for MUSE due to the market launch of sildenafil, the first oral treatment for erectile dysfunction. During the second and third quarters of 1998, the Company took significant steps to restructure its operations in an attempt to bring the cost structure in line with current and projected revenues. (See Notes 1 and 6 to the Consolidated Financial Statements for the year ended December 31, 2003 included in the Company’s Annual Report on Form 10-K.) The restructuring reserve balance at March 31, 2004 was $3.0 million, remaining the same as at December 31, 2003.

	PROPERTY
	AND RELATED
	COMMITMENTS


Balance at December 31, 2003	$	3,021
Activity in first quarter 2004		—

Balance at March 31, 2004	$	3,021

The remaining balance in the restructuring reserve is related to the restoration liability for our leased manufacturing facilities. This liability will remain in effect through the end of the lease term, including any renewals. The Company has exercised its first option to renew the original lease, thereby extending any cash payments to be made to this liability out to 2007. The second renewal term, if exercised, would then extend the liability out an additional five years, to 2012.

7. NET INCOME PER SHARE

Net income per share is calculated in accordance with Statement of Financial Accounting Standards No. 128, Earnings per Share, which requires a dual presentation of basic and diluted earnings per share. Basic income per share is based on the weighted average number of common shares outstanding during the period. Diluted income per share is based on the weighted average number of common and common equivalent shares, which represent shares that may be issued in the future upon the exercise of outstanding stock options. Certain options are excluded from the diluted income per share for the period presented because they are anti-dilutive. Potentially dilutive options outstanding of 1,005,725 and 509,879 at March 31, 2004 and 2003, respectively, are excluded from the computation of diluted EPS for the first quarter of 2004 and 2003 because the effect would have been anti-dilutive.

8. COMMITMENTS

We lease our manufacturing facilities in Lakewood, New Jersey under a non-cancelable operating lease expiring in 2007 and have the option to extend this lease for one additional renewal term of five years. In January 2000, we entered into a seven-year lease for our corporate headquarters in Mountain View, California, which expires in January 2007.

In November 2002, we entered into a manufacturing agreement to purchase raw materials from a supplier beginning in 2003 and ending in 2008. In 2003, we purchased $2.1 million of product and are committed to purchase a minimum total of $3.8 million of product from 2004 through 2008.

In January 2004, we entered into a manufacturing agreement to purchase raw materials from an additional supplier beginning in 2004 and ending in 2006. We will be required to purchase a minimum total of $2.3 million of product from 2004 through 2006.

In January 2004, we entered into exclusive licensing agreements with Acrux Limited, a specialty pharmaceutical company based in Melbourne, Australia, under which we will develop and commercialize an estradiol spray for the alleviation of the symptoms of menopause and a testosterone spray for the treatment of low sexual desire in women. We reported a total $2.9 million of licensing fees incurred under the terms of the agreements. Portions of these licensing fees will be paid in September 2004 ($250,000) and June 2005 ($930,000). We expect to make other substantial payments to Acrux in accordance with our agreements with them. These payments are based on certain development, regulatory and sales milestones. In addition, we are required to make royalty payments on any future product sales.

In addition, during the first quarter of 2004, we initiated a phase 2 clinical trial with avanafil, our oral phosphodiesterase type 5 (PDE5) inhibitor being studied for the treatment of erectile dysfunction. Under the terms of our 2001 development, licensing and supply agreement with Tanabe Seiyaku Co., LTD., or Tanabe, a Japanese pharmaceutical company, we reported a $1.8 million milestone obligation to Tanabe in the first quarter of 2004. The payment of this milestone will be made in March 2006. We expect to make other substantial payments to Tanabe in accordance with our agreements with them. These payments are based on certain development, regulatory and sales milestones. In addition, we are required to make royalty payments on any future product sales.

9. CONCENTRATION OF CUSTOMERS AND SUPPLIERS

During the first three months of 2004 and 2003, sales to significant customers as a percentage of total revenues were as follows:



Customer A	49%	18%
Customer B	14%	18%
Customer C	11%	30%
Customer D	11%	6%
Customer E	7%	19%

The Company did not have any suppliers making up more than 10% of operating costs.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis of Financial Conditions and Results of Operations and other parts of this Form 10-Q contain “forward-looking” statements that involve risks and uncertainties. These statements typically may be identified by the use of forward-looking words or phrases such as “believe,” “expect,” “intend,” “anticipate,” “should,” “planned,” “estimated,” and “potential,” among others. All forward-looking statements included in this document are based on our current expectations, and we assume no obligation to update any such forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for such forward-looking statements. In order to comply with the terms of the safe harbor, we note that a variety of factors could cause actual results and experiences to differ materially from the anticipated results or other expectations expressed in such forward-looking statements. The risks and uncertainties that may affect the operations, performance, development, and results of our business include but are not limited to: (1) our history of losses and variable quarterly results; (2) substantial competition; (3) risks related to the failure to protect our intellectual property and litigation in which we may become involved; (4) our reliance on sole source suppliers; (5) our limited sales and marketing efforts and our reliance on third parties; (6) failure to continue to develop innovative products; (7) risks related to noncompliance with United States Food and Drug Administration regulations; and (8) other factors that are described from time to time in our periodic filings with the Securities and Exchange Commission, including those set forth in this filing as “Risk Factors Affecting Operations and Future Results.”

All percentage amounts and ratios were calculated using the underlying data in thousands. Operating results for the three-month period ended March 31, 2004, are not necessarily indicative of the results that may be expected for the full fiscal year or any future period.

BUSINESS OVERVIEW

VIVUS, Inc. is a specialty pharmaceutical company focused on the research, development and commercialization of products to restore sexual function in men and women. In addition to our currently marketed therapies, we have a pipeline that includes both new chemical entities and existing compounds that are being developed to address unmet medical needs. Our business strategy is to apply our scientific and medical expertise to identify, develop and commercialize therapies that restore sexual function. In the United States, we market MUSE® (alprostadil) and ACTIS®, two products for the treatment of erectile dysfunction. We have entered into supply agreements with Meda AB to market and distribute MUSE and ACTIS in all Member States of the European Union, the Baltic States, the Czech Republic, Hungary, Iceland, Norway, Poland, Switzerland and Turkey. In Canada, we have entered into a license and supply agreement with Paladin Labs, Inc. to market and distribute MUSE.

We currently have four significant research and development programs in progress targeting male and female sexual function:

ALISTA ™ to treat female sexual arousal disorder;
Estradiol MDTS®, a short-term therapy to alleviate symptoms associated with menopause;
Testosterone MDTS® for treating women with low sexual desire; and
Avanafil, formerly known as TA-1790, for the treatment of erectile dysfunction.

The first two research and development programs are in Phase 3 clinical development and the second two research and development programs are in Phase 2 clinical development. We believe that each of these programs addresses either established markets with sales in excess of $1.0 billion annually or potential markets with sales that could exceed $1.0 billion annually.

When we were founded in 1991, our sole purpose was to develop a therapy for men suffering from erectile dysfunction. In 1997, we commercially launched MUSE in the United States. At that time, MUSE revolutionized erectile dysfunction therapy at a time when few effective therapies existed. Developing and bringing MUSE to the market provided us experience in clinical and regulatory matters when no intra-urethral drugs had been approved for this indication. This experience serves us well today in making progress towards developing and commercializing product candidates in our research and development programs.

Our Future

It is our objective to become a global leader in the development and commercialization of products that help to restore sexual health in men and women. We believe that we have strong intellectual property supporting many opportunities in sexual health. Our future growth will come from further development and approval of our product candidates as well as in-licensing and product line extensions.

The chart below depicts the status of our four significant research and development programs in progress.

Our Programs

First Quarter 2004 Update

Female Sexual Health

We believe that the market for the treatment of sexual disorders in women is large and underserved. Today, there are no treatments on the market that have been approved by the United States Food and Drug Administration, or the FDA, for the treatment of sexual disorders in women. A paper by Lauman, et. al., published in the Journal of the American Medical Association in 1999, noted 43% of women between the ages of 18 and 65 identified themselves as afflicted with a sexual disorder, with two prevalent conditions being low sexual desire and arousal disorder. We believe these two conditions combined could potentially be a significant market. VIVUS’ research and development programs in female sexual health address both of these conditions.

ALISTA

ALISTA is a topical formulation of alprostadil applied locally to the female genitalia for the treatment of female sexual arousal disorder. It increases blood flow in the genital region, allowing for greater sensitivity and sexual arousal. ALISTA augments natural lubrication and has a fast onset of action with low systemic distribution.

At the end of the first quarter of 2003, we began a second at-home Phase 2 study to assess the efficacy and safety of ALISTA when used by pre-menopausal women with female sexual arousal disorder. The results of this study are expected in the middle of 2004.

We plan to begin Phase 3 clinical development of ALISTA in 2004.

Metered Dose Transdermal Spray, or MDTS

In the first quarter of 2004, we entered into license agreements with Acrux Limited, a specialty pharmaceutical company based in Melbourne, Australia, pursuant to which we have the exclusive rights to market, in the United States, two drugs, estradiol and testosterone, using Acrux’s Metered Dose Transdermal Spray, or MDTS. The MDTS is a small, easy-to-use, handheld spray that delivers estradiol and testosterone topically to the skin. It dries in approximately 30 seconds, and when dry, is invisible. Data generated to date suggests that, once dry, there is little chance for transfer or removal by washing. We believe that MDTS will have high patient acceptability.

The MDTS drug formulations utilize proprietary skin penetration enhancers commonly found in sunscreens. The once-per-day dosing has demonstrated a sustained plasma level of drug over a 24-hour period.

•

Estradiol MDTS — The estradiol spray is a low-dose estrogen-only treatment addressing the symptoms associated with menopause, primarily hot flashes. This proprietary spray product utilizes the MDTS spray technology, which is patented. This product candidate is simple to use and apply and has the safety of transdermal delivery.

We plan to conduct Phase 3 clinical development of the estradiol spray in 2004.

•

Testosterone MDTS – This proprietary spray product is designed to treat females with low sexual desire. The clinical name for low sexual desire is hypoactive sexual desire disorder. There are estimated to be over 10 million women in the United States afflicted with low sexual desire and there are no FDA approved therapies for this condition.

The testosterone spray is currently in a Phase 2 clinical trial with 200 patients. Under the terms of our license agreement, Acrux has the responsibility to complete this Phase 2 trial, which is being conducted in Australia under an Investigational New Drug application on file with the FDA. We expect the results of this Phase 2 study to be available in early 2005. All clinical development following this Phase 2 clinical trial will be our responsibility. Assuming that the Phase 2 study is successful, we plan to initiate a Phase 3 clinical trial with Testosterone MDTS by the end of 2005. Our current commercialization plan is to partner with a large pharmaceutical company.

Male Sexual Health

The erectile dysfunction market produces revenues in excess of $2.0 billion annually. Pfizer reported that it sold approximately $1.8 billion of Viagra®, a phosphodiesterase type 5 (PDE5) inhibitor, worldwide in 2003. Pfizer received clearance from the FDA to market Viagra in 1998. In late 2003, two additional phosphodiesterase type 5 (PDE5) inhibitors were approved by the FDA: Levitra®, launched by Bayer and GlaxoSmithKlineBeecham, and Cialis®, launched by Lilly ICOS LLC. Following the launch of these new products, the market for PDE5 inhibitors continued to grow. Based on the aging baby boomer population and their desire to maintain a healthy sexual lifestyle, we believe the market for PDE5 inhibitors should continue to grow.

Avanafil

We are developing avanafil, an orally administered PDE5 inhibitor, licensed from Tanabe Seiyaku Co., LTD., or Tanabe, in 2001. Avanafil, formerly known as TA-1790, is currently in Phase 2 clinical development. Pre-clinical and clinical data to date suggests the product candidate is:

Highly selective to PDE5, which we believe should result in a favorable side effect profile; and
Fast acting, which should promote spontaneity.

In March 2004, we began enrolling patients in an at-home, double blind, randomized, crossover design phase 2 clinical study to evaluate the safety and efficacy of avanfil. One of the primary goals of this study is to confirm the appropriate dose range in a large group of patients. Enrollment is anticipated to be completed by the end of 2004 and data from this study should be available during the first half of 2005. VIVUS plans to initiate drug interaction studies with avanafil later this year and anticipates completing Phase 2 development in 2005.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our

estimates, including those related to product returns, doubtful accounts, income taxes, restructuring, inventories and contingencies and litigation. (See Critical Accounting Policies and Estimates on page 23 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.) We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2004 and 2003

For the three months ended March 31, 2004, we reported a net loss of ($10.9) million, or ($0.29) net loss per share as compared to a net loss of ($3.2) million, or ($0.10) net loss per share, during the same quarter in 2003. Lower product sales in the United States and $4.7 million of charges for licensing and milestone payments associated with three of our four late-stage development programs in the pipeline were the primary reasons for the change from the same period last year.

We anticipate continued losses over the next several years. We do not expect year-over-year increases in MUSE sales, and we plan to continue to invest in clinical development of our current research and development product candidates to bring those potential products to market.

Revenue. United States net product revenue for the quarter ended March 31, 2004 was $572,000 compared to $3.4 million for the quarter ended March 31, 2003. A decrease in sales in the first quarter of 2004 was anticipated as wholesale customers ordered large quantities of MUSE in the fourth quarter of 2003, in anticipation of a first quarter 2004 price increase.

We expect U.S. quarterly sales levels to increase through the remainder of 2004.

International product revenue was $1.4 million for the first quarter of 2004, an increase of $492,000 compared to the same period last year. Based on current forecasts, we anticipate that 2004 international revenue will increase over 2003 levels.

Cost of goods sold and gross margins. Cost of goods sold in the first quarter of 2004 was $2.3 million, as compared to $2.8 million for the first quarter of 2003. Cost of goods sold decreased because of lower sales in the first quarter of 2004 versus the same period in 2003. However, we typically expense approximately $1.3 million of manufacturing overhead costs each quarter as period costs because of excess manufacturing capacity at our New Jersey facility. This accounting treatment is based on the determination made during the 1998 restructuring that the manufacturing capacity of the New Jersey plant far exceeds the level of production required to meet estimated future market demand. Thus, because the revenue dollars in the first quarter of 2004 were not sufficient to cover both the standard cost of product sales and the additional period expenses, negative gross profits resulted. Additionally, we increased production of finished goods in the first quarter of 2004 to replenish our U.S. inventories that were sold during the fourth quarter of 2003. Since manufacturing costs from cost of sales are capitalized as unit costs of inventory on the balance sheet as of March 31, 2004, the increase in production of inventory led to a $335,000 incremental reduction in cost of goods sold. During the three months ended March 31, 2004 and 2003, we used certain raw material inventory, the cost basis of which had been reduced to zero in prior years. This had a favorable impact on our cost of sales in the first quarter of 2004 and 2003 of $256,000 and $190,000, respectively. The lower margins in the first quarter of 2004 were also attributable to increased international sales, which carry lower sales prices and higher material costs than U.S. product.

Research and development expenses. Research and development expenses for the first quarter of 2004 were $7.7 million, as compared to $2.3 million for the three months ended March 31, 2003. During the first quarter of 2004, we entered into exclusive licensing agreements with Acrux, under which we will develop and commercialize an estradiol spray for the alleviation of the symptoms of menopause and a testosterone spray for the treatment of low sexual desire in women. We reported a total $2.9 million licensing fees incurred under the terms of the agreements. Portions of these licensing fees will be paid in September 2004 ($250,000) and June 2005 ($930,000). In addition, during the first quarter of 2004, we initiated a phase 2 clinical trial with avanafil, our oral phosphodiesterase type 5 (PDE5) inhibitor being studied for the treatment of erectile dysfunction. Under the terms of our 2001 development, licensing and supply agreement with Tanabe we reported a $1.8 million milestone obligation to Tanabe in the first quarter of 2004. The payment of this milestone will be made in March 2006. The initiation of the phase 2 clinical trial in March 2004 resulted in an additional $551,000 increase in expenses over the three months ended March 31, 2003. We do not expect to recognize revenue from sales of any new product candidates being developed through our research and development efforts until 2007 at the earliest.

Selling, general and administrative expenses. Selling, general and administrative expenses in the first quarter of 2004 of $3.0 million were $436,000 higher than the same period last year primarily due to $156,000 of legal fees related to the Acrux licensing agreements.

Interest income. Interest income for the three months ended March 31, 2004 was $160,000 as compared to $187,000 for the three months ended March 31, 2003. Despite an increase in our investments from March 31, 2003 to March 31, 2004, lower interest rates contributed to the reduction in interest income.

Provision for income taxes. During the first quarter of 2004, we recorded a net tax provision of $3,000 based on minimum state income taxes due. During the first quarter of 2003, there was no such provision.

LIQUIDITY AND CAPITAL RESOURCES

Cash. Unrestricted cash, cash equivalents and available-for-sale securities totaled $44.4 million at March 31, 2004 as compared to $48.3 million at December 31, 2003. The decrease is primarily due to low U.S. sales in the first quarter of 2004, normal operating expenses and a $1.8 million milestone payment to Acrux for our licensing agreement.

Since inception, we have financed operations primarily from the issuance of equity securities. Through March 31, 2004, we raised $156.7 million from financing activities and had an accumulated deficit of $111.9 million at March 31, 2004.

Available-for-sale securities. We focus on liquidity and capital preservation in our investments in available-for-sale securities. We restrict our cash investments to:

Direct obligations of the United States Treasury;
Federal Agency securities which carry the direct or implied guarantee of the United States government; and
Corporate securities, including commercial paper, rated A1/P1 or better.

We sequence the maturities of our investments consistent with our cash forecasts. The weighted average maturity of our portfolio is not to exceed 18 months. As investments mature, we re-invest the money by purchasing additional securities. We sell such investment securities based upon our need for cash for the payment of operating expenses. Gains and losses on sales of securities are typically insignificant because we sequence maturities consistent with our cash forecasts.

Accounts Receivable. Accounts receivable (net of allowance for doubtful accounts) at March 31, 2004 was $680,000 as compared to $2.6 million at December 31, 2003. The 74.1% decrease in the accounts receivable balance at March 31, 2004 is due to an 91.6% decrease in the number of units sold in March 2004 as compared to December 2003. Currently, we do not have any significant concerns related to accounts receivable or collections.

Liabilities. Total liabilities were $19.6 million at March 31, 2004, $4.1 million higher than at December 31, 2003. Accrued research and development expenses increased $3.0 million due to the future payment of milestones to Acrux and Tanabe and accounts payable increased $1.1 million primarily due to the timing of payments.

Operating Activities. Our operating activities used $4.9 million and provided $17,000 of cash during the three months ended March 31, 2004 and 2003, respectively. During the first quarter of 2004, our net operating loss of $10.9 million was offset by a $3.0 million increase in accrued and other liabilities for the future payment of milestones to Acrux and Tanabe and a $1.1 million increase in accounts payable. During the first quarter of 2003, our net operating loss was offset by a $2.4 million reduction in our accounts receivable due to the collection of monies owed to us.

Investing Activities. Net cash used for investing activities was $5.1 million and $2.2 million during the three months ended March 31, 2004 and 2003, respectively. The fluctuations from period to period are due primarily to the timing of purchases, sales and maturity of investment securities.

Financing Activities. Financing activities provided cash of $1.0 million and $39,000 during the three months ended March 31, 2004 and 2003, respectively. These amounts include the proceeds from the exercise of stock options in both the first quarter of 2004 and 2003, and borrowings under note arrangements in the first quarter of 2004.

We anticipate that our existing capital resources combined with anticipated future cash flows will be sufficient to support our operating needs for at least the coming year. However, we anticipate that we will be required to obtain additional financing to fund the development of our research and development pipeline in future periods as well as to support the possible launch of any future products. In particular, we expect to make other substantial payments to Acrux and Tanabe in accordance with our agreements with them in connection with the licensing of certain compounds. These payments are based on certain development, regulatory and sales milestones. In addition, we are required to make royalty payments on any future product sales.

In the first quarter of 2004, we signed an agreement for a line of credit with Tanabe, allowing us to borrow up to $8.5 million to be used for the development of avanafil (TA-1790), our erectile dysfunction compound currently in Phase 2 clinical trials. The secured line of credit may be drawn upon quarterly and each quarterly borrowing will have a 48-month term and will bear interest at the annual rate of two percent. As of March 31, 2004 we had a long-term notes payable balance of $316,000.

We expect to evaluate other potential financing sources, including, but not limited to, the issuance of additional equity or debt securities, corporate alliances, joint ventures, and licensing agreements to fund the development and possible commercial launch of any future products. The sale of additional equity securities would result in additional dilution to our stockholders. Our working capital and additional funding requirements will depend upon numerous factors, including:

the progress of our research and development programs;
the timing and results of pre-clinical testing and clinical trials;
results of operations;
demand for MUSE;
technological advances;
the level of resources that we devote to our sales and marketing capabilities; and
the activities of competitors.

Overview of Contractual Obligations

Contractual Obligations			Payments Due by Period (in thousands)


	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years

Operating Leases (1)		4,074		1,280		2,794		—		—

Purchases (2)		6,120		1,530		3,825		765		—

Notes Payable (3)		316		—		—		316		—

Other Long Term Liabilities (4)		5,981		250		2,710		3,021		—


Total		16,491		3,060		9,329		4,102		—

(1) We lease our manufacturing facilities in Lakewood, New Jersey under a non-cancelable operating lease expiring in 2007 and have the option to extend this lease for one additional renewal term of five years. In January 2000, we entered into a seven-year lease for our corporate headquarters in Mountain View, California, which expires in January 2007.

(2) In November 2002, we entered into a manufacturing agreement to purchase raw materials from a supplier beginning in 2003 and ending in 2008. In 2003, we purchased $2.1 million of product and are committed to purchase a minimum total of $3.8 million of product from 2004 through 2008.

(3) In the first quarter of 2004, we signed an agreement for a line of credit with Tanabe, allowing us to borrow up to $8.5 million to be used for the development of avanafil (TA-1790), our erectile dysfunction compound currently in Phase 2 clinical trials. The secured line of credit may be drawn upon quarterly and each quarterly borrowing will have a 48-month term and will bear interest at the annual rate of two percent.

(4) Other Long Term Liabilities relates to the restoration liability for our leased manufacturing facilities. This liability will remain in effect through the end of the lease term, including any renewals. We exercised our first option to renew the original lease, thereby extending any cash payments to be made relating to this liability out to 2007. The second renewal term, if exercised, would then extend the liability out an additional five years, to 2012.

In January 2004, we entered into exclusive licensing agreements with Acrux under which we will develop and commercialize an estradiol spray for the alleviation of the symptoms of menopause and a testosterone spray for the treatment of low sexual desire in women. We reported a total $2.9 million of licensing fees incurred under the terms of the agreements. Portions of these licensing fees will be paid in September 2004 ($250,000) and June 2005 ($930,000). In addition, during the first quarter of 2004, we initiated a phase 2 clinical trial with avanafil, our oral phosphodiesterase type 5 (PDE5) inhibitor being studied for the treatment of erectile dysfunction. Under the terms of our 2001 development, licensing and supply agreement with Tanabe we reported a $1.8 million milestone obligation to Tanabe in the first quarter of 2004. The payment of this milestone will be made in March 2006.

RISK FACTORS AFFECTING OPERATIONS AND FUTURE RESULTS

Set forth below and elsewhere in this Form 10-Q and in other documents we file with the Securities and Exchange Commission are risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this Quarterly Report on Form 10-Q. These are not the only risks and uncertainties facing VIVUS. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.

If we were unable to continue to develop, market and obtain regulatory approval for new product candidates, our business would be harmed.

The process of developing new drugs and/or therapeutic products is inherently complex and uncertain. We must make long-term investments and commit significant resources before knowing whether our development programs will eventually result in products that will receive regulatory approval and achieve market acceptance. As with any pharmaceutical product under development, there are significant risks in development, regulatory approval and commercialization of new compounds. During the product development phase, there is no assurance that the United States Food and Drug Administration will approve our clinical trial protocols. There is no guarantee that future clinical studies, if performed, will demonstrate the safety and efficacy of any product in development or that we will receive regulatory approval for such products. Further, the United States Food and Drug Administration can suspend clinical studies at any time if the agency believes that the subjects participating in such studies are being exposed to unacceptable health risks.

We cannot predict with certainty if or when we might submit for regulatory review those product candidates currently under development. Once we submit our potential products for review, we cannot assure you that the United States Food and Drug Administration or other regulatory agencies will grant approvals for any of our proposed products on a timely basis or at all. Further, even if we receive regulatory approval for a product, there can be no assurance that such product will prove to be commercially successful or profitable.

Sales of our products both inside and outside the United States will be subject to regulatory requirements governing marketing approval. These requirements vary widely from country to country and could delay the introduction of our proposed products in those countries. After the United States Food and Drug Administration and international regulatory authorities approve a product, we must manufacture sufficient volumes to meet market demand. This is a process that requires accurate forecasting of market demand. There is no guarantee that there will be market demand for any future products or that we will be able to successfully manufacture or adequately support sales of any future products.

In February 2004, we entered into exclusive license agreements with Acrux for the development and commercialization of topically applied Testosterone MDTS and Estradiol MDTS, in the United States only, for the treatment of low sexual desire and menopausal symptoms in women, respectively. Acrux has conducted clinical trials for both products under Investigational New Drug Applications on file with the United States Food and Drug Administration. Acrux is currently conducting a 200-patient Phase 2 study in Australia for Testosterone MDTS, which is expected to be completed in early 2005. We will conduct all other future development and clinical work for Testosterone MDTS. Assuming favorable results, we anticipate that we will begin Phase 3 clinical development of Testosterone MDTS in 2005. We plan to conduct Phase 3 clinical development for Estradiol MDTS in late 2004 for short-term therapy for women experiencing symptoms associated with menopause. However, there are no guarantees that Testosterone MDTS and/or Estradiol MDTS will prove to be safe and effective or receive regulatory approval for any indication. Further, even if we were to receive regulatory approval for these products, there can be no assurance that such products will prove to be commercially successful or profitable.

We are developing avanafil, formerly known as TA-1790, as potential oral and local treatments for male and female sexual dysfunction, and we are developing ALISTA for the potential treatment of female sexual arousal disorder. We are currently conducting pre-clinical safety studies for avanafil and have completed dosing in two efficacy studies in patients with erectile dysfunction. In March 2004, we began a Phase 2 clinical trial for avanafil, the results of which are expected in the first half of 2005. We also completed two Phase 2 ALISTA clinical trials and a third study began in the first quarter of 2003, the results of which are expected in the middle of 2004. We intend to initiate additional clinical studies that would be required to obtain regulatory approval for avanafil and ALISTA. However, there are no guarantees that avanafil and/or ALISTA will prove to be safe and effective or receive regulatory approval for any indication. Further, even if we were to receive regulatory approval for these products, there can be no assurance that such products will prove to be commercially successful or profitable.

The markets in which we operate are highly competitive and we may be unable to compete successfully against new entrants or established companies with greater resources.

Competition in the pharmaceutical and medical products industries is intense and is characterized by extensive research efforts and rapid technological progress. The most significant competitive therapy for MUSE is an oral medication marketed by Pfizer under the name Viagra, which received regulatory approvals in the United States in March 1998 and in the European Union in September 1998. The commercial launch of Viagra in the United States in April 1998 significantly decreased demand for MUSE. Another oral medication under the name Uprima was approved and launched in Europe by Abbott Laboratories and Takeda in May 2001. In February 2003, a new oral medication under the name Cialiswas launched in Europe by Lilly ICOS LLC and in Australia and New Zealand by Eli Lilly and Company. Cialis was launched in the United States in January 2004. Bayer AG and GlaxoSmithKline plc launched Levitra in the European Union and the United States in March and September 2003, respectively.

Other treatments for erectile dysfunction exist, such as needle injection therapy, vacuum constriction devices and penile implants, and the manufacturers of these products will most likely continue to improve these therapies. Additional competitive products in the erectile dysfunction market include needle injection therapy products from Pfizer (formerly Pharmacia), Schwartz Pharma, Fornier and Senetek.

Several large pharmaceutical companies are also actively engaged in the development of therapies for the treatment of erectile dysfunction and female sexual dysfunction. These companies have substantially greater research and development capabilities as well as substantially greater marketing, financial and human resources abilities than VIVUS. In addition, many of these companies have significantly greater experience than us in undertaking pre-clinical testing, human clinical trials and other regulatory approval procedures. Our competitors may develop technologies and products that are more effective than those we are currently marketing or developing. Such developments could render our products less competitive or possibly obsolete. We are also competing with respect to marketing capabilities and manufacturing efficiency, areas in which we have limited experience.

If we, or our suppliers, fail to comply with United States Food and Drug Administration and other government regulations, our manufacturing operations could be interrupted, and our product sales and profitability could suffer.

All new drugs, including our products under development, are subject to extensive and rigorous regulation by the United States Food and Drug Administration and comparable foreign authorities. These regulations govern, among other things, the development, pre-clinical and clinical testing, manufacturing, labeling, storage, pre-market approval, advertising, promotion, sale and distribution of our products. To date, MUSE has received marketing approval in more than 40 countries worldwide.

After regulatory approval is obtained, our products are subject to continual regulatory review. Manufacturing, labeling and promotional activities are continually regulated by the United States Food and Drug Administration and equivalent foreign regulatory agencies, and we must also report certain adverse events involving our products to these agencies. Previously unidentified adverse events or an increased frequency of adverse events that occur post-approval could result in labeling modifications of approved products, which could adversely affect future marketing. Finally, approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems occur following initial marketing. The restriction, suspension or revocation of regulatory approvals or any other failure to comply with regulatory requirements could have a material adverse effect on our business, financial condition and results of operations.

Failure to comply with the applicable regulatory requirements can result in, among other things, civil penalties, suspensions of regulatory approvals, product recalls, operating restrictions and criminal prosecution. The marketing and manufacturing of pharmaceutical products are subject to continual United States Food and Drug Administration and other regulatory review, and later discovery of previously unknown problems with a product, manufacturer or facility may result in the United States Food and Drug Administration and/or other regulatory agencies requiring further clinical research or restrictions on the product or the manufacturer, including withdrawal of the product from the market. The restriction, suspension or revocation of regulatory approvals or any other failure to comply with regulatory requirements could have a material adverse effect on our business, financial condition and results of operations.

Failure of our third-party manufacturers to maintain satisfactory compliance with current Good Manufacturing Practices, or cGMPs, could have a material adverse effect on our ability to continue to market and distribute our products and, in the most serious cases, could result in the issuance of warning letters, seizure or recall of products, civil penalties or closure of our manufacturing facility until such cGMP compliance is achieved. We obtain the necessary raw materials and components for the manufacture of MUSE as well as certain services, such as testing and sterilization, from third parties. We currently contract with suppliers and service providers, including foreign manufacturers that are required to comply with strict standards established by us. Certain suppliers and service providers are required to follow cGMP requirements and are subject to routine unannounced periodic inspections by the United States Food and Drug Administration and by certain state and foreign regulatory agencies for compliance with cGMP

requirements and other applicable regulations. Certain of our suppliers were inspected for cGMP compliance as part of the approval process. However, upon routine re-inspection of these facilities, there can be no assurance that the United States Food and Drug Administration and other regulatory agencies will find the manufacturing process or facilities to be in compliance with cGMP requirements and other regulations.

Failure to achieve satisfactory cGMP compliance as confirmed by routine unannounced inspections could have a material adverse effect on our ability to continue to manufacture and distribute our products and, in the most serious case, result in the issuance of a regulatory warning letter or seizure or recall of products, injunction and/or civil penalties or closure of our manufacturing facility until cGMP compliance is achieved.

We have limited sales and marketing capabilities in the United States.

We support MUSE sales in the United States through a small sales support group targeting major accounts that include the top prescribers of MUSE. Telephone marketers also focus on urologists who prescribe MUSE. Physician and patient information/help telephone lines are available to answer additional questions that may arise after reading the inserts or after actual use of the product. The sales force actively participates in national urologic and sexual dysfunction forums and conferences, such as the American Urological Association annual and regional meetings and the International Society for Impotence Research. There can be no assurance that our sales programs will effectively maintain or potentially increase current sales levels. There can be no assurance that demand for MUSE will continue or that we will be able to adequately support sales of MUSE in the United States in the future.

We rely on third parties to manufacture sufficient quantities of compounds for use in our pre-clinical and clinical trials and an interruption to this service may harm our business.

We do not have the ability to manufacture the materials we use in our pre-clinical and clinical trials, and we rely on various third parties to perform this function. There can be no assurance that we will be able to identify and qualify additional sources for clinical materials. If interruptions in this supply occur for any reason, including a decision by the third parties to discontinue manufacturing, labor disputes or a failure of the third parties to follow regulations, we may not be able to obtain regulatory approvals for our proposed products and may not be able to successfully commercialize these proposed products.

We rely on third parties to conduct clinical trials for our product candidates in development and those third parties may not perform satisfactorily.

We do not have the ability to independently conduct clinical studies for any of our products currently in development, and we rely on third parties to perform this function. If third parties do not successfully carry out their contractual duties or meet expected timelines, we may not be able to obtain regulatory approvals for our proposed products and may not be able to successfully commercialize these proposed products. If third parties do not perform satisfactorily, we may not be able to locate acceptable replacements or enter into favorable agreements with them, if at all.

If the results of future clinical testing indicate that our proposed products are not safe or effective for human use, our business will suffer.

All of the drug candidates that we are currently developing require extensive pre-clinical and clinical testing before we can submit any application for regulatory approval. Before obtaining regulatory approvals for the commercial sale of any of our proposed drug products, we must demonstrate through pre-clinical testing and clinical trials that our product candidates are safe and effective in humans. Conducting clinical trials is a lengthy, expensive and uncertain process. Completion of clinical trials may take several years or more. Our commencement and rate of completion of clinical trials may be delayed by many factors, including:

ineffectiveness of the study compound, or perceptions by physicians that the compound is not effective for a particular indication;
inability to manufacture sufficient quantities of compounds for use in clinical trials;
failure of the United States Food and Drug Administration to approve our clinical trial protocols;
slower than expected rate of patient recruitment;
inability to adequately follow patients after treatment;
unforeseen safety issues; or
government or regulatory delays.

The clinical results we have obtained to date do not necessarily predict that the results of further testing, including later stage controlled human clinical testing, will be successful. If our trials are not successful or are perceived as not successful by the United States Food and Drug Administration or physicians, our business, financial condition and results of operations will be materially harmed.

If we require additional capital for our future operating plans, we may not be able to secure the requisite additional funding on acceptable terms, if at all.

Our capital resources from operating activities are expected to continue to decline over the next several quarters as the result of increased spending for research and development projects, including clinical trials. We expect that our existing capital resources combined with future cash flows will be sufficient to support operating needs for at least the coming year. Financing in future periods will most likely be required to fund development of our research and development pipeline and the possible launch of any future products. Our future capital requirements will depend upon numerous factors, including:

the progress of our research and development programs;
the scope, timing and results of pre-clinical testing and clinical trials;
the results of operations;
the cost, timing and outcome of regulatory reviews;
the rate of technological advances;
ongoing determinations of the potential commercial success of our products under development;
the level of resources devoted to sales and marketing capabilities; and
the activities of competitors.

To obtain additional capital when needed, we will evaluate alternative financing sources, including, but not limited to, the issuance of equity or debt securities, corporate alliances, joint ventures and licensing agreements. However, there can be no assurance that funding will be available on favorable terms, if at all. If we are unable to obtain additional capital, management may be required to explore alternatives to reduce cash used by operating activities, including the termination of research and development efforts that may appear to be promising to the Company.

We may be sued for infringing on the intellectual property rights of others.

There can be no assurance that our products do not or will not infringe on the patent or proprietary rights of others. Third parties may assert that we are employing their proprietary technology without authorization. In addition, third parties may obtain patents in the future and claim that use of our technologies infringes these patents. We could incur substantial costs and diversion of the time and attention of management and technical personnel in defending ourselves against any such claims. Furthermore, parties making claims against us may be able to obtain injunctive or other equitable relief that could effectively block our ability to further develop, commercialize and sell products, and such claims could result in the award of substantial damages against us. In the event of a successful claim of infringement against us, we may be required to pay damages and obtain one or more licenses from third parties. We may not be able to obtain these licenses at a reasonable cost, if at all. In that event, we could encounter delays in product introductions while we attempt to develop alternative methods or products or be required to cease commercializing affected products and our operating results would be harmed.

Our inability to adequately protect our proprietary technologies could harm our competitive position and have a material adverse effect on our business.

We hold various patents and patent applications in the United States and abroad targeting male and female sexual health. The success of our business depends, in part, on our ability to obtain patents and maintain adequate protection of our intellectual property for our proprietary technology and products in the United States and other countries. The laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting their proprietary rights in these foreign countries. These problems can be caused by, for example, a lack of rules and processes allowing for meaningful defense of intellectual property rights. If we do not adequately protect our intellectual property, competitors may be able to use our technologies and erode our competitive advantage, and our business and operating results could be harmed.

The patent positions of pharmaceutical companies, including our patent position, are often uncertain and involve complex legal and factual questions. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies are covered by valid and enforceable patents or are effectively maintained as trade secrets. We apply for patents covering our technologies and products, as we deem appropriate. However, we may not obtain patents on all inventions for which we seek patents, and any patents we obtain may be challenged and may be narrowed in scope or extinguished as a result of such challenges. We could incur substantial costs in proceedings before the United States Patent and Trademark Office, including interference proceedings. These proceedings could also result in adverse decisions as to the priority of our inventions. There can be no assurance that our patents will not be successfully challenged or designed around by others.

Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products. Others may independently develop similar or alternative technologies or design around our patented technologies or products. These companies would then be able to develop, manufacture and sell products that compete directly with our products. In that case, our revenues and operating results would decline.

We seek to protect our confidential information by entering into confidentiality agreements with employees, collaborators and consultants. Nevertheless, employees, collaborators or consultants may still disclose or misuse our confidential information, and we may not be able to meaningfully protect our trade secrets. In addition, others may independently develop substantially equivalent information or techniques or otherwise gain access to our trade secrets. Disclosure or misuse of our confidential information would harm our competitive position and could cause our revenues and operating results to decline.

If our raw material suppliers fail to supply us with alprostadil, for which availability is limited, we may experience delays in our product development and commercialization.

We are required to initially receive regulatory approval for suppliers and we obtained our current supply of alprostadil from two approved sources. The first is NeraPharm, formerly Spolana Chemical Works a.s., in Neratovice, Czech Republic. The second is Chinoin Pharmaceutical and Chemical Works Co., Ltd. We have manufacturing agreements with Chinoin and NeraPharm respectively, to produce additional quantities of alprostadil for us. We are currently in the process of assuring the new material meets testing and regulatory specifications. There can be no guarantees the material will pass these requirements and be usable material in our manufacturing process. We are currently in the process of investigating additional sources for our future alprostadil supplies. However, there can be no assurance that we will be able to identify and qualify additional suppliers of alprostadil, in a timely manner, if at all.

Furthermore, alprostadil is subject to periodic re-testing to ensure it continues to meet specifications. There can be no guarantees that our existing inventory of alprostadil will pass these re-testing procedures and continue to be usable material. There is a long lead-time for manufacturing alprostadil. A short supply of alprostadil to be used in the manufacture of MUSE would have a material adverse effect on our business, financial condition and results of operations.

We outsource several key parts of our operations and any interruption in the services provided could harm our business.

We entered into a distribution agreement with Cardinal Health. Under this agreement, Cardinal Health takes the following actions:

warehouses our finished goods for United States distribution;
takes customer orders;
picks, packs and ships our products;
invoices customers; and
collects related receivables.

As a result of this distribution agreement, we are heavily dependent on Cardinal Health’s efforts to fulfill orders and warehouse our products effectively in the United States. There can be no assurance that such efforts will continue to be successful.

Gibraltar Laboratories performs sterility testing on finished product manufactured by us to ensure that it complies with product specifications. Gibraltar Laboratories also performs microbial testing on water and compressed gases used in the manufacturing process and microbial testing on environmental samples to ensure that the manufacturing environment meets appropriate cGMP regulations and cleanliness standards. As a result of this testing agreement, we are dependent on Gibraltar Laboratories to perform testing and issue reports on finished product and the manufacturing environment in a manner that meets cGMP regulations. There can be no assurance that such efforts will be successful.

We have an agreement with WRB Communications to handle patient and healthcare professional hotlines for us. WRB Communications maintains a staff of healthcare professionals to answer questions and inquiries about MUSE and ACTIS. These calls may include complaints about our products due to efficacy or quality, as well as the reporting of adverse events. As a result of this agreement, we are dependent on WRB Communications to effectively handle these calls and inquiries. There can be no assurance that such efforts will be successful.

We entered into a distribution agreement with Integrated Commercialization Services, or ICS, a subsidiary of Bergen Brunswig Corporation. ICS provides “direct-to-physician” distribution capabilities in support of United States marketing and sales efforts. As a result of this distribution agreement, we are dependent on ICS’s efforts to distribute product samples effectively. There can be no assurance that such efforts will be successful.

We currently depend on a single source for the supply of plastic applicator components, and an interruption to this supply source could harm our business.

We rely on a single injection molding company, Medegen, for our supply of plastic applicator components. In turn, Medegen obtains its supply of resin, a key ingredient of the applicator, from a single source, Huntsman Corporation. There can be no assurance that we will be able to identify and qualify additional sources of plastic components. We are required to initially receive United States Food and Drug Administration approval for suppliers. Until we secure and qualify additional sources of plastic components, we are entirely dependent upon Medegen. If interruptions in this supply occur for any reason, including a decision by Medegen to discontinue manufacturing, labor disputes or a failure of Medegen to follow regulations, the development and commercial marketing of MUSE and other potential products could be delayed or prevented. An extended interruption in the supply of plastic components could have a material adverse effect on our business, financial condition and results of operations.

All of our manufacturing operations are currently conducted at a single location, and a prolonged interruption to our manufacturing operations could harm our business.

We lease 90,000 square feet of space in Lakewood, New Jersey for our manufacturing operation, which includes formulation, filling, packaging, analytical laboratories, storage, distribution and administrative offices. The United States Food and Drug Administration and the Medicines and Healthcare products Regulatory Agency, formerly the Medicines Control Agency, the regulatory authority in the United Kingdom, authorized us to begin commercial production and shipment of MUSE from this facility in June and March 1998, respectively. MUSE is manufactured in this facility and we have no immediate plans to construct another manufacturing site. Since MUSE is produced with custom-made equipment under specific manufacturing conditions, the inability of our manufacturing facility to produce MUSE for whatever reason could have a material adverse effect on our business, financial condition and results of operations.

We depend exclusively on third-party distributors outside of the United States and we have very limited control over their activities.

We entered into agreements granting Meda AB exclusive marketing and distribution rights for MUSE and ACTIS in all Member States of the European Union, the Baltic States, the Czech Republic, Hungary, Iceland, Norway, Poland, Switzerland and Turkey. These agreements do not have minimum purchase commitments and we are entirely dependent on Meda AB’s efforts to distribute and sell our products effectively in all these markets. There can be no assurance that such efforts will be successful or that Meda AB will continue to support the products.

We entered into an agreement granting Paladin Labs exclusive marketing and distribution rights for MUSE in Canada. This agreement does not have minimum purchase commitments and we are entirely dependent on Paladin Labs’ efforts to distribute and sell our product effectively in Canada. There can be no assurance that such efforts will be successful or that Paladin Labs will continue to support the product.

We have an accumulated deficit of $111.9 million at March 31, 2004 and expect to continue to incur substantial operating losses for the foreseeable future.

We have generated a cumulative net loss of $111.9 million for the period from our inception through March 31, 2004 and we anticipate losses for the next several years due to increased investment in our research and development programs and limited revenues. There can be no assurance that we will be able to achieve profitability on a sustained basis. Accordingly, there can be no assurance of our future success.

We are dependent upon a single approved therapeutic approach to treat erectile dysfunction.

MUSE relies on a single approved therapeutic approach to treat erectile dysfunction, a transurethral system. The existence of side effects or dissatisfaction with this product may impact a patient’s decision to use or continue to use, or a physician’s decision to recommend, this therapeutic approach as a therapy for the treatment of erectile dysfunction, thereby affecting the commercial viability of MUSE. In addition, technological changes or medical advancements could diminish or eliminate the commercial viability of our product, the results of which could have a material effect on our business operations and results.

If we fail to retain our key personnel and hire, train and retain qualified employees, we may not be able to compete effectively, which could result in reduced revenues.

Our success is highly dependent upon the skills of a limited number of key management personnel. To reach our business objectives, we will need to retain and hire qualified personnel in the areas of manufacturing, research and development, regulatory affairs, clinical trial management and pre-clinical testing. There can be no assurance that we will be able to hire or retain such personnel, as we must compete with other companies, academic institutions, government entities and other agencies. The loss of any of our key personnel or the failure to attract or retain necessary new employees could have an adverse effect on our research, product development and business operations.

We are subject to additional risks associated with our international operations.

MUSE and ACTIS are currently marketed internationally. Changes in overseas economic and political conditions, terrorism, currency exchange rates, foreign tax laws or tariffs or other trade regulations could have an adverse effect on our business, financial condition and results of operations. The international nature of our business is also expected to subject us and our representatives, agents and distributors to laws and regulations of the foreign jurisdictions in which we operate or where our products are sold. The regulation of drug therapies in a number of such jurisdictions, particularly in the European Union, continues to develop, and there can be no assurance that new laws or regulations will not have a material adverse effect on our business, financial condition and results of operations. In addition, the laws of certain foreign countries do not protect our intellectual property rights to the same extent, as do the laws of the United States.

Any adverse changes in reimbursement procedures by Medicare and other third-party payors may limit our ability to market and sell our products.

In the United States and elsewhere, sales of pharmaceutical products are dependent, in part, on the availability of reimbursement to the consumer from third-party payors, such as government and private insurance plans. Third party payors are increasingly challenging the prices charged for medical products and services. While a large percentage of prescriptions in the United States for MUSE have been reimbursed by third party payors since our commercial launch in January 1997, there can be no assurance that our products will be considered cost effective and that reimbursement to the consumer will continue to be available or sufficient to allow us to sell our products on a competitive basis.

In addition, certain healthcare providers are moving towards a managed care system in which such providers contract to provide comprehensive healthcare services, including prescription drugs, for a fixed cost per person. We hope to further qualify MUSE for reimbursement in the managed care environment. However, we are unable to predict the reimbursement policies employed by third party healthcare payors. Furthermore, reimbursement for MUSE could be adversely affected by changes in reimbursement policies of governmental or private healthcare payors.

The healthcare industry is undergoing fundamental changes that are the result of political, economic and regulatory influences. The levels of revenue and profitability of pharmaceutical companies may be affected by the continuing efforts of governmental and third party payors to contain or reduce healthcare costs through various means. Reforms that have been and may be considered include mandated basic healthcare benefits, controls on healthcare spending through limitations on the increase in private health insurance premiums and Medicare and Medicaid spending, the creation of large insurance purchasing groups and fundamental changes to the healthcare delivery system. Due to uncertainties regarding the outcome of healthcare reform initiatives and their enactment and implementation, we cannot predict which, if any, of the reform proposals will be adopted or the effect such adoption may have on us. There can be no assurance that future healthcare legislation or other changes in the administration or interpretation of government healthcare or third party reimbursement programs will not have a material adverse effect on us. Healthcare reform is also under consideration in some other countries.

If we become subject to product liability claims, we may be required to pay damages that exceed our insurance coverage.

The commercial sale of MUSE and our clinical trials exposes us to a significant risk of product liability claims due to its availability to a large population of patients. In addition, pharmaceutical products are subject to heightened risk for product liability claims due to inherent side effects. We detail potential side effects in the patient package insert and the physician package insert, both of which are distributed with MUSE. While we believe that we are reasonably insured against these risks, we may not be able to obtain insurance in amounts or scope sufficient to provide us with adequate coverage against all potential liabilities. A product liability claim in excess of, or excluded from, our insurance coverage would have to be paid out of cash reserves and could have a material adverse effect upon our business, financial condition and results of operations. Product liability insurance is expensive, difficult to maintain, and current or increased coverage may not be available on acceptable terms, if at all.

Our stock price has been and may continue to be volatile.

The market price of our common stock has been volatile and is likely to continue to be so. The market price of our common stock may fluctuate due to factors including, but not limited to:

announcements of technological innovations or new products by us or our competitors;
our ability to increase demand for our products in the United States;
our ability to successfully sell our products in the United States and internationally;
actual or anticipated fluctuations in our financial results;
our ability to obtain needed financing;
economic conditions in the United States and abroad;
comments by or changes in Company assessments or financial estimates by security analysts;
adverse regulatory actions or decisions;
any loss of key management;
the results of our clinical trials or those of our competitors;
developments or disputes concerning patents or other proprietary rights;
product or patent litigation; or
public concern as to the safety of products developed by us.

These factors and fluctuations, as well as political and market conditions, may materially adversely affect the market price of our common stock. Securities class action litigation is often brought against a company following periods of volatility in the market price of its securities. We may be the target of similar litigation. Securities litigation, whether with or without merit, could result in substantial costs and divert management’s attention and resources, which could harm our business and financial condition, as well as the market price of our common stock.

Additionally, volatility or a lack of positive performance in our stock price may adversely affect our ability to retain key employees, all of whom have been granted stock options.

Our charter documents and Delaware law could make an acquisition of our company difficult, even if an acquisition may benefit our stockholders.

Our Board of Directors has adopted a Preferred Shares Rights Plan. The Preferred Shares Rights Plan has the effect of causing substantial dilution to a person or group that attempts to acquire us on terms not approved by our Board of Directors. The existence of the Preferred Shares Rights Plan could limit the price that certain investors might be willing to pay in the future for shares of our common stock and could discourage, delay or prevent a merger or acquisition that a stockholder may consider favorable.

Certain provisions of our Amended and Restated Certificate of Incorporation and Bylaws could also delay or prevent a change in control of our company. Some of these provisions:

authorize the issuance of preferred stock by the Board of Directors without prior stockholder approval, commonly referred to as “blank check” preferred stock, with rights senior to those of common stock;
prohibit stockholder actions by written consent;
specify procedures for director nominations by stockholders and submission of other proposals for consideration at stockholder meetings; and
eliminate cumulative voting in the election of directors.

In addition, we are governed by the provisions of Section 203 of Delaware General Corporate Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us. These and other provisions in our charter documents could reduce the price that investors might be willing to pay for shares of our common stock in the future and result in the market price being lower than it would be without these provisions.

Changes in accounting standards regarding stock option plans could limit the desirability of granting stock options, which could harm our ability to attract and retain employees, and could also reduce our profitability.

The Financial Accounting Standards Board is considering whether to require all companies to treat the value of stock options granted to employees as an expense. The United States Congress and other governmental and regulatory authorities have also considered requiring companies to expense stock options. If this change were to become mandatory, we and other companies would be required to record a compensation expense equal to the fair market value of each stock option granted. This expense would be spread over the vesting period of the stock option. Currently, we account for stock compensation under Accounting Principles Board, or APB, No. 25, Accounting for Stock Issued to Employees, which results in no compensation expenses recorded in connection with stock options granted to our employees. If we were required to expense stock option grants, it would reduce the attractiveness of granting stock options because of the additional expense associated with these grants, which would reduce our profitability. However, stock options are an important employee recruitment and retention tool, and we may not be able to attract and retain key personnel if we reduce the scope of our employee stock option program. Accordingly, in the event we are required to expense stock option grants, our profitability would be reduced, as would our ability to use stock options as an employee recruitment and retention tool.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Securities and Exchange Commission’s rule related to market risk disclosure requires that we describe and quantify our potential losses from market risk sensitive instruments attributable to reasonably possible market changes. Market risk sensitive instruments include all financial or commodity instruments and other financial instruments that are sensitive to future changes in interest rates, currency exchange rates, commodity prices or other market factors. We are not exposed to market risks from changes in foreign currency exchange rates or commodity prices. We do not hold derivative financial instruments nor do we hold securities for trading or speculative purposes. At March 31, 2004, we had drawn $316,000 of the $8.5 million line of credit with Tanabe. Each quarterly borrowing will have a 48-month term and will bear interest at the annual rate of two percent. At December 31, 2003 we had no debt outstanding, and therefore no risk exposure associated with increasing interest rates. We, however, are exposed to changes in interest rates on our investments in cash equivalents and available-for-sale securities. A significant portion of all of our investments in cash equivalents and available-for-sale securities are in money market funds that hold short-term investment grade commercial paper, treasury bills or other United States government obligations. Currently, this reduces our exposure to long-term interest rate changes.

ITEM 4. CONTROLS AND PROCEDURES

(a.) Evaluation of disclosure controls and procedures. Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

(b.) Changes in internal controls. There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS (IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K)

	EXHIBIT
	NUMBER	DESCRIPTION

3.2(4)

Amended and Restated Certificate of Incorporation of the Company

3.3(3)

Bylaws of the Registrant, as amended

3.4(5)

Certificate of Designations of Rights, Preferences and Privileges of Series A Participating Preferred Stock

4.1(4)

Specimen Common Stock Certificate of the Registrant

4.5(5)

Second Amended and Restated Preferred Shares Rights Agreement, dated as of April 15, 1997 by and between the Registrant and Harris Trust Company of California, including the Certificate of Determination, the form of Rights Certificate and the Summary of Rights attached thereto as Exhibits A, B, and C, respectively

10.1(1)†

Assignment Agreement by and between Alza Corporation and the Registrant dated December 31, 1993

10.2(1)†

Memorandum of Understanding by and between Ortho Pharmaceutical Corporation and the Registrant dated February 25, 1992

10.3(1)†

Assignment Agreement by and between Ortho Pharmaceutical Corporation and the Registrant dated June 9, 1992

10.4(1)†

License Agreement by and between Gene A. Voss, MD, Allen C. Eichler, MD, and the Registrant dated December 28, 1992

10.5A(1)†

License Agreement by and between Ortho Pharmaceutical Corporation and Kjell Holmquist AB dated June 23, 1989

10.5B(1)†

Amendment by and between Kjell Holmquist AB and the Registrant dated July 3, 1992

10.5C(1)

Amendment by and between Kjell Holmquist AB and the Registrant dated April 22, 1992

10.5D(1)†

Stock Purchase Agreement by and between Kjell Holmquist AB and the Registrant dated April 22, 1992

10.6A(1)†

License Agreement by and between Amsu, Ltd., and Ortho Pharmaceutical Corporation dated June 23, 1989

10.6B(1)†

Amendment by and between Amsu, Ltd., and the Registrant dated July 3, 1992

10.6C(1)

Amendment by and between Amsu, Ltd., and the Registrant dated April 22, 1992

10.6D(1)†

Stock Purchase Agreement by and between Amsu, Ltd., and the Registrant dated July 10, 1992

10.11(3)

Form of Indemnification Agreements by and among the Registrant and the Directors and Officers of the Registrant

10.12(2)

1991 Incentive Stock Plan and Form of Agreement, as amended

10.13(1)

1994 Director Option Plan and Form of Agreement

10.14(1)

Form of 1994 Employee Stock Purchase Plan and Form of Subscription Agreement

10.17(1)

Letter Agreement between the Registrant and Leland F. Wilson dated June 14, 1991 concerning severance pay

10.28(4)

Lease Agreement made as of January 1, 1997 between the Registrant and Airport Associates

10.29(4)

Lease Amendment No. 1 as of February 15, 1997 between Registrant and Airport Associates

10.29A(6)

Lease Amendment No. 2 dated July 24, 1997 by and between the Registrant and Airport Associates

10.29B(6)

Lease Amendment No. 3 dated July 24, 1997 by and between the Registrant and Airport Associates

10.36(7)

Form of, “Change of Control Agreements,” dated July 8, 1998 by and between the Registrant and certain Executive Officers of the Company.

10.39(8)

Sublease agreement between KVO Public Relations, Inc. and the Registrant dated December 21, 1999

10.41(9)†

License and Supply Agreement made as of November 20, 2000 between the Registrant and Paladin Labs, Inc.

10.42(9)†

Development, License and Supply Agreement made as of January 22, 2001 between the Registrant and TANABE SEIYAKU CO., LTD.

10.42A

Amendment One to Agreement, dated January 9, 2004 between Registrant and TANABE SEIYAKU CO., LTD.

10.43(10)†

Settlement and Modification Agreement made as of July 12, 2001 between ASIVI, LLC, AndroSolutions, Inc. Gary W. Neal and the Registrant.

10.44(11)

2001 Stock Option Plan and Form of Agreement

10.45(12)†

Supply Agreement made as of September 3, 2002 between the Registrant and Meda AB.

10.46(13)†

Amendment Three, dated November 21, 2002 by and between VIVUS, Inc. and CHINOIN Pharmaceutical and Chemical Works, Ltd.

	EXHIBIT
	NUMBER	DESCRIPTION

10.47(13)

Lease Amendment No. 4 and Settlement Agreement dated October 25, 2000 by and between the Registrant and Airport Associates

10.48(13)†

Exclusive Distribution Agreement dated October 1, 2002 between the Registrant and Cord Logistics

10.49(13)†

Distribution and Supply Agreement made as of February 18, 2003 between the Registrant and Meda AB.

10.50††

Testosterone Development and Commercialization Agreement made as of February 7, 2004 between the Registrant, Fempharm Pty Ltd. and Acrux DDS Pty Ltd.

10.51††

Estradiol Development and Commercialization Agreement made as of February 12, 2004 between the Registrant, Fempharm Pty Ltd. and Acrux DDS Pty Ltd.

10.52††

Note Purchase Agreement, dated January 8, 2004 between Registrant and Tanabe Holding America, Inc.

10.53††

Manufacture and Supply Agreement, dated December 22, 2003 between Registrant and NeraPharm spol., s.r.o. and signed by the Company on January 7, 2004.

31.1

Certification of Chief Executive Officer, dated May 7, 2004, pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934, as amended.

31.2

Certification of Chief Financial Officer, dated May 7, 2004, pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934, as amended.

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

†	Confidential treatment granted.
††	Confidential treatment requested.

(1)

Incorporated by reference to the same-numbered exhibit filed with the Registrant’s Registration Statement on Form S-1 No. 33-75698, as amended.

(2)

Incorporated by reference to the same numbered exhibit filed with the Registrant’s Registration Statement on Form S-1 No. 33-90390, as amended.

(3)

Incorporated by reference to the same numbered exhibit filed with the Registrant’s Form 8-B filed with the Commission on June 24, 1996.

(4)

Incorporated by reference to the same-numbered exhibit filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1996, as amended.

(5)

Incorporated by reference to exhibit 99.1 filed with Registrant’s Amendment Number 2 to the Registration Statement of Form 8-A (File No. 0-23490) filed with the Commission on April 23, 1997.

(6)

Incorporated by reference to the same numbered exhibit filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.

(7)

Incorporated by reference to the same-numbered exhibit filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1998.

(8)

Incorporated by reference to the same-numbered exhibit filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999.

(9)

Incorporated by reference to the same-numbered exhibit filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000.

(10)

Incorporated by reference to the same numbered exhibit filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.

(11)

Incorporated by reference to the same numbered exhibit filed with the Registrant’s Registration Statement on Form S-8 filed with the Commission on November 15, 2001.

(12)

Incorporated by reference to the same numbered exhibit filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2002.

(13)

Incorporated by reference to the same-numbered exhibit filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002.

(b)

Reports on Form 8-K.

On January 30, 2004, we furnished a current report on Form 8-K that disclosed our financial results for the year ended December 31, 2003 and certain other information. The Form 8-K included our audited financial statements for the year ended December 31, 2003.

On February 9, 2004, we filed a current report on Form 8-K that announced that data from our Phase 2 head-to-head at-home study comparing the onset of action between TA-1790, our oral phosphodiesterase type 5 (PDE5) inhibitor for the treatment of erectile dysfunction, and Pfizer’s Viagra (sildenafil) showed comparable results.

On February 12, 2004, we filed a current report on Form 8-K that announced the execution of exclusive licensing agreements with Acrux Limited, a pharmaceutical company based in Melbourne, Australia, under which we have the rights and responsibilities to develop and commercialize Testosterone MDTS® and Estradiol MDTS® in the United States for treatment of low sexual desire and menopausal symptoms, respectively.

SIGNATURES

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

Date: May 7, 2004

VIVUS, Inc.

/s/ LARRY J. STRAUSS

Larry J. Strauss
Vice President, Finance and Chief Financial Officer

/s/ LELAND F. WILSON

Leland F. Wilson
President and Chief Executive Officer

VIVUS, INC.

INDEX TO EXHIBITS

EXHIBIT

DESCRIPTION

10.42A

Amendment One to Agreement, dated January 9, 2004 between Registrant and TANABE SEIYAKU CO., LTD.

10.50††

Testosterone Development and Commercialization Agreement made as of February 7, 2004 between the Registrant, Fempharm Pty Ltd. and Acrux DDS Pty Ltd.

10.51††

Estradiol Development and Commercialization Agreement made as of February 12, 2004 between the Registrant, Fempharm Pty Ltd. and Acrux DDS Pty Ltd.

10.52††

Note Purchase Agreement, dated January 8, 2004 between Registrant and Tanabe Holding America, Inc.

10.53††

Manufacture and Supply Agreement, dated December 22, 2003 between Registrant and NeraPharm spol., s.r.o. and signed by the Company on January 7, 2004.

31.1

Certification of Chief Executive Officer, dated May 7, 2004, pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934, as amended.

31.2

Certification of Chief Financial Officer, dated May 7, 2004, pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934, as amended.

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

††	Confidential treatment requested.

_________________

                                                                  EXHIBIT 10.42A
                                                                  --------------


                          AMENDMENT NO. 1 TO AGREEMENT


This Amendment No. 1 to Agreement (this "Amendment"), made as of January 9,
2004, (hereinafter referred to as "EFFECTIVE DATE"), between TANABE SEIYAKU CO.,
LTD., a Japanese corporation having its principal office at 2-10 Dosho-machi
3-chome, Chuo-ku, Osaka, Japan (hereinafter referred to as "TANABE") and VIVUS,
INC., a corporation having its principal office at 1172 Castro Street, Mountain
View, CA 94040, USA (hereinafter referred to as "VIVUS"). TANABE and VIVUS are
sometimes referred to herein individually as a "Party" or collectively as
"Parties."

                                   WITNESSETH:

WHEREAS, the Parties entered into that certain Agreement dated as of December
28, 2000 (the "Agreement") pursuant to which, among other things, TANABE granted
to VIVUS certain rights relating to products as further set forth in the
Agreement in exchange for the payment by VIVUS to TANABE of certain milestone
payments set forth in Section 10 of the Agreement;

WHEREAS, the Parties desire to amend the Agreement to defer the scheduled
milestone payment set forth in Section 10(a)(1) of the Agreement;

NOW, THEREFORE, in consideration of the covenants and obligations expressed
herein, and intending to be legally bound, the Parties agree as follows:

1. Definitions.

          Capitalized terms used but not defined herein shall have the meanings
          set forth in the Agreement.

2. Amendment and Restatement of Section 10(a)(1).

          Section 10(a)(1) of the Agreement, which presently reads as follows:

          "two million United States Dollars (U.S. $2,000,000) upon the
          enrollment of the first patient in the first PHASE II CLINICAL STUDIES
          in the TERRITORY."

          is amended and restated to read as follows:

          "two million United States Dollars (U.S. $2,000,000) upon the earlier
          to occur of (A) the second anniversary of the enrollment of the first
          patient in the first PHASE II CLINICAL STUDIES in the TERRITORY, and
          (B) the grant by VIVUS of any sublicense to one or more THIRD PARTIES
          pursuant to Section 2.3 of the Agreement.

3. Governing Law.

          This Amendment and any dispute, including without limitation any
          arbitration, arising from performance or breach hereof shall be
          governed by and construed and enforced in accordance with the
          following: (i) if a dispute is filed in court or in arbitration by

                                        1


          VIVUS, the laws of Japan shall govern such dispute, and (ii) if a
          dispute is filed in court or in arbitration by TANABE, the laws of the
          state of California shall govern such dispute, in each case without
          reference to conflicts of law principles.

4. Authentic Text.

          This Amendment is entered into in the English language. In the event
          of any dispute concerning the construction or meaning of this
          Amendment, reference shall be made only to this Amendment as written
          in English and not to any translation into any other language.

IN WITNESS WHEREOF, the Parties have caused this Amendment to be duly executed
by their respective officers as of the EFFECTIVE DATE.



TANABE SEIYAKU CO., LTD.                        VIVUS, INC.


By: /s/ Natsuki Hayama                          By: /s/ Leland Wilson

Title:  President & CEO                         Title: President & C.E.O.

Date:  1/9/04                                   Date: 1/15/04

                                        2

                                                                   EXHIBIT 10.50
                                                                   -------------

                             DATE: FEBRUARY 7, 2004
- --------------------------------------------------------------------------------




                                FEMPHARM PTY LTD


                                       and


                                   VIVUS INC.


                                       and


                                ACRUX DDS PTY LTD




- --------------------------------------------------------------------------------
                                  TESTOSTERONE
                                 DEVELOPMENT AND
                           COMMERCIALIZATION AGREEMENT
- --------------------------------------------------------------------------------







                                TABLE OF CONTENTS
                                                                            PAGE
                                                                            ----

1.  DEFINITIONS AND INTERPRETATION............................................2

    1.1      DEFINITIONS......................................................2
    1.2      INTERPRETATION...................................................9

2.  LICENSE RIGHTS...........................................................11

    2.1      LICENSE GRANT...................................................11
    2.2      RESERVATION OF RIGHTS...........................................12
    2.3      VIVUS GRANT-BACK LICENSE AND OPTION TO LICENSE..................12
    2.4      EXPANSION OF FIELD..............................................13
    2.5      EXCLUSIVITY COVENANTS...........................................13
    2.6      UNAUTHORIZED SALES..............................................15
    2.7      RIGHT OF NEGOTIATION............................................16

3.  LICENSE AND MILESTONE PAYMENTS...........................................17

    3.1      LICENSE FEE.....................................................17
    3.2      MILESTONE PAYMENTS..............................................17
    3.3      ONE PAYMENT; LIMITATION.........................................19

4.  ROYALTIES................................................................19

    4.1      ROYALTY PAYMENTS................................................19
    4.2      ROYALTY REDUCTION...............................................20
    4.3      THIRD PARTY ROYALTIES...........................................20
    4.4      ONE ROYALTY; SAMPLES AND DONATIONS..............................21
    4.5      ACCRUAL AND PAYMENT OF ROYALTIES; ROYALTY TERM..................21
    4.6      LATE PAYMENT OF ROYALTIES.......................................22
    4.7      ROYALTY REPORT..................................................22
    4.8      VERIFICATION OF ROYALTY STATEMENT...............................22
    4.9      NON-DISCLOSURE BY ACCOUNTANT....................................23
    4.10     STATEMENT ERRORS................................................23
    4.11     CURRENCY CONVERSION.............................................24
    4.12     WITHHOLDING TAXES...............................................24

5.  CLINICAL DEVELOPMENT.....................................................24

    5.1      OVERVIEW OF DEVELOPMENT.........................................24
    5.2      TRANSFER OF TECHNICAL INFORMATION...............................25
    5.3      CONDUCT OF PHASE IIB STUDY......................................26
    5.4      TRANSFER OF DEVELOPMENT RESPONSIBILITY..........................27

                                        i


    5.5      DEVELOPMENT RESPONSIBILITIES....................................27
    5.6      DEVELOPMENT COMMITTEE...........................................28
    5.7      DEVELOPMENT PLANS...............................................29
    5.8      BUDGETS.........................................................30
    5.9      STEERING COMMITTEE..............................................30
    5.10     FINAL DECISION..................................................31
    5.11     PROCEDURES OF COMMITTEES........................................31
    5.12     DECISIONS OF COMMITTEES.........................................32
    5.13     CHAIRPERSONS - DEVELOPMENT COMMITTEE............................32
    5.14     CHAIRPERSONS - STEERING COMMITTEE...............................32
    5.15     MINUTES AND REPORTS.............................................33
    5.16     GLOBAL DEVELOPMENT COMMITTEE....................................33
    5.17     NO OBLIGATION TO TRANSLATE......................................34
    5.18     INFORMATION AND RESULTS.........................................34
    5.19     PRODUCT FAILURE.................................................35
    5.20     SUBCONTRACTS....................................................36
    5.21     CLINICAL PRODUCT SUPPLY.........................................37

6.  DILIGENCE OBLIGATIONS....................................................37

    6.1      PRODUCT DEVELOPMENT DILIGENCE OBLIGATIONS.......................37
    6.2      DILIGENCE PAYMENT FOR DEVELOPMENT DELAYS........................38
    6.3      REVERSION FOR FAILURE OF DILIGENCE..............................39

7.  REGULATORY MATTERS.......................................................39

    7.1      REGULATORY MATERIALS............................................39
    7.2      RELATIONSHIP WITH REGULATORY AUTHORITIES........................41
    7.3      ADVERSE EVENTS AND COMPLAINTS REPORTING.........................41

8.  PRODUCT COMMERCIALIZATION................................................42

    8.1      OVERVIEW........................................................42
    8.2      COMMERCIALIZATION OBLIGATIONS...................................43
    8.3      COMMERCIALIZATION PLANS.........................................44
    8.4      LAUNCH DILIGENCE................................................44
    8.5      MANUFACTURE IN TERRITORY........................................45
    8.6      SUPPLY OF PRODUCT TO FEMPHARM...................................45

9.  SUB-LICENSING AND ASSIGNMENT.............................................45

    9.1      SUB-LICENSE.....................................................45
    9.2      VIVUS BOUND.....................................................46
    9.3      ASSIGNMENT......................................................46

                                       ii


10. CONFIDENTIALITY..........................................................46

    10.1     RESTRICTIONS ON USE.............................................46
    10.2     USE OF OWN INFORMATION..........................................47
    10.3     EXCEPTIONS TO CONFIDENTIALITY...................................47
    10.4     EXCEPTIONS TO NON-DISCLOSURE....................................48
    10.5     DISCLOSURE BY LAW...............................................48
    10.6     SCOPE OF CONFIDENTIALITY........................................49
    10.7     SECURITY OF INFORMATION.........................................49
    10.8     PERSONNEL CONFIDENTIALITY.......................................49
    10.9     RETURN OF CONFIDENTIAL INFORMATION..............................50
    10.10    PUBLICATIONS....................................................50
    10.11    OTHER RIGHTS....................................................50
    10.12    USE OF OTHER PARTY'S NAME.......................................50
    10.13    PRESS RELEASES AND OTHER DISCLOSURES............................50

11. INVENTIONS...............................................................52

    11.1     DISCLOSURE OF INVENTIONS........................................52
    11.2     OWNERSHIP OF INVENTIONS AND INTELLECTUAL PROPERTY RIGHTS........52
    11.3     JOINT INVENTIONS AND JOINT PATENTS..............................52
    11.4     COOPERATION OF EMPLOYEES........................................53

12. PATENTS AND INTELLECTUAL PROPERTY........................................53

    12.1     PATENT RIGHTS...................................................53
    12.2     JOINT PATENT RIGHTS.............................................54
    12.3     FEMPHARM PATENT PROCEEDINGS.....................................55
    12.4     INFRINGEMENT PROCEEDINGS IN THE FIELD...........................55
    12.5     OTHER INFRINGEMENT PROCEEDINGS..................................57

13. REPRESENTATIONS AND WARRANTIES; DISCLAIMERS..............................57

    13.1     WARRANTY........................................................58
    13.2     ADDITIONAL WARRANTIES OF FEMPHARM AND THE ACRUX
              CONTROLLED AFFILIATES..........................................58
    13.3     ADDITIONAL WARRANTIES OF VIVUS..................................62
    13.4     DISCLAIMER OF WARRANTIES........................................62
    13.5     DISCLAIMER OF LIABILITY.........................................63

14. TERM AND TERMINATION.....................................................63

    14.1     TERM............................................................63
    14.2     TERMINATION BY FEMPHARM.........................................63
    14.3     TERMINATION BY VIVUS............................................64
    14.4     NO RELEASE......................................................66

                                       iii


    14.5     CONSEQUENCES OF AGREEMENT TERMINATION...........................66
    14.6     VIVUS TERMINATION OF SPECIFIC PROVISIONS FOR UNCURED BREACH.....70
    14.7     LIMITATION OF TERMINATION FOR BREACH AFTER COMMERCIAL LAUNCH....72
    14.8     TERMINATION FOR FAILURE TO ACHIEVE MONASH AMENDMENT.............73
    14.9     REMEDIES........................................................74

15. GENERAL..................................................................74

    15.1     NOTICES.........................................................74
    15.2     INDEMNIFICATION.................................................75
    15.3     DAMAGES FOR BREACH OF REPRESENTATIONS AND WARRANTIES............77
    15.4     WAIVER..........................................................78
    15.5     SEVERANCE.......................................................78
    15.6     SUCCESSORS AND ASSIGNS..........................................78
    15.7     CONTINUING OBLIGATIONS..........................................78
    15.8     VARIATION.......................................................78
    15.9     APPLICABLE LAW..................................................78
    15.10    DISPUTE RESOLUTION..............................................79
    15.11    DISPUTE REGARDING LICENSE NECESSITY.............................80
    15.12    COUNTERPARTS....................................................81
    15.13    COSTS...........................................................81
    15.14    PAYMENT.........................................................81
    15.15    ENTIRE AGREEMENT................................................81
    15.16    INJUNCTIVE RELIEF...............................................81
    15.17    INDEPENDENT CONTRACTORS.........................................82
    15.18    FORCE MAJEURE...................................................82
    15.19    BANKRUPTCY......................................................82
    15.20    ACRUX DDS AS A PARTY............................................82
    15.21    SURVIVAL OF SUBLICENSES.........................................83

                                       iv


THIS DEVELOPMENT AND COMMERCIALIZATION AGREEMENT (the "Agreement") is dated and
effective as of February 7, 2004 (the "Effective Date").

PARTIES:

FEMPHARM PTY LTD (ABN 35 088 778 018) of 103-113 Stanley Street, West Melbourne,
Victoria, Australia ("FemPharm")

and

VIVUS INC. of 1172 Castro Street, Mountain View, California, United States of
America ("Vivus")

and

ACRUX DDS PTY LTD

RECITALS

A.       FemPharm, formerly known as Female HRT Pty Ltd., Australian Company
         Number 088 778 018, is a wholly owned subsidiary of Acrux Limited of
         103-113 Stanley Street, West Melbourne, Victoria, Australia ("Acrux
         Limited"). Acrux DDS Pty Limited ("Acrux DDS Pty Limited"), formerly
         known as Drug Delivery Solutions Pty Ltd., Australian company number
         088 778 009, is also a wholly owned subsidiary of Acrux Limited.

B.       Acrux DDS Pty Limited holds an exclusive global license from Monash
         University of Wellington Road, Clayton, Victoria, Australia ("Monash")
         in respect of certain patents and patent applications owned by Monash
         University covering the metered dose transdermal system described
         therein.

C.       FemPharm holds an exclusive sublicense from Acrux DDS Pty Limited in
         respect of the intellectual property described in the license referred
         to in recital B for the fields of female hormone replacement therapy
         and human female contraception.



D.       FemPharm and Vivus wish to enter into this agreement pursuant to which
         FemPharm will exclusively license metered dose transdermal systems to
         Vivus for the delivery of testosterone to human females on the terms
         set out in this Agreement.

AGREEMENT

1.       DEFINITIONS AND INTERPRETATION
- --------------------------------------------------------------------------------
1.1      DEFINITIONS

         In this Agreement, the following capitalized terms have the following
         meanings:

         "Acrux DDS License" shall mean the "Licence Agreement" between Female
         HRT Party Limited (now known as FemPharm) and Drug Delivery Solutions
         Party Limited (now known as Acrux DDS Pty Limited), dated November 30,
         1999, as amended by the Deed of Amendment between Female HRT Party
         Limited and and Drug Delivery Solutions Party Limited dated June 30,
         2000, and as such agreement may be subsequently amended by the parties
         thereto.

         "Acrux Penetration Enhancer" shall mean one of the following, whichever
         is used in the Product being developed or commercialized by or under
         authority of Vivus under this Agreement, as used in such Product (i)
         (**), (ii) a different dermal penetration enhancer which is disclosed
         in the FemPharm Patents, or (iii) the combination of (**) with another
         dermal penetration enhancer(s) disclosed in the FemPharm Patents.

         "Additional Partner" shall mean each third party who is granted by
         FemPharm or an Acrux Controlled Affiliate, directly or indirectly, a
         right to market or commercialize a Product in the Field in any part of
         the world, other than the Territory.

         "Affiliate" means, with respect to any Party, any corporation or other
         legal entity that controls, is controlled by or is in common control
         with such Party. For purposes of this definition, the term "controls"
         means (with correlative meanings for the terms "controlled by" and "in
         common control with"):

          (a)  ownership, directly or indirectly, of more than 50% of the voting
               securities of the applicable party; or

                                        2


          (b)  possession of actual power to direct unilaterally the business
               and affairs of the applicable party, whether through contract,
               ownership rights or otherwise.

         "Androgen" means (a) any of the naturally occurring androgens, or any
         derivative thereof, including the substances identified in annexure E,
         or (b) any SARM. Notwithstanding sub-paragraph (b) of this paragraph
         above, if Vivus or any Controlled Affiliate of Vivus, or a sublicensee
         of Vivus that has rights under the Licensed Intellectual Property to
         market, sell, offer to sell, and import the Products in the Field in
         the Territory, commences Clinical Trials, or marketing or sales, in the
         Territory of any product that orally delivers a SARM to treat female
         sexual dysfunction, then except for SARM's that have been added to the
         Field, no SARM shall be considered to be an Androgen for purposes of
         Section 2.5.

         "Business Day" means a day upon which banks are open for general
         banking business in the United States other than a Saturday or Sunday.

         "Clinical Trial" shall mean a clinical trial involving the
         administration of a therapeutic to a human subject after filing an IND,
         or the equivalent (if necessary) outside the United States, for the
         purpose of evaluating the safety, efficacy, performance or other
         characteristic of such therapeutic, including a phase I, phase II
         and/or phase III trial.

         "Committee" means the Development Committee and/or the Steering
         Committee.

         "Confidential Information" of a Party means all information disclosed
         by such Party to the other pursuant to this Agreement, which may
         include any of the following to the extent disclosed by such Party:

          (a)  Intellectual Property, technical information, specifications,
               data, software, marketing procedures, pricing information,
               customer and client records, business and corporate or trade
               information of a Party relating to or arising out of the Licensed
               Intellectual Property or its use or application;

          (b)  information relating directly or indirectly to the Product
               including, without limitation, the identity and composition of
               compounds for producing or manufacturing the Product, formulae
               for the Product, methods of producing or manufacturing the
               Product, costs of manufacturing the Product, information relating
               to the packaging, selling and marketing of the Product including
               the cost thereof and pricing information; and

                                        3


          (c)  communications between the Parties or information of whatever
               kind whether recorded or not and, if recorded, in whatever
               medium, relating to the Licensed Intellectual Property, the
               Product, this Agreement, or otherwise, whether disclosed prior to
               or after the Effective Date.

         "Commercial Launch Plan" means the plan for launching and initial
         marketing and promotion of the Product in the Territory as provided in
         Section 8.3.

         "Controlled" means, with respect to any Intellectual Property, that the
         applicable Party owns or has a license to such Intellectual Property,
         and has the authority to grant to the other Party access, a license, or
         a sublicense to such Intellectual Property as provided for in this
         Agreement without violating an agreement with a non-Affiliate third
         party in effect at the time such Intellectual Property was first
         acquired or created by the Party granting or authorizing the license or
         sublicense herein.

         "Controlled Affiliate" means (i) in the case of Vivus; an Affiliate
         that is controlled by Vivus; and (ii) in the case of FemPharm; Acrux
         Limited, Acrux DDS Pty Limited or an Affiliate that is controlled by
         FemPharm, controlled by Acrux DDS Pty Limited, or controlled by Acrux
         Limited (each of such Affiliates, Acrux DDS Pty Limited and Acrux
         Limited, an "Acrux Controlled Affiliate"); in each case as "control" is
         defined in the Affiliate definition in this Section 1.1 above.

         "Development Committee" means the committee referred to in Section 5.6.

         "Development Plan" means the plan appended to this Agreement as
         annexure A in accordance with Section 5.7, as such plan may be amended
         pursuant to Section 5.

         "Effective Date" means the date of this Agreement, as set forth on page
         one.

         "Estradiol Agreement" means the agreement titled "Estradiol Development
         and Commercialization Agreement" entered into by and between the
         Parties on even date herewith.

         "Excluded Applications" shall have the meaning set forth in annexure F.

                                        4


         "FemPharm Patents" means: (a) the Patents set out in annexure B, which
         shall include all existing Patents licensed under the Monash License or
         the Acrux DDS License, (b) all continuing patent applications in the
         Territory based on any Patent in clause (a) above (including any
         divisionals, continuations, and continuations-in-part); (c) all Patents
         that issue based on any Patent in clause (a) or (b) above, and
         including all re-issues, extensions, substitutions, confirmations,
         re-registrations, re-validations, patents of addition, and
         supplementary certificates (or equivalents thereof) of any such Patent;
         and (d) all additional Patents in the Territory that are Controlled by
         FemPharm, Acrux DDS Pty Limited, an Acrux Controlled Affiliate, or any
         other Affiliate of FemPharm at any time during the term of this
         Agreement and that claim or cover an MDTS product, or any portion
         thereof, or the manufacture or use of an MDTS product or portion
         thereof, in the Field. For purposes of this definition, Patents that
         meet, at some time during the term of the Agreement, the requirement of
         subclause (d) above shall not be excluded from this definition simply
         because a particular Acrux Controlled Affiliate (that Controlled such
         Patent) no longer is an Affiliate of Acrux Ltd., and including
         continuing patent applications in the Territory based on such Patents
         in clause (d) above (including any divisionals, continuations, and
         continuations-in-part).

         "Field" means delivery of testosterone (and/or any other Androgen that
         is added to the Field pursuant to Section 2.4 or included pursuant to
         Section 5.19) to human females using an MDTS, excluding only the
         Excluded Applications.

         "First Commercial Sale" means the first commercial sale or transfer of
         the Product for use in the Territory (other than for evaluation,
         research, testing or clinical trial purposes), that occurs after the
         Product has been approved for marketing in the Territory, by Vivus or
         Vivus' Affiliate or sublicensee to an independent non-Affiliate third
         party in exchange for cash or some equivalent to which value can be
         assigned.

         "FDA" means the United States Food & Drug Administration.

         "Intellectual Property" means all industrial and intellectual property
         rights, whether protectable by statute, at common law or in equity,
         including, without limitation, any rights of copyright, trade secrets,
         confidential information, know-how, trade mark,

                                        5


         invention, Patent, circuit layout and any rights to registration of
         such rights, irrespective of whether such rights are created before, on
         or after the Effective Date.

         "Improvement" means an Invention to the extent made by Vivus or its
         Affiliate in the course of developing or commercializing the Product
         under this Agreement, which Invention is an improvement of or
         modification to the Product itself, in the form provided by FemPharm,
         and is not substantially based upon or derived from other technology or
         Know-How of Vivus, its Affiliate, or their third party licensor or
         contractor.

         "Improvement Blocking Patent Rights" means any Patent to the extent
         that it: (i) claims and is specifically directed to an Improvement,
         (ii) is Controlled by Vivus or its Affiliate at any time during the
         term of this Agreement, and (iii) is reasonably necessary to make, use,
         sell, or offer to sell an MDTS product. As used in this paragraph,
         "reasonably necessary" means there is no commercially reasonable
         alternative to practicing the subject matter in the applicable claim in
         such Patent, in order for FemPharm, or its Controlled Affiliate or
         licensee, to make, use or sell the MDTS products.

         "Invention" means any information, idea, invention, know-how, data or
         results made pursuant to work conducted under this Agreement.

         "Joint Patent" means a Patent claiming an Invention invented jointly by
         the Parties, as provided in Section 11.3.

         "Know-How" shall mean all data, inventions (whether or not patentable),
         discoveries, methods, information (including Confidential Information),
         reports, analyses, documents, descriptions, procedures, formulae,
         formulations, expert opinions, knowledge, know-how, experience,
         marketing, and other information and materials (including physical
         samples), and the trade secret rights to the foregoing. As used herein,
         Know-How shall not include Patents.

         "Licensed Intellectual Property" means the (i) FemPharm Patents, and
         (ii) the Licensed Know-How.

                                        6


         "Licensed Know-How" means the Know-How that is Controlled by FemPharm
         or any Acrux Controlled Affiliate and relates to or is useful for MDTS
         products in the Field.

         "MDTS" means the Acrux metered dose transdermal spray system as
         described in Annexure C, and including all improvements, derivatives
         and modifications of such system developed by or under authority of
         FemPharm or its Affiliate. For clarity, it is understood that
         "improvements," as used under this paragraph, would include modified or
         improved versions of the Acrux metered dose transdermal spray system,
         and novel enhancers, formulations, methods, and mechanical components
         relating to or useful for the MDTS system, that are not used in the
         MDTS as of the Effective Date, but that would improve the safety,
         effectiveness, or other qualities of such a spray system for use in
         delivery of testosterone, or any other Androgen added to the Field
         pursuant to Section 2.4 or 5.19.

         "Monash License" means the "Technology Agreement" between Monash and
         Acrux Limited, dated June 7, 1999, and transferred by Acrux Limited to
         Acrux DDS Pty Limited in the "Deed of Assignment" dated November 22,
         1999, as amended by the Deed of Variation between Monash and Acrux
         Limited dated November 22, 1999 and the Deed of Variation between
         Monash and Acrux DDS Pty Limited., executed October, 2002.

         "Net Sales" means any amounts invoiced by Vivus, or an Affiliate or
         sublicensee of Vivus, for the sale or other commercial disposition of
         the Product, less the following amounts to the extent actually accrued,
         taken or allowed with respect to such sale or disposition:

          (d)  trade, cash or quantity discounts or rebates from the invoiced
               price;

          (e)  refunds, credits, charge backs or allowances actually granted
               upon recalls, rejections, returns, or the like;

          (f)  freight charges, insurance and packing charges paid for delivery;
               and

          (g)  amounts actually written off for uncollectable accounts
               determined in accordance with GAAP, PROVIDED THAT if any such
               amounts are subsequently

                                        7


               collected, such amounts would be included in Net Sales for the
               quarter collected;

          (h)  taxes (other than income tax, but including value added and sales
               taxes), duties, or other governmental charges levied on or
               measured by the disposition or the invoiced amount, whether
               absorbed by the billing or the billed party.

         Notwithstanding the foregoing, if Vivus sells Product for use outside
         the Field or outside the Territory pursuant to an authorization by
         FemPharm or an Acrux Controlled Affiliate (such as sales to FemPharm
         for use in Australia or New Zealand) Net Sales shall not include any
         amounts invoiced on such sales, whether the sale is to FemPharm, an
         Acrux Controlled Affiliate, or any other Person (e.g. another licensee
         of FemPharm).

         "Patents" means all rights under all patents (including all re-issues,
         extensions, substitutions, confirmations, re-registrations,
         re-validations, patents of addition, supplementary certificates, other
         governmental grants for the protection of inventions or industrial
         designs, or equivalents thereof) and under all patent applications
         (including any divisionals, continuations, continuations-in-part,
         continued prosecution applications, and divisionals).

         "Party" means either of FemPharm or Vivus, and "Parties" means both of
         them.

         "Person" includes a natural person, company, corporation, partnership,
         trust, estate, joint venture, sole proprietorship, government
         (including any branch or subdivision thereof), governmental or
         municipal agency, association, co-operative and any other entity or
         person whatsoever.

         "Phase IIb Study" means the current clinical trial FHRT 11 using a
         Product conducted in Australia under a US IND application number (**).

         "Product" means any MDTS product containing testosterone, or any other
         Androgen included in the Field pursuant to Section 2.4 or as a result
         of Section 5.19, and intended for use in the Field.

                                        8


         "Regulatory Materials" means regulatory applications, submissions,
         notifications, registrations, regulatory approvals and/or other filings
         made and correspondence to or with the FDA or other regulatory
         authority that are necessary or reasonably desirable in order to, or in
         connection with efforts to, develop, manufacture, market, sell or
         otherwise commercialize a Product in a particular country, territory or
         possession. Regulatory Materials include INDs, MAAs, and NDAs.

         "Restricted Androgen" means any of:  (**)

         "Royalty Period" means a period of three consecutive months ending on
         31 March, 30 June, 30 September or 31 December, provided that the first
         Royalty Period will be the period from the date of First Commercial
         Sale until the first to occur of 31 March, 30 June, 30 September or 31
         December thereafter.

         "SARM" means a generic compound (i.e., the composition of the compound
         is not covered by a patent in the Territory) that is a selective
         androgen receptor modulator.

         "Steering Committee" means the committee referred to in Section 5.9.

         "Territory" means the United States of America, and its territories and
         protectorates.

         "Valid Claim" means: a claim in an issued Patent within the FemPharm
         Patents, which has not (i) expired or been cancelled, (ii) been
         declared invalid by an unreversed and unappealable decision of a court
         or other appropriate body of competent jurisdiction, (iii) been
         admitted to be invalid or unenforceable through reissue, disclaimer or
         otherwise, and/or (iv) been abandoned.

1.2      INTERPRETATION

         In this Agreement:

          (a)  words denoting the singular number include the plural and vice
               versa;

          (b)  words denoting any gender include all genders;

                                        9


          (c)  words importing natural persons include corporations, firms,
               unincorporated associations, partnerships, trusts and any other
               entities or groups recognised by law;

          (d)  reference to any legislation or to any provision of any
               legislation includes any amendment, modification, consolidation
               or re-enactment of, or any legislative provision substituted for,
               and all legislative and statutory instruments issued under, such
               legislation or such provision;

          (e)  the words "written" and "in writing" include any means of visible
               reproduction of words in a tangible and permanently visible form;

          (f)  reference to Articles, Sections, clauses and schedules and
               annexures are references to the Articles, Sections, clauses and
               schedules and annexures of this Agreement, unless expressly
               stated to the contrary;

          (g)  reference to any party to this Agreement or any other agreement
               or document includes the party's successors and permitted
               assigns;

          (h)  where a word or phrase is defined, other grammatical forms of
               that word or phrase have corresponding meanings;

          (i)  no rule of construction applies to the disadvantage of a party
               because that party was responsible for the preparation of this
               Agreement or any part of it;

          (j)  the headings to Articles, Sections, annexures or schedules are
               for ease of reference only and do not form part of this Agreement
               or affect its interpretation;

          (k)  if any day appointed or specified by this Agreement for the
               payment of any money or the doing of any act falls on a day which
               is not a Business Day, the day appointed or specified will be the
               next Business Day;

          (l)  a reference to a time or date in connection with the performance
               of an obligation by a party is a reference to the time and date
               in San Francisco, California, USA even if the obligation is to be
               performed elsewhere;

                                       10


          (m)  the terms "including" and "includes" will be interpreted
               non-restrictively to mean "including without limitation ...".

2.       LICENSE RIGHTS
- --------------------------------------------------------------------------------
2.1      LICENSE GRANT

          (a)  Subject to the terms of this Agreement, FemPharm and Acrux DDS
               Pty Limited grant to Vivus the sole and exclusive (including with
               respect to FemPharm, except as otherwise provided in subsection
               (c) below) license, under the Licensed Intellectual Property,
               solely to exploit, import, export, make, have made, develop, use,
               market, offer for sale and sell Products for use in the Field in
               the Territory.

          (b)  Subject to the terms of this Agreement, FemPharm and Acrux DDS
               Pty Limited grant to Vivus a non-exclusive license under the
               Intellectual Property that relates to or is useful for a Product,
               or its manufacture or use, and is Controlled by any of FemPharm,
               an Acrux Controlled Affiliate, or another Affiliate of FemPharm,
               to export, make, and have made Products outside the Territory
               solely for importation, sale, use and other exploitation in the
               Field in the Territory pursuant to Section 2.1(a). In addition,
               to the extent permitted by FemPharm on request by Vivus, such
               permission not to be unreasonably withheld, Vivus may include in
               the foregoing license the right to conduct specific development
               activities in particular countries outside the Territory, solely
               to develop data to be used in the Regulatory Materials in the
               Territory for the Product in the Field, and marketing of the
               Product in the Field in the Territory.

          (c)  For clarity, FemPharm and Acrux DDS Pty Limited retains the
               non-exclusive rights under the Licensed Intellectual Property in
               the Territory, for it and/or the Acrux Controlled Affiliates or
               any of their respective licensees to export, make, and have made
               Products in the Territory solely for importation, sale, use and
               other exploitation in the Field in a country or jurisdiction
               outside the Territory. In addition, only to the extent permitted
               by Vivus on request by FemPharm, such permission not to be
               unreasonably withheld, FemPharm may

                                       11


               conduct specific development activities in the Territory, solely
               to develop data to be used in the Regulatory Materials outside
               the Territory for the Product in the Field, and marketing of the
               Product in the Field outside the Territory.

          (d)  For clarity, the license rights granted to Vivus in Section
               2.1(a) and (b) do not grant to Vivus the rights under the
               Licensed Intellectual Property, to export, make, have made, and
               develop Products for importation, sale, use and other
               exploitation in the Field in any country or jurisdiction outside
               the Territory, or for any use outside the Field anywhere in the
               world.

2.2      RESERVATION OF RIGHTS

         Each Party hereby reserves all rights with respect to its Intellectual
         Property and technology not expressly granted herein. Vivus shall have
         no right or license under the FemPharm Patents or Licensed Know-How
         other than the rights expressly set forth in this Agreement.
         Notwithstanding anything to the contrary, it is acknowledged and agreed
         that the limitation of FemPharm's rights under the Acrux DDS License,
         such as the limitation of the field of FemPharm's rights to female
         hormone replacement therapy or otherwise, shall not limit the rights
         granted to Vivus under this Agreement.

2.3      VIVUS GRANT-BACK LICENSE AND OPTION TO LICENSE

          (a)  Subject to the terms of this Agreement, Vivus grants to FemPharm
               a non-exclusive, royalty-free, worldwide license (with full
               rights to grant sublicenses) under any Improvement Blocking
               Patent Rights solely to develop, exploit, import, make, have
               made, use, offer for sale and sell MDTS products, excluding only
               MDTS products intended for use, sale, offer for sale, import, or
               marketing in the Field in the Territory.

          (b)  Vivus grants to FemPharm the option, exercisable in writing by
               FemPharm at any time after Vivus makes an Improvement, to obtain
               in accordance with this Section 2.3(b) below a non-exclusive,
               worldwide license (with such rights to sublicense as are mutually
               agreed), on commercially reasonable terms, under trade secrets
               Controlled by Vivus or its Affiliate during the term of this
               Agreement to the extent embodied in such Improvement and under
               Patents Controlled by Vivus or its Affiliate during the term of

                                       12


               this Agreement that claim and are specifically directed to such
               Improvement, (but excluding all Improvement Blocking Patent
               Rights), solely to develop, exploit, import, make, have made,
               use, offer for sale and sell MDTS products, excluding only MDTS
               products intended for use, sale, offer for sale, import, or
               marketing in the Field in the Territory. If FemPharm exercises
               such option as to a particular Improvement, then the Parties
               shall negotiate in good faith in an effort to agree upon the
               financial and other terms for, and scope of, such a license,
               within a reasonable time thereafter and will enter into such a
               license upon reaching agreement, which terms shall be
               commercially reasonable and shall include the mutually agreed
               license grant for such Improvement (under the Patents and trade
               secrets identified above) and other reasonable terms appropriate
               for such a license grant. Such license shall be royalty free for
               Products used in the Field in Australia or New Zealand.

2.4      EXPANSION OF FIELD

         The Development Committee shall discuss and consider from time to time
         the possibility of including in the Field one or more additional
         Androgens, alone or in combination with other active ingredients, and
         if it determines that such an expansion to the Field is appropriate, it
         shall make such recommendation to both Parties. If the Parties agree
         with such recommendation, and solely to the extent such expansion is
         approved in writing by the Parties, such additional Androgen(s) shall
         be added to the Field by written amendment of the Agreement on mutually
         acceptable terms, including financial terms.

2.5      EXCLUSIVITY COVENANTS

          (a)  Except as otherwise agreed by the Parties in writing, until (*)
               years after First Commercial Sale by or under authority of Vivus
               of a Product for use in the Field and Territory, Vivus and its
               Controlled Affiliates shall not, directly or indirectly, market,
               promote, sell, or import any Competitive Products (as defined
               below) for use in the Territory. As used herein, "Competitive
               Product" means any product (which is not a Product of Vivus, its
               Affiliate, or

                                       13


               sublicensee under this Agreement) that is approved for marketing
               for any human indication and is marketed, promoted, or sold (i)
               for the transdermal or mucosal delivery of testosterone or any
               other Restricted Androgen to human females, or (ii) for the
               transdermal or mucosal delivery of any other Androgen to human
               females for treatment of female sexual dysfunction; except
               excluding from the foregoing only products of any of Vivus, its
               Affiliates, and sublicensees involving application of an Androgen
               to the genitalia of a human female on an on demand basis as
               claimed or described in (*). For clarity, no license is granted
               under this Section 2.5(a) to Vivus by FemPharm or any Acrux
               Controlled Affiliate under the Licensed Intellectual Property
               with respect to any Vivus product involving such application of
               an Androgen to the genitalia of a human female. Vivus and its
               Controlled Affiliates shall not provide funding prior to such
               time to third parties for the specific purpose of, or grant a
               license or other authorization to any third party to, market,
               sell, promote, or import any Competitive Product for use in the
               Territory. Vivus shall include, and cause its Controlled
               Affiliates to include, in any grant or authorization by Vivus or
               the Controlled Affiliate in accordance with this Agreement of an
               exclusive sublicense (including with respect to Vivus) to a third
               party under the Licensed Intellectual Property to market, sell,
               promote, and import the Products in the Territory, an express
               covenant by such third party not to market, promote, sell or
               import, directly or indirectly, any Competitive Product for use
               in the Territory. If a particular Vivus Controlled Affiliate is
               no longer controlled by Vivus, then the above shall apply to such
               entity only if such entity continues to have rights under the
               Licensed Technology that it could exercise to make, use or sell a
               Product or a Competitive Product.

          (b)  Except as otherwise agreed by the Parties in writing, until (*)
               after First Commercial Sale by or under authority of Vivus of a
               Product for use in the Field and Territory, FemPharm and Acrux
               DDS Pty Limited agree that FemPharm and the Acrux Controlled
               Affiliates shall not, directly or indirectly, market, promote,
               sell, or import in the Territory any Competitive Product. For

                                       14


               clarity, FemPharm and the Acrux Controlled Affiliates shall not
               provide funding prior to such time to third parties for the
               specific purpose of, or grant a license or other authorization to
               any third party to, market, sell, promote, or import for use in
               the Territory any Competitive Product. FemPharm and Acrux DDS Pty
               Limited shall include, and cause the Acrux Controlled Affiliates
               to include, in each grant or authorization of any of their
               Intellectual Property rights to a third party, if the license or
               authorization could be exercised in a manner that involves the
               delivery of testosterone (or any other Androgen) to females, an
               express covenant by such third party not to market, promote, sell
               or import, directly or indirectly, any Competitive Product for
               use in the Territory. If a particular Acrux Controlled Affiliate
               is no longer controlled by Acrux Limited, then the above shall
               apply to such entity only if such entity continues to have rights
               under the Licensed Technology that it could exercise to make, use
               or sell a Competitive Product

          (c)  Nothing in this Section 2.5 shall limit the exclusivity of the
               license rights granted to Vivus in Section 2.1, it being agreed
               that the exclusivity under Section 2.1 shall not be limited to
               the periods described in this Section 2.5 above.

          (d)  If FemPharm is acquired by, and thus becomes an Affiliate of, a
               third party other than an Acrux Controlled Affiliate, such third
               party Affiliate shall be deemed a third party for purposes of the
               licensing restrictions applied to FemPharm under Section 2.5(b).
               Similarly, if Vivus is acquired by, and thus becomes an Affiliate
               of, a third party other than a Vivus Controlled Affiliate, such
               third party Affiliate shall be deemed a third party for purposes
               of the licensing restrictions applied to Vivus under Section
               2.5(a).

2.6      UNAUTHORIZED SALES

          (a)  FemPharm and the Acrux Controlled Affiliates shall not directly
               or indirectly market, sell, or distribute any MDTS products
               intended for use in the Field anywhere in the world to a
               particular third party, including its Affiliates, if FemPharm or
               an Acrux Controlled Affiliate knows, or has been provided
               reasonable evidence, that such MDTS products provided directly or
               indirectly

                                       15


               by FemPharm or an Acrux Controlled Affiliate to such third party
               are being marketed, distributed or sold in the Territory. If
               FemPharm or an Acrux Controlled Affiliate grants rights to a
               third party, directly or indirectly, that could be exercised in a
               manner that involves the delivery of testosterone (or any other
               Androgen) to human females, then FemPharm shall make, or cause
               the Acrux Controlled Affiliate to make, the terms and conditions
               in this Section 2.6(a) applicable to the third party in the same
               manner as applicable to FemPharm.

          (b)  Vivus and its Controlled Affiliates shall not directly or
               indirectly market, sell, or distribute any Product in the
               Territory to a particular third party, including its Affiliates,
               if Vivus knows, or has been provided reasonable evidence, that
               such Product provided directly or indirectly by Vivus or its
               Controlled Affiliates to such third party are being marketed,
               distributed or sold for use outside the Territory, provided that
               the sale of such Product in the Territory infringes a Valid Claim
               in the FemPharm Patents or embodies information that is at the
               then current time a trade secret of FemPharm, other than as
               permitted by Section 10.11. If Vivus or its Controlled Affiliate
               grants a sublicense to a third party under the Licensed
               Intellectual Property in accordance with this Agreement to
               market, sell, promote, and import the Products in the Territory,
               then Vivus shall make, or cause its Controlled Affiliate to make,
               the terms and conditions in this Section 2.6(b) applicable to the
               third party in the same manner as applicable to Vivus.

2.7      RIGHT OF NEGOTIATION

         If FemPharm or an Acrux Controlled Affiliate desires to enter into a
         license or other collaboration that involves the research, development,
         or commercialization in the Territory of a product for delivery of an
         Androgen, other than testosterone, to females for treatment of female
         sexual dysfunction, FemPharm shall propose to Vivus the terms and
         conditions for such a license or collaboration with Vivus prior to
         entering into the license or collaboration with any third party. If
         Vivus fails to notify FemPharm in writing, within one hundred twenty
         (120) days after receiving such proposed terms and conditions from
         FemPharm, that Vivus desires to negotiate

                                       16


         the terms and conditions for the license or collaboration, or if the
         Parties do not agree in principle on the terms for such an arrangement
         notwithstanding good faith, diligent negotiations throughout the
         remainder of such one hundred twenty (120) day period after Vivus'
         request, then FemPharm or the Acrux Controlled Affiliate shall have the
         right to enter into the license or collaboration with a third party. In
         addition, FemPharm shall notify Vivus in writing upon any of FemPharm
         or the Acrux Controlled Affiliates commencing, whether directly or
         indirectly, any clinical development or commercialization of any
         product involving the transdermal or mucosal deliver to human females
         of an Androgen or other selective androgen receptor modulator for the
         treatment of sexual dysfunction in human females, including through
         licensees and work funded by FemPharm, but subject to any
         confidentiality obligations that would prevent such disclosure.

3.       LICENSE AND MILESTONE PAYMENTS
- --------------------------------------------------------------------------------
3.1      LICENSE FEE

         Vivus will pay to FemPharm a license fee of:

          (a)  US$ 1,750,000 (One Million Seven Hundred and Fifty Thousand
               United States Dollars) within five (5) Business Days of the
               Effective Date;

          (b)  US$ 250,000 (Two Hundred and Fifty Thousand United States
               Dollars) by September 1, 2004.

3.2      MILESTONE PAYMENTS

         Upon achieving the specified milestone, Vivus will pay to FemPharm the
         following milestone payments (subject to Section 3.3 and 6.2):

          (a)  US$ (*) (*) United States Dollars) within thirty (30) days after
               the Phase IIb Study is completed, provided that the Phase IIb is
               completed prior to (*) (where completed means the last patient
               has completed the "Exit Visit," as defined in the protocol, and
               at least * (*) eligible patients per study protocol in each
               treatment group have been enrolled in the study, and provided
               that FemPharm does not terminate the study early);

                                       17


          (b)  US$ (*) (**United States Dollars) within thirty (30) days of data
               analysis of the completed Phase IIb Study which demonstrates a
               statistically significant improvement over placebo sufficient to
               meet the primary efficacy endpoint (*) for at least (*) as set
               out in the current protocol in the Phase IIb Study;

          (c)  US$(*) (**United States Dollars) within thirty (30) days of
               Vivus' data analysis of the completed Phase IIb Study showing a
               skin irritation rate being achieved in each treatment group in
               the Phase IIb Study at the application site, regardless of
               severity, of (*)% or less of the total number of patients in the
               particular treatment group;

          (d)  US$ * (**United States Dollars) within thirty (30) days of a
               Product Patent (as defined below) issuing in the United States of
               America, where a "Product Patent" means any Patent that is
               entitled to the effective filing date of US Patent Application
               Number (*) and that includes (i) one or more apparatus claims
               that claim the spray apparatus used in the Product being
               developed (or sold) by Vivus (or its Affiliate or sublicensee) at
               the time of issuance, and (ii) one or more composition of matter
               claims that claim the formulation of the Acrux Penetration
               Enhancer together with one or more hormones, which include at
               least the active ingredient in the Product being developed (or
               sold) by Vivus (or its Affiliate or sublicensee) at the time of
               issuance. It is understood that no claims of a Patent issued as
               of the Effective Date satisfy this milestone;

          (e)  US$ (*) (** United States Dollars) within thirty (30) days of
               Vivus (or its Affiliate or sub-licensee) commencing in the United
               States the first Phase III study in respect of the Product (such
               commencement being defined as the date when the first patient has
               been dosed in accordance with the Phase III protocol); and

          (f)  US$ (*) ( ** United States Dollars) within thirty (30) days of
               submission by or under authority of Vivus or its Affiliate or
               sublicensee in the United States of the first new drug
               application to the FDA (as new drug application is defined in 21
               C.F.R. ss. 314.50 et. Seq, as updated or amended from time to
               time), or

                                       18


               such other equivalent regulatory application in the United States
               for approval of marketing of the Product, (the "NDA") in respect
               of the Product; and

          (g)  US$ (*) (* United States Dollars) within thirty (30) days of the
               first FDA marketing approval in the United States in respect of
               the Product (the marketing approval being defined as approval by
               the FDA of Vivus' or its Affiliate's or sublicensee's NDA for the
               Product, permitting the Product to be marketed in the United
               States).

3.3      ONE PAYMENT; LIMITATION

         It is understood that once a particular milestone payment under Section
         3.2 has been paid (including as a result of the operation of Section
         6.2 below), then no payment for such milestone shall be due again with
         respect to the same Product or any other Product except to the extent
         otherwise agreed by the Parties in writing in connection with the
         addition of an Androgen to the Field pursuant to Section 2.4.

4.       ROYALTIES
- --------------------------------------------------------------------------------
4.1      ROYALTY PAYMENTS

         Except as otherwise provided in this Article 4, Vivus will pay to
         FemPharm royalties as a percentage of Net Sales, where the royalty rate
         is determined based on the Net Sales during the applicable calendar
         year in the Territory, according to the following schedule:

          (a)  the royalty rate is (*)per cent (*%) on the first US$ (*)( **
               U.S. Dollars) of Net Sales in the calendar year;

          (b)  the royalty rate is (*)per cent (*%) of the Net Sales in excess
               of the first US$ (*) (** U.S. Dollars) of Net Sales in the
               calendar year, up to Net Sales in the calendar year of US$ (*) (
               ** U.S. Dollars);

          (c)  the royalty rate is (*) per cent (*%) of the Net Sales in excess
               of US$ (*)(**U.S. Dollars) in the calendar year.

                                       19


4.2      ROYALTY REDUCTION

         The royalty rate applicable under Section 4.1 to Net Sales from the
         sale of a Product will be reduced by (*) per cent (* %) upon the
         expiration, cancellation, invalidation, abandonment, termination,
         disclaimer, or unenforceability of the last Valid Claim in the FemPharm
         Patents that would, absent a license, be infringed by the sale or use
         of such Product in the Territory in the Field. Further, with respect to
         a particular Product, if there otherwise is no Valid Claim in the
         FemPharm Patents that would, absent a license, be infringed by the sale
         or use of such Product in the Territory in the Field, then the royalty
         rate applicable under Section 4.1 to the Net Sales from the sale of
         such Product shall be (*) percent (* %) of the royalties set forth in
         Section 4.1, unless and until such a Valid Claim issues, after which
         point the rate shall be as set forth in Section 4.1 until the preceding
         sentence applies.

4.3      THIRD PARTY ROYALTIES

         If Vivus or its Affiliate or sublicensee pays royalties to a third
         party under a patent license that is necessary in order to make, use,
         import, or sell a Product in the Territory, which royalties are based
         on net sales of such product, then Vivus shall have the right to credit
         (*) percent ( * %) of such payments against the amounts payable by
         Vivus under this Section 3 and Section 4, provided that the royalty
         payable to FemPharm under this Section 4 shall not be so reduced by
         more than (*) percent (* %). As used in this Section, a license is
         "necessary" if it is reasonable to obtain the license in light of the
         risk of infringement. If FemPharm disagrees with Vivus' assertion,
         under this Section, that a particular license is so necessary, then the
         Parties will proceed under Section 15.11 to resolve the issue.
         Notwithstanding the foregoing, if Vivus or its sublicensee adds to the
         Product a component or feature comprising such technology, and Vivus or
         its sublicensee must pay royalties for third party patent rights
         covering such component or feature, such royalties shall not be offset
         under this Section 4.3 against royalties owed to FemPharm, unless the
         component or feature is, at the time added, necessary to make the
         Product approvable or commercially viable. As to any license that Vivus
         may believe is desirable to enter into with respect to a Product, other
         than those for which royalties may be offset in accordance with the
         foregoing, if Vivus so requests the Parties will discuss such license
         and the possibility of FemPharm sharing some part of the costs of such
         license.

                                       20


4.4      ONE ROYALTY; SAMPLES AND DONATIONS

         One royalty shall be payable for each Product sold under this
         Agreement. No royalties shall be due upon the sale or other transfer of
         Product among Vivus, its Affiliates and sublicensees, but in such cases
         the royalty shall be due and calculated upon Vivus', its Affiliate's or
         sublicensee's Net Sales to the first independent third party, or
         commercial use of such Product by Vivus, the Affiliate, or the
         sublicensee for profit to treat patients in the ordinary course of its
         business (in which case "Net Sales" for such use shall be deemed to be
         the average Net Sales for such Product when sold to third parties in
         the same royalty period in the Territory). No royalties shall accrue on
         the disposition of Product by Vivus or its Affiliates or sublicensees
         in reasonable quantities which are (i) used in clinical trials, (ii)
         distributed as samples (promotion or otherwise), or (iii) distributed
         as donations solely for charitable purpose (I.E., without charge).

4.5      ACCRUAL AND PAYMENT OF ROYALTIES; ROYALTY TERM

         The royalties owed under this Section 4 accrue on the sale or transfer
         of the Product, and all royalties that accrue in respect of the Net
         Sales in a particular Royalty Period:

          (a)  if the Territory includes any country outside the United States
               of America, will be calculated, on a country by country basis,
               after conversion (based on exchange rate as set forth in Section
               4.10 below) into U.S. dollars; and

          (b)  will be paid in U.S. dollars no later than the date that the
               royalty report for that Royalty Period is to be provided pursuant
               to Section 4.7.

         Royalties shall accrue on sales of Products commencing on the date of
         First Commercial Sale of the first Product hereunder and continuing
         only until the latest to occur of the following: (i) expiration,
         cancellation, invalidation, abandonment, termination, disclaimer, or
         unenforceability of the last Valid Claim in the FemPharm Patents that
         covers the sale of the Product, or its use, in the Territory; or (ii)
         twelve (12) years from the date of such First Commercial Sale, or (iii)
         on a Product by

                                       21


         Product basis, the date there no longer is any substantial trade secret
         of FemPharm or its Affiliate embodied in the applicable Product which
         is a trade secret of FemPharm or its Affiliate at the time of the sale.

4.6      LATE PAYMENT OF ROYALTIES

         If Vivus fails to pay royalties within the time specified in Section
         4.5, Vivus will pay to FemPharm interest on the amount of royalties
         which were not timely paid from the date upon which they became owing
         until the date of payment at (*)percent (* %) above the Prime Rate as
         quoted in the Wall Street Journal, calculated on a daily basis and
         payable on demand.

4.7      ROYALTY REPORT

         Vivus will submit to FemPharm no later than forty five (45) days after
         the end of each Royalty Period during the term of this Agreement a
         report stating:

          (a)  the total amount of invoiced sales of the Product, (on a country
               by country basis if the Territory includes any country outside
               the United States of America);

          (b)  the calculation of Net Sales (in each country if the Territory
               includes any country outside the United States of America), based
               on such sales, including a description of the deductions used to
               calculate such Net Sales; and

          (c)  if the Territory includes any country outside the United States
               of America, the calculation of royalties owed based on such Net
               Sales, on a country by country basis during that Royalty Period,
               after conversion of such Net Sales into U.S. Dollars as per
               Section 4.11.

4.8      VERIFICATION OF ROYALTY STATEMENT

         FemPharm may at its cost have any report referred to in Section 4.7
         verified as set forth below by a reputable firm of chartered
         accountants or certified public accountants nominated by FemPharm, and
         reasonably acceptable to Vivus, provided FemPharm completes such
         verification within thirty-six (36) months of the end of the Royalty
         Period to which the verification is to relate. Upon not less than ten
         (10)

                                       22


         Business Days' prior written notice given by FemPharm to Vivus, Vivus
         will provide the accountants with access during Vivus' (or its
         Affiliates' or, to the extent Vivus has the right to do so,
         sublicensee's, as applicable) normal business hours to the revenue and
         sales records of Vivus, its Affiliates and (to the extent Vivus has the
         right to do so) sublicensees sufficient for the purposes of verifying
         the reports referred to in Section 4.7 and for the purpose of verifying
         the amount of royalties paid to FemPharm. To the extent that Vivus does
         not have the right to grant to FemPharm the right to audit the books
         and records of its sublicensees, Vivus will use reasonable, diligent
         efforts to obtain for itself such rights and, at the request of
         FemPharm, agree to exercise its audit rights with respect to such
         sublicensees and provide the results of such audit to FemPharm pursuant
         to this Section 4.8. Vivus, the Affiliate or sublicensee, as the case
         may be, may request that, at its expense, a representative or agent
         familiar with its record keeping systems be present at the audit to
         assist in the audit. Such audits will be at the expense of FemPharm,
         except that if such audit establishes that the amount owed by Vivus for
         the audited period exceeds the amount actually paid by more than (*)
         percent (* %), then Vivus will pay FemPharm's actual out of pocket
         costs of such audit.

4.9      NON-DISCLOSURE BY ACCOUNTANT

         The accountants appointed under Section 4.8 are not authorised to, and
         will not, disclose to FemPharm any information other than the accuracy
         or inaccuracy of the amounts to be verified and will be required to
         execute a reasonable confidentiality agreement with Vivus and/or the
         sublicensee or Affiliate, as applicable.

4.10     STATEMENT ERRORS

         Should it be established from any report and verification referred to
         in Sections 4.7 and 4.8 that the royalties which should have been paid
         in respect of any Royalty Period to which the report and verification
         relates are more or less than the royalties actually paid then the
         difference will be remitted within ten (10) Business Days:

          (a)  to FemPharm (in the case of the royalty paid being less than that
               which should have been paid);

                                       23


          (b)  to Vivus (in the case of the royalty paid being more than that
               which should have been paid).

4.11     CURRENCY CONVERSION

         If the Territory includes any country outside the United States of
         America, all Net Sales resulting from sales of the Product in countries
         other than the United States of America will be converted into United
         States dollars for purposes of calculating royalties owed under this
         Article 4, by using the arithmetic average of the currency exchange
         rates quoted on each of the last ten (10) Business Days during the
         applicable Royalty Period in the Wall Street Journal (East Coast
         Edition). All payments by Vivus hereunder shall be made in US dollars.

4.12     WITHHOLDING TAXES

         If any taxes, withholding or otherwise, are levied by any taxing
         authority in connection with the accrual or payment of royalties or
         other amounts payable under this Agreement and are obliged to be paid
         or deducted by Vivus then:

          (a)  Vivus will pay such taxes to such taxing authority on behalf of
               FemPharm; and

          (b)  Vivus will remit to FemPharm in full satisfaction of its royalty
               obligations under this Agreement the net amount after reduction
               by the amount of such taxes; and

          (c)  Vivus will deliver to FemPharm promptly following payment written
               evidence of such payment and such other related documentation
               that FemPharm may reasonably require.

5.       CLINICAL DEVELOPMENT
- --------------------------------------------------------------------------------
5.1      OVERVIEW OF DEVELOPMENT

         The Parties intend to work cooperatively to pursue development of the
         Product in order to obtain regulatory approval for the use of the
         Product in the Field in the

                                       24


         Territory, using commercially reasonable, diligent efforts in
         accordance with and subject to the terms of this Agreement.

5.2      TRANSFER OF TECHNICAL INFORMATION

         Within sixty (60) days after the Effective Date, FemPharm shall
         transfer to Vivus without charge copies of all existing Licensed
         Know-How, including (to the extent existing) (i) copies of all
         Regulatory Materials and other Know-How developed or acquired in
         connection with the Phase IIb Study, any preceding phase I or II study
         on the Product, or any other clinical or pre-clinical development in
         connection with, or directly applicable to, a Product in the Field,
         whether developed or acquired by FemPharm, any Acrux Controlled
         Affiliate, or others working under authority of such entities; and (ii)
         copies of all material Know-How relating to or used in connection with,
         or relevant to, the manufacturing of Products by FemPharm, any Acrux
         Controlled Affiliate, or others, including, such Know-How as generated
         or used during process development, stability studies, formulation
         development, scale up of manufacturing, production of preclinical and
         clinical product batches, validation studies, development of quality
         assurance/quality control testing, process controls for Products in the
         Field, and related regulatory affairs (all to the extent relating to
         Products in the Field); and all Know-How contained in the DMF or in the
         CMC section of any IND or NDA (or their counterparts in other
         countries) with respect to Products in the Field. Thereafter during the
         term of this Agreement, upon request of Vivus, FemPharm shall transfer
         to Vivus without charge copies of all such previously undisclosed
         Licensed Know-How, if any, including that developed or acquired after
         the Effective Date, and shall use all reasonable efforts to enable and
         assist Vivus in understanding and implementing the Licensed Know-How.
         FemPharm and the Acrux Controlled Affiliates shall use good faith,
         diligent efforts to obtain from each of their other licensees the right
         to disclose to Vivus, its Affiliates and their sublicensees, Know-How
         and Regulatory Materials that are relevant to, or useful for, Products.
         In addition, if requested by Vivus and at Vivus' expense for actual
         reasonable internal time of FemPharm or its Affiliate's time (billed at
         (*)% the applicable employee's salary and benefits), FemPharm shall
         generate and provide to Vivus reasonably promptly a report describing
         in reasonable detail (according to an agreed format) all research and
         development conducted or completed by or under authority of any of
         FemPharm and the Acrux Controlled Affiliates, and the results thereof,
         with respect to MDTS products involving the delivery of testosterone.

                                       25


5.3      CONDUCT OF PHASE IIB STUDY

         As from the Effective Date until the time of transfer of the Phase IIb
         Study to Vivus pursuant to Section 5.4, FemPharm will, at its expense
         (except as otherwise provided below), conduct the development of the
         Product in such trial, in cooperation with and as reasonably directed
         by Vivus. FemPharm shall consult with Vivus and keep Vivus fully
         apprised of the status of, and plans and schedule for, all activities
         related to the Phase IIb Study, including providing reasonable advance
         notice, before proceeding with any filings, meetings, or telephone or
         other discussions with the FDA or similar regulatory authority,
         scheduled or unscheduled, that pertain to the Phase IIb Study, and
         shall give Vivus control of such matters. Vivus will provide FemPharm
         reasonable assistance and cooperation in conducting such trial, through
         the time of transfer to Vivus, and such development work will be
         managed and supervised by the Development Committee. If Vivus decides
         to modify the Phase IIb Study, then Vivus will be responsible to pay
         FemPharm, quarterly in advance, any extra costs that Vivus requires
         FemPharm incur as a result of such modifications, including fully
         burdened full time equivalent (FTE) labour costs of scientific,
         clinical and management personnel at FemPharm and the Acrux Controlled
         Affiliates that Vivus requires be added due to such modification, but
         only for that portion of the FTE that is additional and required by
         Vivus to be dedicated to performance of the Phase IIb Study. For
         purposes of this Agreement, FemPharm's fully burdened FTE rates shall
         be (*)% of the employee's salary and benefits (or in the case of a
         contractor, (*)% of the cash compensation paid to the contractor),
         calculated in accordance with reasonable accounting principles,
         consistently applied and in accordance with a budget approved by the
         Development Committee. Except to the extent otherwise expressly set
         forth in this Agreement, however, FemPharm shall be solely responsible
         for, and Vivus shall have no obligation to reimburse, the costs and
         expenses (i) associated with completing the Phase IIb Study (as
         currently planned), including for preparation of the final report and
         analysis, and the report to be delivered to Vivus under Section 5.2,
         (ii) for any adverse event reporting that FemPharm or an Acrux
         Controlled Affiliate is required to perform, or (iii) associated

                                       26


         with FemPharm otherwise fulfilling its obligations under this
         Agreement, or conducting or completing any other research, development,
         or other work by or on behalf of any of FemPharm and the Acrux
         Controlled Affiliates.

5.4      TRANSFER OF DEVELOPMENT RESPONSIBILITY

         FemPharm will transfer and assign full regulatory and clinical
         responsibility for the Product in the Field in the Territory, including
         the IND, to Vivus, provided that the transition of the Phase IIb Study
         shall be made promptly upon request by Vivus, according to a schedule
         reasonably specified by Vivus. After full transfer of responsibility to
         Vivus, FemPharm's involvement will be as set forth below.

5.5      DEVELOPMENT RESPONSIBILITIES

         Other than FemPharm's conduct of the ongoing Phase IIb Study in
         accordance with Section 5.3 and except as otherwise determined by the
         Parties, Vivus will be solely responsible for conducting, at its own
         expense, all activities relating to the clinical development,
         regulatory approval and commercialization of the Product in the
         Territory, using diligent, commercially reasonable efforts, provided
         that both Parties will use such efforts to perform their
         responsibilities to achieve the targets set forth in the Development
         Plan. Vivus will pay to Fempharm, prior to the beginning of a calendar
         quarter, an amount equal to the FemPharm expenses in the approved
         budget in the Development Plan for such quarter, including payments to
         third parties and fully burdened FTE costs of labour associated with
         work at FemPharm and its Affiliates pursuant to this Agreement ((*)% of
         salary and benefits, plus any out of pocket expenses provided for in
         the Development Plan). FemPharm will maintain reasonably detailed
         records of the time expended and work performed in the development and
         will provide copies and a summery of such records, and a reconciliation
         of expenditures, for each such quarter to Vivus within fifteen (15)
         Business Days of the end of the quarter. The actual expenditure versus
         budget for the previous quarter will be reconciled in the payment from
         Vivus to Acrux for the following quarter or refunded to Vivus, as Vivus
         requests. Vivus shall not be required to reimburse any cost or
         expenses, other than those set forth in the Development Plan, except to
         the extent approved by Vivus in advance in writing. Vivus shall not be
         required to develop more than one Product at a time, and shall have no
         obligation to develop another Product in the Territory after a
         marketing approval of a Product in the Field has been obtained in the
         Territory.

                                       27


5.6      DEVELOPMENT COMMITTEE

         Within thirty (30) days of the Effective Date, the Parties will
         establish a committee to review and discuss the development of the
         Product (the "Development Committee"), comprising two (2) members of
         FemPharm's (or the Acrux Controlled Affiliate's) staff nominated by
         FemPharm and two (2) members of Vivus' staff nominated by Vivus. At
         least one member appointed by each Party shall have appropriate
         technical credentials, experience and knowledge and ongoing familiarity
         with, in the case of Vivus, the development under this Agreement and,
         in the case of FemPharm, any pre-clinical and clinical development of
         Product by FemPharm or the Acrux Controlled Affiliate, as well as the
         Licensed Intellectual Property and the development and use thereof. If
         relevant Product development is being performed by an Acrux Controlled
         Affiliate, then Vivus shall have the right to require that at least one
         of FemPharm's members be an employee of the Acrux Controlled Affiliate
         who is involved in such development or, in the alternative, to require
         that such an employee otherwise attend the Development Committee
         meetings. Each Party will give the other written notification
         concerning its staff members who are nominated to serve on the
         Development Committee. Subject to the foregoing, either Party may
         replace any of its members on the Development Committee by written
         notice. Additionally, Vivus shall be entitled to have representatives
         of its sublicensees attend the meetings as it considers appropriate.
         The Development Committee is responsible for review and approval of the
         Development Planand is additionally intended to provide a forum to:

          (a)  Enable Vivus to obtain scientific, clinical and regulatory input
               and data from FemPharm relating to development of the Product in
               the Territory, including with respect to work that each Party has
               performed in accordance with the Development Plan, and to keep
               Vivus informed regarding the work of FemPharm and the Acrux
               Controlled Affiliates related to Product;

          (b)  keep FemPharm reasonably apprised of the progress and results of,
               and planned activities related to, development of Products in the
               Field in the Territory under the Development Plan, sufficient for
               FemPharm to understand

                                       28


               the general status of the development under the Development Plan
               and nature of any significant issues that Vivus has encountered
               that have caused Vivus to fail to meet the schedule targeted in
               the Development Plan, and to review and approve, as appropriate,
               the Development Plans proposed by Vivus;

          (c)  evaluate the markets of the Product for use in the Field in
               relation to the development strategy for the Product, and adjust
               the Development Plan appropriately based thereon; and

          (d)  foster a cooperative relationship between the Parties regarding
               activities under this Agreement and the other activities of
               FemPharm and the Acrux Controlled Affiliates with respect to
               Product.

         To the extent requested by the Steering Committee, the Development
         Committee will keep the Steering Committee informed about the status of
         the activities conducted by the Development Committee pursuant to this
         Agreement. The Development Committee will refer all matters that are to
         be decided by the Development Committee, but for which agreement cannot
         be reached by the Development Committee, to the Steering Committee for
         the Steering Committee's review and final decision on such matters. The
         Development Committee will establish rules for its operation. After
         marketing approval of a Product is obtained, the Development Committee
         shall not be required to meet if there is no significant Product
         development by Vivus to discuss at the applicable time.

5.7      DEVELOPMENT PLANS

         The development of the Product will be conducted by the Parties, each
         using diligent, commercially reasonable efforts to perform its
         responsibilities set forth in the Development Plan. The Parties expect
         that an initial Development Plan will be appended to the Agreement as
         annexure A within one hundred eighty (180) days after the Effective
         Date, reflecting the Parties' understanding and intent at such time of
         the planned Product development activities in the Territory for the
         remainder of then current calendar year (and if mutually desired at the
         time, the following calendar year). The Development Plans proposed by
         Vivus will be reviewed and approved by the Development Committee from
         time to time as appropriate. On an annual basis

                                       29


         commencing in the final calendar year covered by the initial
         Development Plan (no later than October 15 of each year), Vivus will
         prepare and submit to the Development Committee for approval a
         reasonably detailed Development Plan outlining development
         responsibilities for the Product for the upcoming calendar year, it
         being agreed that Vivus may propose updates and revisions to the
         Development Plan more often as Vivus considers appropriate. After
         reviewing the proposal and discussing the development efforts to date,
         the Development Committee will consider changes to and amend the
         Development Plan to reflect revised regulatory and development
         activities designed to meet the goal of obtaining regulatory approval
         for the Product in the Territory in a commercially reasonable time
         frame based on the use of diligent, commercially reasonable efforts by
         Vivus to perform the development. Notwithstanding the foregoing, no
         Development Plan shall be required after marketing approval of a
         Product is obtained except to the extent required by the Development
         Committee.

5.8      BUDGETS

         The Development Committee will prepare and include in the Development
         Plans, a budget that sets forth the estimated costs and expenses
         (including fully-burdened internal labor costs, as described in Section
         5.5 above) that are budgeted to be incurred by FemPharm in conducting
         its responsibilities, if any, for Product development under the
         Development Plan. Each updated Development Plan will include an updated
         budget for FemPharm's responsibilities, if any, to be approved by the
         Development Committee. Vivus shall not be required to reimburse any
         costs or expenses other than those budgeted, unless agreed in advance
         in writing. Each Party shall bear its own costs and expenses associated
         with Committee meetings.

5.9      STEERING COMMITTEE

         Within thirty (30) days of the Effective Date, the Parties will
         establish a steering committee (the "Steering Committee"), comprising
         of one (1) member selected by FemPharm from its senior executives and
         one (1) member selected by Vivus from its senior executives; each
         having responsibility at the respective Party for development of
         Product. Each Party will give the other written notification concerning
         its executive nominated to serve on the Steering Committee. Either
         Party may replace its

                                       30


         member on the Steering Committee with an equivalent senior executive by
         providing written notice of the change to the other Party. A member of
         the Steering Committee cannot simultaneously serve as a member of the
         Development Committee. The Steering Committee will be responsible for
         resolving issues upon which the Development Committee has been unable
         to reach agreement and for serving as the initial means for discussing
         and seeking to resolve any issues or disputes between the Parties
         arising under this Agreement. Members of the Steering Committee will
         consult with members of the Development Committee, as they consider
         necessary, when resolving such issues and disputes and the decision of
         the Steering Committee binds the Development Committee.

5.10     FINAL DECISION

         If the Steering Committee has been unable to reach agreement on any
         issue or matter after diligent discussions, or if such discussions have
         not occurred due to unreasonable delay by FemPharm's representative,
         then the issue will be referred to Vivus to determine the issue, except
         as otherwise provided below. Vivus must consider the issue, having
         considered the views put forward by the Development Committee and the
         Steering Committee. Vivus' decision is final and binding on the Parties
         and the Committees in respect of each such issue and matter, provided
         that the foregoing does not permit Vivus to amend the terms of this
         Agreement, or change the Outside Dates, or otherwise impose an
         obligation on FemPharm, without FemPharm's written consent.

5.11     PROCEDURES OF COMMITTEES

         Each Party will provide the other Party in writing with the name,
         title, e-mail address, telephone number and facsimile number of its
         nominees to each Committee. The Development Committee will meet
         semi-annually during the term of the Development Plan, and more often
         as mutually agreed. The Steering Committee will meet as needed to
         resolve disputes and issues, promptly on the good faith request of
         either Party. All Committee meetings will be at such times agreed to by
         FemPharm and Vivus and will be in person or by telephone or video
         conference.

                                       31


5.12     DECISIONS OF COMMITTEES

         A quorum of the Development Committee at a meeting is two (2)
         representatives of each Party present at such meeting in person or by
         telephone or videoconference. A quorum of the Steering Committee at a
         meeting is one (1) representative of each Party present at such meeting
         in person or by telephone or videoconference. A unanimous vote of the
         members of the Committee present (in person, by telephone or
         videoconference) at such meeting is required to take any action on
         behalf of the Committee. In particular, neither Committee may make a
         binding decision unless a quorum is present. Each Party shall use best
         efforts to cause a quorum to be present at each meeting. No decision of
         a Committee shall be considered binding upon either Party, except to
         the extent set forth in writing and signed by both Parties.
         Notwithstanding anything to the contrary, no approval of the
         Development Committee shall be required for the day to day development
         activities, which shall be controlled by Vivus or its designee.

5.13     CHAIRPERSONS - DEVELOPMENT COMMITTEE

         The chair of the Development Committee will be a Vivus member of the
         Development Committee. Except to the extent otherwise approved by the
         Development Committee, the chair will be responsible for preparing the
         timetable for the meetings, and for preparing the agendas, minutes and
         resolutions, communications with the Steering Committee and other
         communications regarding tasks assigned by the Development Committee.
         All drafts of minutes and resolutions must be approved by the members
         of the Development Committee at the next meeting. The chair does not
         have a second or deciding vote.

5.14     CHAIRPERSONS - STEERING COMMITTEE

         The chair of the Steering Committee will be Vivus' member of the
         Steering Committee. Except to the extent otherwise approved by the
         Steering Committee, the chair will be responsible for preparing the
         timetable for the meetings, and for preparing the agendas, minutes and
         resolutions, communications with the Development Committee and other
         communications regarding tasks assigned by the Steering Committee. All
         drafts of minutes and resolutions must be approved by the members of
         the Steering Committee at the next meeting. The chair does not have a
         second or deciding vote.

                                       32


5.15     MINUTES AND REPORTS

         Each Committee will be responsible for keeping accurate minutes of its
         deliberations or discussions that record all proposed decisions and all
         actions recommended or taken. The chair will provide the Parties with
         the approved minutes of each meeting promptly after approval and, in
         the case of the Development Committee, a written accompanying report
         summarizing, in reasonable detail, the discussions of the Development
         Committee concerning: the status of the Development Plan, of the work
         and progress to date, any issues requiring resolution, and any
         decisions by the Development Committee. All records made by each
         Committee will be available to both Parties.

5.16     GLOBAL DEVELOPMENT COMMITTEE

         At such time as any pre-clinical or clinical development is undertaken
         by or under authority of FemPharm or any Acrux Controlled Affiliates
         anywhere in the world (outside of the Territory) for a Product within
         the Field, the Parties shall establish a joint committee among Vivus,
         FemPharm (and/or the Acrux Controlled Affiliate, as the case may be)
         and any Additional Partner(s) to discuss and coordinate such
         development of such Product (the "Global Development Committee"). To
         the extent there are no Additional Partners, and meetings of the
         Development Committee are ongoing at the time, the function of the
         Global Development Committee set forth in this Section 5.16 shall be
         handled by the members of the Development Committee. The primary role
         of such Global Development Committee shall be to provide a forum for
         communication between Vivus, FemPharm (and/or an Acrux Controlled
         Affiliate(s), as the case may be) and any Additional Partner(s) with
         respect to activities related to the ongoing preclinical and clinical
         development of Products in the Field, other than the work under the
         Development Plan under this Agreement. FemPharm, the Acrux Controlled
         Affiliates, Vivus, and each Additional Partner having rights to Product
         in the Field shall each have at least two (2) representatives on such
         Global Development Committee. Each member of the Global Development
         Committee shall keep the other members fully informed in English
         (subject to Section 5.17) as to the ongoing preclinical and clinical
         development of, and regulatory activities with respect to, such
         Products in the Field. It is understood and agreed, however, that
         formal approval of such Global Development Committee shall not be
         required for any such activities. The Global Development Committee
         shall meet no less frequently than twice each calendar year, or as
         otherwise agreed by the Parties, until the termination or expiration of
         this Agreement and each of Vivus, FemPharm, Acrux Controlled
         Affiliates, and any Additional Parties shall give a full report in
         English (subject to

                                       33


         Section 5.17) at each such meeting of activities relating to the
         particular Products to which such Party, the Controlled Affiliate,
         Acrux Controlled Affiliate or Additional Partner has rights and that is
         undergoing preclinical or clinical development in the Field. Additional
         Partners will participate in such meeting only with respect to Products
         for which they have rights in the Field.

5.17     NO OBLIGATION TO TRANSLATE

         It is understood and agreed that any documents to be provided by
         FemPharm, an Acrux Controlled Affiliate, Vivus, or Additional Partner
         under Section 5.16 may be provided in the language in which such
         documents exist, and FemPharm, the Acrux Controlled Affiliate, Vivus,
         and the Additional Partners shall not be obligated to provide
         translations of such documents (except to the extent such translation
         has already been prepared).

5.18     INFORMATION AND RESULTS

         Except as otherwise agreed by FemPharm in writing, Vivus shall make
         available and disclose to FemPharm, no less often than once every six
         (6) months, in the form selected by Vivus and reasonably acceptable to
         Vivus, and to the extent not previously disclosed, all patient results
         from Clinical Trials by Vivus or its Affiliate on Products under this
         Agreement and all Regulatory Materials prepared by Vivus or its
         Affiliate, including any NDA filed by Vivus or its Affiliate with the
         FDA for a Product under this Agreement. It is understood that
         inadvertent failure to disclose any of the foregoing information will
         not be deemed a breach, provided that Vivus makes the disclosure of
         such information promptly after becoming aware that such information
         has not been disclosed. To the extent Vivus has the right to provide
         such patient results from the Clinical Trials by its sublicensees on
         Products under this

                                       34


         Agreement, Vivus will also make such results available in the manner
         described above. Vivus agrees to use good faith, diligent efforts to
         obtain such rights from its sublicensee. If the NDA is filed by a
         sublicensee Vivus, Vivus will use good faith, diligent efforts to
         obtain the right to disclose the NDA to FemPharm. As between Vivus and
         FemPharm, each Party will own all results and data that it generates,
         subject to any licenses granted under this Agreement to the other
         Party. In particular, as between Vivus and FemPharm, Vivus will own all
         clinical data and results of testing Product generated by Vivus under
         this Agreement (the "Data"). FemPharm and its Affiliates have the right
         to use all Data required to be delivered by Vivus solely in developing
         and seeking regulatory approval of a Product in the Field in Australia
         and New Zealand, and no Data, Regulatory Materials, or other Know-How
         provided by Vivus shall be used for any other purpose, such as without
         limitation for purposes of development or marketing approval for a
         country other than New Zealand and Australia, except as otherwise
         agreed by the Parties in a separate writing. Such Know-How will be
         disclosed to licensees of FemPharm and the Acrux Controlled Affiliates
         for Australia or New Zealand only to the extent the licensee provides
         equivalent disclosure to Vivus and Vivus' sublicensees.

5.19     PRODUCT FAILURE

          (a)  Technology Failures. In the event the Product experiences
               significant technical issues that arise out of or relate to the
               MDTS system, including failure of the MDTS system to deliver
               testosterone, or another Androgen added to the Field in
               accordance with this Agreement, in a manner suitable for
               development or commercialization of a Product in the Field and
               Territory, inadequate physical or chemical stability of any
               portion of the MDTS system, issues arising out of any Acrux
               Penetration Enhancer or any other formulation developed by
               FemPharm and used in an MDTS system, or other issues that
               significantly impact the efficacy, toxicity, safety, or ability
               to obtain approval, then, to the extent that Vivus reasonably
               concludes that the issue would likely prevent the approval of the
               Product in the Field and Territory by the FDA or other
               appropriate regulatory authority or cause the Product to not be
               commercially viable, Vivus shall have the right, subject to the
               terms of Section 5.19(b) below, to select for addition to the
               Field, and development and

                                       36


               commercialization in the Territory under this Agreement as an
               alternate Product, an alternate Androgen (excluding any Androgen
               (other than a Restricted Androgen) for which FemPharm or its
               Affiliate has commenced Clinical Trials, or which FemPharm or its
               Affiliate has licensed to a non-Affiliate third party in a fully
               arms length transaction, in conformance with Section 2.5(b)) or
               alternate configuration of the MDTS technology.

          (b)  Upon selection by Vivus of an alternate Product pursuant to
               Section 5.19(a) above, development and commercialization of the
               selected Product shall be in accordance with the terms of this
               Agreement, including the same milestone payments and, if the
               alternate Product is based upon another Androgen, no greater
               royalties than those set forth in Article 4, except that (i)
               Vivus shall not be required to pay under Section 3.2 any
               milestone payments for achieving a milestone for which a
               milestone payment previously was made for a Product, and (ii) the
               Parties shall discuss in good faith and agree on new, appropriate
               diligence milestones dates in Section 6.2 for such alternate
               Product. If Vivus does not select such alternate Product within
               90 days of Vivus concluding that the issue will prevent the
               original Product from being approved or commercially viable, then
               the Agreement shall terminate under Article 14, with the effects
               of such termination being the same as if terminated by Vivus
               under Section 14.3(d).

5.20     SUBCONTRACTS

         Subject to the provisions of this Agreement, Vivus may subcontract to
         third parties portions of the Development Plan to be performed by
         Vivus, provided Vivus agrees to keep the Development Committee
         reasonably informed of any contract research organizations or other
         contractors hired by Vivus, and provided further that such
         subcontractors are subject to confidentiality provisions consistent
         with the terms of this Agreement, and that Vivus remains responsible
         for all work performed by such subcontractors.

                                       36


5.21     CLINICAL PRODUCT SUPPLY

         Except as otherwise provided in this Agreement, as between the Parties,
         Vivus is solely responsible for all manufacturing of its requirements
         of the Product for use in development throughout the Territory. Vivus
         will use diligent, reasonable efforts to manufacture, or to have its
         designee manufacture, sufficient quantities of the Product meeting all
         applicable specifications and legal requirements in a timely manner for
         use in conducting the development of the Product in the Territory
         pursuant to the Development Plan.

6.       DILIGENCE OBLIGATIONS
- --------------------------------------------------------------------------------
6.1      PRODUCT DEVELOPMENT DILIGENCE OBLIGATIONS

         Each Party will use diligent, commercially reasonable efforts to
         perform all the tasks and responsibilities assigned to it in the
         Development Plan in accordance with the development schedule set forth
         in the Development Plan, in an effort to obtain all necessary
         regulatory approvals in the Territory. If Vivus knows that it will be
         unable to meet any timeline or milestone date set out in the
         Development Plan, then it will bring the matter to the attention of
         FemPharm at the next Development Committee meeting or, if Vivus
         reasonably concludes that the delay is caused by a significant issue
         that is likely, unless it can be addressed by additional work, to
         prevent the Product from being approved by the FDA, as soon as
         reasonably practicable. The Development Committee will discuss in good
         faith the causes of any such delays and Vivus' suggested courses of
         action to complete the subject tasks and determine whether to return
         the Product development program to the schedule in the Development Plan
         or to reasonably adjust the schedule. In such process, the Development
         Committee shall extend reasonably the timeline or milestone dates in
         the Development Plan unless the delay was a result of a material breach
         by Vivus of its obligation to use diligent, commercially reasonable
         efforts in the development of the Product.

                                       37


6.2      DILIGENCE PAYMENT FOR DEVELOPMENT DELAYS

         If Vivus (including its Affiliates and sub-licensees) does not achieve
         the milestone event listed in Section 3.2(e) by its Outside Date (as
         defined below), or the milestone event listed in Section 3.2(f) by its
         Outside Date, then within ten (10) Business Days after the end of each
         full month of delay after the applicable Outside Date, Vivus will pay
         to FemPharm (*) percent (* %) of the milestone payment associated with
         the delayed event, until the corresponding milestone payment is paid in
         full, either as a result of meeting the milestone or as a result of
         such diligence payments. As used herein, "Outside Date" means (i) with
         respect to the Section 3.2(e) milestone (*); and (ii) with respect to
         the Section 3.2(f) milestone, (*). To the extent any diligence payments
         are made under this Section 6.2, and the milestone is achieved before
         the corresponding milestone payment has been paid in full, then upon
         achieving the milestone Vivus shall pay the amount of the milestone
         payment, reduced by the amount of payments for that milestone made
         under this Section 6.2. If the Section 3.2(e) or 3.2(f) milestone
         payment is paid in full as a result of this Section 6.2, then such
         payment will be deemed to satisfy the payment obligation under Section
         3.2(e) or 3.2(f), as the case may be, and no further payment shall be
         due or payable as a result of completion of the particular milestone by
         any Product. However, if Vivus' inability to meet a milestone event by
         the applicable Outside Date is caused by delays outside of Vivus'
         reasonable control, that are circumstances described in subsection
         (a)-(d) below, then the Parties will meet and agree on reasonable
         adjustment to the applicable Outside Dates to accommodate such delays,
         provided that Vivus has used diligent, commercially reasonable efforts
         to meet the milestone events. The fact that payments become due or
         payable under this Section 6.2 shall not, itself, necessarily mean or
         suggest that there has been a lack of diligence by Vivus. For purposes
         of this Section 6.2, delays due to the following matters will be
         considered outside of Vivus' control:

          (a)  a change in the specifications of the Product, or in the planned
               development of the Product, required by the FDA or other
               regulatory authority due to the medical, regulatory or scientific
               attributes of the Product, that necessitates additional
               development effort beyond that set forth in the Development Plan
               or contemplated when establishing the schedule in the Development
               Plan;

                                       38


          (b)  other delays in development caused by the FDA, or other
               regulatory authority, that were reasonably unanticipated by
               Vivus; or

          (c)  delays caused by FemPharm not conducting its responsibilities as
               set out in the Development Plan in a timely manner.

          (d)  Additional clinical development work required to be conducted due
               to failure of the studies conducted under the Development Plan to
               show sufficient levels of efficacy or safety, or the data is
               otherwise equivocal.

6.3      REVERSION FOR FAILURE OF DILIGENCE.

         If at any time prior to achieving regulatory approval of the Product
         Vivus fails to use, and/or to continue using, diligent, commercially
         reasonable efforts to develop the Product in the Territory during the
         term of the Agreement, then FemPharm may give Vivus written notice of
         such failure of diligence. If Vivus does not commence within ninety
         (90) days of such notice using diligent, commercially reasonable
         efforts to develop Product in the Territory, then FemPharm may no later
         than ninety (90) days after such failure provide the notice of
         termination of this Agreement, including the license and other rights
         granted to Vivus, under Section 14.2(a), but only if such failure
         constitutes a material breach of this Agreement by Vivus, and subject
         to Section 15.10.

7.       REGULATORY MATTERS
- --------------------------------------------------------------------------------
7.1      REGULATORY MATERIALS

          (a)  Vivus is solely responsible for preparing and filing all
               Regulatory Materials for the development of the Product in the
               Territory except as otherwise set forth in this Agreement,
               including carrying out all registration and approval procedures
               necessary to comply with all appropriate laws and regulations
               relating to the manufacture, packaging, import, promotion,
               advertising and sale of the Product in the Territory. All costs
               incurred by Vivus with respect to such registrations and
               approvals will be borne by Vivus. FemPharm has the right to
               review and comment on all such Regulatory Materials prepared by
               Vivus, including application for registration and regulatory
               approval, (to the

                                       39


               extent disclosure of same does not violate confidentiality
               obligations) and to the extent reasonably practicable Vivus will
               consider all such comments provided to Vivus in advance of
               filing. Vivus will use good faith efforts to obtain for FemPharm
               the right to so comment on Regulatory Materials from Product of
               Vivus' sublicensees under the Licensed Intellectual Property.
               Similarly, Vivus has the right to review and comment on all
               Regulatory Materials for Product developed by or under authority
               of FemPharm or an Acrux Controlled Affiliate in the Field outside
               the Territory (to the extent disclosure of same does not violate
               confidentiality obligations, subject to the following), and
               FemPharm, the Acrux Controlled Affiliate, or licensee, as the
               case may be, shall provide Vivus with a reasonable opportunity to
               provide comments and consider all of Vivus' comments provided to
               FemPharm in advance of filing to the extent reasonably
               practicable.

          (b)  FemPharm and its Affiliates and licensees (subject to the last
               sentence of Section 5.18) have a right of reference (at no cost
               to them) to the NDA and other Regulatory Materials filed by Vivus
               for the Product in the Field and Territory, which right of
               reference shall be solely for Australia and New Zealand as part
               of the development, approval and commercialisation of the Product
               in the Field for such countries, and such Regulatory Materials
               shall not be referenced by or under authority of FemPharm or any
               Acrux Controlled Affiliate for any other country or Product.
               FemPharm is solely responsible for carrying out all of its
               registration and approval procedures necessary to comply with all
               appropriate laws and regulations relating to the manufacture,
               packaging, import, promotion, advertising and sale of such
               Product in the Field in Australia and New Zealand. Without
               limiting the other terms of this Agreement, each Party will
               provide the other Party (at no cost to such other Party) with
               reasonable telephone support to respond to such other Party's
               questions regarding the Regulatory Materials and supporting
               materials that it is required to disclose under this Agreement.

                                       40


7.2      RELATIONSHIP WITH REGULATORY AUTHORITIES

         Vivus, as the sponsor of the Regulatory Materials for the Product in
         the Territory, has sole responsibility for interacting with all
         regulatory authorities in the Territory with respect to the Product in
         the Field, including meetings with such regulatory authorities, and
         responding to inquiries of and conducting other communications with
         such regulatory authorities, with regard to such Regulatory Materials
         or the Product. Vivus has sole authority and responsibility for all
         regulatory obligations regarding the Product in the Field in the
         Territory, including, but not limited to, the regulatory approval
         applications and registrations and related materials, all promotional
         materials, Product labeling, responding to medical inquiries, and
         Product complaints relating to the Territory, except as otherwise
         provided in this Agreement or the Development Plan, or determined by
         the Development Committee. Similarly, FemPharm, as the sponsor of its
         Regulatory Materials for the Product in the Field in Australia and New
         Zealand, has sole responsibility for interacting with all regulatory
         authorities in Australia and New Zealand with respect to its
         development of such Product in the Field for such countries, and for
         all such other regulatory obligations in its development of the Product
         in Australia and New Zealand. Each Party will provide the other Party
         with reasonable advance notice of, and any preparatory material for,
         any hearing before, or meeting with, any regulatory authority regarding
         the Product in such Party's territory (I.E., the Territory in the case
         of Vivus, and Australia and New Zealand in the case of FemPharm), and
         such other Party has the right to have two (2) of its employees attend
         such hearings or meetings at its own cost, to the extent the Party
         responsible for the meeting has the right to include them and is
         reasonably practicable under the circumstances. All such materials, and
         information learned in connection with such meeting or hearings, shall
         be treated as the Confidential Information of the Party disclosing the
         materials or conducting the meeting.

7.3      ADVERSE EVENTS AND COMPLAINTS REPORTING

         The Parties agree that appropriate reporting of adverse events and
         other safety data relating to the Product is critical. Specific details
         regarding the management of information of adverse events, medical
         inquiries and Product complaints related to the

                                       41


         use of the Product in the Territory and outside will be delineated in a
         separate document, to be agreed to by the Parties within ninety (90)
         days after the Effective Date. The pharmacovigilance and product
         labeling representatives of each Party will work in good faith together
         to develop a document that identifies:

          (a)  which safety information will be exchanged;

          (b)  when such information will be exchanged;

          (c)  how the global safety database will be established;

          (d)  which Party will be obligated to obtain follow-up information on
               incomplete safety reports;

          (e)  which Party will review the literature for safety report
               information;

          (f)  which Party will prepare required periodic safety updates; and

          (g)  the identification of any other details required to appropriately
               manage safety information for the Product.

         Subject to any specific details of the above document, it is expected
         that Vivus will be responsible for pharmacovigilance, adverse reaction
         reporting and related matters for Products inside the Field in the
         Territory, and that FemPharm shall be responsible for
         pharmacovigilance, adverse reaction reporting and related matters for
         Products in the Field in all countries outside of the Territory. The
         Parties also agree to use good faith, reasonable efforts to reach
         agreement with any of their respective licensees (or sublicensees, as
         applicable) of Products in the Field to include such entities in the
         pharmacoviligance and related safety and adverse event reporting
         document discussed above.

8.       PRODUCT COMMERCIALIZATION
- --------------------------------------------------------------------------------
8.1      OVERVIEW

                                       42


         Vivus has the exclusive rights, subject to the terms of this Agreement,
         to promote, market, distribute and sell Product for use in the Field
         throughout the Territory, itself and/or through its Affiliates and
         sub-licensees.

8.2      COMMERCIALIZATION OBLIGATIONS

         Vivus hereby covenants and agrees with FemPharm, during the term of
         this Agreement commencing with regulatory approval of the NDA for the
         Product by the FDA in the Field and Territory (permitting marketing of
         the Product in the Territory), to:

          (a)  actively and diligently promote the sale of the Product using
               commercially reasonable efforts in the Territory;

          (b)  not, and to require that its Controlled Affiliates and
               sub-licensees do not, sell the Product licensed hereunder outside
               the Territory nor sell such Product to any person which it knows,
               or for which it has been provided reasonable documentation, is
               selling such Product outside the Territory, each to the extent
               set forth in Section 2.6; and

          (c)  provide for and maintain, or cause to be provided for and
               maintained, a sales organisation and a marketing program
               reasonably adequate and competent to promote, stimulate interest
               in, and sell the Product effectively in the Territory, for a
               commercially reasonable period of time after commercial launch.

Additionally, each Party hereby covenants and agrees, during the term of this
Agreement, to:

          (1)  use reasonable efforts to comply with all governmental and
               municipal laws, regulations and requirements relating to the
               manufacture, packaging, promotion, advertising, distribution and
               sale of the Product;

          (2)  take out and maintain at its cost during the term of this
               Agreement and for a reasonable period of time thereafter whilst
               any liability may occur to such Party as a result of its
               distribution of the Product, product liability insurance in the
               name of such Party in respect of the manufacture, distribution,
               sale, use and consumption of the Product by such Party for an
               amount consistent with

                                       43


               industry standard practices and will duly and punctually pay all
               premiums in respect of such insurance and provide evidence of
               such insurance and payment of premiums to the other Party when so
               requested; and

          (3)  not make any fraudulent misrepresentations in respect of the
               quality or contents of the Product.

8.3      COMMERCIALIZATION PLANS

         No later than twelve (12) months prior to the expected launch of First
         Commercial Sales of the Product in the Territory, Vivus will provide to
         FemPharm a commercial launch plan (the "Commercial Launch Plan"), which
         will set forth in reasonable detail Vivus' actual plan and budget for
         the launch and initial marketing and promotion of the Product,
         including the trademarks to be used in such marketing. Such Commercial
         Launch Plan will include non-binding sales projections for the Product
         for at least two years from the planned First Commercial Sale. The form
         of the Commercial Launch Plan and the amount of detail included will be
         as established by the Steering Committee. For each full calendar after
         the First Commercial Sale, Vivus agrees to provide FemPharm, no later
         than February 1 of such calendar year, a report that describes in
         reasonable detail the marketing activities planned to be conducted by
         Vivus (or its Affiliate) for the Territory during the calendar year,
         and that sets forth the actual IMS (or related source) audited
         marketing data showing the actual marketing and promotional activities
         that were conducted by Vivus (or its Affiliate or licensee) in the
         Territory for the Product during the previous calendar year.

8.4      LAUNCH DILIGENCE

         Vivus (or its Affiliate or sub-licensee) will use diligent,
         commercially reasonable efforts to launch the Product for commercial
         sale in the Field in the Territory within six (6) months of obtaining
         regulatory approval of the Product in the Territory, and will expend
         such efforts and resources in launching and initial promotion and
         marketing of the Product in the Territory as are commercially
         reasonable.

                                       44


8.5      MANUFACTURE IN TERRITORY

         Vivus is solely responsible for all manufacturing of its requirements
         of the Product for sale in the Field in the Territory. Vivus will use
         diligent, commercially reasonable efforts to meet market demand for the
         Product in the Territory.

8.6      SUPPLY OF PRODUCT TO FEMPHARM

         Vivus will agree to supply to FemPharm needed amounts of the Product
         (in final finished and packaged form, according to the specifications
         of Vivus in the Territory) for use by FemPharm in developing and
         commercializing Product in the Field in Australia and New Zealand under
         a mutually acceptable supply agreement on terms that are customary and
         reasonable. Such Product supplied by Vivus shall be used solely for
         FemPharm to develop and sell the Product in the Field in New Zealand
         and Australia. Vivus shall have no obligation to supply any Product
         other than that being developed or commercialized by Vivus under this
         Agreement at the then current time. The transfer price for such Product
         shall be (i) (*) percent (* %) above Vivus' actual purchase price if
         such Product is purchased by Vivus from a contract manufacturer; and
         (ii) (*) percent (* %) above Vivus' fully burdened manufacturing costs,
         as determined consistent with Vivus' standard practices applied
         consistently across all its operations, if Vivus manufactures the
         Product. Notwithstanding the foregoing, Vivus shall have no obligation
         to negotiate under this Section 8.6 until after (*).

9.       SUB-LICENSING AND ASSIGNMENT
- --------------------------------------------------------------------------------
9.1      SUB-LICENSE

         Vivus has the right to grant and authorize sub-licenses, under the
         rights granted to it in this Agreement, to Affiliates of Vivus and to
         other third parties, without consent, BUT PROVIDED THAT prior to
         granting a sub-license to a third Party Vivus shall have disclosed the
         identity of the proposed third party to FemPharm and shall discuss and
         consider in good faith any reasonable concerns FemPharm may have with
         regard to granting a sublicense to such third party, and shall consider
         in good faith FemPharm's suggestions to address any of its reasonable
         concerns. Vivus is responsible for the actions of any such
         sub-licensee, and if such sub-licensee breaches any Vivus obligation
         under the Agreement, such breach will be deemed a breach by Vivus.

                                       45


9.2      VIVUS BOUND

         In the case of sub-licensing, Vivus remains bound by this Agreement and
         responsible for performing, or having its sub-licensee perform, all its
         obligations hereunder, subject to Section 9.1 above. Subject only to
         Section 5.20 and 9.1, however, nothing shall prevent Vivus from relying
         upon the performance and efforts of its sublicensees and contractors
         for purposes of satisfying its obligations under this Agreement,
         including under Articles 7 and 8, notwithstanding anything to the
         contrary, such as language in Sections 5.5, 5.21, 7.1(a), 7.2, and 8.5
         that indicates that Vivus shall have sole responsibility.

9.3      ASSIGNMENT

         Each Party is entitled to assign and otherwise transfer without consent
         all its right, title and interest in this Agreement, including its
         obligations, to any other Person that acquires all or substantially all
         of such Party's business or assets, whether by asset purchase, merger,
         acquisition or other similar transaction, PROVIDED THAT such Person
         agrees in writing to be bound by the terms hereof as the successor in
         interest or assignee. Any other attempt to transfer or assign shall be
         void without the prior written consent of the other Party. If a Party
         is acquired by another corporation or other entity that was not its
         Affiliate prior to the acquisition, then no Intellectual Property
         rights of the acquiring entity developed prior to the acquisition, or
         developed thereafter without using the Licensed Technology, shall be
         included in the rights licensed to the other Party under this
         Agreement.

10.      CONFIDENTIALITY
- --------------------------------------------------------------------------------
10.1     RESTRICTIONS ON USE

         Subject to the further provisions of this Article 10, each Party agrees
         that it will keep all Confidential Information disclosed to it by the
         other Party secret and confidential, and will not disclose it to any
         third party, or use it for its own benefit or the benefit of

                                       46


         any third party, except that either Party may use and disclose the
         other Party's Confidential Information:

          (a)  for the purposes of exercising the licenses and other rights
               granted by this Agreement; or

          (b)  as otherwise permitted with the prior written consent of the
               other Party.

         Any disclosure authorized in accordance with the foregoing shall be
         subject to reasonable confidentiality provisions materially as
         protective of the Confidential Information as the terms of this
         Agreement.

10.2     USE OF OWN INFORMATION

         Except for Section 10.13, nothing in this Article 10 prevents a Party
         from disclosing or dealing in its absolute discretion with any of its
         own Confidential Information, provided that FemPharm will use
         reasonable efforts to keep its Confidential Information relating to the
         Product and the Field secret and confidential so as to avoid any
         adverse affect on the value or protection of the Licensed Intellectual
         Property to the extent relevant to the Field and the Territory and
         further provided that such disclosure and dealing by FemPharm shall be
         subject to the other terms of this Agreement, including Sections 2.1
         and 10.13.

10.3     EXCEPTIONS TO CONFIDENTIALITY

         The obligations of confidentiality and non-use as provided in Section
         10.1 above do not extend to, and notwithstanding Section 1.1
         Confidential Information shall not include, any particular information
         or Know-How received by a Party that it can demonstrate by competent
         evidence:

          (a)  was available to the public or otherwise in the public domain
               prior to receipt by such Party, or subsequent to such receipt
               becomes available to the public or part of the public domain,
               other than as a result of a breach of this Agreement;

          (b)  was already known to the recipient Party by lawful means at the
               time of receipt (including trade secrets and inventions not
               disclosed in existing patent applications) other than directly or
               indirectly from the other Party;

                                       47


          (c)  was obtained by the recipient Party from a third party who has a
               lawful right to disclose it, provided that the information has
               not been obtained directly or indirectly from the other Party to
               this Agreement and is not subject to an obligation of
               confidentiality; or

          (d)  was independently developed by the receiving Party without use of
               the other Party's Confidential Information.

10.4     EXCEPTIONS TO NON-DISCLOSURE

         Notwithstanding the restrictions of Section 10.1, a Party may disclose
         the Confidential Information of the other Party beyond the disclosure
         authorized in Section 10.1, subject to compliance with the following
         provisions of this Section 10.4, solely to the extent such disclosure:

          (a)  is to its professional advisors, and provided that such
               disclosure is reasonably necessary or desirable and is subject to
               reasonable confidentiality protections;

          (b)  is required by any court or other judicial or quasi-judicial
               tribunal or any administrative or government body, or as is
               required by law, provided that such disclosure is no more than is
               necessary to avoid the imposition of a penalty for failing or
               refusing to disclose the Confidential Information, and that the
               Confidential Information is disclosed in such a way as to limit
               as far as possible the disclosure of the Confidential
               Information, and that such disclosing Party first complies with
               Section 10.5; or

          (c)  as reasonably necessary in prosecuting or defending any
               litigation or enforcing this Agreement, provided that such Party
               has first notified the other Party giving full details of the
               circumstances of the required disclosure and of the relevant
               information to be disclosed and takes reasonable steps to
               preserve the confidentiality of the information.

10.5     DISCLOSURE BY LAW

         Before any disclosure in reliance on Section 10.4(b), the Party subject
         to the disclosure obligation must, unless it is not practicable to do
         so:

                                       48


          (a)  immediately notify the other Party giving full details of the
               circumstances of the required disclosure and of the relevant
               information to be disclosed;

          (b)  to the maximum extent permitted by law give the other Party a
               reasonable opportunity in a court of law or other appropriate
               body to:

               (i)  challenge the proposed disclosure;

               (ii) challenge the obligation of the Party or any other person to
                    make that disclosure; and/or

               (iii) secure a protective order or other ruling limiting or
                    preventing the disclosure and/or to protect or preserve the
                    confidentiality of the relevant information; and

          (c)  take reasonable steps to preserve the confidentiality of the
               information being disclosed and to comply with any such
               protective order or ruling.

10.6     SCOPE OF CONFIDENTIALITY

         In the case of uncertainty as to the confidentiality of any information
         a Party must treat the information as Confidential Information until
         such Party or the other Party confirms that the information is not
         Confidential Information.

10.7     SECURITY OF INFORMATION

         Each Party must use its reasonable endeavours to minimise the risk of
         disclosure of any Confidential Information of the other Party, by
         providing reasonable security of its premises, its records and
         materials.

10.8     PERSONNEL CONFIDENTIALITY

         Each Party agrees to procure written and signed confidentiality and
         non-publication undertakings with respect to the Confidential
         Information of the other Party, in terms materially as protective of
         such other Party's Confidential Information as this Article 10, from
         all employees, agents and contractors of such Party who have or are
         likely to have access to Confidential Information of the other Party.

                                       49


10.9     RETURN OF CONFIDENTIAL INFORMATION

         Upon termination of this Agreement, each Party may by written notice to
         the other Party demand the return of all tangible property comprising
         Confidential Information provided by such Party, but only to the extent
         set forth in Article 14 and provided that Vivus shall not be required
         to return any product.

10.10    PUBLICATIONS

         Neither Party shall make or authorize any oral public disclosure, or
         any submission to any outside person for publication of an abstract or
         manuscript, disclosing the Confidential Information of the other Party,
         including any scientific data resulting from the other Party's
         non-clinical development or clinical development under this Agreement,
         in each case except to the extent approved in writing by such other
         Party or as otherwise permitted in this Article 10.

10.11    OTHER RIGHTS

         Nothing herein contained excludes the right of either Party at common
         law or in equity to protect its Confidential Information by application
         to any court for injunction or otherwise. Notwithstanding anything to
         the contrary in this Article 10, the Parties agree that the use and
         disclosure of concepts and information retained in the unaided memories
         of individuals who had access to Know-How from the other Party shall
         not be considered a breach of the terms of this Agreement. This Section
         10.11 shall not be construed to grant any rights under any Patent in
         such concepts.

10.12    USE OF OTHER PARTY'S NAME

         Neither Party shall make any use of the other Party's name unless
         approved by the other Party in writing, such approval not to be
         unreasonably withheld, or in the circumstances set forth in Section
         10.13.

10.13    PRESS RELEASES AND OTHER DISCLOSURES

         The Parties will issue a joint press release, in the form attached as
         annexure D, promptly after the Effective Date. The Parties agree that
         no other publication or other public disclosure of the terms of this
         Agreement will be made by a Party without the

                                       50


         consent of the other Party, (with failure to respond to any request for
         consent beyond ten (10) days from the request to be deemed consent),
         such consent not to be unreasonably withheld. Notwithstanding the
         foregoing, a Party may make disclosures authorized pursuant to Section
         10.10 and may disclose the terms of this Agreement:

          (a)  to the extent required by law or regulation or court order, or by
               the rules of any stock exchange on which the stock or shares of
               the Party or any of its Affiliates are listed or other government
               body; and

          (b)  in confidence to its professional advisors, and its existing or
               potential investors, acquirors, and merger partners on a need to
               know basis under conditions which reasonably ensure the
               confidentiality thereof;

          (c)  in confidence, pursuant to non-disclosure and non-use
               restrictions at least as stringent as included in this Article
               10, to other parties that have a need to know such information
               for a purpose related to this Agreement;

          (d)  in connection with the enforcement of this Agreement or rights
               under this Agreement;

          (e)  in confidence as is reasonable in connection with a merger,
               acquisition of stock or assets, proposed merger or acquisition,
               or the like;

          (f)  as advisable or required in connection with any government or
               regulatory filings, including filings with the SEC; provided
               however, prior to any such disclosure the non-disclosing Party
               shall be allowed to review the proposed disclosure, and the
               disclosing Party agrees to consider in good faith any proposed
               revisions thereof provided to the disclosing Party within ten
               (10) Business Days of the non-disclosing Party's receipt of the
               proposed disclosure and the Party making such disclosure shall
               seek confidential treatment for such disclosure as permitted by
               applicable law in a similar manner to the actions it takes for
               its other information of like kind.

                                       51


11.      INVENTIONS
- --------------------------------------------------------------------------------
11.1     DISCLOSURE OF INVENTIONS

         During the term of this Agreement, each Party will promptly disclose to
         the other Party the Inventions invented jointly by employees of both
         Parties and for which the disclosing Party desires to seek Patent
         protection, and Vivus will promptly disclose to FemPharm all
         Improvements, provided that Vivus shall not be considered in breach of
         such disclosure obligation as a result of an inadvertent failure to
         disclose an Invention so long as Vivus promptly discloses the
         Improvement after discovering the failure to disclose.

11.2     OWNERSHIP OF INVENTIONS AND INTELLECTUAL PROPERTY RIGHTS

         As between the Parties, each Party (or its Affiliate) will own the
         entire right, title and interest in and to all the Inventions made by
         such Party's (or its Affiliate's) employees or others acting on behalf
         of such Party or Affiliate and all Intellectual Property rights in and
         to such Inventions, subject only to the licenses and other rights (if
         any) to the extent granted to the other Party thereto under this
         Agreement.

11.3     JOINT INVENTIONS AND JOINT PATENTS

         All right, title and interest in all Patents to the extent claiming
         Inventions invented jointly by the employees of both Parties ("Joint
         Inventions")will be owned jointly by FemPharm and Vivus (that is, each
         Party having an equal and undivided interest therein). Patent filings
         to the extent claiming a Joint Invention will be conducted as set out
         in Section 12.2. Neither Party may assign its interest in any Joint
         Patent unless notice of such transfer has been first given to the other
         Party and the transferee agrees in writing to be bound by the terms of
         this Agreement with respect to the interest so transferred and as
         otherwise set forth in Section 9.3. Except as otherwise expressly
         provided in this Agreement, neither Party shall have any obligation to
         account to the other for profits, or to obtain any consent of the other
         Party to license or exploit, Joint Inventions (whether or not patented)
         or Joint Patent, by reason of joint ownership thereof, and each Party
         hereby waives any right it may have under the laws of any jurisdiction
         to require any such consent or accounting.

                                       52


11.4     COOPERATION OF EMPLOYEES

         Each Party represents and agrees that all employees acting on its
         behalf in performing its obligations under this Agreement will be
         obligated under a binding written agreement to assign to such Party, or
         as such Party will direct, all inventions made or conceived by such
         employee.

12.      PATENTS AND INTELLECTUAL PROPERTY
- --------------------------------------------------------------------------------
12.1     PATENT RIGHTS

         All right, title and interest owned by a Party in Intellectual Property
         will remain owned and retained exclusively by such Party, subject only
         to the applicable license and other rights granted to Vivus and
         FemPharm in this Agreement. FemPharm will have sole responsibility for
         and control over, at its discretion, the filing, prosecution,
         maintenance and enforcement of the FemPharm Patents, at FemPharm's
         expense, except as otherwise provided below. FemPharm shall use
         diligent commercially reasonable efforts to obtain and maintain at all
         times broad Patent protection for the Products in the Field and
         Territory under this Agreement, including by using reasonable efforts
         to prepare, file, prosecute and maintain Patents as desirable for
         Products in the Field and Territory and to pursue as appropriate
         interferences, re-examinations, reissues, oppositions and similar
         proceedings regarding the FemPharm Patents. During the term of this
         Agreement and thereafter to the extent Vivus has surviving rights,
         FemPharm will keep Vivus reasonably informed regarding the status,
         preparation, filing, prosecution and maintenance of all patent
         applications and patents included or to be included in the FemPharm
         Patents licensed to Vivus pursuant to Section 2.1 (including inventions
         for which Vivus may desire to have a Patent application filed), and
         without limiting the foregoing will reasonably consider, and give Vivus
         a reasonable opportunity to provide, comments on such preparation,
         filing, prosecution, or maintenance efforts that relate to Product, the
         Field or the Territory. FemPharm may elect to cease preparing, filing,
         prosecuting or maintaining any particular FemPharm Patent, or to cease
         diligently pursue any interferences, re-examinations, reissues,
         oppositions or similar proceeding relating to a particular FemPharm
         Patent, but only to the extent that FemPharm has provided to Vivus, as
         far

                                       53


         in advance as practicable, written notice describing its intent and, to
         the extent desired by Vivus, has reasonably transitioned the
         preparation, filing, prosecution, and maintenance to Vivus without
         prejudice to Vivus' rights under this Agreement. If Vivus then
         undertakes such activities, Vivus shall bear all of its actual out of
         pocket costs and expenses incurred in such activities, and may credit
         against amounts subsequently owed to FemPharm under this Agreement any
         such actual costs and expenses borne, subject to providing FemPharm
         with receipts and invoices and other documents as is reasonable to
         properly evidence the costs and expenses and payment thereof. FemPharm
         shall use reasonable efforts to cooperate and provide such documents
         and assistance as is reasonably requested, in connection with such
         activities by or under authority of Vivus.

12.2     JOINT PATENT RIGHTS

         As to each Joint Invention, the Parties will discuss and reasonably
         agree on whether and where to file a Joint Patent claiming the Joint
         Invention, and on which Party shall assume responsibility for the
         preparation, filing, prosecution and maintenance of such Joint Patents,
         in each country in the world for which prosecution of the Joint Patent
         is desired by a Party. The Parties will share equally in the expenses
         of such activities related to Joint Patents. Each Party will reimburse
         the other for its share of such expenses borne by the other Party upon
         written request, no less frequently than quarterly and shall cooperate
         and provide such documents and assistance as is reasonably requested in
         connection with such activities. Each Party will keep the other
         reasonably informed of, and consult with the other Party with respect
         to, all significant actions in the course of such Party's prosecution
         of the Joint Patents. If the Party having responsibility for
         prosecuting a particular Joint Patent elects not to assume or continue
         such responsibility, the other Party will have the right, but not the
         obligation, to do so. If either Party elects not to continue to support
         prosecution or maintenance of a particular Joint Patent, it may do so
         on written notice to the other Party, and in such case it will assign
         its entire interest in such Joint Patent to the other Party if such
         other Party elects to prosecute and maintain such Joint Patent at its
         sole expense; subject to any licenses and exclusivity in this
         Agreement. Upon any such assignment, the Party that elected to
         discontinue its involvement, and assign its interest, shall not be
         required to bear any expenses under this Section 12.2.

                                       54


12.3     FEMPHARM PATENT PROCEEDINGS

         Each Party will promptly notify the other of any legal proceedings,
         including opposition or declaration of invalidity proceedings,
         initiated or pursued by any third party against any of the FemPharm
         Patents. FemPharm has the sole right and authority to defend against
         any such proceedings, including defending against any defenses or
         counterclaims of invalidity or unenforceability (including such
         counterclaims as may arise out of an infringement claim under Section
         12.4). For clarity, all infringement actions involving a Field
         Infringement (as defined in Section 12.4) shall be pursued under
         Section 12.4, and FemPharm shall have the right to control only the
         defense of the FemPharm Patents in such Field Infringement actions in
         the event that a defense or counterclaim is asserted against the
         FemPharm Patents, shall use reasonable efforts, in such defense, not to
         adversely impact the Field Infringement action by Vivus. FemPharm will
         keep Vivus reasonably informed of the actions taken to defend the
         FemPharm Patents and the progress of such actions. In such case, only
         (*) % of FemPharm's costs and expenses of such involvement shall be
         reimbursed out of the recovery in the Field Infringement action. Vivus
         will provide FemPharm with reasonable assistance and cooperation in
         such actions, at FemPharm's sole expense, in an effort to obtain a
         successful resolution or termination of such proceedings or
         counterclaims governed by this Section 12.3. Vivus will have the right
         to have counsel of its choosing participate in any such defense of the
         FemPharm patents, at its sole expense, subject to Section 12.4.
         FemPharm will not settle any claim, suit or action involving FemPharm
         Patents in any manner that would materially negatively impact upon the
         FemPharm Patents, the Licensed Intellectual Property, or Vivus' rights
         or exclusivity thereunder, or that would materially negatively impact
         upon or limit or restrict the ability of Vivus to sell the Products in
         the Territory.

12.4     INFRINGEMENT PROCEEDINGS IN THE FIELD

         Each Party will promptly notify the other if it becomes aware that any
         third party is infringing any FemPharm Patent in the Territory. If any
         third party is infringing, or believed to be infringing any FemPharm
         Patent in the Territory in connection with the exploitation, making,
         use, import, offer for sale, or sale of a product in the Field in the
         Territory (a "Field Infringement"), then the Parties will promptly
         thereafter meet and discuss in good faith appropriate steps to take to
         cause such Field Infringement to cease.

                                       55


          (a)  Vivus or its designee has the first right and authority, but not
               the obligation, to take reasonable steps to cause termination of
               such Field Infringement, which may include initiating a lawsuit
               or other appropriate legal action, at its expense, as Vivus or
               its designee reasonably determines is appropriate; provided that
               Vivus agrees that it will not initiate a lawsuit asserting
               infringement of the FemPharm Patents unless it has first
               discussed the matter with FemPharm. Vivus will keep FemPharm
               reasonably informed of the actions taken to cause termination of
               a Field Infringement and the progress of any such actions
               (including notifying FemPharm promptly if the third party raises
               any defenses or counterclaims of invalidity or unenforceability
               of any FemPharm Patents). FemPharm will provide Vivus or the
               designee with reasonable assistance and cooperation in such
               actions, at Vivus's or the designee's expense (other than as set
               forth in Section 12.3), including joining such action as a party
               plaintiff and taking such other actions as are required by
               applicable law for Vivus or the designee to pursue such action.
               FemPharm will have the right to have counsel of its choosing
               participate in any such action, at its sole expense, provided
               that Vivus will have the right to control the action. Vivus will
               not settle any claim, suit or action that it brought under this
               Section 12.4 involving FemPharm Patents in any manner that would
               negatively impact upon the FemPharm Patents or the Licensed
               Intellectual Property without FemPharm's consent, not to be
               unreasonably withheld or delayed.

          (b)  If Vivus and its designees have not, within four (4) months of
               request by FemPharm, initiated and pursued reasonable efforts to
               cause such Field Infringement to cease, then each Party (and
               Vivus' designees) shall thereafter have the right and authority,
               but not the obligation, to take any such steps or actions at its
               expense. Whichever of such parties first does so shall thereafter
               control the action and the other Party will provide the
               controlling Party (or designee) with reasonable assistance and
               cooperation in such actions, at

                                       56


               expense of the controlling Party or designee (except as set forth
               in Section 12.3), including joining such action as a party
               plaintiff and taking such other actions as required by applicable
               law to pursue such action.

          (c)  The Party bringing the suit, action or legal proceedings will:

               (i)  be reimbursed for its costs and expenses associated with
                    bringing the legal proceedings out of the proceeds of any
                    damages or costs recovered or as otherwise provided by
                    agreement between the Parties; and

               (ii) indemnify the other Party against any liability awarded
                    against such other Party as a result of the subject matter
                    of such suit brought by the indemnifying Party, unless
                    caused by the acts or omissions of the indemnified Party.

          (d)  Any amounts remaining out of damages and costs and other amounts
               recovered from a third party due to infringement of the FemPharm
               Patents under a suit, action or legal proceeding brought against
               a Field Infringement, will be retained by the Party that brought
               the action as follows:

               (i)  if Vivus or its designee brought the action, then Vivus or
                    the designee, as the case may be, shall retain (*) percent
                    (* %) of the recovery and will pay the remaining (*) percent
                    (* %) to FemPharm; and

               (ii) if FemPharm brought the action, the recovery shall be (*)%
                    to Vivus and (*) % to FemPharm.

12.5     OTHER INFRINGEMENT PROCEEDINGS

         For clarity, FemPharm retains the sole and exclusive right to enforce
         and defend the FemPharm Patents against all third party infringements
         worldwide, except as otherwise provided in Section 12.4 with respect
         solely to Field Infringement.

                                       57


13.      REPRESENTATIONS AND WARRANTIES; DISCLAIMERS
- --------------------------------------------------------------------------------
13.1     WARRANTY

         Each Party, and each Acrux Controlled Affiliate, represents, warrants
         and covenants that: (i) it has the legal power and authority to enter
         into this Agreement and to perform all of its obligations hereunder;
         (ii) it has and will have the right and authority to grant the rights
         and licenses granted by it hereunder; (iii) this Agreement is a legal
         and valid obligation binding upon it and enforceable in accordance with
         its terms; (iv) it has not previously made, and during the term of this
         Agreement will not make, any commitment or grant or authorization of
         rights which are in conflict in any material way with, or that will
         restrict or impair, the rights, licenses, or exclusivity granted to
         Vivus herein.

13.2     ADDITIONAL WARRANTIES OF FEMPHARM AND THE ACRUX CONTROLLED AFFILIATES

         Each of FemPharm and Acrux DDS Pty Limited represents, warrants, and
         covenants as follows:

         (a) it has not received notice that it has failed to comply with, and
         it has not failed to comply with, any obligation, law, regulation, or
         order in a manner that will materially adversely affect the rights
         granted to Vivus under this Agreement;

         (b) Annexure B sets forth a list of all FemPharm Patents (whether
         issued or pending) owned by, or licensed to, any of FemPharm and the
         Acrux Controlled Affiliates. Except for the Patents listed in Annexure
         B, there are no Patents related to or useful for Products in the Field
         that are owned by, or licensed to, FemPharm or any Acrux Controlled
         Affiliate. All Patents in Annexure B are owned by FemPharm or an Acrux
         Controlled Affiliate, except as expressly identified in Annexure B.
         None of FemPharm and the Acrux Controlled Affiliates shall grant any
         third party any license or rights under any Patent that is within the
         FemPharm Patents that derogate from or reduce the license or rights
         granted to Vivus under this Agreement;

         (c) FemPharm has sufficient rights to the FemPharm Patents identified
         in the annexure B for it to grant to Vivus the exclusive right (with
         respect to all Persons) under such Intellectual Property, including the
         right to grant and authorize

                                       58


         sublicenses, to exploit, import, export, make, have made, use, offer
         for sale and sell Products for use in the Field in the Territory;

         (d) as of the Effective Date: (i) the existing FemPharm Patents are in
         full force and effect and not subject to any pending re-examination,
         opposition, interference or claim of invalidity proceedings, none of
         the Licensed Intellectual Property is subject to any litigation or
         similar proceedings, and neither FemPharm nor any Acrux Controlled
         Affiliate has knowledge of a third party threat of such a proceeding,
         or of facts that likely would be the basis for instituting such
         proceeding; (ii) none of FemPharm and the Acrux Controlled Affiliates
         has reason to believe that any of the existing FemPharm Patents likely
         will be invalid, unenforceable, or will fail to issue, or that the
         claims of any pending FemPharm Patent likely will be materially limited
         or restricted beyond the presently pending claims;

         (e) as of the Effective Date, none of FemPharm and the Acrux Controlled
         Affiliates is aware of any Person that is infringing a FemPharm Patent
         in the Territory;

         (f) FemPharm and/or one of the Acrux Controlled Affiliates have access
         and rights to all Regulatory Materials filed by or under authority of
         any of them with regulatory authorities, and the supporting raw data
         for such materials, relevant to Product and may be useful to support
         the development or marketing approval of the Product in the Field in
         the Territory, and has the right to include the same within the
         Know-how disclosed to Vivus hereunder;

         (g) FemPharm has not knowingly failed to provide to Vivus any documents
         or information requested by Vivus as part of its due diligence process,
         and FemPharm and Acrux DDS Party Limited believe that FemPharm has
         provided to Vivus, prior to the Effective Date, access to sufficient
         Know-How Controlled by FemPharm or any Acrux Controlled Affiliate for
         Vivus to conduct a reasonable and fully informed evaluation of the
         Licensed Technology and the development status and results relating to
         the current Product in deciding whether or not to enter into this
         Agreement, including all adverse information and all relevant
         agreements. None of the materials provided to Vivus by FemPharm or an
         Acrux Controlled Affiliate prior to the Effective Date contained any
         untrue statement of material fact, and to FemPharm's

                                       59


         and Acrux Controlled Affiliate's knowledge, none of FemPharm or any
         Acrux Controlled Affiliate failed to disclose to Vivus, or concealed,
         any material fact that would, absent such disclosure, make the
         materials provided to Vivus materially misleading;

         (h) as of the Effective Date, to each of FemPharm's and the Acrux
         Controlled Affiliates' knowledge, none of FemPharm and the Acrux
         Controlled Affiliates has made an untrue statement of a material fact,
         or has failed to disclose a material fact, to any regulatory authority
         with respect to the Product in the Field, or any portion thereof;

         (i) Acrux DDS Pty Limited shall use diligent, commercially reasonable
         efforts to (*). FemPharm and the Acrux Controlled Affiliates shall not
         terminate, amend or modify the (*). FemPharm shall notify Vivus in
         writing immediately if any of FemPharm, Acrux Limited or the Acrux
         Controlled Affiliates receives from the licensor of any Licensed
         Intellectual Property any notice of breach or termination, or any other
         indication of a dispute or matter that could lead to breach or
         termination, of the license agreement, or which could otherwise affect
         Vivus' rights thereunder;

         (j) FemPharm will not deliver to Vivus confidential or proprietary
         Know-How of any third party unless FemPharm has the right to do so for
         use and disclosure by Vivus in the manner set forth in this Agreement,
         unless FemPharm expressly identifies at the time of such disclosure the
         particular Know-How that FemPharm does not have the right to license to
         Vivus hereunder;

         (k) all employees, consultants, and other contractors of each of
         FemPharm and the Acrux Controlled Affiliates performing work related to
         or useful for any Product in the Field, including Monash, Barry Reed,
         William Charman, Dr. Barrie Finnin, and Dr. Tim Morgan in each case to
         the extent acting as an employee, consultant, or contractor of FemPharm
         or an Acrux Controlled Affiliate, have been and shall be subject to a
         written agreement that vests in FemPharm or an Acrux Controlled
         Affiliate all right, title, and interest in and to their work product,
         including all associated Intellectual Property rights;

                                       60


         (l) none of this Agreement, or the exercise by or under authority of
         Vivus of the license rights granted to Vivus under this Agreement, will
         violate or otherwise be affected by any of the terms or conditions
         imposed in connection any government funding or sponsorship obtained by
         FemPharm or an Acrux Controlled Affiliate;

         (m) FemPharm and the Acrux Controlled Affiliates are not aware, as of
         the Effective Date, (1) of any Patent of any third party, including
         Affiliates, that will be infringed by the manufacture, use import, or
         sale of a Product in the Field in the Territory, or (2) that any
         Licensed Know-How in any of their possession, and related to or useful
         for Product, was misappropriated from a third party.

         (n) none of the terms and conditions of the Monash License, including
         Sections 6, 7, 8.1, 8.3, 12.2, and 19.1 of the Monash License, or the
         Acrux DDS License bind Vivus;

         (o) the FemPharm Patents are not subject to any lien or encumbrance (as
         defined in the Monash License) that could materially limit or adversely
         affect Vivus' rights granted under this Agreement;

         (p) Acrux Limited is not controlled by any Person, and FemPharm and
         Acrux DDS Pty Limited, and Cosmeceutical Solutions Pty Limited are the
         only Affiliates of Acrux Limited that have any interest in (i) any
         Licensed Intellectual Property, (ii) any Competitive Product or (iii)
         any technology, product or Intellectual Property related to or useful
         for the Product in the Field, the delivery of testosterone or other
         Androgen's, or the delivery of a selective androgen receptor modulator,
         to females, or any transdermal or mucosal delivery; and

         (q) none of FemPharm and the Acrux Controlled Affiliates are currently
         researching or developing, or have current plans to commence research
         or development of, any MDTS product for the treatment of sexual
         dysfunction in human females, other than the Product.

                                       61


13.3     ADDITIONAL WARRANTIES OF VIVUS

Vivus represents, warrants, and covenants to FemPharm that:

         (a) Vivus has not received notice that it has failed to comply with,
         and it has not failed to comply with, any obligation, law, regulation,
         or order in a manner that will materially adversely affect the rights
         granted to Vivus under this Agreement;

         (b) Vivus has not knowingly failed to provide to FemPharm any documents
         or information requested by FemPharm as part of its due diligence
         process, or evaluation of whether or not to enter into this Agreement,
         except as otherwise stated to FemPharm. None of the materials provided
         to FemPharm by Vivus prior to the Effective Date contain any untrue
         statement of material fact, and to Vivus' knowledge, Vivus has not
         failed to disclose to FemPharm, or conceal, any material fact that
         would, absent such disclosure, make the materials provided to FemPharm
         materially misleading;

         (c) Vivus will not deliver to FemPharm confidential or proprietary
         Know-How of any third party unless Vivus has the right to do so for use
         and disclosure by FemPharm in the manner set forth in this Agreement,
         unless Vivus expressly identifies at the time of such disclosure the
         particular Know-How that Vivus does not have the right to license to
         FemPharm hereunder;


13.4     DISCLAIMER OF WARRANTIES

         EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, VIVUS AND
         FEMPHARM MAKE NO REPRESENTATIONS, WARRANTIES OR CONDITIONS OF ANY KIND,
         EITHER EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE, AND EACH PARTY HEREBY
         DISCLAIMS ALL OTHER WARRANTIES, INCLUDING, BUT NOT LIMITED TO,
         WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

                                       62


13.5     DISCLAIMER OF LIABILITY

         EXCEPT WITH RESPECT TO A BREACH OF SECTIONS 2.5, 10, OR THE EXCLUSIVITY
         IN SECTION 2.1(a), IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE
         OTHER BASED UPON THIS AGREEMENT FOR ANY SPECIAL, CONSEQUENTIAL,
         INDIRECT, OR INCIDENTAL DAMAGES ARISING OUT OF OR RELATED TO THIS
         AGREEMENT, HOWEVER CAUSED, ON ANY THEORY OF LIABILITY AND WHETHER OR
         NOT SUCH PARTY HAS BEEN ADVISED OR IS AWARE OF THE POSSIBILITY OF SUCH
         DAMAGES.

14.      TERM AND TERMINATION
- --------------------------------------------------------------------------------
14.1     TERM

         This Agreement will continue in full force and effect from the
         Effective Date until expiration, unless earlier terminated pursuant to
         Sections 5.19(b), 14.2, 14.3 or 14.8 below, on the date that Vivus no
         longer has, and shall not have in the future, any payment obligations
         to FemPharm under this Agreement. Upon such expiration, Vivus retains a
         non-exclusive, fully-paid license in the Territory to continue to make,
         have made, use, sell and otherwise exploit Products in the Field.

14.2     TERMINATION BY FEMPHARM

         FemPharm is entitled by written notice to Vivus to terminate this
         Agreement upon the happening of any of the following events, provided
         that FemPharm provides Vivus with written notice of termination within
         one hundred eighty (180) days after it becomes aware of the occurrence
         of the applicable event:

          (a)  any material breach by Vivus of any of the terms and conditions
               of this Agreement, where such breach is not fully cured and
               rectified within ninety (90) days, or with respect to payment
               obligations, within forty-five (45) days, after the giving of
               written notice by FemPharm to Vivus specifying such breach and
               requiring rectification thereof, provided that if such breach
               (other than a payment breach) is not capable of cure within the
               initial ninety (90) day period and Vivus is making diligent good
               faith efforts to cure, then Vivus shall

                                       63


               have an additional ninety (90) days to cure such breach, and
               subject to Section 15.10, and except as otherwise provided in
               Section 14.7;

          (b)  a petition or other application or resolution being passed
               against Vivus, or being presented by Vivus, in a bankruptcy
               proceeding that requires the winding up, liquidation or
               dissolution of Vivus or notice by Vivus of its intention to
               propose such a resolution being given;

          (c)  the appointment of a receiver, or receiver and manager, for all
               of Vivus's property in bankruptcy;

          (d)  if Vivus (or any of its Affiliates) bring any action, suit,
               defense or counterclaim seeking to invalidate or have held
               unenforceable: (i) any claim in any FemPharm Patent in
               substantially the same form that the claim is issued or pending
               on July 31, 2003 (an "Existing FP Claim"); or (ii) any claim in a
               FemPharm Patent filed after July 31, 2003 that is substantially
               the same as any such Existing FP Claim and that is entitled to an
               effective filing date (e.g. as defined under 35 USCss.120) that
               is the filing date of a FemPharm Patent filed prior to July 31,
               2003.

14.3     TERMINATION BY VIVUS

         Vivus is entitled by written notice to FemPharm to terminate this
         Agreement upon the happening of any of the following events, provided
         that Vivus provides FemPharm (except in case of subsection (d)) with
         written notice of termination within one hundred eighty (180) days
         after Vivus becomes aware of the occurrence of the applicable event:

          (a)  a material breach by FemPharm of any of the terms and conditions
               under this Agreement or a material breach by an Acrux Controlled
               Affiliate of its obligations, representations, or warranties in
               this Agreement, where such breach is not fully cured or rectified
               within ninety (90) days after the giving of written notice by
               Vivus to FemPharm specifying such breach or non-observance and
               requiring rectification thereof, provided that if such breach is
               not capable of cure within the initial ninety (90) day period and
               FemPharm

                                       64


               and the Acrux Controlled Affiliates are making diligent good
               faith efforts to cure, then FemPharm shall have an additional
               ninety (90) days to cure such breach, and subject to Section
               15.10;

          (b)  a petition or other application being presented or resolution
               being passed by or against FemPharm, Acrux DDS Pty Ltd, or Acrux
               Limited in a bankruptcy proceeding that requires the winding up,
               liquidation or dissolution of the applicable entity, or notice by
               such entity of its intention to propose such a resolution being
               given;

          (c)  the appointment of a receiver, or receiver and manager, for all
               of FemPharm's property in bankruptcy or the rejection of this
               Agreement by any such receiver or manager;

          (d)  Vivus has provided sixty (60) days written notice that Vivus is
               terminating the Agreement for its convenience; or

          (e)  if FemPharm (or any of its Affiliates) bring any action, suit,
               defense or counterclaim seeking to invalidate or have held
               unenforceable: (i) any claim in any Patent Controlled by Vivus or
               its Affiliate in substantially the same form that the claim is
               issued or pending on July 31, 2003 (an "Existing V Claim"); or
               (ii) any claim in a Patent Controlled by Vivus or its Affiliate
               filed after July 31, 2003 that is substantially the same as any
               such Existing V Claim and that is entitled to an effective filing
               date (e.g. as defined under 35 USCss.120) that is the filing date
               of such a Patent filed prior to the July 31, 2003.

         Further, in lieu of proceeding under Section 14.3(a), 14.3(b), 14.3(c)
         or 14.3(e) based upon a particular event, Vivus shall have the right to
         avail itself of the provisions of Section 14.6 based upon the event,
         rather than terminating the Agreement in its entirety under Section
         14.3(a), 14.3(b), 14.3(c), or 14.3(e), provided that proceeding under
         Section 14.6 based upon an event shall not prevent Vivus from
         proceeding under Section 14.3 with respect to any later event covered
         by Section 14.3.

                                       65


14.4     NO RELEASE

         Termination of this Agreement does not release either Party from any
         liability that has accrued prior to such termination, or release either
         Party from any obligation that survives termination of this Agreement.

14.5     CONSEQUENCES OF AGREEMENT TERMINATION

          (a)  The terms of this Section 14.5(a) shall apply upon termination
               pursuant to Section 14.2 or Section 14.3(d), except if Vivus has
               previously exercised its rights, under Section 14.3(a) or 14.6 to
               terminate portions of this Agreement pursuant to Section 14.6 due
               to uncured material breach.

               (i)  Section 2.1 of this Agreement shall automatically terminate,
                    and Section 2.3 shall survive, except rights under Section
                    2.3(b) shall survive to the extent set forth below.

               (ii) Upon such termination, Vivus will be deemed automatically to
                    grant to FemPharm a perpetual, irrevocable, royalty-free,
                    fully paid, non-exclusive license (with full rights to
                    sublicense): (A) under the Improvement Blocking Patent
                    Rights to exploit, import, make, have made, use, offer for
                    sale and sell Products in the Field throughout the
                    Territory; and (B) under the Reversion IP to exploit,
                    import, make, have made, use, offer for sale and sell
                    Products in the Field in the Territory. As used herein,
                    "Reversion IP" means all trade secrets in the Improvements
                    to the extent Controlled by Vivus or its Controlled
                    Affiliate during the term and necessary or reasonably useful
                    for the development, manufacture or commercialization of
                    Products in the Field. Additionally, FemPharm shall have the
                    right under Section 2.3(b) to negotiate toward a
                    non-exclusive license under the Reversion IP for countries
                    outside of the Territory, New Zealand, and Australia,
                    provided that such license shall be royalty free if this
                    Agreement has been terminated by FemPharm under Section
                    14.2(a) for Vivus' material breach.

                                       66


               (iii) Upon such termination, Vivus will be deemed automatically
                    to grant to FemPharm the non-exclusive right to access, use
                    and cross reference all Regulatory Materials, including all
                    registrations and regulatory approvals, filed by Vivus with,
                    or obtained by Vivus from, the FDA in the development of
                    Products in the Field and Territory; provided that all
                    access, use or cross reference by and under authority of
                    FemPharm shall be solely for the purpose of development and
                    commercialization of Products in the Field in the Territory.
                    Additionally, the Parties agree that FemPharm's right to
                    negotiate under Section 2.3(b) toward a license under the
                    Reversion IP as set forth in Section 14.5(a)(ii) above
                    includes the right to negotiate toward rights to access, use
                    and cross-reference such Regulatory Materials for countries
                    outside the Territory, New Zealand, and Australia.
                    Notwithstanding anything to the contrary, except as
                    expressly set forth in this Section 14.5(a), no right,
                    license, or exclusivity to or under any Intellectual
                    Property is or shall be granted by Vivus or its Affiliates
                    and Vivus and its Affiliates shall maintain all right,
                    title, and interest in and to all Intellectual Property and
                    Know-How. Without limiting the foregoing, no right or
                    license is or shall be granted by Vivus or its Affiliates in
                    or to any trademarks, trade names, logos, or the like.

               (iv) To the extent not previously disclosed by Vivus, Vivus will
                    use reasonable efforts for a period of 90 days after
                    termination of this Agreement to disclose and provide copies
                    to FemPharm of all the Data (as defined in Section 5.18)
                    generated by Vivus during the term of the Agreement that
                    Section 5.18 requires Vivus to disclose and provide copies
                    to FemPharm, and FemPharm (and its Affiliates and licensees)
                    shall have full rights to use such Data for developing and
                    exploiting Product in the Field to the extent that FemPharm
                    is licensed to do so, and is licensed to authorize its
                    Affiliates and sublicensees to do so, as set forth in
                    Sections 14.5(a)(ii) and 14.5(a)(iii) above, and provided
                    that such Data shall remain the Confidential Information of
                    Vivus and its Affiliate and sublicensee, as the case may be.

                                       67


               (v)  To the extent provided for in any supply agreement between
                    Vivus and FemPharm pursuant to Section 8.6 above, Vivus will
                    continue to manufacture (or have manufactured) and supply to
                    FemPharm the Product covered by such agreement for use in
                    the Field and Territory until FemPharm is able to obtain its
                    own supply of its requirements of Products for use in the
                    Field and Territory (provided that such period shall not
                    exceed one (1) year) and will work cooperatively and
                    reasonably with FemPharm to achieve a smooth transition of
                    the manufacture of the Reverted Product to FemPham, and (if
                    applicable) to assist FemPharm in seeking to obtain a
                    manufacturing agreement with Vivus's contract manufacturer
                    of the Reverted Product on commercially reasonable terms,
                    provided that in each case such transition shall not impose
                    an unreasonable burden on Vivus.

               (vi) Vivus shall, within thirty (30) days after termination,
                    return to FemPharm all Confidential Information delivered or
                    provided by FemPharm to Vivus; provided that Vivus shall be
                    entitled to keep a record copy of such Confidential
                    Information and shall not be required to return any product.
                    Article 10 shall survive termination (excluding the
                    obligation to issue a press release under Section 10.13),
                    but only for a period of five (5) years. Notwithstanding
                    termination of Vivus' rights, Vivus and its Affiliates and
                    sublicensees shall have the right to continue to market,
                    sell, offer to sell, and import any Product, in existence at
                    the time of termination, in the Territory for six (6) months
                    after termination PROVIDED THAT the terms of Article 4 will
                    survive and remain in force as to all such sales.

               (vii) In the event an action under Section 12.4 was commenced
                    during the term of the Agreement and is ongoing at the time
                    of termination, Section 12.4 shall continue to apply to the
                    action in accordance with its terms, except that the Party
                    bringing the action for purposes of allocating any recovery
                    under Section 12.4(d) shall be deemed to be the Party
                    controlling the action at the time of termination. If
                    FemPharm assumes control of an action initiated by Vivus,
                    then

                                       68


                    Section 12.4(c)(ii) shall apply as if FemPharm is the Party
                    bringing the action and all costs and expenses incurred by
                    Vivus in the action prior to the date of termination shall
                    be reimbursed out of any recovery before allocation under
                    Section 12.4(d).

               (viii) Section 14.5(c) shall apply.

          (b)  Upon termination of this Agreement pursuant to Section 14.3
               (other than 14.3(d)), or upon any termination (but not
               expiration) of this Agreement after Vivus had previously
               exercised its rights, under Section 14.3(a) or 14.6, to terminate
               portions of this Agreement pursuant to Section 14.6 due to
               uncured material breach, the terms of this Section 14.5(b) shall
               apply.

               (i)  Section 2.1 of this Agreement shall automatically terminate.
                    Notwithstanding termination of Vivus' rights, Vivus and its
                    Affiliates and sublicensees shall have the right to continue
                    to market, sell, offer to sell, and import any Product, in
                    existence at the time of termination, in the Territory for
                    six (6) months after termination PROVIDED THAT the terms of
                    Article 4 will survive and remain in force as to all such
                    sales.

               (ii) Section 2.3(b) shall automatically terminate.

               (iii) Article 10 (excluding the obligation to issue a press
                    release under Section 10.13) shall survive such termination,
                    but only for a period of five (5) years.

               (iv) Each Party shall, within thirty (30) days after termination,
                    return to the other Party all Confidential Information
                    delivered or provided by such other Party, except that it
                    may keep one copy of such information purely for archival
                    purposes and Vivus shall not be required to return Product.

               (v)  In the event an action under Section 12.4 was commenced
                    during the term of the Agreement and is ongoing at the time
                    of termination, Section 12.4 shall continue to apply to the
                    action in accordance with its terms, except that Vivus shall
                    be considered the Party bringing the

                                       69


                    action for purposes of allocating any recovery under Section
                    12.4(d). If FemPharm assumes control of an action initiated
                    by Vivus, then Section 12.4(c)(ii) shall apply as if
                    FemPharm is the Party bringing the action and all costs and
                    expenses incurred by Vivus in the action prior to the date
                    of termination shall be reimbursed out of any recovery
                    before allocation under Section 12.4(d). For clarity, Vivus
                    shall have the right to continue to pursue any such action
                    commenced by Vivus to the extent desired.

               (vi) Section 14.5(c) shall apply.

          (c)  In addition to survival as set forth in Sections 14.5(a) or
               14.5(b) above, as applicable, Sections 1.1, 1.2, 4.9, 9.3, 11.1
               (excluding Vivus' obligation to disclose Improvements), 11.2,
               11.3, 12.2, 13.4, 13.5, 14.1, 14.4, and 14.5 will survive
               termination of the Agreement for any reason and expiration of
               this Agreement, except termination under Section 14.8. Article 15
               shall survive any such termination and expiration of this
               Agreement. Except as otherwise expressly set forth in this
               Section 14.5 above or 14.8, all terms and conditions of this
               Agreement shall terminate and have no further force or effect
               upon any termination or expiration of this Agreement, even if
               termination of the particular Article or Section is not expressly
               referenced in this Section 14.5 or 14.8. For clarity, the
               Development Plan shall be deemed terminated and of no further
               force or effect upon any termination or expiration of this
               Agreement. Notwithstanding anything to the contrary, no payment
               shall be due or payable under Section 3 or 6.2 unless the payment
               became due and payable prior to the date on which the notice of
               termination was given.

14.6     VIVUS TERMINATION OF SPECIFIC PROVISIONS FOR UNCURED BREACH

         If there occurs a material breach by FemPharm of any of the terms and
         conditions under this Agreement, and such breach is not fully cured or
         rectified within ninety (90) days after the giving of written notice by
         Vivus to FemPharm specifying such breach or non-observance and
         requiring rectification thereof, then, subject to Section 15.10, Vivus
         may, as described in Section 14.3, (in lieu of proceeding under Section
         14.3(a)), cause the following changes to occur under the Agreement:

                                       70


          (a)  The following Sections of the Agreement shall automatically
               terminate: 2.3(b), 2.6(b), 5.1, 5.3, 5.6, 5.7, 5.8, 5.9, 5.10,
               5.11, 5.12, 5.13, 5.14, 5.15, 5.16 (but only to the extent
               desired by Vivus), 5.18, 5.21, 7.1(b), 7.2 (except the first two
               sentences), 8.2(b), 8.2(1), 8.2(2), 8.2(3), 8.3, 8.5, 14.2(d),
               and 14.5(a). For clarity, all obligations of Vivus to pay
               reimbursement shall terminate immediately. Vivus shall be
               entitled to withhold consent to development in the Territory
               under Section 2.1(c) for any reason or no reason..

          (b)  Section 8.6 shall terminate, except for the restrictions on
               Product purchased from Vivus. The obligation to issue a press
               release under Section 10.13, and the obligation of Vivus to
               disclose Improvements under Section 11.1, shall terminate except
               to the extent otherwise reasonably specified by Vivus.
               Notwithstanding anything to the contrary, each of FemPharm and
               the Acrux Controlled Affiliates shall, within thirty (30) days of
               Vivus' request return to Vivus all Confidential Information
               delivered or provided by Vivus, except that FemPharm may keep one
               copy of such information purely for archival purposes.

          (c)  Notwithstanding this Section 14.6, Articles 3 and 4 shall survive
               and remain in force. Section 12.4 shall continue to apply in
               accordance with its terms, except that if FemPharm assumes
               control of an action initiated by Vivus, then Section 12.4(c)(ii)
               shall apply as if FemPharm is the Party bringing the action and
               all costs and expenses incurred by Vivus in the action prior to
               the date of Vivus relinquishing control shall be reimbursed out
               of any recovery before allocation under Section 12.4(d). Section
               7.1 shall terminate except for the first and last sentences of
               Section 7.1(a) which shall survive. FemPharm and the Acrux
               Controlled Affiliates shall cooperate in any reasonable manner
               requested by Vivus to achieve a smooth transition to Vivus of any
               and all Development Plan responsibilities of FemPharm.

          (d)  If Vivus elects to exercise its rights under this Section 14.6
               due to an uncured material breach by FemPharm of its obligations
               under Section 2.5(b), then Section 2.5(a) shall be deemed to
               terminate unless Vivus achieves an injunction that enjoins
               FemPharm from further violations of the terms of Section 2.5(b).

                                       71


14.7     LIMITATION OF TERMINATION FOR BREACH AFTER COMMERCIAL LAUNCH

         Commencing upon the First Commercial Sale of a Product in the
         Territory, but subject to Section 15.10, FemPharm shall have the right
         to terminate the Agreement under Section 14.2(a) only for the following
         uncured material breaches by Vivus:

          (a)  Material breach of the obligations in Section 8.2(a) or 8.2(c);

          (b)  Breach of the payment obligations under the Agreement, which
               breach remains uncured one hundred twenty days after notice.

         If Vivus materially breaches any other obligation under the Agreement,
         and such breach would permit termination of the Agreement under Section
         14.2(a) but for this Section 14.7, and such breach is not fully cured
         or rectified within ninety (90) days after the giving of written notice
         by FemPharm to Vivus specifying such breach or non-observance and
         requiring rectification thereof, provided that if such breach (other
         than a payment breach) is not capable of cure within the initial ninety
         (90) day period and Vivus is making diligent good faith efforts to
         cure, then Vivus shall have an additional ninety (90) days to cure such
         breach, then (subject to Section 15.10) FemPharm shall have the right
         to cause the following changes to the Agreement on written notice to
         Vivus (but not to terminate the Agreement in its entirety):

               (i)  The following Sections of the Agreement shall automatically
                    terminate: 2.4, 2.7, 5.2, 5.18, and 5.19.

               (ii) The penultimate sentence of Section 7.1(a) shall terminate.
                    The obligations of FemPharm in the penultimate sentence of
                    Section 7.2 shall terminate, and only the rights of FemPharm
                    under such sentence shall survive.

               (iii) If FemPharm elects to exercise its rights under this
                    Section 14.7 due to an uncured material breach by Vivus of
                    its obligations under Section 2.5(a), then Section 2.5(b)
                    shall be deemed to terminate unless FemPharm achieves an
                    injunction that enjoins Vivus from further violations of the
                    terms of Section 2.5(a).

                                       72


14.8     TERMINATION FOR FAILURE TO ACHIEVE (*)

         Vivus has the right to terminate this Agreement by providing written
         notice thereof to FemPharm within thirty (30) days after the occurrence
         of the following: Acrux DDS Pty Limited. has not (*) within (*) after
         the Effective Date that (*). If Vivus terminates the Agreement under
         this Section 14.8, then:

          (a)  FemPharm shall (*), and (*) Additionally, FemPharm and Acrux
               Limited shall promptly (*) of this Section 14.8.

          (b)  In the event of termination under this Section 14.8, all terms
               and conditions of this Agreement shall terminate and have no
               further force or effect except that this Section 14.8 and
               Articles and Sections 9.3, 10 (but only for five (5) years after
               termination and excluding the obligation to issue a press release
               under Section 10.13), 11.2, 11.3, 12.2, 13.4, 13.5, 14.4, 14.9,
               and 15 shall survive. For clarity, all of Vivus' payment
               obligations, including obligations to reimburse FemPharm, shall
               terminate and have no further force or effect immediately upon
               Vivus' notice. The Development Plan shall be deemed terminated
               and of no further force or effect.

                                       73


14.9     REMEDIES

         Termination of this Agreement as provided in Sections 5.19(b), 14.2,
         14.3, and 14.8, and termination of certain provisions of this Agreement
         as provided in Section 14.6 and 14.7, is a cumulative remedy, and each
         Party will be entitled to seek any other rights or remedies available
         to it at law or in equity for any breach or non-observance of this
         Agreement.


15.      GENERAL
- --------------------------------------------------------------------------------
15.1     NOTICES

         Any notice given pursuant to this Agreement must be in writing and may
         be given by pre-paid express courier addressed to the other Party at
         the address specified in this Agreement or as subsequently notified in
         writing, or by hand delivery or facsimile or electronic transmission to
         the same address and any such notice is deemed to have been received:

          (a)  if served by express courier on the date signed for;

          (b)  if served by hand delivery, on the date delivered by hand;

          (c)  if sent by facsimile transmission, when the transmitting machine
               produces a written report that the notice has been effectively
               sent to the other party, if the sender confirms such notice by
               express courier or hand delivery;

          (d)  if sent by electronic transmission, when the transmitting
               computer produces a written report that the notice has been
               effectively sent to the other party, if the sender confirms such
               notice by express courier or hand delivery;

         If a notice is deemed under clause (c) or (d) to have been received on
         a day which is not a Business Day, it is deemed to have been received
         on the next Business Day.

                                       74


         The address for service of any notice is:

         To FemPharm

         FemPharm Pty Ltd
         103-113 Stanley Street
         West Melbourne   Victoria    3003
         Australia
         Facsimile:
         Email:

         with a copy to:

         Mr. P G Willcocks
         Lander & Rogers, Lawyers
         Level 12, 600 Bourke Street
         Melbourne Victoria 3000
         Australia
         Facsimile:
         Email:

         To Vivus


         with a copy to:
         Facsimile:
         Email:

15.2     INDEMNIFICATION

          (a)  Vivus is responsible for, and will indemnify, hold harmless and
               defend FemPharm, its Affiliates and their respective officers,
               directors, employees and agents against any and all claims,
               damages, losses, costs, expenses (including reasonable attorneys'
               and professional fees and other expenses of litigation), and
               liabilities, resulting from any third party claims, actions,
               suits, or allegations ("Claims") to the extent the Claim results
               from or arises out of: (a) the negligence, recklessness, or
               willful misconduct of Vivus, its Controlled Affiliates, or its
               sub-licensees, or their respective officers, directors,
               employees, or agents; (b) Vivus's breach of its obligations,
               representations or warranties under this Agreement; or (c) the
               development, manufacture, promotion, use or sale of any Product
               by Vivus, its Affiliate, or its sub-licensee, or by any of their
               respective customers or end-users.

                                       75


               Notwithstanding the foregoing, Vivus's obligations under this
               Section 15.2 will not apply to any Claim, to the extent that such
               Claim arises out of or results from (i) the development,
               manufacture, use, promotion, and/or sale of any product or
               technology (including Product) by FemPharm or its Affiliate or
               licensee (other than Vivus, but including Product sold by Vivus
               under any supply agreement with FemPharm or any Acrux Controlled
               Affiliate), or any of their respective customers or end-users;
               (ii) FemPharm's or an Acrux Controlled Affiliate's breach of its
               obligations, representations, or warranties under this Agreement;
               or (iii) the negligence, recklessness, or willful misconduct of
               FemPharm, its Affiliates, or licensees (other than Vivus) or
               their respective officers, directors, employees, or agents; or
               (iv) claims of any participant in the Phase IIb Study or any
               other Clinical Trials performed by or under authority of FemPharm
               or an Acrux Controlled Affiliate.

          (b)  FemPharm and Acrux Limited shall be responsible for, and will
               indemnify, hold harmless and defend Vivus, its Affiliates and
               their respective officers, directors, employees and agents
               against any and all claims, damages, losses, costs, expenses
               (including reasonable attorneys' and professional fees and other
               expenses of litigation), and liabilities, resulting from any
               third party claims, actions, suits, or allegations ("Claims")
               resulting from or arising out of: (i) the development,
               manufacture, use, promotion, and/or sale of any product
               (including Product) by FemPharm or an Acrux Controlled Affiliate
               or their licensees (other than Vivus, but including Product sold
               by Vivus under any supply agreement with FemPharm or any Acrux
               Controlled Affiliate and including liability to patients in
               connection with any Clinical Trials by FemPharm), or any of
               FemPharm's or an Acrux Controlled Affiliate's or FemPharm
               licensee's respective customers or end-users; (ii) FemPharm's or
               an Acrux Controlled Affiliate's breach of its obligations,
               representations, or warranties under this Agreement; or (iii) the
               negligence, recklessness, or willful misconduct of FemPharm, an
               Acrux Controlled Affiliate, or licensees (other than Vivus) or
               their respective officers, directors, employees, or agents.
               Notwithstanding the foregoing, FemPharm's and Acrux Limited's
               obligations under this Section 15.2 will not apply to any Claim,
               to the extent that such Claim is the subject of an
               indemnification obligation under Section 15.2(a) above.

                                       76


          (c)  A Party that intends to claim indemnification under this Section
               15 (the "Indemnitee") shall promptly notify the other Party (the
               "Indemnitor") in writing of any Claim, in respect of which the
               Indemnitee intends to claim such indemnification, and the
               Indemnitor shall have sole control of the defense and/or
               settlement thereof. The indemnity arrangement in this Section 15
               shall not apply to amounts paid in settlement of any action with
               respect to a Claim, if such settlement is effected without the
               consent of the Indemnitor, which consent shall not be withheld
               unreasonably. The failure to deliver written notice to the
               Indemnitor within a reasonable time after the commencement of any
               action with respect to a Claim, if prejudicial to its ability to
               defend such action, shall relieve such Indemnitor of any
               liability to the Indemnitee under this Section 15 but the
               omission so to deliver written notice to the Indemnitor shall not
               relieve the Indemnitor of any liability that it may have to any
               Indemnitee otherwise than under this Section 15. The Indemnitee
               under this Section 15, shall cooperate fully with the Indemnitor
               and its legal representatives in the investigation of any action
               with respect to a Claim covered by this indemnification, at the
               Indemnitor's expense. Notwithstanding the foregoing, the
               Indemnitor shall not be responsible for any costs or expenses
               incurred by the Indemnitee or its Affiliate, or the directors,
               officers, employees, successors or assigns of the Indemnitee or
               its Affiliate, without the prior written consent of the
               Indemnitor, not to be unreasonably withheld.

15.3     DAMAGES FOR BREACH OF REPRESENTATIONS AND WARRANTIES

         Notwithstanding anything to the contrary, a breach of warranty under
         this Agreement shall have the same effect as a breach of a covenant,
         and each Party shall be entitled to recover for a breach of a warranty
         by the other Party the same contractual damages as if such other Party
         had breached a covenant, subject to Section 13.5.

                                       77


15.4     WAIVER

         A waiver by any Party of any breach or a failure to enforce or to
         insist upon the observance of a condition of this Agreement will not be
         a waiver of any other or of any subsequent breach. No waiver under this
         Agreement is binding unless in writing and signed by the Party giving
         the waiver.

15.5     SEVERANCE

         If any part of this Agreement is held to be invalid, unenforceable,
         illegal, void or voidable for any reason, this Agreement will be
         construed and be binding on the Parties to the maximum extent possible,
         as if the invalid, unenforceable, illegal, void or voidable part had
         been deleted from this Agreement or read down to the extent necessary
         to overcome the difficulty.

15.6     SUCCESSORS AND ASSIGNS

         This Agreement is binding on and continues for the benefit of each
         Party, its successors and permitted assigns.

15.7     CONTINUING OBLIGATIONS

         The expiration or termination of this Agreement does not operate to
         terminate any of the surviving obligations under this Agreement, which
         will remain in full force and effect and binding on the Party
         concerned.

15.8     VARIATION

         No variation, modification or amendment of this Agreement is binding on
         the Parties unless in writing and signed by both Parties.

15.9     APPLICABLE LAW

         This Agreement, and all disputes under Section 15.10, shall be governed
         by and construed in accordance with the laws of California, USA, and
         the Parties submit themselves to the non-exclusive jurisdiction of the
         courts having San Francisco within their jurisdiction.

                                       78


15.10    DISPUTE RESOLUTION

         If any claim, controversy, difference or dispute between the Parties
         arises at any time under this Agreement, including as to its existence,
         validity, interpretation, effect, breach or termination, (a "Dispute"),
         then either Party may give the other a written notice of Dispute
         reasonably identifying and providing a description of the Dispute.
         Notwithstanding the existence of a Dispute, the Parties must continue
         to perform this Agreement, unless the Agreement is terminated in
         accordance with its terms. If there is a Dispute, however, regarding
         whether or not a breach of this Agreement has occurred, then notice of
         such a Dispute will toll the cure period, and the Agreement will remain
         in effect until the Dispute is resolved. If such a Dispute is finally
         resolved in favour of the Party giving notice of breach, then the
         Agreement will terminate sixty (60) days after the final determination
         is made unless the other Party cures the breach within such sixty (60)
         day period. If a Party gives written notice of a Dispute, then senior
         executive officers from both Parties will meet promptly thereafter and
         negotiate in good faith to resolve the Dispute as quickly and cost
         effectively as possible. If the Parties have not resolved the Dispute
         within sixty (60) days of the date of the written notice of the
         Dispute, then either Party may, by written notice to the other Party,
         submit such Dispute to final and binding arbitration under the then
         current Comprehensive Arbitration Rules and Procedures of the Judicial
         Arbitration and Mediation Services ("JAMS"), except as such rules may
         be modified in this agreement ("Rules"). The Parties agree that any
         such Dispute will be settled by three (3) arbitrators which are
         appointed within 90 days of service by one Party of a request for
         arbitration on the other Party. Each Party will select one arbitrator,
         and the third arbitrator will be appointed by JAMS, as provided in the
         Rules. The arbitration proceedings will take place, and the
         arbitrators' award will be rendered, in Honolulu, Hawaii or such other
         location as may be agreed in writing by the Parties. The decision of
         the arbitrators will be final and binding on the Parties. The
         arbitrators will prepare and deliver to the Parties a written, reasoned
         opinion conferring their decision. Judgment on the award so rendered
         may be entered in any court having competent jurisdiction thereover.
         Each Party may, without breach of this Section 15.10 or waiving any
         remedy under this Agreement, seek from any court having jurisdiction
         any injunctive or provisional relief necessary to protect the rights or

                                       79


         property of that Party pending the arbitration award. Each Party shall
         bear its own costs and expenses and attorneys' fees and an equal share
         of the arbitrators' and any administrative fees of arbitration. The
         Parties further agree that any payments made pursuant to this Agreement
         pending resolution of the dispute shall be refunded if an arbitrator or
         court determines that such payments are not due.

15.11    DISPUTE REGARDING LICENSE NECESSITY.

         If FemPharm disputes, under Section 4.3, that a particular patent
         license is "necessary" as defined in that Section, then the Parties
         shall resolve such dispute by submitting such dispute for resolution to
         a mutually agreed independent patent attorney with substantial
         experience regarding the scope, validity and enforceability of patents
         covering subject matters similar to the third party patent in question
         (the "Neutral"). If the Parties cannot agree on a Neutral within thirty
         (30) days of the request of either Party, then the Neutral shall be
         selected by the Chairman of the Intellectual Property section of the
         American Bar Association. The Neutral shall not have any current
         interest in or current or prior involvement with either Party, unless
         the Parties agree otherwise. Within 10 days following the
         identification of the Neutral, each Party shall submit to the Neutral
         in writing its statement of the issue in dispute; and the basis for its
         position that the patent license that is the subject of the dispute is,
         or is not, (as applicable) "necessary" as defined in Section 4.3. No
         ex-parte communication with the Neutral shall be allowed without the
         consent of the other Party. The Neutral may follow such procedures as
         he or she desires, provided that the Neutral shall decide the issue in
         favor of one Party within thirty (30) days of submission of the
         statements. If the Neutral determines that the subject patent license
         is "necessary", then Vivus shall be entitled to credit royalties as
         provided in Section 4.3, and otherwise no credit shall be permitted
         (except as may otherwise be agreed by the Parties in writing). The
         Parties shall equally share the costs associated with the Neutral's
         activities under this Section 15.11. Each Party shall cooperate to
         allow the Neutral to complete his/her obligations under this Section.
         If Vivus has in fact taken a license for the Product, the license shall
         be considered necessary unless otherwise established in such
         proceeding.

                                       80


15.12    COUNTERPARTS

         This Agreement may be signed in any number of counterparts and all such
         counterparts taken together are deemed to constitute one and the same
         document.

15.13    COSTS

         Each Party must pay their own legal, accounting and other costs in
         relation to the negotiation, preparation, execution and implementation
         of this Agreement.

15.14    PAYMENT

         All payments to be made under this Agreement must be paid by electronic
         transfer to the bank account nominated in writing by the Party to whom
         the payment is to be made and received into that account in cleared
         funds on the date the payment is due.

15.15    ENTIRE AGREEMENT

         This Agreement, and the Guaranty Agreement, constitutes the entire
         agreement and basis of the transaction between the Parties in relation
         to its subject matter and supersedes all other prior and
         contemporaneous communications, negotiations, arrangements and
         agreements between FemPharm and Vivus whether oral or in writing,
         except that confidential information disclosed by a Party pursuant to
         the non disclosure agreement between FemPharm and Vivus prior to the
         Effective Date shall be treated as Confidential Information of the
         disclosing Party to the extent set forth in this Agreement, and the
         Estradiol Agreement shall remain in full force and effect.

15.16    INJUNCTIVE RELIEF

         Each Party acknowledges that monetary damages alone may not be adequate
         compensation for a breach of this Agreement by the other Party,
         including breach of Article 10. Each Party is entitled to seek
         injunctive relief from a court of competent jurisdiction as a remedy
         for any breach or threatened breach of this Agreement, in addition to
         any other remedies available at law or in equity under or independently
         of this Agreement, each to the extent available in accordance with
         applicable law.

                                       81


15.17    INDEPENDENT CONTRACTORS

         The relationship of the Parties hereto is that of independent
         contractors. The Parties hereto shall not be deemed to be agents,
         partners or joint venturers of the others for any purpose as a result
         of this Agreement or the transactions contemplated thereby, and neither
         Party shall have the authority to agree to any obligation or commitment
         for the other.

15.18    FORCE MAJEURE

         Neither Party shall lose any rights hereunder, be considered in breach
         of this Agreement, or be liable to the other Party for damages or
         losses on account of its failure to perform if the failure is
         occasioned by war, strike, fire, act of God, earthquake, flood,
         lockout, embargo, failure of suppliers, power failures, or any other
         reason where failure to perform is beyond the reasonable control of the
         non-performing Party (a "Force Majeure"), provided that after the Force
         Majeure occurs, the non-performing Party uses reasonable efforts to
         avoid the effects of such Force Majeure, and to perform its
         obligations, each to the extent reasonably practicable (it being agreed
         that in no event shall a Party be required to settle any labor dispute
         or disturbance).

15.19    BANKRUPTCY

         All rights and licenses granted under or pursuant to this Agreement by
         each Party as a licensor are, and shall otherwise be deemed to be, for
         purposes of Section 365(n) of Title 11, U.S. Code (the "Bankruptcy
         Code"), licenses of rights to "intellectual property" as defined under
         section 101(35A) of the Bankruptcy Code. The Parties agree that each
         licensee of such rights under this Agreement, shall retain and may
         fully exercise all rights and elections it would have in the case of a
         licensor bankruptcy under the Bankruptcy Code. Each Party agrees during
         the term of this Agreement to create or maintain current copies, or if
         not amenable to copying, detailed descriptions or other appropriate
         embodiments, of all such intellectual property licensed to the other
         Party.

15.20    ACRUX DDS AS A PARTY

                                       82


         Acrux DDS Pty Limited agrees to be fully and independently bound by the
         Sections to which it is expressly a party under this Agreement, and
         including also the provisions of Article14 (it being understood that
         only Vivus or FemPharm may terminate this Agreement in accordance with
         its terms). Notwithstanding the foregoing, Acrux DDS Pty Limited
         acknowledges that Vivus shall have no independent obligations to Acrux
         DDS Pty Limited under this Agreement, and all of Vivus' obligations
         under this Agreement and this Section 15.20 shall be satisfied upon
         Vivus' performance or tender of performance to FemPharm. In addition,
         any notice given to or from FemPharm and FemPharm's consent, approval,
         agreement, actions or inactions shall be deemed notices to and from,
         and the consent, approval, or agreement of, or actions or inactions
         authorized by Acrux DDS Pty Limited. Acrux DDS Pty Limited agrees to be
         likewise bound by any and all amendments to this Agreement, which
         amendments shall not require Acrux DDS' Pty Limited's approval. It is
         understood and agreed that Acrux DDS Pty Limited may look only to
         FemPharm for any share of or benefit from Vivus' performance or
         undertakings under this Agreement, and Vivus shall have no
         responsibilities to Acrux DDS Pty Limited in that regard.

15.21    SURVIVAL OF SUBLICENSES

         If FemPharm terminates the Agreement, then any existing sublicense
         agreement with a non-Affiliate granted by Vivus hereunder shall remain
         in force provided that such sublicensee agrees in writing to be bound
         by and perform to the same extent as required of Vivus under this
         Agreement. For clarity, it is understood that the foregoing shall not
         have the effect of expanding or increasing the rights of the
         sublicensee beyond the rights granted to it under the sublicense
         agreement.

EXECUTION

EXECUTED by FEMPHARM PTY                       )
LTD by being signed by:                        )
                                               )
                                               )
                                               )
                                               )
/s/ Igor Gonda                                   /s/ Igor Gonda
- --------------------------------------           -------------------------------
Signature of director/secretary                  Signature of director

                                       83


Igor Gonda                                       Igor Gonda
- --------------------------------------           -------------------------------
Name of director/secretary (please print)        Name of director (please print)




EXECUTED by VIVUS INC. by being                )
signed by:                                     )
                                               )
                                               )
                                               )
                                               )
                                                 /s/ Leland Wilson
                                                 -------------------------------
                                                 Signature

Leland Wilson, President & CEO
- -------------------------------------            -------------------------------
                                                 Name and Title




EXECUTED by ACRUX DDS PTY                      )
LTD by being signed by:                        )
                                               )
                                               )
                                               )
                                               )
/s/ Igor Gonda                                   /s/ Igor Gonda
- -------------------------------------            -------------------------------
Signature of director/secretary                  Signature of director

Igor Gonda                                       Igor Gonda
- -------------------------------------            -------------------------------
Name of director/secretary (please print)        Name of director (please print)




                                       84


                                   ANNEXURE A

                                DEVELOPMENT PLAN






                                   ANNEXURE B

                    FEMPHARM PATENTS AND PATENT APPLICATIONS






- -------   -------   ----------   -----------   -------   -------   ----------
PATENTS                                        DATE OF   DATE OF   EXPIRATION
GRANTED   COUNTRY   PATENT NO.   APPLIC. NO.   ISSUE     FILING    DATE
- -------   -------   ----------   -----------   -------   -------   ----------


                                      (**)










                                   ANNEXURE C

                      METERED DOSE TRANSDERMAL SPRAY SYSTEM

                                      (**)






                                   ANNEXURE D

                              FORM OF PRESS RELEASE





                                   ANNEXURE E

                                    ANDROGENS

                                      (**)



                                   ANNEXURE F

                              EXCLUDED INDICATIONS

                                      (**)

                                                                   EXHIBIT 10.51
                                                                   -------------

                             DATE: FEBRUARY 12, 2004
- --------------------------------------------------------------------------------




                                FEMPHARM PTY LTD


                                       and


                                   VIVUS INC.


                                       and




                                ACRUX DDS PTY LTD






- --------------------------------------------------------------------------------
                                    ESTRADIOL
                                 DEVELOPMENT AND
                           COMMERCIALIZATION AGREEMENT
- --------------------------------------------------------------------------------





                                TABLE OF CONTENTS
                                                                            PAGE

1.  DEFINITIONS AND INTERPRETATION............................................8

    1.1      DEFINITIONS......................................................8
    1.2      INTERPRETATION..................................................16

2.  LICENSE RIGHTS...........................................................18

    2.1      LICENSE GRANT...................................................18
    2.2      RESERVATION OF RIGHTS...........................................19
    2.3      VIVUS GRANT-BACK LICENSE AND OPTION TO LICENSE..................19
    2.4      EXPANSION OF FIELD..............................................20
    2.5      EXCLUSIVITY COVENANTS...........................................20
    2.6      UNAUTHORIZED SALES..............................................23
    2.7      RIGHT OF NEGOTIATION............................................24

3.  LICENSE AND MILESTONE PAYMENTS...........................................25

    3.1      LICENSE FEE.....................................................25
    3.2      MILESTONE PAYMENTS..............................................25
    3.3      ONE PAYMENT; LIMITATION.........................................26

4.  ROYALTIES................................................................26

    4.1      ROYALTY PAYMENTS................................................26
    4.2      ROYALTY REDUCTION...............................................29
    4.3      THIRD PARTY ROYALTIES...........................................30
    4.4      ONE ROYALTY; SAMPLES AND DONATIONS..............................30
    4.5      ACCRUAL AND PAYMENT OF ROYALTIES; ROYALTY TERM..................31
    4.6      LATE PAYMENT OF ROYALTIES.......................................32
    4.7      ROYALTY REPORT..................................................32
    4.8      VERIFICATION OF ROYALTY STATEMENT...............................32
    4.9      NON-DISCLOSURE BY ACCOUNTANT....................................33
    4.10     STATEMENT ERRORS................................................33
    4.11     CURRENCY CONVERSION.............................................34
    4.12     WITHHOLDING TAXES...............................................34

5.  CLINICAL DEVELOPMENT.....................................................34

    5.1      OVERVIEW OF DEVELOPMENT.........................................34

                                        2


    5.2      TRANSFER OF TECHNICAL INFORMATION...............................35
    5.3      CONDUCT OF PHASE IIB STUDY......................................36
    5.4      TRANSFER OF DEVELOPMENT RESPONSIBILITY..........................36
    5.5      DEVELOPMENT RESPONSIBILITIES....................................36
    5.6      DEVELOPMENT COMMITTEE...........................................36
    5.7      DEVELOPMENT PLANS...............................................38
    5.8      BUDGETS.........................................................39
    5.9      STEERING COMMITTEE..............................................39
    5.10     FINAL DECISION..................................................40
    5.11     PROCEDURES OF COMMITTEES........................................40
    5.12     DECISIONS OF COMMITTEES.........................................41
    5.13     CHAIRPERSONS - DEVELOPMENT COMMITTEE............................41
    5.14     CHAIRPERSONS - STEERING COMMITTEE...............................42
    5.15     MINUTES AND REPORTS.............................................42
    5.16     GLOBAL DEVELOPMENT COMMITTEE....................................42
    5.17     NO OBLIGATION TO TRANSLATE......................................43
    5.18     INFORMATION AND RESULTS.........................................43
    5.19     PRODUCT FAILURE.................................................44
    5.20     SUBCONTRACTS....................................................46
    5.21     CLINICAL PRODUCT SUPPLY.........................................46

6.  DILIGENCE OBLIGATIONS....................................................46

    6.1      PRODUCT DEVELOPMENT DILIGENCE OBLIGATIONS.......................46
    6.2      DILIGENCE PAYMENT FOR DEVELOPMENT DELAYS........................47
    6.3      REVERSION FOR FAILURE OF DILIGENCE..............................48

7.  REGULATORY MATTERS.......................................................49

    7.1      REGULATORY MATERIALS............................................49
    7.2      RELATIONSHIP WITH REGULATORY AUTHORITIES........................50
    7.3      ADVERSE EVENTS AND COMPLAINTS REPORTING.........................51

8.  PRODUCT COMMERCIALIZATION................................................52

    8.1      OVERVIEW........................................................52
    8.2      COMMERCIALIZATION OBLIGATIONS...................................52
    8.3      COMMERCIALIZATION PLANS.........................................53
    8.4      LAUNCH DILIGENCE................................................54
    8.5      MANUFACTURE IN TERRITORY........................................54
    8.6      SUPPLY OF PRODUCT TO FEMPHARM...................................54

                                        3


9.  SUB-LICENSING AND ASSIGNMENT.............................................55

    9.1      SUB-LICENSE.....................................................55
    9.2      VIVUS BOUND.....................................................55
    9.3      ASSIGNMENT......................................................55

10. CONFIDENTIALITY..........................................................56

    10.1     RESTRICTIONS ON USE.............................................56
    10.2     USE OF OWN INFORMATION..........................................56
    10.3     EXCEPTIONS TO CONFIDENTIALITY...................................57
    10.4     EXCEPTIONS TO NON-DISCLOSURE....................................57
    10.5     DISCLOSURE BY LAW...............................................58
    10.6     SCOPE OF CONFIDENTIALITY........................................59
    10.7     SECURITY OF INFORMATION.........................................59
    10.8     PERSONNEL CONFIDENTIALITY.......................................59
    10.9     RETURN OF CONFIDENTIAL INFORMATION..............................59
    10.10    PUBLICATIONS....................................................60
    10.11    OTHER RIGHTS....................................................60
    10.12    USE OF OTHER PARTY'S NAME.......................................60
    10.13    PRESS RELEASES AND OTHER DISCLOSURES............................60

11. INVENTIONS...............................................................62

    11.1     DISCLOSURE OF INVENTIONS........................................62
    11.2     OWNERSHIP OF INVENTIONS AND INTELLECTUAL PROPERTY RIGHTS........62
    11.3     JOINT INVENTIONS AND JOINT PATENTS..............................62
    11.4     COOPERATION OF EMPLOYEES........................................63

12. PATENTS AND INTELLECTUAL PROPERTY........................................63

    12.1     PATENT RIGHTS...................................................63
    12.2     JOINT PATENT RIGHTS.............................................64
    12.3     FEMPHARM PATENT PROCEEDINGS.....................................65
    12.4     INFRINGEMENT PROCEEDINGS IN THE FIELD...........................66
    12.5     OTHER INFRINGEMENT PROCEEDINGS..................................68

13. REPRESENTATIONS AND WARRANTIES; DISCLAIMERS..............................68

    13.1     WARRANTY........................................................68
    13.2     ADDITIONAL WARRANTIES OF FEMPHARM AND THE
              ACRUX CONTROLLED AFFILIATES....................................68
    13.3     ADDITIONAL WARRANTIES OF VIVUS..................................72

                                        4


    13.4     DISCLAIMER OF WARRANTIES........................................73
    13.5     DISCLAIMER OF LIABILITY.........................................73

14. TERM AND TERMINATION.....................................................73

    14.1     TERM............................................................73
    14.2     TERMINATION BY FEMPHARM.........................................74
    14.3     TERMINATION BY VIVUS............................................75
    14.4     NO RELEASE......................................................76
    14.5     CONSEQUENCES OF AGREEMENT TERMINATION...........................76
    14.6     VIVUS TERMINATION OF SPECIFIC PROVISIONS FOR UNCURED BREACH.....81
    14.7     LIMITATION OF TERMINATION FOR BREACH AFTER COMMERCIAL LAUNCH....82
    14.8     TERMINATION FOR FAILURE TO ACHIEVE MONASH AMENDMENT.............83
    14.9     REMEDIES........................................................84

15. GENERAL..................................................................85

    15.1     NOTICES.........................................................85
    15.2     INDEMNIFICATION.................................................86
    15.3     DAMAGES FOR BREACH OF REPRESENTATIONS AND WARRANTIES............88
    15.4     WAIVER..........................................................88
    15.5     SEVERANCE.......................................................89
    15.6     SUCCESSORS AND ASSIGNS..........................................89
    15.7     CONTINUING OBLIGATIONS..........................................89
    15.8     VARIATION.......................................................89
    15.9     APPLICABLE LAW..................................................89
    15.10    DISPUTE RESOLUTION..............................................90
    15.11    DISPUTE REGARDING LICENSE NECESSITY.............................91
    15.12    COUNTERPARTS....................................................92

                                        5


    15.13    COSTS...........................................................92
    15.14    PAYMENT.........................................................92
    15.15    ENTIRE AGREEMENT................................................92
    15.16    INJUNCTIVE RELIEF...............................................92
    15.17    INDEPENDENT CONTRACTORS.........................................93
    15.18    FORCE MAJEURE...................................................93
    15.19    BANKRUPTCY......................................................93
    15.20    ACRUX DDS AS A PARTY............................................94
    15.21    SURVIVAL OF SUBLICENSES.........................................94

                                        6


THIS DEVELOPMENT AND COMMERCIALIZATION AGREEMENT (the "Agreement") is dated and
effective as of February 12, 2004 (the "Effective Date").

PARTIES:

FEMPHARM PTY LTD (ABN 35 088 778 018) of 103-113 Stanley Street, West Melbourne,
Victoria, Australia ("FemPharm")

and

VIVUS INC. of 1172 Castro Street, Mountain View, California, United States of
America ("Vivus")

and

ACRUX DDS PTY LTD

RECITALS

A.       FemPharm, formerly known as Female HRT Pty Ltd., Australian Company
         Number 088 778 018, is a wholly owned subsidiary of Acrux Limited of
         103-113 Stanley Street, West Melbourne, Victoria, Australia ("Acrux
         Limited"). Acrux DDS Pty Limited ("Acrux DDS Pty Limited"), formerly
         known as Drug Delivery Solutions Pty Ltd., Australian company number
         088 778 009, is also a wholly owned subsidiary of Acrux Limited.

B.       Acrux DDS Pty Limited holds an exclusive global license from Monash
         University of Wellington Road, Clayton, Victoria, Australia ("Monash")
         in respect of certain patents and patent applications owned by Monash
         University covering the metered dose transdermal system described
         therein.

C.       FemPharm holds an exclusive sublicense from Acrux DDS Pty Limited in
         respect of the intellectual property described in the license referred
         to in recital B for the fields of female hormone replacement therapy
         and human female contraception.

                                        7


D.       FemPharm and Vivus wish to enter into this agreement pursuant to which
         FemPharm will exclusively license metered dose transdermal systems to
         Vivus for the delivery of estradiol monotherapy to human females on the
         terms set out in this Agreement.

AGREEMENT

1.       DEFINITIONS AND INTERPRETATION
- --------------------------------------------------------------------------------
1.1      DEFINITIONS

         In this Agreement, the following capitalized terms have the following
         meanings:

         "Acrux DDS License" shall mean the "Licence Agreement" between Female
         HRT Party Limited (now known as FemPharm) and Drug Delivery Solutions
         Party Limited (now known as Acrux DDS Pty Limited), dated November 30,
         1999, as amended by the Deed of Amendment between Female HRT Party
         Limited and Drug Delivery Solutions Party Limited dated June 30, 2000,
         and as such agreement may be subsequently amended by the parties
         thereto.

         "Acrux Penetration Enhancer" shall mean one of the following, whichever
         is used in the Product being developed or commercialized by or under
         authority of Vivus under this Agreement, as used in such Product (i)
         (**), (ii) a different dermal penetration enhancer which is disclosed
         in the FemPharm Patents, or (iii) the combination of (**) with another
         dermal penetration enhancer(s) disclosed in the FemPharm Patents.

         "Additional Partner" shall mean each third party who is granted by
         FemPharm or an Acrux Controlled Affiliate, directly or indirectly, a
         right to market or commercialize a Product in the Field in any part of
         the world, other than the Territory.

         "Affiliate" means, with respect to any Party, any corporation or other
         legal entity that controls, is controlled by or is in common control
         with such Party. For purposes of this definition, the term "controls"
         means (with correlative meanings for the terms "controlled by" and "in
         common control with"):

                                        8


          (a)  ownership, directly or indirectly, of more than 50% of the voting
               securities of the applicable party; or

          (b)  possession of actual power to direct unilaterally the business
               and affairs of the applicable party, whether through contract,
               ownership rights or otherwise.

         "Business Day" means a day upon which banks are open for general
         banking business in the United States other than a Saturday or Sunday.

         "Clinical Trial" shall mean a clinical trial involving the
         administration of a therapeutic to a human subject after filing an IND,
         or the equivalent (if necessary) outside the United States, for the
         purpose of evaluating the safety, efficacy, performance or other
         characteristic of such therapeutic, including a phase I, phase II
         and/or phase III trial.

         "Committee" means the Development Committee and/or the Steering
         Committee.

         "Confidential Information" of a Party means all information disclosed
         by such Party to the other pursuant to this Agreement, which may
         include any of the following to the extent disclosed by such Party:

          (a)  Intellectual Property, technical information, specifications,
               data, software, marketing procedures, pricing information,
               customer and client records, business and corporate or trade
               information of a Party relating to or arising out of the Licensed
               Intellectual Property or its use or application;

          (b)  information relating directly or indirectly to the Product
               including, without limitation, the identity and composition of
               compounds for producing or manufacturing the Product, formulae
               for the Product, methods of producing or manufacturing the
               Product, costs of manufacturing the Product, information relating
               to the packaging, selling and marketing of the Product including
               the cost thereof and pricing information; and

          (c)  communications between the Parties or information of whatever
               kind whether recorded or not and, if recorded, in whatever
               medium, relating to the Licensed Intellectual Property, the
               Product, this Agreement, or otherwise, whether disclosed prior to
               or after the Effective Date.

                                        9


         "Commercial Launch Plan" means the plan for launching and initial
         marketing and promotion of the Product in the Territory as provided in
         Section 8.3.

         "Controlled" means, with respect to any Intellectual Property, that the
         applicable Party owns or has a license to such Intellectual Property,
         and has the authority to grant to the other Party access, a license, or
         a sublicense to such Intellectual Property as provided for in this
         Agreement without violating an agreement with a non-Affiliate third
         party in effect at the time such Intellectual Property was first
         acquired or created by the Party granting or authorizing the license or
         sublicense herein.

         "Controlled Affiliate" means (i) in the case of Vivus; an Affiliate
         that is controlled by Vivus; and (ii) in the case of FemPharm; Acrux
         Limited, Acrux DDS Pty Limited or an Affiliate that is controlled by
         FemPharm, controlled by Acrux DDS Pty Limited, or controlled by Acrux
         Limited (each of such Affiliates, Acrux DDS Pty Limited and Acrux
         Limited, an "Acrux Controlled Affiliate"); in each case as "control" is
         defined in the Affiliate definition in this Section 1.1 above.

         "Development Committee" means the committee referred to in Section 5.4.

         "Development Plan" means the plan appended to this Agreement as
         annexure A in accordance with Section 5.5, as such plan may be amended
         pursuant to Section 5.

         "Effective Date" means the date of this Agreement, as set forth on page
         one.

         "Estradiol" means the compound with the chemical structure shown in
         Annexure E to this Agreement.

         "Estrogen" means (a) any of the naturally occurring estrogens,
         progestins with estrogenic activity that are used for estrogen
         replacement therapy for the treatment of menopausal symptoms, or any
         derivative of such estrogens or progestins, including the estrogens
         that are approved by the FDA in any form (oral, transdermal, or
         injectable) for hormone

                                       10


         replacement therapy or the treatment of menopausal symptoms in human
         females, or (b) any SERM. Notwithstanding sub-paragraph (b) of this
         paragraph, if Vivus or any Controlled Affiliate of Vivus, or a
         sublicensee of Vivus that has rights under the Licensed Intellectual
         Property to market, sell, offer to sell, and import the Products in the
         Field in the Territory, commences Clinical Trials, or marketing or
         sales, in the Territory of any product that orally delivers a SERM to
         treat female menopausal symptoms, then except for SERMs that have been
         added to the Field, no SERM shall be considered to be an Estrogen for
         purposes of Section 2.5. For clarity, Androgen (as such term is defined
         in the Testosterone Agreement, but excluding tibolone), is not or shall
         not be deemed to be an Estrogen for purposes of this Agreement.

         "Excluded Applications" shall have the meaning set forth in annexure F.

         "FemPharm Patents" means: (a) the Patents set out in annexure B, which
         shall include all existing Patents licensed under the Monash License or
         the Acrux DDS License, (b) all continuing patent applications in the
         Territory based on any Patent in clause (a) above (including any
         divisionals, continuations, and continuations-in-part); (c) all Patents
         that issue based on any Patent in clause (a) or (b) above, and
         including all re-issues, extensions, substitutions, confirmations,
         re-registrations, re-validations, patents of addition, and
         supplementary certificates (or equivalents thereof) of any such Patent;
         and (d) all additional Patents in the Territory that are Controlled by
         FemPharm, Acrux DDS Pty Limited, an Acrux Controlled Affiliate, or any
         other Affiliate of FemPharm at any time during the term of this
         Agreement and that claim or cover an MDTS product, or any portion
         thereof, or the manufacture or use of an MDTS product or portion
         thereof, in the Field. For purposes of this definition, Patents that
         meet, at some time during the term of the Agreement, the requirement of
         subclause (d) above shall not be excluded from this definition simply
         because a particular Acrux Controlled Affiliate (that Controlled such
         Patent) no longer is an Affiliate of Acrux Ltd., and including
         continuing patent applications in the Territory based on such Patents
         in clause (d) above (including any divisionals, continuations, and
         continuations-in-part).

                                       11


         "Field" means delivery of Estradiol (and/or any other Estrogen that is
         added to the Field pursuant to Section 2.4 or included pursuant to
         Section 5.17) in Monotherapy to human females using an MDTS, excluding
         only the Excluded Applications.

         "First Commercial Sale" means the first commercial sale or transfer of
         the Product for use in the Territory (other than for evaluation,
         research, testing or clinical trial purposes), that occurs after the
         Product has been approved for marketing in the Territory, by Vivus or
         Vivus' Affiliate or sublicensee to an independent non-Affiliate third
         party in exchange for cash or some equivalent to which value can be
         assigned.

         "FDA" means the United States Food & Drug Administration.

         "Intellectual Property" means all industrial and intellectual property
         rights, whether protectable by statute, at common law or in equity,
         including, without limitation, any rights of copyright, trade secrets,
         confidential information, know-how, trade mark, invention, Patent,
         circuit layout and any rights to registration of such rights,
         irrespective of whether such rights are created before, on or after the
         Effective Date.

         "Improvement" means an Invention to the extent made by Vivus or its
         Affiliate in the course of developing or commercializing the Product
         under this Agreement, which Invention is an improvement of or
         modification to the Product itself, in the form provided by FemPharm,
         and is not substantially based upon or derived from other technology or
         Know-How of Vivus, its Affiliate, or their third party licensor or
         contractor.

         "Improvement Blocking Patent Rights" means any Patent to the extent
         that it: (i) claims and is specifically directed to an Improvement,
         (ii) is Controlled by Vivus or its Affiliate at any time during the
         term of this Agreement, and (iii) is reasonably necessary to make, use,
         sell, or offer to sell an MDTS product. As used in this paragraph,
         "reasonably necessary" means there is no commercially reasonable
         alternative to practicing the subject matter in the applicable claim in
         such Patent, in order for FemPharm, or its Controlled Affiliate or
         licensee, to make, use or sell the MDTS products.

                                       12


         "Invention" means any information, idea, invention, know-how, data or
         results made pursuant to work conducted under this Agreement.

         "Joint Patent" means a Patent claiming an Invention invented jointly by
         the Parties, as provided in Section 11.3.

         "Know-How" shall mean all data, inventions (whether or not patentable),
         discoveries, methods, information (including Confidential Information),
         reports, analyses, documents, descriptions, procedures, formulae,
         formulations, expert opinions, knowledge, know-how, experience,
         marketing, and other information and materials (including physical
         samples), and the trade secret rights to the foregoing. As used herein,
         Know-How shall not include Patents.

         "Licensed Intellectual Property" means the (i) FemPharm Patents, and
         (ii) the Licensed Know-How.

         "Licensed Know-How" means the Know-How that is Controlled by FemPharm
         or any Acrux Controlled Affiliate and relates to or is useful for MDTS
         products in the Field.

         "MDTS" means the Acrux metered dose transdermal spray system as
         described in Annexure C, and including all improvements, derivatives
         and modifications of such system developed by or under authority of
         FemPharm or its Affiliate. For clarity, it is understood that
         "improvements," as used under this paragraph, would include modified or
         improved versions of the Acrux metered dose transdermal spray system,
         and novel enhancers, formulations, methods, and mechanical components
         relating to or useful for the MDTS system, that are not used in the
         MDTS as of the Effective Date, but that would improve the safety,
         effectiveness, or other qualities of such a spray system for use in
         delivery of Estradiol, or any other Estrogen added to the Field
         pursuant to Section 2.4 or 5.17.

         "Monash License" means the "Technology Agreement" between Monash and
         Acrux Limited, dated June 7, 1999, and transferred by Acrux Limited to
         Acrux DDS Pty Limited in the "Deed of Assignment" dated November 22,
         1999, as amended by the Deed of Variation between Monash and Acrux
         Limited dated November 22, 1999 and the Deed of Variation between
         Monash and Acrux DDS Pty Limited., executed October, 2002.


                                       13


         "Monotherapy" means the delivery of Estradiol (or any other Estrogen
         added to the Field) using an MDTS, without delivering any other active
         ingredient using the MDTS. For clarity, delivery of Estradiol (or any
         other Estrogen added to the Field) using an MDTS, without delivering
         any other active ingredient using the MDTS, shall be considered
         Monotherapy notwithstanding any concurrent use or delivery of another
         active ingredient by a method other than spray delivery by the MDTS.
         For example, oral delivery of a progestin concurrently with delivery of
         Estradiol using the MDTS shall be considered Monotherapy.

         "Net Sales" means any amounts invoiced by Vivus, or an Affiliate or
         sublicensee of Vivus, for the sale or other commercial disposition of
         the Product, less the following amounts to the extent actually accrued,
         taken or allowed with respect to such sale or disposition:

          (d)  trade, cash or quantity discounts or rebates from the invoiced
               price;

          (e)  refunds, credits, charge backs or allowances actually granted
               upon recalls, rejections, returns, or the like;

          (f)  freight charges, insurance and packing charges paid for delivery;
               and

          (g)  amounts actually written off for uncollectable accounts
               determined in accordance with GAAP, PROVIDED THAT if any such
               amounts are subsequently collected, such amounts would be
               included in Net Sales for the quarter collected;

          (h)  taxes (other than income tax, but including value added and sales
               taxes), duties, or other governmental charges levied on or
               measured by the disposition or the invoiced amount, whether
               absorbed by the billing or the billed party.

         Notwithstanding the foregoing, if Vivus sells Product for use outside
         the Field or outside the Territory pursuant to an authorization by
         FemPharm or an Acrux Controlled Affiliate

                                       14


         (such as sales to FemPharm for use in Australia or New Zealand) Net
         Sales shall not include any amounts invoiced on such sales, whether the
         sale is to FemPharm, an Acrux Controlled Affiliate, or any other Person
         (e.g. another licensee of FemPharm).

         "Patents" means all rights under all patents (including all re-issues,
         extensions, substitutions, confirmations, re-registrations,
         re-validations, patents of addition, supplementary certificates, other
         governmental grants for the protection of inventions or industrial
         designs, or equivalents thereof) and under all patent applications
         (including any divisionals, continuations, continuations-in-part,
         continued prosecution applications, and divisionals).

         "Party" means either of FemPharm or Vivus, and "Parties" means both of
         them.

         "Person" includes a natural person, company, corporation, partnership,
         trust, estate, joint venture, sole proprietorship, government
         (including any branch or subdivision thereof), governmental or
         municipal agency, association, co-operative and any other entity or
         person whatsoever.

         "Product" means any MDTS product containing Estradiol, or any other
         Estrogen included in the Field pursuant to Section 2.4 or as a result
         of Section 5.17, as the sole active ingredient in such product, and
         intended for use in the Field.

         "Regulatory Materials" means regulatory applications, submissions,
         notifications, registrations, regulatory approvals and/or other filings
         made and correspondence to or with the FDA or other regulatory
         authority that are necessary or reasonably desirable in order to, or in
         connection with efforts to, develop, manufacture, market, sell or
         otherwise commercialize a Product in a particular country, territory or
         possession. Regulatory Materials include INDs, MAAs, and NDAs.

         "Restricted Estrogens" means any of:  (**).

         "Royalty Period" means a period of three consecutive months ending on
         31 March, 30 June, 30 September or 31 December, provided that the first
         Royalty Period will be the

                                       15


         period from the date of First Commercial Sale until the first to occur
         of 31 March, 30 June, 30 September or 31 December thereafter.

         "SERM" means a generic compound (i.e., the composition of the compound
         is not covered by a patent in the Territory) that is a selective
         estrogen receptor modulator.

         "Steering Committee" means the committee referred to in Section 5.7.

         "Territory" means the United States of America, and its territories and
         protectorates.

         "Testosterone Agreement" means the agreement titled "Testosterone
         Development and Commercialization Agreement" entered into by and
         between the Parties and dated as of February 7, 2004.

         "Valid Claim" means: a claim in an issued Patent within the FemPharm
         Patents, which has not (i) expired or been cancelled, (ii) been
         declared invalid by an unreversed and unappealable decision of a court
         or other appropriate body of competent jurisdiction, (iii) been
         admitted to be invalid or unenforceable through reissue, disclaimer or
         otherwise, and/or (iv) been abandoned.

1.2      INTERPRETATION

         In this Agreement:

          (a)  words denoting the singular number include the plural and vice
               versa;

          (b)  words denoting any gender include all genders;

          (c)  words importing natural persons include corporations, firms,
               unincorporated associations, partnerships, trusts and any other
               entities or groups recognised by law;

          (d)  reference to any legislation or to any provision of any
               legislation includes any amendment, modification, consolidation
               or re-enactment of, or any legislative

                                       16


               provision substituted for, and all legislative and statutory
               instruments issued under, such legislation or such provision;

          (e)  the words "written" and "in writing" include any means of visible
               reproduction of words in a tangible and permanently visible form;

          (f)  reference to Articles, Sections, clauses and schedules and
               annexures are references to the Articles, Sections, clauses and
               schedules and annexures of this Agreement, unless expressly
               stated to the contrary;

          (g)  reference to any party to this Agreement or any other agreement
               or document includes the party's successors and permitted
               assigns;

          (h)  where a word or phrase is defined, other grammatical forms of
               that word or phrase have corresponding meanings;

          (i)  no rule of construction applies to the disadvantage of a party
               because that party was responsible for the preparation of this
               Agreement or any part of it;

          (j)  the headings to Articles, Sections, annexures or schedules are
               for ease of reference only and do not form part of this Agreement
               or affect its interpretation;

          (k)  if any day appointed or specified by this Agreement for the
               payment of any money or the doing of any act falls on a day which
               is not a Business Day, the day appointed or specified will be the
               next Business Day;

          (l)  a reference to a time or date in connection with the performance
               of an obligation by a party is a reference to the time and date
               in San Francisco, California, USA even if the obligation is to be
               performed elsewhere;

          (m)  the terms "including" and "includes" will be interpreted
               non-restrictively to mean "including without limitation ...".

                                       17

                                       1


2.       LICENSE RIGHTS
- --------------------------------------------------------------------------------
2.1      LICENSE GRANT

          (a)  Subject to the terms of this Agreement, FemPharm and Acrux DDS
               Pty Limited grant to Vivus the sole and exclusive (including with
               respect to FemPharm, except as otherwise provided in subsection
               (c) below) license, under the Licensed Intellectual Property,
               solely to exploit, import, export, make, have made, develop, use,
               market, offer for sale and sell Products for use in the Field in
               the Territory.

          (b)  Subject to the terms of this Agreement, FemPharm and Acrux DDS
               Pty Limited grant to Vivus a non-exclusive license under the
               Intellectual Property that relates to or is useful for a Product,
               or its manufacture or use, and is Controlled by any of FemPharm,
               an Acrux Controlled Affiliate, or another Affiliate of FemPharm,
               to export, make, and have made Products outside the Territory
               solely for importation, sale, use and other exploitation in the
               Field in the Territory pursuant to Section 2.1(a). In addition,
               to the extent permitted by FemPharm on request by Vivus, such
               permission not to be unreasonably withheld, Vivus may include in
               the foregoing license the right to conduct specific development
               activities in particular countries outside the Territory, solely
               to develop data to be used in the Regulatory Materials in the
               Territory for the Product in the Field, and marketing of the
               Product in the Field in the Territory.

          (c)  For clarity, FemPharm and Acrux DDS Pty Limited retains the
               non-exclusive rights under the Licensed Intellectual Property in
               the Territory, for it and/or the Acrux Controlled Affiliates or
               any of their respective licensees to export, make, and have made
               Products in the Territory solely for importation, sale, use and
               other exploitation in the Field in a country or jurisdiction
               outside the Territory. In addition, only to the extent permitted
               by Vivus on request by FemPharm, such permission not to be
               unreasonably withheld, FemPharm may conduct specific development
               activities in the Territory, solely to develop data to be used in
               the

                                       18


               Regulatory Materials outside the Territory for the Product in the
               Field, and marketing of the Product in the Field outside the
               Territory.

          (d)  For clarity, the license rights granted to Vivus in Section
               2.1(a) and (b) do not grant to Vivus the rights under the
               Licensed Intellectual Property, to export, make, have made, and
               develop Products for importation, sale, use and other
               exploitation in the Field in any country or jurisdiction outside
               the Territory, or for any use outside the Field anywhere in the
               world.

2.2      RESERVATION OF RIGHTS

         Each Party hereby reserves all rights with respect to its Intellectual
         Property and technology not expressly granted herein. Vivus shall have
         no right or license under the FemPharm Patents or Licensed Know-How
         other than the rights expressly set forth in this Agreement.
         Notwithstanding anything to the contrary, it is acknowledged and agreed
         that the limitation of FemPharm's rights under the Acrux DDS License,
         such as the limitation of the field of FemPharm's rights to female
         hormone replacement therapy or otherwise, shall not limit the rights
         granted to Vivus under this Agreement.

2.3      VIVUS GRANT-BACK LICENSE AND OPTION TO LICENSE

          (a)  Subject to the terms of this Agreement, Vivus grants to FemPharm
               a non-exclusive, royalty-free, worldwide license (with full
               rights to grant sublicenses) under any Improvement Blocking
               Patent Rights solely to develop, exploit, import, make, have
               made, use, offer for sale and sell MDTS products, excluding only
               MDTS products intended for use, sale, offer for sale, import, or
               marketing in the Field in the Territory.

          (b)  Vivus grants to FemPharm the option, exercisable in writing by
               FemPharm at any time after Vivus makes an Improvement, to obtain
               in accordance with this Section 2.3(b) below a non-exclusive,
               worldwide license (with such rights to sublicense as are mutually
               agreed), on commercially reasonable terms, under trade secrets
               Controlled by Vivus or its Affiliate during the term of this
               Agreement to the

                                       19


               extent embodied in such Improvement and under Patents Controlled
               by Vivus or its Affiliate during the term of this Agreement that
               claim and are specifically directed to such Improvement, (but
               excluding all Improvement Blocking Patent Rights), solely to
               develop, exploit, import, make, have made, use, offer for sale
               and sell MDTS products, excluding only MDTS products intended for
               use, sale, offer for sale, import, or marketing in the Field in
               the Territory. If FemPharm exercises such option as to a
               particular Improvement, then the Parties shall negotiate in good
               faith in an effort to agree upon the financial and other terms
               for, and scope of, such a license, within a reasonable time
               thereafter and will enter into such a license upon reaching
               agreement, which terms shall be commercially reasonable and shall
               include the mutually agreed license grant for such Improvement
               (under the Patents and trade secrets identified above) and other
               reasonable terms appropriate for such a license grant. Such
               license shall be royalty free for Products used in the Field in
               Australia or New Zealand.

2.4      EXPANSION OF FIELD

         The Development Committee shall discuss and consider from time to time
         the possibility of including in the Field one or more additional
         Estrogens, alone or in combination with other active ingredients, and
         if it determines that such an expansion to the Field is appropriate, it
         shall make such recommendation to both Parties. If the Parties agree
         with such recommendation, and solely to the extent such expansion is
         approved in writing by the Parties, such additional Estrogen(s) shall
         be added to the Field by written amendment of the Agreement on mutually
         acceptable terms, including financial terms.

2.5      EXCLUSIVITY COVENANTS

          (a)  Except as otherwise agreed by the Parties in writing, until (*)
               after First Commercial Sale by or under authority of Vivus of a
               Product for use in the Field and Territory, Vivus and its
               Controlled Affiliates shall not, directly or indirectly, market,
               promote, sell, or import any Competitive Products (as defined
               below) for use in the Territory. As used herein, "Competitive
               Product" means

                                       20


               any product (which is not a Product of Vivus, its Affiliate, or
               sublicensee under this Agreement) that is approved for marketing
               for any human indication and is marketed, promoted, or sold (i)
               for the transdermal or mucosal delivery to human females of
               Estradiol, or any other Restricted Estrogen, as the sole active
               ingredient transdermally or mucosally delivered by such product;
               or (ii) for the transdermal or mucosal delivery of any other
               Estrogen, as the sole active ingredient transdermally or
               mucosally delivered by such product, to human females for
               treatment of menopausal symptoms; except excluding from the
               foregoing only products of any of Vivus, its Affiliates, and
               sublicensees involving application of an estrogen, alone or in
               combination with a vasoactive agent, to the vagina of a human
               female to ameliorate or treat menopausal vaginal symptoms such as
               vaginal atrophy or vaginal dryness, provided that such direct
               vaginal application of an estrogen does not achieve chronic
               systemic therapeutic Estradiol blood levels that would be
               effective for treating menopausal vasomotor symptoms). For
               clarity, marketing, selling or promoting any orally delivered
               active ingredient is not a Competitive Product. For clarity, no
               license is granted under this Section 2.5(a) to Vivus by FemPharm
               or any Acrux Controlled Affiliate under the Licensed Intellectual
               Property with respect to any Vivus product involving such
               application of an Estrogen to the vagina of a human female. Vivus
               and its Controlled Affiliates shall not provide funding prior to
               such time to third parties for the specific purpose of, or grant
               a license or other authorization to any third party to, market,
               sell, promote, or import any Competitive Product for use in the
               Territory. Vivus shall include, and cause its Controlled
               Affiliates to include, in any grant or authorization by Vivus or
               the Controlled Affiliate in accordance with this Agreement of an
               exclusive sublicense (including with respect to Vivus) to a third
               party under the Licensed Intellectual Property to market, sell,
               promote, and import the Products in the Territory, an express
               covenant by such third party not to market, promote, sell or
               import, directly or indirectly, any Competitive Product for use
               in the Territory. If a particular Vivus Controlled Affiliate is
               no longer controlled by Vivus, then the

                                       21


               above shall apply to such entity only if such entity continues to
               have rights under the Licensed Technology that it could exercise
               to make, use or sell a Product or a Competitive Product.

          (b)  Except as otherwise agreed by the Parties in writing, until (*)
               after First Commercial Sale by or under authority of Vivus of a
               Product for use in the Field and Territory, FemPharm and Acrux
               DDS Pty Limited agree that FemPharm and the Acrux Controlled
               Affiliates shall not, directly or indirectly, market, promote,
               sell, or import in the Territory any Competitive Product. For
               clarity, FemPharm and the Acrux Controlled Affiliates shall not
               provide funding prior to such time to third parties for the
               specific purpose of, or grant a license or other authorization to
               any third party to, market, sell, promote, or import for use in
               the Territory any Competitive Product. Furthermore, if FemPharm
               or Acrux DDS Pty Limited intend to market, sell, promote or
               import for use in the Territory any combination therapy involving
               the delivery of both a Restricted Estrogen and progestin using
               the MDTS system, then FemPharm and Acrux DDS Pty Limited shall
               first notify Vivus in writing of such intent. If Vivus is
               interested in such commercialization opportunities for such
               combination therapy, it shall so inform FemPharm in writing
               within thirty (30) days of receiving such notice, after which the
               Parties shall engage in good faith, diligent negotiation to enter
               into a collaboration agreement for the commercialization of such
               combination therapy by Vivus. If Vivus does not inform FemPharm
               of its interest within thirty (30) days or if the Parties, after
               one hundred twenty (120) days of good faith, diligent
               negotiation, are unable to enter into such collaboration
               agreement, then FemPharm and/or Acrux DDS Pty Limited shall be
               free to enter into an agreement regarding such opportunity with
               any third party with no further obligation to Vivus. FemPharm and
               Acrux DDS Pty Limited shall include, and cause the Acrux
               Controlled Affiliates to include, in each grant or authorization
               of any of their Intellectual Property rights to a third party, if
               the license or authorization could be exercised in a manner that
               involves the delivery of Estradiol (or any Restricted Estrogen or
               other Estrogen) to females as a

                                       22


               Monotherapy, an express covenant by such third party not to
               market, promote, sell or import, directly or indirectly, any
               Competitive Product for use in the Territory. If a particular
               Acrux Controlled Affiliate is no longer controlled by Acrux
               Limited, then the above shall apply to such entity only if such
               entity continues to have rights under the Licensed Technology
               that it could exercise to make, use or sell a Competitive
               Product.

          (c)  Nothing in this Section 2.5 shall limit the exclusivity of the
               license rights granted to Vivus in Section 2.1, it being agreed
               that the exclusivity under Section 2.1 shall not be limited to
               the periods described in this Section 2.5 above.

          (d)  If FemPharm is acquired by, and thus becomes an Affiliate of, a
               third party other than an Acrux Controlled Affiliate, such third
               party Affiliate shall be deemed a third party for purposes of the
               licensing restrictions applied to FemPharm under Section 2.5(b).
               Similarly, if Vivus is acquired by, and thus becomes an Affiliate
               of, a third party other than a Vivus Controlled Affiliate, such
               third party Affiliate shall be deemed a third party for purposes
               of the licensing restrictions applied to Vivus under Section
               2.5(a).

2.6      UNAUTHORIZED SALES

          (a)  FemPharm and the Acrux Controlled Affiliates shall not directly
               or indirectly market, sell, or distribute any MDTS products
               intended for use in the Field anywhere in the world to a
               particular third party, including its Affiliates, if FemPharm or
               an Acrux Controlled Affiliate knows, or has been provided
               reasonable evidence, that such MDTS products provided directly or
               indirectly by FemPharm or an Acrux Controlled Affiliate to such
               third party are being marketed, distributed or sold in the
               Territory in the Field. If FemPharm or an Acrux Controlled
               Affiliate grants rights to a third party, directly or indirectly,
               that could be exercised in a manner that involves the delivery of
               Estradiol (or any Restricted Estrogen or other Estrogen) to human
               females in Monotherapy, then FemPharm shall make, or cause the
               Acrux Controlled Affiliate to make, the terms

                                       23


               and conditions in this Section 2.6(a) applicable to the third
               party in the same manner as applicable to FemPharm.

          (b)  Vivus and its Controlled Affiliates shall not directly or
               indirectly market, sell, or distribute any Product in the
               Territory to a particular third party, including its Affiliates,
               if Vivus knows, or has been provided reasonable evidence, that
               such Product provided directly or indirectly by Vivus or its
               Controlled Affiliates to such third party are being marketed,
               distributed or sold for use outside the Territory, provided that
               the sale of such Product in the Territory infringes a Valid Claim
               in the FemPharm Patents or embodies information that is at the
               then current time a trade secret of FemPharm, other than as
               permitted by Section 10.11. If Vivus or its Controlled Affiliate
               grants a sublicense to a third party under the Licensed
               Intellectual Property in accordance with this Agreement to
               market, sell, promote, and import the Products in the Territory,
               then Vivus shall make, or cause its Controlled Affiliate to make,
               the terms and conditions in this Section 2.6(b) applicable to the
               third party in the same manner as applicable to Vivus.

2.7      RIGHT OF NEGOTIATION

         If FemPharm or an Acrux Controlled Affiliate desires to enter into a
         license or other collaboration that involves the research, development,
         or commercialization in the Territory of a product for delivery of an
         Estrogen, other than Estradiol, to females for the treatment of
         menopausal symptoms, FemPharm shall propose to Vivus the terms and
         conditions for such a license or collaboration with Vivus prior to
         entering into the license or collaboration with any third party. If
         Vivus fails to notify FemPharm in writing, within one hundred twenty
         (120) days after receiving such proposed terms and conditions from
         FemPharm, that Vivus desires to negotiate the terms and conditions for
         the license or collaboration, or if the Parties do not agree in
         principle on the terms for such an arrangement notwithstanding good
         faith, diligent negotiations throughout the remainder of such one
         hundred twenty (120) day period after Vivus' request, then FemPharm or
         the Acrux Controlled Affiliate shall have the right to enter into the
         license or collaboration

                                       24


         with a third party. In addition, FemPharm shall notify Vivus in writing
         upon any of FemPharm or the Acrux Controlled Affiliates commencing,
         whether directly or indirectly, any clinical development or
         commercialization of any product involving the transdermal or mucosal
         deliver to human females of an Estrogen or other selective estrogen
         receptor modulator for hormone replacement therapy or the treatment of
         menopausal symptoms, including through licensees and work funded by
         FemPharm, but subject to any confidentiality obligations that would
         prevent such disclosure.

3.       LICENSE AND MILESTONE PAYMENTS
- --------------------------------------------------------------------------------
3.1      LICENSE FEE

         Vivus will pay to FemPharm a license fee of US$ 1,000,000 (One Million
         United States Dollars) no later than June 29, 2005.

3.2      MILESTONE PAYMENTS

         Upon achieving the specified milestone, Vivus will pay to FemPharm the
         following milestone payments (subject to Section 3.3 and 6.2):

          (a)  US$ (*) (** United States Dollars) within thirty (30) days of
               submission by or under authority of Vivus or its Affiliate or
               sublicensee in the United States of the first new drug
               application to the FDA (as new drug application is defined in 21
               C.F.R. ss. 314.50 et. Seq, as updated or amended from time to
               time), or such other equivalent regulatory application in the
               United States for approval of marketing of the Product, (the
               "NDA") in respect of the Product; and

          (b)  US$ (*) (** United States Dollars) within thirty (30) days of the
               first FDA marketing approval in the United States in respect of
               the Product (the marketing approval being defined as approval by
               the FDA of Vivus' or its Affiliate's or sublicensee's NDA for the
               Product, permitting the Product to be marketed in the United
               States).

                                       25


3.3      ONE PAYMENT; LIMITATION

         It is understood that once a particular milestone payment under Section
         3.2 has been paid (including as a result of the operation of Section
         6.2 below), then no payment for such milestone shall be due again with
         respect to the same Product or any other Product except to the extent
         otherwise agreed by the Parties in writing in connection with the
         addition of an Estrogen to the Field pursuant to Section 2.4.

4.       ROYALTIES
- --------------------------------------------------------------------------------
4.1      ROYALTY PAYMENTS

         Except as otherwise provided in this Article 4, Vivus will pay to
         FemPharm royalties as a percentage of Net Sales, where the royalty rate
         is determined based on the total aggregate Net Sales during the
         applicable calendar year in the Territory, according to the following
         schedule:

          (a)  the royalty rate is (*) per cent (* %) in any calendar year in
               which the total Net Sales are less than US$ (*) (** U.S.
               Dollars);

          (b)  the royalty rate is (*) per cent (* %) in any calendar year in
               which the total Net Sales are equal to or more than US$ (*)
               (**U.S. Dollars) but less than US$(*) (* U.S. Dollars);

          (c)  the royalty rate is (*) per cent (* %) in any calendar year in
               which the total Net Sales are equal to or more than US$ (*)(*
               U.S. Dollars) but less than US$ (*) (*U.S. Dollars);

          (d)  the royalty rate is (*) per cent (* %) in any calendar year in
               which the total Net Sales are equal to or more than US$(*) (*
               U.S. Dollars) but less than US$ (*) (*U.S. Dollars);

                                       26


          (e)  the royalty rate is (*) per cent (* %) in any calendar year in
               which the total Net Sales are equal to or more than US$ (*) (*
               U.S. Dollars) but less than US$ (*) (*U.S. Dollars);

          (f)  the royalty rate is (*) per cent (* %) in any calendar year in
               which the total Net Sales are equal to or more than US$ (*) (*
               U.S. Dollars) but less than US$ (*) (*U.S. Dollars);

          (g)  the royalty rate is (*) per cent (* %) in any calendar year in
               which the total Net Sales are equal to or more than US$ (*) (*
               U.S. Dollars) but less than US$ (*) (*U.S. Dollars);

          (h)  the royalty rate is (*) per cent (* %) in any calendar year in
               which the total Net Sales are equal to or more than US$ (*) (*
               U.S. Dollars) but less than US$ (*) (*U.S. Dollars);

          (i)  the royalty rate is (*) per cent (* %) in any calendar year in
               which the total Net Sales are equal to or more than US$ (*) (*
               U.S. Dollars) but less than US$ (*) (*U.S. Dollars);

          (j)  the royalty rate is (*) per cent (* %) in any calendar year in
               which the total Net Sales are equal to or more than US$ (*) (*
               U.S. Dollars) but less than US$ (*) (*U.S. Dollars);

          (k)  the royalty rate is (*) per cent (* %) in any calendar year in
               which the total Net Sales are equal to or more than US$ (*) (*
               U.S. Dollars) but less than US$ (*) (*U.S. Dollars);

          (l)  the royalty rate is (*) per cent (* %) in any calendar year in
               which the total Net Sales are equal to or more than US$ (*)
               (*U.S. Dollars) but less than US$ (*) (*U.S. Dollars);

                                       27


          (m)  the royalty rate is (*) per cent (* %) in any calendar year in
               which the total Net Sales are equal to or more than US$ (*)
               (*U.S. Dollars) but less than US$ (*) (*U.S. Dollars);

          (n)  the royalty rate is (*) per cent (* %) in any calendar year in
               which the total Net Sales are equal to or more than US$ (*)
               (*U.S. Dollars) but less than US$ (*) (*U.S. Dollars);

          (o)  the royalty rate is (*) per cent (* %) in any calendar year in
               which the total Net Sales are equal to or more than US$ (*)
               (*U.S. Dollars) but less than US$ (*) (*U.S. Dollars);

          (p)  the royalty rate is (*) per cent (* 5%) in any calendar year in
               which the total Net Sales are equal to or more than US$ (*)
               (*U.S. Dollars) but less than US$ (*) (*U.S. Dollars);

          (q)  the royalty rate is (*)per cent (* %) in any calendar year in
               which the total Net Sales are equal to or more than US$ (*)
               (*U.S. Dollars) but less than US$ (*) (*U.S. Dollars);

          (r)  the royalty rate is (*) per cent (* %) in any calendar year in
               which the total Net Sales are equal to or more than US$ (*)
               (*U.S. Dollars) but less than US$ (*) (*U.S. Dollars);

          (s)  the royalty rate is (*) per cent (* %) in any calendar year in
               which the total Net Sales are equal to or more than US$ (*)
               (*U.S. Dollars) but less than US$ (*) (*U.S. Dollars);

          (t)  the royalty rate is (*) per cent (* %) in any calendar year in
               which the total Net Sales are equal to or more than US$ (*)
               (*U.S. Dollars) but less than US$ (*) (*U.S. Dollars);

          (u)  the royalty rate is (*)per cent (*%) in any calendar year in
               which the total Net Sales are equal to or more than US$ (*)(*U.S.
               Dollars).

                                       28


         The royalty rate applicable to the Net Sales occurring in any one of
         the first three Royalty Periods of a particular calendar year shall be
         determined by annualizing the total aggregate Net Sales amount through
         the end of the applicable Royalty Period, by multiplying such total
         aggregate Net Sales amount by the applicable Adjustment Factor (as
         defined below), and then using such annualized amount in the above
         royalty schedule. The royalty rate for the last Royalty Period in each
         calendar year shall be determined using the actual total Net Sales for
         that calendar year. The "Adjustment Factor" for a particular Royalty
         Period in a calendar year shall be: (*) for the first Royalty Period in
         a calendar year; (*) for the second Royalty Period in a calendar year;
         and (*) for the third Royalty Period in a calendar year.

         Royalties payable on the Net Sales occurring in a particular Royalty
         Period in the calendar year shall be calculated by multiplying the
         applicable royalty rate, determined as above for such Royalty Period,
         to the total aggregate actual Net Sales that have accrued during the
         calendar year through the end of the Royalty Period, and (if such
         Royalty Period is any other than the first Royalty Period in the
         calendar year) subtracting from such total royalty amount the amount of
         royalty (if any) actually paid by Vivus for the Net Sales occurring in
         the earlier Royalty Periods of such calendar year. If any of the
         foregoing royalty calculations and payments results in a net
         overpayment of royalties for the calendar year, then FemPharm shall
         refund the overpayment to Vivus within forty five (45) days after
         Vivus' request.

         An example of the calculation of royalties is provided in Annexure G.

4.2      ROYALTY REDUCTION

         The royalty rate applicable under Section 4.1 to Net Sales from the
         sale of a Product will be reduced by (*) per cent (* %) upon the
         expiration, cancellation, invalidation, abandonment, termination,
         disclaimer, or unenforceability of the last Valid Claim in the FemPharm
         Patents that would, absent a license, be infringed by the sale or use
         of such Product in the Territory in the Field. Further, with respect to
         a particular Product, if there otherwise is no Valid Claim in the
         FemPharm Patents that would, absent a license, be

                                       29


         infringed by the sale or use of such Product in the Territory in the
         Field, then the royalty rate applicable under Section 4.1 to the Net
         Sales from the sale of such Product shall be (*) percent (* %) of the
         royalties set forth in Section 4.1, unless and until such a Valid Claim
         issues, after which point the rate shall be as set forth in Section 4.1
         until the preceding sentence applies.

4.3      THIRD PARTY ROYALTIES

         If Vivus or its Affiliate or sublicensee pays royalties to a third
         party under a patent license that is necessary in order to make, use,
         import, or sell a Product in the Territory, which royalties are based
         on net sales of such product, then Vivus shall have the right to credit
         (*) percent (* %) of such payments against the amounts payable by Vivus
         under this Section 3 and Section 4, provided that the royalty payable
         to FemPharm under this Section 4 shall not be so reduced by more than
         (*) percent (* %). As used in this Section, a license is "necessary" if
         it is reasonable to obtain the license in light of the risk of
         infringement. If FemPharm disagrees with Vivus' assertion, under this
         Section, that a particular license is so necessary, then the Parties
         will proceed under Section 15.11 to resolve the issue. Notwithstanding
         the foregoing, if Vivus or its sublicensee adds to the Product a
         component or feature comprising such technology, and Vivus or its
         sublicensee must pay royalties for third party patent rights covering
         such component or feature, such royalties shall not be offset under
         this Section 4.3 against royalties owed to FemPharm, unless the
         component or feature is, at the time added, necessary to make the
         Product approvable or commercially viable. As to any license that Vivus
         may believe is desirable to enter into with respect to a Product, other
         than those for which royalties may be offset in accordance with the
         foregoing, if Vivus so requests the Parties will discuss such license
         and the possibility of FemPharm sharing some part of the costs of such
         license.

4.4      ONE ROYALTY; SAMPLES AND DONATIONS

         One royalty shall be payable for each Product sold under this
         Agreement. No royalties shall be due upon the sale or other transfer of
         Product among Vivus, its

                                       30


         Affiliates and sublicensees, but in such cases the royalty shall be due
         and calculated upon Vivus', its Affiliate's or sublicensee's Net Sales
         to the first independent third party, or commercial use of such Product
         by Vivus, the Affiliate, or the sublicensee for profit to treat
         patients in the ordinary course of its business (in which case "Net
         Sales" for such use shall be deemed to be the average Net Sales for
         such Product when sold to third parties in the same royalty period in
         the Territory). No royalties shall accrue on the disposition of Product
         by Vivus or its Affiliates or sublicensees in reasonable quantities
         which are (i) used in clinical trials, (ii) distributed as samples
         (promotion or otherwise), or (iii) distributed as donations solely for
         charitable purpose (I.E., without charge).

4.5      ACCRUAL AND PAYMENT OF ROYALTIES; ROYALTY TERM

         The royalties owed under this Section 4 accrue on the sale or transfer
         of the Product, and all royalties that accrue in respect of the Net
         Sales in a particular Royalty Period:

          (a)  if the Territory includes any country outside the United States
               of America, will be calculated, on a country by country basis,
               after conversion (based on exchange rate as set forth in Section
               4.10 below) into U.S. dollars; and

          (b)  will be paid in U.S. dollars no later than the date that the
               royalty report for that Royalty Period is to be provided pursuant
               to Section 4.7.

         Royalties shall accrue on sales of Products commencing on the date of
         First Commercial Sale of the first Product hereunder and continuing
         only until the latest to occur of the following: (i) expiration,
         cancellation, invalidation, abandonment, termination, disclaimer, or
         unenforceability of the last Valid Claim in the FemPharm Patents that
         covers the sale of the Product, or its use, in the Territory; or (ii)
         twelve (12) years from the date of such First Commercial Sale, or (iii)
         on a Product by Product basis, the date there no longer is any
         substantial trade secret of FemPharm or its Affiliate embodied in the
         applicable Product which is a trade secret of FemPharm or its Affiliate
         at the time of the sale.

                                       31


4.6      LATE PAYMENT OF ROYALTIES

         If Vivus fails to pay royalties within the time specified in Section
         4.5, Vivus will pay to FemPharm interest on the amount of royalties
         which were not timely paid from the date upon which they became owing
         until the date of payment at (*) percent (* %) above the Prime Rate as
         quoted in the Wall Street Journal, calculated on a daily basis and
         payable on demand.

4.7      ROYALTY REPORT

         Vivus will submit to FemPharm no later than forty five (45) days after
         the end of each Royalty Period during the term of this Agreement a
         report stating:

          (a)  the total amount of invoiced sales of the Product, (on a country
               by country basis if the Territory includes any country outside
               the United States of America);

          (b)  the calculation of Net Sales (in each country if the Territory
               includes any country outside the United States of America), based
               on such sales, including a description of the deductions used to
               calculate such Net Sales; and

          (c)  if the Territory includes any country outside the United States
               of America, the calculation of royalties owed based on such Net
               Sales, on a country by country basis during that Royalty Period,
               after conversion of such Net Sales into U.S. Dollars as per
               Section 4.11.

4.8      VERIFICATION OF ROYALTY STATEMENT

         FemPharm may at its cost have any report referred to in Section 4.7
         verified as set forth below by a reputable firm of chartered
         accountants or certified public accountants nominated by FemPharm, and
         reasonably acceptable to Vivus, provided FemPharm completes such
         verification within thirty-six (36) months of the end of the Royalty
         Period to which the verification is to relate. Upon not less than ten
         (10) Business Days' prior written notice given by FemPharm to Vivus,
         Vivus will provide the accountants with access during Vivus' (or its
         Affiliates' or, to the extent Vivus has the right to do so,

                                       32


         sublicensee's, as applicable) normal business hours to the revenue and
         sales records of Vivus, its Affiliates and (to the extent Vivus has the
         right to do so) sublicensees sufficient for the purposes of verifying
         the reports referred to in Section 4.7 and for the purpose of verifying
         the amount of royalties paid to FemPharm. To the extent that Vivus does
         not have the right to grant to FemPharm the right to audit the books
         and records of its sublicensees, Vivus will use reasonable, diligent
         efforts to obtain for itself such rights and, at the request of
         FemPharm, agree to exercise its audit rights with respect to such
         sublicensees and provide the results of such audit to FemPharm pursuant
         to this Section 4.8. Vivus, the Affiliate or sublicensee, as the case
         may be, may request that, at its expense, a representative or agent
         familiar with its record keeping systems be present at the audit to
         assist in the audit. Such audits will be at the expense of FemPharm,
         except that if such audit establishes that the amount owed by Vivus for
         the audited period exceeds the amount actually paid by more than (*),
         then Vivus will pay FemPharm's actual out of pocket costs of such
         audit.

4.9      NON-DISCLOSURE BY ACCOUNTANT

         The accountants appointed under Section 4.8 are not authorised to, and
         will not, disclose to FemPharm any information other than the accuracy
         or inaccuracy of the amounts to be verified and will be required to
         execute a reasonable confidentiality agreement with Vivus and/or the
         sublicensee or Affiliate, as applicable.

4.10     STATEMENT ERRORS

         Should it be established from any report and verification referred to
         in Sections 4.7 and 4.8 that the royalties which should have been paid
         in respect of any Royalty Period to which the report and verification
         relates are more or less than the royalties actually paid then the
         difference will be remitted within ten (10) Business Days:

          (a)  to FemPharm (in the case of the royalty paid being less than that
               which should have been paid);

                                       33


          (b)  to Vivus (in the case of the royalty paid being more than that
               which should have been paid).

4.11     CURRENCY CONVERSION

         If the Territory includes any country outside the United States of
         America, all Net Sales resulting from sales of the Product in countries
         other than the United States of America will be converted into United
         States dollars for purposes of calculating royalties owed under this
         Article 4, by using the arithmetic average of the currency exchange
         rates quoted on each of the last ten (10) Business Days during the
         applicable Royalty Period in the Wall Street Journal (East Coast
         Edition). All payments by Vivus hereunder shall be made in US dollars.

4.12     WITHHOLDING TAXES

         If any taxes, withholding or otherwise, are levied by any taxing
         authority in connection with the accrual or payment of royalties or
         other amounts payable under this Agreement and are obliged to be paid
         or deducted by Vivus then:

          (a)  Vivus will pay such taxes to such taxing authority on behalf of
               FemPharm; and

          (b)  Vivus will remit to FemPharm in full satisfaction of its royalty
               obligations under this Agreement the net amount after reduction
               by the amount of such taxes; and

          (c)  Vivus will deliver to FemPharm promptly following payment written
               evidence of such payment and such other related documentation
               that FemPharm may reasonably require.

5.       CLINICAL DEVELOPMENT
- --------------------------------------------------------------------------------
5.1      OVERVIEW OF DEVELOPMENT

         The Parties intend to work cooperatively to pursue development of the
         Product in order to obtain regulatory approval for the use of the
         Product in the Field in the Territory, using commercially reasonable,
         diligent efforts in accordance with and subject to the terms of this
         Agreement.

                                       34


5.2      TRANSFER OF TECHNICAL INFORMATION

         Within sixty (60) days after the Effective Date, FemPharm shall
         transfer to Vivus without charge copies of all existing Licensed
         Know-How, including (to the extent existing) (i) copies of all
         Regulatory Materials and other Know-How developed or acquired in
         connection with any clinical or pre-clinical development in connection
         with, or directly applicable to, a Product in the Field, whether
         developed or acquired by FemPharm, any Acrux Controlled Affiliate, or
         others working under authority of such entities; and (ii) copies of all
         material Know-How relating to or used in connection with, or relevant
         to, the manufacturing of Products by FemPharm, any Acrux Controlled
         Affiliate, or others, including, such Know-How as generated or used
         during process development, stability studies, formulation development,
         scale up of manufacturing, production of preclinical and clinical
         product batches, validation studies, development of quality
         assurance/quality control testing, process controls for Products in the
         Field, and related regulatory affairs (all to the extent relating to
         Products in the Field); and all Know-How contained in the DMF or in the
         CMC section of any IND or NDA (or their counterparts in other
         countries) with respect to Products in the Field. Thereafter during the
         term of this Agreement, upon request of Vivus, FemPharm shall transfer
         to Vivus without charge copies of all such previously undisclosed
         Licensed Know-How, if any, including that developed or acquired after
         the Effective Date, and shall use all reasonable efforts to enable and
         assist Vivus in understanding and implementing the Licensed Know-How.
         FemPharm and the Acrux Controlled Affiliates shall use good faith,
         diligent efforts to obtain from each of their other licensees the right
         to disclose to Vivus, its Affiliates and their sublicensees, Know-How
         and Regulatory Materials that are relevant to, or useful for, Products.
         In addition, if requested by Vivus and at Vivus' expense for actual
         reasonable internal time of FemPharm or its Affiliate's time (billed at
         (*)% the applicable employee's salary and benefits), FemPharm shall
         generate and provide to Vivus reasonably promptly a report describing
         in reasonable detail (according to an agreed format) all research and
         development conducted or completed by or under authority of any of
         FemPharm and the Acrux Controlled Affiliates, and the results thereof,
         with respect to MDTS products involving the delivery of Estradiol.

                                       35


5.3      DEVELOPMENT RESPONSIBILITIES

         Except as otherwise determined by the Parties, Vivus will be solely
         responsible for conducting, at its own expense, all activities relating
         to the clinical development, regulatory approval and commercialization
         of the Product in the Territory, using diligent, commercially
         reasonable efforts, provided that both Parties will use such efforts to
         perform their responsibilities to achieve the targets set forth in the
         Development Plan. Vivus will pay to Fempharm, prior to the beginning of
         a calendar quarter, an amount equal to the FemPharm expenses in the
         approved budget in the Development Plan for such quarter, including
         payments to third parties and fully burdened FTE costs of labour
         associated with work at FemPharm and its Affiliates pursuant to this
         Agreement ((*)% of salary and benefits, plus any out of pocket expenses
         provided for in the Development Plan). FemPharm will maintain
         reasonably detailed records of the time expended and work performed in
         the development and will provide copies and a summery of such records,
         and a reconciliation of expenditures, for each such quarter to Vivus
         within fifteen (15) Business Days of the end of the quarter. The actual
         expenditure versus budget for the previous quarter will be reconciled
         in the payment from Vivus to Acrux for the following quarter or
         refunded to Vivus, as Vivus requests. Vivus shall not be required to
         reimburse any cost or expenses, other than those set forth in the
         Development Plan, except to the extent approved by Vivus in advance in
         writing. Vivus shall not be required to develop more than one Product
         at a time, and shall have no obligation to develop another Product in
         the Territory after a marketing approval of a Product in the Field has
         been obtained in the Territory.

5.4      DEVELOPMENT COMMITTEE

         Within thirty (30) days of the Effective Date, the Parties will
         establish a committee to review and discuss the development of the
         Product (the "Development Committee"),

                                       36


         comprising two (2) members of FemPharm's (or the Acrux Controlled
         Affiliate's) staff nominated by FemPharm and two (2) members of Vivus'
         staff nominated by Vivus. At least one member appointed by each Party
         shall have appropriate technical credentials, experience and knowledge
         and ongoing familiarity with, in the case of Vivus, the development
         under this Agreement and, in the case of FemPharm, any pre-clinical and
         clinical development of Product by FemPharm or the Acrux Controlled
         Affiliate, as well as the Licensed Intellectual Property and the
         development and use thereof. If relevant Product development is being
         performed by an Acrux Controlled Affiliate, then Vivus shall have the
         right to require that at least one of FemPharm's members be an employee
         of the Acrux Controlled Affiliate who is involved in such development
         or, in the alternative, to require that such an employee otherwise
         attend the Development Committee meetings. Each Party will give the
         other written notification concerning its staff members who are
         nominated to serve on the Development Committee. Subject to the
         foregoing, either Party may replace any of its members on the
         Development Committee by written notice. Additionally, Vivus shall be
         entitled to have representatives of its sublicensees attend the
         meetings as it considers appropriate. The Development Committee is
         responsible for review and approval of the Development Planand is
         additionally intended to provide a forum to:

          (a)  Enable Vivus to obtain scientific, clinical and regulatory input
               and data from FemPharm relating to development of the Product in
               the Territory, including with respect to work that each Party has
               performed in accordance with the Development Plan, and to keep
               Vivus informed regarding the work of FemPharm and the Acrux
               Controlled Affiliates related to Product;

          (b)  keep FemPharm reasonably apprised of the progress and results of,
               and planned activities related to, development of Products in the
               Field in the Territory under the Development Plan, sufficient for
               FemPharm to understand the general status of the development
               under the Development Plan and nature of any significant issues
               that Vivus has encountered that have caused Vivus to fail to meet

                                       37


               the schedule targeted in the Development Plan, and to review and
               approve, as appropriate, the Development Plans proposed by Vivus;

          (c)  evaluate the markets of the Product for use in the Field in
               relation to the development strategy for the Product, and adjust
               the Development Plan appropriately based thereon; and

          (d)  foster a cooperative relationship between the Parties regarding
               activities under this Agreement and the other activities of
               FemPharm and the Acrux Controlled Affiliates with respect to
               Product.

         To the extent requested by the Steering Committee, the Development
         Committee will keep the Steering Committee informed about the status of
         the activities conducted by the Development Committee pursuant to this
         Agreement. The Development Committee will refer all matters that are to
         be decided by the Development Committee, but for which agreement cannot
         be reached by the Development Committee, to the Steering Committee for
         the Steering Committee's review and final decision on such matters. The
         Development Committee will establish rules for its operation. After
         marketing approval of a Product is obtained, the Development Committee
         shall not be required to meet if there is no significant Product
         development by Vivus to discuss at the applicable time.

5.5      DEVELOPMENT PLANS

         The development of the Product will be conducted by the Parties, each
         using diligent, commercially reasonable efforts to perform its
         responsibilities set forth in the Development Plan. The Parties expect
         that an initial Development Plan will be appended to the Agreement as
         annexure A within one hundred eighty (180) days after the Effective
         Date, reflecting the Parties' understanding and intent at such time of
         the planned Product development activities in the Territory for the
         remainder of then current calendar year (and if mutually desired at the
         time, the following calendar year). The Development Plans proposed by
         Vivus will be reviewed and approved by the Development Committee from
         time to time as appropriate. On an annual basis commencing in the final
         calendar year covered by the initial Development Plan (no later than
         October 15 of each year),

                                       38


         Vivus will prepare and submit to the Development Committee for approval
         a reasonably detailed Development Plan outlining development
         responsibilities for the Product for the upcoming calendar year, it
         being agreed that Vivus may propose updates and revisions to the
         Development Plan more often as Vivus considers appropriate. After
         reviewing the proposal and discussing the development efforts to date,
         the Development Committee will consider changes to and amend the
         Development Plan to reflect revised regulatory and development
         activities designed to meet the goal of obtaining regulatory approval
         for the Product in the Territory in a commercially reasonable time
         frame based on the use of diligent, commercially reasonable efforts by
         Vivus to perform the development. Notwithstanding the foregoing, no
         Development Plan shall be required after marketing approval of a
         Product is obtained except to the extent required by the Development
         Committee.

5.6      BUDGETS

         The Development Committee will prepare and include in the Development
         Plans, a budget that sets forth the estimated costs and expenses
         (including fully-burdened internal labor costs, as described in Section
         5.3 above) that are budgeted to be incurred by FemPharm in conducting
         its responsibilities, if any, for Product development under the
         Development Plan. Each updated Development Plan will include an updated
         budget for FemPharm's responsibilities, if any, to be approved by the
         Development Committee. Vivus shall not be required to reimburse any
         costs or expenses other than those budgeted, unless agreed in advance
         in writing. Each Party shall bear its own costs and expenses associated
         with Committee meetings.

5.7      STEERING COMMITTEE

         Within thirty (30) days of the Effective Date, the Parties will
         establish a steering committee (the "Steering Committee"), comprising
         of one (1) member selected by FemPharm from its senior executives and
         one (1) member selected by Vivus from its senior executives; each
         having responsibility at the respective Party for development of
         Product. Each Party will give the other written notification concerning
         its executive

                                       39


         nominated to serve on the Steering Committee. Either Party may replace
         its member on the Steering Committee with an equivalent senior
         executive by providing written notice of the change to the other Party.
         A member of the Steering Committee cannot simultaneously serve as a
         member of the Development Committee, provided that membership in the
         steering committee or development committee under the Testosterone
         Agreement shall not preclude membership in either the Steering
         Committee or the Development Committee hereunder (and vice versa). The
         Steering Committee will be responsible for resolving issues upon which
         the Development Committee has been unable to reach agreement and for
         serving as the initial means for discussing and seeking to resolve any
         issues or disputes between the Parties arising under this Agreement.
         Members of the Steering Committee will consult with members of the
         Development Committee, as they consider necessary, when resolving such
         issues and disputes and the decision of the Steering Committee binds
         the Development Committee.

5.8      FINAL DECISION

         If the Steering Committee has been unable to reach agreement on any
         issue or matter after diligent discussions, or if such discussions have
         not occurred due to unreasonable delay by FemPharm's representative,
         then the issue will be referred to Vivus to determine the issue, except
         as otherwise provided below. Vivus must consider the issue, having
         considered the views put forward by the Development Committee and the
         Steering Committee. Vivus' decision is final and binding on the Parties
         and the Committees in respect of each such issue and matter, provided
         that the foregoing does not permit Vivus to amend the terms of this
         Agreement, or change the Outside Dates, or otherwise impose an
         obligation on FemPharm, without FemPharm's written consent.

5.9      PROCEDURES OF COMMITTEES

         Each Party will provide the other Party in writing with the name,
         title, e-mail address, telephone number and facsimile number of its
         nominees to each Committee. The Development Committee will meet
         semi-annually during the term of the Development Plan, and more often
         as mutually agreed. The Steering Committee will meet as needed to

                                       40


         resolve disputes and issues, promptly on the good faith request of
         either Party. All Committee meetings will be at such times agreed to by
         FemPharm and Vivus and will be in person or by telephone or video
         conference.

5.10     DECISIONS OF COMMITTEES

         A quorum of the Development Committee at a meeting is two (2)
         representatives of each Party present at such meeting in person or by
         telephone or videoconference. A quorum of the Steering Committee at a
         meeting is one (1) representative of each Party present at such meeting
         in person or by telephone or videoconference. A unanimous vote of the
         members of the Committee present (in person, by telephone or
         videoconference) at such meeting is required to take any action on
         behalf of the Committee. In particular, neither Committee may make a
         binding decision unless a quorum is present. Each Party shall use best
         efforts to cause a quorum to be present at each meeting. No decision of
         a Committee shall be considered binding upon either Party, except to
         the extent set forth in writing and signed by both Parties.
         Notwithstanding anything to the contrary, no approval of the
         Development Committee shall be required for the day to day development
         activities, which shall be controlled by Vivus or its designee.

5.11     CHAIRPERSONS - DEVELOPMENT COMMITTEE

         The chair of the Development Committee will be a Vivus member of the
         Development Committee. Except to the extent otherwise approved by the
         Development Committee, the chair will be responsible for preparing the
         timetable for the meetings, and for preparing the agendas, minutes and
         resolutions, communications with the Steering Committee and other
         communications regarding tasks assigned by the Development Committee.
         All drafts of minutes and resolutions must be approved by the members
         of the Development Committee at the next meeting. The chair does not
         have a second or deciding vote.

                                       41


5.12     CHAIRPERSONS - STEERING COMMITTEE

         The chair of the Steering Committee will be Vivus' member of the
         Steering Committee. Except to the extent otherwise approved by the
         Steering Committee, the chair will be responsible for preparing the
         timetable for the meetings, and for preparing the agendas, minutes and
         resolutions, communications with the Development Committee and other
         communications regarding tasks assigned by the Steering Committee. All
         drafts of minutes and resolutions must be approved by the members of
         the Steering Committee at the next meeting. The chair does not have a
         second or deciding vote.

5.13     MINUTES AND REPORTS

         Each Committee will be responsible for keeping accurate minutes of its
         deliberations or discussions that record all proposed decisions and all
         actions recommended or taken. The chair will provide the Parties with
         the approved minutes of each meeting promptly after approval and, in
         the case of the Development Committee, a written accompanying report
         summarizing, in reasonable detail, the discussions of the Development
         Committee concerning: the status of the Development Plan, of the work
         and progress to date, any issues requiring resolution, and any
         decisions by the Development Committee. All records made by each
         Committee will be available to both Parties.

5.14     GLOBAL DEVELOPMENT COMMITTEE

         At such time as any pre-clinical or clinical development is undertaken
         by or under authority of FemPharm or any Acrux Controlled Affiliates
         anywhere in the world (outside of the Territory) for a Product within
         the Field, the Parties shall establish a joint committee among Vivus,
         FemPharm (and/or the Acrux Controlled Affiliate, as the case may be)
         and any Additional Partner(s) to discuss and coordinate such
         development of such Product (the "Global Development Committee"). To
         the extent there are no Additional Partners, and meetings of the
         Development Committee are ongoing at the time, the function of the
         Global Development Committee set forth in this Section 5.14 shall be
         handled by the members of the Development Committee. The primary role
         of such Global Development Committee shall be to provide a forum for
         communication

                                       42


         between Vivus, FemPharm (and/or an Acrux Controlled Affiliate(s), as
         the case may be) and any Additional Partner(s) with respect to
         activities related to the ongoing preclinical and clinical development
         of Products in the Field, other than the work under the Development
         Plan under this Agreement. FemPharm, the Acrux Controlled Affiliates,
         Vivus, and each Additional Partner having rights to Product in the
         Field shall each have at least two (2) representatives on such Global
         Development Committee. Each member of the Global Development Committee
         shall keep the other members fully informed in English (subject to
         Section 5.15) as to the ongoing preclinical and clinical development
         of, and regulatory activities with respect to, such Products in the
         Field. It is understood and agreed, however, that formal approval of
         such Global Development Committee shall not be required for any such
         activities. The Global Development Committee shall meet no less
         frequently than twice each calendar year, or as otherwise agreed by the
         Parties, until the termination or expiration of this Agreement and each
         of Vivus, FemPharm, Acrux Controlled Affiliates, and any Additional
         Parties shall give a full report in English (subject to Section 5.15)
         at each such meeting of activities relating to the particular Products
         to which such Party, the Controlled Affiliate, Acrux Controlled
         Affiliate or Additional Partner has rights and that is undergoing
         preclinical or clinical development in the Field. Additional Partners
         will participate in such meeting only with respect to Products for
         which they have rights in the Field.

5.15     NO OBLIGATION TO TRANSLATE

         It is understood and agreed that any documents to be provided by
         FemPharm, an Acrux Controlled Affiliate, Vivus, or Additional Partner
         under Section 5.14 may be provided in the language in which such
         documents exist, and FemPharm, the Acrux Controlled Affiliate, Vivus,
         and the Additional Partners shall not be obligated to provide
         translations of such documents (except to the extent such translation
         has already been prepared).

5.16     INFORMATION AND RESULTS

         Except as otherwise agreed by FemPharm in writing, Vivus shall make
         available and disclose to FemPharm, no less often than once every six
         (6) months, in the form selected

                                       43


         by Vivus and reasonably acceptable to Vivus, and to the extent not
         previously disclosed, all patient results from Clinical Trials by Vivus
         or its Affiliate on Products under this Agreement and all Regulatory
         Materials prepared by Vivus or its Affiliate, including any NDA filed
         by Vivus or its Affiliate with the FDA for a Product under this
         Agreement. It is understood that inadvertent failure to disclose any of
         the foregoing information will not be deemed a breach, provided that
         Vivus makes the disclosure of such information promptly after becoming
         aware that such information has not been disclosed. To the extent Vivus
         has the right to provide such patient results from the Clinical Trials
         by its sublicensees on Products under this Agreement, Vivus will also
         make such results available in the manner described above. Vivus agrees
         to use good faith, diligent efforts to obtain such rights from its
         sublicensee. If the NDA is filed by a sublicensee Vivus, Vivus will use
         good faith, diligent efforts to obtain the right to disclose the NDA to
         FemPharm. As between Vivus and FemPharm, each Party will own all
         results and data that it generates, subject to any licenses granted
         under this Agreement to the other Party. In particular, as between
         Vivus and FemPharm, Vivus will own all clinical data and results of
         testing Product generated by Vivus under this Agreement (the "Data").
         FemPharm and its Affiliates have the right to use all Data required to
         be delivered by Vivus solely in developing and seeking regulatory
         approval of a Product in the Field in Australia and New Zealand, and no
         Data, Regulatory Materials, or other Know-How provided by Vivus shall
         be used for any other purpose, such as without limitation for purposes
         of development or marketing approval for a country other than New
         Zealand and Australia, except as otherwise agreed by the Parties in a
         separate writing. Such Know-How will be disclosed to licensees of
         FemPharm and the Acrux Controlled Affiliates for Australia or New
         Zealand only to the extent the licensee provides equivalent disclosure
         to Vivus and Vivus' sublicensees.

5.17     PRODUCT FAILURE

          (a)  Technology Failures. In the event the Product experiences
               significant technical issues that arise out of or relate to the
               MDTS system, including failure of the MDTS system to deliver
               Estradiol, or another Estrogen added to the Field in

                                       44


               accordance with this Agreement, in a manner suitable for
               development or commercialization of a Product in the Field and
               Territory, inadequate physical or chemical stability of any
               portion of the MDTS system, issues arising out of any Acrux
               Penetration Enhancer or any other formulation developed by
               FemPharm and used in an MDTS system, or other issues that
               significantly impact the efficacy, toxicity, safety, or ability
               to obtain approval, then, to the extent that Vivus reasonably
               concludes that the issue would likely prevent the approval of the
               Product in the Field and Territory by the FDA or other
               appropriate regulatory authority or cause the Product to not be
               commercially viable, Vivus shall have the right, subject to the
               terms of Section 5.17(b) below, to select for addition to the
               Field, and development and commercialization in the Territory
               under this Agreement as an alternate Product, an alternate
               Estrogen (excluding any Estrogen (other than a Restricted
               Estrogen) for which FemPharm or its Affiliate has commenced
               Clinical Trials, or which FemPharm or its Affiliate has licensed
               to a non-Affiliate third party in a fully arms length
               transaction, in conformance with Section 2.5(b)) or alternate
               configuration of the MDTS technology.

          (b)  Upon selection by Vivus of an alternate Product pursuant to
               Section 5.17(a) above, development and commercialization of the
               selected Product shall be in accordance with the terms of this
               Agreement, including the same milestone payments and, if the
               alternate Product is based upon another Estrogen, no greater
               royalties than those set forth in Article 4, except that (i)
               Vivus shall not be required to pay under Section 3.2 any
               milestone payments for achieving a milestone for which a
               milestone payment previously was made for a Product, and (ii) the
               Parties shall discuss in good faith and agree on new, appropriate
               diligence milestones dates in Section 6.2 for such alternate
               Product. If Vivus does not select such alternate Product within
               90 days of Vivus concluding that the issue will prevent the
               original Product from being approved or commercially viable, then
               the Agreement shall terminate under Article 14, with the effects
               of such termination being the same as if terminated by Vivus
               under Section 14.3(d).

                                       45


5.18     SUBCONTRACTS

         Subject to the provisions of this Agreement, Vivus may subcontract to
         third parties portions of the Development Plan to be performed by
         Vivus, provided Vivus agrees to keep the Development Committee
         reasonably informed of any contract research organizations or other
         contractors hired by Vivus, and provided further that such
         subcontractors are subject to confidentiality provisions consistent
         with the terms of this Agreement, and that Vivus remains responsible
         for all work performed by such subcontractors.

5.19     CLINICAL PRODUCT SUPPLY

         Except as otherwise provided in this Agreement, as between the Parties,
         Vivus is solely responsible for all manufacturing of its requirements
         of the Product for use in development throughout the Territory. Vivus
         will use diligent, reasonable efforts to manufacture, or to have its
         designee manufacture, sufficient quantities of the Product meeting all
         applicable specifications and legal requirements in a timely manner for
         use in conducting the development of the Product in the Territory
         pursuant to the Development Plan.

6.       DILIGENCE OBLIGATIONS
- --------------------------------------------------------------------------------
6.1      PRODUCT DEVELOPMENT DILIGENCE OBLIGATIONS

         Each Party will use diligent, commercially reasonable efforts to
         perform all the tasks and responsibilities assigned to it in the
         Development Plan in accordance with the development schedule set forth
         in the Development Plan, in an effort to obtain all necessary
         regulatory approvals in the Territory. If Vivus knows that it will be
         unable to meet any timeline or milestone date set out in the
         Development Plan, then it will bring the matter to the attention of
         FemPharm at the next Development Committee meeting or, if Vivus
         reasonably concludes that the delay is caused by a significant issue
         that is likely, unless it can be addressed by additional work, to
         prevent the Product from being approved by the FDA, as soon as
         reasonably practicable. The Development Committee

                                       46


         will discuss in good faith the causes of any such delays and Vivus'
         suggested courses of action to complete the subject tasks and determine
         whether to return the Product development program to the schedule in
         the Development Plan or to reasonably adjust the schedule. In such
         process, the Development Committee shall extend reasonably the timeline
         or milestone dates in the Development Plan unless the delay was a
         result of a material breach by Vivus of its obligation to use diligent,
         commercially reasonable efforts in the development of the Product.

6.2      DILIGENCE PAYMENT FOR DEVELOPMENT DELAYS

         If Vivus (including its Affiliates and sub-licensees) does not achieve
         the milestone event listed in Section 3.2(a) by its Outside Date (as
         defined below), then within ten (10) Business Days after the end of
         each full month of delay after the applicable Outside Date, Vivus will
         pay to FemPharm (*) percent (* %) of the milestone payment associated
         with the delayed event, until the corresponding milestone payment is
         paid in full, either as a result of meeting the milestone or as a
         result of such diligence payments. As used herein, "Outside Date" means
         with respect to the Section 3.2(a) milestone (*). To the extent any
         diligence payments are made under this Section 6.2, and the milestone
         is achieved before the corresponding milestone payment has been paid in
         full, then upon achieving the milestone Vivus shall pay the amount of
         the milestone payment, reduced by the amount of payments for that
         milestone made under this Section 6.2. If the Section 3.2(a) milestone
         payment is paid in full as a result of this Section 6.2, then such
         payment will be deemed to satisfy the payment obligation under Section
         3.2(a), and no further payment shall be due or payable as a result of
         completion of the particular milestone by any Product. However, if
         Vivus' inability to meet a milestone event by the applicable Outside
         Date is caused by delays outside of Vivus' reasonable control, that are
         circumstances described in subsection (a)-(d) below, then the Parties
         will meet and agree on reasonable adjustment to the Outside Date to
         accommodate such delays, provided that Vivus has used diligent,
         commercially reasonable efforts to meet the milestone events. The fact
         that payments become due or payable under this Section 6.2 shall not,
         itself, necessarily mean or suggest that there has been a lack of
         diligence by Vivus. For purposes of this Section 6.2, delays due to the
         following matters will be considered outside of Vivus' control:

                                       47


          (a)  a change in the specifications of the Product, or in the planned
               development of the Product, required by the FDA or other
               regulatory authority due to the medical, regulatory or scientific
               attributes of the Product, that necessitates additional
               development effort beyond that set forth in the Development Plan
               or contemplated when establishing the schedule in the Development
               Plan;

          (b)  other delays in development caused by the FDA, or other
               regulatory authority, that were reasonably unanticipated by
               Vivus; or

          (c)  delays caused by FemPharm not conducting its responsibilities as
               set out in the Development Plan in a timely manner.

          (d)  Additional clinical development work required or necessary for
               approval in USA to be conducted due to new findings from the
               Women's Health Initiative Study or failure of the studies
               conducted under the Development Plan to show sufficient levels of
               efficacy or safety, or the data is otherwise equivocal.

6.3      REVERSION FOR FAILURE OF DILIGENCE.

         If at any time prior to achieving regulatory approval of the Product
         Vivus fails to use, and/or to continue using, diligent, commercially
         reasonable efforts to develop the Product in the Territory during the
         term of the Agreement, then FemPharm may give Vivus written notice of
         such failure of diligence. If Vivus does not commence within ninety
         (90) days of such notice using diligent, commercially reasonable
         efforts to develop Product in the Territory, then FemPharm may no later
         than ninety (90) days after such failure provide the notice of
         termination of this Agreement, including the license and other rights
         granted to Vivus, under Section 14.2(a), but only if such failure
         constitutes a material breach of this Agreement by Vivus, and subject
         to Section 15.10.

                                       48


7.       REGULATORY MATTERS
- --------------------------------------------------------------------------------
7.1      REGULATORY MATERIALS

          (a)  Vivus is solely responsible for preparing and filing all
               Regulatory Materials for the development of the Product in the
               Territory except as otherwise set forth in this Agreement,
               including carrying out all registration and approval procedures
               necessary to comply with all appropriate laws and regulations
               relating to the manufacture, packaging, import, promotion,
               advertising and sale of the Product in the Territory. All costs
               incurred by Vivus with respect to such registrations and
               approvals will be borne by Vivus. FemPharm has the right to
               review and comment on all such Regulatory Materials prepared by
               Vivus, including application for registration and regulatory
               approval, (to the extent disclosure of same does not violate
               confidentiality obligations) and to the extent reasonably
               practicable Vivus will consider all such comments provided to
               Vivus in advance of filing. Vivus will use good faith efforts to
               obtain for FemPharm the right to so comment on Regulatory
               Materials from Product of Vivus' sublicensees under the Licensed
               Intellectual Property. Similarly, Vivus has the right to review
               and comment on all Regulatory Materials for Product developed by
               or under authority of FemPharm or an Acrux Controlled Affiliate
               in the Field outside the Territory (to the extent disclosure of
               same does not violate confidentiality obligations, subject to the
               following), and FemPharm, the Acrux Controlled Affiliate, or
               licensee, as the case may be, shall provide Vivus with a
               reasonable opportunity to provide comments and consider all of
               Vivus' comments provided to FemPharm in advance of filing to the
               extent reasonably practicable.

          (b)  FemPharm and its Affiliates and licensees (subject to the last
               sentence of Section 5.16) have a right of reference (at no cost
               to them) to the NDA and other Regulatory Materials filed by Vivus
               for the Product in the Field and Territory, which right of
               reference shall be solely for Australia and New Zealand as part
               of the development, approval and commercialisation of the Product
               in the Field for such countries, and such Regulatory Materials
               shall not be referenced by or under

                                       49


               authority of FemPharm or any Acrux Controlled Affiliate for any
               other country or Product. FemPharm is solely responsible for
               carrying out all of its registration and approval procedures
               necessary to comply with all appropriate laws and regulations
               relating to the manufacture, packaging, import, promotion,
               advertising and sale of such Product in the Field in Australia
               and New Zealand. Without limiting the other terms of this
               Agreement, each Party will provide the other Party (at no cost to
               such other Party) with reasonable telephone support to respond to
               such other Party's questions regarding the Regulatory Materials
               and supporting materials that it is required to disclose under
               this Agreement.

7.2      RELATIONSHIP WITH REGULATORY AUTHORITIES

         Vivus, as the sponsor of the Regulatory Materials for the Product in
         the Territory, has sole responsibility for interacting with all
         regulatory authorities in the Territory with respect to the Product in
         the Field, including meetings with such regulatory authorities, and
         responding to inquiries of and conducting other communications with
         such regulatory authorities, with regard to such Regulatory Materials
         or the Product. Vivus has sole authority and responsibility for all
         regulatory obligations regarding the Product in the Field in the
         Territory, including, but not limited to, the regulatory approval
         applications and registrations and related materials, all promotional
         materials, Product labeling, responding to medical inquiries, and
         Product complaints relating to the Territory, except as otherwise
         provided in this Agreement or the Development Plan, or determined by
         the Development Committee. Similarly, FemPharm, as the sponsor of its
         Regulatory Materials for the Product in the Field in Australia and New
         Zealand, has sole responsibility for interacting with all regulatory
         authorities in Australia and New Zealand with respect to its
         development of such Product in the Field for such countries, and for
         all such other regulatory obligations in its development of the Product
         in Australia and New Zealand. Each Party will provide the other Party
         with reasonable advance notice of, and any preparatory material for,
         any hearing before, or meeting with, any regulatory authority regarding
         the Product in such Party's territory (I.E., the Territory in the case
         of Vivus, and Australia and New Zealand in the case of FemPharm), and
         such other Party

                                       50


         has the right to have two (2) of its employees attend such hearings or
         meetings at its own cost, to the extent the Party responsible for the
         meeting has the right to include them and is reasonably practicable
         under the circumstances. All such materials, and information learned in
         connection with such meeting or hearings, shall be treated as the
         Confidential Information of the Party disclosing the materials or
         conducting the meeting.

7.3      ADVERSE EVENTS AND COMPLAINTS REPORTING

         The Parties agree that appropriate reporting of adverse events and
         other safety data relating to the Product is critical. Specific details
         regarding the management of information of adverse events, medical
         inquiries and Product complaints related to the use of the Product in
         the Territory and outside will be delineated in a separate document, to
         be agreed to by the Parties within ninety (90) days after the Effective
         Date. The pharmacovigilance and product labeling representatives of
         each Party will work in good faith together to develop a document that
         identifies:

          (a)  which safety information will be exchanged;

          (b)  when such information will be exchanged;

          (c)  how the global safety database will be established;

          (d)  which Party will be obligated to obtain follow-up information on
               incomplete safety reports;

          (e)  which Party will review the literature for safety report
               information;

          (f)  which Party will prepare required periodic safety updates; and

          (g)  the identification of any other details required to appropriately
               manage safety information for the Product.

         Subject to any specific details of the above document, it is expected
         that Vivus will be responsible for pharmacovigilance, adverse reaction
         reporting and related matters for Products inside the Field in the
         Territory, and that FemPharm shall be responsible for

                                       51


         pharmacovigilance, adverse reaction reporting and related matters for
         Products in the Field in all countries outside of the Territory. The
         Parties also agree to use good faith, reasonable efforts to reach
         agreement with any of their respective licensees (or sublicensees, as
         applicable) of Products in the Field to include such entities in the
         pharmacoviligance and related safety and adverse event reporting
         document discussed above.

8.       PRODUCT COMMERCIALIZATION
- --------------------------------------------------------------------------------
8.1      OVERVIEW

         Vivus has the exclusive rights, subject to the terms of this Agreement,
         to promote, market, distribute and sell Product for use in the Field
         throughout the Territory, itself and/or through its Affiliates and
         sub-licensees.

8.2      COMMERCIALIZATION OBLIGATIONS

         Vivus hereby covenants and agrees with FemPharm, during the term of
         this Agreement commencing with regulatory approval of the NDA for the
         Product by the FDA in the Field and Territory (permitting marketing of
         the Product in the Territory), to:

          (a)  actively and diligently promote the sale of the Product using
               commercially reasonable efforts in the Territory;

          (b)  not, and to require that its Controlled Affiliates and
               sub-licensees do not, sell the Product licensed hereunder outside
               the Territory nor sell such Product to any person which it knows,
               or for which it has been provided reasonable documentation, is
               selling such Product outside the Territory, each to the extent
               set forth in Section 2.6; and

          (c)  provide for and maintain, or cause to be provided for and
               maintained, a sales organisation and a marketing program
               reasonably adequate and competent to promote, stimulate interest
               in, and sell the Product effectively in the Territory, for a
               commercially reasonable period of time after commercial launch.

                                       52


Additionally, each Party hereby covenants and agrees, during the term of this
Agreement, to:

         (1)      use reasonable efforts to comply with all governmental and
                  municipal laws, regulations and requirements relating to the
                  manufacture, packaging, promotion, advertising, distribution
                  and sale of the Product;

         (2)      take out and maintain at its cost during the term of this
                  Agreement and for a reasonable period of time thereafter
                  whilst any liability may occur to such Party as a result of
                  its distribution of the Product, product liability insurance
                  in the name of such Party in respect of the manufacture,
                  distribution, sale, use and consumption of the Product by such
                  Party for an amount consistent with industry standard
                  practices and will duly and punctually pay all premiums in
                  respect of such insurance and provide evidence of such
                  insurance and payment of premiums to the other Party when so
                  requested; and

         (3)      not make any fraudulent misrepresentations in respect of the
                  quality or contents of the Product.

8.3      COMMERCIALIZATION PLANS

         No later than twelve (12) months prior to the expected launch of First
         Commercial Sales of the Product in the Territory, Vivus will provide to
         FemPharm a commercial launch plan (the "Commercial Launch Plan"), which
         will set forth in reasonable detail Vivus' actual plan and budget for
         the launch and initial marketing and promotion of the Product,
         including the trademarks to be used in such marketing. Such Commercial
         Launch Plan will include non-binding sales projections for the Product
         for at least two years from the planned First Commercial Sale. The form
         of the Commercial Launch Plan and the amount of detail included will be
         as established by the Steering Committee. For each full calendar after
         the First Commercial Sale, Vivus agrees to provide FemPharm, no later
         than February 1 of such calendar year, a report that describes in
         reasonable detail the marketing activities planned to be conducted by
         Vivus (or its Affiliate) for the Territory during the calendar year,
         and that sets forth the actual IMS (or related source) audited
         marketing data showing the actual marketing and promotional activities
         that were conducted by Vivus (or its Affiliate or licensee) in the
         Territory for the Product during the previous calendar year.

                                       53


8.4      LAUNCH DILIGENCE

         Vivus (or its Affiliate or sub-licensee) will use diligent,
         commercially reasonable efforts to launch the Product for commercial
         sale in the Field in the Territory within six (6) months of obtaining
         regulatory approval of the Product in the Territory, and will expend
         such efforts and resources in launching and initial promotion and
         marketing of the Product in the Territory as are commercially
         reasonable.

8.5      MANUFACTURE IN TERRITORY

         Vivus is solely responsible for all manufacturing of its requirements
         of the Product for sale in the Field in the Territory. Vivus will use
         diligent, commercially reasonable efforts to meet market demand for the
         Product in the Territory.

8.6      SUPPLY OF PRODUCT TO FEMPHARM

         Vivus will agree to supply to FemPharm needed amounts of the Product
         (in final finished and packaged form, according to the specifications
         of Vivus in the Territory) for use by FemPharm in developing and
         commercializing Product in the Field in Australia and New Zealand under
         a mutually acceptable supply agreement on terms that are customary and
         reasonable. Such Product supplied by Vivus shall be used solely for
         FemPharm to develop and sell the Product in the Field in New Zealand
         and Australia. Vivus shall have no obligation to supply any Product
         other than that being developed or commercialized by Vivus under this
         Agreement at the then current time. The transfer price for such Product
         shall be (i) (*) percent (* %) above Vivus' actual purchase price if
         such Product is purchased by Vivus from a contract manufacturer; and
         (ii) (*) percent (*%) above Vivus' fully burdened manufacturing costs,
         as determined consistent with Vivus' standard practices applied
         consistently across all its operations, if Vivus manufactures the
         Product. Notwithstanding the foregoing, Vivus shall have no obligation
         to negotiate under this Section 8.6 until after (*).

                                       54


9.       SUB-LICENSING AND ASSIGNMENT
- --------------------------------------------------------------------------------
9.1      SUB-LICENSE

         Vivus has the right to grant and authorize sub-licenses, under the
         rights granted to it in this Agreement, to Affiliates of Vivus and to
         other third parties, without consent, BUT PROVIDED THAT prior to
         granting a sub-license to a third Party Vivus shall have disclosed the
         identity of the proposed third party to FemPharm and shall discuss and
         consider in good faith any reasonable concerns FemPharm may have with
         regard to granting a sublicense to such third party, and shall consider
         in good faith FemPharm's suggestions to address any of its reasonable
         concerns. Vivus is responsible for the actions of any such
         sub-licensee, and if such sub-licensee breaches any Vivus obligation
         under the Agreement, such breach will be deemed a breach by Vivus.

9.2      VIVUS BOUND

         In the case of sub-licensing, Vivus remains bound by this Agreement and
         responsible for performing, or having its sub-licensee perform, all its
         obligations hereunder, subject to Section 9.1 above. Subject only to
         Section 5.18 and 9.1, however, nothing shall prevent Vivus from relying
         upon the performance and efforts of its sublicensees and contractors
         for purposes of satisfying its obligations under this Agreement,
         including under Articles 7 and 8, notwithstanding anything to the
         contrary, such as language in Sections 5.4, 5.19, 7.1(a), 7.2, and 8.5
         that indicates that Vivus shall have sole responsibility.

9.3      ASSIGNMENT

         Each Party is entitled to assign and otherwise transfer without consent
         all its right, title and interest in this Agreement, including its
         obligations, to any other Person that acquires all or substantially all
         of such Party's business or assets, whether by asset purchase, merger,
         acquisition or other similar transaction, PROVIDED THAT such Person
         agrees in

                                       55


         writing to be bound by the terms hereof as the successor in interest or
         assignee. Any other attempt to transfer or assign shall be void without
         the prior written consent of the other Party. If a Party is acquired by
         another corporation or other entity that was not its Affiliate prior to
         the acquisition, then no Intellectual Property rights of the acquiring
         entity developed prior to the acquisition, or developed thereafter
         without using the Licensed Technology, shall be included in the rights
         licensed to the other Party under this Agreement.

10.      CONFIDENTIALITY
- --------------------------------------------------------------------------------
10.1     RESTRICTIONS ON USE

         Subject to the further provisions of this Article 10, each Party agrees
         that it will keep all Confidential Information disclosed to it by the
         other Party secret and confidential, and will not disclose it to any
         third party, or use it for its own benefit or the benefit of any third
         party, except that either Party may use and disclose the other Party's
         Confidential Information:

          (a)  for the purposes of exercising the licenses and other rights
               granted by this Agreement; or

          (b)  as otherwise permitted with the prior written consent of the
               other Party.

         Any disclosure authorized in accordance with the foregoing shall be
         subject to reasonable confidentiality provisions materially as
         protective of the Confidential Information as the terms of this
         Agreement.

10.2     USE OF OWN INFORMATION

         Except for Section 10.13, nothing in this Article 10 prevents a Party
         from disclosing or dealing in its absolute discretion with any of its
         own Confidential Information, provided that FemPharm will use
         reasonable efforts to keep its Confidential Information relating to the
         Product and the Field secret and confidential so as to avoid any
         adverse affect on the value or protection of the Licensed Intellectual
         Property to the extent relevant to the Field and the Territory and
         further provided that such disclosure and dealing by FemPharm shall be
         subject to the other terms of this Agreement, including Sections 2.1
         and 10.13.

                                       56


10.3     EXCEPTIONS TO CONFIDENTIALITY

         The obligations of confidentiality and non-use as provided in Section
         10.1 above do not extend to, and notwithstanding Section 1.1
         Confidential Information shall not include, any particular information
         or Know-How received by a Party that it can demonstrate by competent
         evidence:

          (a)  was available to the public or otherwise in the public domain
               prior to receipt by such Party, or subsequent to such receipt
               becomes available to the public or part of the public domain,
               other than as a result of a breach of this Agreement;

          (b)  was already known to the recipient Party by lawful means at the
               time of receipt (including trade secrets and inventions not
               disclosed in existing patent applications) other than directly or
               indirectly from the other Party;

          (c)  was obtained by the recipient Party from a third party who has a
               lawful right to disclose it, provided that the information has
               not been obtained directly or indirectly from the other Party to
               this Agreement and is not subject to an obligation of
               confidentiality; or

          (d)  was independently developed by the receiving Party without use of
               the other Party's Confidential Information.

10.4     EXCEPTIONS TO NON-DISCLOSURE

         Notwithstanding the restrictions of Section 10.1, a Party may disclose
         the Confidential Information of the other Party beyond the disclosure
         authorized in Section 10.1, subject to compliance with the following
         provisions of this Section 10.4, solely to the extent such disclosure:

                                       57


          (a)  is to its professional advisors, and provided that such
               disclosure is reasonably necessary or desirable and is subject to
               reasonable confidentiality protections;

          (b)  is required by any court or other judicial or quasi-judicial
               tribunal or any administrative or government body, or as is
               required by law, provided that such disclosure is no more than is
               necessary to avoid the imposition of a penalty for failing or
               refusing to disclose the Confidential Information, and that the
               Confidential Information is disclosed in such a way as to limit
               as far as possible the disclosure of the Confidential
               Information, and that such disclosing Party first complies with
               Section 10.5; or

          (c)  as reasonably necessary in prosecuting or defending any
               litigation or enforcing this Agreement, provided that such Party
               has first notified the other Party giving full details of the
               circumstances of the required disclosure and of the relevant
               information to be disclosed and takes reasonable steps to
               preserve the confidentiality of the information.

10.5     DISCLOSURE BY LAW

         Before any disclosure in reliance on Section 10.4(b), the Party subject
         to the disclosure obligation must, unless it is not practicable to do
         so:

          (a)  immediately notify the other Party giving full details of the
               circumstances of the required disclosure and of the relevant
               information to be disclosed;

          (b)  to the maximum extent permitted by law give the other Party a
                  reasonable opportunity in a court of law or other appropriate
                  body to:

               (i)  challenge the proposed disclosure;

               (ii) challenge the obligation of the Party or any other person to
                    make that disclosure; and/or

                                       58


               (iii) secure a protective order or other ruling limiting or
                    preventing the disclosure and/or to protect or preserve the
                    confidentiality of the relevant information; and

          (c)  take reasonable steps to preserve the confidentiality of the
               information being disclosed and to comply with any such
               protective order or ruling.

10.6     SCOPE OF CONFIDENTIALITY

         In the case of uncertainty as to the confidentiality of any information
         a Party must treat the information as Confidential Information until
         such Party or the other Party confirms that the information is not
         Confidential Information.

10.7     SECURITY OF INFORMATION

         Each Party must use its reasonable endeavours to minimise the risk of
         disclosure of any Confidential Information of the other Party, by
         providing reasonable security of its premises, its records and
         materials.

10.8     PERSONNEL CONFIDENTIALITY

         Each Party agrees to procure written and signed confidentiality and
         non-publication undertakings with respect to the Confidential
         Information of the other Party, in terms materially as protective of
         such other Party's Confidential Information as this Article 10, from
         all employees, agents and contractors of such Party who have or are
         likely to have access to Confidential Information of the other Party.

10.9     RETURN OF CONFIDENTIAL INFORMATION

         Upon termination of this Agreement, each Party may by written notice to
         the other Party demand the return of all tangible property comprising
         Confidential Information provided by such Party, but only to the extent
         set forth in Article 14 and provided that Vivus shall not be required
         to return any product.

                                       59


10.10    PUBLICATIONS

         Neither Party shall make or authorize any oral public disclosure, or
         any submission to any outside person for publication of an abstract or
         manuscript, disclosing the Confidential Information of the other Party,
         including any scientific data resulting from the other Party's
         non-clinical development or clinical development under this Agreement,
         in each case except to the extent approved in writing by such other
         Party or as otherwise permitted in this Article 10.

10.11    OTHER RIGHTS

         Nothing herein contained excludes the right of either Party at common
         law or in equity to protect its Confidential Information by application
         to any court for injunction or otherwise. Notwithstanding anything to
         the contrary in this Article 10, the Parties agree that the use and
         disclosure of concepts and information retained in the unaided memories
         of individuals who had access to Know-How from the other Party shall
         not be considered a breach of the terms of this Agreement. This Section
         10.11 shall not be construed to grant any rights under any Patent in
         such concepts.

10.12    USE OF OTHER PARTY'S NAME

         Neither Party shall make any use of the other Party's name unless
         approved by the other Party in writing, such approval not to be
         unreasonably withheld, or in the circumstances set forth in Section
         10.13.

10.13    PRESS RELEASES AND OTHER DISCLOSURES

         The Parties will issue a joint press release, in the form attached as
         annexure D, promptly after the Effective Date. The Parties agree that
         no other publication or other public disclosure of the terms of this
         Agreement will be made by a Party without the consent of the other
         Party, (with failure to respond to any request for consent beyond ten
         (10) days from the request to be deemed consent), such consent not to
         be unreasonably withheld.

                                       60


         Notwithstanding the foregoing, a Party may make disclosures authorized
         pursuant to Section 10.10 and may disclose the terms of this Agreement:

          (a)  to the extent required by law or regulation or court order, or by
               the rules of any stock exchange on which the stock or shares of
               the Party or any of its Affiliates are listed or other government
               body; and

          (b)  in confidence to its professional advisors, and its existing or
               potential investors, acquirors, and merger partners on a need to
               know basis under conditions which reasonably ensure the
               confidentiality thereof;

          (c)  in confidence, pursuant to non-disclosure and non-use
               restrictions at least as stringent as included in this Article
               10, to other parties that have a need to know such information
               for a purpose related to this Agreement;

          (d)  in connection with the enforcement of this Agreement or rights
               under this Agreement;

          (e)  in confidence as is reasonable in connection with a merger,
               acquisition of stock or assets, proposed merger or acquisition,
               or the like;

          (f)  as advisable or required in connection with any government or
               regulatory filings, including filings with the SEC; provided
               however, prior to any such disclosure the non-disclosing Party
               shall be allowed to review the proposed disclosure, and the
               disclosing Party agrees to consider in good faith any proposed
               revisions thereof provided to the disclosing Party within ten
               (10) Business Days of the non-disclosing Party's receipt of the
               proposed disclosure and the Party making such disclosure shall
               seek confidential treatment for such disclosure as permitted by
               applicable law in a similar manner to the actions it takes for
               its other information of like kind.

                                       61


11.      INVENTIONS
- --------------------------------------------------------------------------------
11.1     DISCLOSURE OF INVENTIONS

         During the term of this Agreement, each Party will promptly disclose to
         the other Party the Inventions invented jointly by employees of both
         Parties and for which the disclosing Party desires to seek Patent
         protection, and Vivus will promptly disclose to FemPharm all
         Improvements, provided that Vivus shall not be considered in breach of
         such disclosure obligation as a result of an inadvertent failure to
         disclose an Invention so long as Vivus promptly discloses the
         Improvement after discovering the failure to disclose.

11.2     OWNERSHIP OF INVENTIONS AND INTELLECTUAL PROPERTY RIGHTS

         As between the Parties, each Party (or its Affiliate) will own the
         entire right, title and interest in and to all the Inventions made by
         such Party's (or its Affiliate's) employees or others acting on behalf
         of such Party or Affiliate and all Intellectual Property rights in and
         to such Inventions, subject only to the licenses and other rights (if
         any) to the extent granted to the other Party thereto under this
         Agreement.

11.3     JOINT INVENTIONS AND JOINT PATENTS

         All right, title and interest in all Patents to the extent claiming
         Inventions invented jointly by the employees of both Parties ("Joint
         Inventions")will be owned jointly by FemPharm and Vivus (that is, each
         Party having an equal and undivided interest therein). Patent filings
         to the extent claiming a Joint Invention will be conducted as set out
         in Section 12.2. Neither Party may assign its interest in any Joint
         Patent unless notice of such transfer has been first given to the other
         Party and the transferee agrees in writing to be bound by the terms of
         this Agreement with respect to the interest so transferred and as
         otherwise set forth in Section 9.3. Except as otherwise expressly
         provided in this Agreement, neither Party shall have any obligation to
         account to the other for profits, or to obtain any consent of the other
         Party to license or exploit, Joint Inventions (whether or not patented)
         or Joint Patent, by reason of joint ownership thereof, and each Party
         hereby waives any right it may have under the laws of any jurisdiction
         to require any such consent or accounting.

                                       62


11.4     COOPERATION OF EMPLOYEES

         Each Party represents and agrees that all employees acting on its
         behalf in performing its obligations under this Agreement will be
         obligated under a binding written agreement to assign to such Party, or
         as such Party will direct, all inventions made or conceived by such
         employee.

12.      PATENTS AND INTELLECTUAL PROPERTY
- --------------------------------------------------------------------------------
12.1     PATENT RIGHTS

         All right, title and interest owned by a Party in Intellectual Property
         will remain owned and retained exclusively by such Party, subject only
         to the applicable license and other rights granted to Vivus and
         FemPharm in this Agreement. FemPharm will have sole responsibility for
         and control over, at its discretion, the filing, prosecution,
         maintenance and enforcement of the FemPharm Patents, at FemPharm's
         expense, except as otherwise provided below. FemPharm shall use
         diligent commercially reasonable efforts to obtain and maintain at all
         times broad Patent protection for the Products in the Field and
         Territory under this Agreement, including by using reasonable efforts
         to prepare, file, prosecute and maintain Patents as desirable for
         Products in the Field and Territory and to pursue as appropriate
         interferences, re-examinations, reissues, oppositions and similar
         proceedings regarding the FemPharm Patents. During the term of this
         Agreement and thereafter to the extent Vivus has surviving rights,
         FemPharm will keep Vivus reasonably informed regarding the status,
         preparation, filing, prosecution and maintenance of all patent
         applications and patents included or to be included in the FemPharm
         Patents licensed to Vivus pursuant to Section 2.1 (including inventions
         for which Vivus may desire to have a Patent application filed), and
         without limiting the foregoing will reasonably consider, and give Vivus
         a reasonable opportunity to provide, comments on such preparation,
         filing, prosecution, or maintenance efforts that relate to Product, the

                                       63


         Field or the Territory. FemPharm may elect to cease preparing, filing,
         prosecuting or maintaining any particular FemPharm Patent, or to cease
         diligently pursue any interferences, re-examinations, reissues,
         oppositions or similar proceeding relating to a particular FemPharm
         Patent, but only to the extent that FemPharm has provided to Vivus, as
         far in advance as practicable, written notice describing its intent
         and, to the extent desired by Vivus, has reasonably transitioned the
         preparation, filing, prosecution, and maintenance to Vivus without
         prejudice to Vivus' rights under this Agreement. If Vivus then
         undertakes such activities, Vivus shall bear all of its actual out of
         pocket costs and expenses incurred in such activities, and may credit
         against amounts subsequently owed to FemPharm under this Agreement any
         such actual costs and expenses borne, subject to providing FemPharm
         with receipts and invoices and other documents as is reasonable to
         properly evidence the costs and expenses and payment thereof. FemPharm
         shall use reasonable efforts to cooperate and provide such documents
         and assistance as is reasonably requested, in connection with such
         activities by or under authority of Vivus.

12.2     JOINT PATENT RIGHTS

         As to each Joint Invention, the Parties will discuss and reasonably
         agree on whether and where to file a Joint Patent claiming the Joint
         Invention, and on which Party shall assume responsibility for the
         preparation, filing, prosecution and maintenance of such Joint Patents,
         in each country in the world for which prosecution of the Joint Patent
         is desired by a Party. The Parties will share equally in the expenses
         of such activities related to Joint Patents. Each Party will reimburse
         the other for its share of such expenses borne by the other Party upon
         written request, no less frequently than quarterly and shall cooperate
         and provide such documents and assistance as is reasonably requested in
         connection with such activities. Each Party will keep the other
         reasonably informed of, and consult with the other Party with respect
         to, all significant actions in the course of such Party's prosecution
         of the Joint Patents. If the Party having responsibility for
         prosecuting a particular Joint Patent elects not to assume or continue
         such responsibility, the other Party will have the right, but not the
         obligation, to do so. If either Party elects not to continue to support
         prosecution or maintenance of a particular Joint Patent, it may do so
         on written

                                       64


         notice to the other Party, and in such case it will assign its entire
         interest in such Joint Patent to the other Party if such other Party
         elects to prosecute and maintain such Joint Patent at its sole expense;
         subject to any licenses and exclusivity in this Agreement. Upon any
         such assignment, the Party that elected to discontinue its involvement,
         and assign its interest, shall not be required to bear any expenses
         under this Section 12.2.

12.3     FEMPHARM PATENT PROCEEDINGS

         Each Party will promptly notify the other of any legal proceedings,
         including opposition or declaration of invalidity proceedings,
         initiated or pursued by any third party against any of the FemPharm
         Patents. FemPharm has the sole right and authority to defend against
         any such proceedings, including defending against any defenses or
         counterclaims of invalidity or unenforceability (including such
         counterclaims as may arise out of an infringement claim under Section
         12.4). For clarity, all infringement actions involving a Field
         Infringement (as defined in Section 12.4) shall be pursued under
         Section 12.4, and FemPharm shall have the right to control only the
         defense of the FemPharm Patents in such Field Infringement actions in
         the event that a defense or counterclaim is asserted against the
         FemPharm Patents, shall use reasonable efforts, in such defense, not to
         adversely impact the Field Infringement action by Vivus. FemPharm will
         keep Vivus reasonably informed of the actions taken to defend the
         FemPharm Patents and the progress of such actions. In such case, only
         (*) % of FemPharm's costs and expenses of such involvement shall be
         reimbursed out of the recovery in the Field Infringement action. Vivus
         will provide FemPharm with reasonable assistance and cooperation in
         such actions, at FemPharm's sole expense, in an effort to obtain a
         successful resolution or termination of such proceedings or
         counterclaims governed by this Section 12.3. Vivus will have the right
         to have counsel of its choosing participate in any such defense of the
         FemPharm patents, at its sole expense, subject to Section 12.4.
         FemPharm will not settle any claim, suit or action involving FemPharm
         Patents in any manner that would materially negatively impact upon the
         FemPharm Patents, the Licensed Intellectual Property, or Vivus' rights
         or exclusivity thereunder, or that would materially negatively impact
         upon or limit or restrict the ability of Vivus to sell the Products in
         the Territory.

                                       65


12.4     INFRINGEMENT PROCEEDINGS IN THE FIELD

         Each Party will promptly notify the other if it becomes aware that any
         third party is infringing any FemPharm Patent in the Territory. If any
         third party is infringing, or believed to be infringing any FemPharm
         Patent in the Territory in connection with the exploitation, making,
         use, import, offer for sale, or sale of a product in the Field in the
         Territory (a "Field Infringement"), then the Parties will promptly
         thereafter meet and discuss in good faith appropriate steps to take to
         cause such Field Infringement to cease.

          (a)  Vivus or its designee has the first right and authority, but not
               the obligation, to take reasonable steps to cause termination of
               such Field Infringement, which may include initiating a lawsuit
               or other appropriate legal action, at its expense, as Vivus or
               its designee reasonably determines is appropriate; provided that
               Vivus agrees that it will not initiate a lawsuit asserting
               infringement of the FemPharm Patents unless it has first
               discussed the matter with FemPharm. Vivus will keep FemPharm
               reasonably informed of the actions taken to cause termination of
               a Field Infringement and the progress of any such actions
               (including notifying FemPharm promptly if the third party raises
               any defenses or counterclaims of invalidity or unenforceability
               of any FemPharm Patents). FemPharm will provide Vivus or the
               designee with reasonable assistance and cooperation in such
               actions, at Vivus's or the designee's expense (other than as set
               forth in Section 12.3), including joining such action as a party
               plaintiff and taking such other actions as are required by
               applicable law for Vivus or the designee to pursue such action.
               FemPharm will have the right to have counsel of its choosing
               participate in any such action, at its sole expense, provided
               that Vivus will have the right to control the action. Vivus will
               not settle any claim, suit or action that it brought under this
               Section 12.4 involving FemPharm Patents in any manner that would
               negatively impact upon the FemPharm Patents or the Licensed
               Intellectual Property without FemPharm's consent, not to be
               unreasonably withheld or delayed.

          (b)  If Vivus and its designees have not, within four (4) months of
               request by FemPharm, initiated and pursued reasonable efforts to
               cause such Field

                                       66


               Infringement to cease, then each Party (and Vivus' designees)
               shall thereafter have the right and authority, but not the
               obligation, to take any such steps or actions at its expense.
               Whichever of such parties first does so shall thereafter control
               the action and the other Party will provide the controlling Party
               (or designee) with reasonable assistance and cooperation in such
               actions, at expense of the controlling Party or designee (except
               as set forth in Section 12.3), including joining such action as a
               party plaintiff and taking such other actions as required by
               applicable law to pursue such action.

          (c)  The Party bringing the suit, action or legal proceedings will:

               (i)  be reimbursed for its costs and expenses associated with
                    bringing the legal proceedings out of the proceeds of any
                    damages or costs recovered or as otherwise provided by
                    agreement between the Parties; and

               (ii) indemnify the other Party against any liability awarded
                    against such other Party as a result of the subject matter
                    of such suit brought by the indemnifying Party, unless
                    caused by the acts or omissions of the indemnified Party.

          (d)  Any amounts remaining out of damages and costs and other amounts
               recovered from a third party due to infringement of the FemPharm
               Patents under a suit, action or legal proceeding brought against
               a Field Infringement, will be retained by the Party that brought
               the action as follows:

               (i)  if Vivus or its designee brought the action, then Vivus or
                    the designee, as the case may be, shall retain (*) percent
                    (* %) of the recovery and will pay the remaining (*) percent
                    (* %) to FemPharm; and

               (ii) if FemPharm brought the action, the recovery shall be (*)%
                    to Vivus and (*) % to FemPharm.

                                       67


12.5     OTHER INFRINGEMENT PROCEEDINGS

         For clarity, FemPharm retains the sole and exclusive right to enforce
         and defend the FemPharm Patents against all third party infringements
         worldwide, except as otherwise provided in Section 12.4 with respect
         solely to Field Infringement.

13.      REPRESENTATIONS AND WARRANTIES; DISCLAIMERS
- --------------------------------------------------------------------------------
13.1     WARRANTY

         Each Party, and each Acrux Controlled Affiliate, represents, warrants
         and covenants that: (i) it has the legal power and authority to enter
         into this Agreement and to perform all of its obligations hereunder;
         (ii) it has and will have the right and authority to grant the rights
         and licenses granted by it hereunder; (iii) this Agreement is a legal
         and valid obligation binding upon it and enforceable in accordance with
         its terms; (iv) it has not previously made, and during the term of this
         Agreement will not make, any commitment or grant or authorization of
         rights which are in conflict in any material way with, or that will
         restrict or impair, the rights, licenses, or exclusivity granted to
         Vivus herein.

13.2     ADDITIONAL WARRANTIES OF FEMPHARM AND THE ACRUX CONTROLLED AFFILIATES

         Each of FemPharm and Acrux DDS Pty Limited represents, warrants, and
         covenants as follows:

         (a) it has not received notice that it has failed to comply with, and
         it has not failed to comply with, any obligation, law, regulation, or
         order in a manner that will materially adversely affect the rights
         granted to Vivus under this Agreement;

         (b) Annexure B sets forth a list of all FemPharm Patents (whether
         issued or pending) owned by, or licensed to, any of FemPharm and the
         Acrux Controlled Affiliates. Except for the Patents listed in Annexure
         B, there are no Patents related to or useful for Products in the Field
         that are owned by, or licensed to, FemPharm or any Acrux Controlled

                                       68


         Affiliate. All Patents in Annexure B are owned by FemPharm or an Acrux
         Controlled Affiliate, except as expressly identified in Annexure B.
         None of FemPharm and the Acrux Controlled Affiliates shall grant any
         third party any license or rights under any Patent that is within the
         FemPharm Patents that derogate from or reduce the license or rights
         granted to Vivus under this Agreement;

         (c) FemPharm has sufficient rights to the FemPharm Patents identified
         in the annexure B for it to grant to Vivus the exclusive right (with
         respect to all Persons) under such Intellectual Property, including the
         right to grant and authorize sublicenses, to exploit, import, export,
         make, have made, use, offer for sale and sell Products for use in the
         Field in the Territory;

         (d) as of the Effective Date: (i) the existing FemPharm Patents are in
         full force and effect and not subject to any pending re-examination,
         opposition, interference or claim of invalidity proceedings, none of
         the Licensed Intellectual Property is subject to any litigation or
         similar proceedings, and neither FemPharm nor any Acrux Controlled
         Affiliate has knowledge of a third party threat of such a proceeding,
         or of facts that likely would be the basis for instituting such
         proceeding; (ii) none of FemPharm and the Acrux Controlled Affiliates
         has reason to believe that any of the existing FemPharm Patents likely
         will be invalid, unenforceable, or will fail to issue, or that the
         claims of any pending FemPharm Patent likely will be materially limited
         or restricted beyond the presently pending claims;

         (e) as of the Effective Date, none of FemPharm and the Acrux Controlled
         Affiliates is aware of any Person that is infringing a FemPharm Patent
         in the Territory;

         (f) FemPharm and/or one of the Acrux Controlled Affiliates have access
         and rights to all Regulatory Materials filed by or under authority of
         any of them with regulatory authorities, and the supporting raw data
         for such materials, relevant to Product and may be useful to support
         the development or marketing approval of the Product in the Field in
         the Territory, and has the right to include the same within the
         Know-how disclosed to Vivus hereunder;

                                       69


         (g) FemPharm has not knowingly failed to provide to Vivus any documents
         or information requested by Vivus as part of its due diligence process,
         and FemPharm and Acrux DDS Party Limited believe that FemPharm has
         provided to Vivus, prior to the Effective Date, access to sufficient
         Know-How Controlled by FemPharm or any Acrux Controlled Affiliate for
         Vivus to conduct a reasonable and fully informed evaluation of the
         Licensed Technology and the development status and results relating to
         the current Product in deciding whether or not to enter into this
         Agreement, including all adverse information and all relevant
         agreements. None of the materials provided to Vivus by FemPharm or an
         Acrux Controlled Affiliate prior to the Effective Date contained any
         untrue statement of material fact, and to FemPharm's and Acrux
         Controlled Affiliate's knowledge, none of FemPharm or any Acrux
         Controlled Affiliate failed to disclose to Vivus, or concealed, any
         material fact that would, absent such disclosure, make the materials
         provided to Vivus materially misleading;

         (h) as of the Effective Date, to each of FemPharm's and the Acrux
         Controlled Affiliates' knowledge, none of FemPharm and the Acrux
         Controlled Affiliates has made an untrue statement of a material fact,
         or has failed to disclose a material fact, to any regulatory authority
         with respect to the Product in the Field, or any portion thereof;

         (i) Acrux DDS Pty Limited shall use diligent, commercially reasonable
         efforts to (*). FemPharm and the Acrux Controlled Affiliates shall not
         terminate, amend or modify (*). FemPharm shall notify Vivus in writing
         immediately if any of FemPharm, Acrux Limited or the Acrux Controlled
         Affiliates receives from the licensor of any Licensed Intellectual
         Property any notice of breach or termination, or any other indication
         of a dispute or matter that could lead to breach or termination, of the
         license agreement, or which could otherwise affect Vivus' rights
         thereunder;

                                       70


         (j) FemPharm will not deliver to Vivus confidential or proprietary
         Know-How of any third party unless FemPharm has the right to do so for
         use and disclosure by Vivus in the manner set forth in this Agreement,
         unless FemPharm expressly identifies at the time of such disclosure the
         particular Know-How that FemPharm does not have the right to license to
         Vivus hereunder;

         (k) all employees, consultants, and other contractors of each of
         FemPharm and the Acrux Controlled Affiliates performing work related to
         or useful for any Product in the Field, including Monash, Barry Reed,
         William Charman, Dr. Barrie Finnin, and Dr. Tim Morgan in each case to
         the extent acting as an employee, consultant, or contractor of FemPharm
         or an Acrux Controlled Affiliate, have been and shall be subject to a
         written agreement that vests in FemPharm or an Acrux Controlled
         Affiliate all right, title, and interest in and to their work product,
         including all associated Intellectual Property rights;

         (l) none of this Agreement, or the exercise by or under authority of
         Vivus of the license rights granted to Vivus under this Agreement, will
         violate or otherwise be affected by any of the terms or conditions
         imposed in connection any government funding or sponsorship obtained by
         FemPharm or an Acrux Controlled Affiliate;

         (m) FemPharm and the Acrux Controlled Affiliates are not aware, as of
         the Effective Date, (1) of any Patent of any third party, including
         Affiliates, that will be infringed by the manufacture, use import, or
         sale of a Product in the Field in the Territory, or (2) that any
         Licensed Know-How in any of their possession, and related to or useful
         for Product, was misappropriated from a third party.

         (n) none of the terms and conditions of the Monash License, including
         Sections 6, 7, 8.1, 8.3, 12.2, and 19.1 of the Monash License, or the
         Acrux DDS License bind Vivus;

         (o) the FemPharm Patents are not subject to any lien or encumbrance (as
         defined in the Monash License) that could materially limit or adversely
         affect Vivus' rights granted under this Agreement;

                                       71


         (p) Acrux Limited is not controlled by any Person, and FemPharm and
         Acrux DDS Pty Limited, and Cosmeceutical Solutions Pty Limited are the
         only Affiliates of Acrux Limited that have any interest in (i) any
         Licensed Intellectual Property, (ii) any Competitive Product or (iii)
         any technology, product or Intellectual Property related to or useful
         for the Product in the Field, the delivery of Estradiol or other
         estrogens, progestins with estrogenic activity, or derivatives of such
         estrogens or progestins, or the delivery of a selective estrogen
         receptor modulator, to females, or any transdermal or mucosal delivery;
         and

         (q) none of FemPharm and the Acrux Controlled Affiliates are currently
         researching or developing, or have current plans to commence research
         or development of, any MDTS product using Estrogen Monotherapy for the
         treatment of menopausal symptoms in human females, other than the
         Product.

13.3     ADDITIONAL WARRANTIES OF VIVUS

Vivus represents, warrants, and covenants to FemPharm that:

         (a) Vivus has not received notice that it has failed to comply with,
         and it has not failed to comply with, any obligation, law, regulation,
         or order in a manner that will materially adversely affect the rights
         granted to Vivus under this Agreement;

         (b) Vivus has not knowingly failed to provide to FemPharm any documents
         or information requested by FemPharm as part of its due diligence
         process, or evaluation of whether or not to enter into this Agreement,
         except as otherwise stated to FemPharm. None of the materials provided
         to FemPharm by Vivus prior to the Effective Date contain any untrue
         statement of material fact, and to Vivus' knowledge, Vivus has not
         failed to disclose to FemPharm, or conceal, any material fact that
         would, absent such disclosure, make the materials provided to FemPharm
         materially misleading;

         (c) Vivus will not deliver to FemPharm confidential or proprietary
         Know-How of any third party unless Vivus has the right to do so for use
         and disclosure by FemPharm in the manner set forth in this Agreement,
         unless Vivus expressly identifies at the time of such disclosure the
         particular Know-How that Vivus does not have the right to license to
         FemPharm hereunder;

                                       72


13.4     DISCLAIMER OF WARRANTIES

         EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, VIVUS AND
         FEMPHARM MAKE NO REPRESENTATIONS, WARRANTIES OR CONDITIONS OF ANY KIND,
         EITHER EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE, AND EACH PARTY HEREBY
         DISCLAIMS ALL OTHER WARRANTIES, INCLUDING, BUT NOT LIMITED TO,
         WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

13.5     DISCLAIMER OF LIABILITY

         EXCEPT WITH RESPECT TO A BREACH OF SECTIONS 2.5, 10, OR THE EXCLUSIVITY
         IN SECTION 2.1(a), IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE
         OTHER BASED UPON THIS AGREEMENT FOR ANY SPECIAL, CONSEQUENTIAL,
         INDIRECT, OR INCIDENTAL DAMAGES ARISING OUT OF OR RELATED TO THIS
         AGREEMENT, HOWEVER CAUSED, ON ANY THEORY OF LIABILITY AND WHETHER OR
         NOT SUCH PARTY HAS BEEN ADVISED OR IS AWARE OF THE POSSIBILITY OF SUCH
         DAMAGES.

14.      TERM AND TERMINATION
- --------------------------------------------------------------------------------
14.1     TERM

         This Agreement will continue in full force and effect from the
         Effective Date until expiration, unless earlier terminated pursuant to
         Sections 5.17(b), 14.2, 14.3 or 14.8 below, on the date that Vivus no
         longer has, and shall not have in the future, any payment obligations
         to FemPharm under this Agreement. Upon such expiration, Vivus retains a
         non-exclusive, fully-paid license in the Territory to continue to make,
         have made, use, sell and otherwise exploit Products in the Field.

                                       73


14.2     TERMINATION BY FEMPHARM

         FemPharm is entitled by written notice to Vivus to terminate this
         Agreement upon the happening of any of the following events, provided
         that FemPharm provides Vivus with written notice of termination within
         one hundred eighty (180) days after it becomes aware of the occurrence
         of the applicable event:

          (a)  any material breach by Vivus of any of the terms and conditions
               of this Agreement, where such breach is not fully cured and
               rectified within ninety (90) days, or with respect to payment
               obligations, within forty-five (45) days, after the giving of
               written notice by FemPharm to Vivus specifying such breach and
               requiring rectification thereof, provided that if such breach
               (other than a payment breach) is not capable of cure within the
               initial ninety (90) day period and Vivus is making diligent good
               faith efforts to cure, then Vivus shall have an additional ninety
               (90) days to cure such breach, and subject to Section 15.10, and
               except as otherwise provided in Section 14.7;

          (b)  a petition or other application or resolution being passed
               against Vivus, or being presented by Vivus, in a bankruptcy
               proceeding that requires the winding up, liquidation or
               dissolution of Vivus or notice by Vivus of its intention to
               propose such a resolution being given;

          (c)  the appointment of a receiver, or receiver and manager, for all
               of Vivus' property in bankruptcy;

          (d)  if Vivus (or any of its Affiliates) bring any action, suit,
               defense or counterclaim seeking to invalidate or have held
               unenforceable: (i) any claim in any FemPharm Patent in
               substantially the same form that the claim is issued or pending
               on July 31, 2003 (an "Existing FP Claim"); or (ii) any claim in a
               FemPharm Patent filed after July 31, 2003 that is substantially
               the same as any such Existing FP Claim and that is entitled to an
               effective filing date (e.g. as defined under 35 USCss.120) that
               is the filing date of a FemPharm Patent filed prior to July 31,
               2003.

                                       74


14.3     TERMINATION BY VIVUS

         Vivus is entitled by written notice to FemPharm to terminate this
         Agreement upon the happening of any of the following events, provided
         that Vivus provides FemPharm (except in case of subsection (d)) with
         written notice of termination within one hundred eighty (180) days
         after Vivus becomes aware of the occurrence of the applicable event:

          (a)  a material breach by FemPharm of any of the terms and conditions
               under this Agreement or a material breach by an Acrux Controlled
               Affiliate of its obligations, representations, or warranties in
               this Agreement, where such breach is not fully cured or rectified
               within ninety (90) days after the giving of written notice by
               Vivus to FemPharm specifying such breach or non-observance and
               requiring rectification thereof, provided that if such breach is
               not capable of cure within the initial ninety (90) day period and
               FemPharm and the Acrux Controlled Affiliates are making diligent
               good faith efforts to cure, then FemPharm shall have an
               additional ninety (90) days to cure such breach, and subject to
               Section 15.10;

          (b)  a petition or other application being presented or resolution
               being passed by or against FemPharm, Acrux DDS Pty Ltd, or Acrux
               Limited in a bankruptcy proceeding that requires the winding up,
               liquidation or dissolution of the applicable entity, or notice by
               such entity of its intention to propose such a resolution being
               given;

          (c)  the appointment of a receiver, or receiver and manager, for all
               of FemPharm's property in bankruptcy or the rejection of this
               Agreement by any such receiver or manager;

          (d)  Vivus has provided sixty (60) days written notice that Vivus is
               terminating the Agreement for its convenience; or

          (e)  if FemPharm (or any of its Affiliates) bring any action, suit,
               defense or counterclaim seeking to invalidate or have held
               unenforceable: (i) any claim in

                                       75


               any Patent Controlled by Vivus or its Affiliate in substantially
               the same form that the claim is issued or pending on July 31,
               2003 (an "Existing V Claim"); or (ii) any claim in a Patent
               Controlled by Vivus or its Affiliate filed after July 31, 2003
               that is substantially the same as any such Existing V Claim and
               that is entitled to an effective filing date (e.g. as defined
               under 35 USCss.120) that is the filing date of such a Patent
               filed prior to the July 31, 2003.

         Further, in lieu of proceeding under Section 14.3(a), 14.3(b), 14.3(c)
         or 14.3(e) based upon a particular event, Vivus shall have the right to
         avail itself of the provisions of Section 14.6 based upon the event,
         rather than terminating the Agreement in its entirety under Section
         14.3(a), 14.3(b), 14.3(c), or 14.3(e), provided that proceeding under
         Section 14.6 based upon an event shall not prevent Vivus from
         proceeding under Section 14.3 with respect to any later event covered
         by Section 14.3.

14.4     NO RELEASE

         Termination of this Agreement does not release either Party from any
         liability that has accrued prior to such termination, or release either
         Party from any obligation that survives termination of this Agreement.

14.5     CONSEQUENCES OF AGREEMENT TERMINATION

          (a)  The terms of this Section 14.5(a) shall apply upon termination
               pursuant to Section 14.2 or Section 14.3(d), except if Vivus has
               previously exercised its rights, under Section 14.3(a) or 14.6 to
               terminate portions of this Agreement pursuant to Section 14.6 due
               to uncured material breach.

               (i)  Section 2.1 of this Agreement shall automatically terminate,
                    and Section 2.3 shall survive, except rights under Section
                    2.3(b) shall survive to the extent set forth below.

               (ii) Upon such termination, Vivus will be deemed automatically to
                    grant to FemPharm a perpetual, irrevocable, royalty-free,
                    fully paid, non-exclusive

                                       76


                    license (with full rights to sublicense): (A) under the
                    Improvement Blocking Patent Rights to exploit, import, make,
                    have made, use, offer for sale and sell Products in the
                    Field throughout the Territory; and (B) under the Reversion
                    IP to exploit, import, make, have made, use, offer for sale
                    and sell Products in the Field in the Territory. As used
                    herein, "Reversion IP" means all trade secrets in the
                    Improvements to the extent Controlled by Vivus or its
                    Controlled Affiliate during the term and necessary or
                    reasonably useful for the development, manufacture or
                    commercialization of Products in the Field. Additionally,
                    FemPharm shall have the right under Section 2.3(b) to
                    negotiate toward a non-exclusive license under the Reversion
                    IP for countries outside of the Territory, New Zealand, and
                    Australia, provided that such license shall be royalty free
                    if this Agreement has been terminated by FemPharm under
                    Section 14.2(a) for Vivus' material breach.

               (iii) Upon such termination, Vivus will be deemed automatically
                    to grant to FemPharm the non-exclusive right to access, use
                    and cross reference all Regulatory Materials, including all
                    registrations and regulatory approvals, filed by Vivus with,
                    or obtained by Vivus from, the FDA in the development of
                    Products in the Field and Territory; provided that all
                    access, use or cross reference by and under authority of
                    FemPharm shall be solely for the purpose of development and
                    commercialization of Products in the Field in the Territory.
                    Additionally, the Parties agree that FemPharm's right to
                    negotiate under Section 2.3(b) toward a license under the
                    Reversion IP as set forth in Section 14.5(a)(ii) above
                    includes the right to negotiate toward rights to access, use
                    and cross-reference such Regulatory Materials for countries
                    outside the Territory, New Zealand, and Australia.
                    Notwithstanding anything to the contrary, except as
                    expressly set forth in this Section 14.5(a), no right,
                    license, or exclusivity to or under any Intellectual
                    Property is or shall be granted by Vivus or its Affiliates
                    and Vivus and its Affiliates shall maintain all right,
                    title, and interest in and to all Intellectual Property and

                                       77


                    Know-How. Without limiting the foregoing, no right or
                    license is or shall be granted by Vivus or its Affiliates in
                    or to any trademarks, trade names, logos, or the like.

               (iv) To the extent not previously disclosed by Vivus, Vivus will
                    use reasonable efforts for a period of 90 days after
                    termination of this Agreement to disclose and provide copies
                    to FemPharm of all the Data (as defined in Section 5.16)
                    generated by Vivus during the term of the Agreement that
                    Section 5.16 requires Vivus to disclose and provide copies
                    to FemPharm, and FemPharm (and its Affiliates and licensees)
                    shall have full rights to use such Data for developing and
                    exploiting Product in the Field to the extent that FemPharm
                    is licensed to do so, and is licensed to authorize its
                    Affiliates and sublicensees to do so, as set forth in
                    Sections 14.5(a)(ii) and 14.5(a)(iii) above, and provided
                    that such Data shall remain the Confidential Information of
                    Vivus and its Affiliate and sublicensee, as the case may be.

               (v)  To the extent provided for in any supply agreement between
                    Vivus and FemPharm pursuant to Section 8.6 above, Vivus will
                    continue to manufacture (or have manufactured) and supply to
                    FemPharm the Product covered by such agreement for use in
                    the Field and Territory until FemPharm is able to obtain its
                    own supply of its requirements of Products for use in the
                    Field and Territory (provided that such period shall not
                    exceed one (1) year) and will work cooperatively and
                    reasonably with FemPharm to achieve a smooth transition of
                    the manufacture of the Reverted Product to FemPham, and (if
                    applicable) to assist FemPharm in seeking to obtain a
                    manufacturing agreement with Vivus' contract manufacturer of
                    the Reverted Product on commercially reasonable terms,
                    provided that in each case such transition shall not impose
                    an unreasonable burden on Vivus.

                                       78


               (vi) Vivus shall, within thirty (30) days after termination,
                    return to FemPharm all Confidential Information delivered or
                    provided by FemPharm to Vivus; provided that Vivus shall be
                    entitled to keep a record copy of such Confidential
                    Information and shall not be required to return any product.
                    Article 10 shall survive termination (excluding the
                    obligation to issue a press release under Section 10.13),
                    but only for a period of five (5) years. Notwithstanding
                    termination of Vivus' rights, Vivus and its Affiliates and
                    sublicensees shall have the right to continue to market,
                    sell, offer to sell, and import any Product, in existence at
                    the time of termination, in the Territory for six (6) months
                    after termination PROVIDED THAT the terms of Article 4 will
                    survive and remain in force as to all such sales.

               (vii) In the event an action under Section 12.4 was commenced
                    during the term of the Agreement and is ongoing at the time
                    of termination, Section 12.4 shall continue to apply to the
                    action in accordance with its terms, except that the Party
                    bringing the action for purposes of allocating any recovery
                    under Section 12.4(d) shall be deemed to be the Party
                    controlling the action at the time of termination. If
                    FemPharm assumes control of an action initiated by Vivus,
                    then Section 12.4(c)(ii) shall apply as if FemPharm is the
                    Party bringing the action and all costs and expenses
                    incurred by Vivus in the action prior to the date of
                    termination shall be reimbursed out of any recovery before
                    allocation under Section 12.4(d).

               (viii) Section 14.5(c) shall apply.

          (b)  Upon termination of this Agreement pursuant to Section 14.3
               (other than 14.3(d)), or upon any termination (but not
               expiration) of this Agreement after Vivus had previously
               exercised its rights, under Section 14.3(a) or 14.6, to terminate
               portions of this Agreement pursuant to Section 14.6 due to
               uncured material breach, the terms of this Section 14.5(b) shall
               apply.

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               (i)  Section 2.1 of this Agreement shall automatically terminate.
                    Notwithstanding termination of Vivus' rights, Vivus and its
                    Affiliates and sublicensees shall have the right to continue
                    to market, sell, offer to sell, and import any Product, in
                    existence at the time of termination, in the Territory for
                    six (6) months after termination PROVIDED THAT the terms of
                    Article 4 will survive and remain in force as to all such
                    sales.

               (ii) Section 2.3(b) shall automatically terminate.

               (iii) Article 10 (excluding the obligation to issue a press
                    release under Section 10.13) shall survive such termination,
                    but only for a period of five (5) years.

               (iv) Each Party shall, within thirty (30) days after termination,
                    return to the other Party all Confidential Information
                    delivered or provided by such other Party, except that it
                    may keep one copy of such information purely for archival
                    purposes and Vivus shall not be required to return Product.

               (v)  In the event an action under Section 12.4 was commenced
                    during the term of the Agreement and is ongoing at the time
                    of termination, Section 12.4 shall continue to apply to the
                    action in accordance with its terms, except that Vivus shall
                    be considered the Party bringing the action for purposes of
                    allocating any recovery under Section 12.4(d). If FemPharm
                    assumes control of an action initiated by Vivus, then
                    Section 12.4(c)(ii) shall apply as if FemPharm is the Party
                    bringing the action and all costs and expenses incurred by
                    Vivus in the action prior to the date of termination shall
                    be reimbursed out of any recovery before allocation under
                    Section 12.4(d). For clarity, Vivus shall have the right to
                    continue to pursue any such action commenced by Vivus to the
                    extent desired.

               (vi) Section 14.5(c) shall apply.

                                       80


          (c)  In addition to survival as set forth in Sections 14.5(a) or
               14.5(b) above, as applicable, Sections 1.1, 1.2, 4.9, 9.3, 11.1
               (excluding Vivus' obligation to disclose Improvements), 11.2,
               11.3, 12.2, 13.4, 13.5, 14.1, 14.4, and 14.5 will survive
               termination of the Agreement for any reason and expiration of
               this Agreement, except termination under Section 14.8. Article 15
               shall survive any such termination and expiration of this
               Agreement. Except as otherwise expressly set forth in this
               Section 14.5 above or 14.8, all terms and conditions of this
               Agreement shall terminate and have no further force or effect
               upon any termination or expiration of this Agreement, even if
               termination of the particular Article or Section is not expressly
               referenced in this Section 14.5 or 14.8. For clarity, the
               Development Plan shall be deemed terminated and of no further
               force or effect upon any termination or expiration of this
               Agreement. Notwithstanding anything to the contrary, no payment
               shall be due or payable under Section 3 or 6.2 unless the payment
               became due and payable prior to the date on which the notice of
               termination was given.

14.6     VIVUS TERMINATION OF SPECIFIC PROVISIONS FOR UNCURED BREACH

         If there occurs a material breach by FemPharm of any of the terms and
         conditions under this Agreement, and such breach is not fully cured or
         rectified within ninety (90) days after the giving of written notice by
         Vivus to FemPharm specifying such breach or non-observance and
         requiring rectification thereof, then, subject to Section 15.10, Vivus
         may, as described in Section 14.3, (in lieu of proceeding under Section
         14.3(a)), cause the following changes to occur under the Agreement:

          (a)  The following Sections of the Agreement shall automatically
               terminate: 2.3(b), 2.6(b), 5.1, 5.4, 5.5, 5.6, 5.7, 5.8, 5.9,
               5.10, 5.11, 5.12, 5.13, 5.14 (but only to the extent desired by
               Vivus), 5.16, 5.19, 7.1(b), 7.2 (except the first two sentences),
               8.2(b), 8.2(1), 8.2(2), 8.2(3), 8.3, 8.5, 14.2(d), and 14.5(a).
               For clarity, all obligations of Vivus to pay reimbursement shall
               terminate immediately. Vivus shall be entitled to withhold
               consent to development in the Territory under Section 2.1(c) for
               any reason or no reason.

                                       81


          (b)  Section 8.6 shall terminate, except for the restrictions on
               Product purchased from Vivus. The obligation to issue a press
               release under Section 10.13, and the obligation of Vivus to
               disclose Improvements under Section 11.1, shall terminate except
               to the extent otherwise reasonably specified by Vivus.
               Notwithstanding anything to the contrary, each of FemPharm and
               the Acrux Controlled Affiliates shall, within thirty (30) days of
               Vivus' request return to Vivus all Confidential Information
               delivered or provided by Vivus, except that FemPharm may keep one
               copy of such information purely for archival purposes.

          (c)  Notwithstanding this Section 14.6, Articles 3 and 4 shall survive
               and remain in force. Section 12.4 shall continue to apply in
               accordance with its terms, except that if FemPharm assumes
               control of an action initiated by Vivus, then Section 12.4(c)(ii)
               shall apply as if FemPharm is the Party bringing the action and
               all costs and expenses incurred by Vivus in the action prior to
               the date of Vivus relinquishing control shall be reimbursed out
               of any recovery before allocation under Section 12.4(d). Section
               7.1 shall terminate except for the first and last sentences of
               Section 7.1(a) which shall survive. FemPharm and the Acrux
               Controlled Affiliates shall cooperate in any reasonable manner
               requested by Vivus to achieve a smooth transition to Vivus of any
               and all Development Plan responsibilities of FemPharm.

          (d)  If Vivus elects to exercise its rights under this Section 14.6
               due to an uncured material breach by FemPharm of its obligations
               under Section 2.5(b), then Section 2.5(a) shall be deemed to
               terminate unless Vivus achieves an injunction that enjoins
               FemPharm from further violations of the terms of Section 2.5(b).

14.7     LIMITATION OF TERMINATION FOR BREACH AFTER COMMERCIAL LAUNCH

         Commencing upon the First Commercial Sale of a Product in the
         Territory, but subject to Section 15.10, FemPharm shall have the right
         to terminate the Agreement under Section 14.2(a) only for the following
         uncured material breaches by Vivus:

          (a)  Material breach of the obligations in Section 8.2(a) or 8.2(c);

                                       82


          (b)  Breach of the payment obligations under the Agreement, which
               breach remains uncured one hundred twenty days after notice.

         If Vivus materially breaches any other obligation under the Agreement,
         and such breach would permit termination of the Agreement under Section
         14.2(a) but for this Section 14.7, and such breach is not fully cured
         or rectified within ninety (90) days after the giving of written notice
         by FemPharm to Vivus specifying such breach or non-observance and
         requiring rectification thereof, provided that if such breach (other
         than a payment breach) is not capable of cure within the initial ninety
         (90) day period and Vivus is making diligent good faith efforts to
         cure, then Vivus shall have an additional ninety (90) days to cure such
         breach, then (subject to Section 15.10) FemPharm shall have the right
         to cause the following changes to the Agreement on written notice to
         Vivus (but not to terminate the Agreement in its entirety):

               (i)  The following Sections of the Agreement shall automatically
                    terminate: 2.4, 2.7, 5.16, and 5.17.

               (ii) The penultimate sentence of Section 7.1(a) shall terminate.
                    The obligations of FemPharm in the penultimate sentence of
                    Section 7.2 shall terminate, and only the rights of FemPharm
                    under such sentence shall survive.

               (iii) If FemPharm elects to exercise its rights under this
                    Section 14.7 due to an uncured material breach by Vivus of
                    its obligations under Section 2.5(a), then Section 2.5(b)
                    shall be deemed to terminate unless FemPharm achieves an
                    injunction that enjoins Vivus from further violations of the
                    terms of Section 2.5(a).

14.8     TERMINATION FOR FAILURE TO ACHIEVE (*)

         Vivus has the right to terminate this Agreement by providing written
         notice thereof to FemPharm within thirty (30) days after the occurrence
         of the following: Acrux DDS Pty Limited. has not (*) after the
         Effective Date that

                                       83


         (*). If Vivus terminates the Agreement under this Section 14.8, then:

          (a)  FemPharm shall (*), and (*). Additionally, FemPharm and  Acrux
               Limited shall promptly (*) of this Section 14.8.

          (b)  In the event of termination under this Section 14.8, all terms
               and conditions of this Agreement shall terminate and have no
               further force or effect except that this Section 14.8 and
               Articles and Sections 9.3, 10 (but only for five (5) years after
               termination and excluding the obligation to issue a press release
               under Section 10.13), 11.2, 11.3, 12.2, 13.4, 13.5, 14.4, 14.9,
               and 15 shall survive. For clarity, all of Vivus' payment
               obligations, including obligations to reimburse FemPharm, shall
               terminate and have no further force or effect immediately upon
               Vivus' notice. The Development Plan shall be deemed terminated
               and of no further force or effect.

14.9     REMEDIES

         Termination of this Agreement as provided in Sections 5.17(b), 14.2,
         14.3, and 14.8, and termination of certain provisions of this Agreement
         as provided in Section 14.6 and 14.7, is a cumulative remedy, and each
         Party will be entitled to seek any other rights or remedies available
         to it at law or in equity for any breach or non-observance of this
         Agreement.

                                       84


15.      GENERAL
- --------------------------------------------------------------------------------
15.1     NOTICES

         Any notice given pursuant to this Agreement must be in writing and may
         be given by pre-paid express courier addressed to the other Party at
         the address specified in this Agreement or as subsequently notified in
         writing, or by hand delivery or facsimile or electronic transmission to
         the same address and any such notice is deemed to have been received:

          (a)  if served by express courier on the date signed for;

          (b)  if served by hand delivery, on the date delivered by hand;

          (c)  if sent by facsimile transmission, when the transmitting machine
               produces a written report that the notice has been effectively
               sent to the other party, if the sender confirms such notice by
               express courier or hand delivery;

          (d)  if sent by electronic transmission, when the transmitting
               computer produces a written report that the notice has been
               effectively sent to the other party, if the sender confirms such
               notice by express courier or hand delivery;

         If a notice is deemed under clause (c) or (d) to have been received on
         a day which is not a Business Day, it is deemed to have been received
         on the next Business Day.

         The address for service of any notice is:
         To FemPharm


         FemPharm Pty Ltd
         103-113 Stanley Street
         West Melbourne   Victoria    3003
         Australia
         Facsimile:
         Email:

                                       85


         with a copy to:

         Mr. P G Willcocks
         Lander & Rogers, Lawyers
         Level 12, 600 Bourke Street
         Melbourne Victoria 3000
         Australia Facsimile:
         Email:

         To Vivus


         with a copy to:
         Facsimile:
         Email:

15.2     INDEMNIFICATION

          (a)  Vivus is responsible for, and will indemnify, hold harmless and
               defend FemPharm, its Affiliates and their respective officers,
               directors, employees and agents against any and all claims,
               damages, losses, costs, expenses (including reasonable attorneys'
               and professional fees and other expenses of litigation), and
               liabilities, resulting from any third party claims, actions,
               suits, or allegations ("Claims") to the extent the Claim results
               from or arises out of: (a) the negligence, recklessness, or
               willful misconduct of Vivus, its Controlled Affiliates, or its
               sub-licensees, or their respective officers, directors,
               employees, or agents; (b) Vivus' breach of its obligations,
               representations or warranties under this Agreement; or (c) the
               development, manufacture, promotion, use or sale of any Product
               by Vivus, its Affiliate, or its sub-licensee, or by any of their
               respective customers or end-users. Notwithstanding the foregoing,
               Vivus' obligations under this Section 15.2 will not apply to any
               Claim, to the extent that such Claim arises out of or results
               from (i) the development, manufacture, use, promotion, and/or
               sale of any product or technology (including Product) by FemPharm
               or its Affiliate or licensee (other than Vivus, but including
               Product sold by Vivus under any supply agreement with FemPharm or
               any Acrux Controlled Affiliate), or any

                                       86


               of their respective customers or end-users; (ii) FemPharm's or an
               Acrux Controlled Affiliate's breach of its obligations,
               representations, or warranties under this Agreement; or (iii) the
               negligence, recklessness, or willful misconduct of FemPharm, its
               Affiliates, or licensees (other than Vivus) or their respective
               officers, directors, employees, or agents; or (iv) claims of any
               participant in any Clinical Trials performed by or under
               authority of FemPharm or an Acrux Controlled Affiliate.

          (b)  FemPharm and Acrux Limited shall be responsible for, and will
               indemnify, hold harmless and defend Vivus, its Affiliates and
               their respective officers, directors, employees and agents
               against any and all claims, damages, losses, costs, expenses
               (including reasonable attorneys' and professional fees and other
               expenses of litigation), and liabilities, resulting from any
               third party claims, actions, suits, or allegations ("Claims")
               resulting from or arising out of: (i) the development,
               manufacture, use, promotion, and/or sale of any product
               (including Product) by FemPharm or an Acrux Controlled Affiliate
               or their licensees (other than Vivus, but including Product sold
               by Vivus under any supply agreement with FemPharm or any Acrux
               Controlled Affiliate and including liability to patients in
               connection with any Clinical Trials by FemPharm), or any of
               FemPharm's or an Acrux Controlled Affiliate's or FemPharm
               licensee's respective customers or end-users; (ii) FemPharm's or
               an Acrux Controlled Affiliate's breach of its obligations,
               representations, or warranties under this Agreement; or (iii) the
               negligence, recklessness, or willful misconduct of FemPharm, an
               Acrux Controlled Affiliate, or licensees (other than Vivus) or
               their respective officers, directors, employees, or agents.
               Notwithstanding the foregoing, FemPharm's and Acrux Limited's
               obligations under this Section 15.2 will not apply to any Claim,
               to the extent that such Claim is the subject of an
               indemnification obligation under Section 15.2(a) above.

          (c)  A Party that intends to claim indemnification under this Section
               15 (the "Indemnitee") shall promptly notify the other Party (the
               "Indemnitor") in writing

                                       87


               of any Claim, in respect of which the Indemnitee intends to claim
               such indemnification, and the Indemnitor shall have sole control
               of the defense and/or settlement thereof. The indemnity
               arrangement in this Section 15 shall not apply to amounts paid in
               settlement of any action with respect to a Claim, if such
               settlement is effected without the consent of the Indemnitor,
               which consent shall not be withheld unreasonably. The failure to
               deliver written notice to the Indemnitor within a reasonable time
               after the commencement of any action with respect to a Claim, if
               prejudicial to its ability to defend such action, shall relieve
               such Indemnitor of any liability to the Indemnitee under this
               Section 15 but the omission so to deliver written notice to the
               Indemnitor shall not relieve the Indemnitor of any liability that
               it may have to any Indemnitee otherwise than under this Section
               15. The Indemnitee under this Section 15, shall cooperate fully
               with the Indemnitor and its legal representatives in the
               investigation of any action with respect to a Claim covered by
               this indemnification, at the Indemnitor's expense.
               Notwithstanding the foregoing, the Indemnitor shall not be
               responsible for any costs or expenses incurred by the Indemnitee
               or its Affiliate, or the directors, officers, employees,
               successors or assigns of the Indemnitee or its Affiliate, without
               the prior written consent of the Indemnitor, not to be
               unreasonably withheld.

15.3     DAMAGES FOR BREACH OF REPRESENTATIONS AND WARRANTIES

         Notwithstanding anything to the contrary, a breach of warranty under
         this Agreement shall have the same effect as a breach of a covenant,
         and each Party shall be entitled to recover for a breach of a warranty
         by the other Party the same contractual damages as if such other Party
         had breached a covenant, subject to Section 13.5.

15.4     WAIVER

         A waiver by any Party of any breach or a failure to enforce or to
         insist upon the observance of a condition of this Agreement will not be
         a waiver of any

                                       88


         other or of any subsequent breach. No waiver under this Agreement is
         binding unless in writing and signed by the Party giving the waiver.

15.5     SEVERANCE

         If any part of this Agreement is held to be invalid, unenforceable,
         illegal, void or voidable for any reason, this Agreement will be
         construed and be binding on the Parties to the maximum extent possible,
         as if the invalid, unenforceable, illegal, void or voidable part had
         been deleted from this Agreement or read down to the extent necessary
         to overcome the difficulty.

15.6     SUCCESSORS AND ASSIGNS

         This Agreement is binding on and continues for the benefit of each
         Party, its successors and permitted assigns.

15.7     CONTINUING OBLIGATIONS

         The expiration or termination of this Agreement does not operate to
         terminate any of the surviving obligations under this Agreement, which
         will remain in full force and effect and binding on the Party
         concerned.

15.8     VARIATION

         No variation, modification or amendment of this Agreement is binding on
         the Parties unless in writing and signed by both Parties.

15.9     APPLICABLE LAW

         This Agreement, and all disputes under Section 15.10, shall be governed
         by and construed in accordance with the laws of California, USA, and
         the Parties submit themselves to the non-exclusive jurisdiction of the
         courts having San Francisco within their jurisdiction.

                                       89


15.10    DISPUTE RESOLUTION

         If any claim, controversy, difference or dispute between the Parties
         arises at any time under this Agreement, including as to its existence,
         validity, interpretation, effect, breach or termination, (a "Dispute"),
         then either Party may give the other a written notice of Dispute
         reasonably identifying and providing a description of the Dispute.
         Notwithstanding the existence of a Dispute, the Parties must continue
         to perform this Agreement, unless the Agreement is terminated in
         accordance with its terms. If there is a Dispute, however, regarding
         whether or not a breach of this Agreement has occurred, then notice of
         such a Dispute will toll the cure period, and the Agreement will remain
         in effect until the Dispute is resolved. If such a Dispute is finally
         resolved in favour of the Party giving notice of breach, then the
         Agreement will terminate sixty (60) days after the final determination
         is made unless the other Party cures the breach within such sixty (60)
         day period. If a Party gives written notice of a Dispute, then senior
         executive officers from both Parties will meet promptly thereafter and
         negotiate in good faith to resolve the Dispute as quickly and cost
         effectively as possible. If the Parties have not resolved the Dispute
         within sixty (60) days of the date of the written notice of the
         Dispute, then either Party may, by written notice to the other Party,
         submit such Dispute to final and binding arbitration under the then
         current Comprehensive Arbitration Rules and Procedures of the Judicial
         Arbitration and Mediation Services ("JAMS"), except as such rules may
         be modified in this agreement ("Rules"). The Parties agree that any
         such Dispute will be settled by three (3) arbitrators which are
         appointed within 90 days of service by one Party of a request for
         arbitration on the other Party. Each Party will select one arbitrator,
         and the third arbitrator will be appointed by JAMS, as provided in the
         Rules. The arbitration proceedings will take place, and the
         arbitrators' award will be rendered, in Honolulu, Hawaii or such other
         location as may be agreed in writing by the Parties. The decision of
         the arbitrators will be final and binding on the Parties. The
         arbitrators will prepare and deliver to the Parties a written, reasoned
         opinion conferring their decision. Judgment on the award so rendered
         may be entered in any court having competent jurisdiction thereover.
         Each Party may, without breach of this Section 15.10 or waiving any
         remedy under this Agreement, seek from any court having jurisdiction
         any injunctive or

                                       90


         provisional relief necessary to protect the rights or property of that
         Party pending the arbitration award. Each Party shall bear its own
         costs and expenses and attorneys' fees and an equal share of the
         arbitrators' and any administrative fees of arbitration. The Parties
         further agree that any payments made pursuant to this Agreement pending
         resolution of the dispute shall be refunded if an arbitrator or court
         determines that such payments are not due.

15.11    DISPUTE REGARDING LICENSE NECESSITY.

         If FemPharm disputes, under Section 4.3, that a particular patent
         license is "necessary" as defined in that Section, then the Parties
         shall resolve such dispute by submitting such dispute for resolution to
         a mutually agreed independent patent attorney with substantial
         experience regarding the scope, validity and enforceability of patents
         covering subject matters similar to the third party patent in question
         (the "Neutral"). If the Parties cannot agree on a Neutral within thirty
         (30) days of the request of either Party, then the Neutral shall be
         selected by the Chairman of the Intellectual Property section of the
         American Bar Association. The Neutral shall not have any current
         interest in or current or prior involvement with either Party, unless
         the Parties agree otherwise. Within 10 days following the
         identification of the Neutral, each Party shall submit to the Neutral
         in writing its statement of the issue in dispute; and the basis for its
         position that the patent license that is the subject of the dispute is,
         or is not, (as applicable) "necessary" as defined in Section 4.3. No
         ex-parte communication with the Neutral shall be allowed without the
         consent of the other Party. The Neutral may follow such procedures as
         he or she desires, provided that the Neutral shall decide the issue in
         favor of one Party within thirty (30) days of submission of the
         statements. If the Neutral determines that the subject patent license
         is "necessary", then Vivus shall be entitled to credit royalties as
         provided in Section 4.3, and otherwise no credit shall be permitted
         (except as may otherwise be agreed by the Parties in writing). The
         Parties shall equally share the costs associated with the Neutral's
         activities under this Section 15.11. Each Party shall cooperate to
         allow the Neutral to complete his/her obligations under this Section.
         If

                                       91


         Vivus has in fact taken a license for the Product, the license shall be
         considered necessary unless otherwise established in such proceeding.

15.12    COUNTERPARTS

         This Agreement may be signed in any number of counterparts and all such
         counterparts taken together are deemed to constitute one and the same
         document.

15.13    COSTS

         Each Party must pay their own legal, accounting and other costs in
         relation to the negotiation, preparation, execution and implementation
         of this Agreement.

15.14    PAYMENT

         All payments to be made under this Agreement must be paid by electronic
         transfer to the bank account nominated in writing by the Party to whom
         the payment is to be made and received into that account in cleared
         funds on the date the payment is due.

15.15    ENTIRE AGREEMENT

         This Agreement and the Guaranty Agreement constitute the entire
         agreement and basis of the transaction between the Parties in relation
         to its subject matter and supersedes all other prior and
         contemporaneous communications, negotiations, arrangements and
         agreements between FemPharm and Vivus whether oral or in writing,
         except that confidential information disclosed by a Party pursuant to
         the non disclosure agreement between FemPharm and Vivus prior to the
         Effective Date shall be treated as Confidential Information of the
         disclosing Party to the extent set forth in this Agreement, and the
         Testosterone Agreement shall remain in full force and effect.

15.16    INJUNCTIVE RELIEF

         Each Party acknowledges that monetary damages alone may not be adequate
         compensation for a breach of this Agreement by the other Party,
         including breach of Article 10. Each Party is entitled to seek
         injunctive relief from a court of competent

                                       92


         jurisdiction as a remedy for any breach or threatened breach of this
         Agreement, in addition to any other remedies available at law or in
         equity under or independently of this Agreement, each to the extent
         available in accordance with applicable law.

15.17    INDEPENDENT CONTRACTORS

         The relationship of the Parties hereto is that of independent
         contractors. The Parties hereto shall not be deemed to be agents,
         partners or joint venturers of the others for any purpose as a result
         of this Agreement or the transactions contemplated thereby, and neither
         Party shall have the authority to agree to any obligation or commitment
         for the other.

15.18    FORCE MAJEURE

         Neither Party shall lose any rights hereunder, be considered in breach
         of this Agreement, or be liable to the other Party for damages or
         losses on account of its failure to perform if the failure is
         occasioned by war, strike, fire, act of God, earthquake, flood,
         lockout, embargo, failure of suppliers, power failures, or any other
         reason where failure to perform is beyond the reasonable control of the
         non-performing Party (a "Force Majeure"), provided that after the Force
         Majeure occurs, the non-performing Party uses reasonable efforts to
         avoid the effects of such Force Majeure, and to perform its
         obligations, each to the extent reasonably practicable (it being agreed
         that in no event shall a Party be required to settle any labor dispute
         or disturbance).

15.19    BANKRUPTCY

         All rights and licenses granted under or pursuant to this Agreement by
         each Party as a licensor are, and shall otherwise be deemed to be, for
         purposes of Section 365(n) of Title 11, U.S. Code (the "Bankruptcy
         Code"), licenses of rights to "intellectual property" as defined under
         section 101(35A) of the Bankruptcy Code. The Parties agree that each
         licensee of such rights under this Agreement, shall retain and may
         fully exercise all rights and elections it would have in the case of a
         licensor bankruptcy under the Bankruptcy Code. Each Party agrees during
         the term of this Agreement to create or maintain current copies, or if
         not amenable to copying, detailed descriptions or other appropriate
         embodiments, of all such intellectual property licensed to the other
         Party.

                                       93


15.20    ACRUX DDS AS A PARTY

         Acrux DDS Pty Limited agrees to be fully and independently bound by the
         Sections to which it is expressly a party under this Agreement, and
         including also the provisions of Article14 (it being understood that
         only Vivus or FemPharm may terminate this Agreement in accordance with
         its terms). Notwithstanding the foregoing, Acrux DDS Pty Limited
         acknowledges that Vivus shall have no independent obligations to Acrux
         DDS Pty Limited under this Agreement, and all of Vivus' obligations
         under this Agreement and this Section 15.20 shall be satisfied upon
         Vivus' performance or tender of performance to FemPharm. In addition,
         any notice given to or from FemPharm and FemPharm's consent, approval,
         agreement, actions or inactions shall be deemed notices to and from,
         and the consent, approval, or agreement of, or actions or inactions
         authorized by Acrux DDS Pty Limited. Acrux DDS Pty Limited agrees to be
         likewise bound by any and all amendments to this Agreement, which
         amendments shall not require Acrux DDS Pty Limited's approval. It is
         understood and agreed that Acrux DDS Pty Limited may look only to
         FemPharm for any share of or benefit from Vivus' performance or
         undertakings under this Agreement, and Vivus shall have no
         responsibilities to Acrux DDS Pty Limited in that regard.

15.21    SURVIVAL OF SUBLICENSES

         If FemPharm terminates the Agreement, then any existing sublicense
         agreement with a non-Affiliate granted by Vivus hereunder shall remain
         in force provided that such sublicensee agrees in writing to be bound
         by and perform to the same extent as required of Vivus under this
         Agreement. For clarity, it is understood that the foregoing shall not
         have the effect of expanding or increasing the rights of the
         sublicensee beyond the rights granted to it under the sublicense
         agreement.

                                       94


EXECUTION

EXECUTED by FEMPHARM PTY                       )
LTD by being signed by:                        )
                                               )
                                               )
                                               )
                                               )
/s/ Igor Gorda                                   /s/ Igor Gorda
- -------------------------------------            -------------------------------
Signature of director/secretary                  Signature of director

Igor Gorda                                       Igor Gorda
- -------------------------------------            -------------------------------
Name of director/secretary (please print)        Name of director (please print)




EXECUTED by VIVUS INC. by being                )
signed by:                                     )
                                               )
                                               )
                                               )
                                               )
                                                 /s/ Leland Wilson
- ---------------------------------------          -------------------------------
                                                 Signature


- ---------------------------------------          -------------------------------
Leland Wilson, President & CEO                   Name and Title





EXECUTED by ACRUX DDS PTY ) LTD by being signed by:  )
                                                     )
                                                     )
                                                     )
                                                     )
/s/ Igor Gorda                                   /s/ Igor Gorda
- ---------------------------------------          -------------------------------
Signature of director/secretary                  Signature of director

Igor Gorda                                       Igor Gorda
- ---------------------------------------          -------------------------------
Name of director/secretary (please print)        Name of director (please print)


                                       95


                                   ANNEXURE A

                                DEVELOPMENT PLAN
































                                       96


                                   ANNEXURE B

                    FEMPHARM PATENTS AND PATENT APPLICATIONS






- -------   -------   ----------   -----------   -------   -------   ----------
PATENTS                                        DATE OF   DATE OF   EXPIRATION
GRANTED   COUNTRY   PATENT NO.   APPLIC. NO.   ISSUE     FILING    DATE
- -------   -------   ----------   -----------   -------   -------   ----------


                                      (**)

































                                       97


                                   ANNEXURE C

                      METERED DOSE TRANSDERMAL SPRAY SYSTEM

                                      (**)
































                                       98


                                   ANNEXURE D

                              FORM OF PRESS RELEASE






































                                       99


                                   ANNEXURE E

                         CHEMICAL STRUCTURE OF ESTRADIOL

                                      (**)

































                                       100


                                   ANNEXURE F

                              EXCLUDED INDICATIONS

                                      (**)































                                       101


                                   ANNEXURE G

                           SAMPLE ROYALTY CALCULATION
































                                       102

                                                                   EXHIBIT 10.52
                                                                   -------------


                             NOTE PURCHASE AGREEMENT
                             -----------------------

         This NOTE PURCHASE AGREEMENT (as amended, modified or otherwise
supplemented from time to time, this "Purchase Agreement"), dated as of January
8, 2004, is entered into by and between Tanabe Holding America, Inc.
("Purchaser") and VIVUS, Inc. ("Company").

         NOW THEREFORE, in consideration of the covenants, conditions and
agreements set forth herein, the parties agree as follows:
ARTICLE 1
                                   DEFINITIONS

         1.1 "Advance" shall have the meaning given in Section 2.1 of the
Purchase Agreement.

         1.2 "Business Day" shall mean any day on which commercial banks are not
authorized or required to close in San Francisco, California.

         1.3 "Carcinogenicity Studies" shall mean animal studies designed to
evaluate the carcinogenic effects, if any, of long-term exposure to Compound..

         1.4 "Closing Prices Per Share" shall mean, with respect to the Common
Stock, for any day, (i) the last reported bid price regular way on the Nasdaq
National Market or, (ii) if the Common Stock is not quoted on the Nasdaq
National Market, the last reported sale price regular way per share or, in case
no such reported sale takes place on such day, the average of the reported
closing bid and asked prices regular way, in either case, on the principal
national securities exchange on which the Common Stock is listed or admitted to
trading, or (iii) if the Common Stock is not quoted on the Nasdaq National
Market or listed or admitted to trading on any national securities exchange, the
average of the closing bid prices in the over-the-counter market as furnished by
any New York Stock Exchange member firm selected from time to time by the
Company for that purpose.

         1.5 "Common Stock" shall mean the common stock, par value $0.001 per
share, of the Company.

         1.6 "Compound" shall have the meaning given in the License Agreement.

         1.7 "Compound-Related Intellectual Property" shall mean collectively
the Bulk Drug Tablets, Bulk Drug Substance, Compound, Development Plan,
Development Work, Drug Approval Applications, IND, Information, Product,
Trademarks, Vivus Know-How (as such terms are each defined in the License
Agreement), and license rights granted to Company pursuant to Section 2.1 of the
License Agreement.

         1.8 "Default" shall mean any event or circumstance not yet constituting
an Event of Default but which, with the giving of any notice or the lapse of any
period of time or both, would become an Event of Default.

         1.9 "Environmental Action" shall mean any complaint, summons, citation,
notice, directive, order, claim, litigation, investigation, judicial or
administrative proceeding, judgment, letter or other communication from any
governmental agency, department, bureau, office or other authority, or any third
party involving violations of Environmental Laws or releases of Hazardous
Materials (i) from any assets, properties or businesses of Company or any of its
Subsidiary(-ries) or any predecessor in interest, (ii) from properties or
businesses adjoining any properties or businesses of Company or any of its
Subsidiary(-ries) or any predecessor in interest or (iii) from or onto any
facilities which received Hazardous Materials generated by Company or any of its
Subsidiary(-ries) or any predecessor in interest.

         1.10 "Environmental Law" shall mean any present or future statute,
ordinance, rule, regulation, order, judgment, decree, permit, license or other
binding determination of any governmental authority imposing liability or
establishing standards of conduct for protection of the environment as the same
may be amended or supplemented from time to time.

         1.11 "Environmental Liabilities" shall mean all liabilities, monetary
obligations, remedial actions, losses, damages, punitive damages, consequential
damages, treble damages, costs and expenses (including all reasonable fees,
disbursements and expenses of counsel, experts and consultants and costs of
investigation and feasibility studies), fines, penalties, sanctions and interest
incurred as a result of (i) any claim or demand by any governmental authority or
any third party which relates to any environmental condition or a release of
Hazardous Materials or (ii) any breach by Company or any of its
Subsidiary(-ries) of any Environmental Law.

         1.12 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the rules and regulations and published
interpretations thereof.

         1.13 "Event of Default" shall have the meaning given to that term in
Section 5.1.

         1.14 "Facility Amount" shall mean an amount equal to $8,500,000.

         1.15 "GAAP" shall mean generally accepted accounting principles and
practices as promulgated by the Financial Accounting Standards Board and as in
effect in the United States of America from time to time, consistently applied.
Unless otherwise indicated in this Purchase Agreement, all accounting terms used
in this Purchase Agreement shall be construed, and all accounting and financial
computations hereunder or thereunder shall be computed, in accordance with GAAP.

         1.16 "Governmental Authority" shall mean any domestic or foreign
national, state or local government, any political subdivision thereof, any
department, agency, authority or bureau of any of the foregoing, or any other
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.

                                                                               2

         1.17 "Hazardous Materials" shall mean (a) petroleum and petroleum
products, byproducts or breakdown products, radioactive materials,
asbestos-containing materials, polychlorinated biphenyls and radon gas and (b)
any other chemicals, materials or substances designated, classified or regulated
as hazardous or toxic or as a pollutant or contaminant under any Environmental
Law.

         1.18 "Indebtedness" of any Person shall mean and include the aggregate
amount of, without duplication (a) all obligations of such Person for borrowed
money, (b) all obligations of such Person evidenced by bonds, debentures, notes
or other similar instruments, (c) all obligations of such Person to pay the
deferred purchase price of property or services (other than accounts payable
incurred in the ordinary course of business determined in accordance with
generally accepted accounting principles), (d) all obligations under capital
leases of such Person, (e) all obligations or liabilities of others secured by a
lien on any asset of such Person, whether or not such obligation or liability is
assumed, (f) all guaranties of such Person of the obligations of another Person;
(g) all obligations created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even if
the rights and remedies of the seller or purchaser under such agreement upon an
event of default are limited to repossession or sale of such property), (h) net
exposure under any interest rate swap, currency swap, forward, cap, floor or
other similar contract that is not entered into in connection with a bona fide
hedging operation that provides offsetting benefits to such Person, which
agreements shall be marked to market on a current basis, (i) all reimbursement
and other payment obligations, contingent or otherwise, in respect of letters of
credit.

         1.19 "License Agreement" shall mean that certain agreement dated
December 28, 2000 between Tanabe Seiyaku Co., Ltd., a Japanese corporation
having its principal office at 2-10 Dosho-machi 3-chome, Chuo-ku, Osaka, Japan
and VIVUS, Inc., a corporation having its principal office at 1172 Castro
Street, Mountain View, CA 94040, USA, as the same may be amended from time to
time.

         1.20 "Lien" shall mean, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset. For the purposes of this Agreement, Company shall be deemed to own
subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.

         1.21 "Maturity Date" shall, with respect to a given Note, mean the
fourth (4th) anniversary of the date on which the Advance with respect to such
Note was made.

         1.22 "Nitrate Interaction Studies" shall mean clinical studies designed
to evaluate the hemo-dynamic response to nitrates in subjects receiving
Compound.

         1.23 "Note" shall have the meaning given in Section 2.1.

         1.24 "Obligations" means all loans, advances, debts, liabilities and
obligations, howsoever arising, owed by Company to Purchaser of every kind and
description (whether or not evidenced by any note or instrument and whether or
not for the payment of money), now existing or hereafter arising under or

                                                                               3

pursuant to the terms of the Notes and the other Transaction Documents,
including, all interest, fees, charges, expenses, attorneys' fees and costs and
accountants' fees and costs chargeable to and payable by Company hereunder and
thereunder, in each case, whether direct or indirect, absolute or contingent,
due or to become due, and whether or not arising after the commencement of a
proceeding under Title 11 of the United States Code (11 U.S.C. Section 101 et
seq.), as amended from time to time (including post-petition interest) and
whether or not allowed or allowable as a claim in any such proceeding.

         1.25 "PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.

         1.26 "Person" shall mean and include an individual, a partnership, a
corporation (including a business trust), a joint stock company, a limited
liability company, an unincorporated association, a joint venture or other
entity or a Governmental Authority.

         1.27 "Phase II Clinical Studies" shall have the meaning given in the
License Agreement.

         1.28 "Plan" shall mean any pension plan that is covered by Title IV of
ERISA and in respect of which Company or a Commonly Controlled Entity is an
"employer" as defined in Section 3(5) of ERISA.

         1.29 "Prohibited Transaction" shall mean any transaction set forth in
Section 406 of ERISA or Section 4975 of the Code.

         1.30 "Purchase Agreement" shall have the meaning set forth in the
opening paragraph of this document.

         1.31 "Purchase Date" shall mean a date upon which an Advance is
consummated.

         1.32 "Reportable Event" shall mean any of the events set forth in
Section 4043 of ERISA.

         1.33 "Securities Act" shall mean the United States Securities Act of
1933 (or any successor statute), as amended from time to time.

         1.34 "Security Agreement" shall have the meaning given in Section
2.8(a).

         1.35 "Senior Debt" shall mean the principal of (and premium, if any)
and interest (including all interest accruing subsequent to the commencement of
any bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) on, and all fees and
other amounts payable in connection with, the following, whether absolute or
contingent, secured or unsecured, due or to become due, outstanding on the date
hereof or thereafter created, incurred or assumed: (a) all obligations of the
Company for money borrowed from a bank or other institutional lender, (b)
obligations incurred in connection with the acquisition of any businesses,
properties or assets, (c) obligations of the Company (i) as lessee under leases

                                                                               4

required to be capitalized on the balance sheet of the lessee under generally
accepted accounting principles and (ii) as lessee under other leases for
facilities, capital equipment or related assets, whether or not capitalized,
entered into or leased for financing purposes, and (d) renewals, extensions,
modifications, replacements, restatements and refundings of, or any indebtedness
or obligation issued in exchange for, any such indebtedness or obligation
described in clauses (a) through (c) of this paragraph; provided, however, that
Senior Debt shall not include any such indebtedness or obligation if the terms
of such indebtedness or obligation (or the terms of the instrument under which,
or pursuant to which it is issued) expressly provide that such indebtedness or
obligation is not superior in right of payment to the Notes

         1.36 "Steering Committee" shall have the meaning given in the License
Agreement.

         1.37 "Study" shall have the meaning given in Section 2.7.

         1.38 "Subsidiary(-ries)" shall mean (a) any corporation(s) of which
more than 50% of the issued and outstanding equity securities having ordinary
voting power to elect a majority of the Board of Directors of such corporation
is at the time directly or indirectly owned or controlled by the Company, (b)
any partnership(s), joint venture(s), or other association(s) of which more than
50% of the equity interest having the power to vote, direct or control the
management of such partnership, joint venture or other association is at the
time directly or indirectly owned and controlled by the Company, (c) any other
entity(-ties) included in the financial statements of the Company on a
consolidated basis.

         1.39 "Termination Date" shall mean the fourth anniversary of the date
of this Purchase Agreement.

         1.40 "Trading Day" shall mean (i) if the Common Stock is quoted on the
Nasdaq National Market or any other system of automated dissemination of
quotations of securities prices, days on which trades may be effected through
such system, (ii) if the Common Stock is listed or admitted for trading on any
national or regional securities exchange, days on which such national or
regional securities exchange is open for business, or (iii) if the Common Stock
is not listed on a national or regional securities exchange or quoted on the
Nasdaq National Market or any other system of automated dissemination of
quotation of securities prices, days on which the Common Stock is traded regular
way in the over-the-counter market and for which a closing bid and a closing
asked price for the Common Stock are available.

         1.41 "Transaction Documents" shall mean and include this Purchase
Agreement, the Security Agreement, the Notes and any other documents,
instruments and agreements delivered to Purchaser in connection with this
Purchase Agreement.

                                    ARTICLE 2
                                    ADVANCES

         2.1 Terms of Advances. Subject to the terms and conditions of this
Purchase Agreement, Purchaser agrees to advance to Company from time to time and
until the Termination Date, such sums as Company may request (the "Advances")

                                                                               5

but which shall not exceed, in the aggregate principal amount at any one time
outstanding, the Facility Amount. The obligation of Company to repay the
Advances and to pay interest thereon at the rates specified herein shall be
evidenced by secured promissory notes in the form attached hereto as Exhibit A
(each a "Note" and collectively, the "Notes"). Advances shall be made in lawful
currency of the United States of America and shall be made in same day or
immediately available funds. Once repaid, Advances may not be reborrowed.

         2.2 Mechanics of the Purchase and Sale of Notes. Notes shall be issued
by Company and purchased by Purchaser upon request by Company of an Advance
pursuant to a notice of borrowing in the form of Schedule I hereto (a "Notice of
Borrowing") and satisfaction of the conditions precedent set forth in Article 4.
Each Notice of Borrowing together with any documentation required by Section 4.6
shall be delivered not less than ten (10) Business Days prior to the Purchase
Date specified in the Notice of Borrowing in the manner specified in Section
7.1. Subject to Article 4, upon receipt of a Notice of Borrowing, Purchaser
shall purchase, and Company shall sell, on the specified Purchase Date a Note in
a principal amount equal to the Advance. There shall not occur in any one of
Company's fiscal quarters more than one Advance. Upon receipt of the purchase
price in immediately available funds from Purchaser, Company shall promptly
issue a Note in the amount of such purchase price to Purchaser dated the date of
receipt of such funds; provided, however, that Purchaser's rights under such
Note shall be deemed to exist from the date of receipt of the purchase price by
Company in immediately available funds whether or not such Note has physically
been issued.

         2.3 Payment upon Maturity. If not paid earlier, the outstanding
principal balance of each Advance, together with all accrued but unpaid interest
thereon, shall be due and payable to the Purchaser on the Maturity Date with
respect to such Advance as defined in the applicable Note.

         2.4 Interest Payments. Interest on the outstanding principal balance
under each Advance shall accrue at a rate per annum equal to two percent (2%)
and shall be paid on the fifteenth day of each December of each year while such
Advance is outstanding. All computations of such interest shall be based on a
year of 365 days and actual days elapsed for each day on which any principal
balance is outstanding under the terms of the applicable Note.

         2.5 Other Payment Terms.

             (a) PAYMENT IN CASH. Company shall make payments in whole or in
part due to Purchaser hereunder in lawful money of the United States and in same
day or immediately available funds unless Company elects to make payments
pursuant to Section 2.5(b).

             (b) PAYMENTS IN COMMON STOCK. At Company's option, Company may make
payments in whole or in part due to Purchaser hereunder in Common Stock provided
the following conditions are met: (i) the fair market value of shares of Common
Stock shall be determined by the Company and shall be equal to the average of
the Closing Prices Per Share of the Common Stock for the five consecutive
Trading Days immediately preceding and including the third Trading Day prior to
the date of payment and the fair market value of a share of Common Stock
determined in accordance herewith shall not equal less than Five Dollars ($5);
(ii) the shares of Common Stock to be issued and/or delivered to Purchaser as

                                                                               6

payment hereunder shall, immediately after delivery to Purchaser, be freely
transferable to any third parties by Purchaser without being subject to any
transfer restrictions under the Securities Act and any other federal and state
securities laws; (iii) such Common Stock is, or shall have been, approved for
quotation on the Nasdaq National Market or listed on a national securities
exchange, in either case, prior to the date of issuance of Common Stock as
payment hereunder; (iv) all shares of Common Stock which may be issued as
payment hereunder will be issued out of the Company's authorized but unissued
Common Stock and, will upon issue, be duly and validly issued and fully paid and
non-assessable and free of any preemptive or similar rights; and (v) the fair
market value of one share of stock determined in accordance with clause (i) of
this paragraph multiplied by the number of oustanding fully-diluted shares of
the Company shall not total less than Thirty Million Dollars ($30,000,000).

             (c) DATE. Whenever any payment due hereunder shall fall due on a
day other than a Business Day, such payment shall be made on the next succeeding
Business Day, and such extension of time shall be included in the computation of
interest or fees, as the case may be.

             (d) DEFAULT RATE. From and after the occurrence of an Event of
Default and during the continuance thereof, Company shall pay interest on all
Obligations not paid when due, from the date due thereof until such amounts are
paid in full at a per annum rate equal to the lower of three (3) percentage
points in excess of the rate otherwise applicable to Advances or the highest
lawful rate of interest under applicable law. All computations of such interest
shall be based on a year of 365 days and actual days elapsed.

         2.6 Prepayments.

             (a) TERMS OF ALL PREPAYMENTS. Upon the prepayment of any Note
(whether such prepayment is a mandatory prepayment or an optional prepayment),
Company shall pay to Purchaser all accrued interest to the date of such
prepayment on the amount prepaid.

             (b) MANDATORY PREPAYPAYMENT. Company shall prepay in accordance
with Section 2.5 all Obligations within ten (10) Business Days of the receipt by
Company of a lump-sum payment in immediately available funds equal to or greater
than (**)Dollars ($**) from any third-party sublicensor in connection with the
execution of a third-party sublicense agreement contemplated by Section 2.3 of
the License Agreement.

             (c) OPTIONAL PREPAYMENTS. At its option, Company may, upon three
(3) Business Days' notice to Purchaser, prepay the Advances in whole, or in part
in an amount of at least One Hundred Thousand Dollars, $100,000, or any lesser
amount equal to the entire remaining outstanding principal balance.

             (d) REGULATORY CHANGE. If, after the date hereof, the introduction
and effectiveness of any applicable law, rule or regulation, or any change in
any applicable law, rule or regulation, or in the interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof, shall make it unlawful for Purchaser
to maintain the Advance, Purchaser shall forthwith give notice thereof to
Company, whereupon Company shall promptly prepay such Advance.

                                                                               7

             (e) APPLICATION OF PREPAYMENTS. All prepayments hereunder shall be
applied first to unpaid fees, costs and expenses then due and payable under this
Purchase Agreement or the other Transaction Documents, second to accrued
interest then due and payable under the applicable Notes and finally to reduce
the outstanding principal amount of the applicable Notes.

         2.7 Proceeds of the Advances. Company shall use the proceeds of the
Advances solely for the conduct of (i) Phase II Clinical Studies, (ii)
Carcinogenicity Studies, (iii) Nitrate Interaction Studies, and (iv) other
studies relating to the development of the Compound, (each of (i) through (iv),
a "Study"), such Studies to be performed in each case in accordance with the
License Agreement.

         2.8 Security; Further Assurances; Designation of Tanabe Study.

             (a) SECURITY. The Obligations shall be secured by a Security
Agreement in the form attached hereto as Exhibit B (the "Security Agreement").

             (b) FURTHER ASSURANCES. Company shall deliver to Purchaser the
Security Agreement and such other instruments, agreements, certificates, and
documents as Purchaser may reasonably request to create, perfect, evidence and
maintain (i) a security interest of Purchaser in certain assets of Company as
further set forth in the Security Agreement and (ii) the rights of Purchaser
under this Purchase Agreement and the other Transaction Documents. Company shall
fully cooperate with Purchaser and perform all additional acts reasonably
requested by Purchaser to effect the purposes of the foregoing and the rights
granted to Purchaser hereunder, including providing Purchaser with updates on
Company's sublicensing activities under the License Agreement.

             (c) DESIGNATION OF TANABE STUDY. Company shall designate at least
one Study to be conducted by an affiliate of Purchaser to be established for
such purposes, the nature of such Study to be determined by Company in its sole
discretion.

         2.9 Term. This Agreement and all of the parties' rights and obligations
hereunder shall terminate upon payment in full of all outstanding Obligations.

                                    ARTICLE 3
                    REPRESENTATIONS AND WARRANTIES OF COMPANY

         To induce Purchaser to enter into this Purchase Agreement and to make
Advances hereunder, Company represents and warrants to Purchaser as follows:

         3.1 Due Incorporation, Qualification, etc. Company is a corporation
duly organized, validly existing and in good standing under the laws of its
state of incorporation.

         3.2 Authority. The execution, delivery and performance by Company of
each Transaction Document to be executed by Company and the consummation of the
transactions contemplated thereby (i) are within the power of Company and (ii)
have been duly authorized by all necessary actions on the part of Company.

                                                                               8

         3.3 Enforceability. Each Transaction Document executed, or to be
executed, by Company has been, or will be, duly executed and delivered by
Company and constitutes, or will constitute, a legal, valid and binding
obligation of Company, enforceable against Company in accordance with its terms,
except as limited by bankruptcy, insolvency or other laws of general application
relating to or affecting the enforcement of creditors' rights generally and
general principles of equity.

         3.4 Financial Statements. The financial statement of the Company dated
as of September 30, 2003, a copy of which has been submitted to the Purchaser,
fairly represents the financial position of the Company as of said date, and
since the date of the most recent public filing of the financial statements of
the Company there has been no development or event which has had a material
adverse effect on the business, operations, property, condition or prospects of
Company.

         3.5 No Proceedings. There is no action, suit, proceeding or
investigation at law or in equity by or before any court, governmental body or
other agency now pending or, to the knowledge of the Company, threatened against
or affecting the Company or any property or rights of the Company which would
likely result in a material adverse effect on the business, operations,
property, condition or prospects of Company. The Company is not in default under
or in violation of any applicable writ, order, injunction or decree of any
court, governmental department, board, agency or instrumentality which by itself
or aggregated with any other such default or violation would result in a
material adverse effect on the business, operations, property, condition or
prospects of Company.

         3.6 Tax Returns. The Company has filed all material tax returns
required to be filed by it and has paid all material taxes and other
governmental charges due pursuant to such returns or pursuant to any assessment
received by the Company except where the Company may be contesting in good faith
such taxes or governmental charges. The charges, accruals and reserves on the
books of the Company in respect to any taxes or other governmental charges are
adequate in the aggregate to provide for the liabilities in respect thereof.

         3.7 Compliance with Laws. It has complied in all material respects with
all applicable laws, statutes, regulations and orders of, and all applicable
restrictions imposed by, all governmental bodies, domestic or foreign, in
respect of the conduct of its businesses and the ownership of its properties.

         3.8 Environmental Matters. Except to the extent not reasonably expected
to result in a Material Adverse Effect or a Default or an Event of Default, (i)
none of the operations of the Company or any of its Subsidiary(-ries) violates,
in any material respect, any Environmental Law, (ii) no Environmental Action has
been asserted against the Company or any of its Subsidiary(-ries) in writing nor
does the Company have any knowledge of any threatened or pending Environmental
Action against the Company, any of its Subsidiary(-ries) or any predecessor in
interest, (iii) neither the Company nor any of its Subsidiary(-ries) has
incurred any Environmental Liabilities and (iv) to the Company's knowledge,
neither the Company nor any of its Subsidiary(-ries)s has any material
contingent liability in connection with any release of any Hazardous Material
into the environment.

                                                                               9

         3.9 ERISA. The Company and each of its Subsidiary(-ries) are in
compliance in all material respects with all applicable provisions of ERISA.
Neither a Reportable Event nor a Prohibited Transaction has occurred and is
continuing with respect to any Plan; no notice of intent to terminate a Plan has
been filed, nor has any Plan been terminated; no circumstances exist which
constitute grounds entitling the PBGC to institute proceedings to terminate, or
appoint a trustee to administer, a Plan, nor has the PBGC instituted any such
proceedings; neither the Company nor any Commonly Controlled Entity has
completely or partially withdrawn from a Multiemployer Plan; the Company and
each Commonly Controlled Entity have met their minimum funding requirements
under ERISA with respect to all of their Plans, and the present value of all
vested benefits, under each Plan does not exceed the fair market value of all
Plan assets allocable to such benefits, as determined on the most recent
valuation date of the Plan and in accordance with the provisions of ERISA; and
neither the Company nor any Commonly Controlled Entity has incurred any
liability to the PBGC under ERISA.

                                   ARTICLE 4
                          CONDITIONS TO MAKING ADVANCES

         Purchaser's obligation to make the initial Advance and each subsequent
Advance is subject to the prior satisfaction or waiver of all the conditions set
forth in this Article 4.

         4.1 Principal Transaction Documents. Company shall have duly executed
and delivered to Purchaser: (a) the Purchase Agreement, (b) the Security
Agreement and (c) such other documents, instruments and agreements as Purchaser
may reasonably request.

         4.2 Representations and Warranties Correct. The representations and
warranties made by Company in Article 3 hereof shall be true and correct as of
the date on which each Advance is made and after giving effect to the making of
the Advance. The submission by Company to Purchaser of a request for an Advance
shall be deemed to be a certification by the Company that as of the date of
borrowing, the representations and warranties made by Company in Article 3
hereof are true and correct.

         4.3 No Event of Default or Default. No Event of Default or Default has
occurred or is continuing.

         4.4 Total Outstanding Advances. The total aggregate principal amount of
outstanding Advances does not exceed the Facility Amount.

         4.5 Pre-Clinical and Clinical Studies. Company shall have commenced at
least one Phase II Clinical Study and two Carcinogenicity Studies by March 31,
2004. There shall not have occurred any material delay in the conduct of the
Phase II Clinical Studies, the Carcinogenicity Studies and the Nitrate
Interaction Studies that is inconsistent with any schedules approved by the
Steering Committee pertaining to such studies.

                                                                              10

         4.6 Use of Proceeds: Evidence of Reimbursement. Purchaser shall have
received from Company evidence (including invoices, copies of checks, other
appropriate evidence of payments or other documentation) that, with respect to
each Advance, the Company is in compliance with Section 2.7 hereof; provided,
however, that Purchaser acknowledges and agrees that the sole purpose of this
Section 4.6 is to permit Purchaser to ascertain that the Advances are used to
reimburse Company for expenditures identified in Section 2.7 and not to limit or
restrict reimbursement for any such expenditures identified in Section 2.7.

                                   ARTICLE 5
                                EVENTS OF DEFAULT

         5.1 Events of Default. The occurrence of any of the following shall
constitute an "Event of Default" under the Transaction Documents and each Note:

             (a) FAILURE TO PAY. Company shall fail to pay to Purchaser within
30 days when due and payable the outstanding principal amount or any accrued but
unpaid interest on any Note.

             (b) BREACHES OF COVENANTS. Company shall fail to observe or perform
any other covenant, obligation, condition or agreement contained in this
Purchase Agreement or any other Transaction Document and (i) such failure shall
continue for ten (10) Business Days, or (ii) if such failure is not curable
within such ten (10) Business Day period, but is reasonably capable of cure
within twenty (20) Business Days, either (A) such failure shall continue for
twenty (20) Business Days or (B) Company shall not have commenced a cure in a
manner reasonably satisfactory to Purchaser within the initial ten (10) Business
Day period; or

             (c) REPRESENTATIONS AND WARRANTIES. Any representation, warranty,
certificate, or other statement (financial or otherwise) made or furnished by or
on behalf of Company to Purchaser in writing in connection with any of the
Transaction Documents, or as an inducement to Purchaser to enter into this
Purchase Agreement, shall be false, incorrect, incomplete or misleading in any
material respect when made or furnished; or

             (d) VOLUNTARY BANKRUPTCY OR INSOLVENCY PROCEEDINGS. Company shall
(i) apply for or consent to the appointment of a receiver, trustee, liquidation
or custodian of itself or of all or a substantial part of its property, (ii) be
unable, or admit in writing its inability, to pay its debts generally as they
mature, (iii) make a general assignment for the benefit of its or any of its
creditors, (iv) be dissolved or liquidated in full or in part, (v) become
insolvent (as such term is defined in 11 U.S.C. ss.101 (32), as amended from
time to time), (vi) commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect
or consent to any such relief or to the appointment of or taking possession of
its property by any official in an involuntary case or other proceeding
commenced against it, or (vii) take any action for the purpose of effecting any
of the foregoing; or

             (e) INVOLUNTARY BANKRUPTCY OR INSOLVENCY PROCEEDINGS. Proceedings
for the appointment of a receiver, trustee, liquidator or custodian of Company
or of all or a substantial part of the property thereof, or an involuntary case

                                                                              11

or other proceedings seeking liquidation, reorganization or other relief with
respect to Company or the debts thereof under any bankruptcy, insolvency or
other similar law now or hereafter in effect shall be commenced and an order for
relief entered or such proceeding shall not be dismissed or discharged within
sixty (60) calendar days of commencement; or

             (f) OTHER DEFAULTS. Company shall fail to make any payment in
respect of any Indebtedness in an amount of $(**) or more when due or within any
applicable grace period therefor, or any event or condition shall occur which
results in the acceleration of the maturity of any such Indebtedness; or

             (g) JUDGMENTS. A final judgment or order for the payment of money
in excess of $(**) shall be rendered against Company and such judgment or order
shall continue unsatisfied or unbonded and in effect for a period of thirty (30)
days.

         5.2 Rights of Purchaser upon Default.

             (a) ACCELERATION. Upon the occurrence or existence of any Event of
Default described in Sections 5.1(d) and 5.1(e), automatically and without
notice or, at the option of Purchaser, upon the occurrence of any other Event of
Default, all outstanding Obligations payable by Company hereunder shall become
immediately due and payable, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived, anything contained
herein or in the other Transaction Documents to the contrary notwithstanding.

             (b) CUMULATIVE RIGHTS, ETC. The rights, powers and remedies of
Purchaser under this Purchase Agreement shall be in addition to all rights,
powers and remedies given to Purchaser by virtue of any applicable law, rule or
regulation of any Governmental Authority, any transaction contemplated thereby
or any other agreement, all of which rights, powers, and remedies shall be
cumulative and may be exercised successively or concurrently without impairing
Purchaser's rights hereunder.

                                    ARTICLE 6
                                  SUBORDINATION

         6.1 Agreement to Subordinate. Purchaser agrees to enter into any
intercreditor or subordination agreements in connection with the issuance by
Company of Senior Debt providing (i) that Purchaser's right to receive payment
of the Obligations is and shall be subordinated to the prior payment in full of
any such Senior Debt, and (ii) any liens granted by Company to Purchaser on
assets of Company other than Compound-Related Intellectual Property are and
shall be subordinated to any liens granted by Company securing any such Senior
Debt (provided that Purchaser's security interest on Compound-Related
Intellectual Property shall remain a first priority security interest), in each
case on reasonable terms and conditions requested by a provider to Company of
such Senior Debt.
                                                                              12

                                    ARTICLE 7
                                  MISCELLANEOUS

         7.1 Notices. Except as otherwise provided herein, all notices,
requests, demands, consents, instructions or other communications to or upon
Purchaser or Company under this Purchase Agreement or the other Transaction
Documents shall be in writing and faxed, mailed, sent by electronic mail or
delivered, and (i) if to Company, at its fax number, electronic mail address or
address set forth below, or (ii) if to Purchaser, at its fax number, electronic
mail address or address set forth below (or to such other fax number, electronic
mail address or address for any party as indicated in any notice given by that
party to the other party). All such notices and communications shall be
effective (a) when sent by Federal Express or other overnight service of
recognized standing, on the Business Day following the deposit with such
service; (b) when mailed by registered or certified mail, first class postage
prepaid and addressed as aforesaid through the United States Postal Service,
upon receipt; (c) when delivered by hand, upon delivery; and (d) when faxed or
sent by electronic mail, upon confirmation of receipt; provided, however, that
any notice delivered to Purchaser under Article 2 shall not be effective until
received by Purchaser.

         PURCHASER:        TANABE HOLDING AMERICA, INC.
                           401 Hackensack Avenue, 10th Floor
                           Hackensack, NJ 07601
                           Attention:

         COMPANY:          VIVUS, INC.
                           1172 Castro Street
                           Mountain View, CA 94040
                           Attention:

         7.2 Waivers; Amendments. Any term, covenant, agreement or condition of
this Purchase Agreement or any other Transaction Document may be amended or
waived if such amendment or waiver is in writing and is signed by Company and
Purchaser. No failure or delay by Purchaser in exercising any right hereunder
shall operate as a waiver thereof or of any other right nor shall any single or
partial exercise of any such right preclude any other further exercise thereof
or of any other right. A waiver or consent given hereunder shall be effective
only if in writing and in the specific instance and for the specific purpose for
which given.

         7.3 Successors and Assigns. This Purchase Agreement and the other
Transaction Documents shall be binding upon and inure to the benefit of Company,
Purchaser and their respective successors and permitted assigns, except that
each of Company and Purchaser may not assign or transfer (and any such attempted

                                                                              13

assignment or transfer shall be void) any of its rights or obligations under any
Transaction Document without the prior written consent of the other respective
party.

         7.4 Set-off. In addition to any rights and remedies of Purchaser
provided by law, Purchaser shall have the right, without prior notice to
Company, any such notice being expressly waived by Company to the extent
permitted by applicable law, upon the occurrence and during the continuance of
an Event of Default, to set-off and apply against any Indebtedness, whether
matured or unmatured, of Company to Purchaser (including, without limitation,
the Obligations), any amount owing from Purchaser to Company. The aforesaid
right of set-off may be exercised by Purchaser against Company or against any
trustee in bankruptcy, debtor-in-possession, assignee for the benefit of
creditors, receiver or execution, judgment or attachment creditor of Company or
against anyone else claiming through or against Company or such trustee in
bankruptcy, debtor-in-possession, assignee for the benefit of creditors,
receiver, or execution, judgment or attachment creditor, notwithstanding the
fact that such right of set-off shall not have been exercised by Purchaser prior
to the occurrence of an Event of Default. Purchaser agrees promptly to notify
Company after any such set-off and application made by Purchaser, provided that
the failure to give such notice shall not affect the validity of such set-off
and application.

         7.5 No Third Party Rights. Except with respect to Article 6 of this
Purchase Agreement, nothing expressed in or to be implied from this Agreement or
any other Transaction Document is intended to give, or shall be construed to
give, any Person, other than the parties hereto and thereto and their permitted
successors and assigns, any benefit or legal or equitable right, remedy or claim
under or by virtue of this Agreement or any other Transaction Document.

         7.6 Partial Invalidity. If at any time any provision of this Purchase
Agreement or any of the Transaction Documents is or becomes illegal, invalid or
unenforceable in any respect under the law of any jurisdiction, neither the
legality, validity or enforceability of the remaining provisions of the Purchase
Agreement or such other Transaction Documents, nor the legality, validity or
enforceability of such provision under the law of any other jurisdiction, shall
in any way be affected or impaired thereby.

         7.7 Governing Law. This Purchase Agreement and each of the other
Transaction Documents shall be governed by and construed in accordance with the
laws of the State of California without reference to conflicts of law rules.

         7.8 Construction. Each of this Purchase Agreement and the other
Transaction Documents is the result of negotiations among, and has been reviewed
by, Company, Purchaser and their respective counsel. Accordingly, this Purchase
Agreement and the other Transaction Documents shall be deemed to be the product
of all parties hereto, and no ambiguity shall be construed in favor of or
against Company or Purchaser.

         7.9 Entire Agreement. This Purchase Agreement and the other Transaction
Documents, taken together, constitute and contain the entire agreement of
Company and Purchaser with respect to the subject matter hereby and supersede

                                                                              14

any and all prior agreements, negotiations, correspondence, understandings and
communications among the parties, whether written or oral, respecting the
subject matter hereof.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]








































                                                                              15

         IN WITNESS WHEREOF, the parties have executed this Purchase Agreement
as of the date first set forth above.


                                                COMPANY:

                                                VIVUS, INC.


                                                By: /s/ Leland Wilson
                                                    ----------------------------
                                                Name: Leland Wilson
                                                Title: President & C.E.O.




                                                PURCHASER:

                                                TANABE HOLDING AMERICA, INC.


                                                By: /s/ Norihito Ujino
                                                    ----------------------------
                                                Name: Norihito Ujino
                                                Title: President & CEO




























                                                                              16

                                   SCHEDULE I

                               NOTICE OF BORROWING

                           _____________________, 200_


TANABE HOLDING AMERICA, INC.

___________________________

___________________________

___________________________

Attn: _____________________


         1.  Reference is made to that certain Note Purchase Agreement, dated as
of December __, 2003 (the "Purchase Agreement"), between VIVUS, INC. ("Company")
and TANABE HOLDING AMERICA, INC. ("Purchaser"). Unless otherwise indicated, all
terms defined in the Purchase Agreement have the same respective meanings when
used herein.

         2.  Pursuant to Section 2.1 of the Purchase Agreement, Company hereby
requests an Advance from Purchaser upon the following terms:

             The principal amount of the requested Advance is $_______________;

             The Purchase Date of the requested Advance is _____________, 200_.

         3.  Company hereby certifies that, on the date of such Advance and
after giving effect to the requested Advance:

             The representations and warranties set forth in Article 3 of the
Purchase Agreement will be true and correct as if made on such date, except for
those representations and warranties which address matters only as of a
particular date (which representations and warranties shall remain true and
correct as of such date);

             No Event of Default or Default has occurred and is continuing; and

             The total aggregate principal amount of outstanding Advances does
not exceed the Commitment.

         4.  Please disburse the purchase price of the Note according to the
following wire instructions:

         Bank:
         Address:
         ABA No.
         Acct. No.
         Acct. Name:       VIVUS, Inc.
         Reference:        Tanabe Loan


                                                                              17


         IN WITNESS WHEREOF, Company has executed this Notice of Borrowing on
the date set forth above.

                                           VIVUS, INC.


                                           By:
                                                -------------------------------
                                           Name:
                                                 ------------------------------
                                           Title:
                                                  -----------------------------



















                                                                              18


                                    EXHIBIT A

                                   VIVUS, INC.

                             SECURED PROMISSORY NOTE


$[_______________]                                       [____________], 200_

                                                       Mountain View, California


         FOR VALUE RECEIVED, VIVUS, Inc., a Delaware corporation (the "COMPANY")
promises to pay to Tanabe Holding America, Inc. ("PURCHASER"), or its registered
assigns, in lawful money of the United States of America the principal sum of
[__________] Dollars ($[_________]), or such lesser amount as shall equal the
outstanding principal amount hereof, together with interest from the date of
this Note on the unpaid principal balance at a rate equal to 2.00% per annum,
computed on the basis of the actual number of days elapsed and a year of 365
days. All unpaid principal, together with any then unpaid and accrued interest
and other amounts payable hereunder, shall be due and payable on demand on the
earlier of (i) four years from the date of this Note (the "MATURITY DATE"), or
(ii) when, upon or after the occurrence of an Event of Default (as defined
below), such amounts are declared due and payable by Purchaser or made
automatically due and payable in accordance with the terms hereof. This Note is
one of the "Notes" issued pursuant to the Note Purchase Agreement (as amended,
modified or supplemented, the "PURCHASE AGREEMENT") between Company and
Purchaser.

         THE OBLIGATIONS DUE UNDER THIS NOTE ARE SECURED BY A SECURITY AGREEMENT
DATED AS OF JANUARY 8, 2004 AND EXECUTED BY COMPANY FOR THE BENEFIT OF
PURCHASER. ADDITIONAL RIGHTS OF PURCHASER ARE SET FORTH IN THE SECURITY
AGREEMENT AND PURCHASE AGREEMENT.

         The following is a statement of the rights of Purchaser and the
conditions to which this Note is subject, and to which Purchaser, by the
acceptance of this Note, agrees:

         1. DEFINITIONS. Capitalized terms used but not
otherwise defined herein shall have the meanings assigned to such terms in the
Purchase Agreement.

         2. INTEREST. Accrued interest on this Note shall be payable on an
annual basis on the fifteenth day of December of each year while this Note is
outstanding.

         3. PREPAYMENT. The prepayment of this Note is governed by Section 2.6
of the Purchase Agreement.

         4. RIGHTS OF PURCHASER UPON DEFAULT. The rights of the Purchaser upon
an Event of Default are as set forth in Section 5.2 of the Purchase Agreement
and Section 6 of the Security Agreement.



         5. SUCCESSORS AND ASSIGNS. Subject to the restrictions on transfer
described in Section 7 below, the rights and obligations of the Company and
Purchaser shall be binding upon and benefit the successors, assigns, heirs,
administrators and transferees of the parties.

         6. WAIVER AND AMENDMENT. Any provision of this Note may be amended,
waived or modified upon the written consent of the Company and Purchaser.

         7. TRANSFER OF THIS NOTE. Neither this Note nor any of the rights,
interests or obligations hereunder may be assigned, by operation of law or
otherwise, in whole or in part, by the Company or the Purchaser without the
prior written consent of the other respective party.

         8. NOTICES. Except as otherwise provided herein, all notices, requests,
demands, consents, instructions or other communications required or permitted
hereunder shall be in writing and faxed, mailed or delivered to each party at
the respective addresses of the parties as set forth and in the manner set forth
in the Purchase Agreement.

         9. PAYMENT. Payment shall be made in accordance with Section 2 of the
Purchase Agreement, including but not limited to Section 2.5 of the Purchase
Agreement.

         10. WAIVERS. The Company hereby waives notice of default, presentment
or demand for payment, protest or notice of nonpayment or dishonor and all other
notices or demands relative to this instrument.

         11. GOVERNING LAW. This Note and all actions arising out of or in
connection with this Note shall be governed by and construed in accordance with
the laws of the State of California, without regard to the conflicts of law
provisions of the State of California, or of any other state.


                            [SIGNATURE PAGE FOLLOWS]


                                        2


         The Company has caused this Note to be issued as of the date first
written above.


                              VIVUS, INC.
                              a Delaware corporation


                              By:
                                 ----------------------------------

                              Name:
                                   --------------------------------

                              Title:
                                    -------------------------------

























                                    EXHIBIT B

                               SECURITY AGREEMENT


         This Security Agreement (as amended, modified or otherwise supplemented
from time to time, this "SECURITY AGREEMENT"), dated as of January 8, 2004, is
executed by VIVUS, Inc., a Delaware corporation ("Company"), in favor of Tanabe
Holding America, Inc. ("SECURED PARTY").

                                    RECITALS

         A. Company and Secured Party have entered into a Note Purchase
Agreement, dated as of the date hereof (the "PURCHASE AGREEMENT"), pursuant to
which the Company has issued or will issue promissory notes (as amended,
modified or otherwise supplemented from time to time, (each a "NOTE" and
collectively, the "NOTES").

         B. In order to induce Secured Party to extend the credit evidenced by
the Notes, Company has agreed to enter into this Security Agreement and to grant
to Secured Party, the security interest in the Collateral described below.

                                    AGREEMENT

         NOW, THEREFORE, in consideration of the above recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Company hereby agrees with Secured Party as follows:

         1. Definitions and Interpretation. When used in this Security
Agreement, the following terms have the following respective meanings:

                  "COLLATERAL" has the meaning given to that term in Section 2
hereof.

                  "LIEN" shall mean, with respect to any property, any security
interest, mortgage, pledge, lien, claim, charge or other encumbrance in, of, or
on such property or the income therefrom, including, without limitation, the
interest of a vendor or lessor under a conditional sale agreement, capital lease
or other title retention agreement, or any agreement to provide any of the
foregoing, and the filing of any financing statement or similar instrument under
the UCC or comparable law of any jurisdiction.

                  "PERMITTED LIENS" means (a) Liens for taxes not yet delinquent
or Liens for taxes being contested in good faith and by appropriate proceedings
for which adequate reserves have been established; (b) Liens in respect of
property or assets imposed by law which were incurred in the ordinary course of
business, such as carriers', warehousemen's, materialmen's and mechanics' Liens
and other similar Liens arising in the ordinary course of business which are not
delinquent or remain payable without penalty or which are being contested in
good faith and by appropriate proceedings; (c) Liens incurred or deposits made
in the ordinary course of business in connection with workers'



compensation, unemployment insurance and other types of social security, and
mechanic's Liens, carrier's Liens and other Liens to secure the performance of
tenders, statutory obligations, contract bids, government contracts, letters of
credit, performance and return of money bonds and other similar obligations,
incurred in the ordinary course of business, whether pursuant to statutory
requirements, common law or consensual arrangements; (d) Liens in favor of the
Secured Party; (e) Liens upon any equipment acquired or held by Company or any
of its Subsidiaries to secure the purchase price of such equipment or
indebtedness incurred solely for the purpose of financing the acquisition of
such equipment, so long as such Lien extends only to the equipment financed, and
any accessions, replacements, substitutions and proceeds (including insurance
proceeds) thereof or thereto; (f) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payments of customs duties in
connection with the importation of goods, (g) Liens which constitute rights of
setoff of a customary nature or banker's liens, whether arising by law or by
contract; (h) Liens on insurance proceeds in favor of insurance companies
granted solely as security for financed premiums; (i) leases or subleases and
licenses or sublicenses granted in the ordinary course of Company's business;
(j) Liens securing Senior Debt; (k) Liens on properties in respect of judgments
or awards not constituting an Event of Default under the Purchase Agreement; (l)
Liens incurred in connection with the securing of interest payments on an
issuance of debt securities and customary Liens granted in favor of a trustee to
secure fees and other amounts owing to such trustee under an indenture or other
agreement; and (m) Liens to secure the performance of hedging, swap or similar
transactions.

                  "UCC" means the Uniform Commercial Code as in effect in the
State of California from time to time.

         All capitalized terms not otherwise defined herein shall have the
respective meanings given in the Purchase Agreement. Unless otherwise defined
herein, all terms defined in the UCC have the respective meanings given to those
terms in the UCC.

         2. GRANT OF SECURITY INTEREST. As security for the Obligations, Company
hereby pledges to Secured Party and grants to Secured Party a security interest
in all right, title and interests of Company in and to the property described in
Attachment 1 hereto, whether now existing or hereafter from time to time
acquired, including, without limitation, the Compound-Related Intellectual
Property (collectively, the "COLLATERAL"). Subject to Permitted Liens, the
security interest granted hereunder on the Compound-Related Intellectual
Property shall constitute a first priority security interest. Notwithstanding
the foregoing, the security interest granted herein shall not extend to and the
term "Collateral" shall not include (a) any equipment or other property financed
by a third party, provided that such third party's Liens are Liens of the type
described in subsection (e) of the definition of Permitted Liens, and (b)
account number          located at           San Francisco, California, USA, and
the contents therein relating to the Company's facility under lease in Lakewood,
New Jersey.

         3. GENERAL REPRESENTATIONS AND WARRANTIES. Company represents and
warrants to Secured Party that (a) Company is the owner of the Collateral (or,
in the case of after-acquired Collateral, at the time Company acquires rights in
the Collateral, will be the owner thereof) and that no other Person has (or, in
the case of after-acquired Collateral, at the time Company acquires rights
therein,

                                        2


will have) any right, title, claim or interest (by way of Lien or otherwise) in,
against or to the Collateral, other than Permitted Liens; (b) upon the filing of
UCC-1 financing statements in the appropriate filing offices, Secured Party has
(or in the case of after-acquired Collateral, at the time Company acquires
rights therein, will have) a perfected security interest in the Collateral to
the extent that a security interest in the Collateral can be perfected by such
filing, except for Permitted Liens; (c) all Inventory has been (or, in the case
of hereafter produced Inventory, will be) produced in compliance with applicable
laws, including the Fair Labor Standards Act; (d) all accounts receivable and
payment intangibles are genuine and enforceable against the party obligated to
pay the same; (e) the originals of all documents evidencing all accounts
receivable and payment intangibles of Company and the only original books of
account and records of Company relating thereto are, and will continue to be,
kept at address of the Company set forth in Section 7 of this Security
Agreement.

         4. COVENANTS RELATING TO COLLATERAL. Company hereby agrees (a) to
perform all acts that may be necessary to maintain, preserve, protect and
perfect the Collateral, the Lien granted to Secured Party therein and the
perfection of such Lien, except for Permitted Liens; (b) not to use or permit
any Collateral to be used (i) in violation in any material respect of any
applicable law, rule or regulation, or (ii) in violation of any policy of
insurance covering the Collateral; (c) to pay promptly when due all taxes and
other governmental charges, all Liens and all other charges now or hereafter
imposed upon or affecting any Collateral; (d) without 30 days' written notice to
Secured Party, (i) not to change Company's name or place of business (or, if
Company has more than one place of business, its chief executive office), or the
office in which Company's records relating to accounts receivable and payment
intangibles are kept, and (ii) not to change Company's state of incorporation;
(e) to procure, execute and deliver from time to time any endorsements,
assignments, financing statements and other writings reasonably deemed necessary
or appropriate by Secured Party to perfect, maintain and protect its Lien
hereunder and the priority thereof and to deliver promptly upon the request of
Secured Party all originals of Collateral consisting of instruments, and (f) the
security interest granted hereunder on the Compound-Related Intellectual
Property shall constitute a first priority security interest, subject to
Permitted Liens.

         5. AUTHORIZED ACTION BY SECURED PARTY. Company hereby irrevocably
appoints Secured Party as its attorney-in-fact (which appointment is coupled
with an interest) and agrees that Secured Party may perform (but Secured Party
shall not be obligated to and shall incur no liability to Company or any third
party for failure so to do) any act which Company is obligated by this Security
Agreement to perform, and to exercise such rights and powers as Company might
exercise with respect to the Collateral, including the right to (a) collect by
legal proceedings or otherwise and endorse, receive and receipt for all
dividends, interest, payments, proceeds and other sums and property now or
hereafter payable on or on account of the Collateral; (b) enter into any
extension, reorganization, deposit, merger, consolidation or other agreement
pertaining to, or deposit, surrender, accept, hold or apply other property in
exchange for the Collateral; (c) make any compromise or settlement, and take any
action it deems advisable, with respect to the Collateral; (d) insure, process
and preserve the Collateral; (e) pay any indebtedness of Company relating to the
Collateral; and (f) file UCC financing statements and execute other documents,
instruments and agreements required hereunder; provided, however, that Secured
Party shall not exercise any such powers granted pursuant to subsections (a)
through (e) prior to the occurrence of an Event of Default and shall only
exercise such

                                        3


powers during the continuance of an Event of Default. Company agrees to
reimburse Secured Party upon demand for any reasonable costs and expenses,
including attorneys' fees, Secured Party may incur while acting as Company's
attorney-in-fact hereunder, all of which costs and expenses are included in the
Obligations. It is further agreed and understood between the parties hereto that
such care as Secured Party gives to the safekeeping of its own property of like
kind shall constitute reasonable care of the Collateral when in Secured Party 's
possession; provided, however, that Secured Party shall not be required to make
any presentment, demand or protest, or give any notice and need not take any
action to preserve any rights against any prior party or any other person in
connection with the Obligations or with respect to the Collateral.

         6. DEFAULT AND REMEDIES.

              (a) Default. Company shall be deemed in default under this
Security Agreement upon the occurrence and during the continuance of an Event of
Default (as defined in the Purchase Agreement).

              (b) Remedies. Upon the occurrence and during the continuance of
any such Event of Default, Secured Party shall have the rights of a secured
creditor under the UCC, all rights granted by this Security Agreement and by
law, including the right to: (a) require Company to assemble the Collateral and
make it available to Secured Party at a place to be designated by Secured Party;
and (b) prior to the disposition of the Collateral, store, process, repair or
recondition it or otherwise prepare it for disposition in any manner and to the
extent Secured Party deems appropriate. Company hereby agrees that ten (10)
days' notice of any intended sale or disposition of any Collateral is
reasonable. In furtherance of Secured Party 's rights hereunder, Company hereby
grants to Secured Party an irrevocable, non-exclusive license, exercisable
without royalty or other payment by Secured Party, and only in connection with
the exercise of remedies hereunder, to use, license or sublicense any patent,
trademark, trade name, copyright or other intellectual property in which Company
now or hereafter has any right, title or interest together with the right of
access to all media in which any of the foregoing may be recorded or stored.

              (c) Application of Collateral Proceeds. The proceeds and/or avails
of the Collateral, or any part thereof, and the proceeds and the avails of any
remedy hereunder (as well as any other amounts of any kind held by Secured Party
at the time of, or received by Secured Party after, the occurrence of an Event
of Default) shall be paid to and applied as follows:

                   (i) First, to the payment of reasonable costs and expenses,
including all amounts expended to preserve the value of the Collateral, of
foreclosure or suit, if any, and of such sale and the exercise of any other
rights or remedies, and of all proper fees, expenses, liability and advances,
including reasonable legal expenses and attorneys' fees, incurred or made
hereunder by Secured Party;

                   (ii) Second, to the payment to Secured Party of the amount
then owing or unpaid to Secured Party (to be applied first to accrued interest
and second to outstanding principal);

                                        4


                   (iii) Third, to the payment of other amounts then payable to
Secured Party under any of the Transaction Documents; and

                   (iv) Fourth, to the payment of the surplus, if any, to
Company, its successors and assigns, or to whomsoever may be lawfully entitled
to receive the same.

         7. MISCELLANEOUS.

              (a) Notices. Except as otherwise provided herein, all notices,
requests, demands, consents, instructions or other communications to or upon
Secured Party or Company under this Security Agreement or the other Transaction
Documents shall be in writing and telecopied, mailed, sent by electronic mail or
delivered, and (i) if to Company, at its telecopier number, electronic mail
address or address set forth below, or (ii) if to Secured Party, at its
telecopier number, electronic mail address or address set forth below (or to
such other telecopier number, electronic mail address or address for any party
as indicated in any notice given by that party to the other party). All such
notices and communications shall be effective (a) when sent by Federal Express
or other overnight service of recognized standing, on the Business Day following
the deposit with such service; (b) when mailed by registered or certified mail,
first class postage prepaid and addressed as aforesaid through the United States
Postal Service, upon receipt; (c) when delivered by hand, upon delivery; and (d)
when telecopied or sent by electronic mail, upon confirmation of receipt.


         SECURED PARTY:             TANABE HOLDING AMERICA, INC.
                                    401 Hackensack Avenue, 10th Floor
                                    Hackensack, NJ 07601
                                    Attention:


         COMPANY:                   VIVUS, INC.
                                    1172 Castro Street
                                    Mountain View, CA 94040
                                    Attention:


              (b) Termination of Security Interest. Upon the payment in full of
all Obligations, the security interest granted herein shall terminate and all
rights to the Collateral shall revert to Company. Upon such termination Secured
Party hereby authorizes Company to file any UCC termination statements necessary
to effect such termination and Secured Party will execute and deliver to Company
any additional documents or instruments as Company shall reasonably request to
evidence such termination. If Secured Party shall have proceeded to enforce any
right under this Security Agreement by foreclosure, sale, entry or otherwise,
and such proceedings shall have been discontinued or abandoned for any reason or
shall have been determined adversely, then and in every such case (unless
ordered otherwise by a court of competent jurisdiction), Secured Party shall be

                                        5


restored to its former position and rights hereunder with respect to the
Collateral subject to the security interest created under this Security
Agreement.

              (c) Nonwaiver. No failure or delay on Secured Party's part in
exercising any right hereunder shall operate as a waiver thereof or of any other
right nor shall any single or partial exercise of any such right preclude any
other further exercise thereof or of any other right.

              (d) Amendments and Waivers. This Security Agreement may not be
amended or modified, nor may any of its terms be waived, except by written
instruments signed by Company and Secured Party. Each waiver or consent under
any provision hereof shall be effective only in the specific instances for the
purpose for which given.

              (e) Assignments. This Security Agreement shall be binding upon and
inure to the benefit of Secured Party and Company and their respective
successors and assigns; provided, however, that each of Company and Purchaser
may not sell, assign or delegate rights and obligations hereunder without the
prior written consent of the other respective party.

              (f) Cumulative Rights, etc. The rights, powers and remedies of
Secured Party under this Security Agreement shall be in addition to all rights,
powers and remedies given to Secured Party by virtue of any applicable law, rule
or regulation of any governmental authority, any Transaction Document or any
other agreement, all of which rights, powers, and remedies shall be cumulative
and may be exercised successively or concurrently without impairing Secured
Party's rights hereunder. Company waives any right to require Secured Party to
proceed against any person or entity or to exhaust any Collateral or to pursue
any remedy in Secured Party's power.

              (g) Partial Invalidity. If at any time any provision of this
Security Agreement is or becomes illegal, invalid or unenforceable in any
respect under the law or any jurisdiction, neither the legality, validity or
enforceability of the remaining provisions of this Security Agreement nor the
legality, validity or enforceability of such provision under the law of any
other jurisdiction shall in any way be affected or impaired thereby.

              (h) Construction. Each of this Security Agreement and the other
Transaction Documents is the result of negotiations among, and has been reviewed
by, Company, Secured Party and their respective counsel. Accordingly, this
Security Agreement and the other Transaction Documents shall be deemed to be the
product of all parties hereto, and no ambiguity shall be construed in favor of
or against Company or Secured Party.

              (i) Entire Agreement. This Security Agreement taken together with
the other Transaction Documents constitute and contain the entire agreement of
Company and Secured Party and supersede any and all prior agreements,
negotiations, correspondence, understandings and communications among the
parties, whether written or oral, respecting the subject matter hereof.

              (j) Other Interpretive Provisions. References in this Security
Agreement and each of the other Transaction Documents to any document,
instrument or agreement (a) includes all exhibits, schedules and other
attachments thereto, (b) includes all documents, instruments or agreements

                                        6


issued or executed in replacement thereof, and (c) means such document,
instrument or agreement, or replacement or predecessor thereto, as amended,
modified and supplemented from time to time and in effect at any given time. The
words "hereof," "herein" and "hereunder" and words of similar import when used
in this Security Agreement or any other Transaction Document refer to this
Security Agreement or such other Transaction Document, as the case may be, as a
whole and not to any particular provision of this Security Agreement or such
other Transaction Document, as the case may be. The words "include" and
"including" and words of similar import when used in this Security Agreement or
any other Transaction Document shall not be construed to be limiting or
exclusive.

              (k) Governing Law. This Security Agreement shall be governed by
and construed in accordance with the laws of the State of California without
reference to conflicts of law rules (except to the extent governed by the UCC).

              (l) Counterparts. This Security Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall be deemed to constitute one instrument.



            [The remainder of this page is intentionally left blank]
















                                        7


         IN WITNESS WHEREOF, Company has caused this Security Agreement to be
executed as of the day and year first above written.



                                           VIVUS, INC.


                                           By:
                                               ----------------------------
                                           Name:
                                                 --------------------------
                                           Title:
                                                  -------------------------

AGREED:

Tanabe holding america, inc.,
as Secured Party


By:
    ----------------------------
Name:
Title:




















                                  ATTACHMENT 1
                              TO SECURITY AGREEMENT

         All right, title, interest, claims and demands of Company in and to the
following property:

              (i) All goods and equipment now owned or hereafter acquired,
including, without limitation, all laboratory equipment, computer equipment,
office equipment, machinery, fixtures, vehicles, and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the foregoing, wherever
located;

              (ii) All inventory now owned or hereafter acquired, including,
without limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Company's custody or possession or in transit
and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Company's books relating to any of the foregoing;

              (iii) All contract rights, general intangibles, health care
insurance receivables, payment intangibles and commercial tort claims, now owned
or hereafter acquired, including, without limitation, all patents, patent rights
(and applications and registrations therefor), trademarks and service marks (and
applications and registrations therefor), inventions, copyrights, mask works
(and applications and registrations therefor), trade names, trade styles,
software and computer programs, trade secrets, methods, processes, know how,
drawings, specifications, descriptions, and all memoranda, notes, and records
with respect to any research and development, goodwill, license agreements,
franchise agreements, blueprints, drawings, purchase orders, customer lists,
route lists, infringements, claims, computer programs, computer disks, computer
tapes, literature, reports, catalogs, design rights, income tax refunds,
payments of insurance and rights to payment of any kind and whether in tangible
or intangible form or contained on magnetic media readable by machine together
with all such magnetic media;

              (iv) All now existing and hereafter arising accounts, contract
rights, royalties, license rights and all other forms of obligations owing to
Company arising out of the sale or lease of goods, the licensing of technology
or the rendering of services by Company (subject, in each case, to the
contractual rights of third parties to require funds received by Company to be
expended in a particular manner), whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Company and Company's books relating
to any of the foregoing;

              (v) All documents, cash, deposit accounts, letters of credit,
letter of credit rights, supporting obligations, certificates of deposit,
instruments, chattel paper, electronic chattel paper, tangible chattel paper and
investment property, including, without limitation, all securities, whether
certificated or uncertificated, security entitlements, securities accounts,
commodity contracts and commodity accounts, and all financial assets held in any
securities account or otherwise, wherever located, now owned or hereafter
acquired and Company's books relating to the foregoing; and

              (vi) Any and all claims, rights and interests in any of the above
and all substitutions for, additions and accessions to and proceeds thereof,
including, without limitation, insurance, condemnation, requisition or similar
payments and the proceeds thereof.

         Notwithstanding the foregoing, the term "Collateral" shall not include
(a) any equipment or other property financed by a third party, provided that
such third party's liens are upon any equipment acquired or held by Company or
any of its subsidiaries to secure the purchase price of such equipment or
indebtedness incurred solely for the purpose of financing the acquisition of
such equipment, so long as such lien extends only to the equipment financed, and
any accessions, replacements, substitutions and proceeds (including insurance
proceeds) thereof or thereto, and (b) account number         located at
San Francisco, California, and the contents therein relating to the Company's
facility under lease in Lakewood, New Jersey.

                                                                   EXHIBIT 10.53
                                                                   -------------

                        MANUFACTURE AND SUPPLY AGREEMENT

         This Manufacturing and Supply Agreement ("Agreement") is entered into
as of December 22, 2003 ("Effective Date") by and between VIVUS, Inc., having a
principal place of business at 1172 Castro Street, Mountain View, California
94040, United States of America ("VIVUS"), and NeraPharm spol., s.r.o., having a
place of business at 277 11 Neratovice, Czech Republic ("NeraPharm").

WHEREAS, NeraPharm is a worldwide licensed manufacturer of prostaglandin;

         WHEREAS, VIVUS desires to acquire a certain prostaglandin produced by
NeraPharm.

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

ARTICLE 1 - DEFINITIONS
- -----------------------

1.1      DMF" shall mean a drug master file, or its equivalent for the Product
         filed with a regulatory agency by or on behalf of NeraPharm which is
         adequate to comply with the applicable requirements and standards of
         such regulatory agency with respect to the Product.

1.2      "PH Eur" shall mean European Pharmacopoeia.

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

1.4      "GMP" shall mean good manufacturing practices as defined by the FDA in
         21 CFR Part 211 and European Guidelines.

1.5      "MUSE/ ALISTA System" shall mean VIVUS' system for delivery of the
         Product to treat male and female sexual dysfunction, as modified from
         time to time during the term of this Agreement.

1.6      "Product" shall mean Alprostadil USP (Prostaglandin E1)/Ph Eur
         (Prostaglandin E1).

1.7      "Specifications" shall mean the particulars as to composition, quality
         and other characteristics for the Product as set forth in Exhibit A
         hereto, as may be amended from time to time by mutual agreement of the
         parties.

1.8      "USP" shall mean United States Pharmacopoeia.


ARTICLE 2 - SUPPLY
- ------------------

2.1      Supply. NeraPharm shall supply to VIVUS quantities of the Product in
         full manufacturing lots ordered by VIVUS from time to time in
         accordance with this Agreement. Without limiting the foregoing,
         NeraPharm shall at all times maintain facilities to manufacture, with
         three (3) months prior notice, at least (*) (* - *) of Product per
         quarter. The (*) and (*) quantity is the expected yield of the
         manufactured lot that NeraPharm will validate for the production of
         Product to be supplied by NeraPharm to VIVUS under this Agreement.
         NeraPharm will use only validated lot sizes and processes for
         production of Product for supply to VIVUS. VIVUS and NeraPharm must
         mutually agree to any other batch size NeraPharm may wish to validate
         and use for Product supply under this Agreement.

                                        1

2.2      Orders. Quantities of the Product will be supplied by NeraPharm
         pursuant to purchase orders submitted by VIVUS from time to time.
         NeraPharm agrees to accept VIVUS' purchase orders for the Product,
         provided that the purchase order is in accordance with the forecast
         provided and other stipulations of this Agreement and provides for a
         lead time of not less than six (6) weeks, but not to exceed ten (10)
         weeks. NeraPharm's obligation to supply within this lead time period
         shall be limited to those quantities included in the forecast provided
         by VIVUS at least six (6) months earlier.

2.3      Obligation to Supply. Subject to the terms of this Article 2, NeraPharm
         shall accept and fill all orders placed by VIVUS for the product. Per
         Section 2.1 of this Agreement, the yield of the manufactured lot size
         that NeraPharm will validate for Product supply to VIVUS under this
         Agreement is expected to be (*) to (*). Forecasts provided by VIVUS to
         NeraPharm for Product supply will be in whole lot quantities with a
         target yield of (*) per lot. Beginning in 2005, VIVUS will provide to
         NeraPharm a binding six (6) month forecast and a non-binding twelve
         (12) month forecast starting from the end of the binding six (6) month
         period. The non-binding twelve (12) month forecast will assist
         NeraPharm in planning and capacity allocation and the binding six (6)
         month forecast will set forth quantities that VIVUS will be obligated
         to buy and NeraPharm will be obligated to supply; provided that due to
         manufacturing batch yield variances, NeraPharm shall supply quantities
         in amounts that are plus or minus (*) of the VIVUS ordered quantity in
         (*), and further provided that VIVUS may order an additional (*) per
         quarter above the binding forecast amount and up to (*) per four (4)
         quarter period. Such binding and non-binding forecasts shall be updated
         by VIVUS on February 28, May 30, August 30 and November 30 for eighteen
         (18) month periods starting from the first day of the first subsequent
         calendar quarter. The total of the quantities indicated for the first
         three months of such updated binding forecasts including the firm
         orders already placed, but not including back orders, if any, shall be
         not less than (*) per quarter less than the quantities indicated for
         the same calendar period in the binding forecast issued three (3)
         months before. VIVUS, from time to time, may need to purchase
         quantities in excess of (*) per quarter above the binding forecast or
         more than (*) per four (4) quarter period. In such case, NeraPharm will
         use its best efforts to supply VIVUS' requirements.

2.4      Form of Orders. VIVUS' orders shall be made pursuant to a written
         purchase order which is in a form mutually acceptable to the parties,
         and shall provide for shipment in accordance with reasonable delivery
         schedules as may be agreed upon from time to time by NeraPharm and
         VIVUS. NeraPharm shall use all reasonable efforts to notify VIVUS
         within five (5) days from receipt of an order of its ability to fill
         any amounts of such order in excess of the quantities that NeraPharm is
         obligated to supply. No terms contained in any purchase order, order
         acknowledgment or similar standardized form shall be construed to amend
         or modify the terms of this Agreement and in the event of any conflict,
         this Agreement shall control unless expressly agreed in writing.

2.5      Minimum Quantities. VIVUS agrees to order at least (*) batches (*) of
         Product for delivery during the calendar years 2004, 2005 and 2006.

2.6      Maximum Quantities. Notwithstanding anything herein to the contrary,
         NeraPharm shall not be obligated to supply to VIVUS more than (*)
         batches of Product in any calendar year provided that NeraPharm agrees
         to use all reasonable efforts to supply any quantities in excess of
         such amounts as VIVUS may order in accordance with Section 2.3 above.

                                        2

2.7      Price. The price to be paid by VIVUS per (*) of the Product ordered by
         VIVUS shall be based upon the quantities of the Product ordered by
         VIVUS and delivered by NeraPharm during a particular calendar year, as
         follows:

         2.7.1    The price of Product delivered for the first (*) during the
                  calendar years 2004, 2005 and 2006 shall be $ (**) per (*).

         2.7.2    The Price of Product delivered in excess of (*) kg shall be
                  mutually agreed by the parties hereto.

2.8      Packaging. Product shall be supplied to VIVUS: (a) in airtight and
         moisture-proof containers which have stability to support storage; (b)
         in standard quantities of (*), and no less than (*) and no more than
         (*); (c) in plastic packing material sufficient to prevent breakage of
         bottles while in transport; and (d) with a packaging label(s)
         displaying, in addition to the standard requirements, the tare weight,
         packaging job number, and bottle serial number per packaging job. The
         tare weight indicated shall contain the weight of the empty bottle, cap
         and cap insert, but neither of the label weights or that of external
         protective materials. A copy of a certificate of analysis for each such
         lot shall accompany such lot. A second copy of such certificate of
         analysis shall be separately sent to VIVUS.

2.9      Shipping Terms; Payment. All prices set forth in Section 2.7 above
         shall be CIP (Incoterms 2000) to an airport (in the case of shipment by
         airfreight) or to an address (in the case of shipment by courier
         service). The manner of shipment shall be designated by NeraPharm and
         the airport or address shall be designated by VIVUS. All payments
         hereunder shall be made in U.S. dollars, by direct bank transfer to an
         account designated in NeraPharm's Invoice. Payment terms shall be
         forty-five (45) days from the date of Invoice.

2.10     Taxes. VIVUS shall be responsible for the payment of any taxes, tariffs
         or duties in excess of those covered by NeraPharm pursuant to CIP
         (Incoterms 2000) related to the import of the Product into the country
         of destination.


ARTICLE 3 - QUALITY
- -------------------

3.1      Quality. All Product supplied by NeraPharm shall meet (i) the current
         USP and European Pharmacopoeia requirements for the Product, (ii) the
         current VIVUS Specifications (Exhibit A), (iii) additional requirements
         that the parties may agree to from time to time to reflect to the
         manufacturing requirements of VIVUS' MUSE/ALISTA System, and (iv) the
         requirements of any health regulatory agency to which VIVUS has
         submitted, or notifies NeraPharm it will submit or sponsor the
         submission of, an application for regulatory approval. In case any
         official monograph or regulatory agency requirement conflicts with the
         current USP and European Pharmacopoeia requirements for the Product and
         NeraPharm's manufacturing and control process of Product described in
         the DMF, the parties will consult to seek a mutually acceptable
         solution. All Product supplied by NeraPharm shall be manufactured in
         accordance with current GMP manufacturing and ISO 9000 regulatory
         requirements and record keeping procedures at NeraPharm's plant located
         at 27711 Neartovice, Czech Republic (the "Facility").

                                        3

3.2      NeraPharm will manufacture (*) batches of Product, approximately (*)
         each, in a campaign starting in 2004. The first batch will be completed
         no later than March 31, 2004. The second and third batches will follow
         thereafter and will be completed no later than June 30, 2004. During
         this campaign, NeraPharm will apply change of manufacturing process
         validation to assure NeraPharm's current manufacturing process is in
         full compliance with current U.S. FDA and European regulatory cGMPs and
         with NeraPharm's U.S. and European DMFs.

3.3      NeraPharm agrees to carry out all tests and studies necessary to prove
         the equivalence of Product manufactured with NeraPharm's current
         manufacturing process using these three batches, including stability
         studies, and submit any necessary Specification or DMF changes and all
         related results as required by the regulatory authorities in a schedule
         set forth below:

         a.  To the U.S. FDA with three (3) month stability results no later
             than October 15, 2004;

         b.  To the European and other regulatory authorities no later than
             thirty (30) days after receipt of a written request from VIVUS,
             such written request to occur no earlier than September 15, 2004,
             such submission to include the latest stability results available
             at the time of submission.

3.4      NeraPharm agrees to provide VIVUS with a detailed analytical report on
         its findings on these batches of Product at the time of their
         qualification and results of its stability studies at the time such
         results are available.

3.5      VIVUS agrees to carry out all tests and studies necessary to acquire
         the approval of the U.S., EU and other regulatory authorities for its
         use of Product manufactured with the current process of NeraPharm as
         active ingredient in its finished product MUSE.

3.6      VIVUS agrees that these tests and studies shall include manufacture and
         stability studies of validation batches of MUSE using each of the first
         (*) batches of Product from NeraPharm.

3.7      VIVUS agrees to inform NeraPharm about its main findings on these
         validation batches of MUSE as well as to notify NeraPharm in a timely
         manner regarding regulatory submissions and their outcome.

3.8      Quality Control. Prior to each shipment of Product, NeraPharm shall
         perform quality control procedures to verify that the quantity or batch
         of such Product to be shipped conforms fully with the Specifications.
         Each shipment of Product shall be accompanied by a Certificate of
         Analysis describing all current requirements of the Specifications,
         results of test performed, as well as Batch Release Sheet certifying
         that the batch of Product supplied has been manufactured, controlled
         and released according to the Specifications, current DMFs and all
         relevant and current GMP requirements at the Facility stipulated under
         Section 3.1 above.

3.9      Rejection. VIVUS shall have sixty (60) days following its receipt of a
         shipment of Product to reject such Product on the grounds that all or
         part of the shipment fails to conform to the applicable Specifications
         or otherwise fails to conform to the warranties given by NeraPharm in
         Section 5.1, which rejection shall be accomplished by giving written
         notice to NeraPharm specifying the manner in which all or part of such
         shipment fails to meet the foregoing requirements. If rejection is
         based on grounds of contamination or Product not passing any physical
         test of Specification, VIVUS' rejection notice shall be accompanied by

                                        4

         satisfactory sample returned to NeraPharm to verify such
         non-conformity. If VIVUS rejects a shipment before the date on which
         payment therefore is due, it may withhold payment for such shipment or
         the rejected portion thereof. The warranties given by NeraPharm in
         Article 5 below shall survive any failure to reject by VIVUS under
         Section 3.9.

3.10     Returns and Settlement of Claims. NeraPharm shall be obliged to respond
         in writing to VIVUS accepting or refusing a rejection notice from VIVUS
         within forty-five (45) days from the date of receipt of such rejection
         notice in accordance with Section 3.9 above. In case of disagreement
         between the parties, the claim shall be submitted for tests and
         decision to an independent testing organization which meets appropriate
         GMP or consultant of recognized repute within the United States
         pharmaceutical industry mutually agreed upon by the parties (the
         "Laboratory"), the appointment of which shall not be unreasonably
         withheld or delayed by either party. The determination of such entity
         with respect to all or part of any shipment of Product shall be final
         and binding upon the parties. The fees and expenses of the Laboratory
         making such determination shall be paid by the party against which the
         determination is made (i.e., the party whose argument is rejected by
         the Laboratory). Products accepted by NeraPharm as not meeting the
         applicable requirements and Specifications or so decided by the
         Laboratory shall be returned by VIVUS to NeraPharm. NeraPharm shall use
         its best efforts to replace the quantities of Product returned by VIVUS
         within the shortest possible time, but no later than sixty (60) days
         from the return of such quantities. The replacement of returned Product
         shall have priority over the supply of Product ordered for shipment,
         not more than thirty (30) days before or any time after the return of
         the rejected quantity to NeraPharm. Without limiting the remedies of
         VIVUS, if NeraPharm fails to replace returned Product within
         one-hundred and fifty (150) days from the date Product is returned to
         NeraPharm, VIVUS shall have the right (i) to cancel such replacement
         shipment by written notice and (ii) to reclaim immediately (either
         through refund or setoff, at VIVUS' discretion) the amounts paid
         pursuant to Section 2.7 above for the Product that was returned but not
         replaced, if such payment for such Product had already been made to
         NeraPharm.

3.11     Presence At Facility. Upon reasonable notice given by VIVUS to
         NeraPharm and at reasonable frequency, VIVUS shall have the right to
         assign a reasonable number of employees or consultants of VIVUS to
         inspect and audit the Facility at which Product is manufactured in
         order to verify NeraPharm's compliance with the current GMP and other
         agreed requirements, provided, however that (a) such employees or
         consultants shall not unreasonably interfere with order activities
         being carried out of Facility, and (b) that such employees or
         consultants shall observe all rules and regulations applicable to
         visitors and to individuals employed at the Facility.


ARTICLE 4 - REGULATORY MATTERS
- ------------------------------

4.1      Regulatory Approvals.

         4.1.1    Requirements. VIVUS and its marketing partners shall notify
                  NeraPharm in a timely fashion about their requirements for the
                  submission and maintenance of DMFs related to the manufacture
                  and control of the Product adequate to comply with applicable
                  regulatory agencies' (including without limitation the FDA's)
                  standards with respect to the Product in the United States,
                  Europe, Canada, and other countries as is or becomes necessary
                  for VIVUS and its marketing partners to import, export and
                  sell the MUSE/ALISTA System worldwide. NeraPharm will submit,
                  at NeraPharm's expense, a DMF or its equivalent in any other

                                        5

                  country imposing requirements fully identical to that of the
                  United States, Canada or the European Union within two (2)
                  months after such requirement received from VIVUS or its
                  marketing partners. In case VIVUS or its marketing partner
                  requires the submission of a DMF in a country not covered by
                  the foregoing stipulations, VIVUS will assist NeraPharm,
                  directly or through others, to obtain the full details of
                  requirements of a DMF on the manufacture and control of the
                  Product in the country concerned. NeraPharm will use its best
                  efforts to fulfill these requirements and to submit such
                  document with content and form required in the country in
                  question and at the time required by VIVUS. NeraPharm shall
                  keep VIVUS and its marketing partners, as appropriate,
                  informed about its ability or inability to submit and maintain
                  such documentation as well as the intended or possible times
                  of such submissions.

         4.1.2    DMF Submission. NeraPharm shall submit, at NeraPharm's
                  expense, DMFs in every country in English or a translation in
                  English. An English copy of the open part of each DMF, where
                  such open part exists, shall be provided to VIVUS in parallel
                  with the submission thereof to the applicable regulatory
                  agency. NeraPharm agrees to maintain all information filed
                  with the regulatory agencies current and reflective of current
                  manufacturing practices and product specifications and to
                  update this information as required. From time to time during
                  the term of this Agreement, NeraPharm shall provide letters of
                  authorization, instruments and/ or documents, and take such
                  other actions, as VIVUS may reasonably request for purposes of
                  obtaining regulatory approvals necessary for VIVUS and its
                  marketing partners to import, export and sell Product as
                  incorporated into the MUSE/ALISTA System. NeraPharm agrees to
                  notify VIVUS in a timely fashion of any significant changes,
                  deletions or modifications to any DMF or Product process or
                  specification, and not to implement any such changes that
                  would cause a delay in obtaining regulatory approvals to
                  market products incorporating the Product without prior
                  written agreement with VIVUS.

4.2      Inspections. NeraPharm shall permit regulatory agencies to conduct such
         inspections of the Facility as the regulatory agencies may request, and
         shall cooperate with the regulatory agencies with respect to such
         inspections and any related matters. NeraPharm shall give VIVUS prior
         written notice of any inspections, and shall keep VIVUS informed about
         the results and conclusions of each regulatory inspection, including
         actions taken by NeraPharm to remedy conditions cited in such
         inspections. In addition, NeraPharm shall allow VIVUS or its
         representative to assist in the preparation for and be present at such
         inspections. NeraPharm shall provide VIVUS with copies of any written
         inspection reports issued by such agencies and all correspondence
         between NeraPharm and the agency involved, including, but not limited
         to, FDA Form 483 and all correspondence relating thereto. VIVUS and its
         regulatory consultants, agents, marketing partners or other third
         parties agreed upon in advance by NeraPharm, under reasonable
         confidentiality requirements, shall have access, to quality assurance
         and current GMP audits of DMFs for the purposes of assessment of
         regulatory compliance, to the buildings, records and areas of the
         Facility involved in the manufacture, testing, storage and shipment of
         the Product.

4.3      VIVUS Cooperation. VIVUS agrees to keep NeraPharm reasonably informed
         as to the status of the development and applications for regulatory
         approvals of the MUSE/ALISTA System incorporating the Product supplied
         hereunder.

4.4      Maintenance of Approvals. Notwithstanding anything herein to the
         contrary, NeraPharm shall not undertake any modifications to Product

                                        6

         manufacturing or testing processes, specifications or filing that could
         impact VIVUS product approvals, regulatory product reviews, IND or any
         other compliance status without prior written agreement of VIVUS.
         NeraPharm shall obtain and maintain all licenses, permits and
         registrations necessary to manufacture the Product and supply it
         hereunder.


ARTICLE 5 - PRODUCT WARRANTIES

5.1      Process and Product Warranties. NeraPharm warrants and represents that:
         ------------------------------

         5.1.1    Specifications. All Product supplied to VIVUS hereunder shall
                  comply with the Specifications for the Product and shall
                  conform with the information shown on the Certificate of
                  Analysis and Batch Release Sheet provided for the particular
                  shipment according to Section 3.2 hereof;

         5.1.2    GMP. The Facility, and all Product supplied to VIVUS hereunder
                  meets (a) all United States and European regulatory
                  requirements for commercialization of the Product, including
                  without limitation maintenance of a current DMF, compliance
                  with GMP, demonstration of commercial production capability,
                  and demonstration of acceptable stability of such Product; (b)
                  all ISO 9000 regulatory requirements applicable to the
                  Product: and (c) all requirements imposed by other regulatory
                  agencies with which a DMF has been filed for the Product;

         5.1.3    USP/Ph Eur. All Product supplied to VIVUS hereunder shall meet
                  all USP and European Pharmacopoeia and other applicable
                  standards and shall be fit for human use;

         5.1.4    Compliance with FFDCA. None of the Product supplied to VIVUS
                  hereunder shall be adulterated or misbranded within the
                  meaning of the Federal Food, Drug and Cosmetics Act, 21
                  U.S.C.A. ss.301 et seq., as amended and in effect of the time
                  of shipment (the "Act"), or within the meaning of any state or
                  municipal laws applicable to the Products and containing terms
                  with substantially similar meanings as the meanings of
                  adulteration or misbranding under the Act; provided, however,
                  that this provision shall not apply to, and NeraPharm shall
                  have no responsibility for, misbranding caused directly by
                  VIVUS as a result of labels or package text specified by VIVUS
                  for the Product;

         5.1.5    Timing. All Product supplied to VIVUS hereunder shall have
                  been manufactured within twenty-two (22) weeks prior to
                  receipt by VIVUS;

         5.1.6    Notification. NeraPharm will provide written notice to VIVUS
                  of any proposed alterations to the Facility or to any Product
                  manufacturing or testing process; provided, however, that
                  under no circumstances shall any such alteration be made
                  without VIVUS' express prior written consent, or before
                  regulatory approval, if required for any suchalteration, is
                  received in each country in which Product is then being sold;
                  and

         5.1.7    No Encumbrance. Title to all Product supplied to VIVUS
                  hereunder shall pass to VIVUS as provided herein free and
                  clear of any security interest, lien, or other encumbrance.

                                        7

5.2      Disclaimer. EXCEPT AS EXPRESSLY PROVIDED IN THIS ARTICLE 5, NERAPHARM
         MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE
         PRODUCT, AND NERAPHARM HEREBY EXPRESSLY DISCLAIMS ANY AND ALL IMPLIED
         OR STATUTORY WARRANTIES, INCLUDING WITHOUT LIMITATION, WARRANTIES OF
         MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT.


ARTICLE 6 - TERM AND TERMINATION
- --------------------------------

6.1      Term. The term of this Agreement shall commence on the Effective Date
         and continue in full force until December 31, 2006, unless terminated
         earlier in accordance with this Article 6.

6.2      Termination for Convenience. Either party hereto may terminate this
         Agreement upon ninety (90) days prior written notice to the other party
         hereto; provided, however, such termination shall not become effective
         prior to December 31, 2004.

6.3      Termination by NeraPharm. NeraPharm shall have the right to terminate
         this Agreement on thirty (30) days prior written notice to VIVUS after
         the beginning of any calendar year during the term of this Agreement
         but before February 28, of such year, if VIVUS fails to order for
         delivery the minimum purchase obligation set forth in Section 2.5
         during the previous calendar year; provided that VIVUS does not order
         sufficient quantities to cure such shortfall within the foregoing
         thirty (30)-day period.

6.4      Breach. This Agreement may be terminated by either party if the other
         party breaches any material term or condition of this Agreement and
         fails to remedy the breach within sixty (60) days after being given
         written notice thereof.

6.5      Effect of Termination. In the case of notice termination by either
         party under Section 6.3.or 6.4., the parties' obligations, including
         NeraPharm's obligation to supply Product ordered by VIVUS, and VIVUS'
         obligation to purchase Product included in any binding forecast
         pursuant to Section 2.3. shall survive. In addition, VIVUS may purchase
         and NeraPharm agrees to supply quantities of Product for which VIVUS
         has not found alternate suppliers, at NeraPharm's then current prices
         of Product.

6.6      Survival. It is understood that termination or expiration of this
         Agreement shall not relieve a party from any liability which, at the
         time of such termination or expiration, has already accrued to the
         other party. The provisions of Sections 3.9, 3.10, 6.5, 6.6 and 10.1,
         and Articles 1, 5, 7, 9, and 11 shall survive the termination of this
         Agreement for any reason. All other rights and obligations of the
         parties shall cease upon termination of this Agreement. Except as
         otherwise expressly provided in this Article 6, all other rights and
         obligations of the parties shall terminate.


ARTICLE 7 - CONFIDENTIALITY
- ---------------------------

7.1      Confidential Information. The parties may from time to time disclose to
         each other Confidential Information. "Confidential Information" shall
         mean any information disclosed by one party to the other party hereto
         which if disclosed in tangible form is marked "confidential" or with
         other similar designation to indicate its confidential or proprietary
         nature or if disclosed orally is indicated orally to be confidential or
         proprietary by the party disclosing such information at the time of
         such disclosure and is confirmed in writing as confidential or
         proprietary by the disclosing party within forty-five (45) days after

                                        8

         such disclosure. Notwithstanding the foregoing, Confidential
         Information shall not include any information that, in each case as
         demonstrated by written documentation: (i) was already known to the
         receiving party, other than under an obligation of confidentiality, at
         the time of disclosure, as can be shown by competent proof; (ii) was
         generally available to the public or otherwise part of the public
         domain at the time of its disclosure to the receiving party; (iii)
         became generally available to the public or otherwise part of the
         public domain after its disclosure and other than through any act or
         omission of the receiving party in breach of this Agreement; (iv) was
         subsequently lawfully disclosed to the receiving party by a person
         other than the disclosing party, as can be shown by competent proof;
         (v) was developed by the receiving party without reference to any
         Confidential Information of the disclosing party.

7.2      Confidentiality. Each party hereby agrees: (i) to hold and maintain in
         strict confidence all Confidential Information of the other party; and
         (ii) not to use or disclose any Confidential Information of the other
         party except to those employees and consultants who have a need to
         know, as otherwise permitted by this Agreement, or as may be necessary
         to exercise its rights or perform its obligations under this Agreement;
         provided that each party to whom Confidential Information is disclosed
         is bound by the same terms regarding the disclosure and use of
         Confidential Information as set forth in this Article 7. Nothing
         contained in this Article 7 shall prevent either party from disclosing
         any Confidential Information of the other party to (a) regulatory
         agencies for the purpose of obtaining approval to distribute and market
         the Product; provided, however, that all reasonable steps are taken to
         maintain the confidentiality of such Confidential Information to be
         disclosed; (b) to accountants, lawyers or other professional advisors
         or in connection with a merger, acquisition or securities offering,
         subject in each case to the recipient entering into an agreement to
         protect such Confidential Information from disclosure; or (c) is
         required by law or regulation to be disclosed; provided, however, that
         the party subject to such disclosure requirement has provided written
         notice to the other party promptly upon receiving notice of such
         requirement in order to enable the other party to seek a protective
         order or otherwise prevent disclosure of such Confidential Information.

7.3      Return of Confidential Information. Upon termination or expiration of
         this Agreement, each party shall return all Confidential Information in
         its possession that was received from the other party; provided,
         however, that the recipient may retain one copy of such Confidential
         Information for its legal files solely for the purpose of monitoring
         compliance with applicable confidentiality obligations pursuant to this
         Agreement.


ARTICLE 8 - REPRESENTATIONS AND WARRANTIES
- ------------------------------------------

8.1      NeraPharm. NeraPharm represents and warrants that: (i) it has full
         power to enter into this Agreement and to grant and assign to VIVUS the
         rights granted and assigned to VIVUS hereunder; (ii) it has obtained
         all necessary corporate approvals to enter into and execute the
         Agreement; (iii) it has not entered and will not enter into any
         agreements with any third party that are inconsistent with this
         agreement; (iv) NeraPharm shall fully comply with the requirements of
         any and all applicable federal, state, local and foreign laws,
         regulations, rules and orders of any governmental body having
         jurisdiction over the activities contemplated by this Agreement; and
         (v) that the provisions of this Agreement, and the rights and
         obligations of the parties hereunder, are enforceable under the laws of
         the Czech Republic.

8.2      VIVUS. VIVUS represents and warrants that: (i) it has full power to
         enter into the Agreement; (ii) it has obtained all necessary corporate

                                        9

         approvals to enter into and execute this Agreement; (iii) it has not
         entered and will not enter into any agreements of any third party that
         are inconsistent with this Agreement; and (iv) VIVUS shall fully comply
         with the requirements of any and all applicable federal, state, local
         and foreign laws, regulations, rules and orders of any governmental
         body having jurisdiction over the activities contemplated by this
         Agreement.

8.3      Disclaimer. EXCEPT AS PROVIDED IN THIS ARTICLE 8 AND ARTICLE 5 ABOVE,
         NEITHER PARTY MAKES ANY WARRANTIES OR CONDITIONS (EXPRESS, IMPLIED,
         STATUTORY OR OTHERWISE) WITH RESPECT TO THE SUBJECT MATTER HEREOF.


ARTICLE 9 - INDEMNIFICATION
- ---------------------------

9.1      VIVUS. VIVUS shall indemnify, defend and hold harmless NeraPharm, its
         directors, officers, employees, agents, successors and assigns from and
         against any liabilities, expenses or costs (including reasonable
         attorneys' fees) arising out of any claim, complaint, suit, proceeding
         or cause of action against any of them by a third party alleging
         physical injury or death or otherwise resulting from (i) the clinical
         testing of the Product by or on behalf of VIVUS; (ii) the safety of the
         Product distributed by or on behalf VIVUS; (iii) the promotion,
         distribution, sale, handling, possession, or use of the Product by or
         on behalf of VIVUS following its or their acceptance thereof in
         accordance with Section 3.3 above; (iv) the negligent or intentionally
         wrongful acts or omissions of VIVUS; and (v) any breach by VIVUS of its
         representations and warranties under Section 8.2 above, in each case
         subject to the requirements set forth in Section 9.3 below.
         Notwithstanding the foregoing, VIVUS shall have no obligations under
         this Article 9 for any liabilities, expenses or costs arising out of or
         relating to claims covered under Section 9.2 below.

9.2      NeraPharm. NeraPharm shall indemnify, defend and hold harmless VIVUS,
         its directors, officers, employees, agents, successors and assigns from
         and against all liabilities, expenses, and costs (including reasonable
         attorneys' fees) arising out of any claim, complaint, suit, proceeding
         or cause of action against any of them by a third party alleging
         physical injury or death or otherwise resulting from (i) the negligent
         or intentionally wrongful acts or omissions of NeraPharm; (ii) any loss
         of Product for which NeraPharm bears the risk under Section 2.9; and
         (iii) any breach by NeraPharm of any of its representations and
         warranties under Section 5.1 or 8.1, in each case subject to the
         requirements set forth in Section 9.3 below.

9.3      Indemnification Procedure. Any party seeking indemnification under this
         Article 9 (the "Indemnitee") shall (i) promptly notify the indemnifying
         party (the "Indemnitor") of such claim, (ii) provide the Indemnitor
         sole control over the defense and/ or settlement thereof, and (iii) at
         the Indemnitor's request and expense, provide full information and
         reasonable assistance to Indemnitor with respect to such claims.
         Without limiting the foregoing, with respect to claims brought under
         Section 9.1 or 9.2 above, the Indemnitee, at its own expense, shall
         have the right to participate with counsel of its own choosing in the
         defense and/ or settlement of any such claim.


ARTICLE 10 - INTERNATIONAL ISSUES
- ---------------------------------

10.1     Language. This Agreement is in English language only, which language
         shall be controlling in all respects, and all versions hereof in any
         other language shall not be binding on the parties hereto. All
         communications and notices to be made or given pursuant to this
         Agreement shall be in the English language.

                                       10

10.2     Government Approvals. NeraPharm shall:

         10.2.1   at its own expense, comply with all applicable laws, and
                  obtain all approvals and make and maintain in force all
                  filings, registrations, reports, licenses, permits and
                  authorizations required by national and local governments
                  within the Czech Republic in order for NeraPharm to perform
                  its obligations under this Agreement; and

         10.2.2   advise VIVUS of any legislation, rule, regulation or other law
                  (including but not limited to any customs, tax, trade,
                  intellectual property or tariff law) which is in effect or
                  which may come into effect in the Czech Republic after the
                  Effective Date of this Agreement and which affects the
                  transfer of Product to VIVUS under this Agreement, or which
                  has a material effect on any provision of this Agreement.


ARTICLE 11 - GENERAL
- --------------------

11.1     Assignment. The parties agree that their rights and obligations under
         this Agreement may not be assigned or otherwise transferred to a third
         party without the prior written consent of the other party hereto.
         Notwithstanding the foregoing, either party may transfer or assign its
         rights and obligations under this Agreement to a successor to all or
         substantially all of its business or assets relating to this Agreement
         whether by sale, merger, operation of law or otherwise; provided that
         such assignee or transferee has agreed to be bound by the terms and
         conditions of this Agreement. Subject to the foregoing, this Agreement
         shall be binding upon and inure to the benefit of the parties hereto,
         their successors and assigns.

11.2     Governing Law. This Agreement shall be governed by, and construed and
         interpreted in accordance with, the laws of the United Kingdom without
         reference to conflict of laws principles and excluding the 1980 U. N.
         Convention on Contracts for the International Sale of Goods.

11.3     Arbitration. Any dispute or claim arising out of or in connection with
         this Agreement or the performance, breach or termination thereof, shall
         be finally settled by binding arbitration in London, England under the
         Rules of Arbitration of the International Chamber of Commerce by three
         (3) arbitrators appointed in accordance with said rules. The decision
         and/ or award rendered by the arbitrators shall be written, final and
         non-appealable and may be entered in any court of competent
         jurisdiction. The parties agree that, any provision of applicable law
         notwithstanding, they will not request, and the arbitrator shall have
         no authority to award, punitive or exemplary damages against any party.
         The costs of any arbitration, including administrative fees and fees of
         the arbitrators, shall be shared equally by the parties, unless
         otherwise determined by the arbitrators. Each party shall bear the cost
         of its own attorneys' and expert fees. The arbitral proceedings and all
         pleadings and written evidence shall be in the English language. Any
         written evidence originally in a language other than English shall be
         submitted in English translation accompanied by the original or true
         copy thereof. Notwithstanding the foregoing, either party may apply to
         any court of competent jurisdiction for injunctive relief without
         breach of this arbitration provision.

                                       11

11.4     Notices. Any notice or report required or permitted to be given or made
         under this Agreement by either party shall be in writing and delivered
         to the other party at its address indicated below (or to such other
         address as a party may specify by notice hereunder by courier or by
         registered or certified airmail, postage prepaid, or by facsimile;
         provided, however, that all facsimile notices shall be promptly
         confirmed, in writing, by registered or certified airmail, postage
         prepaid. All notices shall be effective as of the date received by the
         addressee.




















                                       12



         If to VIVUS:               VIVUS, Inc.
                                    1172 Castro Street
                                    Mountain View, CA  94040
                                    Attn:   C. E. O. and C. F. O.


         With a copy to:            Wilson, Sonsini, Goodrich & Rosati
                                    650 Page Mill Road
                                    Palo Alto, California 94304-1050
                                    Attn:

         If to NeraPharm:           NeraPharm, spol. s.r.o.
                                    Ul. Prace 657
                                    277 11  Neratovice
                                    Czech Republic
                                    Attn:


11.5     Limitation of Liability. NEITHER PARTY SHALL BE LIABLE TO THE OTHER
         PARTY OR ANY THIRD PARTY FOR ANY SPECIAL, CONSEQUENTIAL, EXEMPLARY OR
         INCIDENTAL DAMAGES (INCLUDING LOST OR ANTICIPATED REVENUES OR PROFITS
         RELATING TO THE SAME), ARISING FROM ANY CLAIM RELATING TO THIS
         AGREEMENT, WHETHER SUCH CLAIM IS BASED ON CONTRACT, TORT (INCLUDING
         NEGLIGENCE) OR OTHERWISE, EVEN IF AN AUTHORIZED REPRESENTATIVE OF SUCH
         PARTY IS ADVISED OF THE POSSIBILITY OR LIKELIHOOD OF SAME. THESE
         LIMITATIONS SHALL APPLY NOTWITHSTANDING THE FAILURE OF THE ESSENTIAL
         PURPOSE OF ANY LIMITED REMEDY, AND THE PARTIES ACKNOWLEDGE THAT THIS
         PARAGRAPH REPRESENTS A REASONABLE ALLOCATION OF RISK.

11.6     Force Majeure. Neither party will be liable for its failure to perform
         any of its obligations hereunder during any period in which such
         performance is delayed by acts of God, fire, war, embargo, riots,
         strikes or other similar cause outside the control of such party.

11.7     Confidential Terms. Except as expressly provided herein, each party
         agrees not to disclose any terms of this Agreement to any third party
         without the consent of the other party, except as required by
         securities or other applicable laws, to prospective investors and to
         such party's accountants, attorneys and other professional advisors.

11.8     Headings. Headings included herein are for convenience only, do not
         form a part of this Agreement and shall not be used in any way to
         construe or interpret this Agreement.

11.9     Non-Waiver. Any waiver of the terms and conditions hereof must be
         explicitly in writing. The waiver by either of the parties of any
         breach of any provision hereof by the other shall not be construed to
         be a waiver of any succeeding breach of such provision or a waiver of
         the provision itself.

11.10    Severability. Should any section, or portion thereof, of this Agreement
         be held invalid by reason of any law, statute or regulation existing
         now or in the future in any jurisdiction by any court of competent
         authority or by a legally enforceable directive of any governmental
         body, such section or portion thereof shall be validly reformed so as
         to approximate the intent of the parties as nearly as possible and, if
         unreformable, shall be deemed divisible and deleted with respect to
         such jurisdiction, but the Agreement shall not otherwise be affected.

                                       13

11.11    Independent Contractors. The relationship of VIVUS and NeraPharm
         established by this Agreement is that of independent contractors.
         Nothing in this Agreement shall be construed to create any other
         relationship between VIVUS and NeraPharm. Neither party shall have any
         right, power or authority to assume, create or incur any expense,
         liability or obligation, express or implied, on behalf of the other.

11.12    Trademarks. VIVUS, in its sole discretion, shall select the trademarks,
         trade names and trade dresses to be used in connection with the Product
         and all such trademarks, trade names and trade dresses shall be and
         become the exclusive property of VIVUS. NeraPharm shall use said
         trademarks, trade names and trade dresses for the sole purpose of
         manufacturing the Product for supply to VIVUS and at no time shall
         adopt any trademark, trade name or trade dress that may be confusingly
         similar therewith. NeraPharm shall acquire no rights in and to any
         trademarks, trade names and trade dresses selected by VIVUS under this
         Section 11.12.

11.13    Entire Agreement. The terms and provisions contained in the Agreement,
         including the Exhibits hereto, constitute the entire agreement between
         the parties and shall supersede all previous communications,
         representations, agreements or understandings, either oral or written,
         between the parties with respect to the subject matter thereof.
         Notwithstanding the foregoing, neither party waives any rights it may
         have under the Supply Agreement. No agreement or understanding varying
         or extending this Agreement shall be binding upon either party hereto,
         unless set forth in a writing which specifically refers to the
         Agreement signed by duly authorized officers or representatives of the
         respective parties, and the provisions hereof not specifically amended
         thereby shall remain in full force and effect.

11.14    Counterparts. This Agreement may be executed in counterparts, each of
         which shall be deemed an original, but which together shall constitute
         one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this Agreement.


VIVUS, INC.                               NERAPHARM, SPOL. S. R. O.

By:      /s/ Terry Nida                   By:      /s/ Ing Miroslav Spacek
         --------------------------                ----------------------------
Name:    Terry Nida                       Name:    Ing Miroslav Spacek
Title:   Vice President                   Title:   Managing Director and
                                                   Member of Board of Directors
Date:    01/07/04
         --------------------------       Date:    12/22/03
                                                   ----------------------------


                                       14



                                    EXHIBIT A

                              SPECIFICATIONS TABLE

                                      (**)


























                                       15

WWW.EXFILE.COM -- 12617 -- VIVUS, INC. -- EXHIBIT 31.1 TO FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2004

EXHIBIT 31.1

CERTIFICATION

I, Leland F. Wilson, certify that:

I have reviewed this quarterly report on Form 10-Q of VIVUS, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 7, 2004

By: /s/ LELAND F. WILSON

Name: Leland F. Wilson

Title: President and Chief Executive Officer

WWW.EXFILE.COM -- 12617 -- VIVUS, INC. -- EXHIBIT 31.2 TO FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2004

EXHIBIT 31.2

CERTIFICATION

I, Larry J. Strauss, certify that:

I have reviewed this quarterly report on Form 10-Q of VIVUS, Inc.;

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 7, 2004

By: /s/ LARRY J. STRAUSS

Name: Larry J. Strauss

Title: Vice President, Finance and Chief Executive Officer

WWW.EXFILE.COM -- 12617 -- VIVUS, INC. -- EXHIBIT 32 TO FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2004

EXHIBIT 32

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Leland F. Wilson, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of VIVUS, Inc. on Form 10-Q for the period ending March 31, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of VIVUS, Inc.

Date: May 7, 2004

	By: /s/ LELAND F. WILSON

	Leland F. Wilson
	President and Chief Executive Officer

I, Larry J. Strauss, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of VIVUS, Inc. on Form 10-Q for the period ending March 31, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of VIVUS, Inc.

Date: May 7, 2004

	By: /s/ LARRY J. STRAUSS

	Larry J. Strauss
	Vice President, Finance and Chief Financial Officer