Exhibit
10.40


Theravance,
Inc. 2004 Equity Incentive Plan


Notice
of Stock Option Grant


You have been granted the following option to purchase
shares of the Common Stock of Theravance, Inc. (the “Company”):


	
  Name of Optionee:

  	
  «Name»

  
	
   

  	
   

  
	
  Total Number of
  Shares:

  	
  «Shares»

  
	
   

  	
   

  
	
  Type of Option:

  	
  Nonstatutory Stock Option

  
	
   

  	
   

  
	
  Exercise Price
  Per Share:

  	
  $«PricePerShare»

  
	
   

  	
   

  
	
  Date of Grant:

  	
  «DateGrant»

  
	
   

  	
   

  
	
  Vesting
  Schedule:

  	
  «VestSched»

  
	
   

  	
   

  
	
  Expiration Date:

  	
  «ExpDate». This option expires earlier if your
  Service terminates earlier, as described in the Stock Option Agreement.

  



 


You and the Company agree that this option is granted
under and governed by the terms and conditions of the 2004 Equity Incentive
Plan (the “Plan”) and the Stock Option Agreement, both of which are attached to
and made a part of this document.


You further agree that the
Company may deliver by email all documents relating to the Plan or this option
(including, without limitation, prospectuses required by the Securities and
Exchange Commission) and all other documents that the Company is required to
deliver to its security holders (including, without limitation, annual reports
and proxy statements).  You also agree that
the Company may deliver these documents by posting them on a web site
maintained by the Company or by a third party under contract with the
Company.  If the Company posts these
documents on a web site, it will notify you by email.


	
  Optionee:

  	
  Theravance, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
						



 


















New Director Grant


Theravance, Inc. 2004 Equity Incentive Plan


Stock Option Agreement


	
  Tax Treatment

  	
  This option is intended to be an incentive stock
  option under section 422 of the Internal Revenue Code or a nonstatutory
  stock option, as provided in the Notice of Stock Option Grant.

  
	
   

  	
   

  
	
  Vesting

  	
  This option becomes
  exercisable as shown in the Notice of Stock Option Grant.

   

  This option shall become exercisable in full if not
  assumed or a new option substituted pursuant to Section 8(b)(ii) or
  (iii) of the Plan. In addition, this
  option becomes exercisable in full if the Company is subject to a “Change in Control” (as defined in the Plan) before your
  Service terminates. Should the exercisability of this option
  accelerate as a result of the occurrence of a Change in Control prior to the
  First Exercise Date, the right to exercise this option shall be deferred as
  to the additional shares until the First Exercise Date, provided and only
  if this option is assumed by the surviving corporation or its parent
  or the surviving corporation or its parent substitutes its own option
  for this option.

   

  For purposes of this
  Agreement, “Cause” shall
  mean (i) the unauthorized use or disclosure of the confidential information
  or trade secrets of the Company, which use causes material harm to the
  Company, (ii) conviction of a felony under the laws of the United States or
  any state thereof, (iii) gross negligence or (iv) repeated failure to perform
  lawful assigned duties for thirty days after receiving written notification
  from the Board of Directors. 

   

  For purposes of this
  Agreement,  “Put Date”
  shall mean the day after the final day of the Put Period, as such term is
  defined in the Restated Certificate of Incorporation of Theravance, Inc. or,
  if earlier, the consummation of a Qualified Change in Control as defined in
  the Restated Certificate of Incorporation of Theravance, Inc.

   

  For purposes of this
  Agreement, “Service” means your service as
  an Outside Director.

   

  This option will in no event
  become exercisable for additional shares after your Service has terminated
  for any reason except as set forth above

  
	
   

  	
   

  
	
  Term

  	
  This option expires in any event at the close of
  business at Company

  



 













 


	
  

  	
  headquarters on the day before the 10th anniversary of the Date of Grant, as shown
  in the Notice of Stock Option Grant. (It will expire earlier if your Service
  terminates, as described below.)

  
	
   

  	
   

  
	
  Termination Prior

  to the Put Date

  	
  If your Service terminates for any reason prior to
  the Put Date, then this option will expire at the close of business at
  Company headquarters on the date 36 months after your termination date. The
  Company determines when your Service terminates for this purpose.

  
	
   

  	
   

  
	
  Regular

  Termination on or

  after the Put Date

  	
  If your Service terminates for any reason on or
  after the Put Date except a Qualified Retirement, then this option will
  expire at the close of business at Company headquarters on the date 12 months
  after your termination date. The Company determines when your Service terminates
  for this purpose.

  
	
   

  	
   

  
	
  Qualified

  Retirement

  	
  If you retire from Service at or after the age of 65
  or at or after the age of 55 and have provided 10 years of consecutive
  Service for the Company prior to retirement (a “Qualified Retirement”), then
  this option will expire at the close of business at the Company headquarters
  on the date 36 months after the date of your Qualified Retirement.

  
	
   

  	
   

  
	
  Restrictions on

  Exercise

  	
  The Company will not permit you to exercise this
  option if the issuance of shares at that time would violate any law or
  regulation.

  
	
   

  	
   

  
	
  Notice of Exercise

  	
  When you wish to exercise this option, you must
  notify the Company by filing the proper “Notice of Exercise” form at the
  address given on the form. Your notice must specify how many shares you wish
  to purchase. Your notice must also specify how your shares should be
  registered. The notice will be effective when the Company receives it. 

   

  If someone else wants to
  exercise this option after your death, that person must prove to the
  Company’s satisfaction that he or she is entitled to do so.

  
	
   

  	
   

  
	
  Form of Payment

  	
  When you submit your notice of exercise, you must
  include payment of the option exercise price for the shares that you are
  purchasing. To the extent permitted by applicable law, payment may be made in
  one (or a combination of two or more) of the following forms:

  
	
   

  	
   

  
	
   

  	
  ·         Your personal check, a
  cashier’s check or a money order.

  
	
   

  	
   

  
	
   

  	
  ·         Certificates for shares
  of Company stock that you own, along with any forms needed to effect a
  transfer of those shares to the Company. The value of the shares, determined
  as of the effective date of the option exercise, will be applied to the
  option exercise price. Instead of surrendering shares of Company stock, you
  may attest to the ownership of those shares on a form provided by the

  



 



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  Company and have
  the same number of shares subtracted from the option shares issued to you.
  However, you may not surrender, or attest to the ownership of, shares of
  Company stock in payment of the exercise price if your action would cause the
  Company to recognize compensation expense (or additional compensation
  expense) with respect to this option for financial reporting purposes.

   

  ·         Irrevocable directions to a securities broker
  approved by the Company to sell all or part of your option shares and to
  deliver to the Company from the sale proceeds an amount sufficient to pay the
  option exercise price and any withholding taxes. (The balance of the sale
  proceeds, if any, will be delivered to you.) The directions must be given by
  signing a special “Notice of Exercise” form provided by the Company.

  
	
   

  	
   

  
	
  Withholding

  Taxes and Stock

  Withholding

  	
  You will not be allowed to exercise this option
  unless you make arrangements acceptable to the Company to pay any withholding
  taxes that may be due as a result of the option exercise. With the Company’s
  consent, these arrangements may include withholding shares of Company stock
  that otherwise would be issued to you when you exercise this option. The
  value of these shares, determined as of the effective date of the option
  exercise, will be applied to the withholding taxes.

  
	
   

  	
   

  
	
  Restrictions on

  Resale

  	
  You agree not to sell any option shares at a time
  when applicable laws, Company policies or an agreement between the Company
  and its underwriters prohibit a sale. This restriction will apply as long as
  your Service continues and for such period of time after the termination of
  your Service as the Company may specify.

  
	
   

  	
   

  
	
  Transfer of

  Option

  	
  Prior to your death, only you may exercise this option.
  You cannot transfer or assign this option. For instance, you may not sell
  this option or use it as security for a loan. If you attempt to do any of
  these things, this option will immediately become invalid. You may, however,
  dispose of this option in your will or a beneficiary designation.

  
	
   

  	
   

  
	
   

  	
  Regardless of any marital property settlement
  agreement, the Company is not obligated to honor a notice of exercise from
  your former spouse, nor is the Company obligated to recognize your former
  spouse’s interest in your option in any other way.

  
	
   

  	
   

  
	
  Retention Rights

  	
  Your option or this Agreement does not give you the
  right to be retained by the Company or a subsidiary of the Company in any
  capacity. The Company and its subsidiaries reserve the right to terminate
  your Service at any time, with or without cause. Nor shall this Agreement in
  any way be construed or interpreted so as to affect adversely or otherwise
  impair the right of the Company or the stockholders to remove Optionee from
  the Board of Directors at any time in accordance with the provisions of

  



 



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  applicable law.

  
	
   

  	
   

  
	
  Stockholder

  Rights

  	
  You, or your estate or heirs, have no rights as a
  stockholder of the Company until you have exercised this option by giving the
  required notice to the Company and paying the exercise price. No adjustments
  are made for dividends or other rights if the applicable record date occurs
  before you exercise this option, except as described in the Plan.

  
	
   

  	
   

  
	
  Adjustments

  	
  In the event of a stock split, a stock dividend or a
  similar change in Company stock, the number of shares covered by this option
  and the exercise price per share may be adjusted pursuant to the Plan.

  
	
   

  	
   

  
	
  Applicable Law

  	
  This Agreement will be interpreted and enforced
  under the laws of the State of Delaware (without regard to their
  choice-of-law provisions).

  
	
   

  	
   

  
	
  The Plan and

  Other Agreements

  	
  The text of the Plan is incorporated in this
  Agreement by reference. 

   

  This Agreement and the Plan constitute the entire
  understanding between you and the Company regarding this option. Any prior
  agreements, commitments or negotiations concerning this option are
  superseded. This Agreement may be amended only by another written agreement
  between the parties.

  



 


By signing the cover sheet of
this Agreement, you agree to all of the terms and conditions described above
and in the Plan.



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