<PAGE>
                                           *** Text omitted and filed separately
                                                Confidential Treatment Requested
                                         Under 17 C.F.R. Sections 200.80 (b) (4)
                                                                   and 240.24b-2

                                                                    EXHIBIT 10.1

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                              RESEARCH, DEVELOPMENT

                         AND COMMERCIALIZATION AGREEMENT

                                 BY AND BETWEEN

                   NOVARTIS INTERNATIONAL PHARMACEUTICAL LTD.

                                       AND

                             AVANIR PHARMACEUTICALS

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<PAGE>
     This Research, Development and Commercialization Agreement (this
"Agreement") is made and entered into as of this 27th day of April, 2005 (the
"Effective Date") by and between Avanir Pharmaceuticals, a corporation organized
under the laws of the State of California with principal offices at 11388
Sorrento Valley Road, Suite 200, San Diego, California 92121 ("Avanir"), and
Novartis International Pharmaceutical Ltd., a Bermuda corporation with principal
offices at Hurst Holme, 12 Trott Road, Hamilton HM LX, Bermuda ("Novartis").

                                   WITNESSETH

     WHEREAS, Avanir has developed the MIF Program (as defined herein) and the
related Compounds (as defined herein);

     WHEREAS, Novartis and its Affiliates are engaged in the research,
development, marketing, manufacture and distribution of pharmaceutical compounds
used in treating, preventing or diagnosing human or animal diseases and
conditions;

     WHEREAS, both Parties desire to enter into a collaboration, the objective
of which will be to further research and develop the MIF Program and the related
Compounds; and

     WHEREAS, Avanir wishes to grant, and Novartis and its Affiliates wish to
obtain, an exclusive license to further research, develop and commercialize the
Compounds into Drug Products for the treatment, prevention or diagnosis of human
or animal diseases or conditions.

     NOW THEREFORE, in consideration of the foregoing premises, the Parties
agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

     For the purpose of this Agreement, the following terms, whether used in
singular or plural form, shall have the respective meanings set forth below:

     1.1 "Accounting Standards" with respect to Avanir shall mean that Avanir
shall maintain records and books of accounts in accordance with United States
Generally


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Accepted Accounting Principles and with respect to Novartis shall mean that
Novartis shall maintain records and books of accounts in accordance with
International Financial Reporting Standards, in each case consistently applied.

     1.2 "Affiliate" shall mean any Person who directly or indirectly controls
or is controlled by or is under common control with a Party. For purposes of
this definition, "control" or "controlled" means ownership directly or through
one or more Affiliates, of fifty percent (50%) or more of the shares of stock
entitled to vote for the election of directors, in the case of a corporation, or
fifty percent (50%) or more of the equity interest in the case of any other type
of legal entity, status as a general partner in any partnership, or any other
arrangement whereby a Party controls or has the right to control the Board of
Directors or equivalent governing body of a corporation or other entity, or the
ability to cause the direction of the management or policies of a corporation or
other entity. The Parties acknowledge that in the case of certain entities
organized under the laws of certain countries outside of the United States, the
maximum percentage ownership permitted by law for a foreign investor may be less
than fifty percent (50%), and that in such case such lower maximum percentage
shall be substituted in the preceding sentence; provided that such foreign
investor has the power to direct the management and policies of such entity. In
the case of Novartis, "Affiliate" shall specifically exclude the Novartis
Institutes for Tropical Diseases, Idenix Pharmaceuticals Inc. and any Person
that becomes an Affiliate of Novartis after the Effective Date for all purposes
under this Agreement; provided that, for the purposes of determining Net Sales
only, such excluded parties shall be deemed to be Affiliates unless they are the
end users of the Drug Product.

     1.3 "Auditor" shall mean an independent reputable and certified auditor to
be engaged by Avanir to conduct a review of Novartis' books and records
regarding the sales of the Drug Products after such auditor's approval by
Novartis, which approval shall be neither unreasonably withheld or delayed.

     1.4 "Avanir Intellectual Property" shall mean all Avanir Patents and Avanir
Know-How and Avanir's right, title and interest in and to Joint Intellectual
Property.

     1.5 "Avanir Know-How" shall mean all Know-How Controlled by Avanir relating
to the MIF Program, the Compounds and the Drug Products.

     1.6 "Avanir Patents" shall mean all Patents Controlled by Avanir relating
to the MIF Program, the Compounds or the Drug Products necessary or useful to
Novartis in the


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development and/or commercialization of the Compounds or the Drug Products. A
list of Avanir Patents is appended hereto as Annex 1 and will be updated
periodically to reflect additions thereto during the term of this Agreement.

     1.7 "Business Day" shall mean any day other than a Saturday, Sunday or any
other day on which commercial banks in New York, New York, Basel, Switzerland or
Hamilton, Bermuda are authorized or required by law to remain closed.

     1.8 "Change In Control" shall mean any transaction which results in the
sale, merger, consolidation, transfer, or other reorganization of Avanir in
which substantially all of the assets of Avanir are transferred to a Third Party
with a market capitalization at the time in excess of $[***] or the resulting
entity with a market capitalization at the time in excess of $[***] which the
holders of Avanir's capital stock immediately prior to the transaction hold less
than a majority of the capital stock of the surviving entity after the
transaction.

     1.9 "Commercially Reasonable Efforts" shall mean the efforts and resources
normally used by Novartis and its Affiliates for a product with comparable sales
or sales potential, stage of development or development potential, and profit or
profit potential to the particular Compound or Drug Product.

     1.10 "Compound" shall mean any compound Controlled by Avanir that directly
interacts with macrophage migration inhibitory factor in vitro and/or in vivo,
including but not limited to that compound Controlled by Avanir known as [***].
The definition of Compound includes all its various chemical forms, including
derivatives, acids, bases, esters, salts, isomers, enantiomers, pro-drug forms,
metabolites, hydrates, solvates, polymorphs and degradants thereof in crystal,
powder or other form in existence as of the Effective Date or that arise during
the term of this Agreement.

     1.11 "Controlled" shall mean the legal authority or right of a Party hereto
to grant a license or sublicense of intellectual property rights to another
Party hereto, or to otherwise disclose proprietary or trade secret information
to such other Party, without breaching the terms of any agreement with a Third
Party, infringing upon the intellectual property rights of a Third Party, or
misappropriating the proprietary or trade secret information of a Third Party.

     1.12 "Data" shall mean any and all results, studies and information of any
type, including test results (including but not limited to pre-clinical and
human tests), and

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developmental, marketing, manufacturing and pharmaceutical information, whether
or not proprietary, and any related technical data or operating information,
regulatory dossier, submissions and translations with respect to any of the
foregoing, generated by or resulting or derived from the efforts of either Party
with respect to the Compounds or the Drug Products.

     1.13 "Development" or "Develop" shall mean activities associated with the
development of the Compounds and the Drug Products which are conducted by or at
the direction of Novartis and its Affiliates including but not limited to: (a)
manufacture, formulation and distribution of the Compounds and Drug Products for
clinical studies and commercial use; (b) planning, implementation, evaluation
and administration of preclinical research and development, animal studies,
human clinical trials, manufacturing process development and scale-up for the
commercial manufacture of the Compounds or the Drug Products; (c) preparation
and submission of Regulatory Filings; and (d) post-market surveillance of
approved drug indications, as required or agreed as part of a marketing approval
by any governmental regulatory authority.

     1.14 "Drug Product" shall mean any finished dosage form containing a
Compound as its active ingredient either alone or in combination with one or
more active or inactive ingredients and which is ready for human or animal
administration as a pharmaceutical.

     1.15 "FDA" shall mean the United States Food and Drug Administration, its
equivalent in another country in the Territory, or successor agencies thereto.

     1.16 "Field" shall mean all human and animal health-care applications
including, but not limited to, research, diagnosis, therapeutics, and
prophylaxis with respect to any Indication.

     1.17 "First Commercial Sale" shall mean the first sale of a Drug Product by
Novartis or an Affiliate or sublicensee of Novartis to a Third Party in a
country in the Territory following Regulatory Approval of such Drug Product in
that country or, if no such Regulatory Approval or similar marketing approval is
required, the date upon which such Drug Product is first commercially launched
in such country.

     1.18 "FTE" shall mean the equivalent of the work of one (1) scientist or
technical support person, full time for one (1) year, for or on behalf of
Avanir, which equates to a total of two thousand (2,000) hours per year of work,
directly related to the Research Program, excluding managerial activities. The
annual rate per FTE shall be $[***].

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     1.19 "Indication" shall mean a recognized disease or condition, sign or
symptom of a disease or condition, or symptom associated with a disease or
syndrome for which use of a Drug Product is approved, as would be identified for
example in the Drug Product's label under applicable FDA regulations or
equivalent thereof.

     1.20 "Initial Research Term" shall have the meaning set forth in Section
2.2.

     1.21 "Joint Intellectual Property" shall mean any and all: (i) Joint
Patents; and (ii) Know-How which are jointly made, conceived or reduced to
practice by Novartis, its Affiliates or others acting on its or their behalf on
the one hand, and Avanir, its Affiliates or others acting on its or their
behalf, on the other hand, in connection with any research, development or other
work relating to the Research Program, the Compounds or the Drug Products
performed under or in connection with this Agreement.

     1.22 "Joint Patents" shall have the meaning set forth in Section 8.3.

     1.23 "Joint Program Committee" or "JPC" shall have the meaning set forth in
Section 4.5.

     1.24 "Joint Research Committee" or "JRC" shall have the meaning set forth
in Section 2.4.

     1.25 "Know-How" shall mean all intellectual property, proprietary material
and information including but not limited to clinical and non-clinical data,
technical information, know-how, experience, inventions, discoveries, trade
secrets, compositions of matter and methods, whether currently existing or
developed or obtained during the course of this Agreement and whether or not
patentable or confidential, that are now or in the future become Controlled by a
Party or its Affiliates and that are necessary to use, research, develop, seek
Regulatory Approval, manufacture or sell, including, without limitation, various
chemical forms, formulations, combinations, back-ups, modes of delivery and
methods of use of the Compounds and/or the Drug Products.

     1.26 "Major Market Countries" shall mean the United States, France,
Germany, Italy, Spain, the United Kingdom and Japan.

     1.27 "MIF Program" shall mean Avanir's low molecular weight macrophage
migration inhibitory factor program composed of the Compounds, all assays and
biomarkers related to such Compounds which are Controlled by Avanir.

     1.28 "Net Sales" with respect to any Drug Product shall mean the gross
amount


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invoiced by or on behalf of Novartis and its Affiliates, licensees or
sublicensees for that Drug Product sold to Third Parties other than licensees or
sublicensees in bona fide, arm's-length transactions, [***], determined in
accordance with Novartis' standard accounting methods as generally and
consistently applied by Novartis and its Affiliates, but only to the extent they
actually pertain to the disposition of such Drug Product and are separately
billed:

     (i)    [***]

     (ii)   [***]

     (iii)  [***]

     (iv)   [***]

     (v)    [***]

     (vi)   [***]

     (vii)  [***]

     (viii) [***]

     (ix)   [***]

     (x)    [***];

     all as determined in accordance with Novartis' and its Affiliates' usual
and customary accounting methods, which are in accordance with International
Financial Reporting Standards as consistently applied at Novartis. Sales from
Novartis to its Affiliates shall be disregarded for purposes of calculating Net
Sales. Any of the items set forth above that would otherwise be deducted from
the invoice price in the calculation of Net Sales but which are separately
charged to Third Parties shall not be deducted from the invoice price in

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the calculation of Net Sales.

     Further:

     (a) In the case of any sale or other disposal of the Drug Product between
or among Novartis and its Affiliates, licensees and sublicensees, for resale,
Net Sales shall be calculated as above only on [***];

     (b) In the case of any sale which is not invoiced or is delivered before
invoice, Net Sales shall be calculated [***] or [***];

     (c) In the case of any sale or other disposal for value, such as barter or
counter-trade, of the Drug Product, or part thereof, other than in an
arm's-length transaction exclusively for money, Net Sales shall be calculated as
above on [***] or [***];

     (d) In the event the Drug Product is sold in a finished dosage form
containing a Compound in combination with one or more other active ingredients
(a "Combination Product"), the Net Sales of the Drug Product, for the purposes
of determining royalty payments, shall be determined by multiplying the Net
Sales (as defined above in this Section) of the Combination Product by the
fraction, A/(A+B) where A is [***] and B is [***]. In the event that such [***]
cannot be determined for both the Drug Product and the other product(s) in
combination, Net Sales for purposes of determining royalty payments shall be
agreed by the Parties based on the relative value contributed by each component,
such agreement shall not be unreasonably withheld.

     1.29 "Novartis Intellectual Property" shall mean all Novartis Patents and
Novartis Know-How made, developed or conceived by Novartis in the course of its
work pursuant to and during the term of this Agreement, and Novartis' and its
Affiliates' right, title and interest in and to Joint Intellectual Property.

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     1.30 "Novartis Know-How" shall mean all Know-How Controlled by Novartis or
its Affiliates (other than by virtue of the licenses granted to it and its
Affiliates hereunder) relating to the Compounds or the Drug Products.

     1.31 "Novartis Patents" shall mean all Patents Controlled by Novartis or
its Affiliates (other than by virtue of the licenses granted to it and its
Affiliates hereunder) relating to the Compounds or the Drug Products.

     1.32 "Novartis Submitted Compound" shall have the meaning set forth in
Section 2.8.

     1.33 "Parties" shall mean Avanir and Novartis and each individually shall
be a "Party".

     1.34 "Patents" shall mean all patent filings, utility model filings and
design filings, whether granted (issued), or not and all foreign counterparts of
any of the foregoing, including but not limited to patent applications,
continuations, continuations-in-part, additions, divisionals, provisionals or
any substitute applications, black box applications, registration applications,
supplementary protection certificate applications, and including granted
(issued) patents with respect to any of such application, including reissue
patents, re-examination patents, renewal patents, extensions including
supplementary protection certificates, confirmation patents or registration
patents and patents of addition.

     1.35 "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization or
government or political subdivision thereof.

     1.36 "Phase I Clinical Trial" means the first clinical study of a Drug
Product in humans.

     1.37 "Phase II Clinical Trial" means a clinical study of a Drug Product in
patients intended to demonstrate efficacy, safety and tolerability, as well as
to define the dosage regimen and dose range required for a product in a
designated indication.

     1.38 "Phase III Clinical Trial" means a clinical study of a Drug Product in
patients which protocol is designed to establish efficacy and safety of such
Product for the purpose of preparing and submitting a Regulatory Filing in a
particular country.

     1.39 "Proprietary Party" shall have the meaning set forth in Section 10.1.

     1.40 "Regulatory Approval" shall mean all authorizations by the appropriate


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governmental entity or entities necessary for commercial sale of a Drug Product
in that country including, without limitation and where mandatory, approval of
labeling, price, reimbursement and manufacturing.

     1.41 "Receiving Party" shall have the meaning set forth in Section 10.1.

     1.42 "Regulatory Filing" shall mean with respect to each Drug Product the
submission to the relevant governmental regulatory authority of any appropriate
regulatory application, and shall include, without limitation, any submission to
a regulatory advisory board, marketing authorization application, supplementary
application or variation thereof, or any equivalent applications.

     1.43 "Research Plan" shall have the meaning set forth in Section 2.3(a).

     1.44 "Research Program" shall mean research activities and development
activities undertaken under this Agreement in connection with the Research Plan.

     1.45 "Research Term" shall have the meaning set forth in Section 2.2.

     1.46 "Research Year" shall mean a twelve (12) month period during the term
of the Research Program commencing on April 1st of a given year, and ending on
March 31st of the following year. The first Research Year hereunder shall be
deemed to have commenced on April 1, 2005.

     1.47 "Sales Report" shall mean a written report or reports showing each of:
(a) the Net Sales of each Drug Product in each country in the world during the
reporting period by Novartis and each Affiliate and sublicensee; (b) the number
of Drug Products sold in each country in the world during the reporting period
by Novartis and each Affiliate and sublicensee, and if applicable, the average
sale price during the reporting period for each Drug Product in any combination
product; (c) the royalties, payable in United States Dollars, which shall have
accrued under Section 7.5 in respect of such sales and the basis of calculating
those royalties; (d) withholding taxes, if any, required by law to be deducted
in respect of any such sales; (e) the US Dollar and local currency Net Sales by
country; and (f) dispositions of the Drug Products other than pursuant to sale
for cash, the value of such non-cash consideration and the method used to
calculate the value of the non-cash consideration.

     1.48 "sPOC" shall mean the selection for the clinical phase of Development
by Novartis in a given Indication. The specific criteria used to determine sPOC
are set forth in the Research Plan.


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     1.49 "Submitted Drug Product" shall have the meaning set forth in Section
2.8.

     1.50 "Territory" shall mean all the countries in the world.

     1.51 "Third Party" shall mean any Person or entity which is not a Party or
an Affiliate of any Party to this Agreement.

     1.52 "United States Dollars" shall mean the legal tender of the United
States of America.

     1.53 "Valid Claim" shall mean a claim of any granted, unexpired Patent that
has not been revoked or held unenforceable or invalid by a decision of a court
or governmental agency of competent jurisdiction from which no appeal can be
taken, or with respect to which an appeal is not taken within the time allowed
for appeal, and that has not been disclaimed, denied or admitted to be invalid
or unenforceable through reissue, disclaimer or otherwise, and that has not been
lost through interference proceedings or by intentional or unintentional
abandonment.

     1.54 "Wind-Down Period" shall have the meaning set forth in Section 12.4.

                                   ARTICLE II

                                RESEARCH PROGRAM

     2.1 COMMENCEMENT

     The Research Program shall commence pursuant to the Research Plan as soon
as practicable after the Effective Date. The Joint Research Committee, as
defined below, shall direct the conduct of the Research Program and the Parties
shall collaborate in the conduct of the Research Program with the roles and
responsibilities specified in the Research Plan. The Joint Research Committee
shall review and coordinate the efforts of the Parties with respect to the
Research Program.

     2.2 TERM

     The Research Program will conclude two (2) years from the Effective Date
(the "Initial Research Term"), unless earlier terminated in accordance with the
provisions hereof. The Research Program may be extended for up to two (2)
additional one- (1-) year periods (each of such periods, along with the Initial
Research Term, a "Research Term"), upon agreement of the Parties, upon the
provision of written notice to Avanir not later than ninety


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(90) calendar days prior to the end of the then current Research Term. Upon
mutual agreement of the Parties, the Research Term may be extended for
additional periods.

     2.3 RESEARCH PLAN; RESEARCH DILIGENCE; SUBMISSION OF REPORTS

     (a) Novartis and Avanir will agree upon an overall research plan, which
shall outline the overall objectives of the Research Program, including general
work flow and deliverables for each of the Parties (the "Research Plan"). An
initial outline of the Research Plan shall be attached to this Agreement as
Annex 2. The Parties will agree upon the final Research Plan within sixty (60)
calendar days after the Effective Date. Thereafter, the Research Plan shall be
reviewed by the JRC as necessary, and at any other time upon the request of
either Party, and shall be modified as appropriate to reflect material
scientific or commercial developments. Any disagreements between the Parties
with respect to any modification of the Research Plan will be resolved in
accordance with Section 2.7 of this Agreement.

     (b) Each of Avanir and Novartis and their respective Affiliates shall use
commercially reasonable efforts to fulfill their respective obligations under
the Research Plan.

     (c) Within at least ten (10) calendar days prior to each scheduled
quarterly meeting, each of the Parties shall provide a report to the JRC
detailing its progress with respect to the Research Program.

     2.4 JOINT RESEARCH COMMITTEE

     Upon execution of this Agreement, Avanir and Novartis will establish a
Joint Research Committee ("JRC"), which shall consist of an equal number of
executives or scientists as may be designated by each Party from time to time.
The JRC shall initially have six (6) members with each of Novartis and Avanir
having one (1) vote. If the JRC chooses to designate a Committee Chair, the
Parties shall alternate responsibility for chairing the meetings of the JRC,
beginning with Novartis. The JRC shall hold its first meeting within thirty (30)
calendar days after the Effective Date. Thereafter, the JRC shall meet
quarterly, or with such other frequency as may be established by the JRC (but in
no event less often than three (3) times per year), and at such time and
location as may be established by the JRC, for the following purposes:

     (a) Provide general oversight of the Research Program;


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     (b) Periodically review the overall goals and strategy of the Research
Program and consider changes to the Research Plan;

     (c) Prioritize the allocation of resources dedicated to the Research
Program, determine the number of FTEs required, and determine if Third Party
contractors should be engaged in connection with the Research Program; provided
that: (i) the foregoing rights of the JRC shall not be exercised to divest
Avanir of its rights to perform the services and conduct the activities set
forth in the Research Program; and (ii) the selection of Third Party contractors
and the terms of any engagement shall be in the sole discretion of [***];

     (d) Review for acceptance any compound(s) Controlled by Novartis to be
included in the Research Program pursuant to Section 2.8, if any; and

     (e) Resolve any disagreement between the Parties and discuss and resolve
any other relevant issues submitted to it, in accordance with the dispute
resolution procedure set forth in Section 2.7 below.

     The JRC may meet via telephone or video conference or in person; provided,
however, no less than one meeting each year shall be in person. In person
meetings shall, as a general matter, alternate between the Parties' (or, in the
case of Novartis, its Affiliates') sites in the United States. Each Party shall
be entitled to bring visitors to participate in meetings of the JRC; provided
that such visitors are reasonably acceptable to the other Party and subject to
obligations of confidentiality and non-use to the inviting Party no less
burdensome than as set forth in Article X. The Party providing the Chair of the
meeting shall prepare and circulate an agenda for comment and approval by the
other Party for the upcoming meeting and shall be responsible for taking minutes
at the meeting. Written minutes reflecting the conduct of each meeting of the
JRC shall be prepared and circulated among all members of the JRC promptly
following the meeting to which they relate. Minutes shall be reasonably detailed
and shall summarize all matters discussed by the JRC, state any conclusions or
determinations reached by the JRC and summarize the reasons for any such
conclusions or determinations. In addition, a Party may call a meeting of the
JRC upon reasonable notice to the other Party, such notice requirement being
deemed waived by a Party's attendance and participation. Conversations between
members of the JRC shall not be deemed to be meetings thereof absent a call for
a meeting, whether mutual or unilateral or such meeting being otherwise
scheduled. Minutes shall become official only upon their

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unanimous approval by the members of the JRC who attended the meeting reflected
in the minutes, and any dispute regarding the minutes shall not be subject to
resolution pursuant to Section 2.7.

     The JRC shall have the authority to create project teams for the Research
Program, each of which will meet (via telephone or video conference or in
person) no less frequently than monthly, and which will report to the JRC on its
progress on activities performed on the Research Program. The JRC shall also
have the authority to create additional subcommittees as needed. Notwithstanding
the foregoing, the JRC shall not have the authority to amend or modify the terms
of this Agreement.

     2.5 EXCHANGE OF INFORMATION; USE OF TECHNOLOGY

     (a) Avanir and Novartis and their respective Affiliates will share
information with the JRC necessary to facilitate mutual understanding of the
status of the Research Program and decision-making in connection therewith, as
soon as it is available.

     (b) Neither Avanir nor Novartis nor their respective Affiliates shall use
information disclosed by the other Party (excluding information which is no
longer subject to confidentiality restrictions under Article X by reason of the
exceptions set forth in Section 10.2(a), (b) and (c)) for any purpose, including
the filing of Patents containing such information without the other Party's
consent (which shall not be unreasonably withheld), other than for carrying out
the Research Program or discharging its responsibilities under this Agreement.

     (c) Except as otherwise set forth in this Agreement, neither Party shall be
entitled to information from the other Party concerning know-how, information or
technology discovered or developed by that Party outside the Research Program or
the Development; except that each Party must disclose to the JRC as soon as
practicable any and all know-how, information or technology which it discovers
or develops regarding any Joint Intellectual Property.

     (d) Neither Party will apply its rights in any information or technology or
the use thereof (and will use reasonable efforts to prevent its licensees, if
any, from applying similar rights acquired by license) to block or impede the
use of such information or technology as permitted hereunder by the other Party
or its assignees or licensees.


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     2.6 PRIMARY DATA ACCESS

     Each Party shall grant to the other and its Affiliates access to all data
(including, without limitation, all primary data and data contained in
laboratory notebooks) that directly relates to the MIF Program and/or is
generated as a result of performing its obligations under the Research Program.
Each Party and its Affiliates shall have the right, at reasonable intervals,
upon reasonable notice, and at its own expense, to have authenticated copies of
such data made to use and transfer as permitted hereunder.

     2.7 DECISIONS OF THE JRC; RESOLUTION OF DISPUTES

     The JRC shall make decisions unanimously where possible, but at least by
majority vote. If the JRC is unable to decide or resolve unanimously any matter
properly presented to it for action, then at the written request of either
Party, the issue shall be referred to the President of the Novartis Institutes
for BioMedical Research, Inc. (an Affiliate of Novartis) and the Chief Executive
Officer of Avanir. Such officers of the Parties, or their designees, will meet
promptly thereafter and shall negotiate in good faith to resolve such issue for
up to sixty (60) days. In the event of a deadlock, [***] shall have the deciding
vote. No such decisions shall obligate Avanir to spend money or devote resources
outside the previously agreed to in the Research Plan.

     2.8 POTENTIAL INCLUSION OF NOVARTIS COMPOUNDS TO THE RESEARCH PROGRAM

     From time to time during the Research Term, Novartis shall submit to the
JRC, for inclusion in the Research Program, any compound(s) Controlled by
Novartis (other than compounds licensed in or acquired by Novartis or its
Affiliates after the Effective Date) that (a) Novartis either has tested prior
to the Effective Date of this Agreement, or chooses, in its sole discretion, to
test using [***] and (b) [***]. Submission of such compound(s) to the JRC shall
be made in writing specifying in reasonable detail the compound(s) to be
included, and the acceptance by the JRC of such compound(s) shall be documented
in the minutes of the JRC. Each such compound that is accepted for inclusion by
the JRC (each a "Novartis Submitted Compound") and a drug product which contains
such Novartis Submitted Compound (each, a "Submitted Drug Product") shall be
treated as a Compound and a Drug Product, respectively, for the purposes of this
Agreement. For the avoidance of doubt: (i) the decision to submit any
compound(s) Controlled by Novartis for inclusion in the Research Program
pursuant to this Section 2.8 shall be in Novartis' sole and absolute discretion.

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                                   ARTICLE III

                                     LICENSE

     3.1 GRANT TO NOVARTIS

     Subject to the terms and conditions of this Agreement, Avanir hereby grants
to Novartis and its Affiliates a worldwide, exclusive license under the Avanir
Intellectual Property (with the right to sublicense) to research, develop, have
developed, make, have made, use, distribute, have distributed, export, have
exported, import, have imported, promote, have promoted, market, have marketed,
sell, have sold and offer to sell the Compounds and the Drug Products whether in
monotherapy or in combination with other pharmaceutical products, in the Field
in the Territory. Subject to the provisions of this Agreement, Avanir shall have
the right to use Avanir Intellectual Property and the Joint Intellectual
Property solely for research purposes and to comply with its obligations under
this Agreement. Novartis may subcontract its rights to manufacture the Compounds
or the Drug Products to a Third Party and may contract with Third Parties of its
choice to conduct or assist in the conduct of human clinical trials and the
evaluation of trials data or for any commercialization purposes. Novartis shall
be responsible to Avanir for the performance of any of its sublicensees or
subcontractors. Novartis shall not permit any subcontractors or sublicensees to
use Avanir Intellectual Property without provisions safeguarding confidentiality
at least equivalent to those provided in Article X (Confidentiality).

     3.2 INFORMATION TRANSFER

     From time to time after the Effective Date, and as determined by the JRC:
(i) Avanir shall deliver to Novartis free of charge material information
Controlled by it and possessed or readily available to Avanir relating to the
MIF Program and the Compounds and not previously provided to Novartis or its
Affiliates; and (ii) Novartis shall deliver to Avanir free of charge material
information Controlled by it and possessed or readily available to Novartis
relating to small molecule antagonists of macrophage migration inhibitory
factors not previously provided to Avanir. The information to be delivered shall
include copies of all Patents, Know-How, copyrights, copyright registrations,
and applications thereof, and all clinical or non-clinical data relating to the
MIF Program and macrophage migration inhibitory factors, as the case may be, and
the Compounds and all other manifestations of the intellectual property embodied
in the Compounds whether in human or machine readable form, all of which
delivered by Avanir shall be treated as confidential Avanir information pursuant
to Article X and all of which delivered by Novartis shall be treated as
confidential Novartis information pursuant to Article X.


                                       16
<PAGE>
     3.3 COMPOUND SUBSTANCE TRANSFER

     As soon as practicable after the Effective Date, Avanir shall deliver to
Novartis free of charge such amounts of the Compounds, cell lines and other
material as are available to Avanir, and are not required otherwise for use by
or on behalf of Avanir in connection with the Research Plan or Development. Upon
the successful testing of a Compound in all of the in vivo models set forth in
the Research Plan, Avanir shall use commercially reasonable efforts to deliver
to Novartis approximately [***] of such Compound (at [***]). All such substances
described in this Section 3.3 shall be accompanied by appropriate certificates
of analysis to the extent they exist.

                                   ARTICLE IV

                                   DEVELOPMENT

     4.1 DEVELOPMENT RESPONSIBILITIES

     As soon as practicable after the achievement of the sPOC milestone
described in Section 7.4(a) and Annex 2 in connection with a particular
Compound, Novartis or its Affiliates shall commence the Development of such
Compound. Novartis or its Affiliates shall have sole authority and
responsibility for, and bear the cost of conducting, the Development with
respect to the Compound and the resulting Drug Product(s).

     4.2 REGULATORY MATTERS

     Novartis or its Affiliates shall have sole discretion concerning the
regulatory strategy and decision-making for all Compounds and Drug Products. All
Regulatory Filings shall be made by Novartis or its Affiliates. Novartis or its
Affiliates shall be responsible for all required Regulatory Approvals, including
formulary or marketing approvals. All Regulatory Approvals shall be held in the
name of Novartis or its Affiliates. Novartis or its Affiliates shall be the
principal interface with and shall otherwise handle all interactions with
regulatory agencies with respect to any Compounds and Drug Products. Novartis or
its Affiliates shall have the right to cross-reference information and
regulatory filings arising out of development work which previously has been
conducted by Avanir and its Affiliates and licensees, for the purpose of
Regulatory Filings hereunder. Avanir shall assist Novartis

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<PAGE>
and its Affiliates and take all actions as reasonably requested by Novartis or
its Affiliates to enable Novartis or its Affiliates to comply with any law
applicable to the Compounds or the Drug Products, and Novartis or its Affiliates
shall reimburse Avanir for its out-of-pocket expenses incurred in connection
with such assistance.

     4.3 DEVELOPMENT OBLIGATIONS; DEVELOPMENT REPORTS

     Novartis or its Affiliates shall use Commercially Reasonable Efforts to
develop the Compounds into Drug Products. Novartis or its Affiliates shall
promptly notify Avanir in writing if it should determine that development of the
Compounds or the Drug Products is not technically feasible or commercially
justifiable, specifying in reasonable detail the reasons for that determination.
Novartis or its Affiliates shall prepare and submit to Avanir, on a semi-annual
basis, reports which set forth in reasonable detail: (a) the progress of the
Development and the results of work performed during the preceding semi-annual
period including a description of any key scientific discoveries as of the date
of the report; and (b) Development activities that are ongoing and planned for
the following semi-annual period, including a current schedule of anticipated
events or milestones, including those set forth in Section 7.2; (c) the
anticipated and actual market introduction dates for each Compound and Drug
Product; and (d) any sublicensing activity under this Agreement. Novartis or its
Affiliates will promptly report to Avanir the date of the first sale of a
Compound or Drug Product in each country. In the event of a Change In Control of
Avanir, Novartis and its Affiliates shall no longer be obligated to provide the
development reports set forth above to Avanir.

     4.4 INDICATIONS

     Novartis or its Affiliates shall have the sole discretion to determine the
Indication(s) for which it will develop the Compounds and the Drug Products.

     4.5 JOINT PROGRAM COMMITTEE

     (a) Within sixty (60) calendar days after the first achievement of the
[***] described in Section 7.4(a) and Annex 2, the Parties will establish a
Joint Program Committee ("JPC"), which shall consist of at least two (2)
representatives from each Party which may be designated by such Party from time
to time. Upon the establishment of the JPC with respect to a particular
Compound, the JRC shall have no further authority with respect to such Compound.
Each Party shall be entitled to bring visitors to participate in meetings of the
JPC; provided that such visitors are reasonably acceptable to the other Party

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                                       18
<PAGE>
and subject to obligations of confidentiality and non-use to the inviting Party
no less burdensome than as set forth in Article X. The JPC shall meet quarterly,
or with such other frequency as may be established by the JPC (but in no event
less often than two (2) times per year), and at such times and locations as may
be established by the JPC, for the sole purpose of providing a forum for
Novartis to seek input from, and provide updates to Avanir with respect to the
Development of Compounds and/or the commercialization of Drug Products, such
input to be given due consideration by Novartis. The JPC shall have no
decision-making authority with respect to the Development of Compounds and/or
the commercialization of Drug Products.

     (b) Each Party shall bear all expenses incurred by its delegates in
connection with their participation on the JPC. Meetings may be held in person,
by video conference or by teleconference, as the JPC may determine. In person
meetings shall, as a general matter, alternate between the Parties' (or, in the
case of Novartis, its Affiliates') sites in the United States. The JPC shall not
have the authority to amend or modify the terms of this Agreement. The JPC shall
be dissolved immediately upon provision of a written notice from Novartis to
Avanir in the event of a Change In Control of Avanir.

                                    ARTICLE V

                            MANUFACTURING AND SUPPLY

     5.1 COMPOUNDS AND DRUG PRODUCTS

     Novartis and its Affiliates shall have the exclusive worldwide right to
manufacture, distribute and supply (or have manufactured, distributed or
supplied) all Compounds and Drug Products as necessary for the conduct of the
Development and for all commercial purposes. Novartis and its Affiliates may
subcontract manufacturing in its sole discretion.

     5.2 FORMULATION AND PACKAGING

     In all events, Novartis and its Affiliates will be responsible for
formulation, packaging and labeling including but not limited to package inserts
and leaflets of the Drug Products.


                                       19
<PAGE>
                                   ARTICLE VI

                                COMMERCIALIZATION

     6.1 MARKETING AND PROMOTION

     Consistent with Section 3.1, Novartis and its Affiliates shall have the
exclusive worldwide right to distribute, have distributed, export, have
exported, import, have imported, promote, have promoted, market, have marketed,
sell, have sold and offer to sell the Drug Products in the Territory.

     6.2 RECORDING OF SALES

     Novartis and its Affiliates shall record all sales of the Drug Products.
Pricing of the Drug Products will be determined by Novartis and its Affiliates
in their sole discretion.

     6.2 USE OF COMMERCIALLY REASONABLE EFFORTS

     Novartis and its Affiliates shall use Commercially Reasonable Efforts and
sound and reasonable business practices and judgment to effect the introduction
of Drug Products into the Major Market Countries as soon as reasonably
practicable. Novartis or its Affiliates shall promptly notify Avanir if it shall
determine that the marketing and sale of a Drug Product in any Major Market
Country is not commercially reasonable or economically profitable or if for
other unforeseen reasons further commercial support of a Drug Product in any
country is no longer prudent or practical.

                                   ARTICLE VII

                                    PAYMENTS

     7.1 UP-FRONT PAYMENT

     Upon the receipt by Novartis of a corresponding invoice from Avanir,
Novartis shall pay Avanir $2.5 million within ten (10) business days after the
Effective Date.

     7.2 STAFFING AND RESEARCH SUPPORT PAYMENTS

     Novartis or its Affiliates will fund between [***] and [***] Avanir FTEs in
each particular Research Year, with the exact number of FTEs to be determined by
the JRC. The JRC shall determine the manner in which such FTEs shall be
allocated under the Research Program. The annual rate per FTE shall be $[***].
The FTEs shall be funded in support of the Research Program under this
Agreement.

     Payments due for each Research Year shall be made by Novartis or its
Affiliates to Avanir quarterly in advance on or before April 1, July 1, October
1, and January 1 of each

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<PAGE>
Research Year except that the quarterly payment due April 1, 2005 for the first
Research Year shall be made within thirty (30) calendar days after the Effective
Date. All payments shall be made without deduction for withholding or other
similar taxes, in United States Dollars to the credit of such bank account as
may be designated by Avanir in writing to Novartis. Any payments which fall due
on a date which is a legal holiday in Hamilton, Bermuda or Basel, Switzerland
may be made on the next following day which is not a legal holiday in Hamilton,
Bermuda or Basel, Switzerland.

     7.3 RECORDS

     Avanir shall keep accurate records and books of accounts, in accordance
with the Accounting Standards, containing all data reasonably required for the
calculation and verification of FTEs employed by, or equivalents supplied by,
Avanir in accordance with the Research Plan.

     At Novartis' reasonable advance written request, Avanir shall make those
records available, no more than once in a calendar year, during reasonable
working hours, for review by a recognized independent accounting firm acceptable
to both parties, at Novartis' expense, for the sole purpose of verifying the
accuracy of those records in the calculation of FTEs involved in the Research
Program. Novartis shall use commercially reasonable efforts to cause the
accounting firm to retain all such information in confidence.

     In the event of a negative difference between the average number of FTEs
stated to be involved in the Research Program and the number of FTEs actually
employed, the amount previously advanced to Avanir and attributable to any such
negative difference shall be due and payable to Novartis within thirty (30) days
of its receipt of the accounting firm's report. If the negative difference is
more than [***] in any Research Year, then Avanir shall also pay the reasonable
costs of the independent accountant employed by Novartis in the review.

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                                       21
<PAGE>
     7.4 MILESTONE PAYMENTS

     (a) Novartis or its Affiliates shall notify Avanir within thirty (30)
calendar days after the achievement of the milestone events set forth below with
respect to the Compounds or the Drug Products, and Novartis or its Affiliates
shall pay to Avanir the amounts set forth below in accordance with Section
16.18:

<TABLE>
<S>     <C>
[***]   $[***]

[***]   $[***]

[***]   $[***]

[***]   $[***]

[***]   $[***]

[***]   $[***]

[***]   $[***]

[***]   $[***]

[***]   $[***]

[***]   $[***]

[***]   $[***]
</TABLE>

*    In order to be considered as a second or third Regulatory Approval for the
     purposes of the milestones set forth above, a Regulatory Approval must be
     for an Indication in a different therapeutic area than the other Regulatory
     Approvals for such Drug Product. For the avoidance of doubt, the second
     Regulatory Approval for a Drug Product must be for an

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                                       22
<PAGE>
Indication in a different therapeutic area from the first Regulatory Approval
for such Drug Product, and the third Regulatory Approval must be for an
indication in a different therapeutic area from the first and second Regulatory
Approval for such Drug Product. By way of example, [***], [***] and [***] would
be considered separate therapeutic areas for the purposes of this Agreement, but
an Indication of combination therapy in [***] would not be considered as a
separate therapeutic area.

     (b) None of the payments listed above shall be payable more than once, and
each shall be payable at the first achievement of a milestone event for the
Compound or Drug Product and shall not be payable again if subsequently a
Combination Product, back-up or another Compound would achieve the same
milestone event.

     (c) All payments shall be made by wire transfer in United States Dollars to
the credit of such bank account as may be designated by Avanir in this Agreement
or in writing to Novartis. Any payment which falls due on a date which is not a
Business Day in Hamilton, Bermuda or Basel, Switzerland may be made on the next
succeeding Business Day in Hamilton, Bermuda or Basel, Switzerland. In the event
that any payment due hereunder is not received by Avanir when due, Novartis
shall pay to Avanir interest charges at a rate equal to the [***]. Such interest
shall be calculated from the date that payment was due until actually received
by Avanir.

     7.5 ROYALTY PAYMENTS

     (a) On a Drug Product by Drug Product basis, with respect to those
countries in which an Avanir Patent with a Valid Claim exists, Novartis or its
Affiliates shall pay to Avanir the following royalties in respect of such
countries:

[***] percent ([***]%) on annual Net Sales up to $[***]

[***] percent ([***]%) on that amount of annual Net Sales that is greater than
$[***] but less than or equal to $[***]

[***] percent ([***]%) on that amount of annual Net Sales greater than $[***]

     (b) In the event that Novartis or its Affiliates determines in its sole
discretion (but only after consultation with Avanir), that it would be necessary
or useful to acquire rights

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                                       23
<PAGE>
from one or more Third Parties in order to sell a Drug Product in a country,
then [***] percent ([***]%) of the royalty payable to such Third Party in such
country shall be deductible from the royalties payable to Avanir under this
Agreement. In no event shall this deduction cause the amounts to be paid to
Avanir to be less than [***] percent ([***]%) of the amount otherwise payable to
Avanir pursuant to Section 7.5(a) or Section 7.5(c), as the case may be. In the
event that the amount Novartis or its Affiliates is entitled to deduct hereunder
exceeds the amount of any individual royalty payment due to Avanir, Novartis or
its Affiliates shall be entitled to deduct amounts from any subsequent
payment(s) until the entire amount to which Novartis or its Affiliates is
entitled to deduct has been so deducted.

     (c) On a Drug Product by Drug Product basis, with respect to those
countries in which no Avanir Patents with a Valid Claim exist, Novartis shall
pay to Avanir royalties at [***] percent ([***]%) of the rates set forth in
Section 7.5(a), as reduced by Section 7.5(b), if applicable, in consideration of
Avanir Know-How; provided, however that, should a generic version of a Drug
Product be sold by a Third Party in the same country as a Drug Product, then the
royalty payments set forth in this Section 7.5 for such Drug Product shall
cease.

     (d) On a country-by-country basis, royalties as outlined in this Section
7.5 shall be payable for the term of this Agreement as set out in Article XII
(Term and Termination), on a quarterly basis, within sixty (60) calendar days
after the end of each calendar quarter, and in accordance with Section 16.18.

     7.6 SALES REPORTS

     (a) During the term of this Agreement and after the First Commercial Sale
of a Drug Product, Novartis or its Affiliates shall furnish or cause to be
furnished to Avanir on a quarterly basis a Sales Report covering each calendar
quarter (each such calendar quarter being sometimes referred to herein as a
"reporting period"). With respect to sales of Drug Products invoiced in United
States Dollars, the Net Sales amounts and the amounts due to Avanir hereunder
shall be expressed in United States Dollars. With respect to sales of Drug
Products invoiced in a currency other than United States Dollars, the Net Sales
and amounts due to Avanir hereunder shall be expressed in the domestic currency
of the Party making the sale, together with the United States Dollar equivalent
of the amount payable to Avanir, calculated using the then-current Novartis
standard exchange rate methodology applied in its external reporting (which is
ultimately based on official rates such as Reuters and the European Central
Bank) for the conversion of foreign currency sales into United States

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                                       24
<PAGE>
Dollars. Novartis shall furnish to Avanir appropriate evidence of payment of any
tax or other amount required by applicable laws or regulations to be deducted
from any royalty payment, including any tax or withholding levied by a foreign
taxing authority in respect of the payment or accrual of any royalty. Sales
Reports shall be due on the thirtieth (30th) Business Day following the close of
each reporting period. Novartis or its Affiliates shall keep accurate records in
sufficient detail to enable the amounts due hereunder to be determined and to be
verified by Avanir.

     (b) If at any time legal restrictions prevent the prompt remittance of any
payments with respect to any country of the Territory where a Drug Product is
sold, Novartis or its Affiliates or its sublicensees shall convert the amount
owed into US Dollars and remit payment from another source of funds.

     7.7 AUDIT

     (a) Avanir shall have the right for a period of three (3) years after
receiving any report or statement with respect to royalties due and payable to
appoint an Auditor to inspect the relevant records of Novartis or its Affiliates
to verify such reports, statements, records or books of accounts, as applicable.
Before beginning its audit, the auditor shall execute an undertaking reasonably
acceptable to Novartis by which the Auditor shall keep confidential all
information reviewed during such audit. The auditor shall have the right to
disclose to Avanir its conclusions regarding any payments owed to Avanir.

     (b) Novartis and its Affiliates shall keep complete and accurate books and
records regarding the sales of Drug Products in sufficient detail to enable the
payments due to Avanir hereunder to be determined. Novartis and its Affiliates
shall retain the books and records with respect to any annual accounting periods
for three (3) years after the date of the last entry for such annual accounting
period and during any extended period during the pendency of any controversy.
Novartis or its Affiliates shall make its records available for inspection by
the Auditor during regular business hours at such place or places where such
records are customarily kept, upon receipt of reasonable advance notice from
Avanir, solely to verify the accuracy of Novartis' or its Affiliates' sales
reports, payments records or books of accounts and Novartis' or its Affiliates'
compliance in other respects with this Agreement. Such inspection right shall
not be exercised more than once in any calendar year nor more frequently than
once with respect to records covering any specific period of time, except in the
event of accounting changes or restatements by Novartis or its Affiliates
directly related


                                       25
<PAGE>
to a Drug Product and limited to any specific country changes or restatements.
Avanir agrees to hold in strict confidence all information received and all
information learned in the course of any audit or inspection, except to the
extent necessary for such Avanir to reveal such information in order to enforce
its rights under this Agreement or if disclosure is required by law, regulation
or judicial order.

     (c) [***] shall pay for such inspections, as well as its own legal expenses
associated with enforcing its rights with respect to any payments hereunder,
except that in the event there is any upward adjustment in aggregate amounts
payable for any year shown by such inspection of more than [***] percent
([***]%) of the amount paid, [***] shall pay for such inspection.

                                  ARTICLE VIII

                              INTELLECTUAL PROPERTY

     8.1 NOVARTIS INTELLECTUAL PROPERTY

     (a) All Novartis Intellectual Property shall be the property of Novartis or
its Affiliates, and Novartis or its Affiliates shall be the sole owner of such
Novartis Intellectual Property, other than that licensed hereunder from Avanir.

     (b) Novartis will be responsible for, and shall bear all expenses incurred
in, preparing, filing, prosecuting and maintaining all Novartis Patents.

     (c) Avanir undertakes at the reasonable request and the expense of Novartis
or its Affiliates to sign, or have signed, any and all documents necessary in
connection with the filing, prosecution, maintenance, extension and enforcement
of the Novartis Patents and to take such other necessary actions as Novartis or
its Affiliates may reasonably request from Avanir in connection with the
Novartis Patents.

     (d) Novartis or its Affiliates shall keep Avanir apprised of any activities
related to the Novartis Patent Rights by providing Avanir with copies of all
official actions, amendments and responses, which affect the scope of any
claims, with respect to the preparation, filing, prosecution and maintenance of
the Novartis Patents, and Novartis or its Affiliates shall take into account
Avanir's comments with respect to such activities. Other than reasonably
considering Avanir's comments, Novartis or its Affiliates shall have sole
discretion with respect to the preparation, filing, prosecution and maintenance
of the

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                                       26
<PAGE>
Novartis Patents.

     8.2 AVANIR INTELLECTUAL PROPERTY

     (a) All Avanir Intellectual Property whether or not patentable, will be the
property of Avanir, and Avanir shall be the sole owner of such Avanir
Intellectual Property.

     (b) Avanir shall be responsible for, and Novartis shall bear all reasonable
expenses incurred in, preparing, filing, prosecuting and maintaining the Avanir
Patents. For the purposes of this Section 8.2, Novartis shall only bear such
expenses in the event that: (i) in the case of a new patent application, the
Parties have agreed upon the filing of such new patent application and its
scope; (ii) the Parties have agreed, before filing, upon any country variant in
case of any foreign filing which is due during the term of this Agreement; (iii)
in the case of payments to patent agents employed by Avanir or its Affiliates,
Novartis has received the current fee sheet for such patent agent; and (iv)
Avanir has informed Novartis promptly upon becoming aware of any extraordinary
costs to be spent in patent prosecution or patent maintenance in any country,
including but not limited to costs in appeal proceedings, opposition
proceedings, costs for the filing of divisional applications, claim fees, and
the like, and Novartis has agreed to pay such costs in advance, which agreement
shall not be unreasonably withheld or delayed.

     (c) Novartis and its Affiliates undertake at the reasonable request of
Avanir to sign, or have signed, any and all documents necessary in connection
with the filing, prosecution, maintenance, extension and enforcement of the
Avanir Patents and to take such other necessary actions as Avanir may reasonably
request from Novartis or its Affiliates in connection with the Avanir Patents.

     (d) Avanir shall keep Novartis apprised of any activities related to the
Avanir Patent Rights by providing Novartis: (i) with a draft of new applications
and foreign filing texts at least ten (10) business days before the intended
filing; (ii) promptly with copies of all official actions, amendments and
responses, which affect the scope of any claims; (iii) with foreseen amendments
and responses to official actions which affect the scope of any claim at least
five (5) business days before the action due date. Avanir shall take into
account Novartis' or its Affiliates' comments with respect to such activities.

     (e) On each six-month anniversary of the Effective Date, Avanir shall
update Novartis on the status of all Patent filings indicated on Annex 1,
including information on the country particulars (filing date, filing number) of
each Patent, each foreign filing


                                       27
<PAGE>
equivalent, and the corresponding Patent status (pending, granted, opposed,
under appeal, (un)intentionally abandoned, etc.). Additionally, Avanir shall
notify Novartis of any new Patent applications comprising Avanir Intellectual
Property filed in any country promptly after such Patent application is filed.

     8.3 JOINT INTELLECTUAL PROPERTY

     (a) Joint Intellectual Property and all Patents claiming joint inventions
shall be owned jointly by Novartis and Avanir, and such Patents shall constitute
"Joint Patents". Joint inventorship shall be determined in accordance with the
rules of inventorship under the patent laws of the United States.

     (b) The Parties shall determine by mutual agreement which Party shall be
responsible for the filing, prosecution and maintenance of Joint Patents on a
case-by-case basis.

     (c) In the event that a Party responsible for the filing, prosecution and
maintenance of any patent filing within Joint Patents (the "responsible Party")
desires to abandon such patent filing, or if the responsible Party declines
responsibility for such patent filing, the responsible Party shall notify
promptly the other Party (and in any event not less than sixty (60) calendar
days prior to the deadline for taking appropriate action with respect to such
Joint Patent). If the other Party believes that the Joint Patent in question
should be filed, prosecuted and/or maintained, it shall inform the responsible
Party of its belief and the Parties will negotiate in good faith to find a
mutually acceptable course of action.

     (d) Novartis shall bear all reasonable expenses incurred in preparing,
filing, prosecuting and maintaining the Joint Patents. In the event that Avanir
has been determined to be the Party responsible for the filing, prosecution and
maintenance of Joint Patents, for the purposes of this Section 8.3, Novartis
shall only bear such expenses in the event that: (i) in the case of a new patent
application the Parties have agreed upon the filing of a new patent application
and its scope; (ii) in the case of a foreign filing decision the Parties have
agreed upon any country variant in case of any foreign filing which is due
during the term of this Agreement; (iii) in the case of payments to patent
agents employed by Avanir or its Affiliates, Novartis has received the current
fee sheet for such patent agent; and (iv) in the case of extraordinary costs
Avanir has informed Novartis promptly upon becoming aware of any extraordinary
costs to be spent in patent prosecution or patent maintenance in any country,
including but not limited to costs in appeal proceedings, opposition
proceedings,


                                       28
<PAGE>
costs for the filing of divisional applications, claim fees, and the like and
Novartis has agreed to pay such costs in advance, which agreement shall not be
unreasonably withheld or delayed.

     8.4 INFRINGEMENT

     (a) If either Party becomes aware of any activity that such Party believes
represents an infringement of the claims of the Avanir Intellectual Property or
the Novartis Intellectual Property, the Party obtaining such knowledge shall
promptly advise the other in writing of all relevant facts and circumstances
pertaining to the potential infringement. Novartis and Avanir shall thereafter
consult and cooperate fully to determine a course of action, including but not
limited to, the commencement of legal action to terminate any infringement of
the Avanir Intellectual Property or the Novartis Intellectual Property.

     (b) Novartis or its Affiliates shall have the first right, but not
obligation, to initiate and prosecute such legal proceedings related to Novartis
Intellectual Property, and Avanir shall have the first right, but not
obligation, to initiate and prosecute such legal proceedings related to Avanir
Intellectual Property, each at its own expense and in its own name, and to
control the defense of any declaratory judgment action relating to its
Intellectual Property; provided that no settlement shall be entered into by such
Party without the written consent of the other Party if such settlement would
materially affect the other Party's interests. Each Party shall cooperate with
the other Party in such effort, including being joined as a party to such action
if necessary.

     (c) If the Party which is entitled to firstly pursue the defense, does not
succeed, within ninety (90) calendar days after receiving notice from the other
Party of a potential infringement or within sixty (60) calendar days after
providing the other Party with notice of such infringement, either: (i) in
terminating such infringement; or (ii) in instituting an action to prevent
continuation thereof, or if the Party notifies the other Party that it does not
plan to defend against or terminate the infringement or to institute any such
action, then the other Party shall have the right to do so at its own cost and
expense. Each Party shall cooperate with the other Party in such effort,
including being joined as a party to such action if necessary.

     (d) In addition, each Party shall have the right to join in any action
against infringement brought in accordance with this Section 8.4 if necessary in
order to assert the damages incurred by such Party as a result of the alleged
infringement; provided that: (i) the


                                       29
<PAGE>
foregoing shall not limit or restrict in any way the rights of the Party
controlling such action as determined in accordance with this Section 8.4 from
exercising such control in its discretion; (ii) in the event Avanir joins
Novartis in the defense of an infringement action, Avanir may elect to
participate up to [***] percent ([***]%) of the total out-of-pocket cost and
expense of Novartis and Avanir and consequently share to the same proportion in
any award; and (iii) in the event Novartis joins Avanir in the defense of an
infringement action, Novartis may elect to participate up to [***] percent
([***]%) of the total out-of-pocket cost and expense of Novartis and Avanir and
consequently share to the same proportion in any award. In the event that Avanir
decides not to join Novartis by way of participating in paying for out-of-pocket
costs and expenses, any recovery by Novartis (after reimbursement of its
out-of-pocket costs and expenses), which is intended as a reimbursement for
[***] as a result of such infringement shall be treated as [***] for purposes of
this Agreement. If Avanir pursues any such matter after Novartis declines to do
so, any recovery shall belong to Avanir alone.

     (e) The costs and expenses (including attorneys' fees) of any action
against an infringement brought in accordance with this Section shall be borne
by the Party controlling the infringement action, unless stated otherwise in
this Article VIII.

     8.5 UPDATING

     Each Party shall keep the other reasonably informed of developments in any
action or proceeding relating to the potential infringement of the claims of a
Patent relating to the Compounds or the Drug Products including, to the extent
permissible by law, the state of any settlement negotiations and the terms of
any offer related thereto.

     8.6 DEFENSE AND SETTLEMENT OF THIRD PARTY CLAIMS

     (a) If a Third Party asserts that a patent, trademark or other intellectual
properties owned by it is infringed by the importation, manufacture, use or sale
of any Compound or Drug Product, or if either Party learns of a claim or
assertion that the development, manufacture, use, marketing, promotion,
importation, exportation, offer for sale, sale or distribution of the Compounds
or the Drug Products infringes or otherwise violates the intellectual property
rights of any Third Party, then such Party will promptly notify the other Party
in writing. Novartis will have the sole right, but not the obligation, to
control such defense at its own expense. If Novartis does not assume control of
such defense, then Avanir shall have the right to control such defense at its
own expense. In any event, the

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Party not controlling such defense will have the right to be represented in any
such action at its own expense. The Party controlling such defense shall keep
the other Party advised of the status of such action and shall consider
recommendations made by the other Party in respect thereto. The Party not
controlling such defense will assist and cooperate in any such infringement
litigation at the defending Party's reasonable request. If the Party controlling
such defense is not the Party against whom such action was originally brought,
then the Party controlling such defense will not agree to the settlement of any
such action without the prior written consent of the other Party.

     (b) If Novartis conducts the defense, Novartis will use Commercially
Reasonable Efforts to determine how and whether to defend against such charge of
infringement.

     (c) During the period in which such litigation is pending and following the
resolution thereof, Novartis shall bear all other costs incurred in connection
therewith (including litigation costs, attorneys fees, costs of settlement)
including damage awards and any other payment resulting therefrom in the event
Novartis is barred as a result of such litigation from further sales in the
country concerned.

     (d) Such application and deduction shall not apply to infringement caused
by Novartis' or its Affiliates' use of their respective name, trade name, logo
or the Novartis Patents or Novartis Know-How.

     8.7 TRADEMARKS

     Novartis or its Affiliates will be responsible for, and shall have sole
discretion in, selecting trademarks for the use on or in connection with the
Drug Products in the Territory. Novartis or its Affiliates will be responsible
for registration of such trademarks and will be the sole owner of such
trademarks. For the avoidance of doubt, trademarks, including those created
hereunder, are not included in the definition of Know-How.

     8.8 DRUG PRICE COMPETITION AND PATENT TERM RESTORATION ACT AND PEDIATRIC
EXCLUSIVITY

     (a) The Parties shall cooperate in an effort to avoid the loss of any
rights which may otherwise be available to the Parties under the provisions of
the Drug Price Competition and Patent Term Restoration Act of 1984 or comparable
laws outside of the United States and for pediatric exclusivity.


                                       31
<PAGE>
     (b) Avanir shall provide any relevant Patent information to Novartis or its
Affiliates such that Novartis or its Affiliates, as an NDA applicant, may inform
the FDA or other applicable regulatory authority.

     (c) Avanir shall grant Novartis and its Affiliates cross-reference rights
to any relevant Drug Master Files and pre-clinical, clinical or regulatory
files.

     (d) The Parties shall cooperate with each other in obtaining patent term
restoration or supplemental protection certificates or their equivalents in any
country and region in the Territory where applicable. Avanir shall provide all
reasonable assistance to Novartis and its Affiliates, including permitting
Novartis or its Affiliates to proceed with applications for such in the name of
Avanir, if so required.

                                   ARTICLE IX

                         REPRESENTATIONS AND WARRANTIES

     9.1 REPRESENTATIONS AND WARRANTIES OF AVANIR

     Avanir represents and warrants to Novartis as follows:

     (a) Avanir is duly organized, validly existing and in good standing under
the laws of the State of California, with full power and authority to execute
and deliver this Agreement and to perform its obligations hereunder

     (b) This Agreement has been duly executed and delivered by Avanir and
constitutes the valid and binding obligation of Avanir, enforceable against
Avanir in accordance with its terms, subject to bankruptcy, insolvency or
similar laws of general application affecting the rights of creditors, and
subject to equitable principles limiting rights to specific performance or other
equitable remedies. The execution, delivery and performance of this Agreement
have been duly authorized by all necessary action on the part of Avanir, its
officers and directors on behalf of Avanir and no other corporate proceedings on
the part of Avanir are necessary to authorize such execution, delivery and
performance.

     (c) Except as disclosed in writing to Novartis: (i) Avanir, to its best
knowledge owns or possesses licenses or other such rights to use all Avanir
Intellectual Property, and to grant the licenses herein; and (ii) the granting
of the licenses to Novartis and its Affiliates hereunder does not violate any
right known to Avanir of any Third Party and, to its best knowledge, Avanir has
obtained all necessary consents from Third Parties in order to allow it to enter
into its obligations under this Agreement.


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<PAGE>
     (d) Except as disclosed in writing by Avanir to Novartis or its agents, to
Avanir's knowledge, the development, manufacture, use or sale of any Compounds
or Drug Products pursuant to this Agreement insofar as the same is based upon
the practice of the licenses granted by Avanir to Novartis and its Affiliates
under this Agreement, will not infringe or conflict with any Third Party right
or patent, and Avanir is not aware of any issued patent or pending patent
application that, if issued, would be infringed by the development, manufacture,
use or sale of any Compounds or Drug Products by virtue of the practice of the
licenses granted by Avanir to Novartis and its Affiliates under this Agreement.

     (e) There is no action, suit, proceeding investigation, arbitration
proceedings or other proceedings pending or threatened against Avanir or
affecting, in whole or in part, the Avanir Intellectual Property at law, in
equity or otherwise, in, before, or by, any court or governmental authority, and
there is not currently outstanding any unsatisfied judgments or outstanding
orders, injunctions, decrees, stipulations or awards (whether rendered by a
court, an administrative agency or by an arbitrator) domestic or foreign, or
arbitrator relating, in whole or in part, against any of the Avanir Intellectual
Property which would have or reasonably be expected to have a material adverse
effect.

     (f) Execution of this Agreement and consummation of the transactions
contemplated hereby and thereby will not: (i) result in the violation of or
conflict with any of the terms and provisions of the articles of incorporation
or by-laws of Avanir; (ii) result in a material violation or breach of, or
constitute (with or without due notice or lapse of time or both) a material
default (or give rise to any right of termination, modification, cancellation or
acceleration or loss of material benefits) under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, contract, agreement,
permit, license, lease, purchase order, sales order, arrangement or other
commitment or obligation to which Avanir is a Party; or (iii) violate any order,
writ, injunction, decree, statute, treaty, rule or regulation applicable to
Avanir, except such violations, breaches or defaults with respect to clauses
(ii) and (iii) above which would not have a material adverse effect.

     9.2 REPRESENTATIONS AND WARRANTIES OF NOVARTIS

     (a) Novartis is duly organized, validly existing and in good standing under
the laws of Bermuda with full power and authority to execute and deliver this
Agreement and to perform its obligations hereunder.


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<PAGE>
     (b) Novartis represents and warrants to Avanir that this Agreement has been
duly executed and delivered by Novartis and constitutes the valid and binding
obligation of Novartis, enforceable against Novartis in accordance with its
terms. The execution, delivery and performance of this Agreement have been duly
authorized by all necessary action on the part of Novartis, its officers and
directors on behalf of Novartis.

                                    ARTICLE X

                                 CONFIDENTIALITY

     10.1 UNDERTAKING

     During the term of this Agreement, each Party (the "Receiving Party") shall
keep confidential, and other than as provided herein shall not use or disclose,
directly or indirectly, any trade secrets, confidential or proprietary
information, or any other knowledge, information, documents or materials, owned,
developed or possessed by the other Party (the "Proprietary Party"), whether in
tangible or intangible form, the confidentiality of which such other Party takes
commercially reasonable measures to protect, including but not limited to Avanir
Intellectual Property and Novartis Intellectual Property. The Affiliates of each
Party shall be entitled to possess such trade secrets, confidential or
proprietary information or any other knowledge, information, documents or
materials, owned, developed or possessed by the other Party to the same extent
that its affiliated Party is entitled to possess such items. Each Party shall
cause is Affiliates to comply with the terms and conditions of this Article X as
if such Affiliates were signatories to this Agreement.

     (a) Each Party shall take any and all lawful measures to prevent the
unauthorized use and disclosure of such information, and to prevent unauthorized
Persons or entities from obtaining or using such information.

     (b) Each Party further agrees to refrain from directly or indirectly taking
any action which would constitute or facilitate the unauthorized use or
disclosure of such information. Each Party may disclose such information to its
officers, employees and agents, to authorized licensees and sublicensees, and to
subcontractors in connection with the development or manufacture of the
Compounds or the Drug Products to the extent necessary to enable such parties to
perform their obligations hereunder or under the applicable license, sublicense
or subcontract, as the case may be; provided that such officers, employees,
agents, licensees, sublicensees and subcontractors have entered into appropriate
confidentiality agreements for secrecy and non-use of such information which by
their terms shall be enforceable by injunctive relief at the instance of the
disclosing Party.


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<PAGE>
     (c) Each Party shall be liable for any unauthorized use and disclosure of
such information by its Affiliates, and its and its Affiliates', officers,
employees, agents, sublicensees and subcontractors.

     10.2 EXCEPTIONS

     Notwithstanding the foregoing, the provisions of Section 10.1 shall not
apply to knowledge, information, documents or materials which the Receiving
Party can conclusively establish:

     (a) have entered the public domain without the Receiving Party's breach of
any obligation owed to the Proprietary Party;

     (b) are permitted to be disclosed by the prior written consent of the
Proprietary Party;

     (c) have become known to the Receiving Party from a source other than the
Proprietary Party, other than by breach of an obligation of confidentiality owed
to the Proprietary Party;

     (d) are disclosed by the Proprietary Party to a Third Party without
restrictions on its disclosure;

     (e) are independently developed by the Receiving Party without breach of
this Agreement; or

     (f) are required to be disclosed by the Receiving Party to comply with
applicable laws or regulations, to defend or prosecute litigation or to comply
with governmental regulations; provided that the Receiving Party provides prior
written notice of such disclosure to the Proprietary Party and takes reasonable
and lawful actions to avoid or minimize the degree of such disclosure.

     10.3 PUBLICITY

     The Parties will agree upon the content of any press release or other
public communications relating to this Agreement and the transactions
contemplated herein.

     Except to the extent already disclosed in a press release or other public
communication, no public announcement concerning the existence or the terms of
this Agreement or concerning the transactions described herein shall be made,
either directly or


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<PAGE>
indirectly, by Avanir or Novartis or their respective Affiliates, except as may
be legally required by applicable laws, regulations, or judicial order, without
first obtaining the approval of the other Party and agreement upon the nature,
text, and timing of such announcement, which approval and agreement shall not be
unreasonably withheld or delayed.

     The Party desiring to make any such public announcement shall provide the
other Party with a written copy of the proposed announcement in sufficient time
prior to public release to allow such other Party to comment upon such
announcement, prior to public release.

     Neither Avanir nor its Affiliates may publish or present any results, data,
or scientific findings related to the MIF Program or the Research Program
without the prior written consent of Novartis. Novartis and its Affiliates may
publish or presents any results, data, or scientific findings related to the MIF
Program or the Research Program without the consent of Avanir; provided that
Novartis or its Affiliates shall provide the Avanir with a written copy of the
results, data, or scientific findings to be published or presented in sufficient
time prior to public release to allow Avanir to comment prior to public release.
For the avoidance of doubt, Patents and Regulatory Filings are not regarded as
publications for the purposes of this Section 10.3.

     10.4 SURVIVAL

     The provisions of this Article X shall survive the termination of this
Agreement and shall extend for a period of [***] thereafter.

                                   ARTICLE XI

                               DISPUTE RESOLUTION

     11.1 GOVERNING LAW AND JURISDICTION

     This Agreement shall be governed and construed in accordance with the laws
of the State of Delaware. Both Parties agree to submit to personal jurisdiction
and venue in the State of Delaware.

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     11.2 DISPUTE RESOLUTION PROCESS

     (a) Except as otherwise explicitly provided herein, in the event of any
claim arising out of or relating to any provision of this Agreement, failing
resolution of the controversy or claim, the matter shall be referred to the
chief executive officer of Avanir or his designee and the chief executive
officer of Novartis or his designee who shall, as soon as practicable, attempt
in good faith to resolve the controversy or claim. If such controversy or claim
is not resolved within sixty (60) calendar days of the date of initial referral
of the matter to the chief executive officers, either Party shall be free to
initiate the arbitration proceedings outlined in the following Section.

     (b) In the event of any controversy or claim arising out of or relating to
any provision of this Agreement, the Parties shall try to settle their
differences amicably between themselves. Any unresolved disputes arising between
the Parties relating to, arising out of or in any way connected with this
Agreement or any term or condition hereof, or the performance by either Party of
its obligations hereunder, whether before or after termination of this
Agreement, shall be resolved by final and binding arbitration. Whenever a Party
shall decide to institute arbitration proceedings, it shall give written notice
to that effect to the other Party. Except in the case of a determination to be
made where payments are to be made to by one Party to the other, the Party
giving such notice shall refrain from instituting the arbitration proceedings
for a period of sixty (60) calendar days referred to in Section 11.2(a) to allow
the Parties time to further attempt to come to an amicable resolution of the
dispute. Arbitration shall be held in New York, New York, according to the
commercial rules of the International Chamber of Commerce ("ICC"). The
arbitration will be conducted by a panel of three arbitrators appointed in
accordance with ICC rules; provided that each Party shall within thirty (30)
calendar days after the institution of the arbitration proceedings appoint a
Party arbitrator, and the Party-arbitrators shall select, if available, a
neutral arbitrator who shall have significant senior management experience in
the pharmaceutical or biotechnology businesses to be chairman of the arbitration
panel, within thirty (30) calendar days thereafter. If the Party-arbitrators are
unable to select a neutral arbitrator within such period, the neutral arbitrator
shall be appointed in accordance with ICC rules. All arbitrator(s) eligible to
conduct the arbitration must agree to render their opinion(s) within thirty (30)
calendar days of the final arbitration hearing. No arbitrator (nor the panel of
arbitrators) shall have the power to award punitive damages under this Agreement
and such award is expressly prohibited. Decisions of the arbitrator(s) shall be
final and binding on all of the Parties. Judgment on the award so rendered may
be entered in a court having jurisdiction thereof. In any arbitration pursuant
to this Agreement, the arbitrators shall


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<PAGE>
interpret the express terms hereof and apply the laws of the State of Delaware.
The losing Party to the arbitration (if any) as determined by the arbitrators
shall pay the costs of arbitration. Notwithstanding the provisions of this
Section 11.2(b), either Party may seek preliminary or injunctive measures or
other equitable relief in any court of competent jurisdiction.

                                   ARTICLE XII

                              TERM AND TERMINATION

     12.1 TERM

     This Agreement shall become effective upon the Effective Date and the term
of this Agreement shall extend, subject to all applicable laws, with respect to
a Drug Product (or Submitted Drug Product, if applicable) in a particular
country until the later of:

     (a) the expiration of the last to expire of the Avanir Patents (or Novartis
Patents, solely with respect to a Submitted Drug Product) containing a Valid
Claim covering the Compound or the Drug Product (or Submitted Drug Product, if
applicable) or its use or manufacture in that country; or

     (b) [***] years from the date of First Commercial Sale of the Drug Product
(or Submitted Drug Product, if applicable) in that country.

     12.2 TERMINATION FOR CAUSE

     In addition to rights of termination which may be granted to either Party
under other provisions of this Agreement, either Party may terminate this
Agreement upon ninety (90) calendar days' prior written notice to the other
Party upon the material breach by such other Party of any of its
representations, warranties or obligations under this Agreement; provided that
such termination shall become effective only if the breaching Party shall fail
to remedy or cure the breach to the reasonable satisfaction of the other Party
within ninety (90) calendar days of receiving such notice.

     12.3 TERMINATION FOR BANKRUPTCY

     If at any time during the term of this Agreement, an Event of Bankruptcy
(as defined below) relating to either Party (the "Bankrupt Party") occurs, the
other Party (the "Other Party") shall have, in addition to all other legal and
equitable rights and remedies available

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hereunder, the option to terminate this Agreement upon thirty (30) calendar
days' written notice to the Bankrupt Party. It is agreed and understood that if
the Other Party does not elect to terminate this Agreement upon the occurrence
of an Event of Bankruptcy, except as may otherwise be agreed with the trustee or
receiver appointed to manage the affairs of the Bankrupt Party, the Other Party
shall continue to make all payments required of it under this Agreement as if
the Event of Bankruptcy had not occurred, the Bankrupt Party shall not have the
right to terminate any license granted herein, and in the event that Avanir is
the Bankrupt Party, the operation of the Joint Research Committee and the Joint
Program Committee shall immediately cease. The term "Event of Bankruptcy" shall
mean: (a) filing in any court or agency pursuant to any statute or regulation of
any state or country, a petition in bankruptcy or insolvency or for
reorganization or for an arrangement or for the appointment of a receiver or
trustee of the Bankrupt Party or of its assets; (b) proposing a written
agreement of composition or extension of a Bankrupt Party's debts, (c) being
served with an involuntary petition against the Bankrupt Party, filed in any
insolvency proceeding, and such petition shall not be dismissed within sixty
(60) calendar days after the filing thereof, (d) proposing or being a party to
any dissolution or liquidation; or (e) making an assignment for the benefit of
creditors. Without limitation, the Bankrupt Party's rights under this Agreement
shall include those rights afforded by 11 U.S.C. Section 365(n) of the United
States Bankruptcy Code (the "USBC") and any successor thereto. If the bankruptcy
trustee of a Bankrupt Party as a debtor or debtor-in-possession rejects this
Agreement under 11 U.S.C. Section 365(o) of the USBC, the non-Bankrupt Party may
elect to retain its rights licensed from the Bankrupt Party hereunder (and any
other supplementary agreements hereto) for the duration of this Agreement and
avail itself of all rights and remedies to the full extent contemplated by this
Agreement and 11 U.S.C. Section 365(n) of the USBC, and any other relevant laws.

     12.4 TERMINATION BY NOVARTIS

     Following the [***] anniversary of the Effective Date, Novartis may
terminate this Agreement at any time upon the provision of sixty (60) calendar
days' prior written notice. In addition, Novartis may, in its sole discretion,
relinquish the licenses granted to it hereunder with respect to any particular
Compound or Drug Product without affecting the licenses granted to it hereunder
with respect to any other Compound or Drug Product. There shall be a wind-down
period (the "Wind-Down Period") of [***] subsequent to the effective termination
date during which Novartis or its Affiliates shall only continue to fund that
number of Avanir FTEs that were involved in the Research Plan immediately prior

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to the termination notice. For the avoidance of doubt, only those activities in
which Avanir had been engaged at the time of termination shall continue during
the Wind-Down Period.

     12.5 EFFECT OF TERMINATION

     (a) Termination of this Agreement for any reason, or expiration of this
Agreement, will not affect: (i) obligations, including the payment of any
royalties and milestones which have accrued as of the date of termination or
expiration; and (ii) rights and obligations which, from the context thereof, are
intended to survive termination or expiration of this Agreement.

     (b) For each country, at the end of the term of this Agreement as provided
in Section 12.1 in respect of a Drug Product, Novartis and its Affiliates shall
have a perpetual, non-exclusive, transferable, paid-up, royalty-free license
with the right to sublicense in such country, to research, develop, have
developed, make, have made, use, distribute, have distributed, export, have
exported, import, have imported, promote, have promoted, market, have marketed,
sell, have sold and offer to sell the Compounds, the Drug Product in the Field
in the Territory under the Avanir Intellectual Property.

     (c) If Novartis terminates this entire Agreement pursuant to Section 12.4
or Avanir terminates this entire Agreement pursuant to Section 12.2, then all
licenses granted to Novartis and its Affiliates hereunder shall terminate and
revert to Avanir, and any sublicenses granted by Novartis or its Affiliates
hereunder shall be assigned to Avanir, and all copies of confidential
information of Avanir shall be returned to it.

     (i)  Novartis and its Affiliates shall grant to Avanir an exclusive,
          worldwide, paid-up license under Novartis Intellectual Property (with
          the right to sublicense with the consent of Novartis, which shall not
          be unreasonably withheld or delayed) to research, develop, have
          developed, make, have made, use, distribute, have distributed, export,
          have exported, import, have imported, promote, have promoted, market,
          have marketed, sell, have sold and offer to sell the Compounds (except
          Novartis Submitted Compounds) and the Drug Products (except Submitted
          Drug Products) whether in monotherapy or in combination with other
          pharmaceutical products, in the Field in the Territory.
          Notwithstanding the foregoing, in the event that Avanir commercializes
          any such Drug Product that Novartis has progressed through Development
          to the end of [***], then Avanir shall pay to Novartis a [***] percent
          ([***]%) royalty

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          on any future sales of such Drug Product sold directly by Avanir or
          its Affiliates, and in the case where Avanir does not sell such Drug
          Product directly, Avanir shall pay to Novartis a [***] percent
          ([***]%) royalty on any future sales of such Drug Product sold
          indirectly by Avanir or its Affiliates.

     (ii) In the event that Novartis determines in its sole discretion that it
          wishes to license out, sell, or transfer rights to develop any
          Submitted Drug Product(s), Avanir shall have a first right of
          negotiation to acquire exclusive rights to such Submitted Drug
          Product(s) on commercially reasonable terms. In such event, Novartis
          shall give written notice to Avanir that it wishes to license out,
          sell, or transfer rights to develop such Submitted Drug Product(s) and
          Avanir shall have thirty (30) days from the date on which it is deemed
          pursuant to Section 16.14 to have received such notice from Novartis
          to inform Novartis in writing of whether it wishes to act on its right
          of first negotiation. If Avanir does not notify Novartis in writing of
          its desire to act on its right of first negotiation within this thirty
          (30) day period, Novartis shall be free to grant rights to such
          Submitted Drug Products(s) to Third Parties. If Avanir does notify
          Novartis in writing of its desire to act on its right of first
          negotiation within this thirty (30) day period, the Parties shall
          enter into good faith negotiations regarding the terms and conditions
          for the proposed license, sale, or transfer rights to develop such
          Submitted Drug Product(s). In the event that the Parties fail to
          conclude such good faith negotiations and execute the agreements
          documenting such transaction within one hundred and twenty (120) days
          of the date on which Avanir notifies Novartis of its desire to act on
          its right of first negotiation, Novartis shall be free grant rights to
          such Submitted Drug Products(s) to Third Parties; provided that,
          Novartis shall not license, sell, or transfer such rights to a Third
          Party on terms more favorable to such Third Party than those last
          offered to Avanir without notifying Avanir in writing and affording
          Avanir the opportunity to enter into the proposed transaction on the
          same terms and conditions. In such event, Avanir shall have ten (10)
          business days in which to notify Novartis in writing that it wishes to
          enter into such transaction on the proposed terms and conditions.

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     (iii) In the event that termination occurs during the Development but prior
          to the First Commercial Sale of a Drug Product, Avanir may elect, but
          solely for Compounds and Drug Products that originated as Avanir
          Intellectual Property, and give, within sixty (60) calendar days of
          the date of termination notice, written notice to Novartis requesting
          the transfer of Data and Know-How as it pertains to the manufacturing
          processes of the relevant Compound and/or Drug Product, and to
          purchase remaining stocks and inventory of the relevant Compound
          and/or Drug Product that Novartis may have in its possession. The
          purchase price for such stocks shall be based on direct labor and
          out-of-pocket costs that Novartis may have incurred for such stock.
          The purchase shall be EX WORKS (Incoterms 2000) with [***]. Novartis
          shall make no representations or warranties as to the suitability of
          such stocks for any use and will be sold as-is. Novartis shall not be
          obligated to conduct any further testing on such stocks. Novartis
          shall not be required to dedicate more than [***] FTEs to such efforts
          and in any case shall not be required to provide further efforts
          towards the transfer of such manufacturing Data and Know-How beyond
          ninety (90) calendar days of the actual termination date of this
          Agreement. Avanir may request and Novartis, in its sole discretion,
          may provide further assistance towards the Data and Know-How transfer,
          however such assistance by Novartis shall be reimbursed by Avanir at
          the then prevailing Novartis FTE compensation rate. The Parties shall
          also agree to transfer any Regulatory Filings regarding such Compound
          and Drug Product from Novartis to Avanir, and Avanir shall bear any
          costs that may be incurred during such transfer. In the event that
          termination occurs after the First Commercial Sale of a Drug Product
          that originated as Avanir Intellectual Property, the Parties agree to
          enter into good faith negotiations to conclude a commercially
          reasonable supply agreement which, at a minimum, will provide for
          Novartis to supply and Avanir to purchase, commercially acceptable
          Drug Product for a period of [***]. The Parties shall also agree to
          transfer affected Regulatory Filings pursuant to such Compounds and
          Drug Products from Novartis to Avanir, and Avanir shall bear any costs
          that may be incurred during such transfer.

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     (d) If Novartis terminates this entire Agreement pursuant to Section 12.2,
then Novartis and its Affiliates shall be entitled to convert the license
granted herein to an exclusive, worldwide license, with the right to sublicense,
to research, develop, have developed, make, have made, use, distribute, have
distributed, export, have exported, import, have imported, promote, have
promoted, market, have marketed, sell, have sold and offer to sell the
Compounds, the Drug Products in the Field in the Territory under the Avanir
Intellectual Property, subject only to the obligation to pay to Avanir the
amounts due under Sections 7.4 and 7.5 as they become due; provided, however, in
the event that such termination was due to (i) the purported grant to a Third
Party of license rights granted exclusively to Novartis under this Agreement,
(ii) the disclosure by Avanir of material confidential information of Novartis
in violation of Article X of this Agreement, (iii) Avanir ceasing to perform its
funded obligations during the Research Term or (iv) the material breach by
Avanir of any of the representations or warranties set out in Section 9.1,
Novartis shall only be obligated to pay to Avanir [***] percent ([***]%) of the
amounts otherwise due under Sections 7.4 and 7.5 as they become due.

                                  ARTICLE XIII

                                 INDEMNIFICATION

     13.1 INDEMNIFICATION BY AVANIR

     Avanir will indemnify and hold Novartis and its Affiliates, and their
employees, officers and directors harmless against any Third Party loss,
damages, action, suit, claim, demand, liability, expense, bodily injury, death
or property damage (a "Loss"), that may be brought, instituted or arise against
or be incurred by such Persons to the extent such Loss is based on or arises out
of:

     (a) negligence or willful misconduct concerning the Research Program, a
Compound or a Drug Product by Avanir or its Affiliates; or

     (b) the breach by Avanir of any of its material obligations, covenants,
representations or warranties set forth in this Agreement; and

     (c) provided that the foregoing indemnification shall not apply to any Loss
to the extent such Loss is caused by the breach of this Agreement, negligent or
willful misconduct of Novartis or its Affiliates and their employees, officers
and directors.

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<PAGE>
     13.2 INDEMNIFICATION BY NOVARTIS

     Novartis will indemnify and hold Avanir, and its Affiliates, and their
employees, officers and directors harmless against any Third Party Loss that may
be brought, instituted or arise against or be incurred by such Persons to the
extent such Loss is based on or arises out of:

     (a) the development, manufacture, use, sale, storage or handling of a
Compound or a Drug Product by Novartis or its Affiliates or their
representatives, agents, licensees, sublicensees or subcontractors under this
Agreement, or any actual or alleged violation of law resulting therefrom (with
the exception of Losses based on infringement or misappropriation of
intellectual property rights); or

     (b) the breach by Novartis of any of its material obligations, covenants,
representations or warranties set forth in this Agreement;

     (c) the breach by any of Novartis' or its Affiliates or sublicensees of any
obligations relating to manufacture and whether through willful default or
negligence, giving rise to a Loss by Avanir; and

     (d) provided that the foregoing indemnification shall not apply to any Loss
to the extent such Loss is caused by the breach of this Agreement, negligent or
willful misconduct of Avanir or its Affiliates and their employees, officers and
directors.

     13.3 CLAIMS PROCEDURES

     Each Party entitled to be indemnified by the other Party (an "Indemnified
Party") pursuant to Section 13.1 or 13.2 shall give notice to the other Party
(an "Indemnifying Party") promptly after such Indemnified Party has actual
knowledge of any threatened or asserted claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided:

     (a) that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld or delayed)
and the Indemnified Party may participate in such defense at such Party's
expense (unless: (i) the employment of counsel by such Indemnified Party has
been authorized by the Indemnifying Party; or (ii) the Indemnified Party shall
have reasonably concluded that there may be a conflict of interest between the
Indemnifying Party and the Indemnified Party in the defense of such action, in


                                       44
<PAGE>
each of which cases the Indemnifying Party shall pay the reasonable fees and
expenses of one law firm serving as counsel for the Indemnified Party, which law
firm shall be subject to approval, not to be unreasonably withheld, by the
Indemnifying Party); and

     (b) the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this Agreement
to the extent that the failure to give notice did not result in harm to the
Indemnifying Party.

     (c) No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the approval of each Indemnified Party which approval shall
not be unreasonably withheld, consent to entry of any judgment or enter into any
settlement which: (i) would result in injunctive or other relief being imposed
against the Indemnified Party; or (ii) does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect to such claim or litigation.

     (d) Each Indemnified Party shall furnish such information regarding itself
or the claim in question as an Indemnifying Party may reasonably request in
writing and shall be reasonably required in connection with the defense of such
claim and litigation resulting therefrom.

     13.4 LIMITATION OF LIABILITY

     Neither Party shall be liable to the other for consequential, indirect or
punitive damages. For the avoidance of doubt, no Party can recover from the
other Party more than once for a single cause of action under an indemnity
granted by an indemnifying Party pursuant to this Agreement. The foregoing
sentence shall not be construed to preclude recovery in respect of multiple
claims arising from a single event or series of events. Neither Party shall have
liability with respect to any breach of any of the other Party's representations
and warranties under this Agreement: (a) for any individual item where the Loss
relating thereto is less than $[***]; and (b) in respect of each individual item
where the Loss relating thereto is equal to or greater than $[***], unless and
until the aggregate amount of such Losses exceeds [***] percent ([***]%) of the
amounts which Novartis or its Affiliates has paid under this Agreement and then
the liable Party shall be liable for the entire amount of the Losses described
in this Article XIII. The foregoing shall not be construed to limit liability
pursuant to Section 13.1 or Section 13.2. Each Party shall take and shall cause
its Affiliates to take all reasonable steps to mitigate any Loss upon becoming
aware of any event which would reasonably be expected to, or does, give rise
thereto,

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<PAGE>
including incurring costs only to the minimum extent necessary to remedy a
breach that gives rise to the Loss.

     13.5 COMPLIANCE

     The Parties shall comply fully with all applicable laws and regulations in
connection with their respective activities under this Agreement.

     13.6 INSURANCE

     Each Party shall use all commercially reasonable efforts to maintain
insurance and/or self-insurance including product liability insurance, with
respect to its activities hereunder and, in that event, shall claim upon such
insurance policy before relying upon the Indemnity set forth in Article XIII.

                                   ARTICLE XIV

                                  PIRATE GOODS

     Novartis and its Affiliates shall exercise commercially reasonable efforts
to monitor the sales in the Territory and take action to prevent trade in goods
by a Third Party that violate Novartis' or its Affiliates' exclusive legal
rights to market, price and sell a Drug Product in such a market. In the event
that Avanir first becomes aware of such a trade in goods by a Third Party which
violates Novartis' or its Affiliates' exclusive legal rights, Avanir shall
notify Novartis within seven (7) calendar days of first becoming aware of such
trading by a Third Party.

                                   ARTICLE XV

                                   EXCLUSIVITY

     During the term of this Agreement and except as otherwise set forth in this
Agreement, Avanir will work exclusively with Novartis and its Affiliates on the
MIF Program and the development of the Compounds and the Drug Products in the
Field and in the Territory.


                                       46
<PAGE>
                                   ARTICLE XVI

                            MISCELLANEOUS PROVISIONS

     16.1 OFFICIAL LANGUAGE

     English shall be the official language of this Agreement, and all
communications between the Parties hereto shall be conducted in that language.

     16.2 EXPORT CONTROLS

     This Agreement is made subject to any restrictions concerning the export of
materials and intellectual property from the United States which may be imposed
upon or related to either Party to this Agreement from time to time by the
Government of the United States. Furthermore, Novartis and its Affiliates will
not export, directly or indirectly, any Avanir Intellectual Property or any
Compound or Drug Product utilizing such Avanir Intellectual Property to any
countries for which the United States Government or any agency thereof at the
time of export requires an export license or other governmental approval,
without first obtaining the written consent to do so from the Department of
Commerce or other agency of the United States Government when required by
applicable statute or regulation.

     16.3 PHARMACOVIGILANCE

     Novartis shall be fully responsible for ensuring compliance with all
pharmacovigilance obligations, including the holding and maintaining of the
global safety database for the Drug Products. Prior to the first Regulatory
Approval of the first Drug Product, the Parties shall agree and implement a
procedure for the mutual exchange of adverse event reports and safety
information associated with the Drug Product. Details of the operating procedure
respecting such adverse event reports and safety information exchange shall be
the subject of a mutually acceptable pharmacovigilance agreement between the
Parties which shall at that time be made an addendum to this Agreement. Such
pharmacovigilance agreement shall be implemented at a time sufficient to permit
compliance with applicable guidelines and regulations of regulatory authorities.

     16.4 WAIVER

     No provision of the Agreement may be waived except in writing by both
Parties hereto. No failure or delay by either Party hereto in exercising any
right or remedy hereunder or under applicable law will operate as a waiver
thereof, or a waiver of a particular right or waiver of any right or remedy on
any subsequent occasion.


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<PAGE>
     16.5 FORCE MAJEURE

     Neither Party shall be held liable or responsible to the other Party nor be
deemed to have defaulted under or breached this Agreement for failure or delay
in fulfilling or performing any term of this Agreement, other than an obligation
to make a payment, when such failure or delay is caused by or results from fire,
floods, embargoes, government regulations, prohibitions or interventions, war,
acts of war (whether war be declared or not), insurrections, riots, civil
commotions, strikes, lockouts, acts of God, or any other cause beyond the
reasonable control of the affected Party.

     16.6 REGISTRATION OF LICENSE

     Novartis or its Affiliates may, at its or their expense, register the
license granted under this Agreement in any country where the use, sale or
manufacture of a Drug Product in such country would be covered by a Valid Claim.
Upon request by Novartis or its Affiliates, Avanir agrees promptly to execute
any "short form" licenses submitted to it by Novartis or its Affiliates in order
to effect the foregoing registration in such country, but such licenses shall in
no way alter or affect the obligations of the Parties hereunder.

     16.7 SEVERABILITY

     It is the intention of the Parties to comply with all applicable laws
domestic or foreign in connection with the performance of its obligations
hereunder. In the event that any provision of this Agreement, or any part
hereof, is found invalid or unenforceable, the remainder of this Agreement will
be binding on the Parties hereto, and will be construed as if the invalid or
unenforceable provision or part thereof had been deleted, and the Agreement
shall be deemed modified to the extent necessary to render the surviving
provisions enforceable to the fullest extent permitted by law.

     16.8 GOVERNMENT ACTS

     In the event that any act, regulation, directive, or law of a government,
including its departments, agencies or courts, should make impossible or
prohibit, restrain, modify or limit any material act or obligation of Novartis,
Avanir and their respective Affiliates under this Agreement, the Party, if any,
not so affected shall have the right, at its option, to suspend or terminate
this Agreement as to such country, if good faith negotiations between the
Parties to make such modifications to this Agreement as may be necessary to
fairly address the impact thereof, are not successful after a reasonable period
of time in producing mutually acceptable modifications to this Agreement.

     16.9 GOVERNMENT APPROVALS


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<PAGE>
     Novartis will use reasonable efforts to obtain any government approval
required to enable this Agreement to become effective, or to enable any payment
hereunder to be made, or any other obligation hereunder to be observed or
performed. Each Party will keep the other informed of progress in obtaining any
such approvals.

     16.10 ASSIGNMENT

     Novartis may assign its rights and obligations under this Agreement without
the prior written consent of Avanir to an Affiliate or in connection with the
transfer or sale of all or substantially all of its assets or business or in the
event of its merger or consolidation with a Third Party. Novartis may also
assign its rights and obligations under this Agreement to any of the [***], with
the prior written consent of Avanir. Avanir may not assign its rights and
obligations under this Agreement during the Research Term without the prior
written consent of Novartis. Thereafter, but prior to receipt of the first
Regulatory Approval for a Drug Product, Avanir may assign its right to receive
payments under this Agreement only to a Third Party which has a market
capitalization prior to the assignment (including its affiliates) of less than
$[***]. Following the receipt of the first Regulatory Approval for a Drug
Product, Avanir may assign its right to receive payments under this Agreement
without the prior written consent of Novartis. Any other proposed assignment by
Avanir of its rights and obligations under this Agreement shall require the
prior written consent of Novartis. Any request for consent to assignment shall
not be unreasonably withheld or delayed. In addition, Avanir shall be entitled
to assign all or any part of its right to receive payments under this Agreement.
Any purported assignment in contravention of this Section 16.10 shall, at the
option of the non-assigning Party, be null and void and of no effect. No
assignment shall release either Party from responsibility for the performance of
any accrued obligation of such Party hereunder. This Agreement shall be binding
upon and enforceable against the successor to or any permitted assignee from
either of the Parties hereto.

     16.11 AFFILIATES

     Each Party may perform its obligations hereunder personally or through one
or more Affiliates, although each Party shall nonetheless be solely responsible
for the performance of its Affiliates. Neither Party shall permit any of its
Affiliates to commit any act (including any act of omission) which such Party is
prohibited hereunder from committing directly. The use of subcontractors by
either Party shall not increase the financial obligations of the other Party
hereunder in any respect.

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<PAGE>
     16.12 COUNTERPARTS

     This Agreement may be executed in duplicate both of which shall be deemed
to be originals, and both of which shall constitute one and the same Agreement.

     16.13 NO AGENCY

     Nothing herein contained shall be deemed to create an agency, joint
venture, amalgamation, partnership or similar relationship between Novartis and
Avanir. Notwithstanding any of the provisions of this Agreement, neither Party
shall at any time enter into, incur, or hold itself out to third Parties as
having authority to enter into or incur, on behalf of the other Party, any
commitment, expense, or liability whatsoever, and all contracts, expenses and
liabilities undertaken or incurred by one Party in connection with or relating
to the development, manufacture or sale of the Compounds or the Drug Products
shall be undertaken, incurred or paid exclusively by that Party, and not as an
agent or representative of the other Party.

     16.14 NOTICE

     All communications between the Parties with respect to any of the
provisions of this Agreement will be sent to the addresses set out below, or to
other addresses as designated by one Party to the other by notice pursuant
hereto, by prepaid certified, air mail (which shall be deemed received by the
other Party on the seventh (7th) Business Day following deposit in the mails),
or by cable, telex, facsimile transmission, or other electronic means of
communication (which shall be deemed received when transmitted), with
confirmation by letter given by the close of business on or before the next
following Business Day:

     If to Novartis, at:

     Novartis International Pharmaceutical Ltd.
     Hurst Holme, 12 Trott Road
     P.O. Box HM 2899
     Hamilton HM LX
     Bermuda
     Fax: + [***]
     Attention: Emil Bock

     with a copy to:

     Novartis Institutes for BioMedical Research, Inc.
     400 Technology Square
     Cambridge, Massachusetts 02139
     Fax: + [***]
     Attention: Robert L. Thompson, Vice President and General Counsel

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<PAGE>
     and

     Novartis Pharma AG
     Lichstrasse, 35
     CH-4056 Basel, Switzerland
     Fax: +[***]
     Attention: General Counsel Pharma Legal

     If to Avanir, at:

     Avanir Pharmaceuticals
     11388 Sorrento Valley Road
     Suite 200
     San Diego, California 92121
     Fax: + [__________]
     Attention: ___________________________

     with a copy to:

     Heller Ehrman White & McAuliffe LLP
     4350 La Jolla Village Drive
     San Diego, California 92122-1246
     Fax: +858.450.8499
     Attention: Richard A. Kaufman, Esq.

     16.15 HEADINGS

     The paragraph headings are for convenience only and will not be deemed to
affect in any way the language of the provisions to which they refer.

     16.16 AUTHORITY

     The undersigned represent that they are authorized to sign this Agreement
on behalf of the Parties hereto. The Parties each represent that no provision of
this Agreement will violate any other agreement that such Party may have with
any other Person. Each Party has relied on that representation in entering into
this Agreement.

     16.17 ENTIRE AGREEMENT

     This Agreement, including the Annexes appended hereto, contains the entire
understanding of the Parties relating to the matters referred to herein, and may
only be amended by a written document, duly executed on behalf of the respective
Parties.

     16.18 INVOICE REQUIREMENT

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<PAGE>
     Except as otherwise set forth in this Agreement, any amounts payable to
Avanir hereunder shall be made within thirty (30) calendar days after receipt by
Novartis, or its nominee designated for that purpose in advance by Novartis in
writing to Avanir, of an invoice covering such payment, which invoice shall
conform to the extent reasonably practicable to the form of invoice contained in
Annex 3.

                            [Signature page follows]


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<PAGE>
     IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized representatives in duplicates as of the day,
month and year first above written.

AVANIR PHARMACEUTICALS


By: /s/ Gerald J. Yakatan
    ----------------------------
Title: President & CEO


NOVARTIS INTERNATIONAL PHARMACEUTICAL LTD.


By: /s/ Emil Bock
    ----------------------------
Title: Emil Bock, Member of the Board of Directors


By: /s/ Michael Jones
    ----------------------------
Title: Michael Jones, Member of the Board of Directors


                                  53
<PAGE>
                            ANNEX 1 - PATENT SCHEDULE

                             AVANIR PHARMACEUTICALS

                          MIF PATENTS AND APPLICATIONS

                                      [***]

                                              * Confidential Treatment Requested
<PAGE>
                             ANNEX 2 - RESEARCH PLAN

                                      [***]

                                              * Confidential Treatment Requested