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                                                                    EXHIBIT 10.7

                                                                    CONFIDENTIAL


               BINDING LETTER OF INTENT & MEMORANDUM OF AGREEMENT

                                     BETWEEN

         TAISHO PHARMACEUTICAL CO., LTD. AND ARENA PHARMACEUTICALS, INC.

        This BINDING LETTER OF INTENT & MEMORANDUM OF AGREEMENT ("Agreement") is
effective as of the later date of the signature written at the bottom of this
Agreement ("Effective Date") by and between Taisho Pharmaceutical Co., Ltd.
("Taisho") and Arena Pharmaceuticals, Inc. ("Arena").

        Taisho and Arena, as of the Effective Date, have agreed to both to be
bound by the following terms and conditions, with the understanding that a final
agreement ("Final Agreement") shall be prepared and signed by Taisho and Arena
within one hundred twenty (120) days of the Effective Date or extended period to
be agreed by the parties. The effective date of the Final Agreement shall be the
Effective Date, and all terms and conditions set forth in this Agreement shall
be incorporated into the Final Agreement. The terms "hereunder" and "this
Agreement" used in this Agreement shall thereafter be construed by adding or
replacing by the term "the Final Agreement" as the case may be.

        1.     SCOPE OF COLLABORATION

        The collaboration between Taisho and Arena shall involve ***** ****, or
***** **** or ***** **** if Taisho does not select additional ***** **** or
***** ****, G protein coupled receptors (GPCR) that have been subjected to
Arena's CART Technology. GPCRs for CART Activation shall be selected by Taisho,
and these selected GPCRs shall be referred to as "Taisho Activated Receptor(s)."
The ***** **** Taisho Activated Receptor selected as of the Effective Date by
Taisho is designated as: **** *****. Taisho may select ***** **** additional
Taisho Activated Receptor(s) within ***** **** years from the Effective Date,
but only with respect to GPCRs that are ***************************************
**************************.

        2.     RIGHTS GRANTED

        Arena grants to Taisho worldwide, exclusive rights (including the right
to sublicense), exclusive even as to Arena but subject to Section 3.C, to use
and have used each Taisho Activated Receptor for screening of chemical library
compounds, other synthetic compounds, natural extracts, etc. for the
identification of compounds that modulate the activity of the Taisho Activated
Receptor ("CART Identified Compounds" inclusive of compounds which are derived
from identified lead compounds by such screening) and to use and have used each
Taisho Activated Receptor for further research and development of such CART
Identified Compounds as drug candidates. Arena grants to Taisho worldwide,
exclusive rights (including the right to sublicense), exclusive even as to
Arena, to research, develop, use, have used, make, have made, sell and have
sold, CART Identified Compounds and/or drug products that incorporate the CART
Identified Compound(s) ("Drug Products").

                  THE REST OF THIS PAGE IS INTENTIONALLY BLANK

   CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE PORTIONS MARKED AS ***.


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        3.     PAYMENTS, FEES AND ROYALTY RATES

        All payments shall be made in United States dollars.

               A.      UP FRONT PAYMENT

        To form the basis of collaboration between the parties and in
consideration of the right granted under this Agreement, Taisho shall pay to
Arena *********** within thirty (30) days of the Effective Date.

               B.      RESEARCH FEE

        As remuneration for preparation and supply of a validated screening
assay and the research therefor by Arena, Taisho shall pay to Arena as to EACH
receptor as follows:

                       1.     Within thirty (30) days of selection by Taisho of
                              a Taisho Activated Receptor (i.e., within thirty
                              (30) days of the Effective Date as to *****, and
                              within thirty (30) days of selection by Taisho as
                              to an additional Taisho Activated Receptor
                              ********************): *********.

                       2.     Within thirty (30) days of receipt by Taisho of a
                              validated screening assay incorporating a Taisho
                              Activated Receptor and for use by Taisho:
                              *********.

                       3.     Within thirty (30) days of completion of the
                              screening by Taisho of ******** compounds using
                              the validated screening assay incorporating a
                              Taisho Activated Receptor: *********.

                       4.     If and only if Taisho continues the screening
                              using the validated screening assay on and after
                              the ***** anniversary of receipt by Taisho of the
                              validated screening assay, within thirty (30) days
                              of the ****** anniversary of receipt by Taisho of
                              the validated screening assay:      ********.

        Taisho and Arena agree that the MAXIMUM amount of remuneration that
Taisho would be required to pay to Arena under Research Fee, in case of
selection of ****** (**) Taisho Activated Receptors is: **********.

                  THE REST OF THIS PAGE IS INTENTIONALLY BLANK


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               C.      ARENA SCREENING FEE

        Taisho has requested that Arena conduct screening of the Arena chemical
library and upon such request, Arena shall screen more than ******* compounds
that belong to the Arena chemical library using the Taisho Activated Receptor
selected by Taisho ("Screening Request"). Arena shall use its best commercial
efforts to identify at least ***** (**) CART Identified Compound for use by
Taisho as a screening lead candidate. Taisho shall pay to Arena a screening fee
of ********, and upon receipt of such fee, Arena shall initiate its screening
efforts.

        Taisho and Arena agree that the amount that Taisho would be required to
pay to Arena under Arena Screening Fee, in case of selection of ****** (**)
Taisho Activated Receptors is: **********, and in case of selection of *****
(**) Taisho Activated Receptors is:

***********.

               D.      MILESTONE FEE

        In consideration of the right granted hereunder, Taisho agrees to pay to
Arena the following Milestone Fees for EACH CART Identified Compound. Taisho may
at its sole discretion decide which CART Identified Compound it shall actually
develop or not develop for Drug Product(s) and decide whether to continue or to
discontinue such development. For a CART Identified Compound, the payment shall
be made only at the *************, if any, of a milestone set forth below as to
the Drug Product ************ to such milestone that incorporate the CART
Identified Compound, regardless of formulation and/or indication of the Drug
Product. Provided, however, both Taisho and Arena agree that (i) as long as the
development of preceding CART Identified Compound is being continued, Taisho
shall ********************** of Milestone Fees for *********** CART Identified
Compound developed as ************** of the *********** CART Identified Compound
and (ii) any Milestone Payment made by Taisho to Arena for the *********** CART
Identified Compound may be ************ by Taisho ********* Milestone Payments
for the ********** CART Identified Compound that shall become due by Taisho
when: (a) the development of the preceding CART Identified Compound is
*************** and (b) the *********** CART Identified Compound
*********************** CART Identified Compound (such ************ shall be
notified in writing to Arena by Taisho). Both Taisho and Arena further agree
that (i) the following Milestone Fees shall be *********************** and
become due by Taisho for each ************* CART Identified Compound if Taisho
continues the development of the ************** CART Identified Compound for the
************ as the ************** CART Identified Compound even after Taisho
launches the ********** CART Identified Compound and (ii) Taisho shall be
**************** from the payments of Milestone Fees for the ************** CART
Identified Compound if Taisho ********************** CART Identified Compound
********************** of the **************** CART Identified Compound.

                       1.     Within thirty (30) days of Taisho's decision to
                              implement the development directed to the filing
                              of an Investigational New Drug application (or its
                              equivalent) of a CART Identified Compound as Drug
                              Product(s): **********

                       2.     Within thirty (30) days of the first filing of an
                              Investigational New Drug application (or its
                              equivalent) for a Drug Product: ***********


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                       3.     Within thirty (30) days of dosing of the first
                              human in a Phase II clinical investigation (or
                              its equivalent) of a Drug Product: ***********

                       4.     Within thirty (30) days of dosing of the first
                              human in a Phase III clinical investigation (or
                              its equivalent) of a Drug Product: ***********

                       5.     Within thirty (30) days of the notice of the first
                              approval of a New Drug Application for a Drug
                              Product in the United States: ************

                       6.     Within thirty (30) days of the notice of the first
                              approval of a New Drug Application for a Drug
                              Product in a major European country: ************

                       7.     Within thirty (30) days of the notice of the first
                              approval of a New Drug Application for a Drug
                              Product in Japan: ************

        Taisho and Arena agree that the MAXIMUM amount that Taisho would be
required to pay to Arena under Milestone Fee for each CART Identified Compound:

                       1.     ***********.

                       2.     for each *********** CART Identified Compound
                              developed by Taisho for the *********** as a
                              ******* Drug Product launched by Taisho:
                              ***********.

               E.      ROYALTY RATES


        In consideration of the right granted hereunder, Taisho shall pay a
royalty to Arena based upon net sales received by Taisho and Taisho licensees
for the sale of each Drug Product on an annual basis ("Annual Net Sales" to be
defined in the Final Agreement), with the royalty rates as follows and within
the limited period to be agreed by the parties and provided for in the Final
Agreement for each Drug Product:


                       a)     On a portion of Annual Net Sales of between *****
                              and *****:
                                                                            ***%

                       b)     On a portion of Annual Net Sales of between *****
                              and *****:
                                                                            ***%

                       c)     On a portion of Annual Net Sales of between *****
                              and *****:
                                                                            ***%

                       d)     On a portion of Annual Net Sales above *****:
                                                                            ***%

(i.e., if Annual Net Sales is *****, the amount of royalty is ***** (***** of
*****, *****, ***** and *****).


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        4. WITHHOLDING TAX         All figures set forth herein are net of any
taxes and duties, except withholding tax if levied in Japan on any of the
payment. Any withholding taxes levied shall be borne by Arena and deducted by
Taisho from the payment for tax payment.

        5. LEGALLY BINDING EFFECT  Both Taisho and Arena further agree to
cooperate, in good faith, in the completion of the Final Agreement. Irrespective
of the completion of the Final Agreement, both Taisho and Arena agree to be
bound by the foregoing terms and to treat the terms and conditions of this
Agreement as a legally binding contract with the rights, duties and obligations
of each party set forth as above.

        6. CONFIDENTIALITY         Both Taisho and Arena agree that this
Agreement shall fully incorporate mutatis mutandis the terms and conditions of
confidentiality of the Mutual Non-Disclosure Agreement between Taisho and Arena,
dated August 31, 1999.

        7. REMEDIES                All disputes, which may arise between the
parties hereto, in connection with this Agreement shall be finally settled by
arbitration in accordance with the Rules of Arbitration of the International
Chamber of Commerce. The arbitration shall be held in San Diego, if requested by
Taisho or in Tokyo, if requested by Arena. The award to be rendered shall be
final and binding upon both parties.

        WHEREUPON, each party, having read and understood the foregoing, and
agreeing to be bound by the terms and conditions herein, have caused this
Agreement to be executed by their authorized agents as of the Effective Date.

ARENA PHARMACEUTICALS, INC.         TAISHO PHARMACEUTICAL CO., LTD.



By:                   /s/                   By:                  /s/
        ----------------------------               -----------------------------

Name:   Jack Lief                           Name:  Akira Uebara

Title:  President & CEO                     Title: President

Date:   May 18, 2000                        Date:  May 29, 2000

         ***************************************************************

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