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                                                                   EXHIBIT 10.37

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              EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS.

                   COMPOUND DISCOVERY COLLABORATION AGREEMENT


         This Research Collaboration and License Agreement (this "AGREEMENT") is
entered into as of December 19, 2000 (the "EFFECTIVE DATE") by and between
ArQule, Inc. ("ARQULE"), a Delaware corporation, and ACADIA Pharmaceuticals,
Inc. ("ACADIA"), a Delaware corporation.

                                    RECITALS

         WHEREAS, ArQule and ACADIA previously entered into a Material Transfer
and Screening Agreement dated April 7, 1998 (the "MTA") pursuant to which ArQule
delivered certain of its Mapping Array(TM) compounds to ACADIA, and ACADIA
screened those compounds against certain of its targets;

         WHEREAS, ACADIA detected activity of certain ArQule compounds against
certain ACADIA targets; and

         WHEREAS, pursuant to the terms of the MTA, ArQule and ACADIA have
negotiated this Agreement to expand their joint research activities and to
pursue further development of the active compounds discovered by ACADIA.

         NOW, THEREFORE, ArQule and ACADIA hereby agree as follows:

1.       DEFINITIONS.

         1.1 "ACADIA TARGET" means each biological target nominated by ACADIA,
accepted by ArQule, and selected by the Research Committee for use in the
Collaboration, as further described in Subsection 3.3.1. below.

         1.2 "ACTIVE COMPOUND" means any ArQule Compound, Targeted Compound, or
Analog Compound which exhibits confirmed significant functional activity against
an ACADIA Target in a primary screen, as determined by the Research Committee.
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         1.3 "AFFILIATE" means any legal entity (such as a corporation,
partnership, or limited liability company) that is controlled by a party. For
the purposes of this definition, the term "control" means (i) beneficial
ownership of at least fifty percent (50%) of the voting securities of a
corporation or other business organization with voting securities or (ii) a
fifty percent (50%) or greater interest in the net assets or profits of a
partnership or other business organization without voting securities.

         1.4 "ANALOG COMPOUND" means a chemical compound that (i) exhibits
[*****] to an identified Active Compound or Targeted Compound, (ii) was
discovered or developed using information obtained by screening one or more
Active Compounds or Targeted Compounds, or (iii) was [*****] parent ArQule
Compound or Targeted Compound [*****].

         1.5 "ARQULE COMPOUND" means a small organic chemical molecule in a
Mapping Array Set, Compass Array Set, or Biased Array Set (as described in the
Collaboration Plan) and provided by ArQule to ACADIA as directed by the Research
Committee under this Agreement or previously provided to ACADIA under the MTA.

         1.6 "AVAILABLE COMPOUND" means an ArQule Compound or Analog Compound
that is neither: (i) licensed or otherwise committed by ArQule or ACADIA to a
third party in the Field nor (ii) committed to an internal ArQule or ACADIA
program in the Field. In addition, all Targeted Compounds are Available
Compounds. "AVAILABLE ACTIVE COMPOUND" means an Active Compound that is also an
Available Compound.

         1.7 "AVAILABLE TARGET" means an ACADIA Target that is neither: (i)
licensed or otherwise committed by ACADIA or ArQule to a third party in the
Field nor (ii) committed to an internal ACADIA or ArQule program in the Field.

         1.8 "COLLABORATION" means the activities of ACADIA and ArQule carried
out in performance of, and the relationship, rights and obligations of the
parties established by, Articles 2 and 3 of this Agreement.

         1.9 "COLLABORATION PLAN" means the overall plan for research and
development activities for typical projects in the Collaboration, as set forth
on EXHIBIT A. The Steering Committee may modify the Collaboration Plan as needed
to advance the goals of the Collaboration.

         1.10 "COLLABORATION PRODUCT" means any product containing as one of its
constituents any Committed Compound or any Analog Compound based on a Committed
Compound.

         1.11 "COLLABORATION WORK PRODUCT" means, individually or collectively,
(i) any Committed Target or Committed Target Set and its corresponding Committed
Compounds or Committed Compound Set(s), GLP Toxicology Candidate, or IND
Candidate, as well as all

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Technology pertaining to any of the foregoing or the manufacture, use or sale
thereof, and (ii) all libraries of Targeted Compounds.

         1.12 "COMMERCIALIZATION PLAN" means a plan developed and approved by
the Steering Committee for the sale, license, or other transfer of commercial
rights in Collaboration Work Product to a third party, as described in Section
3.7.

         1.13 "COMMITTED COMPOUND" means (i) any Available Active Compound
designated by the Research Committee as a Committed Compound pursuant to
Subsection 3.4.2. and (ii) any Analog Compound developed by the parties in the
course of an optimization program as described in Section 3.5., provided that
such Analog Compound is an Available Compound as required under Section 3.5.

         1.14 "COMMITTED COMPOUND SET" means a set of Committed Compounds that
[*****] as determined by the Research Committee.

         1.15 "COMMITTED TARGET" means any Available Target designated by the
Research Committee as a Committed Target pursuant to Subsection 3.4.2.

         1.16 "COMMITTED TARGET SET" means a set of Committed Targets that are
so closely related that the Research Committee has decided to group those
Committed Targets into one optimization program under Section 3.5. or allocation
under Subsection 9.6.2.

         1.17 "CONFIDENTIAL INFORMATION" means any technical or business
information furnished by one party (the "DISCLOSING PARTY") to the other party
(the "RECEIVING PARTY") in connection with this Agreement. Such Confidential
Information may include, without limitation, the identity or use of a chemical
compound, the identity or use of a biological target, trade secrets, know-how,
inventions, technical data or specifications, testing methods, business or
financial information, research and development activities, Steering Committee
reports, Research Committee reports, royalty reports, product and marketing
plans, clinical development plans, and customer and supplier information.

         1.18 "FIELD" means applications in human therapeutics and animal
health.

         1.19 "GLP TOXICOLOGY CANDIDATE" means a Committed Compound that meets
or exceeds the criteria established by the Research Committee for a compound
that is ready for submission to IND enabling toxicology studies, as documented
in the Research Plan.

         1.20 "GROSS REVENUES" means the aggregate amount of consideration
received from a third party by either party in connection with an agreement to
commercialize any Collaboration Work Product, including without limitation
license fees, milestone payments, royalties, and the premium portion of equity
payments at a premium to fair market value, but excluding funds specifically
allocated to and actually used for the research and development of Collaboration
Work Product. Gross Revenues shall be calculated without deduction of any costs,
fees, or expenses (e.g., legal fees or finders fees) paid by a party in
connection with the transaction. To

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                                       3.
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the extent that any Gross Revenues are transferred to a party in a form other
than cash, the amount of such Gross Revenues payable to the other party shall be
based on the fair market value of such non-monetary consideration on the date of
transfer, as determined in good faith by the parties.

         1.21 "IND" means an investigational new drug application filed with the
FDA prior to beginning clinical trials in humans or any comparable application
filed with the regulatory authorities of a country other than the United States,
prior to beginning clinical trials in humans in that country.

         1.22 "IND CANDIDATE" means a Committed Compound that meets or exceeds
the criteria established by the Research Committee for a compound that is ready
for human clinical trials, including data sufficient to support the filing of an
IND, as documented in the Research Plan.

         1.23 "PATENT RIGHTS" means any United States patent application and any
divisional, substitution, continuation, or continuation-in-part of such patent
application (to the extent the claims are directed to subject matter
specifically described therein) or inventor's certificate relating to such
patent application, as well as any patent issued thereon and any reissue,
reexamination, renewal, extension or term restoration of such patent, and any
foreign counterparts to such patents and patent applications. "ARQULE PATENT
RIGHTS" means Patent Rights that are either (i) assigned solely to ArQule, (ii)
assigned jointly to ArQule and a party other than ACADIA, or (iii) licensed to
ArQule, in each case to the extent that ArQule has the ability to license or
sublicense the rights required under this Agreement without payment to a third
party. "ACADIA PATENT RIGHTS" means Patent Rights that are either (i) assigned
solely to ACADIA, (ii) assigned jointly to ACADIA and a party other than ArQule,
or (iii) licensed to ACADIA, in each case to the extent that ACADIA has the
ability to license or sublicense the rights required under this Agreement
without payment to a third party. "JOINT PATENT RIGHTS" means Patent Rights (i)
in Committed Compounds and their use against Committed Targets; (ii) in Targeted
Compounds and their uses; or (iii) that are assigned to both ArQule and ACADIA
as joint owners or are otherwise jointly invented by one or more employees or
consultants of ACADIA and one or more employees or consultants of ArQule in
connection with the Collaboration.

         1.24 "RESEARCH COMMITTEE" means the Research Committee described in
Section 2.1. The Research Committee manages and directs the research and
development activities in the Collaboration.

         1.25 "RESEARCH MATERIALS" means any tangible research materials,
whether biological, chemical, physical, or otherwise. "PROPRIETARY RESEARCH
MATERIALS" means any Research Materials that a party designates as proprietary
or confidential, including without limitation (a) all ArQule Compounds, and (b)
all expressed proteins for ACADIA Targets provided by ACADIA in the
Collaboration.

         1.26 "RESEARCH PLAN" means the specific, detailed plan for research and
development activities in the Collaboration that is developed by the Research
Committee and approved by the

                                       4.
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Steering Committee. The parties anticipate that they will update the Research
Plan on at least a quarterly basis.

         1.27 "RESERVED COMPOUND" means an Available Compound that has been
reserved by the parties for the Collaboration as described in Subsection 3.4.1.

         1.28 "RESERVED COMPOUND SET" means a set of Reserved Compounds that
share substantial chemical or structure homology, and which exhibit significant
functional activity for the same Reserved Target, or which share other common
characteristics such that the Research Committee has decided, in its discretion,
to group those Reserved Compounds for evaluation under Section 3.4. or for
allocation under Subsection 9.6.2.

         1.29 "RESERVED TARGET" means an Available Target that has been reserved
by the parties for the Collaboration as described in Subsection 3.4.1.

         1.30 "RESERVED TARGET SET" means a set of Reserved Targets that are so
closely related that the Research Committee has decided, in its discretion, to
group those Reserved Targets for evaluation under Section 3.4. or allocation
under Subsection 9.6.2.

         1.31 "STEERING COMMITTEE" means the Steering Committee described in
Section 2.2. of this Agreement. The Steering Committee has overall authority
within the Collaboration, and specifically has approval authority over financial
decisions.

         1.32 "TARGETED COMPOUND" means a compound in a library focused on a
target class, which library is developed jointly by the parties within the
Collaboration, as more particularly described in the Collaboration Plan and
Research Plan.

         1.33 "TECHNOLOGY" means any proprietary development, idea, design,
concept, technique, process, invention, Research Material, discovery, or
improvement, whether or not patentable or copyrightable. "ARQULE TECHNOLOGY"
means Technology that is either (i) assigned solely to ArQule, (ii) assigned
jointly to ArQule and a party other than ACADIA, or (iii) licensed to ArQule, in
each case to the extent that ArQule has the ability to license or sublicense the
rights required under this Agreement without payment to a third party. "ACADIA
TECHNOLOGY" means Technology that is either (i) assigned solely to ACADIA, (ii)
assigned jointly to ACADIA and a party other than ArQule, or (iii) licensed to
ACADIA, in each case to the extent that ACADIA has the ability to license or
sublicense the rights required under this Agreement without payment to a third
party. "COLLABORATION TECHNOLOGY" means (i) all Committed Compounds and their
use against Committed Targets, (ii) all Targeted Compounds and their uses, and
(iii) any Technology that is developed, invented, or discovered jointly by one
or more employees or consultants of ACADIA and one or more employees or
consultants of ArQule in connection with the Collaboration.

2.       MANAGEMENT OF COLLABORATION.

         2.1 RESEARCH COMMITTEE.

                  2.1.1 CREATION OF RESEARCH COMMITTEE. The parties hereby
create a Research Committee with at least four (4) members, with equal
representation from each party. The

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members initially designated by ACADIA are [*****]and [*****] and the members
initially designated by ArQule are [*****] and [*****] Either party may change
its representatives on the Research Committee at any time upon written notice to
the other party. The chairperson of the Research Committee shall be designated
annually on an alternating basis between the parties. The chairperson shall
initially be [*****] The party not designating the chairperson shall designate
one of its representatives as secretary to the Research Committee for such
[*****].

                  2.1.2 MEETINGS OF THE RESEARCH COMMITTEE. Regular meetings of
the Research Committee shall be held within [*****] of the end of each calendar
quarter, or at such other times as the parties may deem appropriate, at such
times and places as the members of the Research Committee shall from time to
time agree. Special meetings of the Research Committee may be called by either
party on [*****] written notice to the other party unless notice is waived by
the parties. All meetings shall alternate between the offices of the parties
unless the parties otherwise agree. The chairperson shall be responsible for
sending notice of meetings to all members. In the event a Research Committee
member is unable to attend a meeting of the Research Committee, such Research
Committee member may designate an alternate member who will serve solely for
that Research Committee meeting.

                  2.1.3 DECISIONS OF RESEARCH COMMITTEE. A quorum of the
Research Committee shall be present at any meeting of the Research Committee if
at least one representative of each party is present at such meeting in person
or by telephone. If a quorum exists at any meeting, the unanimous consent of all
members of the Research Committee present at such meeting is required to take
any action on behalf of the Research Committee.

                  2.1.4 RESPONSIBILITIES OF RESEARCH COMMITTEE. The Research
Committee shall be responsible for the day-to-day conduct and progress of the
Collaboration, including without limitation:

                            (i) preparing, approving, and updating the Research
Plan and the annual budget;

                            (ii) managing all technical aspects of the
Collaboration, including all research and development activities;

                            (iii) providing a forum for the exchange of
scientific information among the scientists participating in the Collaboration;

                            (iv) resolving matters involving scientific
questions;

                            (v) determining the criteria of significant
functional activity necessary for an ArQule Compound, Targeted Compound, or
Analog Compound to qualify as an Active Compound and confirming that an ArQule
Compound, Targeted Compound, or Analog Compound qualifies as an Active Compound;

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                            (vi) maintaining records of Reserved Compounds and
Reserved Targets and establishing Reserved Compound Sets and Reserved Target
Sets;

                            (vii) designating Available Active Compounds as
Committed Compounds, establishing Committed Compound Sets, and adding and
removing compounds from Committed Compound Sets; and

                            (viii) designating Available Targets as Committed
Targets, establishing Committed Target Sets, and adding and removing targets
from Committed Target Sets.

                  2.1.5 RESEARCH COMMITTEE REPORTS. Within [*****] following
each meeting of the Research Committee held pursuant to Subsection 2.1.2., the
secretary of the Research Committee shall prepare and send to each party a
written report of actions taken at the meeting in such form and containing such
detail as shall be determined by the Research Committee.

                  2.1.6 DEADLOCK. In the event that the Research Committee
cannot reach agreement with respect to any matter that is subject to its
decision-making authority, then the matter shall be referred to the Steering
Committee for resolution.

         2.2 STEERING COMMITTEE.

                  2.2.1 CREATION OF STEERING COMMITTEE. The parties hereby also
create a Steering Committee with at least six 6) members, with equal
representation from each party. The members initially designated by ACADIA are
[*****]. The members initially designated by ArQule are [*****] Either party may
change its representatives on the Steering Committee at any time upon written
notice to the other party. The chairperson of the Steering Committee shall be
designated annually on an alternating basis between the parties. The initial
chairperson of the Steering Committee shall be [*****] The party not designating
the chairperson shall designate one of its representatives as secretary of the
Steering Committee for such [*****].

                  2.2.2 MEETINGS OF THE STEERING COMMITTEE. Regular meetings of
the Steering Committee shall be held within [*****] of the end of each calendar
year, or at such other times as the parties may deem appropriate, at such times
and places as the members of the Steering Committee shall from time to time
agree. Special meetings of the Steering Committee may be called by either party
on[*****] written notice to the other party unless notice is waived by the
parties. All meetings shall alternate between the offices of the parties unless
the parties otherwise agree. In the event a Steering Committee member is unable
to attend a meeting of the Steering Committee, such Steering Committee member
may designate an alternate member who will serve solely for that Steering
Committee meeting.

                  2.2.3 DECISIONS OF THE STEERING COMMITTEE. Unless otherwise
specifically designated as a responsibility of the Research Committee pursuant
to Subsection 2.1.4., all decisions regarding the contractual and financial
relationship created by this Agreement shall be made by the Steering Committee
acting in accordance with this Agreement or by agents duly authorized in writing
by the Steering Committee. A quorum of the Steering Committee shall be

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present at any meeting of the Steering Committee if at least one representative
of each party is present at such meeting in person or by telephone. If a quorum
exists at any meeting, the unanimous consent of all members of the Steering
Committee present at such meeting is required to take any action on behalf of
the Steering Committee.

                  2.2.4 RESPONSIBILITY OF STEERING COMMITTEE. The Steering
Committee shall be responsible for approving long-term objectives for, and
evaluating the progress of, the Collaboration, including without limitation:

                            (i) approving all updates to the Research Plan and
any changes to the Collaboration Plan;

                            (ii) approving the annual budget for the
Collaboration;

                            (iii) reviewing and approving involvement of third
parties in the Collaboration;

                            (iv) developing Commercialization Plans and managing
commercialization of Collaboration Work Product;

                            (v) resolving deadlocks of the Research Committee;
and

                            (vi) determining the number of members for both the
Research Committee and Steering Committee, beyond the minimum of four members.

                  2.2.5 STEERING COMMITTEE REPORTS. Within ten (10) days
following each meeting of the Steering Committee held pursuant to Subsection
2.2.2., the secretary of the Steering Committee shall prepare and send to the
members of the Steering Committee a detailed written report of actions taken at
the meeting in such form and containing such detail as shall be determined by
the Steering Committee.

                  2.2.6 DEADLOCK. In the event that the Steering Committee
declares a deadlock with respect to, or fails to reach agreement within sixty
(60) days as to, any matter relating only to specific activities under the
Collaboration (such as designation of Active Available Compounds as Committed
Compounds; designation of ACADIA Targets as Committed Targets; the initiation or
conduct of lead optimization or preclinical development activities; approval of
the annual budget or changes to the Research Plan; or approval of a
Commercialization Plan) the matter shall not be subject to dispute resolution
under Article 10, but shall be referred to the Chief Executive Officers of each
party for resolution within sixty (60) days after the date the deadlock is
reached, subject to extension by mutual agreement. If the Chief Executive
Officers fail to resolve the matter within the sixty-day period, or such other
period that the parties mutually establish, the Agreement will terminate
pursuant to Section 9.3. Any other unresolved disagreements within the Steering
Committee and relating to this Agreement shall be referred to dispute resolution
in accordance with the procedures set forth in Article 10.

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3.       CONDUCT OF COLLABORATION

         3.1 SCOPE OF COLLABORATION. During the Collaboration, the parties will
(i) perform lead generation activities using ArQule Compounds and multiple
ACADIA Targets to identify Active Compounds, (ii) perform lead qualification
activities on Reserved Compounds and Reserved Targets to select Committed
Compounds and Committed Targets for lead optimization efforts, (iii) perform
lead optimization activities on Committed Compound Sets to develop one or more
GLP Toxicology Candidates, and (iv) if appropriate, conduct work on one or more
GLP Toxicology Candidates to develop IND Candidates, in each case as further
described below. The parties may also develop libraries of Targeted Compounds
that are focused on a particular target class, and then use the Targeted
Compounds for lead generation, as described below. The overall objective of the
Collaboration is to discover and develop compounds that demonstrate potential as
human therapeutic products, and to sell, license, or otherwise transfer
commercial rights to those compounds to third parties.

         3.2 GENERAL RESPONSIBILITIES OF EACH PARTY. In general, the parties
intend that ACADIA will be responsible for biology-related tasks relating to the
ACADIA Targets and ArQule will be responsible for chemistry-related tasks
relating to the ArQule Compounds, but only until identification of a GLP
Toxicology Candidate. If the parties decide to develop a GLP Toxicology
Candidate into an IND Candidate, they will share responsibility for the
necessary preclinical activities through the Research Committee and Steering
Committee. This allocation of responsibilities reflects the expected
contributions from each party. However, the Research Committee has discretion to
allocate specific research and development tasks on a case-by-case basis to the
party that has the best current capability and capacity to complete the task and
advance the project. The actual responsibilities of each party will be
determined by the Research Committee and Steering Committee and described in the
Collaboration Plan or Research Plan.

         3.3 LEAD GENERATION.

                  3.3.1 TARGET SELECTION. The Research Committee will select
which ACADIA Targets to screen in the Collaboration from among those nominated
by ACADIA and accepted by ArQule. ACADIA will only nominate Available Targets
for ACADIA. ArQule will decline to accept any ACADIA Targets that are not
Available Targets for ArQule. The initial ACADIA Targets selected by the
Research Committee are set forth in the initial Research Plan. After the
Research Committee selects an ACADIA Target, ACADIA and ArQule agree to notify
the Research Committee as soon as possible before taking any actions which could
remove the status of that ACADIA Target as an Available Target. In such event,
the Research Committee will immediately remove that ACADIA Target from the
Collaboration.

                  3.3.2 COMPOUND SELECTION. The Research Committee will decide
which libraries of ArQule Compounds to screen in the Collaboration (e.g.,
Compass Array Sets, Biased Array Sets, or Mapping Array Sets, as described in
the Collaboration Plan). The Research Committee may also decide to screen
Targeted Compounds in focused libraries developed by the parties for a target
class, if any, as described in the Collaboration Plan. The Research Committee
may also decide to screen Analog Compounds developed by the parties for a
different ACADIA Target.


                                       9.
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                  3.3.3 PROCEDURES FOR ARQULE COMPOUNDS. The parties will screen
ArQule Compounds against ACADIA Targets as directed by the Research Committee
and described in the Collaboration Plan and Research Plan. Initially, ArQule
will not disclose structures of individual ArQule Compounds. ArQule will
disclose to ACADIA the structures of Active Compounds that are Available
Compounds for ArQule. ACADIA will then determine whether those Active Compounds
are Available Compounds for ACADIA. If an Active Compound is an Available
Compound for both parties, each party will preserve the availability of the
Active Compound and the corresponding ACADIA Target and proceed to confirm
activity as described in Section 3.4. and in the Collaboration Plan. In
contrast, if a party determines that an Active Compound is not an Available
Compound for such party, the parties shall immediately cease all information
disclosure and activities under this Agreement with respect to that Active
Compound; however, the parties shall use reasonable efforts to monitor whether
that Active Compound later becomes an Available Compound and, in such event,
shall notify the other party and then proceed in accordance with Section 3.4.
Any information regarding the activity of these Active Compounds that are not
Available Compounds for the ACADIA Targets shall remain subject to the
restrictions on Confidential Information set forth in Article 7.

                  3.3.4 PROCEDURES FOR TARGETED COMPOUNDS. If the parties
develop or one or more focused compound libraries of Targeted Compounds for a
target class, as described in the Collaboration Plan, the parties will screen
those Targeted Compounds against ACADIA Targets as directed by the Research
Committee and described in the Collaboration Plan and Research Plan. Both
parties shall have access to the structures of all Targeted Compounds and shall
maintain Targeted Compounds as Available Compounds during the Collaboration.
Therefore, unlike the procedures for ArQule Compounds, a determination of
availability is unnecessary.

         3.4 LEAD QUALIFICATION.

                  3.4.1 SELECTION OF RESERVED COMPOUNDS AND RESERVED TARGETS.
The parties expect to discover multiple series of Available Active Compounds
with activity for multiple ACADIA Targets in the course of screening under the
Research Plan. The Research Committee will group the various ACADIA Targets in
multiple batches for screening. After each batch of ACADIA Targets is screened,
the Research Committee will review the various combinations of Available Active
Compounds and ACADIA Targets for which activity was detected and decide which
Available Active Compounds and ACADIA Targets from that batch of screening, if
any, should progress to further qualification in secondary screens and ADMET
assays as described in the Collaboration Plan and Research Plan. For those
Available Active Compounds and ACADIA Targets that the Research Committee
decides to pursue, the parties will designate the Available Active Compounds as
Reserved Compounds and the ACADIA Targets as Reserved Targets under this
Agreement and reserve those compounds and targets exclusively for the
Collaboration for a period of [*****] subject to extension by the Research
Committee, while secondary screens and ADMET assays are conducted. The Research
Committee may also group Reserved Compounds as a Reserved Compound Set and
Reserved Targets as a Reserved Target Set. All remaining Available Active
Compounds and ACADIA Targets that the Research Committee has declined to advance
to secondary screening shall automatically be released from

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their reserved status; however, any information regarding the activity of these
Available Compounds for the ACADIA Targets shall remain subject to the
restrictions on Confidential Information set forth in Article 7.

                  3.4.2 SELECTION OF COMMITTED COMPOUNDS AND COMMITTED TARGETS.
The parties expect that the Research Committee will further qualify and
prioritize the various opportunities presented by the combinations of Reserved
Compounds and Reserved Targets as described in the Collaboration Plan and
Research Plan. In order to facilitate this process, ArQule shall disclose to
ACADIA the structures, but not the locations, of inactive ArQule Compounds from
each Mapping Array Set from which Reserved Compounds are selected. ArQule shall
also produce and deliver to ACADIA resynthesized samples of selected Reserved
Compounds, as directed by the Research Committee. ACADIA shall test the
resynthesis samples of Reserved Compounds in various assays as directed by the
Research Committee and in accordance with the Research Plan. The Research
Committee shall then review the data and, after consideration, designate [*****]
Reserved Targets and their corresponding Reserved Compounds as Committed Targets
and Committed Compounds under this Agreement. The Research Committee has
discretion to replace [*****] Committed Targets and their corresponding
Committed Compounds at any time as new batches of ACADIA Targets and ArQule
Compounds and Targeted Compounds are screened and new Reserved Targets and
Reserved Compounds are identified. The Research Committee may increase the
number of Committed Targets and their Committed Compounds at any time, with
approval of the Steering Committee. Any Reserved Targets and their corresponding
Reserved Compounds, if any, that have met the predefined criteria for
consideration as Committed Targets and Committed Compounds but which were not
selected by the Research Committee shall be allocated between the parties as
provided in Section 9.6. All other Reserved Targets and Reserved Compounds, if
any, shall automatically be released from their reserved status; however, any
information regarding the activity of these Reserved Compounds for the Reserved
Targets shall remain subject to the restrictions on Confidential Information set
forth in Article 7.

         3.5 LEAD OPTIMIZATION. The Research Committee will update the Research
Plan to provide for the accelerated lead optimization of the selected Committed
Compound Sets with Committed Targets in the Collaboration, subject to Steering
Committee approval. The Research Plan will set project priorities and define
success criteria for a GLP Toxicology Candidate. As described in the
Collaboration Plan, in a typical project the parties will iteratively develop
and test Analog Compounds based on Committed Compounds. The parties will
determine whether a proposed Analog Compound is an Available Compound before
synthesis, and only Available Compounds will proceed to synthesis and testing in
the Collaboration. The Analog Compounds developed by the parties shall
automatically become Committed Compounds under this Agreement and, therefore,
the Committed Compound Set for the Committed Target will likely expand as a
result of the lead optimization efforts. At the discretion of the Research
Committee, the parties may also use such Analog Compounds in primary screens
against other ACADIA Targets. The parties anticipate that lead optimization of
Committed Compounds will occur in two stages:

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                                      11.
<PAGE>   12
         (i)      In the first stage, the parties will develop Analog Compounds
                  as combinatorial libraries to explore the promise of the
                  Committed Compound Set for the Committed Target. The parties
                  will test these Analog Compounds for various properties
                  determined by the Research Committee to predict whether the
                  Committed Compound Set may eventually meet the defined success
                  criteria for a GLP Toxicology Candidate. The parties will
                  decide whether to proceed to stage two for a given Committed
                  Compound Set within [*****]

         (ii)     In the second stage, the parties intend to concentrate their
                  efforts on developing [*****] and [*****] corresponding
                  Committed Compound Set(s) to identify a GLP Toxicology
                  Candidate, with [*****] from the first stage. The parties
                  shall maintain a level of effort determined by the Research
                  Committee for the [*****] The Research Committee may release
                  Committed Targets and the corresponding Committed Compound
                  Set(s) that are no longer of interest to the Collaboration or
                  which are no longer the subject of the active efforts by the
                  parties, as determined by the Research Committee and subject
                  to Steering Committee approval, in which case the allocation
                  provisions of Section 9.6. shall apply. Lead optimization
                  activities will continue with respect to a Committed Target
                  until the Research Committee and Steering Committee decide to
                  stop further efforts. The parties anticipate that lead
                  optimization activities will continue with respect to a
                  Committed Target until the parties (i) develop an acceptable
                  GLP Toxicology Candidate, (ii) determine that they are
                  unlikely to develop an acceptable GLP Toxicology Candidate, or
                  (iii) decide to seek commercialization of the Committed
                  Compound Set(s) and Committed Target as described below.

         3.6 PRECLINICAL DEVELOPMENT. At the discretion of the Steering
Committee, the parties may decide to conduct the necessary preclinical
development activities to advance one or more GLP Toxicology Candidates to
become IND Candidates, as described in the Collaboration Plan. In such event,
the Research Committee will update the Research Plan to provide for such
activities, subject to approval of the Steering Committee. These preclinical
development activities will continue with respect to a GLP Toxicology Candidate
until the Research Committee and Steering Committee decide to stop further
efforts. The parties anticipate that these preclinical development activities
will continue with respect to a GLP Toxicology Candidate until the parties (i)
develop an acceptable IND Candidate, (ii) determine that they are unlikely to
develop an acceptable IND Candidate, or (iii) decide to seek commercialization
of the GLP Toxicology Candidate and the corresponding Committed Target as
described below.

         3.7 COMMERCIALIZATION. At any time during the Collaboration, the
Steering Committee may decide to sell, license, or otherwise transfer commercial
rights in Collaboration Work Product to a third party. In such event, the
Steering Committee will develop and approve a Commercialization Plan for such
Collaboration Work Product. Unless otherwise determined by the Steering
Committee, the Commercialization Plan will (i) describe the expectations of the
parties regarding the commercial value of the Collaboration Work Product and
potential Collaboration Products, (ii) set forth a marketing plan for the
Collaboration Work Product (e.g.,

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                                      12.
<PAGE>   13
best potential customers), and (iii) state the respective responsibilities of
each party for commercialization of the Collaboration Work Product (e.g., lead
negotiator). The Steering Committee will manage the commercialization process.
Alternatively, one party may purchase the interest of the other party in
particular Collaboration Work Product on negotiated terms in a voluntary
transaction. In such event, the separately negotiated agreement shall supersede
the terms of this Agreement with respect to that Collaboration Work Product. The
Steering Committee may also decide to sell, license, or otherwise transfer
commercial rights in one or more focused libraries of Targeted Compounds
developed by the parties during the Collaboration. In such event, the Steering
Committee will develop and approve a Commercialization Plan for this
Collaboration Work Product.

         3.8 REPORTS AND RECORDS. Each party agrees to promptly and regularly
communicate to the other party all research results from the Collaboration,
including quarterly reports to the Research Committee detailing all tests
conducted and results obtained by such party in connection with the
Collaboration. Each party shall prepare and maintain adequate records, including
bound laboratory notebooks maintained in accordance with standard scientific
procedures, containing all appropriate data reflecting all research results from
the Collaboration. In addition, each party shall retain under appropriate
conditions any necessary or desirable samples of research materials that are
developed or used in the Collaboration.

4.       ALLOCATION OF EXPENSES AND REVENUES.

         4.1 EXPENSES. The Research Committee shall establish an annual budget
for all activities in the Collaboration, subject to Steering Committee approval.
Each party shall bear the expenses of its respective activities under the
Research Plan in accordance with the annual budget, except that the parties will
share equally any expenses payable (i) to third party service providers or (ii)
incurred in connection with preclinical development activities under Section
3.6. above, provided such expenses are approved in advance by the Steering
Committee and included in the annual budget. The Research Committee and Steering
Committee shall use their best efforts to ensure that the resource and value
contributions of each party are approximately equal on an annual basis. Any
significant deviations from the annual budget must receive Steering Committee
approval. Each party shall also pay fifty percent (50%) of all direct expenses
(e.g., legal fees, travel) incurred by either party in connection with
commercialization activities approved by the Steering Committee pursuant to
Section 3.7. The Steering Committee has the right to refuse payment of expenses
that are not properly documented or are unreasonably excessive. Each party shall
promptly make payments to third parties, or reimburse the other party, for
expenses owed by such party as set forth in this Section.

         4.2 REVENUES. Each party shall receive fifty percent (50%) of all Gross
Revenues received in connection with Collaboration Work Product sold, licensed
or transferred to a third party under Section 3.7, provided that each party has
contributed approximately equal resources and value to the Collaboration in
accordance with the Research Plan and the annual budget. In the event that one
party expends greater resources or contributes greater value than the other
party in the Collaboration, as formally recognized by the Steering Committee and
documented in the Research Plan or annual budget, the Steering Committee will
compensate the party with the greater resource expenditure or value contribution
in a manner reasonably acceptable to both parties.


                                      13.
<PAGE>   14
         4.3 RECORDS. Each party shall establish separate and distinct
accounting records (but not necessarily separate general ledgers) such that the
expenditures for the Collaboration are direct and transparent. As a guideline,
each party should have separate project records supported by time records and
records of direct expenses attributable to the Collaboration. Each party shall
maintain these records for a period of at least [*****] after the conclusion of
the applicable calendar year. Each party shall have the right, at its own
expense, to cause an independent certified public accountant reasonably
acceptable to the other party to inspect such records during normal business
hours for the sole purpose of verifying the expenditures reported under this
Agreement. The accountant shall conduct the audit at a date and time reasonably
acceptable to the audited party but not later than [*****] after the audited
party is notified of the audit. Such accountant shall not disclose to the
requesting party any information other than information relating to the accuracy
of expenditures reported under this Agreement and shall provide the audited
party with a copy of any report given to the requesting party. In the event of
any discrepancy, the parties shall promptly reconcile the discrepancy to achieve
the results set forth in Sections 4.1. and 4.2. Each party may exercise its
audit right not more than [*****].

5.       INTELLECTUAL PROPERTY RIGHTS.

         5.1 LICENSE GRANTS.

                  5.1.1 CROSS-LICENSES AND CROSS-ASSIGNMENT.

                            (i) ArQule hereby grants ACADIA a worldwide,
royalty-free, non-exclusive license under the ArQule Patent Rights, Joint Patent
Rights, and other rights in ArQule Technology and Collaboration Technology to
[*****]

                            (ii) ACADIA hereby grants ArQule a worldwide,
royalty-free, non-exclusive license under the ACADIA Patent Rights, Joint Patent
Rights, and other rights in ACADIA Technology and Collaboration Technology to
[*****]

                            (iii) To the extent that any Patent Rights in any
Committed Compound or its use against any Committed Target or in any Targeted
Compound or its use are not assigned to, or controlled by, both ArQule and
ACADIA as joint owners or are not otherwise jointly invented by one or more
employees or consultants of ACADIA and one or more employees or consultants of
ArQule in connection with the Collaboration, [*****].

                  5.1.2 COMMERCIALIZATION LICENSES. In the event that the
parties sell, license, or otherwise transfer commercialization rights in
Collaboration Work Product to a third party pursuant to Section 3.7. above, each
party hereby covenants and agrees to grant to such third party any rights and
licenses under such party's Patent Rights and Technology as are reasonably
necessary for such third party to exploit such Collaboration Work Product in
accordance with the terms of a written agreement between the parties and such
third party that is consistent with the Commercialization Plan applicable to
such Collaboration Work Product, and to provide

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                                      14.
<PAGE>   15
reasonable warranties of title, further assurances, and similar customary
provisions in connection with such grant of rights or licenses.

         5.2 INTELLECTUAL PROPERTY DEVELOPED OUTSIDE OF THE COLLABORATION.
Except as expressly set forth in this Agreement, neither party shall have any
rights in Patent Rights and Technology that are developed or discovered by the
other party prior to the Effective Date or outside of the Collaboration.
Therefore, ArQule shall have no rights in ACADIA Targets other than as provided
in the Agreement, and ACADIA shall have no rights in ArQule Compounds other than
as provided in the Agreement. Each party shall have sole responsibility for and
control over Patent Rights claiming any of its Technology that was developed or
discovered prior to the Effective Date or outside of the Collaboration. Neither
party shall have any right to review or comment on such Patent Rights of the
other party.

         5.3 INTELLECTUAL PROPERTY ARISING FROM THE COLLABORATION.

                  5.3.1 COMMITTED COMPOUNDS AND COMMITTED TARGETS. Committed
Compounds and Committed Targets are exclusive to the Collaboration, which means
that except as otherwise expressly provided in this Agreement:

                            (i) ArQule shall not engage in any research and
development activities on Committed Compounds outside of the Collaboration;

                            (ii) ArQule shall not knowingly engage in any
research and development activities on Committed Targets outside of the
Collaboration except to the extent that a third party requires ArQule to perform
such activities under a binding contract (which ArQule will disclose in advance
to ACADIA);

                            (iii) ACADIA shall not engage in any research and
development activities on Committed Targets outside of the Collaboration; and

                            (iv) ACADIA shall not knowingly engage in any
research and development activities on Committed Compounds outside of the
Collaboration except to the extent that a third party requires Acadia to perform
such activities under a binding contract (which ACADIA will disclose in advance
to ArQule).

In the event that a party engages in research and development activities with a
third party with respect to Committed Compounds or Committed Targets under the
limited circumstances permitted under this Subsection, such party shall
establish and observe strict procedures to ensure that no information crosses
from one project to the other project. The other party shall have the right to
audit such procedures upon reasonable prior written notice. All Committed
Compounds and Committed Targets shall remain exclusive to the Collaboration
until the Collaboration terminates or the Steering Committee releases a
particular Committed Compound, Committed Compound Set, Committed Target, or
Committed Target Set.

                  5.3.2 RIGHT TO USE. Except as provided in Section 5.1. above
or otherwise expressly provided in this Agreement, each party shall have the
following rights and restrictions for the use of Patent Rights and Technology
arising from the Collaboration:


                                      15.
<PAGE>   16
                            (i) ArQule shall not have any right or license under
ACADIA Patent Rights or other rights in ACADIA Technology arising from the
Collaboration.

                            (ii) ACADIA shall not have any right or license
under ArQule Patent Rights or other rights in ArQule Technology arising from the
Collaboration.

                            (iii) During the Collaboration, neither party may
use Targeted Compounds outside of the Collaboration without the prior written
consent of the other party. After the expiration or termination of this
Agreement, the parties shall have co-exclusive rights to Targeted Compounds
(other than Targeted Compounds that are subject to the provisions of Section
9.6.2) as follows. Each party shall select, in turn, a biological target that
was not within the Collaboration (meaning that it was not an ACADIA Target for
which the Targeted Compounds were screened). First selection shall be determined
[*****]. Each party (the "Grantee") shall have, and the other party (the
"Grantor") hereby grants to the Grantee, the exclusive (even as to the Grantor),
worldwide right and license, with the right to sublicense through multiple tiers
of sublicense, under the Grantor's interest in the Joint Patent Rights and other
rights in Collaboration Technology that pertain to the composition and use of
any Targeted Compounds, for research, development, manufacture, use and sale of
the Targeted Compounds for uses that involve modulation of the Grantee's
selected targets, without payment to the Grantor. In addition, the Grantor
hereby agrees to grant to the Grantee any rights and licenses to its Patent
Rights and other rights in its Technology as reasonably necessary for the
Grantee to exploit the Targeted Compounds for its selected targets, without
payment to the Grantor. In order to avoid any potential overlap in development
and commercialization of Targeted Compounds, a party may reserve any Targeted
Compound or Analog Compound thereof [*****] Targeted Compound or Analog
Compound(but only if the discovery program [*****] involved its selected
targets) by providing written notice to the other party of such reservation, and
following the reservation by a party of a Targeted Compound or Analog Compound,
[*****] Targeted Compound or Analog Compound.

                            (iv) Except as otherwise provided in this Agreement,
each party shall have the right to use Joint Patent Rights and Collaboration
Technology consistent with the provisions of Article 7 without accounting to the
other party.

                  5.3.3 OWNERSHIP. Ownership of Patent Rights and Technology
arising from the Collaboration shall be allocated in the following manner:

                            (i) ArQule shall have sole ownership of all right,
title, and interest in ArQule Patent Rights and ArQule Technology;

                            (ii) ACADIA shall have sole ownership of all right,
title, and interest in ACADIA Patent Rights and ACADIA Technology; and

                            (iii) ArQule and ACADIA shall have joint ownership
of all right, title, and interest in Joint Patent Rights and Collaboration
Technology.

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                                      16.
<PAGE>   17
Each party shall ensure that its employees, consultants, agents, and
representatives are contractually required to disclose and to assign to such
party all Patent Rights and other rights in Technology arising from the
Collaboration.

                  5.3.4 NOTICE. Each party shall provide prompt written notice
to the Research Committee of the internal disclosure of any significant
Technology developed by its personnel in connection with the Collaboration.

                  5.3.5 RESPONSIBILITY FOR PATENT RIGHTS. ArQule shall be
responsible for and shall control, at its expense, the preparation, filing,
prosecution, grant, and maintenance of any Patent Rights claiming only ArQule
Technology arising from the Collaboration and shall consult with ACADIA on, and
give ACADIA a reasonable opportunity to review, all such filings to the extent
they directly relate to the Collaboration. ACADIA shall be responsible for and
shall control, at its expense, the preparation, filing, prosecution, grant, and
maintenance of all Patent Rights claiming only ACADIA Technology arising from
the Collaboration and shall consult with ArQule on, and give ArQule a reasonable
opportunity to review, all such filings to the extent they relate directly to
the Collaboration. In the case of Collaboration Technology, the Research
Committee will decide whether to seek Joint Patent Rights claiming that
Technology or to maintain that Technology as a trade secret, subject to approval
of the Steering Committee. The Research Committee will also decide whether to
seek Patent Rights claiming both ArQule Technology and ACADIA Technology in one
filing (which also constitutes a Joint Patent Right), subject to approval of the
Steering Committee. If the parties decide to seek any Joint Patent Rights, the
parties shall jointly prepare, file, prosecute, and maintain such Patent Rights,
and all related expenses shall be borne equally by the parties. Notwithstanding
the foregoing, neither party shall file any Joint Patent Rights claiming the
composition or use of any Active Compound until the Research Committee has
properly designated that Active Compound as a Committed Compound in accordance
with Subsection 3.4.2.

                  5.3.6 ASSUMPTION OF RIGHTS BY OTHER PARTY. In the event that a
party desires to decline responsibility for obtaining or maintaining Patent
Rights in a country for any of its Technology that arises from the
Collaboration, such party will notify the other party before taking such action
and, upon request, will allow the other party to assume responsibility for, and
all expenses relating to, the relevant Patent Rights in those countries;
provided, however, that neither party shall have the right to seek patent
protection for any Technology that a party has decided, in its discretion, to
maintain as a trade secret. In the event that a party desires to cease further
payment of patent-related expenses for a Joint Patent Right in any country, such
party may assign to the other party all rights in that Joint Patent Right in
such country and thereafter have no further obligation to pay such expenses.

                  5.3.7 COOPERATION. Each party agrees to cooperate fully in the
preparation, filing, prosecution, and maintenance of all Patent Rights claiming
Technology arising from the Collaboration. Such cooperation includes, without
limitation, (i) promptly executing all papers and instruments, or requiring its
employees, consultants, and agents to execute such papers and instruments, as
reasonable and appropriate so as to enable one or both parties to file,
prosecute, and maintain such Patent Rights in any country; (ii) promptly
informing the other party of matters that may affect the preparation, filing,
prosecution, or maintenance of any such Patent

                                      17.
<PAGE>   18
Rights; and (iii) undertaking no actions that are potentially deleterious to the
preparation, filing, or prosecution of any such Patent Rights.

6.       RESEARCH MATERIALS.

         6.1 OWNERSHIP OF RESEARCH MATERIALS. In the course of this
Collaboration, one party (the "PROVIDER") may transfer to the other party (the
"RECIPIENT") certain of its Research Materials. The Recipient acknowledges and
agrees that such Research Materials are and shall be owned by the Provider. The
Recipient agrees to execute and deliver any documents of assignment or
conveyance to effectuate the ownership rights of the Provider in such Research
Materials. Specifically, ACADIA acknowledges and agrees that all ArQule
Compounds provided to ACADIA in the Collaboration and, previously, under the MTA
are proprietary to and owned by ArQule and are or may be covered by claims of
ArQule Patent Rights, and ArQule acknowledges and agrees that all expressed
proteins for ACADIA Targets provided by ACADIA in the Collaboration are
proprietary to and owned by ACADIA and are or may be covered by claims of ACADIA
Patent Rights.

         6.2 USE AND TRANSFER OF RESEARCH MATERIALS. Except as otherwise agreed
by the Research Committee, the Recipient agrees to use Research Materials
provided by the Provider solely for purposes set forth in this Agreement and
shall not distribute such Research Materials to any third party other than its
employees and consultants who are working on the Collaboration; provided that
the parties may provide Research Materials specific to Collaboration Work
Product to a third party for the purposes described in Section 3.7 and may
provide Research Materials specific to Targeted Compounds to a sublicensee of
such party's rights to such Targeted Compounds under Section 5.3.2(iii).

         6.3 ADDITIONAL RESTRICTIONS FOR PROPRIETARY RESEARCH MATERIALS. In the
case of Proprietary Research Materials furnished by a Provider, Recipient agrees
(i) not to transfer such Proprietary Research Materials to any third party
without the prior written consent of the Provider, (ii) to permit access to the
Proprietary Research Materials only to its employees and consultants requiring
such access, (iii) to inform such employees and consultants of the proprietary
nature of the Proprietary Research Materials, and (iv) to take reasonable
precautions, at least as stringent as those observed by Recipient to protect its
own proprietary materials, to ensure that such employees and consultants observe
the obligations of Recipient under this Section.

         6.4 DISPOSITION OF UNUSED RESEARCH MATERIALS. At the request of
Provider, Recipient will return or destroy any unused Research Materials
furnished by Provider.

         6.5 COMPLIANCE WITH LAW. Recipient agrees to comply with all federal,
state, and local laws and regulations applicable to the use, storage, disposal,
and transfer of Research Materials furnished by Provider, including without
limitation the Toxic Substances Control Act (15 USC 2601 et seq.) and
implementing regulations (in particular, 40 CFR 720.36 [Research and Development
Exemption]), the Food, Drug, and Cosmetic Act (21 USC 301 et seq.) and
implementing regulations, and all Export Administration Regulations of the
Department of Commerce. Recipient assumes sole responsibility for any violation
of such laws or regulations by Recipient or any of its Affiliates or
sublicensees.


                                      18.
<PAGE>   19
         6.6 LIMITATION OF LIABILITY. Any Research Materials delivered pursuant
to this Agreement are understood to be experimental in nature and may have
hazardous properties. Recipient should assume that the compounds are dangerous
and should use appropriate precautions. PROVIDER MAKES NO REPRESENTATIONS, AND
EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO
THE RESEARCH MATERIALS FURNISHED TO RECIPIENT. THERE ARE NO EXPRESS OR IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE
USE OF THE RESEARCH MATERIALS WILL NOT INFRINGE ANY PATENT OR OTHER INTELLECTUAL
PROPERTY RIGHTS OF A THIRD PARTY.

7.       CONFIDENTIAL INFORMATION.

         7.1 DESIGNATION OF CONFIDENTIAL INFORMATION. Confidential Information
that is disclosed in writing or electronically shall be marked with a legend
indicating its confidential status. Confidential Information that is disclosed
orally or visually shall be documented in a written notice prepared by the
Disclosing Party and delivered to the Receiving Party within [*****] of the date
of disclosure; such notice shall summarize the Confidential Information
disclosed to the Receiving Party and reference the time and place of disclosure.

         7.2 OBLIGATIONS OF RECEIVING PARTY. The Receiving Party agrees that it
shall:

         (i)      maintain all Confidential Information in strict confidence,
                  except that the Receiving Party may disclose or permit the
                  disclosure of any Confidential Information to (A) its
                  Affiliates, directors, officers, employees, consultants, and
                  advisors, (B) solely with respect to Confidential Information
                  specific to Collaboration Work Product, a third party for the
                  purposes described in Section 3.7 and (C) solely with respect
                  to Confidential Information specific to Targeted Compounds, a
                  sublicensee of such party's rights to such Targeted Compounds
                  under Section 5.3.2(iii), in each case which recipients are
                  obligated to maintain the confidential nature of such
                  Confidential Information and need to know such Confidential
                  Information for the purposes set forth in this Agreement;

         (ii)     use all Confidential Information solely for the purposes of
                  this Agreement and the permitted uses set forth in Section
                  7.6.; and

         (iii)    allow permitted recipients under Section 7.2(i) to reproduce
                  the Confidential Information only to the extent necessary to
                  effect the purposes set forth in this Agreement, with all such
                  reproductions being considered Confidential Information.

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                                      19.
<PAGE>   20
         7.3 EXCEPTIONS. The obligations of the Receiving Party under Section
7.2. above shall not apply to the extent that the Receiving Party can
demonstrate that certain Confidential Information:

         (i)      was in the public domain prior to the time of its disclosure
                  under this Agreement;

         (ii)     entered the public domain after the time of its disclosure
                  under this Agreement through means other than an unauthorized
                  disclosure resulting from an act or omission by the Receiving
                  Party;

         (iii)    was independently developed or discovered by the Receiving
                  Party without use of any Confidential Information of the
                  Disclosing Party; or

         (iv)     is or was disclosed to the Receiving Party at any time,
                  whether prior to or after the time of its disclosure under
                  this Agreement, by a third party having no fiduciary
                  relationship with the Disclosing Party and having no
                  obligation of confidentiality or non-use to the Disclosing
                  Party with respect to such Confidential Information.

         7.4 PERMITTED DISCLOSURE. Notwithstanding any other provision of this
Agreement, disclosure of Confidential Information shall not be precluded if such
disclosure is required to comply with applicable laws or regulations (such as
disclosure to the FDA or the United States Patent and Trademark Office or to
their foreign equivalents), or to comply with a court or administrative order,
provided that the Disclosing Party receives prior written notice of such
disclosure and that the Receiving Party takes all reasonable and lawful actions
to obtain confidential treatment for such disclosure and, if possible, to
minimize the extent of such disclosure.

         7.5 RETURN OF CONFIDENTIAL INFORMATION. Upon the termination of this
Agreement, or earlier at the request of the Disclosing Party, the Receiving
Party shall return to the Disclosing Party all originals, copies, and summaries
of documents, materials, and other tangible manifestations of Confidential
Information in the possession or control of the Receiving Party, except that the
Receiving Party may retain one copy of the Confidential Information in the
possession of its legal counsel solely for the purpose of monitoring its
obligations under this Agreement.

         7.6 PERMITTED USE OF INFORMATION. ACADIA and ArQule may use the general
knowledge and expertise obtained [*****] with the ArQule Compounds and Analog
Compounds [*****] are Analog Compounds of Active Compounds and which are
intended for use with the ACADIA Target for which the activity was initially
identified (or other closely related target under circumstances where the party
effectively circumvents the restrictions of Section 7.2.). Under no
circumstances may either party use any information from lead

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                                      20.
<PAGE>   21
optimization activities or preclinical development activities for any purpose
other than the Collaboration.

         7.7 SURVIVAL OF OBLIGATIONS. The obligations set forth in this Article
shall remain in effect for an item of Confidential Information for a period of
[*****] after the date upon which a Receiving Party first received that
Confidential Information, except that the obligation of the Receiving Party to
return Confidential Information to the Disclosing Party shall survive until
fulfilled.

8.       INDEMNIFICATION AND INSURANCE.

         8.1 GENERAL INDEMNIFICATION. Each party (the "INDEMNIFYING PARTY")
shall indemnify and hold harmless the other party, its Affiliates, and their
respective directors, officers, employees and agents (collectively, the
"INDEMNITEES") from and against all claims, expenses or liability of whatever
nature arising from any default, act, omission, or negligence of the
Indemnifying Party, its agents or employees, or others exercising rights by,
through, or under the Indemnifying Party, or the failure of the Indemnifying
Party or such persons to comply with any applicable laws, rules, regulations,
codes, ordinances or directives of governmental authorities, in each case to the
extent the same are related, directly or indirectly, to the Collaboration
described herein; provided, however, that in no event shall the Indemnifying
Party be obligated under this section to indemnify the Indemnitees to the extent
that such claim, expense or liability results from any omission, fault,
negligence, or other misconduct of any of the Indemnitees.

         8.2 PRODUCT LIABILITY INDEMNIFICATION. Each Indemnifying Party further
agrees to defend, indemnify, and hold the Indemnitees harmless from all costs,
judgments, liabilities, and damages assessed by a court of competent
jurisdiction arising from claims asserted by a third party against the
Indemnitees as a result of (i) actual or asserted violations of any applicable
law or regulation by the Indemnifying Party, its Affiliates, sublicensees, or
third party manufacturers by virtue of which the Collaboration Products, or any
product containing as one of its constituents any Targeted Compound,
manufactured, distributed, or sold shall be alleged or determined to be
adulterated, misbranded, mislabeled, or otherwise not in compliance with such
applicable law or regulation; (ii) claims for bodily injury, death, or property
damage attributable to the manufacture, distribution, sale, or use of the
Collaboration Products, or any product containing as one of its constituents any
Targeted Compound, by the Indemnifying Party, or by its Affiliates,
sublicensees, or third party manufacturers; or (iii) a recall ordered by a
governmental agency, or required by a confirmed failure, as reasonably
determined by the parties, of Collaboration Products, or any product containing
as one of its constituents any Targeted Compound, manufactured, distributed, or
sold by the Indemnifying Party, or by its Affiliates, sublicensees or third
party manufacturers; provided, however, that in no event shall the Indemnifying
Party be obligated under this section to indemnify the Indemnitees to the extent
that such claim, expense or liability results from any omission, fault,
negligence, or other misconduct of any of the Indemnitees.

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                                      21.
<PAGE>   22
         8.3 PROCEDURE. The Indemnitees agree to provide the Indemnifying Party
with prompt written notice of any claim, suit, action, demand, or judgment for
which indemnification is sought under this Agreement. If an Indemnitee fails to
provide such notice within a reasonable time, and if such failure prejudicially
affects the ability of the Indemnifying Party to defend such action, the
Indemnifying Party shall be relieved of its liability to such Indemnitee under
this Article 8. The Indemnifying Party agrees, at its own expense, to provide
attorneys reasonably acceptable to the Indemnitees to defend against any such
claim. The Indemnitees shall cooperate fully with the Indemnifying Party in such
defense and will permit the Indemnifying Party to conduct and control such
defense and the disposition of such claim, suit, or action (including all
decisions relative to litigation, appeal, and settlement); provided, however,
that any Indemnitee shall have the right to retain its own counsel, at the
expense of the Indemnifying Party, if representation of such Indemnitee by the
counsel retained by the Indemnifying Party would be inappropriate because of
actual or potential differences in the interests of such Indemnitee and any
other party represented by such counsel. The Indemnifying Party agrees to keep
the other party informed of the progress in the defense and disposition of such
claim and to consult with such party with regard to any proposed settlement.
Neither party may settle a claim or action for which indemnification is sought
under this Agreement without the consent of the other party if such settlement
would impose any monetary obligation on the other party or require the other
party to submit to an injunction or otherwise limit the other party, its
Affiliates or their respective directors, officers, employees or agents.

         8.4 INSURANCE. Each party shall maintain, and shall require its
Affiliates and sublicensees to maintain, adequate product liability insurance or
self insurance with respect to development, manufacture, and sale of
Collaboration Products, or any product containing as one of its constituents any
Targeted Compound, by such party in such amount as that party customarily
maintains with respect to sales of its other products, and in no event less than
a reasonable amount. Each party shall maintain, and shall require its Affiliates
and sublicensees to maintain, such insurance for so long as that party continues
to manufacture or sell the Collaboration Products, and thereafter for so long as
that party maintains insurance for itself covering such manufacture or sale.

9.       TERM AND TERMINATION.

         9.1 TERM. This Agreement shall commence on the Effective Date and shall
continue for a period of five (5) years unless earlier terminated pursuant to
this Article 9.

         9.2 TERMINATION BY PARTY. Either party may terminate this Agreement for
any reason upon ninety (90) days written notice to the other party. In addition,
the Steering Committee may terminate this Agreement at any time by mutual
agreement of the parties.

         9.3 DEADLOCK. As described in Subsection 2.2.6., this Agreement shall
automatically terminate sixty (60) days (or such longer period as the parties
mutually agree) after the Steering Committee deadlocks on any matter relating
only to specific activities under the Collaboration, unless the matter is
resolved by the Chief Executive Officers of each party during such time period.


                                      22.
<PAGE>   23
         9.4 TERMINATION FOR DEFAULT. In the event that either party commits a
material breach of its obligations under this Agreement and fails to cure that
breach within [*****] after receiving written notice thereof, the other party
may terminate this Agreement immediately upon written notice to the party in
breach.

         9.5 FORCE MAJEURE. Neither party will be responsible for delays
resulting from acts beyond the control of such party, provided that the
nonperforming party uses commercially reasonable efforts to avoid or remove such
causes of nonperformance and continues performance hereunder with reasonable
dispatch whenever such causes are removed.

         9.6 DISPOSITION OF COLLABORATION WORK PRODUCT. Except as otherwise
agreed by the parties, the following provisions shall apply under the
circumstances specified in this Agreement or upon the expiration or termination
of this Agreement.

                  9.6.1 COMMERCIAL PRODUCTS. If any Collaboration Work Product
has been successfully commercialized pursuant to Section 3.7., the parties shall
share Gross Revenues attributable to that Collaboration Work Product as set
forth in Section 4.2.

                  9.6.2 RESIDUAL VALUE IN TARGETS AND COMPOUNDS. Except for
Collaboration Work Product that has been commercialized pursuant to Section
3.7., the parties will apportion rights in Reserved Targets, Reserved Compounds,
Committed Targets, and Committed Compounds as follows.

                            (i) The Research Committee will establish Reserved
Target Sets, Committed Target Sets, Reserved Compound Sets, and Committed
Compound Sets as necessary or desirable to prevent significant overlap between
the rights granted to each party under this Subsection. For example, if two
ACADIA Targets are receptor subtypes and if the Available Active Compounds for
those two ACADIA Targets are similar enough to form a single Reserved Compound
Set or Committed Compound Set, the Research Committee may group the ACADIA
Targets into a single Reserved Target Set or Committed Target Set to minimize
the risk of conflicting Patent Rights filed by each party. As another example,
if two dissimilar ACADIA Targets are found to have activity with respect to
Available Active Compounds that are within a single chemotype and have
substantial homology, the Research Committee has discretion to establish two
Reserved Compound Sets or Committed Compound Sets (i.e., one for each ACADIA
Target) based on different structure-activity profiles that are identified for
each ACADIA Target.

                            (ii) For Reserved Targets and the corresponding
Reserved Compounds that have met the requisite criteria for consideration as
Committed Targets and Committed Compounds but which the Research Committee has
declined to designate as Committed Targets and Committed Compounds, as described
in Subsection 3.4.2., each party shall select, in turn, and receive rights in a
Reserved Target or Reserved Target Set and its corresponding Reserved Compounds
or Reserved Compound Set. First selection shall be determined [*****]. The
parties shall complete this selection process within fifteen (15) business days
after the Research

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                                      23.
<PAGE>   24
Committee selects or declines to select Committed Targets and Committed
Compounds from each batch of ACADIA Targets screened. Each party shall have the
exclusive, worldwide right and license to exploit its selected Reserved
Compounds or Reserved Compound Set and a non-exclusive right and license to
exploit its selected Reserved Target or Reserved Target Set, as described below,
with payment to the other party as described below.

                            (iii) For Committed Targets and the corresponding
Committed Compound Set(s) that the Research Committee has removed from the
Collaboration as described in Subsection 3.4.2. or Section 3.5. or which have
not been commercialized pursuant to Section 3.7. when the Agreement expires or
terminates, each party shall select, in turn, and receive rights in a Committed
Target or Committed Target Set and the corresponding Committed Compounds or
Committed Compound Set(s). First selection shall be determined [*****].The
parties shall complete this process within fifteen (15) business days after each
Committed Target or Committed Target Set and the corresponding Committed
Compounds or Committed Compound Set(s) becomes available for allocation. As an
example, if the Research Committee and Steering Committee removed target XYZ and
its Committed Compound Set from the Collaboration, then the party [*****] could
obtain rights to that Collaboration Work Product or pass the opportunity to the
other party. In either case, the party that did not obtain rights in the
Collaboration Work Product would obtain rights in the next available Committed
Target and Committed Compound Set (whether removed from the Collaboration or
available upon the expiration or termination of the Collaboration). Each party
shall have the exclusive right and license to exploit its selected Committed
Compound or Committed Compound Set, as described below, with payment to the
other party, as described below.

                            (iv) Each party hereby agrees to assign, transfer,
and convey to the other party, or to grant such other party an exclusive, fully
paid-up, worldwide, perpetual license, with the right to sublicense through
multiple tiers of sublicense, with respect to its interest under Joint Patent
Rights and other rights in Collaboration Technology in Reserved Compounds,
Reserved Compound Sets, Committed Compounds, and Committed Compound Sets
selected by such other party under this Subsection. In addition, each party
hereby agrees to grant to the other party any rights and licenses to its Patent
Rights and other rights in its Technology as reasonably necessary for the other
party to exploit its selected (a) Reserved Compounds or Reserved Compound Sets,
(b) Committed Compounds or Committed Compound Sets, (c) Reserved Targets or
Reserved Target Sets, and (d) Committed Targets or Committed Target Sets,
including without limitation a non-exclusive, worldwide, perpetual license under
its Patent Rights and other rights in Technology with respect to ACADIA Targets.
Finally, each party agrees to provide reasonable warranties of title, further
assurances, and similar customary provisions in connection with the grant of
rights or licenses under this Subsection.

                            (v) The parties shall enter into a Compound License
Agreement in substantially the form of the Compound License Agreement dated May
10, 2000 between ACADIA and ArQule for each (a) Reserved Target or Reserved
Target Set and its corresponding Reserved Compounds or Reserved Compound Set and
(b) Committed Target or Committed Target Set and its corresponding Committed
Compounds or Committed Compound Set, for

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                                      24.
<PAGE>   25
which such party obtains rights under this Subsection. Each party acknowledges
and agrees that the Compound License Agreement provides for, among other things,
an annual license maintenance fee in the amount of [*****]

                  9.6.3 RIGHTS IN TARGETED COMPOUNDS. Except for Collaboration
Work Product that has been commercialized pursuant to Section 3.7., the rights
of each party to use Targeted Compounds continues after the Collaboration ends
as provided in Subsection 5.3.2., clause (iii), subject to the other provisions
of this Section 9.6.

         9.7 SURVIVAL. The following provisions shall survive the expiration or
termination of this Agreement: Articles 4, 6, 7, 8, and 10; Sections 5.1.2.,
5.3. (except 5.3.1), 9.6., 9.7., 11.7., and 11.9.

10.      DISPUTE RESOLUTION.

         10.1 PROCEDURES MANDATORY. Except as otherwise provided in Subsection
2.2.6., the parties agree that any dispute arising out of or relating to this
Agreement shall be resolved solely by means of the procedures set forth in this
Article, and that such procedures constitute legally binding obligations that
are an essential provision of this Agreement; provided, however, that all
procedures and deadlines specified in this Article may be modified by written
agreement of the parties. If either party fails to observe the procedures of
this Article, as modified by their written agreement, the other party may bring
an action for specific performance in any court of competent jurisdiction.

         10.2 DISPUTE RESOLUTION PROCEDURES.

                  10.2.1 NEGOTIATION. Except as otherwise provided in Subsection
2.2.6., in the event of any dispute arising out of or relating to this
Agreement, the affected party shall notify the other party, and the Steering
Committee shall attempt in good faith to resolve the matter within [*****] after
the date such notice is received by the other party (the "NOTICE DATE"). Any
disputes not resolved by good faith discussions within the Steering Committee
shall be referred to senior executives of each party, who shall meet at a
mutually acceptable time and location within thirty [*****] after the Notice
Date and attempt to negotiate a settlement.

                  10.2.2 MEDIATION. If the matter remains unresolved within
[*****] days after the Notice Date, or if the senior executives fail to meet
within [*****] after the Notice Date, either party may initiate mediation upon
written notice to the other party, whereupon both parties shall be obligated to
engage in a mediation proceeding under the then current Center for Public
Resources ("CPR") Model Procedure for Mediation of Business Disputes, except
that specific provisions of this Section shall override inconsistent provisions
of the CPR Model Procedure. The mediator will be selected from the CPR Panels of
Neutrals. If the parties cannot agree upon the selection of a mediator within
[*****] after the Notice Date, then upon the request of either party, the CPR
shall appoint the mediator. The parties shall attempt to resolve the dispute
through mediation until one of the following occurs: (i) the parties reach a
written settlement; (ii)

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                                      25.
<PAGE>   26
the mediator notifies the parties in writing that they have reached an impasse;
(iii) the parties agree in writing that they have reached an impasse; or (iv)
the parties have not reached a settlement within [*****] after the Notice Date.

                  10.2.3 TRIAL WITHOUT JURY. If the parties fail to resolve the
dispute through mediation, or if neither party elects to initiate mediation,
each party shall have the right to pursue any other remedies legally available
to resolve the dispute; provided, however, that the parties expressly waive any
right to a jury trial in any legal proceeding under this Section.

         10.3 PRESERVATION OF RIGHTS PENDING RESOLUTION.

                  10.3.1 PERFORMANCE TO CONTINUE. Each party shall continue to
perform its obligations under this Agreement pending final resolution of any
dispute arising out of or relating to this Agreement; provided, however, that a
party may suspend performance of its obligations during any period in which the
other party fails or refuses to perform its obligations.

                  10.3.2 PROVISIONAL REMEDIES. Although the procedures specified
in this Article are the sole and exclusive procedures for the resolution of
disputes arising out of or relating to this Agreement, either party may seek a
preliminary injunction or other provisional equitable relief if, in its
reasonable judgment, such action is necessary to avoid irreparable harm to
itself or to preserve its rights under this Agreement.

                  10.3.3 STATUTE OF LIMITATIONS. The parties agree that all
applicable statutes of limitation and time-based defenses (such as estoppel and
laches) shall be tolled while the procedures set forth in Subsections 10.2.1.
and 10.2.2. are pending. The parties shall take any actions necessary to
effectuate this result.

11.      MISCELLANEOUS.

         11.1 PUBLICITY. No press release, advertising, promotional sales
literature, or other promotional oral or written statements to the public in
connection with or alluding to work performed under this Agreement or the
relationship between the parties created by it, having or containing any
reference to ArQule or ACADIA, shall be made by either party without the prior
written approval of the other party, except for restatements of
previously-approved statements and disclosures required by applicable law or
regulation.

         11.2 RELATIONSHIP OF PARTIES. For the purposes of this Agreement, each
party is an independent contractor and not an agent or employee of the other
party. Neither party shall have authority to make any statements,
representations, or commitments of any kind, or to take any action which shall
be binding on the other party, except as may be explicitly provided for herein
or authorized in writing. In particular, (i) neither party shall represent to
creditors or vendors that such party has any authority to obligate or bind the
other party, and shall affirmatively correct any misconception to that effect
and (ii) neither party shall use the name of the other party in connection with
such transactions without the prior written consent of the other party, which
consent may be withheld in its sole discretion.

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                                      26.
<PAGE>   27
         11.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.

         11.4 HEADINGS. All headings in this Agreement are for convenience only
and shall not affect the meaning of any provision hereof.

         11.5 BINDING EFFECT. This Agreement shall inure to the benefit of and
be binding upon the parties and their respective lawful successors and assigns.

         11.6 ASSIGNMENT. This Agreement may not be assigned by either party
without the prior written consent of the other party, except that either of the
parties may assign this Agreement to a successor in connection with the merger,
consolidation, or sale of all or substantially all of its assets or that portion
of its business pertaining to the subject matter of this Agreement; provided,
however, that in the event of such a transaction, no intellectual property
rights of any Affiliate or third party that is an acquiring party shall be
included in the technology subject to this Agreement.

         11.7 NOTICES. All notices, requests, demands and other communications
required or permitted to be given pursuant to this Agreement shall be in writing
and shall be deemed to have been duly given upon the date of receipt if
delivered by hand, recognized national overnight courier, confirmed facsimile
transmission, or registered or certified mail, return receipt requested, postage
prepaid, to the following addresses or facsimile numbers:

If to ACADIA:

                  ACADIA Pharmaceuticals
                  3911 Sorrento Valley Blvd.
                  San Diego, CA 92121-1402
                  Attn: Chief Executive Officer
                  Tel: (858) 320-8614
                  Fax: (858) 455-1751

         with a copy (which shall not constitute notice) to:

                  Pillsbury Madison & Sutro LLP
                  101 West Broadway, Suite 1800
                  San Diego, CA  92101-8219
                  Attn:  John M. Dunn
                  Tel: (858) 509-4015
                  Fax: (858) 236-1995


                                      27.
<PAGE>   28
         If to ArQule:

                  ArQule, Inc.
                  19 Presidential Way
                  Woburn, MA  01801
                  Attn:  President
                  Tel: (781) 994-0300
                  Fax: (781) 503-0009

         with a copy (which shall not constitute notice) to:

                  ArQule, Inc.
                  19 Presidential Way
                  Woburn, MA  01801
                  Attn:  Legal Department
                  Tel: (781) 994-0300
                  Fax: (781) 994-0676

Either party may change its designated address and facsimile number by notice to
the other party in the manner provided in this Section.

         11.8 AMENDMENT AND WAIVER. This Agreement may be amended, supplemented,
or otherwise modified at any time, but only by means of a written instrument
signed by both parties. Any waiver of any rights or failure to act in a specific
instance shall relate only to such instance and shall not be construed as an
agreement to waive any rights or fail to act in any other instance, whether or
not similar.

         11.9 GOVERNING LAW. This Agreement and the legal relations among the
parties shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts irrespective of any conflict of laws principles.

         11.10 SEVERABILITY. In the event that any provision of this Agreement
shall, for any reason, be held to be invalid or unenforceable in any respect,
such invalidity or unenforceability shall not affect any other provision hereof,
and this Agreement shall be construed as if such invalid or unenforceable
provision had not been included herein.

         11.11 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes any
and all prior or contemporaneous oral and prior written agreements and
understandings including, without limitation, the MTA.


                                      28.
<PAGE>   29
         IN WITNESS WHEREOF, the undersigned have duly executed and delivered
this Agreement as a sealed instrument effective as of the date first above
written.

                                      ACADIA PHARMACEUTICALS, INC.


                                      By:       /s/ Uli Hacksell, Ph.D.
                                         -------------------------------------
                                          Uli Hacksell, Ph.D.
                                          Chief Executive Officer

                                      ARQULE, INC.

                                      By:     /s/ Stephen A. Hill, M.D.
                                         --------------------------------------
                                          Stephen A. Hill , M.D.
                                          President and Chief Executive Officer
<PAGE>   30
                                    EXHIBIT A

                                    [*****]

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                                      29.