<PAGE>
 
The symbol "**" is used throughout this exhibit to indicate that a portion of 
the exhibit has been omitted and filed separately with the Commission.

 
                                 Exhibit 10.45
                                 -------------

                            CROSS LICENSE AGREEMENT
                            -----------------------

     THIS CROSS LICENSE AGREEMENT (the "Agreement") effective the 26/th/ day of
March, 1997 (the "Effective Date") is made by and between CELL GENESYS, INC., a
Delaware corporation ("Cell Genesys"), ABGENIX, INC., a Delaware corporation and
subsidiary of Cell Genesys ("Abgenix"), XENOTECH, L.P., a California limited
partnership ("Xenotech"), and JAPAN TOBACCO INC., a Japanese corporation ("Japan
Tobacco"), on the one hand, and GENPHARM INTERNATIONAL, INC., a California
corporation ("GenPharm"), on the other hand.


                                   RECITALS


     WHEREAS, the parties have entered into that certain Release and Settlement
Agreement dated March 26, 1997 (the "Settlement Agreement"); and


     WHEREAS, in partial consideration of the Settlement Agreement, GenPharm
desires to grant to Xenotech and the other parties desire to grant to GenPharm
cross licenses under certain patent rights, on the terms and conditions set
forth herein.


     NOW, THEREFORE, for and in consideration of the covenants, conditions, and
undertakings hereinafter set forth, it is agreed by and between the parties as
follows:
<PAGE>
 
1.   DEFINITIONS

     For purposes of this Agreement, the terms set forth in this Article, when
capitalized, shall have the meanings set forth below.


     1.1  "Affiliate" shall mean any entity which directly or indirectly
           ---------                                                    
controls, is controlled by or is under common control with any one of the
parties. An entity shall be regarded as in control of another entity if it owns
or controls at least fifty percent (50%) of the shares of the subject entity
entitled to vote in the election of directors or if it has the contractual power
to designate fifty percent (50%)or more of the directors of a corporation (or,
in the case of an entity that is not a corporation, for the election or
designation of the corresponding managing authority). [**]


     1.2  "Antibody" shall mean a composition [**] said antibody [**] having
           --------                                                         
been generated from a [**] or having been derived from nucleotide sequences
encoding, or amino acid sequences of, an antibody obtained from a [**].


     1.3  "Antibody Product" shall mean [**]
          -----------------


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                                      -2-
<PAGE>
 
[**].

     1.4  "[**]" shall mean a [**].
           ----                    
 
     1.5  "[**]" shall mean [**].
           ----                  

     1.6  "Excluded Claims" shall mean only those claims [**] which [**] to: (a)
           ---------------                                                      
[**] ; (b) [**], wherein the [**] or



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                                      -3-
<PAGE>
 
[**] and wherein [**] (notwithstanding the foregoing, [**]); (c) [**]; (d) [**];
(e) a [**]; (f)(i) [**] on its [**], the [**], a [**]  wherein the [**] and [**]
or the [**] and (ii) [**].  As used herein, [**]


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                                      -4-
<PAGE>
 
[**].

     1.7  "Genetic Material" shall mean a [**].
           ----------------                    

     1.8  "Human Antibody [**]" shall mean [**].




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                                      -5-
<PAGE>
 
     1.9   "Human Non-Endogenous Antibody [**]" shall mean [**].
            ----------------------------------                  

     1.10  "Interference Settlement Procedure Agreement" shall mean the
            -------------------------------------------                
Interference Settlement Procedure Agreement among the parties of even date
herewith.

     1.11 "Knock-out [**]" shall mean [**].
           -------------




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                                      -6-
<PAGE>
 
     1.12  "Licensee" shall mean [**].
            --------

     1.13  "Licensed Product" shall mean an Antibody Product or a Transgenic
            ----------------                                                
Product.

     1.14  "Licensor" shall mean [**].
            --------                  

     1.15  "Party" shall mean GenPharm, on the one hand, and the Xenotech Group,
            -----                                                               
on the other hand.

     1.16  "Patent Rights" shall mean all claims, other than Excluded Claims, in
            -------------                                                       
(a) patent applications filed in any country of the world and patents issued or
issuing thereon, owned by, or licensed to a Licensor with a right to sublicense,
pursuant to a Third-Party License Agreement, that [**]; (b) all continuations,
continuations-in-part, patents of addition, divisionals, reexamination
certificates, reissues or extensions, including supplemental protection
certificates, of


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                                      -7-
<PAGE>
 
any of (a) above; and (c) all foreign counterparts applied for, issued or
issuing on any of (a) or (b) above.  [**].

     1.17  "Patent Rights [**]" shall mean the [**].
            ------------------                      

     1.18  "Relevant Patent" shall mean a [**].
            ---------------                    

     1.19  "Third-Party License Agreement" shall mean an agreement between a
            -----------------------------                                   
Licensor and a non-Affiliate third party that conveys to the Licensor an
interest in any Patent Rights covering a [**].

     1.20  "Transgenic Product" shall mean any product [**].
            ------------------        


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                                      -8-
<PAGE>
 
     1.21 "Transgenic [**]" shall mean [**].
          ---------------                  

     1.22 "Xenotech Group" shall mean Cell Genesys, Abgenix, Xenotech and Japan
           --------------                                                      
Tobacco, collectively.

2.   LICENSE GRANTS

     2.1  Grant by Xenotech Group for [**].  Subject to the terms and conditions
          --------------------------------                                      
of this Agreement, each and every member of the Xenotech Group hereby grants to
GenPharm a non-exclusive (except that such grant shall be exclusive even as to
each member of the Xenotech Group as to [**]), worldwide, royalty-free, fully
paid up, perpetual, license or sublicense, as the case may be (with the right to
sublicense as set forth in Section 2.5) under its Patent Rights, to use for
research, and to develop, make, have made, use, import, export  or otherwise
transfer physical possession of (but not to sell, lease, offer to sell or lease,
or otherwise transfer title to) [**]; provided, however, that the license
granted hereunder shall not include the right to use for research, or to
develop, make, have made, use, import, export or otherwise transfer physical
possession of [**] in connection with an [**].  In the event the [**]



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                                      -9-
<PAGE>
 
[**].

     2.2  Grant by GenPharm for [**]. Subject to the terms and conditions of
          ---------------------------                                       
this Agreement, GenPharm hereby grants to Xenotech a non-exclusive (except that
such grant shall be exclusive even as to GenPharm as to [**]), worldwide,
royalty-free, fully paid up, perpetual, license or sublicense, as the case may
be (with the right to sublicense as set forth in Section 2.5) under its Patent
Rights, to use for research, and to develop, make, have made, use, import,
export or otherwise transfer physical possession of (but not to sell, lease,
offer to sell or lease, or otherwise transfer title to) [**]; provided, however,
that the license granted hereunder shall not include the right to use for
research, or to develop, make, have made, use, import, export or otherwise
transfer physical possession of [**].

     2.3  Grant by Xenotech Group for [**]. Subject to the terms and conditions
          ---------------------------------                                    
of this Agreement, each and every member of the Xenotech Group hereby grants to
GenPharm a non-exclusive (except that such grant shall be exclusive even as to
each member of the Xenotech Group as to [**]), worldwide, royalty-free, fully
paid up, perpetual, license or sublicense, as the case may be (with the right to
sublicense as


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                                      -10-
<PAGE>
 
set forth in Section 2.5) under its Patent Rights, to use for research, and to
develop, make, have made, use, import, export, otherwise transfer physical
possession of, sell, lease, offer to sell or lease, or otherwise transfer title
to [**]; provided, however, that the license granted hereunder, shall not
include the rights to use for research or to develop, make, have made, use,
import, export, otherwise transfer physical possession of, sell, lease, offer to
sell or lease, or otherwise transfer title to [**] to the [**].

     2.4  Grant by GenPharm for [**].  Subject to the terms and conditions of
          --------------------------                                        
this Agreement, GenPharm hereby grants to Xenotech a non-exclusive (except that
such grant shall be exclusive even as to GenPharm as to [**] selected pursuant
to Section 2.1), worldwide, royalty-free, fully paid up, perpetual, license or
sublicense, as the case may be (with the right to sublicense as set forth in
Section 2.5) under its Patent Rights, to use for research, and to develop, make,
have made, use, import, export or otherwise transfer physical possession of,
sell, lease, offer to sell or lease, or otherwise transfer title to [**];
provided, however, that the license granted hereunder shall not include the
rights to use for research, or to develop, make, have made, use, import, export
or otherwise transfer physical possession of, sell, lease, offer to sell or
lease, or otherwise transfer title to [**] to the [**].



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<PAGE>
 
     2.5  Sublicenses.
          ----------- 

          (a)  Each Licensee shall have the right to grant sublicenses of the
Patent Rights licensed hereunder to its Affiliates [**].

          (b)  [**] shall have the right to grant sublicenses to [**].

          (c)  [**] shall have the right to grant sublicenses of [**] and with 
respect to [**]:


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                                      -12-
<PAGE>
 
[**]:
               (i)    as part of a [**]

               (ii)   where [**]

               (iii)  where [**] the parties [**]

               (iv)   as part [**] pursuant to [**] shall include [**].

     2.6  Termination of Sublicenses.  In the event that a license granted
          --------------------------                                      
hereunder is terminated, any sublicense granted by the Licensee or by its
Affiliates (other than from a Licensee to an Affiliate) and any further
sublicenses thereunder shall, upon the written request of such sublicensee,
remain in full force and effect, provided that such sublicensee is not then in


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                                      -13-
<PAGE>
 
  breach of its sublicense agreement and such sublicensee agrees to be bound to
the Licensor under the terms and conditions of such sublicense agreement.
Further, the termination of a license granted hereunder to a party shall not
affect a sublicense granted to a party whose rights have not been terminated
hereunder.

     2.7  Grants by Affiliates.  Each Party shall cause its Affiliates to grant
          --------------------                                                 
the Licenses provided in this Article 2 to the extent such Affiliates possess or
may acquire such rights.

     2.8  Excluded Patent Rights.  Notwithstanding the foregoing, the license
          ----------------------                                             
grants made by the Parties in this Article 2 shall not include Patent Rights
licensed prior to the Effective Date to any of the parties pursuant to licenses
listed on Schedule 1.

     2.9  [**].  Japan Tobacco shall use commercially reasonable efforts, [**] 
          ----                      
to provide for a [**]. In the event that Japan Tobacco is [**].

     2.10 [**].  The Xenotech Group shall [**]
          ----



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                                      -14-
<PAGE>
 
[**].

     2.11 [**].  GenPharm shall have an option to obtain the grant of a
          ----                                                         
sublicense pursuant to the [**].  If such option is exercised, [**] such option
is exercised.  In such event, [**] royalties as set forth in [**] and to other
terms and conditions of the [**] applicable to sublicensees.

     2.12  [**]  As long as [**] is an [**] if requested by a [**] regarding 
           ----                  
obtaining [**] provided such [**].


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                                      -15-
<PAGE>
 
3.   PAYMENTS TO GENPHARM

     3.1  Initial Payments.  In consideration of this Agreement and the
          ----------------                                             
Settlement and Release Agreement among the parties effective as of the Effective
Date, the Xenotech Group will pay to GenPharm [**]. Of this payment [**] shall
be paid in cash within fifteen business days after execution of this Agreement
(as to which time is of the essence) and $15,000,000 by delivery on the
Effective Date of a convertible note from Cell Genesys in the form attached as
Exhibit A hereto.  Upon such cash payment, GenPharm shall promptly provide a
written acknowledgement thereof to each member of the Xenotech Group.

     3.2  Payments for Relevant Patent.  Xenotech shall make the following
          ----------------------------                                    
payments to GenPharm:

          (a)  $7,500,000, within thirty business days after notice by GenPharm
to each member of the Xenotech Group including [**]

          (b)  $7,500,000, within thirty business days after the earlier of (1)
notice by GenPharm to each member of the Xenotech Group including [**]



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                                      -16-
<PAGE>
 
[**].

          (c)  Any payments to be made to GenPharm pursuant to this Section 3.2
shall be in cash.  Time shall be of the essence with respect to the time period
for each such payment.

          (d)  Japan Tobacco agrees (i) that it shall provide funding, or cause
one of its subsidiaries to provide funding, to Xenotech, to the extent needed,
for one-half of each payment under Sections 3.2 (a) and (b) as it becomes due
(the "Japan Tobacco Share"), (ii) that it shall cause Xenotech to make payment
of such funds to GenPharm, and (iii) if Xenotech fails to make either such
payment as it becomes due, upon demand by GenPharm, that it shall forthwith pay
to GenPharm the Japan Tobacco Share specified in this Section 3.2(d) in
immediately available funds.  Cell Genesys and Abgenix each agrees (i) to
provide funding to Xenotech, to the extent needed, for the other one-half of
each payment under Sections 3.2 (a) and (b) as it becomes due (the "Cell
Genesys/ Abgenix Share"), (ii) that each of them and they together shall cause
Xenotech to make payment of such funds to GenPharm, and (iii) if Xenotech fails
to make either such payment as it becomes due, upon demand by GenPharm, that
they shall be jointly and severally obliged forthwith to pay to GenPharm the
Cell Genesys/ Abgenix Share specified in this



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                                      -17-
<PAGE>
 
Section 3.2(d) in immediately available funds.  Japan Tobacco, Cell Genesys and
Abgenix each agrees and acknowledges that their respective covenants and
obligations under this Section 3.2(d) are its direct covenants and obligations
and each hereby waives any claims or rights which might arise or be implied if
these obligations were construed to be guarantees or if any other party hereto
were to become subject to a proceeding under bankruptcy law. Without limiting
the generality of the foregoing, each of Japan Tobacco, Cell Genesys and Abgenix
agrees that its respective obligations to make the payments specified in this
Section 3.2(d) are in no way conditioned on or contingent upon any attempt to
enforce in whole or in part any of the payments due to GenPharm or the existence
or continuance of Xenotech as a legal entity, and the respective obligations to
make such payments are not lessened or abrogated by the consolidation or merger
of Xenotech with or into any other entity, the sale, lease or disposition by
Xenotech of all or substantially all of its assets to any other entity, the
bankruptcy or insolvency of Xenotech (or any amendment, modification or stay of
GenPharm's rights which may occur in any bankruptcy or reorganization case,
whether or not assented to by GenPharm), the admission by Xenotech of its
inability to pay its debts as they mature, or the making by Xenotech of a
general assignment for the benefit of, or entering into a composition or
arrangement with, creditors.  Each of Japan Tobacco, Cell Genesys and Abgenix
acknowledges that to the extent of its respective obligations set forth in this
Section 3.2(d), such party has specifically assumed any and all risks of a
bankruptcy or reorganization case or proceeding with

                                      -18-
<PAGE>
 
respect to  Xenotech.  Each of Japan Tobacco, Cell Genesys and Abgenix further
waives, to the extent permitted by applicable law, (i) any defense resulting
from the absence, impairment or loss of any right of reimbursement, subrogation,
contribution or other right or remedy of such party against Xenotech; (ii) any
set off or counterclaim or any defense which results from any disability of
Xenotech; (iii) any right to exoneration of sureties which would otherwise be
applicable; (iv) any right of subrogation or reimbursement, but only for so long
as GenPharm has not been paid in full; and (v) any right to be informed by
GenPharm of the financial condition of Xenotech or any other circumstances
bearing upon the risk of nonpayment by Xenotech.  GenPharm agrees and
acknowledges that, if it receives the payments under this Section 3.2(d) from or
on behalf of either Japan Tobacco or Cell Genesys and Abgenix, but not the
other, the party or parties which made or caused to be made any such payments
shall continue, subject to the terms hereof, to be entitled to all rights under
this Agreement or any sublicense to it from Xenotech under this Agreement.

     3.3  No Deduction or Set-off, etc.  All payments under this Article 3 shall
          -----------------------------                                         
be made without any set-off and without deduction whatsoever for or on account
of any non-United States taxes or similar governmental charges or costs of
transfer.

                                      -19-
<PAGE>
 
4.   THIRD-PARTY LICENSES

     4.1  Rights under Third-Party Licenses.  Each Licensor shall have the
          ---------------------------------                               
following obligations to ensure that a Licensee shall have all rights under
Third-Party License Agreements anticipated by the license granted hereunder:

          (a) In the event that a Licensor elects to [**], Licensor shall take
all such actions as may be reasonably necessary to [**] under such Third-Party
License Agreement.

          (b)  In the event that Licensor receives [**], Licensor shall [**].

          (c)  In the event that Licensor receives [**] proposes to [**] or 
has [**] and, if requested by Licensee, shall [**].

                                      -20-
<PAGE>
 
          (d)  No Licensor shall [**] Third-Party License Agreement [**] 
Third-Party License Agreement [**].

          (e)  Schedule 2 includes a complete list of each Third-Party License
Agreement (excluding those Third-Party License Agreements Listed on Schedule 1)
to which each Licensor is a party and for which such Licensor has sublicensing
rights.  Each Licensor will provide, within 30 days after the Effective Date a
revised Schedule 2 setting forth all royalties, license fees, milestone
payments, and similar payments due to any third party for which Licensee may
become obligated under Section 4.2, which Schedule 2 shall be updated on a semi-
annual basis.

     4.2  Obligations to Third Parties.
          ---------------------------- 

          (a)  Each Licensee receiving sublicense rights hereunder shall be
responsible for any payments or other obligations of a sublicensee arising under
Third-Party License Agreements in connection with the commercialization of a
Licensed Product by such Licensee, its Affiliates and sublicensees.  Such
Licensee shall provide to Licensor copies of all royalty reports required to be
delivered under a Third-Party License Agreement.

          (b)  Each Licensee shall be responsible for any incremental payments
that may result from Licensor granting to or


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                                      -21-
<PAGE>
 
obtaining for Licensee sublicense rights in any Third-Party License Agreement
to which such Licensee has consented (lack of consent to negate any such
sublicense rights).

     4.3  Notice of Third-Party Licenses.  Licensor shall give Licensee written
          ------------------------------                                       
notice within 30 days after execution of the material terms of any Third-Party
License Agreement entered into after the Effective Date of this Agreement that
affects such Licensee.

5.   PATENTS

     5.1  Patent Enforcement.  Each Party shall have the [**] and patent
          ------------------                                            
applications worldwide relating to [**] and, subject to the Interference
Settlement Procedure Agreement, conducting any interferences, oppositions,
reexaminations, or requesting reissues or patent term extensions with respect to
such Patent Rights.  Each Party shall have the exclusive right to enforce, or
defend any declaratory judgment action, at its expense, involving its own Patent
Rights.  Such Party shall have the right to retain any recovery received as a
result of any such claim, suit or proceeding.

     5.2  Infringement Claims.  If the development, production, sale or use of
          -------------------                                                 
any Licensed Product pursuant to this Agreement results in any claim, suit or
proceeding alleging patent

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                                      -22-
<PAGE>
 
infringement against a Licensee (or its  Affiliates or sublicensees), the
Licensee shall have the exclusive right to defend and control the defense of any
such claim, suit or proceeding, at its own expense.  Licensee shall not be
entitled as part of the settlement of any such claim, suit or proceeding, to
admit the invalidity of another party's Patent Rights without that other party's
written consent.

     5.3  Patent Marking.  Licensee agrees to mark and have its Affiliates and
          --------------                                                      
sublicensees mark all Licensed Products sold pursuant to this Agreement in
accordance with the applicable statutes or regulations in the country or
countries of manufacture and sale thereof.

6.   REPRESENTATIONS AND WARRANTIES

     6.1  Representations of Each Party.  Each party represents and warrants
          -----------------------------                                     
that:

          (i)    it has the full right and authority to enter into this
Agreement and grant each of the rights, licenses and sublicenses that it has
granted herein;

          (ii)   as of the Effective Date, it will not have in effect any grant,
and will not grant in the future, any rights inconsistent or in conflict with
the rights, licenses and sublicenses granted or to be granted herein, nor does
any of its Affiliates have any rights inconsistent, or in conflict with, the

                                      -23-
<PAGE>
 
rights, licenses and sublicenses granted or to be granted herein by a party;

          (iii)  upon proper execution, delivery and performance of the
Settlement Agreement, there will be no existing or threatened actions, suits or
claims pending against such party with respect to its Patent Rights or the right
of such party to enter into and perform its obligations under this Cross License
Agreement;

          (iv)   except as set forth on Schedule 3, prior to the Effective Date,
it has made no grant, assignment, transfer, license or sublicense, or taken any
other action with respect to any invention, patent or patent application (other
than actions in the normal course of patent prosecution) which would have been
included in the grant of Patent Rights under Article 2 but for such grant,
assignment, transfer, license, sublicense or action;

          (v)    it will not make any grant, assignment, transfer, license or
sublicense, or take any other action with respect to any invention, patent or
patent application which would be in conflict with the grant of Patent Rights
under Article 2; and

          (vi)   to best of the knowledge of its officers and directors, no
employee, consultant, former employee or former consultant of such Party, in the
course of their employment or consultancy, is the inventor or co-inventor or has
any rights to

                                      -24-
<PAGE>
 
any invention, patent application [**].

     6.2  Representations of GenPharm.  GenPharm represents and warrants that:
          ---------------------------                                         

          (i)    Pharming B.V. has been granted no rights by GenPharm that, but
for such grant, would be within the grant of Patent Rights made by GenPharm
under Article 2, and, to the best of GenPharm's knowledge, Pharming B.V. has no
rights within the grants of Patent Rights made under Article 2, outside of those
set forth on Schedule 2 hereto.

          (ii)   to the best of GenPharm's knowledge and belief, any jointly
owned Research Inventions (as defined in the Agreement between GenPharm and
LeukoSite, Inc. ("LeukoSite") dated January 1, 1995, as amended (the "LeukoSite
Agreement")) that have been created under the LeukoSite Agreement which, if
wholly owned by GenPharm would have been included in the grant of Patent Rights
made by GenPharm under Article 2, are so included, and nothing in the LeukoSite
Agreement or in any other agreement between LeukoSite and GenPharm conflicts
with GenPharm's grants of Patent Rights under Article 2.

          (iii)  attached hereto as Exhibit B is an [**].

     6.3  Disclaimer.  EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS
          ----------                                                  
AGREEMENT, EACH PARTY MAKES NO REPRESENTATIONS AND EXTENDS


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                                      -25-
<PAGE>
 
NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED
TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR VALIDITY
OF PATENT RIGHTS CLAIMS, ISSUED OR PENDING.

7.   INDEMNITY

          Each Licensee agrees to indemnify and hold harmless the Licensor, its
Affiliates and their directors, officers, employees and agents from and against
any liabilities suffered or incurred in connection with third-party claims
arising from the manufacture, use, sale, import or other distribution of any
Licensed Product by such Licensee, its Affiliates or their sublicensees.
Promptly after receipt by an indemnified party under this Section 7 of notice of
the commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made for indemnification against a Licensee under this
Section 7, notify the Licensee in writing of the commencement thereof and
generally summarize such action.  Licensee shall have the right to assume the
defense of such claim.  The failure to notify a Licensee promptly of the
commencement of any such action shall not relieve the Licensee of its
obligations under this Section 7 unless such failure is prejudicial to the
ability of the Licensee to defend such action.

                                      -26-
<PAGE>
 
8.   TERM AND TERMINATION

     8.1  Effectiveness.  This Agreement shall become effective as of the
          -------------                                                  
Effective Date and the license rights granted  under Article 2 above shall be in
full force and effect as of such date.

     8.2  Term.  Unless earlier terminated as to the other provisions of this
          ----                                                               
Article 8, this Agreement shall continue in full force and effect until the
expiration of the last to expire patent within the Patent Rights.

     8.3  Termination for Breach.  In the event a party shall have materially
          ----------------------                                             
breached or defaulted in the performance of any of its material obligations
hereunder, and such breach shall have continued for sixty days after written
notice thereof was provided to the breaching party by a nonbreaching party, such
nonbreaching party may terminate this Agreement as to such breaching party.  Any
termination shall become effective at the end of such 60-day period unless the
breaching party has cured any such breach or default prior to the expiration of
the sixty day period.
 
     8.4  Specific Enforcement.  In the event of breach of any provision herein
          --------------------                                                 
by a party, the nonbreaching party shall have, in addition to all other rights
and remedies in law or in equity, the right to have this Agreement and any
provision herein specifically enforced by any court having equity jurisdiction,
it

                                      -27-
<PAGE>
 
being stipulated by the parties that any such breach will cause irreparable
injury to the non-breaching party and that money damages will not provide an
adequate remedy.

     8.5  Survivability.  Article 6, Article 7, Section 8.4, this Section 8.5,
          -------------                                                       
Section 9.1, Section 9.7 and Section 9.8 shall survive the expiration and any
termination of this Agreement for any reason.

9.   MISCELLANEOUS
 
     9.1  Governing Laws.  This Agreement shall be interpreted and construed in
          --------------                                                       
accordance with the laws of the State of California, without regard to conflicts
of law principles.

     9.2  Waiver.  It is agreed that no waiver by any party hereto of any breach
          ------                                                                
or default of any of the covenants or agreements herein set forth shall be
deemed a waiver as to any subsequent and/or similar breach or default.

     9.3  Assignment.  This Agreement and the license granted hereunder may not
          ----------                                                           
be assigned, except by a party to (a) an Affiliate of such party or (b) an
entity that acquires all or substantially all of the business segment of such
party to which this Agreement relates; provided, however, that any acquiring
entity shall agree in writing to be bound by the terms of this Agreement.  The
terms and conditions of this Agreement shall be

                                      -28-
<PAGE>
 
binding on and inure to the benefit of the permitted successors and assigns of
the parties.

     9.4  Compliance with Laws.  In exercising their rights under this license,
          --------------------                                                 
the parties shall fully comply with the requirements of any and all applicable
laws, regulations, rules and orders of any governmental body having jurisdiction
over the exercise of rights under this license.

     9.5  Notices.  Any notice required or permitted to be given to the parties
          -------                                                              
hereto shall be given in writing and shall be deemed to have been properly given
if delivered in person or when received if mailed by first class certified mail
to the other party at the appropriate address as set forth below or to such
other addresses as may be designated in writing by the parties from time to time
during the term of this Agreement.

     Xenotech:               Xenotech, L.P.
                             7601 Dumbarton Circle
                             Fremont, CA  94555
                             Attn: Chief Financial Officer

     Japan Tobacco Inc.:     Japan Tobacco Inc.
                             JT Building
                             2-1 Toranomon 2-chome
                             Minato-ku, Tokyo 105
                             Japan
                             Attn: Vice President,           
                             Pharmaceutical Division

     with a copy to:         JT America Inc.
                             1825 South Grant Street, Suite 220
                             San Mateo, CA 94402
                             Attn: President

                                      -29-
<PAGE>
 
     and to:                  Gilbert, Segall and Young LLP
                              430 Park Avenue
                              New York, NY  10022
                              Attn:  Neal N. Beaton, Esq.

     Cell Genesys, Inc.:      Cell Genesys, Inc.
                              342 Lakeside Drive
                              Foster City, California 94404
                              Attn:  President and CEO

     with a copy to:           Heller Ehrman White & McAuliffe
                              525 University Avenue
                              Palo Alto, California  94301
                              Attn:  Julian N. Stern, Esq.

     Abgenix, Inc.            Abgenix, Inc.
                              7601 Dumbarton Circle
                              Fremont, CA  94555
                              Attn:  President and CEO
 
     with a copy to:          Heller Ehrman White & McAuliffe
                              525 University Avenue
                              Palo Alto, California  94301
                              Attn:  Julian N. Stern, Esq.

     GenPharm International,  GenPharm International, Inc.
      Inc.                    855 California Ave., Suite C
                              Palo Alto, CA  94304
                              Attn:  CEO


     9.6  Severability.  In the event that any provision of this Agreement
          ------------                                                    
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision and the parties shall discuss in good faith appropriate
revised arrangements.

     9.7  Waiver of Jury Trial.  EACH PARTY, TO THE FULLEST EXTENT PERMITTED BY
          --------------------                                                 
APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY AS TO ANY
ISSUE RELATING HERETO IN ANY ACTION, PROCEEDING OR COUNTERCLAIM.

                                      -30-
<PAGE>
 
     9.8  Limitation on Liability.  NO PARTY SHALL BE LIABLE TO ANOTHER FOR ANY
          -----------------------                                              
PUNITIVE DAMAGES ARISING OUT OF THIS AGREEMENT OR ANY OBLIGATION RESULTING
HEREFROM.

     9.9  Complete Agreement.  It is understood and agreed that this Agreement
          ------------------                                                  
constitutes the entire agreement, both written and oral, among the parties with
respect to the subject matter hereof, and that all prior agreements respecting
the subject matter hereof, either written or oral, expressed or implied, shall
be abrogated, canceled, and are null and void and of no effect.  No amendment or
change hereof or addition hereto shall be effective or binding on any of the
parties hereto unless reduced to writing and executed by the respective duly
authorized representatives of all of the parties.

     9.10 Counterparts.  This Agreement may be executed in counterparts, each of
          ------------                                                          
which shall be deemed to be an original and both together shall be deemed to be
one and the same agreement.

     9.11  Headings.  The captions to the several Articles and Sections hereof
           --------                                                           
are not a part of this Agreement, but are included merely for convenience of
reference only and shall not affect its meaning or interpretation.

     9.12 No Territorial Restriction.  Nothing in this Agreement shall impose a
          --------------------------                                           
territorial restriction on a Party's right to manufacture, use or market any
product or technology within the European Union.

                                      -31-
<PAGE>
 
     IN WITNESS WHEREOF, the parties have executed this Agreement, their
respective officers hereunto duly authorized, as of the day and year first above
written.


XENOTECH, L.P.                              JAPAN TOBACCO INC.            
BY:  XENOTECH, INC.                                                       
     ITS GENERAL PARTNER                    By: /s/ Masakazu Kakei        
                                               ---------------------------
                                                                          
     By: /s/ Raymond M. Withy               Name:  Masakazu Kakei         
        --------------------------               -------------------------
                                                                          
     Name: Raymond M. Withy                 Title: Managing Director      
          ------------------------                 Pharmaceutical Business
                                                   -----------------------
     Title: Chairman                                                      
           -----------------------                                        
                                                                          
                                            CELL GENESYS, INC.            
                                                                          
     By: /s/ Takashi Kamiya                 By: /s/ Stephen A. Sherwin    
        --------------------------             ---------------------------
                                                                          
     Name: Takashi Kamiya                   Name:   Stephen A. Sherwin    
          ------------------------                ------------------------
                                                                          
     Title: President and CEO               Title: Chairman and CEO       
           -----------------------                ------------------------
                                                                          
                                                                          
     ABGENIX, INC.                          GENPHARM INTERNATIONAL, INC.  
                                                                          
                                                                          
     By: /s/ R. Scott Greer                 By: /s/ Jonathan MacQuitty    
        --------------------------             ---------------------------
                                                                          
     Name:   R. Scott Greer                 Name:   Jonathan MacQuitty    
          ------------------------                ------------------------
                                                                          
     Title:  President & CEO                Title:  CEO                   
           -----------------------                ------------------------ 

                                      -32-
<PAGE>
 
                                  Schedule 1
                                  ----------

[**]


**   Confidential Treatment Requested

                                      -33-
<PAGE>
 
                                  Schedule 2
                                  ----------

[**]


**   Confidential Treatment Requested

                                      -34-
<PAGE>
 
                                  Schedule 3
                                  ----------

[**]


**   Confidential Treatment Requested

                                      -35-
<PAGE>
 
                                   Exhibit A
                                   ---------

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS AND HAVE BEEN TAKEN FOR
INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH
ANY DISTRIBUTION THEREOF.  THEY MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION AND QUALIFICATION WITHOUT, EXCEPT UNDER CERTAIN
SPECIFIC LIMITED CIRCUMSTANCES, AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE COMPANY THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.

                   CONVERTIBLE SUBORDINATED PROMISSORY NOTE
                   ----------------------------------------

$15,000,000                                              Foster City, California

                                                                  March 26, 1997


     Cell Genesys, Inc., a Delaware corporation ("Company"), for value received,
hereby promises to pay to the order of GenPharm International, Inc. ("Holder")
in lawful money of the United States at the address of Holder set forth below,
the principal sum of Fifteen Million Dollars ($15,000,000), together with
interest on the unpaid principal at the rate of seven percent (7%) per annum,
payable semi-annually, beginning on September 30, 1997 until the Maturity Date,
as defined below.  All outstanding principal and interest shall be payable in
full on the Maturity Date.

     The Maturity Date shall be September 30, 1998; provided that if the Company
does not elect to adjust the Conversion Price (as defined below) as provided in
Section 1.4(a) by providing notice of such election to the Holder no later than
February 28, 1998, the Maturity Date shall be March 31, 1998.  If the Company
does so elect, the Conversion Price (as defined below) shall be adjusted as set
forth in Section 1.4(a).  The Maturity Date May,

                                      -36-
<PAGE>
 
at the election of the Holder, be extended as provided in Section 5.

     If any payment of principal or interest on this Note shall become due on a
Saturday, Sunday, or a public holiday under the laws of the State of California,
such payment shall be made on the next succeeding business day and such
extension of time shall be included in computing interest in connection with
such payment.

     Upon payment in full of all principal and interest payable hereunder, this
Note shall be surrendered to Company for cancellation.

     The Company waives presentment, demand for performance, notice of
nonperformance, protest, notice of protest, and notice of dishonor.  No delay on
the part of Holder in exercising any right hereunder shall operate as a waiver
of such right under this Note.  This Note is being delivered in and shall be
construed in accordance with the laws of the State of California.

     If the indebtedness represented by this Note or any part thereof is
collected at law or in equity or in bankruptcy, receivership or other judicial
proceedings or if this Note is placed in the hands of attorneys for collection
after default, the Company agrees to pay, in addition to the principal and
interest payable hereon, reasonable attorneys fees and costs incurred by Holder.

     In addition, the Holder of this Note by acceptance hereof agrees to the
following terms and conditions:

1.   CONVERTIBILITY

                                      -37-
<PAGE>
 
     1.1  Conversion.  Subject to the provisions of this Note, at any time prior
          ----------                                                            
to 12:00 p.m., Pacific Time, on the earlier of the Maturity Date or the
Redemption Date, at the option of the Holder all or any portion of not less than
$90,000 of the outstanding principal amount of this Note and all or any portion
of accrued and unpaid interest on this Note shall be converted from time to time
into shares of Common Stock of the Company (or such other security into which
this Note becomes convertible pursuant to Section 1.4 below, in either case, the
"Shares") at a conversion price (the "Conversion Price") equal to $9.00 per
share (adjusted as provided in Section 1.4 below).

     1.2  Mechanics of Conversion.  This Note or a specified portion thereof
          -----------------------                                           
shall be converted by the Holder, pursuant to Section 1.1, by surrender of this
Note to the Company at the address set forth below together with a notice of
election to convert all or a specified portion of the principal and a specified
portion of the accrued and unpaid interest into Shares.  If only a specified
portion of the Note is so converted, a notation of such amount shall be placed
on the Note and the Note shall be returned to the Holder.  From and after the
date of the surrender, (i) the rights of the Holder of the surrendered Note or
the specified portion thereof as such shall (to the extent of such principal
amount and any accrued and unpaid interest converted) cease, and (ii) Holder
shall be treated for all purposes as the record holder of the Shares into which
such principal and/or interest has been converted.  The Company shall, as soon
as practicable after the conversion issue and deliver to the Holder of the
surrendered Note or specified portion thereof,

                                      -38-
<PAGE>
 
at the address designated by such Holder, a certificate or certificates (issued
as of the date of conversion) for the Shares into which the principal amount and
any accrued and unpaid interest has been converted.

     1.3  Fractional Shares.  No fractional shares shall be issued upon
          -----------------                                            
conversion of the outstanding principal amount of this Note and any accrued and
unpaid interest on this Note.  In lieu of any fractional shares to which the
Holder of this Note would otherwise be entitled, this Company shall pay cash
equal to such fraction multiplied by the Conversion Price.

     1.4  Adjustments.
          ----------- 

          (a)  Adjustment for Extension of Maturity Date.  If the Company 
               -----------------------------------------   
elects to adjust the Conversion Price and gives notice of such election to
Holder no later than February 28, 1998, it shall be adjusted to equal the lower
of (x) $9.00 or (y) 115% of the average of the closing prices of the Shares on
the Nasdaq National Market (or such other securities market which is the
principal trading market for the Shares) over the 30 trading days immediately
preceding February 28, 1998.

          (b)  Equitable Adjustments.  The number of Shares to be issued upon
               ---------------------                                        
conversion of this Note and the Conversion Price shall be equitably adjusted for
stock splits, stock dividends, subdivisions, and the like.  In the case of any
merger, consolidation, sale of all or substantially all of the assets, or
similar transaction in which the holders of the Company's Common Stock would
receive securities other than Company Common Stock, this Note shall become
convertible into the number and kind of securities as the Holder would have
received in such transaction

                                      -39-
<PAGE>
 
in exchange for the shares of Company Common Stock into which this Note was
convertible immediately prior to the closing such transaction, and the
Conversion Price shall be equitably adjusted.

2.   REDEMPTION

     2.1  Redemption.  This Note may be redeemed at any time on or after August
          ----------                                                           
31, 1997 if the closing price of the Shares on the Nasdaq National Market (or
such other securities market which is the principal trading market for the
Shares) is at least 130 percent of the Conversion Price on at least 20 of the 30
trading days immediately preceding the date of notice of redemption.

     2.2  Notice of Redemption.  The Company shall, at least 30 days prior to
          --------------------                                               
the date fixed by the Company for redemption (the "Redemption Date"), notify the
Holder of such Redemption Date.  The notice of redemption shall state:

          (a)  the Redemption Date,

          (b)  the accrued interest to the Redemption Date, and

          (c)  that on the Redemption Date the Note will become due and payable,
and that interest thereon shall cease to accrue on and after said date.  To the
extent permitted by applicable law, the Company's notice of redemption shall be
irrevocable.  The Holder may convert this Note pursuant to Section 1 above at
any time prior to 12:00 p.m., Pacific Time, on the Redemption Date.  The Holder
may extend the Redemption Date as provided in Section 5.

3.   NOTE AGREEMENT; SUBORDINATION  This Note is issued pursuant to that certain
Convertible Note Purchase Agreement of even date between the Company and the
Holder (the "Note Agreement") and is

                                      -40-
<PAGE>
 
subject to the terms thereof.  This Note and the indebtedness evidenced hereby
is subordinate to any and all Senior Debt, as defined in the Note Agreement, on
the terms set forth in the Note Agreement and in any subordination agreement
entered into pursuant thereto by the Holder, which Senior Debt subordination
agreement shall not restrict the Holder from enforcing its rights under this
Note even though the Company may be in default under its Senior Debt
subordination agreement.

4.   EVENTS OF DEFAULT; ACCELERATION     The occurrence of any of the following
shall constitute an "Event of Default" under this Note:

     (a)  The Company shall fail to pay any interest or other payment required
under the terms of this Note on the date due and such default is not cured by
the Company within five days after the Holder has give the Company notice of
such default; or

     (b)  The Company shall breach the covenant set forth in Section 7.1 under
the Note Agreement; or

     (c)  There shall occur any Change of Control of the Company.  For purposes
of this Section 4, "Change of Control" means any of the following results in the
shareholders of the Company, immediately preceding such event (or combination of
events), ceasing to hold, by reason of their holding of Company shares before
the event, a majority of the voting interest of the Company or the Successor
Company:  (i) a merger or consolidation of the Company with another corporation
or entity, whether or not the Company is the survivor, (ii) a transfer by the
Company of substantially all its operating assets, whether in a single
transaction or series of transactions, or (iii) the transfer of a

                                      -41-
<PAGE>
 
majority of the outstanding voting shares of the Company pursuant to a tender
offer or exchange offer, or multiple offers.  The term "Successor Company" in
the preceding sentence means any of (A) a company into which the Company is
merged or consolidated resulting in the Change of Control, (B) a company to
which the majority of the operating assets of the Company are transferred
resulting in the Change of Control, (C) a company which makes an exchange offer
resulting in the Change of Control or (D) a company which owns all of the
outstanding shares of a company described in clause (A), (B) or (C); or

     (d)  The Company shall (i) apply for or consent to the appointment of a
receiver, trustee, liquidator or custodian of itself or of all or a substantial
part of its property; (ii) be unable, or admit in writing its inability, to pay
its debts generally as they mature; (iii) make a general assignment for the
benefit of its or any of its creditors; (iv) be dissolved or liquidated in full
or in part, (v) become insolvent (as such term may be defined or interpreted
under any applicable statute); (vi) commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or consent to any such relief or to the appointment of or
taking possession of its property by any official in an involuntary case or
other proceeding commenced against it, or (vii) take any action for the purpose
of effecting any of the foregoing; or

     (e)  Proceedings for the appointment of a receiver, trustee, liquidator or
custodian of the Company or of all or a substantial

                                      -42-
<PAGE>
 
part of the property thereof, or an involuntary case or other proceedings
seeking liquidation, reorganization or other relief with respect to the Company
or the debts thereof under any bankruptcy, insolvency or other similar law now
or hereafter in effect shall be commenced and an order for relief entered or
such proceeding shall not be dismissed or discharged within 30 days of
commencement.

     Upon the occurrence or existence of an Event of Default (other than an
Event of Default referred to in clauses (d) or (e) above) and at any time
thereafter during the continuance of such Event of Default, Holder may, by
written notice to the Company, declare all outstanding obligations payable by
Company hereunder to be immediately due and payable without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived.  Upon the occurrence of any Event of Default referred to in clauses (d)
or (e), all outstanding obligations payable by the Company hereunder shall be
immediately due and payable with presentation of demand, protest or any other
notice of any kind, all of which are hereby expressly waived.  Upon the
occurrence or existence of any Event of Default, Holder may exercise any other
right, power or remedy permitted to it by law, either by suit in equity or by
action at law, or both.

5.   HOLDERS' RIGHT TO EXTEND MATURITY DATE OR REDEMPTION DATE

     Notwithstanding anything to the contrary in this Note, the Holder, by
notice to the Company given at least ten days before the Maturity Date or the
Redemption Date, as the case may be, may elect to extend the Maturity Date or
Redemption Date for such number of days, if any, that during the 30 days
immediately prior

                                      -43-
<PAGE>
 
to such Maturity Date or Redemption Date the Holder was disabled from selling
Registrable Securities pursuant to the Registration in accordance with Section
5.3 of the Note Agreement by reason of either (i) a notification described in
clause (d) of subsection 5.3.3 of the Note Agreement (relating to a deficiency
in the prospectus), or (ii) the market stand-off obligations in Section 6.2 of
the Note Agreement.

6.   NOTICES  Any notice or other communication required or permitted hereunder
shall be in writing and shall be deemed to have been given upon written
confirmation of telex or telecopy or upon delivery if personally delivered or
upon deposit if deposited in the United States mail for mailing by certified
mail, postage prepaid, and addressed as follows:

     If to Holder            GenPharm International, Inc.
                             855 California Ave., Suite C
                             Palo Alto, CA  94304
                             Attn:  CEO

     Address for payment:    GenPharm International, Inc.
                             855 California Ave., Suite C
                             Palo Alto, CA  94304
                             Attn:  CEO
 
     If to the Company:      Cell Genesys, Inc.
                             342 Lakeside Drive
                             Foster City, California 94404
                             Attn: President and CEO

Each of the above addresses may change its address for purposes of this
paragraph by giving to the other addressee notice in conformance with this
paragraph of such new address.

                                      -44-
<PAGE>
 
7.   DEFAULT RATE: USURY.  During any period in which an Event of Default has
occurred and is continuing, Company shall pay interest on the unpaid principal
balance hereof at a rate per annum equal to the rate otherwise applicable
hereunder plus two percent (2%).  In the event any interest is paid on this Note
which is deemed to be in excess of the then legal maximum rate, then that
portion of the interest payment representing an amount in excess of the then
legal maximum rate shall be deemed a payment of principal and applied against
the principal of this Note.

8.   EXPENSES.  If action is instituted to collect this Note, Company promises
to pay all costs and expenses, including, without limitation, reasonable
attorneys' fees and costs, incurred in connection with such action whether or
not a lawsuit is actually filed.

9.   GOVERNING LAW.  This Note shall be governed by the laws of the State of
California (without giving effect to its conflict of law provisions).

                                  CELL GENESYS, INC.

                                  By: ____________________________________
                                  Title: President and
                                         Chief Executive Officer

                                      -45-
<PAGE>
 
                                   Exhibit B
                                   ---------

[**]


**   Confidential Treatment Requested

                                      -46-