<PAGE>

[CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.]

                                                                    EXHIBIT 10.9


                           MASTER PURCHASE AGREEMENT

                FOR Electronic Assembly & System Kit Packaging

     This Master Purchase Agreement is effective as of November 3, 1999 (the
"Effective Date"), by and between TheraSense, Inc., a California corporation
having its principal place of business at 1360 South Loop Road Alameda,
California 94502, ("TheraSense") and Flextronics International USA Inc.,
corporation, having a place of business at 2090 Fortune Drive San Jose, CA
95131.

                                   RECITALS

     WHEREAS, Flextronics is a leader in the field of contract manufacturing for
electrical devices and provider of engineering services related to device
manufacturing design, and has the manufacturing system capability to provide
warehousing and distribution services;

     WHEREAS, TheraSense develops and manufactures advanced blood glucose
monitoring devices for diabetics;

     WHEREAS, TheraSense wishes to contract with Flextronics for certain
engineering design and manufacturing services for TheraSense's new Messenger and
Freestyle blood glucose monitoring devices, as defined and described in the
Specifications provided as Exhibit C hereto, and to purchase the resulting
products from Flextronics; and

     WHEREAS, Flextronics desires to provide such services and products for
TheraSense;

     NOW THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree to the terms and conditions specified below as follows:

                                   AGREEMENT

     The terms and conditions of this agreement and Exhibits A through C hereof,
(collectively the "Agreement") and any Purchase Order(s) issued hereunder, shall
govern all sale and purchase transactions, pertaining to the subject matter
hereof, that may be entered into by TheraSense and Flextronics, from time to
time hereafter, unless expressly otherwise agreed in writing.

     1.   Definitions.
          -----------

          1.1 "Acceptance" shall mean the successful completion of a mutually
agreed upon inspection and test procedure for Products (as defined hereinafter)
which confirms that the tested Product meets the Specifications (as defined
hereinafter). Acceptance testing shall be performed by TheraSense at Flextronics
facilities in Fremont California.

          1.2  "Affiliate" shall mean any entity that directly or indirectly
controls, is under common control with, or is controlled by, one of the parties
to this Agreement. An entity shall be deemed to be in control of another entity
only if, and for so long as, it owns or controls more than fifty-one percent
(51%) of the shares of the subject entity entitled to vote in the election of
the
<PAGE>

directors (or, in the case of an entity that is not a corporation, for the
election of the corresponding managing authority).

          1.3  "Engineering Change" shall mean any mechanical, radio frequency
design, electrical software, electromechanical or process change to any
Product(s), including printed circuit boards, or the manufacturing, kiting, or
assembly process for any Product. An Engineering Change includes changes
originating from TheraSense or Flextronics which would affect the safety,
performance, reliability, serviceability, appearance, dimensions, tolerances,
materials, and composition of any bill of material of the Product (as
hereinafter defined).

          1.4  "FDA" shall mean the United States Department of Health and Human
Services Food and Drug Administration.

          1.5  "Flextronics' Proprietary Rights" shall mean all of Flextronics'
trade secrets, know-how and the like which are for or are used in the
manufacture of the Product or any Product Improvements or Engineering Changes,
including any technology or know-how property incidental thereto, such as
technical information, data, specifications, drawings, manuals and the like and
shall include any patents or patent rights Flextronics may acquire with respect
to the foregoing. However, the foregoing specifically excludes technical
information, data, specifications, drawings, manuals and the like, as well as
any patents, patent rights, or other intellectual property owned or provided by
TheraSense.

          1.6  "Force Majeure" shall mean any act of God, earthquake, fire,
natural disaster, accident, act of government, or an act that is beyond the
reasonable control of either party.

          1.7  "Manufacturing Services" shall mean the assembly, packaging, and
kitting of the electronic components manufactured by Flextronics.

          1.8  "Product" shall mean the electronic assemblies for the Messenger
or Freestyle systems as described in Exhibit C.

          1.9  "Product Improvements" shall mean any modifications to the
Product or manufacturing assembly process including system kiting to enhance
performance and/or provide comparable performance at lower cost. All Product
Improvements must be approved in writing by TheraSense prior to implementation.

          1.10 "Purchase Order" shall mean written order(s) from TheraSense to
Flextronics for the Product, specifically referencing this Agreement and
including the description, quantity, shipping destination, and requited delivery
date at the destination.

          1.11 "Specifications" shall mean the mutually agreed upon
specifications (including storage requirements) for the electronic assemblies
for the Messenger and Freestyle systems, as set forth in Exhibit C.

          1.12 "Quality Plan" shall mean the mutually agreed upon in-process and
final product test and inspection plans as set forth in Exhibit D.

                                      -2-
<PAGE>

          1.13 "Territory" shall mean North America.

     2.   Supply Requirements.
          -------------------

          2.1  During the term of this Agreement, Flextronics shall supply
TheraSense with those quantities of the Product ordered by TheraSense in a
Purchase Order submitted to Flextronics pursuant to this Agreement. The Product
shall comply with the Specifications and all jointly developed Quality Plans

          2.2  In consideration for the services and support provided by
Flextronics during the development of the Messenger and Freestyle product lines,
the projected business volume offered to Flextronics hereunder, and competitive
pricing offered to TheraSense hereunder. TheraSense agrees, to purchase all its
Manufacturing Services for the Messenger and Freestyle product lines exclusively
from Flextronics for a period of five (5) years from the Effective Date.
TheraSense shall not be obligated hereunder if the Products fail to conform in
all respects to the Specifications, this Agreement is terminated pursuant to
Section 15, or, in market based benchmarking, Flextronics fails to maintain
competitive pricing to warrant such exclusivity. Flextronics and TheraSense
shall work jointly to develop a Quality Plan for Flextronics' manufacturing line
with the ultimate goal to achieve within reasonable economic limits a process
capability index (Cpk) of 1.67 or higher on all key parameters of the Product
Specifications.

     Flextronics agrees to implement process improvements and process
validations using the TheraSense process control methodology as outlined below.
          ***
          2.3  Flextronics shall share process data with TheraSense by
submitting Certificates of Analysis that include process control charts, for
every Product shipment.

     3.   Forecasts and Orders.  Starting on the Effective Date, and every three
          --------------------
(3) months thereafter, TheraSense shall provide Flextronics with a non-binding
written forecast of TheraSense's expected needs for the Product for no less than
a six (6) month period from the date thereof (the "Forecast"). At least
semiannually, TheraSense shall place a binding six (6) month Purchase Order with
Flextronics for the Product.

     4.   Material Procurement.
          --------------------

          4.1  Purchase Orders.  TheraSense's accepted Purchase Orders will
               ---------------
constitute authorization for Flextronics to procure, using standard purchasing
practices the components, materials and supplies necessary for the manufacture
of Products ("Inventory") covered by such Purchase Orders.

          4.2  Special Inventory.  Subject to the conditions below, Flextronics
               -----------------
may purchase, in amounts beyond the amount necessary to fill accepted purchase
---
orders, the components, materials, and supplies: (i) which require greater than
ninety (90) days from the time they are ordered to the time they are delivered
to Flextronics ("Long Lead Time Components") plus 30 days to account for the
order, shipment, receipt and manufacturing and, (ii) purchased in quantities
above the currently required amount in order to achieve price targets ("Economic
Order Inventory"), and (iii) purchased in excess of current requirements because
of minimum lot sizes available from manufacturers

*** Confidential treatment requested

                                      -3-
<PAGE>

("Minimum Order Inventory"). Collectively, these components, materials, and
supplies are termed "Special Inventory".

               (1)  Flextronics may purchase Long Lead-Time Components
sufficient to meet requirements for the Purchase Orders and Forecast in effect
at the time Flextronics places an order with its supplier.

               (2)  Flextronics may reasonably purchase Minimum Order Inventory
as required by its suppliers' minimum order requirements.

               (3)  Flextronics may purchase Economic Order Inventory only upon
the prior approval of TheraSense.

               (4)  Flextronics will, from time to time, hold Long Lead-Time
Components and finished goods in inventory to increase TheraSense's production
flexibility. The components and quantities of all such inventory will be
mutually agreed to in writing by the parties prior to Flextronics placing such
items into inventory.

               (5)  TheraSense will be responsible for all non-cancelable/non-
returnable materials as procured on TheraSense's behalf to support Purchase
Orders and Forecasts subject to Section 4.2.

               (6)  TheraSense will be responsible for all Inventory and Special
Inventory purchased by Flextronics under this Section but subject to the
conditions provided elsewhere in this Agreement.

          4.3  Delivery.  All Products delivered pursuant to the terms of this
               --------
Agreement shall be suitably packed for shipment in accordance with TheraSense's
Specifications, marked for shipment to TheraSense's destination specified in the
applicable purchase order and delivered to a carrier or forwarding agent.

          4.4  Quantity Increases and Shipment Schedule Changes.  For any
               ------------------------------------------------
accepted Purchase Order, TheraSense may (i) increase the quantity of Products or
(ii) reschedule the quantity of Products and their delivery date as provided in
the table below:

     Maximum Allowable Variance From Purchase Order Quantities/Delivery Dates
     ------------------------------------------------------------------------
          # of days before    Allowable          Maximum           Maximum
          Delivery Date       Quantity           Reschedule        Reschedule
          on Purchase         Increases          Quantity          Period
                              -----------------  ----------------  -------------
          Order               ***                ***               ***
          ------------------
          ***

*** Confidential treatment requested

                                      -4-
<PAGE>

     Any purchase order quantities increased or rescheduled pursuant to this
Section may not be subsequently increased or rescheduled without the prior
written approval of Flextronics.  Quantity increases of a greater percentage may
be provided if agreed to by both parties.  All other changes in quantity or
shipment date require Flextronics' prior written consent. Inventory excess to
original schedule shall be subject to an inventory carrying charge of *** for
the price of finished Product. Although Flextronics will use reasonable
commercial efforts to satisfy TheraSense's requested quantity increases,
Flextronics' ability to do so is subject to material availability. Should
TheraSense require increases beyond the above, a TheraSense owned buffer stock
of Long Lead-Time Components may be required. The components and quantities of
all such inventory will be agreed to separately in writing by both Flextronics
and TheraSense If there are extra costs required to meet a schedule increase in
excess of the above limits, Flextronics will seek approval from TheraSense in
advance of incurring such costs. If the forecast for any period is significantly
less than the previous forecast supplied over the same period, so that
Flextronics has inventory for TheraSense with no requirements, that amount will
be considered canceled and TheraSense will be responsible for any Special
Inventory purchased or ordered by Flextronics to support the forecast.

     4.5  Cancellation.  TheraSense may not cancel any portion of the quantity
          ------------
of an accepted purchase order without Flextronics' prior written approval, which
shall not be unreasonably withheld. If the parties agree upon a cancellation,
TheraSense will pay Flextronics for Products, Inventory, and Special Inventory
affected by the cancellation as follows: (i) *** of the contract price for all
finished Products in Flextronics' possession; (ii) *** of the cost of all
Inventory and Special Inventory in Flextronics' possession and not returnable to
the supplier or usable for other Flextronics products, whether in raw form or
work in process, *** (iii) *** of the cost of all Inventory and Special
Inventory on order and not cancelable and not otherwise usable for other
Flextronics products, ***; (iv)***; and (v) ***. Flextronics will use reasonable
commercial efforts to return unused Inventory and Special Inventory and to
cancel pending orders for such inventory, and to otherwise mitigate the amounts
payable by TheraSense in case of cancellation.

     5.   Engineering Changes.
          -------------------

          5.1  TheraSense Requests.  TheraSense may request, in writing, that
               -------------------
Flextronics incorporate an Engineering Change into the Product. Such request
will include a description of the proposed Engineering Change sufficient to
permit Flextronics to evaluate its feasibility, impacts, and cost. Flextronics'
evaluation shall be in writing and shall state the costs and time of
implementation and the impact on the manufacturing, delivery, schedule, and
pricing of the Product and shall be delivered to TheraSense within ten (10) days
of receiving the request. TheraSense shall have thirty (30) days after receipt
of Flextronics' evaluation to decide whether or not to implement the requested
Engineering Change. Flextronics will not be obligated to proceed with the
engineering change until the parties have agreed upon the changes to the
Product's Specifications, delivery, schedule and Product pricing and upon the
implementation costs to be borne by the TheraSense including, without
limitation, the cost of Inventory and Special Inventory on-hand and on-order
that becomes obsolete.

*** Confidential treatment requested

                                      -5-
<PAGE>

Flextronics will use best efforts to implement all TheraSense required changes
per TheraSense requests.

          5.2  Flextronics Requests.  If Flextronics desires to make any
               --------------------
Engineering Change (including manufacturing processes, raw materials and
suppliers thereof), it will notify TheraSense not less than six (6) months prior
to such change to enable TheraSense to determine conformity of the changed
Product with TheraSense's manufacturing requirements and obligations with
respect to regulatory authorities. If Flextronics changes the Product or process
to create non-conforming Product or Product which falls to conform to
TheraSense's regulatory constraints, further processing needs, or performance
standards for finished goods, then Flextronics agrees to continue to supply
unchanged Product for the duration of the Agreement or until TheraSense can
alter its process, standards for finished goods or take seek appropriate
regulatory approval to accommodate the changed Product or process. ECO
implementation shall otherwise follow the standard Flextronics procedure.

     6.   Purchase Price
          --------------

     TheraSense's target purchase price with respect to the Product shall be as
specified in Exhibit B.  The price for Products to be manufactured will be set
quarterly for the first year and semi-annually thereafter by reviewing actual
component and assembly costs at Flextronics and making adjustments based upon
the changes.  All prices quoted are exclusive of federal, state and local
excise, sales, use and similar taxes, and any duties, and TheraSense shall be
responsible for all such items.  Payment for any Products, Manufacturing
Services or other costs to be paid by TheraSense hereunder is due thirty (30)
days net form the date of the shipment therefor and shall be made in lawful U.S.
currency. TheraSense agrees to pay *** on all late payments. Furthermore, if
TheraSense is in arrears more than thirty (30) days for two (2) consecutive
months with respect to payments, Flextronics may require prepayment from
TheraSense or may delay shipments or suspend work until assurances of payment
satisfactory to Flextronics are received.

     7.   Delivery
          --------

          7.1  Purchases of Product made hereunder by Purchase Orders shall
initially be F.O.B. Seller's factory in Fremont, CA. During this initial period,
TheraSense will specify the carrier and shipments will be made freight collect.
TheraSense and Flextronics agree to establish a Kanban system whereby
Flextronics will keep an amount to be determined of finished product at it's
facility awaiting shipment to TheraSense customers. Upon completion of this,
payment terms will become five (5) days net from the date product is completed
and transferred into the Kanban. Such change will include a separate price to
cover freight charges paid by Seller and any other justifiable costs incurred by
Seller. Title and risk of loss of Product shall pass to TheraSense at the F.O.B.
point. Partial shipments, with TheraSense prior approval, will be accepted. A
certificate of conformance shall accompany each shipment made hereunder.

          7.2  Late Delivery.  Time is of the essence with regard to deliveries
               -------------
of Product purchased hereunder. Flextronics shall use its best efforts to
maintain 100% on-time delivery of Products. Flextronics shall notify TheraSense
as soon as practicable if for any reason Flextronics fails to comply, or
anticipates that it may fail to comply with the terms of this Agreement or of a

*** Confidential treatment requested

                                      -6-
<PAGE>

Purchase Order (including but not limited to failure to meet a delivery date
required in the Purchase Order or delivery of less than the required quantity of
Products). If Flextronics fails to deliver any Product (other than as a result
of a Force Majeure event as set forth in Section 20.1 herein), then, TheraSense
may request and Flextronics shall agree to work any necessary overtime at no
additional cost to TheraSense to minimize such delay, or TheraSense may request
Flextronics to ship the Product by premium transportation at no additional cost
to TheraSense and Flextronics will comply with such request.

          7.3  Delivery Documentation.  Flextronics shall include an invoice for
               ----------------------
every delivery of Products which includes the following information for every
unit of Product delivered; a complete noun description in the English language,
a statement as to the country of origin of the goods; TheraSense's Purchase
Order number, the value of the Products therein; Flextronics' identification
number, or in the absence of such number, the full address of Flextronics; and
the terms of sale.

     8.   Payments
          --------

          8.1  Invoice payment terms applicable to Purchase Orders issued
hereunder shall be net thirty (30) days FOB Flextronics. In addition to the
invoice documentation to accompany each delivery of Product, for payment
purposes, Flextronics shall issue an invoice directly to TheraSense upon Product
shipment. The parties will use reasonable commercial efforts to incorporate an
electronic data interchange process to allow for wire transfer of funds at that
time.

          8.2   ***

     9.   Warranty
          --------

          9.1  Flextronics warrants that the Product will be new, merchantable,
free from material defects in materials and workmanship and will conform to the
Specifications under normal and intended use for a period of (6) six months
after acceptance by TheraSense. Materials used in the Product are warranted to
the same extent that the original manufacturer warrants the materials. This
express limited warranty does not apply to (a) materials consigned or supplied
by TheraSense to Flextronics; (b) defects resulting from TheraSense's
Specifications or the design of the Products; or (c) Product that has been
abused, damaged, altered or misused by any person or entity after the title
passes to TheraSense. With respect to first articles, prototypes, pre-production
units, test units or other similar Products, Flextronics makes no
representations or warranties whatsoever.

*** Confidential treatment requested

                                      -7-
<PAGE>

Notwithstanding anything else in this Agreement, Flextronics assumes no
liability for, or obligation related to, the performance, accuracy,
specifications, failure to meet specifications or defects of or due to tooling,
designs, or instructions produced or supplied by TheraSense and TheraSense shall
be liable for costs or expenses incurred by Flextronics related thereto. Upon
any failure of a Product to comply with the above warranty, Flextronics' sole
obligation, and TheraSense's sole remedy, is for Flextronics, at its option, to
promptly repair or replace such unit and return it to TheraSense freight pre-
pad. TheraSense shall return Products covered by the warranty freight pre-paid
after completing a failure report and obtaining a return material authorization
number from Flextronics to be displayed on the shipping container.

          9.2  Flextronics further represents and warrants that its supplying of
Product to TheraSense under this Agreement does not conflict with any other
agreement to which Flextronics is a party and, further, that the Product
supplied hereunder does not, to the best off Flextronics' knowledge, infringe
the proprietary rights of any third party.

          9.3  Flextronics further represents and warrants that it has, and
shall maintain during the term of this Agreement, adequate equipment and
facilities to guarantee sufficient manufacturing capacity to meet TheraSense's
demand for Product as represented in TheraSense's Forecast as described in
Section 3 of this Agreement.

          9.4  Flextronics has stated that its manufacturing facilities are ISO
9002 registered and Flextronics will use all commercially reasonable efforts to
assure that such facilities and any new Flextronics facilities used for the
production of Product will continue to be registered under ISO 9002 during the
term of this Agreement. "Registered" as used herein shall mean certified and
approved.

          9.5  Flextronics further warrants that title to all Products shipped
to TheraSense or drop shipped directly to TheraSense's customers pursuant to
this Agreement shall pass to TheraSense or a TheraSense customer, as the case
may be, free and clear of any liens, charges, encumbrances, restrictions or
rights created in, by or against the Products or against Flextronics, except any
Proprietary Rights of Flextronics identified in writing to TheraSense in the
Products, if any. Provided that TheraSense has paid all associated fees for the
Products, TheraSense and TheraSense's customers shall have quiet enjoyment of
the Products.

          9.6  Flextronics further warrants that: (a) it shall comply In all
material respects with all legal requirements in fulfilling its obligations
under this Agreement, including, but not limited to, lawful manufacturing
practices and its treatment of its personnel and compliance; (b) there are no
lawsuits, claims, suits, proceedings or investigations pending or, to
Flextronics' knowledge, threatened against or affecting Flextronics in respect
of its operations or processes used therein, nor to Flextronics' knowledge, is
there any basis for the same; and (c) there is no action, suit or proceeding
pending or, to Flextronics' knowledge, threatened which questions the legality
of the transactions contemplated by this Agreement. Flextronics warrants that it
owns, holds or possesses and shall maintain all material licenses, franchises,
permits, privileges, immunities, approvals and other authorizations from a
governmental body which are necessary to entitle it to carry on and conduct its
operations as contemplated herein.

                                      -8-
<PAGE>

          9.7  Flextronics warrants that all equipment used in the manufacturing
and planning of TheraSense Products is Year 2000 compliant.

          9.8  OTHER THAN THE WARRANTEES IN THIS SECTION 9, FLEXTRONICS MAKES NO
OTHER WARRANTIES OR CONDITIONS ON THE PRODUCTS, EXPRESS, IMPLIED, STATUTORY, OR
IN ANY OTHER PROVISION OF THIS AGREEMENT OR COMMUNICATION WITH CUSTOMER, AND
FLEXTRONICS SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OR CONDITIONS OF OR
FITNESS FOR A PARTICULAR PURPOSE.

     10.  Regulatory Requirements
          -----------------------

     During the term of this Agreement Flextronics will:

          A.   Comply with the pertinent Quality System Regulations ("QSR") as
               such may be determined by the United States Department of Health
               and Human Services Food and Drug Administration and all
               applicable United States government regulatory requirements.

          B.   Submit to periodic quality audits; TheraSense's Quality Assurance
               department may, at its sole option, perform audits of
               Flextronics' compliance with Quality System Regulations, with the
               quality control requirements specified herein and attached hereto
               as Exhibit D, together with any other quality systems and
               specifications mutually agreed upon.  Flextronics acknowledges
               that the preceding sentence granting TheraSense certain audit
               rights in no way relieves Flextronics of any of its obligations
               under this Agreement, nor shall such provision require TheraSense
               to conduct any such audits.

               (1)  Any audits shall be conducted during normal business hours
                    after reasonable notice (a minimum of two weeks) to
                    Flextronics and not more frequently than once in any one
                    hundred twenty (120) day period.  Except that TheraSense may
                    conduct a limited audit in less than one hundred twenty
                    (120) days of a previous audit for the limited purpose of
                    reviewing any deficiencies discovered in a previous audit.

               (2)  Any out of compliance observations noted during these audits
                    must be corrected expeditiously.  Flextronics shall, within
                    thirty (30) days following receipt of an audit report that
                    recommends corrective actions, provide TheraSense with a
                    corrective action plan and schedule for carrying it out.

               (3)  Following a TheraSense quality audit, Flextronics will be
                    assigned an overall rating of acceptable, marginal or
                    unacceptable.  In the event Flextronics receives an
                    unacceptable rating TheraSense will re-audit Flextronics
                    within six (6) months.  ***

*** Confidential treatment requested

                                      -9-
<PAGE>

               (4)  Flextronics agrees to provide to TheraSense any observations
                    and corrective actions implemented as the result of any
                    audits conducted by the FDA.

               (5)  Flextronics shall have the right to refuse access to areas
                    where Flextronics customer confidentiality issues may arise.


     11.  Acceptance
          ----------

          11.1 Acceptance testing shall be performed by TheraSense in accordance
with the procedures agreed upon in writing by the parties and incorporated in
the Specifications. TheraSense shall notify Flextronics of any defects or non-
conformance as soon as reasonably possible after same are discovered by
TheraSense, and Flextronics shall have an opportunity to inspect and test the
Product claimed to be defective or non-conforming. Flextronics agrees to
promptly replace (at no additional charge to TheraSense) any Product supplied to
TheraSense hereunder which does not fully comply with the Specifications. Upon
the successful completion of Acceptance testing the Product will be considered
accepted. If within ten (10) business days after receipt TheraSense does not
reject the Product or notify Flextronics that it will reject them, then such
Product will be deemed accepted.

          11.2 Except as set forth in Section 11.1, TheraSense shall not be
obligated to accept or pay for any Product that does not comply with the
Specifications or any rules or regulations referred to above. TheraSense's
failure to inspect, test, or reject any particular shipment shall not constitute
a waiver by TheraSense of any of its rights to inspect and reject any subsequent
shipment, or of Flextronics' responsibilities to provide subsequent shipments,
of Product in accordance with the Specifications. With the exception of
TheraSense's manufacturing processes required to use the Product, Flextronics
shall not be liable for Product altered outside of its factory by someone other
than Flextronics or for Product subjected, by an entity other than Flextronics,
to misuse, abuse, improper alteration, accident or negligence in use, storage,
transportation or handling. Notwithstanding the above, Flextronics shall not be
responsible in any way for modifications to the Product made by TheraSense
during TheraSense's subsequent manufacturing process.

     12.  Limitation of Liability
          -----------------------

     EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT AND FOR INTENTIONAL ACTS OR
GROSS NEGLIGENCE, NEITHER PARTY WILL BE LIABLE TO THE OTHER FOR ANY INDIRECT,
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, EVEN IF ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES, ARISING OUT OF OR IN CONNECTION WITH THE DESIGN, MANUFACTURE,
PACKAGING, DELIVERY, STORAGE OR USE OF THE PRODUCT.

                                      -10-
<PAGE>

     13.  Intellectual Property Indemnification
          -------------------------------------

          13.1   Indemnification by TheraSense.  Flextronics agrees to notify
                 -----------------------------
TheraSense promptly of all claims actions, whether actual or potential, alleging
that the Product infringes on the intellectual property rights of any third
party (a "Claim"). TheraSense shall defend and indemnify Flextronics against any
Claim and will have the sole expense and control of the defense of any Claim.
Flextronics shall give TheraSense, at TheraSense's expense, all assistance
reasonably requested in defending or settling a Claim. Notwithstanding the
foregoing, TheraSense shall not be required to defend any Claim based upon, (i)
the use of the Product by Flextronics as part of any procedure or in testing or
experimenting other than with the prior written agreement of TheraSense.

          13.2   THIS SECTION 13 STATES THE PARTIES' TOTAL RESPONSIBILITIES,
LIABILITIES, AND REMEDIES TO ONE ANOTHER FOR ANY ACTUAL OR ALLEGED INFRINGEMENT
OF ANY PATENT, TRADEMARK, COPYRIGHT OR OTHER PROPRIETARY RIGHTS OF ANY THIRD
PARTIES.

     14.  General Indemnity
          -----------------

          14.1   Indemnification by Flextronics. Flextronics shall hold harmless
                 ------------------------------
and indemnify TheraSense, its directors, officers, agents, and employees, from
any and all third party claims, suits, losses and expenses, including attorneys
fees, provided that any such claim, suit, loss or expense is attributable to
bodily injury, sickness, disease, or death, or injury to property which is
caused by Flextronics' failure to comply with federal, state or local law
including but not limited to the Civil Rights Act of 1964, 42 U.S.C. (S)2000e
et. seq. ("Title VII"), the Age Discrimination in Employment Act, 29 U.S.C.
(S)621 et. seq., the American with Disabilities Act, the Civil Rights Act of
1966, the Civil Rights Act of 1991, Executive order 11246, as amended, and any
other statute, regulation or ordinance prohibiting illegal discrimination or
retaliation. Except as otherwise provided in this Agreement, Flextronics shall
defend, indemnify and hold TheraSense, its, directors, officers, employees, and
agents harmless from and against any and all claims, injuries, liabilities,
judgments, and damages, including but not limited to property damage, personal
injury and death, including all reasonable costs and expenses (including
attorneys fees), as a result, whether direct or indirect, of any injury or
damage to a third party caused or alleged to be caused on account of
Flextronics' failure to meet manufacturing workmanship Specifications.

          14.2   Indemnification by TheraSense.  Except as otherwise provided in
                 -----------------------------
this Agreement, TheraSense shall defend, idemnify and hold harmless Flextronics
from and against any and all claims, injuries, liabilities, judgments, and
damages, including but not limited to property damage, personal injury and
death, including all reasonable costs and expenses (including attorney fees), as
a result, whether direct or indirect, of any injury or damage to a third party
caused or alleged to be caused on account of any alleged defect of the Product,
other than a defect related to workmanship.

          14.3   Limits to Indemnification.  These obligations to defend and
                 -------------------------
indemnify (in 14.1, 14.2 & 14.3) do not extend to claims, injuries or damages to
the extent resulting from the negligent or intentional conduct, act, omission or
obligation of the party seeking indemnification.

                                      -11-
<PAGE>

          14.4  Cooperation. The indemnified party agrees to cooperate with the
                -----------
indemnifying party in the defense of any such claim, lawsuit or action and to
make available to each other at the indemnifying party's expense such of the
documents, employees and expertise as are necessary in defense of such action.
Each party agrees to notify the other of such a claim or suit promptly upon
learning that same is within the scope of the indemnification set forth herein.
The Indemnifying party shall control the management of any such claim or suit.

     15.  Term and Termination
          --------------------

          15.1  Term. The term of this Agreement shall commence on the
                ----
Effective Date and shall continue for five (5) years thereafter (the "Initial
Term") unless earlier terminated as provided in Section 15.2 or 20.1. After the
expiration of the Initial Term hereunder (unless this Agreement has been earlier
terminated) this Agreement shall be automatically renewed for separate but
successive one-year terms (each a "Renewal Term").

          15.2  Termination. This Agreement may be terminated by either party:
                -----------
(a) for any reason upon a one (1) year written notice to the other, or (b) if
the other party defaults in any payment to the terminating party and such
default continues for a period of fifteen (15) days after the delivery of
written notice thereof by the non-defaulting party to the other party, (c) if
the other party defaults in the performance of any other material term or
condition of this Agreement and such default continues for a period of sixty
(60) days after the delivery of written notice thereof by the terminating party
to the other party, or (d) commences a voluntary or has involuntary proceeding
commenced under any federal or state, law or similar law and if involuntary,
such is not set aside within sixty (60) days of its being commenced; (ii)
appoints or is appointed a receiver, trustee or similar official or a general
assignment for the benefit of such party's creditors; (iii) proceeds to
dissolve, wind up or liquidate; or (iv) becomes unable to pay its debts either
because it is subject to a suspension of payments order, bankruptcy, or other
insolvency proceeding, Pursuant to Section 20.1 termination of this Agreement
for any reason shall not affect the obligations of either party that exist as of
the date of termination. Upon termination under Section 15.2, TheraSense shall
be responsible for the finished Products, Inventory, and Special Inventory in
existence at the date of termination or expiration in the same mariner as for
cancellations as set forth in Section 4.5. Notwithstanding termination or
expiration of this Agreement, Sections 9, 12, 15, and 20 shall survive said
termination or expiration.

          15.3  After following the dispute resolution procedure set forth in
Section 19, TheraSense may following the initial twelve (12) months of this
Agreement and upon six (6) months notice, terminate this Agreement for
convenience without liability except for the raw materials inventory, work in
process, unamortized Flextronics Development Funding and production special
tooling charges and Product on order, in transit or received, but not paid for
as of the date of termination.

     16.  Raw Materials Inventory
          -----------------------

          ***

*** Confidential treatment requested
                                      -12-
<PAGE>

     17.  Confidentiality
          ---------------

          17.1  Flextronics and TheraSense both agree that in the performance of
this contract there may be the need for one or the other party to disclose its
confidential information to the other.

          17.2  "Confidential Information" shall include information supplied to
the receiving party in written form and clearly marked "Confidential" and
information disclosed orally, provided that the disclosing party provides within
thirty (30) days of the first disclosure a document that identifies the topic of
the information considered confidential and states that it is "Confidential."

          17.3  Each party agrees to keep Confidential Information transferred
to it in strict confidence and not to disclose or otherwise use such Information
for any purpose other than determining conformance to Specifications, processing
Products into TheraSense's products or otherwise fulfilling its obligations
under this Agreement without the prior written consent of the other party. All
such documents provided by the disclosing party containing Confidential
Information shall at either party's request be returned to it except that one
(1) copy shall be retained by counsel for that party to ensure compliance
hereunder.

          17.4  The above notwithstanding, each party's obligation of the
confidence with respect to the Confidential Information disclosed hereunder,
shall not include:

                (1)  Information which, at the time of disclosure to the
receiving party is published, known publicly or is otherwise in the public
domain;

                (2)  Information which, after disclosure to the receiving party
is published or becomes known publicly or otherwise becomes part of the public
domain, through no fault of the receiving party;

                (3)  Information, which, prior to the time of disclosure to the
receiving party, was known to the receiving party, as evidenced by its written
records;

                (4)  Information which has been or is disclosed to the receiving
party in good faith by a third party who was not, or is not, under any
obligation of confidence or secrecy to the receiving party at the time said
third party discloses to the receiving party; and

                (5)  Information which is independently developed by or on
behalf of the receiving party, without reliance on the Information received
hereunder.

                                      -13-
<PAGE>

          17.5  The above provisions notwithstanding, each party agrees to keep
in strict confidence and not to disclose the identity, interest and
participation of the other party in the work or evaluation and the relationship
of the parties hereunder except to the extent as required by law.

          17.6  Each party represents that it is under no obligation to any
third party that would interfere with its disclosing the above-described
Information to the other party and further, that any Information which it
transmits or otherwise discloses to the other party is not Information with
respect to which that party is under any obligation to keep confidential or
which that party knows to be the proprietary property of any third party.

          17.7  Except as specifically provided in this Agreement, no right to
use any Information disclosed hereunder, either express or implied, is granted
by either party.

          17.9  The obligations of confidentiality and nonuse set forth herein
shall remain in effect for a period of five (5) years after the expiration of
this Agreement or any extension of it.

          17.10 Flextronics shall not issue any publicity, news release,
technical article or other public announcement relating to this Agreement and
the products or services of TheraSense without, in any case, obtaining the prior
written consent of TheraSense.

     18.  Patents and Trademarks
          ----------------------

          18.1  It is agreed that all patentable inventions made, conceived or
acquired by TheraSense relating to the Product will be the exclusive property of
TheraSense. TheraSense will pay all expenses relating to the securing and
maintaining of appropriate patent protection with respect to such patentable
inventions. It shall be in the sole discretion of TheraSense to determine what
patent protection, if any, on such invention should be sought and/or maintained.
TheraSense shall grant to Flextronics a ***, which license shall expire upon
termination or expiration of this Agreement.

     19.  Disputes
          --------

     The Director of Purchasing and Flextronics' Business Development
representative shall initially review any and all disputes between the parties
relating to this Agreement. The two individuals shall meet and conduct good
faith discussions to attempt to resolve the dispute. If they are unsuccessful,
review shall be escalated to the TheraSense Director of Purchasing and
Flextronics' Vice President of Marketing, who shall conduct a similar good faith
meeting. If still unsuccessful after a reasonable time, the matter will be
escalated to the TheraSense Vice President of Operations and the President of
Flextronics for a good faith meeting to attempt to resolve the dispute. If
settlement has not been reached thereafter, then the dispute shall be settled by
binding arbitration. Such arbitration shall be conducted in San Francisco,
California in accordance with the then current rules of the American Arbitration
Association with a panel of three arbitrators. Each party shall choose one
member of the panel, and both shall agree on the third member of the panel. The
arbitrators shall be selected from the National Panel of Arbitrators of the
American Arbitration Association. Reasonable discovery as determined by the
arbitrators shall apply to the arbitration proceeding. The laws of the State of
California shall apply to the arbitration proceedings. Judgment

*** Confidential treatment requested

                                      -14-
<PAGE>

upon the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. The prevailing party, as determined by the arbitration
panel, shall have its arbitration costs and reasonable attorney fees paid by the
other party.

     20.  General
          -------

          20.1  Force Majeure. Neither party will be deemed in default of this
                -------------
Agreement to the extent that performance of its obligations or attempts to cure
any breach are delayed or prevented by reason of a Force Majeure, provided that
such party gives the other party written notice thereof promptly and, in any
event, within ten (10) days of discovery thereof and uses its commercially
reasonable efforts to continue to so perform or cure. In the event of such a
Force Majeure, the time for performance or cure will be extended for a period
equal to the duration of the Force Majeure, but in no event more than sixty (60)
calendar days.

          20.2  Assignment. The rights and liabilities of the parties hereto
                ----------
will bind and inure to the benefit to their respective successors, executors and
administrators, as the case may be; provided that, as TheraSense has
specifically contracted for Flextronics' services, Flextronics may not assign or
delegate its obligations, other than as specified herein, under this Agreement
either in whole or in part, without the prior written consent of TheraSense. Any
attempted assignment in violation of the provisions of this Section 20.2 will be
void.

          20.3  Severability. If for any reason a court of competent
                ------------
jurisdiction finds any provision of this Agreement, or portion thereof, to be
unenforceable, that provision of this Agreement shall be enforced to the maximum
extent permissible so as to effect the intent of the parties, and the remainder
of this Agreement shall continue if full force and effect.

          20.4  No Waiver. All rights and remedies conferred under this
                ---------
Agreement or by any other instrument or law shall be cumulative, and may be
exercised singularly or concurrently. Failure by either party to enforce any
provision of this Agreement shall not be deemed a waiver of future enforcement
of that or any other provision.

          20.5  Notices. All notices required or permitted under this Agreement
                -------
will be in writing, will reference this Agreement and will be deemed given when:
(i) delivered personally (ii) when sent by confirmed telex or facsimile; (iii)
five (5) days after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or (iv) one (1) day after deposit with a
commercial overnight carrier, with written verification of receipt. All
communications will be sent to the addresses set forth below to or such other
address as may be designated by a party by giving written notice to the other
party pursuant to this Section 20.5:

                TheraSense, Inc.                  Flextronics, International
                1360 South Loop Road              2090 Fortune Drive
                Alameda CA 94502                  San Jose CA 95131
                Attn.: John Purlee                Attn-: Greg Keese
                Director of Purchasing            Director Business Development

                                      -15-
<PAGE>

          20.6  Compliance with Laws and Regulations. Flextronics and TheraSense
                ------------------------------------
agree to comply with all Federal, State and local laws and regulations that are
applicable to the Products in the Territory in which the Products are intended
for use.

          20.7  Governing Law. This Agreement shall be governed by and construed
                -------------
in accordance with the laws of the United States and the State of California, as
applied to agreements entered into and to be performed entirely within
California between California residents excluding its choice of law principals.
Any and all disputes between the parties relating in any way to the entering
into of this Agreement and/or the validity, construction, meaning,
enforceability, or performing of this Agreement or any of its provisions, or the
intent of its provisions or any dispute relating to patent validity or
infringement arising under this Agreement shall be settled by arbitration as
provided in Section 17 hereof.

          20.8  Interpretation. This Agreement will be fairly interpreted in
                --------------
accordance with its terms and without any strict construction in favor of or
against either party. The headings and captions are included for reference
purposes only and do not affect the interpretation of the provisions hereof.
This Agreement may be executed in two or more counterparts, each of which shall
be deemed to be an original but all of which shall be deemed to constitute only
one Agreement. When used herein, the word "including" will not be construed as
limiting. When the application warrants, the term "TheraSense" shall mean
"TheraSense and/or its authorized subcontractors" and the term "Flextronics"
shall mean "Flextronics or its authorized subcontractors".

          20.9  Status. The relationship between Flextronics and TheraSense is
                ------
that of independent contractors. Neither is the legal representative, agent,
partner, joint venturer or employee of the other for any purpose whatsoever, and
has no right or authority to create any obligations of any kind or to make any
representations or warranties, whether express or implied, in respect of the
other or to bind the other in any respect whatsoever. This agreement shall be
deemed to have been drafted by both parties.

          20.10 Reports. Each month during the term of this Agreement,
                -------
Flextronics shall provide the TheraSense buyer with a report of the deliveries
made that month, cumulative deliveries to date, and amount of raw materials
available in inventory.

          20.11 Complete Agreement. This Agreement, including all Exhibits and
                ------------------
any Purchase Order(s) issued hereunder, constitute the entire Agreement between
the parties in connection with the subject matter hereof, and supersede all
prior agreements, understandings, negotiations and discussions, whether oral or
written, between the parties. In the event of a conflict, this Agreement shall
take precedence over the preprinted terms and conditions on the reverse side of
TheraSense's Purchase Order or any acknowledgment of Flextronics. No amendment
to or modification of this Agreement will be binding unless in writing and
signed by a duly authorized representative of both parties.

                                      -16-
<PAGE>

     IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date first written above.

TheraSense, Inc.                        Flextronics International USA, Inc.

By: /s/ W. Mark Lortz                   By: /s/ illegible signature
    ----------------------------            ----------------------------

Name: W. Mark Lortz                     Name: __________________________
     ---------------------------

Title: President & CEO                  Title: _________________________
       -------------------------

Date: Dec. 7, 1999                      Date: __________________________
      --------------------------

                                      -17-
<PAGE>

                                   EXHIBIT A

                     PRODUCT AND MANUFACTURING DEVELOPMENT

     In support of TheraSense's development of the Freestyle and Messenger
System Flextronics will provide the following services in accordance with the
terms outlined below:

                                                          Projected
Service                      Terms                        Expenses
--------------------------   ---------------------------  ----------------------
PCB Layout                   ***                          ***

RF Design Services (*)       ***                          ***


Digital Design
(Including Test Engineering
And other engineering
Services)
        Digital Design       ***                          ***


        Test Engineering     ***                          ***


Mechanical Design            ***                          ***


Test Equipment Development
& Procurement
 . Std. Material O/H &
  Markup                                                  ***
 . Equipment Capital Cost
  100% amortized. (Cost to
  be preapproved by
  TheraSense)                                             ***
 . Total Amortized amount
  not to exceed                                           ***

Prototype Assembly (*)
        Freestyle            ***                          ***
        Messenger            ***                          ***


(*) ***

Flextronics will provide TheraSense a quarterly summary of the total expenses
incurred for the project and the balance in the deferred expenses. Flextronics
will add a *** cost of money factor *** on the deferred expense balance and
recover *** deferred expense balance over the first two years of production and
sale by TheraSense of first *** systems manufactured which ever occurs first. In
the event TheraSense sales volume does not reach

*** Confidential treatment requested

<PAGE>

*** units in the first two years of manufacturing the un-amortized balance
of deferred expenses will be converted to a loan, and repaid over a period not
to exceed 15 months for the date the loan is originated.

In addition to the services and manufacturing support Flextronics will provide
in the development of the *** and *** products, Flextronics will also work with
TheraSense to Co-develop the information management interfaces to process
manufacturing production releases and sales order/TheraSense distribution
processing.

*** Confidential treatment requested

                                      -2-
<PAGE>

                                   EXHIBIT B

                                PRODUCT PRICING

     Meter Assembly target price based upon the following cost data supplied by
Flextronics.  This cost does not include any ancillary products or packaging of
any type.  The cost will be revised as these items are identified and added to
the cost of the product.

     Meter Only              ***               ***           ***
--------------------------------------------------------------------------------
 Product Costs               ***               ***           ***


 Material Cost               ***               ***           ***
 Attrition/Other
 Subtotal Material

 Material Overhead           ***               ***           ***
 Freight
 Total Material O/H,
 Other

 Direct Labor (PCBA)         ***               ***           ***
 Direct Labor Overhead
 Subtotal Labor/Overhead

 Test Labor                  ***               ***           ***
 Test Labor Overhead
 Subtotal Test/Overhead

 Sales, G&A                  ***               ***           ***
 Profit

 Final Selling Price         ***               ***           ***
--------------------------------------------------------------------------------

*** Confidential treatment requested
<PAGE>

                                   EXHIBIT C

                     PRODUCT DEFINITION AND SPECIFICATIONS

                                      TBD
<PAGE>

                                   EXHIBIT D

                         QUALITY CONTROL REQUIREMENTS

                                      TBD