<PAGE>

                                                                    EXHIBIT 10.1


                      LICENSE AND COLLABORATION AGREEMENT

                                    between

                        MAGAININ PHARMACEUTICALS, INC.

                                      and

                                GENENTECH, INC.



________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

                                  LICENSE AND
                            COLLABORATION AGREEMENT

     This License and Collaboration Agreement (the "Agreement") is made as of
April 28, 2000 (the "Effective Date") by and between Magainin Pharmaceuticals,
Inc., a Delaware corporation, having principal offices located at 5110 Campus
Drive, Plymouth Meeting, Pennsylvania 19462 ("Magainin"), and Genentech, Inc., a
Delaware corporation, with principal offices located at 1 DNA Way, South San
Francisco, California 94080 ("Genentech").  Each of Magainin and Genentech are a
Party to this Agreement and together the Parties hereto and may be referred to
as such herein.

     Whereas,   Magainin is the owner of and has all right, title and interest
in, or has acquired the exclusive rights to, certain technology, including,
without limitation, Know-How and Patents, relating to certain Antibodies and
Small Molecules or Compounds in the Field (as defined).

     Whereas, Genentech has been involved in a program (under collaborative
research and option agreement with Magainin expiring on April 29, 2000) for
development and commercialization of an anti-IL-9 antibody.

     Whereas, Genentech wishes to perform certain research and development using
Magainin Technology  for relevent uses in connection with, among other things,
conducting proof of concept research, humanizing and improving affinity of
Magainin's human anti-IL9 and IL-9 receptor(s) antibody(ies) and Magainin wishes
to enter into a collaborative arrangement with Genentech, as well as supply to
Genentech certain biological materials and access to a certain gene Database
Library, for the purposes of carrying out such research and development in
accordance with a Joint Development Plan.

     Whereas, Genentech is further interested in obtaining an exclusive license
to and under Magainin's Technology and Magainin wishes to grant the same to
Genentech, to develop, make, have made, use, sell, have sold, offer to sell,
import, distribute and otherwise exploit Products in the Field, retaining some
co-exclusive rights, but only insofar as relates to collaborative research and
development as further provided under the terms and conditions of this
Agreement.

     Whereas, Simultaneously with the execution of this Agreement, the Parties
are entering in that certain Series A Equity Purchase Agreement (together with
the Schedules and Schedules thereto, the "Stock Purchase Agreement") and
documents ancillary thereto, all dated of even date herewith, pursuant to which
Genentech has agreed to purchase, and Magainin has agreed to issue and sell,
shares of Magainin's Series A Preferred Stock as well as Common Stock (as such
capitalized terms are defined in the Stock Purchase Agreement).

     Now Therefore, in consideration of the foregoing premises and the mutual
covenants set forth below, and for other good and valuable consideration, the
receipt of which is hereby acknowledged, Magainin and Genentech hereby agree as
follows:

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

                                   Article 1
                                  Definitions


     The following terms shall have the following meanings as used in this
Agreement:

     1.1  "Affiliate" means with respect to any Party, any entity controlled by
such Party. For the purposes of this Affiliate definition, "control" shall refer
to (i) the possession, directly or indirectly, of the power to direct the
management or policies of an entity, whether through the ownership of voting
securities, by contract or otherwise, or (ii) the ownership, directly or
indirectly, of at least 50% of the voting securities or other ownership interest
of an entity. With respect to Genentech, "Affiliate" shall not include Roche.

     1.2  "Antibody" means any immunoglobulin or fragment thereof, not limited
to [**].

     1.3  "Biologics License Application" or "BLA" means that application, (as
defined in Title 21 of the United States Code of Federal Regulations, as amended
from time to time) filed with the Federal Food and Drug Administration seeking
Regulatory Approval to market and sell any biologic Product in the United States
for a particular indication in the Field.

     1.4  "Collaboration Know How" means Know How generated during the course
of, in furtherance of and as a direct result of performing an activity under the
Collaboration Program and may be either "Antibody Related" or "Small Molecule
Related" Collaboration Know How, as the case may be, as used in context herein.

     1.5  "Collaboration Program" means the program of jointly funded and
jointly determined research and development between Genentech and Magainin, as
generally described hereunder in Section 3.2.

     1.6  "Compound" means any molecule including [**].

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

     1.7  "Confidential Information" means all proprietary or confidential
information of a disclosing Party (including the terms of this Agreement), which
may be disclosed from one Party to the other at any time and from time to time
during the term of this Agreement. Information of the disclosing Party shall not
be considered confidential to the extent such information:

               (a)  Is publicly disclosed through no fault of the receiving
Party hereto, either before or after it becomes known to the receiving Party; or

               (b)  Was known to the receiving Party prior to disclosure under
this Agreement, which knowledge was acquired independently and not from the
disclosing Party hereto (or such Party's employees); or

               (c)  Is subsequently disclosed to the receiving Party in good
faith by a Third Party who has a right to make such disclosure.

               (d)  Was developed independent of and without reference to
information received as a result of the disclosures of these Parties.

(Nothing in this definition shall preclude a Party from use of its own
proprietary or Confidential Information without restriction.)

     1.8  "Control" means, (other than as defined in "Affiliate",) the power to
license and grant a sublicense.

     1.9  "Development Costs" means the development costs actually incurred by
Genentech or Magainin for a Compound or Product from the Effective Date of the
Agreement through the later of (i) the date of Regulatory Approval for a Product
(including thereafter costs to maintain or expand the label or indications for
such approved final Product) in the Field in the Territory, or (ii) the date of
termination of the Collaboration Program with regard to that Compound or Product
as described in Article 3.2. Development Costs are further described in Schedule
B, that certain financial schedule appended hereto and made a part hereof.

     1.10 "Downstream Target" means [**].

     1.11 "Effective Date" means the date first written above in the
introductory paragraph in this Agreement.

     1.12 "Field" means all therapeutic and prophylactic human uses.

     1.13 "Gene Database" means the gene library of known and novel genes that
are Downstream Targets identified by Magainin as playing a role in respiratory
conditions excluding Targets which are otherwise restricted to Magainin's mucin
program.

     1.14 "Genentech Know How" means the Know How that Genentech presently or
hereafter owns, develops and/or Controls, related only to IL-9.

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

     1.15  "Genentech Patent(s)" means the Patent(s) which Genentech presently
or hereafter owns or Controls, the claims of which would be infringed in the
absence of licenses or assignments granted hereunder and which claims
specifically cover only Compounds or Products hereunder. General technology
patents are excluded from this definition. By way of example, the Cabilly family
of patents are not included in "Genentech Patents."

     1.16  "Genentech Technology" means Genentech Patent(s) and Genentech Know-
How.

     1.17  "Initial Research" means as is defined in Section 7.2 hereof.

     1.18  "Intellectual Property" means all Patents, copyrights, trade secrets,
trademarks and other proprietary rights, together with all related rights,
applications, filings, registrations and the like.

     1.19  "Inventions" means any Know-how hereunder that is or becomes
patentable or the subject of a Patent application or disclosure.

     1.20  "Investigational New Drug" or "IND" means an investigational new drug
application (as defined in Title 21 of the United States Code of Federal
Regulations, as amended from time to time) filed with the Federal Food and Drug
Administration with regard to any Product.

     1.21  "Joint Development Plan" means that plan promulgated by the Joint
Project Team, ratified by the Joint Steering Committee and updated annually,
under which the Parties shall conduct the research and development of this
Collaboration Program, a first iteration of which is attached hereto as Schedule
A and made a part hereof.

     1.22  "Joint Project Team" or "JPT" shall have the meaning ascribed to it
under Article 5 below.

     1.23  "Joint Steering Committee" or "JSC" shall have the meaning ascribed
to it under Article 4 below.

     1.24  "Know How" means all IL-9 related Confidential Information, trade
secrets, Inventions, practices, knowledge, skill, experience, methods,
processes, techniques, materials and data, whether tangible or not, including
without limitation, research data, test data, including pharmacological,
toxicological, analytical and quality control data, compounds, chemicals,
materials, compositions of matter, assays, reagents, results, cells, cell lines,
physical, chemical and biological materials and/or related software, and/or
other proprietary information which are in the Control of a Party, whether or
not: (i) the same is protected by patent or eligible for protection under the
patent laws of the United States or elsewhere; (ii) enforceable as a trade
secret; or (iii) the copying of which would be enjoined or restrained by a court
as constituting unfair competition.

     1.25  "Ludwig Institut Agreement" means as it is defined in 11.2(d).

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

     1.26  "MAA" means any application filed with the relevant foreign
regulatory authorities in Europe seeking Regulatory Approval to market and sell
any Product in Europe or any country or territory therein for a particular
indication in the Field.

     1.27  "Magainin Know How" means the Know How that Magainin presently or
hereafter owns, develops and/or Controls.

     1.28  "Magainin Patents" means the Patent(s) which Magainin presently or
hereafter owns or Controls, the claims of which would be infringed in the
absence of licenses or assignments granted hereunder.

     1.29  "Magainin Technology" means Magainin Patents and Magainin Know-How.

     1.30  "NDA/BLA" means a New Drug Application or Biologics License
Application, as the case may be, (as defined in Title 21 of the United States
Code of Federal Regulations, as amended from time to time) filed with the
Federal Food and Drug Administration ("FDA"), before which application is
approved for a Product and it's indications in the Field, it is unlawful to
commercialize or sell such Product in the United States.

     1.31  "Net Sales" means the aggregate gross invoiced sales of a Product or
Compound, (but only if such Compound is being sold as a final product,) charged
by Genentech or its sublicensee to a Third Party in an arms-length transaction,
deducting the following (to the extent such items are incurred or allowed and do
not exceed reasonable and customary amounts in the market in which such sales
occurred): (i) quantity discounts, cash discounts or chargebacks; (ii) rebates
or allowances actually granted including government and managed care rebates;
(iii) customer credits or allowances for returned goods; (iv) any charges for
freight and insurance; (v) costs associated with Third Party diagnostic products
required to be in-licensed for the purpose of manufacture, commercialization or
sale of a Product or Target Product hereunder (provided not otherwise offset
under Section 6.8); and (vi) any tax, tariff, duty or government charge
(including any tax such as a value added or similar tax or government charge
other than an income tax) levied on the sale, transportation or delivery of a
Product or Target Product and borne by Genentech, its Affiliate or sublicensee
without reimbursement from any Third Party. Sale(s) of Product or Target Product
by and between Genentech and a Genentech Affiliate or sublicensee are excluded
(and not to be calculated as constituting a deductible) from this definition of
Net Sales. Such Net Sales may be adjusted in accordance with relevant Section
6.8.2 provisions.

     1.32  "Patents" means (i) valid and enforceable patents, re-examinations,
reissues, renewals, extensions, supplementary protection certificates and term
restorations, and (ii) pending applications for patents, including without
limitation continuations, continuations-in-part, divisional, provisionals and
substitute applications, including without limitation inventors' certificates
which cover or claim Technology, (iii) extensions of any patent or application
set forth in (i) or (ii); and (iv) all patents issuing from the foregoing
applications, so long as said patents have not been held invalid and/or
unenforceable in any decision by a court or other appropriate governmental body
of competent jurisdiction from which there is no appeal or, if appealable, from
which no appeal has been taken.

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

     1.33  "Phase I Clinical Study" means, as to a particular Product for a
particular indication, a controlled and lawful study in human studies looking at
among other things the safety, dosing and dose ranging of such Product for such
indication.

     1.34  "Phase II Clinical Study" means, as to a particular Product for a
particular indication, a controlled and lawful study in humans of the safety,
dosing, ranging and efficacy of such Product for such indication, which is
prospectively designed to generate sufficient data to commence a Phase III
Clinical Trial of such Product for such indication.

     1.35  "Phase III Clinical Study" means, as to a particular Product for a
particular indication, a controlled and lawful study in humans of the safety and
efficacy of such Product for such indication, which is prospectively designed to
demonstrate statistically whether such Product is safe and effective for use in
such indication in a manner sufficient to file a NDA/BLA to obtain Regulatory
Approval to market and sell that Product in the United States for the indication
under investigation in such study.

     1.36  "Product" means any human therapeutic or drug in a final finished
form, the active ingredient of which is a Compound. Product shall exclude any
and all Target Products.

     1.37  "Regulatory Approval" means any and all approvals (including pricing
and reimbursement approvals), product and establishment licenses, registrations,
authorizations of any kind of the Federal Food and Drug Administration or any
other regulatory authority necessary for the development, pre-clinical and/or
human clinical testing, manufacture, quality testing, supply, use, storage,
importation, export, transport, marketing and sale of a Product (or any
component thereof) for use in the Field in any country or other jurisdiction in
the Territory. "Regulatory Approval" shall include without limitation any BLA,
NDA, MAA or other FDA-approved drug approval application.

     1.38  "Small Molecule" means any compound with a molecular weight below
1000 daltons.

     1.39  "Target" means a naturally-occurring molecule or fragment thereof
that has a direct or indirect biologic, chemical or physiologic effect on a
cascade leading to human illness, and which is provided to Genentech by Magainin
pursuant to this Agreement.

     1.40  "Target Compound" means any Antibody, peptide, Small Molecule or
aminosterol that has a primary mechanism of action of blocking, inhibiting,
acting on, or antagonizing the production of a Downstream Target, and which is
identified and developed by Genentech through use of the relevant Target. Target
Compound shall exclude [**].

     1.41  "Target Product" means any human therapeutic or drug in a final
finished form, the active ingredient of which is a Target Compound. Target
Product shall exclude any and all Products.

     1.42  "Territory" means the world.

     1.43  "Third Party" means any entity other than Genentech or Magainin or an
Affiliate of either Party.

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

     1.44  "Upstream Compound" means a Compound that has a primary mechanism of
action or biologic effect of blocking, inhibiting, acting on, or antagonizing
the production of  an Upstream Target, or as otherwise set forth in Section 4.8
below.

     1.45  "Upstream Product" is a Product containing an Upstream Compound as
its active ingredient.

     1.46  "Upstream Target" means [**].

     1.47  "Valid Claim" means a claim in any issued, unexpired patent which has
not been held unenforceable, unpatentable or invalid by a decision of a court or
other governmental agency of competent jurisdiction, unappealable or unappealed
within the time allowed for appeal, and which has not been admitted to be
invalid or unenforceable through reissue, reexamination or disclaimer and which
is not subject to an interference action.

                                   Article 2
                                Summary Section

2.

     This Article 2 is intended to generally summarize the collaboration between
the Parties to this Agreement. The terms and conditions of the Agreement,
excluding Article 2, should prevail in meaning and operation and this Article 2
should not be read to supercede any other term or condition of the Agreement in
the case of inconsistency.

     2.1   Synopsis: This is a research and development collaboration under
which the Parties will together (or as separately appointed to tasks by a joint
committee of the Parties under a joint plan, as provided hereunder) research
Antibodies and Small Molecule Compounds for development and commercialization of
Compounds and Products. The primary and initial focus of this collaboration is
to develop an Antibody to be chosen by the Joint Development Team as a Compound-
candidate for clinical trials within the Field and Territory.

     2.2   Collaborative Development. Magainin will supply to this collaboration
its Know How, scientific findings and other research showing the IL-9 mechanism
and its role in modulating allergic and asthmatic response to antigen. Genentech
and Magainin will conduct the Initial Research, including certain proof of
concept relating to the IL-9 mechanism in respiratory/immune reaction to
antigen, as determined by the Joint Project Team and provided in the Joint
Development Plan. In addition to which, Genentech wishes to develop a human or
humanized Antibody (using Genentech proprietary Know How or a transgenic mouse),
as well as possibly generate a mouse Antibody that reacts with or affects IL-9
or IL-9 receptors. The Initial Research shall begin on the Effective Date and
last until such time that the Joint Project Team selects the Compound for
clinical development, including Phases I and II testing by Magainin. All such
Initial Research shall be conducted by the Parties together or individually as
assigned to tasks by the Joint Project Team, at the sole expense of the Party
completing the work and at

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

Magainin's expense for Phases I and II Clinical Studies. Once the data from
those trials merits the commencement of a Phase III Clinical Study (per the
determination by the Joint Project Team), Genentech shall at its expense
(subject only to Section 8.6 herein), design the Phase III Clinical Study and
take the Compound into Phase III, or a pivotal trial, through and including
filing of the NDA/BLA. Genentech will be responsible for manufacturing Compounds
hereunder. Magainin may have a role in manufacturing (or contract manufacturing)
Small Molecule Compounds if so decided by the Joint Project Team and approved by
the JSC. In accordance with the JSC approved budget for the Collaboration
Program, Genentech will provide quarterly funding in advance for Magainin
Collaboration Program expenses with preferred equity in tranches of that same
Series A equity provided in the Stock Purchase Agreement, of even date herewith.

     2.3  Respiratory Gene Database; Exclusive Access; Licensing Target(s).
Genentech shall have sole and exclusive access to Magainin's Gene Database (as
defined) for a period of [**] from the Effective Date and from such access, the
right, but not the obligation, to choose up to [**] Targets therefrom.
Genentech will then have an additional [**] (for a total [**] from the Effective
Date) of non-exclusive access.  Targets will be excluded from the Target pool by
Magainin if, prior to Genentech's selection, Magainin has licensed rights to
such Target (that Genentech wants to select) to a Third Party, or Magainin has
already initiated and is diligently pursuing, at its own expense, an active
research program regarding that Target.  Genentech shall have the right, but not
the obligation, to acquire exclusive rights to develop Target Compounds and
Target Products pursuant to Section 3.2(c)(i) below.

                                   Article 3
                                License grants

3.

     3.1  Licenses Granted by Magainin -

          3.1.1  Magainin Technology. Magainin hereby grants to Genentech and
its Affiliates an exclusive (even as to Magainin) right and license, with the
right to grant sublicenses, under any and all Magainin Technology, whether owned
or controlled by Magainin, to research, develop, manufacture, make, have made,
use, import, export, sell, offer for sale, or have sold Compounds and/or
Product(s) in the Field in the Territory. Notwithstanding the foregoing, the
exclusive license granted above shall be subject only to Magainin's rights to
collaborate with Genentech as solely provided in this Agreement and under the
Joint Development Plan.

          3.1.2  Research & Development License to Magainin. Subject to the
terms and conditions of this Agreement, Genentech hereby grants to Magainin a
non-exclusive, non-royalty-bearing license under the Genentech Technology for
the sole purpose of enabling Magainin to conduct its activities (always to the
exclusion of making or manufacturing, except with respect to limited rights for
Small Molecule manufacture, as provided in Section 3.1.3) under the
Collaboration Program, and as described in the Joint Development Plan.

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

          3.1.3  Small Molecule Election; Limited Commercial License for Small
Molecule Compounds. In the event that Magainin believes it discovered a Small
Molecule that has substantial pre-clinical data affecting or effecting a
respiratory response (in which Genentech might have an interest), Magainin shall
so advise Genentech as soon as reasonably practical. Magainin shall also provide
to Genentech data for each such Small Molecule in support of Magainin's findings
and suppositions, in sufficient detail so as to enable Genentech to determine
whether it might be interested in bringing the Small Molecule under the
Collaboration Program. In the event that Genentech is interested in going
forward in development with such Small Molecule, then Genentech shall within
[**] months thereafter inform Joint Project Team of its assent to go forward
under the Collaboration Program. Upon the election to include the Small Molecule
in the Collaboration Program, the then current Joint Development Plan will be
modified to reflect the addition of said Small Molecule and all activities of
the Parties to develop such Small Molecule, as well as provide budgets required
to fund the same. Funding shall be consistent with funding and support
mechanisms outlined herein as apply to Compounds. Subject to the terms and
conditions of this Agreement, in the event that Genentech elects not to develop
a Small Molecule Compound, pursuant to this Section 3.1.3, or if after electing
to develop such a Small Molecule Compound, ceases development, [**].

     3.2  Access to the Gene Database; Rights to Targets.

                 (a)  Right of Access. Magainin hereby grants Genentech an
exclusive right, to the exclusion of Magainin and any Third Party, and research
license, for a period not to exceed [**] from the Effective Date ("Period of
Exclusivity") of sole access to the Gene Database and rights to choose up to
[**] Target(s) therefrom for research and development. After the Period of
Exclusivity, Genentech shall have an additional non-exclusive right and research
license, for a period not to exceed [**], or a total of [**] from the Effective
Date, to non-exclusive access of the Gene Database and to choose any Target
contained therein, subject only to the then existing rights of Third Parties, as
of the designation date being after the Period of Exclusivity. Targets will be
excluded if prior to Genentech's selection, Magainin has removed such Target
from the Gene Database because Magainin either licensed rights to the Target
(that Genentech wants to select) to a Third Party, or Magainin has already
initiated and is diligently pursuing, at its own expense, an active research
program regarding such Target ("Internal Development Effort"). Genentech shall
also be required to initiate and diligently pursue an active research program
regarding any Target it selects for exclusive development.

                 (b)  Target Selection; Exclusivity. For any Target that
Genentech shall select from the Gene Database, Genentech shall, as soon as
reasonably practicable, notify Magainin of Genentech's desire to designate such
Target for its own use, exclusive or subject to Third Party rights, as the case
may be at the time of designation. Immediately upon designation, Genentech will
be deemed to have been granted, at its sole choice, an exclusive fully
sublicensable right and license to research, develop, manufacture, make, have
made, use, import, export, sell, offer for sale, or have sold Target Compounds
and/or Target Products in the Field in the Territory. Notwithstanding the
provision of exclusivity in the foregoing sentence,

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

and only with respect to designations by Genentech occurring after the Period of
Exclusivity ends, the exclusive license granted above shall be subject to Third
Party rights only to the extent existing, or subject to Magainin's rights as
provided above in Section 3.1.2 in the event that Magainin is involved in an
Internal Development Effort with such Target, as defined in Section 3.2(a), as
of the time of designation by Genentech.

                 (c)  Developing a Target Compound or Target Product;.

                      (i)   Sole Development by Genentech. Genentech may elect
to solely develop a Target Compound, or Target Product, as the case may be,
which shall not be subject to Magainin's election under Section 8.6. Royalties
and milestones for a Target Compound and Target Product shall be governed by
Section 6.5.

                      (ii)  Co-Development by Genentech and Magainin;
Designation of a Target Compound or Target Product as a Compound and Product.
Genentech may alternatively elect to designate a Target Compound as a Compound
hereunder to be co-developed with Magainin. In the event of such an election by
Genentech, then upon written notice from Genentech, such Target Compound shall
be deemed a Compound, and such Target Product a Product, and governed under the
then current Joint Development Plan with milestones and royalties in accordance
with Section 6.3 and 6.4, or eligible for a profit sharing arrangement at
Magainin's election under Section 8.6. In the event Genentech elects to co-
develop pursuant to this paragraph, Genentech and Magainin are individually and
together responsible, in accordance with the Joint Development Plan and with
input from the Joint Project Team or senior management from both Genentech
and/or Magainin (within the budget promulgated by the Joint Project Team,
approved by the JSC, and provided for in the then current annual Joint
Development Plan,) for all development efforts including, without limitation,
humanizing the Antibodies and/or increasing affinity (affinity maturation) of
any Antibody in accordance with a Joint Development Plan and any other research
and development that the Joint Project Team shall require of Genentech or
Magainin, as the case may be to develop such Target Compound.

     3.3  Full Collaboration Program. Reference to the collaboration program
means the full research and development program for developing Products from
designated Compounds and developing Compounds (or developing Compounds that act
on Targets as Genentech elects to co-develop pursuant to Section 3.2(c)(ii)
above) and encompassing the activities of either or both Parties as provided and
set forth in the then annual Joint Development Plan, promulgated by the Joint
Project Team and approved by the Joint Steering Committee and which include all
of the activities under the purview of the Joint Project Team to implement (the
"Collaboration Program"). The Collaboration Program commences on the Effective
Date and terminates, Compound by Compound, as of the termination of a Compound
in pre-Regulatory Approval stages of development. A Compound will only be put
into full development under an annual Joint Development Plan upon selection and
designation of such Compound by the Joint Project Team and approval by the JSC
(subject to the dispute resolution provisions in this agreement), as it may deem
appropriate for research, development, Phase I, II and/or III Clinical Studies.
[**].

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

     3.4  Initial Research. Initial Research ends with respect to a Compound,
Compound by Compound, upon such time as the Joint Project Team selects such
Compound for Phase I Clinical Study. Phases I and II Clinical Studies shall be
conducted solely by Magainin, with assistance by Genentech or the Joint Project
Team, as may be deemed necessary by the Joint Project Team, at Magainin's sole
cost and expense, funding to be earmarked from funds generated by Genentech to
Magainin under the then current tranche of Series A Preferred Stock pursuant to
that certain Stock Purchase Agreement, dated of even date herewith. Phase III
Clinical Studies and NDA/BLA filing shall be solely Genentech's obligation at
Genentech's sole expense, the soleness of the expenses borne by Genentech being
subject only to Magainin's opt-in for co-funding under Section 8.6 hereof.


                                   Article 4
                      Administration of the Collaboration

4.

     4.1  Formation of Joint Steering Committee. The Parties shall establish one
joint steering committee (the "JSC"), which shall consist of no fewer than four
(4) permanent members, two (2) permanent members from each Party. Each Party may
replace any or all of its representatives on the JSC at any time upon written
notice to the other Party in accordance with Section 14.9 of this Agreement.
Such representatives shall include individuals within or designated by the
senior management of each Party, and those representatives of each Party shall,
individually or collectively, have expertise and/or responsibility in business
and bio-pharmaceutical therapy development or commercialization and authority to
cause the participants from each Party to conduct the work of this Collaboration
Program. Any member of the JSC may designate a substitute to attend and perform
the functions of that member at any meeting of the JSC and each member of the
JSC may invite such other non-members as deemed necessary to help explore and
resolve the issues before the JSC. Each Party may individually, in its
discretion, invite non-member representatives of such Party to attend meetings
of the JSC.

     4.2  Responsibilities.  The JSC shall perform the following functions:

               (a)  Approve the overall strategy and timelines for the
Collaboration Program and the collaborative process including appointing and
providing direction to the Joint Project Team.;

               (b)  review and approve: (i) the Joint Development Plan; (ii)
division of labor among the Parties; (iii) annual budgets and multiyear expense
forecasts formulated by the Joint Project Team; (iv) any expenditure made in
connection with purchasing preferred shares of equity in Magainin, or otherwise
entering into a debt instrument (for amounts reflecting budgeted activities), as
recommended by the Joint Project Team and provided in that

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

certain Stock Purchase Agreement, dated of even date herewith; and the (v) the
financial results of the Collaboration Program;

               (c)  review and evaluate progress of the activities under the
Joint Development Plan, provided that the JSC shall not have authority to make
any determination that either Party is in breach of this Agreement;

               (d)  review and approve "go/no-go" decisions and recommendations
made by the Joint Project Team;

               (e)  resolve disputes or disagreements unresolved by any Joint
Project Team and any other disputes or disagreements between the Parties with
respect to the Collaboration Program;

               (f)  review marketing plans for any Product; and

               (g)  have such other responsibilities as may be assigned to the
JSC pursuant to this Agreement or as may be mutually agreed upon by the Parties
or any member of senior management from the Parties from time to time.

     4.3  Decisions of the JSC. With respect to the mandated responsibilities of
the JSC, the JSC shall operate by consensus with each Party having a single
vote. If, with respect to a matter that is subject to the JSC's decision-making
authority, the JSC cannot reach consensus within fifteen (15) days after it has
met and attempted to reach such consensus, the matter shall then be immediately
referred to the Chief Executive Officer of Magainin, or such other person
holding a similar position designated by Magainin from time to time, and a
Senior Officer of Genentech, or such other person holding a similar position
designated by Genentech, from time to time, for resolution. The executive/senior
officers shall use reasonable efforts to resolve the matter referred to them. If
the executive/senior officers cannot reach a mutually acceptable decision within
fifteen (15) days after the matter was referred to them, then the Chief
Executive Officer of Genentech shall have the final authority to make decisions
in good faith that are binding on both Parties.

     4.4  Meetings. During the term of the collaboration, the JSC shall meet in
person at least twice during every calendar year, and more frequently as the
Parties deem appropriate, on such dates, and at such places and times, as the
Parties shall agree. Meetings of the JSC that are held in person shall alternate
between the offices of the Parties, or such other place as the Parties may
agree. The members of the JSC also may convene or be polled or consulted from
time to time by means of telecommunications, video conferences, electronic mail
or correspondence, as deemed necessary or appropriate.

     4.5  Minutes. With the sole exception of specific items of the meeting
minutes to which the Parties cannot agree and which are escalated as provided in
Section 4.3, minutes of all JSC meetings shall be finalized no later than thirty
(30) days after the meeting to which the minutes pertain, as follows:

                    (i)  Within ten (10) days after each JSC meeting, a
secretary designated by one Party at each meeting shall prepare and distribute
to all members of the JSC

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

draft minutes of the meeting.  Such minutes shall provide a description, in
reasonable detail, of the discussions at the meeting and a list of any actions,
decisions or determinations approved by the JSC and a list of any issues to be
resolved by the Executive Officers.

                    (ii)   The non-drafting Party shall then have ten (10) days
after receiving such draft minutes to collect comments thereon from the members
of its Party and provide them to such secretary.

                    (iii)  Upon the expiration of such second ten (10)-day
period, the members of the JSC shall have an additional ten (10) days to discuss
each other's comments and finalize the minutes. The member-representatives from
each Party having attended the meeting to which the minutes apply, shall each
sign and date the final minutes. The signature of the members upon the final
minutes shall indicate each Party's assent to the minutes. If the Parties
disagree on any issue with respect to the minutes, such issue shall be resolved
by the escalation process as provided in Section 4.3. The decision resulting
from the escalation process shall be recorded by the secretary in amended
finalized minutes for said meeting.

     4.6  Term.  The JSC shall exist until the termination or expiration of the
Collaboration Program and for such longer period as necessary to perform the
remaining responsibilities assigned to it under this Agreement.

     4.7  Expenses.  Each Party shall be responsible for all travel and related
costs and expenses for its members and approved invitees to attend meetings of,
and otherwise participate on the JSC.

     4.8  Upstream Compounds.  As part of its ongoing business, Magainin will
continue its pursuit of researching Upstream Compounds. In the event that
Magainin believes it discovered an Upstream Compound that has substantial pre-
clinical data affecting or effecting a respiratory response (in which Genentech
might have an interest), Magainin shall so advise Genentech as soon as
reasonably practical. Magainin shall also provide to Genentech data for each
such Upstream Compound in support of Magainin's findings and suppositions, in
sufficient detail so as to enable Genentech to determine whether it might be
interested in bringing the Upstream Compound under this Collaboration Program.
In the event that Genentech is interested in going forward in development with
such Upstream Compound, then Genentech shall within [**] thereafter inform Joint
Project Team of its assent to go forward under the Collaboration Program. Upon
the election to include the Upstream Compound in this Collaboration Program, the
then current Joint Development Plan will be modified to reflect the addition and
all activities of the Parties with respect to the activities of the Parties to
develop such Upstream Compound, as well as provide budgets required to fund the
same. Funding shall be consistent with funding and support mechanisms outlined
herein as apply to Compounds. If Genentech shall not advise Magainin of its
interest in going forward and in development of such Upstream Compound within
[**], Genentech shall have no further rights to such Compound.

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

                                   Article 5
                              Joint Project Team

5.

     5.1  Formation of Joint Project Team ("JPT").

               (a)  Within thirty (30) days of the Effective Date, the Parties
through the JSC, shall establish a joint project team ("JPT") to develop and
promulgate a Joint Development Plan ("JDP"), a first iteration of which is
attached hereto, as well as coordinate and implement all activities for the
research and development of Products and Compounds in the Field under the JDP,
within budgets to be promulgated by the Joint Project Team and approved by the
JSC.

               (b)  A sufficient number of authorized representatives (but no
more than four (4) for each Party, unless otherwise determined by the JPT),
shall be appointed as members of the JPT. Such representatives will include
individuals with expertise and responsibilities in the areas of basic research
and development, clinical development, process sciences, manufacturing,
regulatory affairs, product development, marketing and sales, as applicable to
the stage of development or commercialization of the Product. Each Party may
replace its representatives at any time, upon written notice to the other Party.
The JPT shall meet at regular intervals, but no less than once per calendar
quarter, at times and locations to be agreed upon by the members of the JPT.

               (c)  The JPT shall exist until the end of Phase II Clinical
Study(ies), and shall cease to exist on a Compound by Compound basis.

     5.2  Responsibilities.  The Joint Project Team shall ensure open
communication between the Parties as relates to the development of Compounds and
Products as well as:

               (a)  oversee and coordinate all research and development
activities with respect to Compounds under this Agreement, in a manner
consistent with the JDP;

               (b)  evaluate data from the Collaboration Program;

               (c)  manage the day-to-day activities being conducted under the
JDP, allocate responsibilities between the Parties and coordinate the activities
of the Parties;

               (d)  provide a mechanism for the exchange of information between
the Parties with regard to Know-how and Inventions;

               (e)  provide a mechanism for the review of data and results from
any discovery efforts either Party is conducting from time to time with respect
to Compounds, and recommend Compounds for clinical testing;

               (f)  review and agree on all relevant proposed publications and
presentations of any of the Parties pursuant to Article 9;

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

               (g)  prepare clinical and regulatory strategy and review and
approve clinical study protocols that the implementing Party shall promulgate
and final reports therefor;

               (h)  prepare or revise Joint Development Plans annually, or as
needed more frequently, and refer them (or modifications thereto) to the JSC for
approval;

               (i)  keep the JSC informed on the status of the Collaboration
Program and the activities conducted by the Parties thereunder;

               (j)  promulgate budgets covering the activities under the
Collaboration Program and outlined in each annual Joint Development Plan;

               (k)  generate cost-estimates, quarter by quarter in advance of a
quarter, to the JSC covering funding required for a following quarter (for
activities of the Collaboration Program) through Phase II Clinical Studies and
paid in advance of each quarter from such shares of preferred equity as provided
in that certain Stock Purchase Agreement, dated of even date herewith;

               (l)  based upon Magainin's election to share in U.S. profits and
losses under Section 8.6, generate a quarterly schedule of preferred stock
purchases (or otherwise under a debt-instrument) as provided in that certain
Stock Purchase Agreement, dated of even date herewith, which schedule of
purchases shall cover and include Magainin's portion of losses incurred that
first year post-Regulatory Approval; submitting the same to the JSC for its
approval;

               (m)  ensure that each Party is aware of any ongoing activity of
any Party outside the Collaboration Program that may impact the Collaboration
Program or a Party's diligence obligations hereunder;

               (n)  resolve disputes and disagreements between the Parties with
respect to this Section 5.2, and refer unresolved disputes and disagreements to
the JSC for resolution in accordance with Section 4.3; and

               (o)  have such other responsibilities as may be assigned to the
JPT pursuant to this Agreement or by the JSC, or as may be mutually agreed upon
by the Parties from time to time.

     5.3  Meetings.  During its term, the JPT shall meet at least once each
calendar quarter, and more frequently as agreed by the JPT, on such dates, and
at such places and times, as the JPT shall agree. Such meetings may be held in
person, or the members of the JPT may convene or be polled or consulted from
time to time by means of telecommunications, video conferences, electronic mail
or correspondence, as deemed necessary or appropriate.

     5.4  Decision-making.  The JPT shall operate by consensus, and each Party
shall have collectively one (1) vote in all decisions. If, with respect to a
matter that is subject to a JPT's decision-making authority, the JPT cannot
reach consensus within fifteen (15) days after it has met and attempted to reach
such consensus, the matter shall be referred on the sixteenth day to the JSC,
which shall resolve such matter in accordance with Section 4.3.

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

                                   Article 6

        Development Costs; Milestones and Funding of Development Costs.

6.

     6.1  Development Costs.

          6.1.1  Development Costs include without limitation the following:

                 (a)  costs of research or development including costs of
studies on the toxicological, pharmacokinetical, metabolical or clinical aspects
of a Compound conducted internally at Genentech or by Magainin, as the case may
be, or by individual investigators or consultants necessary for the purpose of
obtaining, maintaining and/or expanding marketing approval of a Product, process
development, process improvement and scale-up and recovery costs, qualification
lots, costs for preparing, submitting, reviewing or developing data or
information for the purpose of submission to a governmental authority to obtain,
maintain and/or expand marketing approval of a Product, and applicable Allocable
Overhead (as defined in the financial appendix.)

                 (b)  expenses for data management, statistical designs and
studies, document preparation, and other administration expenses associated with
the clinical testing program or post-marketing studies required to maintain
product approvals;

                 (c)  costs required to obtain, maintain and/or expand the
relevant authorization and/or ability to manufacture, formulate, fill, use,
ship, sell and/or distribute a Product in commercial quantities to Third Parties
in the Territory;

                 (d)  any other costs and expenses associated with the
activities of the Parties under an annual Joint Development Plan or as otherwise
deemed necessary by the Joint Project Team.

          6.1.2  All Development Costs shall be reviewed and approved by the
Joint Project Team and JSC in accordance with the procedures set forth in
Schedule B (the financial appendix) and as further provided under the Joint
Development Plan. Issues or questions arising from the meaning of any of the
above, accounted for in this Section 6.1, shall be the purview of the JSC to
evaluate and resolve, with the dispute resolution procedures under Section 5.4
and 4.3 abiding. These Development Costs may be borne by a Party in accordance
with its respective obligations under the then current Joint Development Plan
and/or subject to the Section 8.6 profit and loss share election, as the case
may be, should Magainin elect to share in U.S. profits and losses by co-funding
the Collaboration Program from Phase III Clinical Study(ies) through and
including all Regulatory Approvals.

          6.1.3  In determining Development Costs chargeable under the
Agreement, each Party will use its respective project accounting systems and
will review and approve its respective project accounting systems and
methodologies for this Collaboration Program with the other Party.

          6.1.4  US Development Costs shall mean (i) one hundred (100%) of
Development Costs (as defined in Section 1.9) through the end of Phase II plus
(ii) fifty percent (50%) of Development Costs in the United States and Europe,
beginning in Phase III through filing of NDA/BLA.

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

     6.2  Up-Front Payments.  Genentech will make the following nonrefundable,
non-creditable payment to Magainin of $5 Million in exchange for such form of
common equity described in the Stock Purchase Agreement, dated of even date
herewith, immediately upon the closing of the Stock Purchase Agreement.

     6.3  Milestones and Milestone Payments for Compounds and Products. Only in
the event that Magainin declines funding Phase III Clinical Studies, foregoing
also all subsequent filing costs associated with obtaining Regulatory Approval
for any Compound, then Genentech will be obligated to pay the milestones in
Section 6.3(a) with respect to such Compound and Product. However, Genentech
will be obligated to pay milestone payments contained in Section 6.3(b) upon
reaching the milestone events listed in Section 6.3(b) whether or not Magainin
makes such an election to jointly fund under Section 8.6 below:

               (a)  Milestone Payments on Compounds and Products in Lieu of U.S.
Profit-Share. The following payment obligations shall be triggered once only
with respect to any Compound/Product, and only in the event that Magainin does
not exercise its option to co-fund development (under Section 8.6). Genentech
shall pay said milestone payments within thirty (30) days of the occurrence of
the relevant event:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
Milestone                                                      Milestone Payment
---------                                                      ------------------
---------------------------------------------------------------------------------
<S>                                                            <C>
First NDA/BLA filing for an Antibody-based Compound            [**]

---------------------------------------------------------------------------------
First BLA approval for an Antibody-based Product               [**]

---------------------------------------------------------------------------------
First NDA/BLA filing for each Small Molecule Compound          [**]

---------------------------------------------------------------------------------
First NDA/BLA approval for each Small Molecule Product         [**]

---------------------------------------------------------------------------------
</TABLE>

               (b)  Milestone Payments on Compounds and Products Regardless of
Profit Share. The following milestones shall be payable by Genentech, once only
with respect to any Compound/Product, within thirty days of the occurrence of
the relevant event, and whether or not Magainin elects to participate in US
profits and losses pursuant to Section 8.6 below.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
                                                                    Milestone
                                                                    ---------
Milestone                                                           Payment
---------                                                           -------
-------------------------------------------------------------------------------
<S>                                                                 <C>
Upon Initiating first Phase I Clinical Study for the first          [**]
Antibody Compound
-------------------------------------------------------------------------------
Initiation of first Phase II Clinical Study for the first           [**]
Antibody Compound

-------------------------------------------------------------------------------
</TABLE>


________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
                                                                    Milestone
                                                                    ---------
Milestone                                                           Payment
---------                                                           -------
-------------------------------------------------------------------------------
<S>                                                                 <C>
Initiation of the first Phase III Clinical Study for the first      [**]
Antibody Compound
-------------------------------------------------------------------------------
Upon first Regulatory Approvals for the first Antibody Compound     [**]
in Europe

-------------------------------------------------------------------------------
Upon first Regulatory Approvals for the first Antibody Compound     [**]
in Japan

-------------------------------------------------------------------------------
Selection of each Small Molecule-based Compound ready to enter      [**]
clinical testing

-------------------------------------------------------------------------------
Initiation of first Phase I Clinical Study for each such Small      [**]
Molecule-based Compound

-------------------------------------------------------------------------------
Initiation of the first Phase II Clinical Study for each such       [**]
Small Molecule-based Compound

-------------------------------------------------------------------------------
Initiation of the first Phase III Clinical Study for each such      [**]
Small Molecule-based Compound

-------------------------------------------------------------------------------
Upon first Regulatory Approval for each Small Molecule-based        [**]
Compound in Europe

-------------------------------------------------------------------------------
Upon first Regulatory Approval for each Small Molecule-based        [**]
Compound in Japan
-------------------------------------------------------------------------------
</TABLE>


     6.4  U.S. Royalties in Lieu of Profit-Share & Ex-US Royalties on Products
Regardless of Profit-Share. In the event that Magainin declines co-funding Phase
III Clinical Studies (by not electing an option to share in U.S. profits and
losses, pursuant to 8.6 hereof) then the following U.S. royalties on Net Sales
apply to the sale of a Product, covered by a Valid Claim of a Magainin Patent at
the following rates; and regardless of whether or not Magainin elects to fund
Phase III development and beyond, pursuant to Section 8.6, Genentech shall be
obligated to pay the following ex-U.S. royalties based upon revenue that
Genentech recognizes for Net Sales of the Product in the Territory outside of
the United States; provided, however, that to the extent that, and for so long
as, no Valid Claim of a Magainin Patent (or of a Patent solely or jointly
invented by Magainin which has been assigned to Genentech under Article 10
below) covers the Product in the relevant country (U.S. or ex-U.S.), then the
royalties payable in such country shall be [**]% of the royalties set forth
below. These royalty obligations shall expire on a country-by country, and
Product-by-Product basis, on the later of the last to expire Valid Claim of a
Magainin Patent (or of a Patent solely or jointly invented by Magainin which has
been assigned to Genentech under Article 10 below) covering such Product or [**]
years from the first sale of such Product in such country.

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Net Sales for Products Sold in the Field                                 Royalty Rate
----------------------------------------                                 ------------
-----------------------------------------------------------------------------------------
<S>                                                                      <C>
For each dollar up to the first [**] in U.S. Net Sales, calculated       [**]
annually based on a calendar year
-----------------------------------------------------------------------------------------
For each dollar of U.S. Net Sales (reset each January 1st) that is       [**]
greater than [**] in a calendar year
-----------------------------------------------------------------------------------------
For each dollar up to the first [**] cumulative Net Sales in             [**]
Europe, calculated annually in a calendar year
-----------------------------------------------------------------------------------------
For each dollar up to the first [**] cumulative Net Sales in Asia,       [**]
calculated annually in a calendar year
-----------------------------------------------------------------------------------------
For each dollar up to the first [**] cumulative Net Sales for the        [**]
rest of the world (outside the United States, Europe and Asia),
calculated annually
-----------------------------------------------------------------------------------------
For each dollar of Europe cumulative Net Sales (reset each calendar      [**]
year) that is greater than [**], calculated annually
-----------------------------------------------------------------------------------------
For each dollar of Asian cumulative Net Sales (reset each calendar       [**]
year) that is greater than [**], calculated annually
-----------------------------------------------------------------------------------------
For each dollar of cumulative Net Sales from the rest of the world       [**]
world (outside the United States, Europe and Asia) (reset each
calendar year) that is greater than [**], calculated annually
-----------------------------------------------------------------------------------------
</TABLE>

     6.5  Fees and Royalties for Target Compounds and Target Products.

               (a)  In the event Genentech selects and receives exclusive rights
with respect to a Target from the Magainin Gene Database, upon which Genentech
does not elect to co-develop pursuant to Section 3.2(c)(ii) above, then
Genentech shall be obligated to pay to Magainin the following payments under
6.5(b), only once for each Target, within thirty (30) days of a Target Compound
within such Target reaching the following milestone events, and also the
royalties under 6.5(c).

               (b)  Milestones for Target Compounds:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------
Milestone                                             Milestone Payment
---------                                             -----------------
--------------------------------------------------------------------------
<S>                                                   <C>
First IND acceptance                                  [**]
--------------------------------------------------------------------------
First Start of Phase III Clinical Study               [**]
--------------------------------------------------------------------------
First NDA/BLA approval                                [**]
--------------------------------------------------------------------------
Upon Reaching the First [**] in U.S.                  [**]
Net Sales
--------------------------------------------------------------------------
</TABLE>

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

               (c)  Royalties Payable by Genentech on Target Products. Royalties
are payable by Genentech to Magainin at a rate of [**] based upon Net Sales
revenues (throughout the world) for Target Products, and are subject to an
offset for Third Party rights as provided in Section 6.7, with a floor of [**].
This royalty obligation shall expire, on Target Product by Target Product basis,
[**] from the First Sale of a Target Product.

     6.6  Profit Share Election - In the event that Magainin elects to
participate in U.S. profits and losses for a Compound pursuant to Section 8.6,
meaning that Magainin elects to fund [**] of the US Development Costs for Phase
III Clinical Study or pivotal trial through and including regulatory filings as
well as all costs associated with obtaining Regulatory Approvals in the United
States, as detailed below in Article 8, Magainin will become eligible to share
U.S. operating profits and losses at the rate of [**]. Said sharing of US
profits and losses shall be governed by the provisions of the Financial Appendix
attached as Schedule B. For any losses incurred in any given year, Genentech
will fund Magainin's portion of such losses by taking an amount constituting
such loss in preferred equity similar to and under the same conditions as
provided in the Stock Purchase Agreement, dated of even date herewith.

     6.7  Failed Compounds.  Milestone payments made by Genentech for Small
Molecule Compound(s) never reaching a Regulatory Approval are fully creditable
back to Genentech at the time of Small Molecule Product or Small Molecule
Compound withdrawal from the Collaboration Program.  In the event that a Small
Molecule Compound or Small Molecule Product shall fail to achieve Regulatory
Approval in any country ("Failed Compound"), such milestone amount paid shall be
applied to any future Compound or Product put into development by the Joint
Project Team ("Replacement Compound"). Milestone payments for a Replacement
Compound that proceeds in further development (as determined by the Joint
Project Team) following the time that the Failed Compound was taken out of the
Collaboration Program shall resume only after all such credits due to Genentech
are applied.  There shall be no obligation by Magainin to refund Genentech for
previously paid milestones. [**].

     6.8  Offsets for Third Party Rights; Combination Product Adjustments.

          6.8.1  Third Party Royalty Offset. Subject to other terms of this
Agreement, on a country by country basis, the royalties otherwise due and
payable by Genentech under Sections 6.4 and 6.5 above, shall be reduced as
provided in this Section 6.7 in the event that in any royalty period, Genentech
(or its Affiliates or sublicensees) in its good faith determination in order to
exploit the licenses granted under Article 3, and Section 6.4 of this Agreement
in any country, makes (or, pursuant to Section 12.3, later makes) any payment to
one or more Third Parties ("Third Party Payments") in connection with any
license agreement with such Third Party granting rights to practice and use any
patent rights or technology of such Third Party, in connection with a Product or
its development, manufacture, use or sale in any country in the Territory. In
any such case, the royalties

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

(if any) due to Magainin shall be fully reduced by the amount of such Third
Party Payment until it reaches a floor of [**] of the royalties owed therefor
plus amounts constituting Magainin's obligation to pay royalties to Ludwig
Insitut, if applicable.

          6.8.2  Combination Product Adjustment. In the event a Product is sold
in the form of a combination product containing one or more active ingredients
licensed from a Third Party, Net Sales for such combination product will be
adjusted by multiplying actual Net Sales as applicable, of such combination
product by the fraction A/(A + B) where A is the invoice price of the Product,
sold separately, and B is the invoice price of the Third Party product, sold
separately.  If the Third Party product is not sold separately, Net Sales shall
be calculated by multiplying actual Net Sales of such combination product by the
fraction A/C where A is the invoice price of the Product sold separately, and C
is the invoice price of the combination product.

     6.9  Royalty Payment Periods and Procedure.

          6.9.1  Quarterly Royalty Payments and Royalty Periods. To the extent
royalties are payable hereunder, such royalties owing to Magainin pursuant to
Sections 6.4 and 6.5 shall be payable by Genentech within sixty (60) days after
each March 31, June 30, September 30 and December 31 based upon the Net Sales of
Products during the three (3) month period preceding these dates or on such
periodic basis, no less than quarterly, as Genentech shall conduct its regular
accounting and payment of royalties, provided Genentech is not recognizing sales
that in any foreign jurisdiction where the currency is blocked as provided under
Section 6.9 hereof. Genentech shall pay Magainin royalties based upon the time
that revenue is recognized by Genentech for such Net Sales of Products.

          6.9.2  Reports.  Genentech shall furnish to Magainin on a quarterly
basis at the same time as each royalty payment is made by Genentech, a
reasonably detailed written report of Net Sales of the Products and the royalty
due and payable thereon, including a description of any offsets or credits
deducted therefrom, on a product-by-product and country-by-country basis, for
the quarterly calendar period upon which the royalty payment is based. Each
Affiliate and sublicensee shall report its Net Sales to Magainin through
Genentech, which Net Sales will be added to Net Sales made by Genentech for
purposes of determining incremental royalty-rates applicable, based upon a
calculation of total cumulative Net Sales on an annualized basis.

     6.10 Foreign Sales; Blocked Currency.  The remittance of royalties payable
on Net Sales generated in currencies other than U.S. Dollars shall be payable to
Magainin in United States Dollars, calculated at the official rate of exchange
of the currency received by Genentech, its Affiliates or sublicensee, as quoted
in Reuters for the last business day of the quarterly period to which the
royalties apply. In each country where the local currency is blocked and cannot
be removed from the country, royalties shall continue to be accrued in such
country based upon Net Sales in that country, but such royalties will not be
paid until such time as they may be removed from that country.

     6.11 Taxes.  All royalty payments due hereunder shall be made free and
clear of any taxes, duties, levies, fees or charges. Any tax required to be
withheld by Genentech, its Affiliates or sublicensees, including without
limitation income and withholding taxes as well as customs duties owed by
Magainin, under the laws of any country for the accounts of Magainin, shall be
promptly paid by Genentech or such sublicensee for and on behalf of Magainin to
the appropriate governmental authority, and Genentech or such sublicensee, as
the case may be, shall use best efforts to furnish

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

Magainin with proof of payment and any official documentation issued by the
applicable government authority.

     6.12  Audits and Auditing Procedures. At the request and expense of either
Party to call an audit ("Auditing Party"), the other Party ("Audited Party")
shall permit an independent, certified public accountant appointed by the
Auditing Party and reasonably acceptable to the Audited Party, at reasonable
times and upon reasonable written notice, to examine such records as may be
necessary to: (i) determine the correctness of any report or payment made under
this Agreement; (ii) obtain information as to the aggregate U.S. Operating
Profit or Loss and/or royalties payable for any calendar quarter in the case of
either Party's failure to report or pay pursuant to this Agreement; or (iii)
determine the correctness of the application of any proceeds hereunder;
provided, however, that such accountant shall sign a confidentiality agreement
in a form reasonably satisfactory to the Audited Party, and, provided further,
that such examination shall not be permitted more than once in any twelve (12)-
month period. Said accountant shall not disclose to the Auditing Party or any
other person any information, except that such accountant may disclose to the
Auditing Party the fact of a deficiency, the lack of a deficiency or any
overpayment, and the degree thereof, including the dollar amount. All results of
any such examination shall be made available to the both Parties.

     In the event that any audit reveals a deficiency in the amount that should
have been paid by Genentech to Magainin, then Genentech shall pay the underpaid
amount to Magainin within forty-five (45) days after Magainin makes a demand
therefor, plus interest thereon if such deficiency is in excess of five percent
(5%) of the amount that actually should have been paid by Genentech. Such
interest shall be calculated from the date such underpaid amount was due until
the date such underpaid amount is actually paid, at the prime rate of interest
reported in the Federal Reserve's Weekly Publication "H.15" applicable for week
containing the date such amount was due. In addition, if such underpaid amount
is in excess of the greater of five percent (5%) of the amount that actually
should have been paid by Genentech, then Genentech shall reimburse Magainin for
the reasonable cost of such audit. In the event of an overpayment, such amounts
shall be deducted from Magainin's royalties. If such overpaid amounts have not
been settled by such royalty deductions three (3) years from the date originally
overpaid, Genentech shall invoice Magainin for such amounts.

     6.13  Additional Equity Purchases.

     (a)   Schedule of Purchases over a Period of Time. Beginning on the
Effective Date through Phase II Clinical Study(ies), and potentially extending
to such periods covering Phase III Clinical Study(ies), Regulatory Approval and
first year post-launch, depending on Magainin's election to opt in to the profit
share under Section 8.6 hereof, Genentech shall fund Magainin's expenses
associated with its obligations in the Collaboration Program over the
aforementioned time periods by making the following additional equity or debt
investments, as the case may be, as provided in that certain Stock Purchase
Agreement, dated of even date herewith. The schedule of such continuing equity
purchases or debt arrangements is quarterly, from the Effective Date, set on
dates outlined in the Stock Purchase Agreement or as otherwise established by
the Joint Steering Committee. Genentech's obligations to make equity investments
or enter into a debt arrangement pursuant to the Stock Purchase Agreement shall
terminate (i) when the threshold measurement, as calculated in Section 8.6(b) is
met, as a measurement that Genentech's percentage holdings in Magainin are over
20% on an as converted basis; or (ii) upon the termination or expiration of the
Stock Purchase Agreement, whichever is earlier.

     (b)   Applying the Funding from Equity. On a yearly basis, and prior to any
quarterly equity purchase or debt arrangement that Genentech will make, the
Joint Project Team will generate a

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

quarter by quarter budget specifically describing Magainin's activities and
projected expenses for work to be conducted during periods either (i) prior to
end of Phase II Clinical Study for Magainin; or (ii) after the start of Phase
III Clinical Study, for Genentech. Such budgets shall, quarter by quarter, be
submitted to the Joint Steering Committee for its review and prior approval to
fund. Once the  Joint Steering Committee approves the budget, it will give
its confirmation to allow the next purchase of equity, or debt as the case may
be, to occur. Such funds (in exchange for preferred equity or as otherwise
generated under a debt instrument as further described in the Stock Purchase
Agreement,) shall be used to fund Magainin's activities in accordance with the
purposes and procedures set forth in Sections 5.2(k) and (l) and 4.2(b) and
under the Joint Development Plan or for Magainin's [**] share of US Development
Costs or launch year losses owed to Genentech. Funds generated to Magainin
therefrom shall be applied by Magainin only to that following quarter's expenses
(through the end of Phase II), or through Phase III, filing and for Magainin's
cost-sharing, pursuant to an election it may make under Section 8.6 and for no
other purpose unless otherwise approved in writing by Genentech.

     (c)   Quality of the Preferred at Each Closing. Each share of equity that
Genentech shall purchase shall have the same substantive provisions as the
Series A Preferred Stock with the same preferences, pricing provisions, rights
and designations as described in the Stock Purchase Agreement and ancillary
documents, dated of even date herewith.

     6.14  Royalties Payable to Genentech on its Grant Back to Magainin.  In the
event that Magainin elects a grant-back of rights under Section 13.8(b)(i)(2)
for a Genentech termination under Section 13.2(a) and Magainin then successfully
develops a Product under a program from rights granted back, Magainin shall be
obligated to pay to Genentech quarterly the following incremental U.S.
royalties, on a Product by Product basis; provided, however, that to the extent
that, and for so long as, no Valid Claim of a Genentech Patent (or of a Patent
solely or jointly invented by Genentech which has been assigned to Magainin
under Article 10 below) covers the Product in the relevant country, then the
royalties payable in such country shall be [**] of the royalties set forth
below.  Subject to Section 13.8(b)(i)(4), these U.S. royalty obligations shall
expire on a Product-by-Product basis, on the later of the last to expire Valid
Claim of a Genentech Patent (or of a Patent solely or jointly invented by
Genentech which has been assigned to Magainin under Article 10 below) covering
such Product or [**] from the first sale of such Product in such country.

<TABLE>
--------------------------------------------------------------------------------------------
<S>                                                                              <C>
For terminations prior to the end of Phase II Clinical Study, for each           [**]
generated product dollar up to the first [**] cumulative Net Sales in the
U.S., calculated annually in a calendar year
--------------------------------------------------------------------------------------------
For terminations prior to the end of Phase II Clinical Study, for each           [**]
generated product dollar above [**] cumulative Net Sales in the U.S.,
calculated annually in a calendar year
--------------------------------------------------------------------------------------------
For terminations after the end of Phase II Clinical Study, for each generated    [**]
product dollar up to the first [**] cumulative Net Sales in the U.S.,
calculated annually in a calendar year
--------------------------------------------------------------------------------------------
For terminations after the end Phase II Clinical Study, for each generated       [**]
product dollar above [**] cumulative Net Sales in the U.S., calculated
annually in a calendar year
--------------------------------------------------------------------------------------------
</TABLE>

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

                                   Article 7
                 Materials Transfer and Pre-Clinical  Research

7.

     7.1  Materials.  Magainin shall supply Genentech with Materials and
attendant data as shall be generally described in the Joint Development Plan.
Once received, Genentech shall use the Materials solely for the purposes
specified in this Agreement and will not sell, transfer, disclose or otherwise
provide access to the Materials to any Third Party, except that Genentech may
allow its consultants access to the Materials for purposes consistent with this
Agreement. Genentech will ensure that such consultants will use the Materials in
a manner consistent with the terms of this Agreement.

     7.2  Initial Research for the Collaboration.  Initial Research, including
without limitation, proof of concept studies, humanization, development of a
mouse Antibody, humanization of mouse Antibody(ies), and affinity maturation,
will be conducted in accordance with the then annual Joint Development Plan,
("Initial Research"), as determined in the first Joint Development Plan.
Initial Research shall last, Compound by Compound, until such time as an
Antibody is selected by the Joint Project Team to be entered into a Phase I
Clinical Study.

                                   Article 8
                               Joint Development

8.

     8.1  Scope of Development under the Collaboration Program; Diligence
Standard.

          8.1.1  The Collaboration Program begins at the Effective Date and
includes all of the research and development activities of either or both of the
Parties, planned, governed and resourced together and providing for joint
funding, to ultimately develop Products containing Compounds. Specifically, the
Collaboration Program includes a subset of activities, which are those
activities of the Parties pursuant to Sections 8.2 and 8.4 and, if Magainin
exercises its election to jointly fund development, (Sections 6.5 and 8.6 (Opt-
in)), and such other activities under Sections 8.3 and 8.5 as necessary to
implement the activities approved by the JSC in the annual JDPs (Joint
Development Plans as defined). The JPT (Joint Project Team, as defined), under
the oversight of the JSC (Joint Steering Committee, as defined), shall manage
the activities of the Parties under this Collaboration Program. Annually, the
JPT shall prepare a report of the development and regulatory actions to be taken
during the upcoming year. The JPT shall:

                 (a)  discuss and prepare an annual Joint Development Plan for
the first year of the term of the Collaboration Program (or such other period as
instructed by the JSC) and, not later than ninety (90) days thereafter, submit
to the JSC for approval an annual JDP for such period; and

                 (b)  not later than June 1st of each year during the term of
the Collaboration Program, discuss and prepare the next year's annual JDP and,
at least thirty (30)

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

days prior to each anniversary of the Effective Date thereafter, submit to the
JSC for approval of such annual JDP.

          8.1.2  Diligence. In performing their respective development and
commercialization obligations under this Agreement, the Parties shall use
commercially reasonable efforts, meaning the maximum effort consistent with
prudent business judgment, with resources and work-commitment to an amount
commensurate for like research and development programs, and in accordance with
activities and goals set forth in the then current Joint Development Plan.

     8.2  Genentech General Responsibilities with Regard to the Collaboration
Program. As part of the Collaboration Program, Genentech shall:

                 (a)  Develop (with Magainin) a human or humanized Antibody and
Mouse Antibody.

                 (b)  review and approve the JPT's: (i) selection of any
candidate Compound(s), (ii) development decision criteria, and to the extent
able, (iii) determination of particular indication(s) for which a Compound is
chosen to be developed.

                 (c)  Regularly review all data on all Compounds.

                 (d)  Provide consulting services for Magainin regarding Phase I
and II Clinical Studies for first Compound.

                 (e)  Conduct formulation-development of Products , and provide
consulting for any related long-term toxicology studies as deemed necessary or
desirable by the JPT in accordance with the then current annual JDP.

                 (f)  Conduct all regulatory filings, provide all marketing and
sales support and undertake any post-approval development work deemed necessary
in Genentech's sole opinion, or as otherwise considered within the purview of
the JPT to determine.

                 (g)  Perform such other obligations with respect to the
Collaboration Program and the then current JDP as the JSC may assign from time
to time.

     8.3  Genentech Diligence Responsibilities under the Overall Collaboration
Program. Subject to Magainin's participation upon its election to share in
profits and losses under Sections 6.5 and 8.6, and pursuant to the annual JDPs
where applicable, Genentech shall:

                 (a)  Conduct all Phase III Clinical Studies of Products for any
indications in the Field as deemed necessary or desirable by Genentech in
accordance with the then current annual JDP, or as applicable, to meet the
requirements of the Regulatory Authorities as required by the Regulatory
Authorities in the Territory for Regulatory Approvals and registrations.

                 (b)  Use commercially reasonable efforts to proceed with the
development, registration, Regulatory Approval, marketing and sale of Products
in the Field.

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

               (c)  Prepare and file those regulatory filings deemed necessary
or desirable by Genentech and for which Genentech is responsible with the
appropriate regulatory authorities in the applicable Territory and obtain all
Regulatory Approvals and/or registrations (including pricing registrations) that
Genentech deems necessary or desirable to market and sell in such Products in
the Field.

               (d)  With respect to any Compound, as between Genentech and
Magainin, Genentech shall assume all responsibilities for the manufacture and
supply of Bulk Materials of such Compound for its use and that of its Affiliates
and Sublicensees, subject to Magainin's manufacture of Small Molecule based
Compounds, for all clinical trials with the expense for such manufacture being
born by the Parties in accordance with this Agreement unless otherwise agreed by
the JSC.

               (e)  Genentech shall own the registration applications,
registrations and other regulatory filings and Regulatory Approvals (except INDs
as provided in this Agreement) for the Products in the Territories.

               (f)  Within [**] of receipt, review data on any Upstream Compound
or group of Upstream Compounds referred by Magainin and independently decide
whether to go forward in development under this Collaboration Program or
terminate that specific Compound or group of Compounds.

               (g)  Genentech shall solely be responsible for preparing and
filing regulatory filings for the Compounds as determined by the JSC up to and
including Regulatory Approval, and thereafter shall be responsible for
maintaining such Regulatory Approvals and/or registrations. All such filings
shall be in Genentech's name.

               (h)  Genentech shall be solely responsible for marketing and
sales.

     8.4  Magainin General Responsibilities with Regard to Collaboration
Program. As part of the Collaboration Program, Magainin shall:

               (a)  Develop (with Genentech) a human or humanized Antibody and
Mouse Antibody.

               (b)  Conduct, in consultation with Genentech and in accordance
with the applicable annual JDPs, all preclinical, and long-term toxicology,
clinical trials pre-IND through the end of Phase II Clinical Studies up until
the JPT's decision to put a Compound or Product into a Phase III Clinical Study.

               (c)  Prepare and file INDs for each Compound selected by the JPT
for development and provide Genentech with all information necessary or
desirable and a concomitant right to cross-reference and/or assume
responsibility for each of Magainin's INDs in the Field.


     8.5  Magainin Diligence Responsibilities under the Overall Collaboration
Program. As part of the Collaboration, and pursuant to the annual JDPs, Magainin
shall:

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

               (a)  Magainin shall resource this Collaboration Program with a
sufficient number of FTEs as are necessary and required under the then current
Joint Development Plan.

               (b)  With respect to any Compound, and at the time requested by
the Joint Project Team, transfer to Genentech copies of all pre-clinical and
clinical data and studies and information developed, owned, or controlled by
Magainin (including primary and secondary pharmacology, toxicology, formulation,
stability studies, and any relevant feasibility study results) relating to the
development and commercialization of Compounds.

               (c)  Provide the JPT with data and results from any discovery
efforts Magainin may conduct from time to time with respect to each Compound,
Target Compound and Upstream Compound, as available.

               (d)  Assume all responsibilities for the manufacture and supply
of Bulk Materials for Small Molecule Compound(s) for any Party's use and that of
their respective Affiliates and sublicensees, as agreed upon by the JSC, for all
clinical trials with the expense for such manufacture being borne by the Parties
in accordance with this Agreement.

               (e)  At all times during the term of this Agreement, keep
Genentech informed, through regular, periodic but detailed written reports, at
least once in each calendar year, of all development progress being made by
Magainin with respect to all Compounds, both in and outside the Field.

               (f)  In order to assist Genentech in the performance of its
obligations under Section 8.5 (f), Magainin shall provide Genentech or its
designee(s) with complete copies (or copies of relevant portions) of, and shall
grant Genentech or its designee(s), free of charge, the right to cross-reference
any INDs, registration applications, Regulatory Approval registrations or other
regulatory filings made or held in any country for the Products. Magainin shall
execute, acknowledge and deliver such further instruments, and shall do all such
other acts, all as promptly as possible after Genentech's request therefor, that
may be necessary or appropriate to effectuate such right of cross-reference in
each such country.

     8.6  U.S. Profit and Loss Share or "Opt In".

     (a)  Election or Opt In. Within ninety (90) days after the completion of
Phase II Clinical Studies (including the receipt of all results therefrom)
relating to the first (and any subsequent) Compound selected by Joint Project
Team under this Collaboration Program, Magainin shall notify Genentech in
writing if Magainin elects to exercise this option to jointly fund [**]
(Genentech funding [**] and Magainin funding [**]) of all US Development Costs
for the Phase III Clinical Study, filing of the NDA/BLA, other costs associated
with a Regulatory Approval. For this election, Magainin shall share in U.S.
profits and losses for Products at a rate of [**] share of U.S. profits and
losses by Magainin and [**] share of profits and losses by Genentech), with
allocations and allowances governed by the Financial Appendix, Schedule B. In
the event that Magainin makes such election, Genentech shall invoice Magainin
for Magainin's share of projected US Development Costs or losses on a quarterly
basis, in advance of each Quarter, according to the Financial Appendix, Schedule
B.

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

     (b)  Investments for Co-Funding Development. Genentech shall be obligated
to provide funding to Magainin in exchange for equity or debt at Magainin's
election and on the following conditions. At Magainin's option, Magainin will
have the right but not the obligation to fund its [**] share of Phase III
Clinical Study(ies), NDA/BLA filing, Regulatory Approval expenses and [**] of
launch year losses ("Cumulative Investment") with funds generated from
Genentech's quarterly purchases of Series A preferred stock or debt, pursuant to
the Stock Purchase Agreement of even date herewith. Magainin shall only use the
funding from this Section 8.6 election for the purposes ascribed in this Section
8.6. Moreover, such equity or debt purchases are contingient upon the following
event not occuring. If the Cumulative Investment through the launch year,
determined at the beginning of Phase III Clinical Study(ies), would cause: (i)
the number of shares obtained by multiplying the then outstanding shares
including this investment (being the sum of (A) the number of issued and
outstanding shares of Magainin Common Stock, (B) the number of shares of
Magainin Common Stock issuable upon exercise of vested options, and exercisable
warrants and (C) the number of shares of Magainin Common Stock that would be
issued upon conversion of the Outstanding Series A Preferred Stock (employing
for the purpose of calculating the number of shares of Common Stock to be issued
upon such conversion, in lieu of the Conversion Price, the closing price of
Magainin's Common Stock on the immediately preceding Trading Day)), by the
average closing price of such Common Stock in the preceding [**] Trading Days;
to be less than (ii) [**] of the Cumulative Investment. In such event, Genentech
---------------
shall have no obligation to provide funding or purchase any more equity or debt
of Magainin. Furthermore, in the event Magainin is in default of any debt
instrument hereunder with Genentech, Genentech will be relieved of any further
obligation to fund, purchase equity or enter into any debt arrangement with
Magainin from that date of default forward. See Stock Purchase Agreement for
definitions not contained herein.

     8.7  Conduct of the Collaboration Program. The Parties, acting in
accordance with this Article 8 and the then current annual JDP, when applicable,
shall use commercially reasonable efforts to develop the Products in the Field.
Genentech, acting in accordance with this Article 8 and the then relevant JDP,
when applicable, shall use commercially reasonable efforts to obtain Regulatory
Approval and/or registrations that Genentech deems necessary to market and sell
the Products in the applicable Territory. Without limiting the generality of the
foregoing, during the term of the Collaboration Program, each Party shall:

               (a)  cooperate with the other Party to implement the JDP, and
such other activities that, from time to time, the JSC decides are necessary for
the commercial success of the Collaboration Program;

               (b)  use commercially reasonable efforts to perform the work set
out for such Party to perform in the then current JDP;

               (c)  conduct the Collaboration Program in good scientific manner,
and in compliance in all material respects with all requirements of applicable
laws, rules and regulations, and all other requirements of any applicable cGMP,
good laboratory practice and current good clinical practice to attempt to
achieve the objectives of the Collaboration Program efficiently and
expeditiously;

               (d)  maintain records, in sufficient detail and in good
scientific manner, which shall be complete and accurate and shall fully and
properly reflect all work done and results achieved in connection with the
Collaboration Program in the form required under all applicable laws and
regulations. The other Party shall have the right, during normal business hours
and upon reasonable prior written notice, to inspect and copy all such records
at its own expense, so long as

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

doing so is not unreasonably disruptive. The other Party shall maintain such
records and information contained therein as Confidential Information in
accordance with Article 9 and shall not use such records or information except
to the extent otherwise permitted by this Agreement; and

                 (e)  allow representatives of either Party, upon reasonable
prior written notice and during normal business hours, to visit the other
Party's facilities where the Collaboration Program is being conducted, and
consult, during such visits and by telephone, with relevant personnel performing
work on the Collaboration Program, so long as such visits and consultations are
not unreasonably disruptive. Each Party shall maintain any information received
(whether by observation or otherwise) during such visit in confidence in
accordance with Confidential Information provisions and Article 9 and shall not
use such information except to the extent otherwise permitted by this Agreement.

     8.8  Liability. Each Party shall be responsible for, and hereby assumes,
any and all risks of personal injury or property damage attributable to the
negligent or willful acts or omissions, during the term of the Collaboration
Program, of such Party or its Affiliates, and their respective directors,
officers, employees and agents.

                                   Article 9
                         Publication; Confidentiality

9.

     9.1  Notification and Review with Respect to Magainin and Genentech.

          9.1.1  Both Parties recognize that each may wish to publish the
results of their work relating to the subject matter of this Agreement. However,
both Parties also recognize the importance of acquiring patent protection.
Consequently, any proposed publication, by either Party (including its
Affiliates), that includes information related to the Compounds or Products, or
which otherwise includes proprietary information of the other Party or
Confidential Information, shall comply with this Article 9. At least sixty (60)
days before any disclosure or manuscript is to be submitted to a publisher, the
publishing Party shall provide the nonpublishing Party with a copy of the
manuscript. If the publishing Party wishes to make an oral presentation, it
shall provide the nonpublishing Party with a summary of such presentation at
least fifteen (15) business days before such oral presentation and, if an
abstract is to be published, seven (7) business days before such abstract is to
be submitted. Any oral presentation, (including any question and answer period
or discussion period in conjunction with such oral presentation), shall not
include any Confidential Information unless both Parties otherwise mutually
agree in writing in advance of such oral presentation.

          9.1.2  The nonpublishing Party shall review the manuscript, abstract,
text or any other material provided under Section 9.1.1 to determine whether
patentable subject matter is or may be disclosed. The nonpublishing Party shall
notify the publishing Party in writing within thirty (30) days (or seven (7)
business days in the case of abstracts) of receipt of the proposed publication
if it, in good faith, determines that patentable subject matter is or may be
disclosed, or if the Joint Project Team, in good faith, believes Confidential
Information (as defined) is or may be disclosed. To the extent solely determined
by the JSC, after consulting with the nonpublishing Party, that patent
applications should be filed, the publishing Party shall delay its publication
or presentation for a period not to exceed one hundred twenty (120) days from
the nonpublishing Party's receipt of the proposed publication or presentation to
allow time for the filing of patent applications covering

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

patentable subject matter. In the event that the delay needed to complete the
filing of any necessary patent application will exceed the one hundred twenty
(120)-day period, the nonpublishing Party will discuss with the publishing Party
the need for obtaining an extension of the publication delay beyond the one
hundred twenty (120)-day period. If the nonpublishing Party determines in good
faith that Confidential Information or proprietary information is or may be
disclosed, the Parties will consult in good faith to arrive at an agreement on
mutually acceptable modifications to the proposed publication or presentation to
avoid such disclosure.

     9.2  Public Announcements and Statements to Press. Except as expressly
provided in this Article 9, each Party agrees not to make any public
announcement or disclosure (including, without limitation, any press release,
summary or Q&A) of any sort, including without limitation, the terms of this
Agreement, the Stock Purchase Agreement or the documents ancillary thereto, or
the identity or potential applications of any Compound, without first obtaining
the written approval of the other Party and agreement upon the nature and text
of such public announcement or disclosure. On and after the Effective Date,
Magainin may issue the press release after a full review and approval by
Genentech, the content of which will be agreed upon in advance by the Parties.
The Party desiring to make any other such public announcement or media release
shall provide the other Party with a copy of the proposed announcement for
review and comment in reasonably sufficient time prior to public release.

     9.3  Statements under Securities Law; Information Shared with Professional
Advisors.

               (a)  Each Party agrees that it shall cooperate fully with the
other with respect to all disclosures regarding this Agreement, the Stock
Purchase Agreement and the documents ancillary thereto required under applicable
laws and regulations to the United States Securities and Exchange Commission
(the "SEC") and the National Association of Securities Dealers ("NASD") and any
other governmental or regulatory agencies, including by way of example only but
not limited to, (i) disclosures relating to the filing of a registration
statement by Magainin regarding a public offering of its common stock and (ii)
requests for confidential treatment of proprietary information of either Party
included in any such governmental disclosure.

               (b)  In addition, each Party agrees not to disclose, under any
circumstances except as set forth in this Article 9 or as otherwise required by
law, the terms of this Agreement, the Stock Purchase Agreement or the documents
ancillary thereto, or the identity or potential applications of any Compound, to
any Third Party other than to professional advisors and financing sources, and
in that case, only under confidentiality terms at least as stringent in material
respects as this Article 9. Genentech shall have the right to review and comment
on registration statements and applications for confidential treatment insofar
as they pertain to this Agreement, the Stock Purchase Agreement and the
documents ancillary thereto, prior to being filed with the SEC or NASD as the
case may be, and Magainin shall not unreasonably refuse to accommodate such
comments. Genentech shall provide its comments, if any, on such registration
statement or application as soon as practicable, and in no event later than the
fifth (5th) business day after the day such registration statement or
application is received by Genentech.

     9.4  Confidentiality Period. Except to the extent expressly authorized by
this Agreement or otherwise agreed in writing, the Parties agree that, during
the term of this Agreement and for five (5) years thereafter, the receiving
Party shall keep, and shall ensure that its employees, officers and directors
keep, completely confidential and shall not publish or otherwise disclose and

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

shall not use for any purpose any Confidential Information furnished to it by
the other Party or developed under or in connection with this Agreement or the
Stock Purchase Agreement.

     9.5  Limitations on Use.  Each Party shall use any Confidential Information
obtained by such Party from the other Party, its Affiliates, its licensees or
its sublicensees, pursuant to this Agreement or otherwise, solely in connection
with the activities or transactions contemplated hereby.  Neither Party shall be
precluded from using its own Confidential Information to the extent it does not
negatively impact the other Party or impair any rights of the other Party with
respect to the Collaboration Program.

     9.6  Remedies.  Each Party shall be entitled, in addition to any other
right or remedy it may have, at law or in equity, to an injunction, without the
posting of any bond or other security, enjoining or restraining the other Party
from any violation or threatened violation of this Article 9.


                                  Article  10
                              Proprietary Rights

10.

     10.1 Know How.

               (a)  Genentech shall own all Antibody Related Collaboration Know
How whether generated solely by Genentech, solely by Magainin or jointly by
Magainin and Genentech. Magainin shall own all Small Molecule Related
Collaboration Know How whether generated solely by Genentech, solely by Magainin
or jointly by Magainin and Genentech.

               (b)  Know How other than Collaboration Know How shall be owned by
the Party generating the Know How.

     10.2 Inventions.

               (a)  Antibody Inventions: Any invention that becomes the subject
of a patent application during the course of the Collaboration Program that
relates to an Antibody Compound and that is conceived and reduced to practice
either (i) jointly by employees of Magainin and Genentech or others obligated to
assign such invention to Magainin or Genentech, or (ii) solely by employees of
Magainin or others obligated to assign such inventions to Magainin ("Magainin
Inventors") or (iii) solely by employees of Genentech or others obliged to
assign such inventions to Genentech ("Genentech Inventors") shall be owned
solely by Genentech during the term of this Agreement ("Antibody Inventions").
Magainin will execute such documents or take such actions as are necessary to
assign Antibody Inventions to Genentech to effectuate the foregoing. Genentech
shall be responsible for filing, prosecuting, and maintaining patent
applications and patents covering Antibody Inventions during the term of this
Agreement. Within thirty days of the termination of this Agreement for any of
the reasons provided in Article 13 hereof, Magainin and Genentech shall assign
all issued and pending U.S. and foreign patents and applications covering
Antibody Inventions to Genentech or Magainin according to the following: i)
patent applications or patents having only Magainin Inventors shall be assigned
to Magainin, ii) patent applications or patents having only Genentech Inventors
shall remain assigned to Genentech and iii) patent applications or patents
having

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

both Magainin Inventors and Genentech Inventors shall be jointly assigned to
Genentech and Magainin.

               (b)  Small Molecule Inventions: Any invention that becomes the
subject of a patent application during the course of the Collaboration Program
that relates to a Small Molecule and that is conceived and reduced to practice
either (i) jointly by employees of Magainin and Genentech or others obligated to
assign such invention to Magainin or Genentech, or (ii) solely by employees of
Magainin or others obligated to assign such inventions to Magainin ("Magainin
Inventors") or (iii) solely by employees of Genentech or others obliged to
assign such inventions to Genentech ("Genentech Inventors") shall be owned
solely by Magainin during the term of this Agreement ("Small Molecule
Inventions"). Genentech will execute such documents or take such actions as are
necessary to assign Small Molecule Inventions to Magainin to effectuate the
foregoing. Magainin shall be responsible for filing, prosecuting, and
maintaining patent applications and patents covering Small Molecule Inventions
during the term of this Agreement. Within thirty days of the termination of this
Agreement for any of the reasons provided in Article 13 hereof, Magainin and
Genentech shall assign all issued and pending U.S. and foreign patents and
applications covering Small Molecule Inventions to Genentech or Magainin
according to the following: i) patent applications or patents having only
Magainin Inventors shall remain assigned to Magainin, ii) patent applications or
patents having only Genentech Inventors shall be assigned to Genentech and iii)
patent applications or patents having both Magainin Inventors and Genentech
Inventors shall be jointly assigned to Genentech and Magainin.

               (c)  Other Inventions. The Parties acknowledge that inventions
may be made under the scope of this Agreement that do not constitute
Collaboration Inventions (e.g., inventions that are not Antibody Inventions or
Small Molecule Inventions). Consequently, Genentech shall own all inventions
other than Collaboration Inventions conceived and reduced to practice solely by
employees of Genentech (or by employees of Genentech together with employees of
a Genentech Affiliate or a Third Party), and Magainin shall own all inventions
other than Collaboration Inventions conceived and reduced to practice solely by
employees of Magainin (or by employees of Magainin together with employees of a
Magainin Affiliate or a Third Party). All inventions other than Collaboration
Inventions conceived and reduced to practice jointly by employees of Magainin
and Genentech shall be jointly owned by Genentech and Magainin. Each Party, at
its sole discretion and responsibility, may file, prosecute and maintain patent
applications and patents covering its such solely owned inventions. For such
inventions which are conceived jointly by employees of Magainin and Genentech,
the Parties shall jointly decide on a patent application filing and prosecution
strategy.

     10.3  Disclosure of Patentable Inventions.

     Each Party shall promptly, but no later than thirty days after such Party
determines that an invention has been made, disclose to the other Party any
Collaboration Inventions. In the event patent applications or patents are not
filed on such invention disclosures by either Party, such inventions shall be
considered Know-How hereunder.

     10.4  Magainin Patents

           10.4.1  Magainin Responsibility. Magainin shall be responsible for
the continued prosecution and maintenance of all patent applications and patents
within the Magainin Patents in the U.S. and each of such other countries around
the world as reasonably may be requested by Genentech, during the term of the
Agreement. All costs associated with the prosecution and maintenance of the such
patents and applications, including the costs of any interferences, oppositions,
reexamination

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

requests, nullity proceedings, appeals or other inter-party proceedings shall be
borne solely by Magainin, except that Genentech shall reimburse Magainin for
such actual costs incurred by Magainin on or after the Effective Date hereof in
an amount not to exceed [**]. Magainin shall keep Genentech promptly and fully
informed of the course of patent prosecution of such patents and applications
within the Territory including providing Genentech with copies of substantive
communications by or with the U.S. Patent Office. Magainin shall use reasonable
efforts to solicit Genentech's advice and review of material prosecution matters
related to such patents within the Territory.

          10.4.2  Abandonment of Patents.  Should Magainin intend to abandon any
Magainin Patent, Genentech shall be entitled to acquire such Magainin Patent
free of charge from Magainin, and thereafter Genentech may continue or maintain
such acquired Magainin Patent at its expense and in its sole discretion. In
order to enable Genentech to take over ownership and responsibility for any such
Magainin Patent, Magainin shall notify Genentech at least three (3) months prior
to taking or failing to take any action that would result in a loss of rights or
abandonment of subject matter within a Magainin Patent. Such action or inaction
includes, without limitation, canceling or abandoning subject matter (without
preserving the right to pursue the subject matter in a related application),
abandoning a patent (including, but not limited to, failing to pay an annuity or
maintenance fee when due), or not perfecting the filing of a patent application
within the Territory. After receiving such notice from Magainin, Genentech shall
thereafter notify Magainin whether Genentech wishes to acquire such Magainin
Patent, and if Genentech does so wish, then Magainin shall promptly cooperate to
transfer ownership of such Magainin Patent to Genentech together with all
related documents. Upon request by Genentech, Magainin shall provide to
Genentech all reasonably necessary information relating to a Magainin Patent
acquired by Genentech pursuant to this Section, in order to assist Genentech
with the continuation or maintenance of such acquired Magainin Patent.

          10.4.3  Patents from Ludwig.  Magainin shall request an assignment
from Ludwig Institut for all patents or applications owned or controlled by
Ludwig Institut and licensed to Magainin by virtue of the Ludwig Agreement
should Ludwig Institut no longer be interested in prosecuting or maintaining
them. Should Magainin obtain such an assignment, Magainin agrees that Genentech
shall thereafter be responsible for the prosecution and maintenance of all such
Magainin Patents in the Territory at Genentech's cost. Prior to any actual
assignment, Magainin shall request that Ludwig Institut keep Magainin promptly
and fully informed of the course of patent prosecution of all patents and
applications owned by Ludwig Institut within the Territory including providing
Magainin with copies of substantive communications by or with the patent office
within the Territory. Magainin shall copy Genentech on all such correspondence
and use reasonable efforts to solicit Genentech's advice and review of material
prosecution matters related to the Magainin Patents within the Territory and
shall consider in good faith Genentech's comments related thereto.

     10.5  Genentech Filings.  Genentech shall file, prosecute and maintain
patents and applications covering Antibody Inventions and Other Inventions owned
solely by Genentech or jointly by Genentech and Magainin conceived and reduced
to practice after the Effective Date in such countries around the world as
Genentech deems necessary.

     10.6  Cooperation in Patent Prosecution. The Parties shall cooperate in the
filing, prosecution and maintenance of Collaboration Inventions which are the
subject of patent applications. Each Party shall have the right to use any of
the data generated in the Collaboration Program to support claims made in its
patent filings. Each Party shall make available to the other Party, or its
authorized attorneys, agents or representatives, such of its employees whom the
Parties jointly deem

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

reasonably necessary to assist it in obtaining patent protection for inventions
made in the course of the Collaboration Program.

     10.7  Waiver.

               (a)  Magainin on behalf of itself and its directors, employees,
officers, shareholders, agents, successors and assigns hereby waives any and all
actions and causes of action, claims and demands whatsoever, in law or equity of
any kind it or they may have against Genentech, its officers, directors
employees, shareholders, agents, successors, and assigns, which may arise in any
way out of Genentech's performance of it's rights or obligations under Section
10 of this Agreement, except those resulting from Genentech's gross negligence,
recklessness, or willful misconduct.

               (b)  Genentech on behalf of itself and its directors, employees,
officers shareholders agents, successors and assigns hereby waives any and all
actions and causes of action, claims and demands whatsoever, in law or equity of
any kind it or they may have against Magainin, its officers, directors,
employees shareholders, agents, successors and assigns, which may arise in any
way out of Magainin's performance of its rights or obligations under Section 10
of this Agreement, except those resulting from Magainin's gross negligence,
recklessness, or willful misconduct.

                                  Article 11
                      Party Representations; Publications

11.

     11.1  Parties Representations and Warranties. Each Party represents and
warrants to the other Party, as of the Effective Date, that:

               (a)  such Party is duly organized and validly existing under the
laws of the jurisdiction of its incorporation and has full corporate power and
authority to enter into this Agreement and to carry out the provisions hereof;

               (b)  such Party is free to enter into this Agreement and in so
doing, such Party will not violate any other agreement to which it is a party;

               (c)  such Party has the free and clear right and authority to
enter into this Agreement and grant the licenses set forth hereunder; and

               (d)  such Party has taken all corporate action necessary to
authorize the execution and delivery of this Agreement and the performance of
its obligations under this Agreement.

     11.2  Representations and Warranties of Magainin. In addition to the
representations and warranties set forth in Section 11.1, Magainin represents
and warrants to Genentech, as of the Effective Date, that:

               (a)  Magainin is the owner of, or has exclusive rights to, all of
the Magainin Patents, or has the exclusive right to grant the licenses granted
therefor under this Agreement; and that all patents within the Magainin Patents
are in full force and effect;

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

               (b)  to the best of Magainin's knowledge, after diligent inquiry,
Magainin is the owner of or has exclusive rights to all of the Magainin Know-how
in existence on the Effective Date and, with respect to Magainin Know-how,
Magainin will use commercially reasonable efforts to own, or have rights to, all
such Know-how, and has the exclusive right to grant the licenses granted under
this Agreement with respect thereto;

               (c)  Magainin shall not provide to Genentech any Know-How,
materials, data or information that to its knowledge would infringe any rights
of any Third Party;

               (d)  that the Exclusive License Agreement between Magainin and
the Ludwig Insitut for Cancer Research, dated December 20, 1996 ("Ludwig Insitut
Agreement") is the only license to which the rights Magainin is licensing
hereunder applies, that Magainin is in good standing under that Ludwig Insitut
license and that it has no indication or notification of breach or default
thereunder.

               (e)  Magainin shall not materially breach the Ludwig Insitut
Agreement and fail to cure such breach within the cure period provided
thereunder;

               (f)  Magainin has not entered into, and hereby agrees that it
shall not enter into, any agreement with any Third Party that is or with the
passage of time or otherwise could be in conflict with the rights granted to
Genentech, including without limitation, its due diligence covenants and as
otherwise provided pursuant to this Agreement.

     11.3  DISCLAIMER OF WARRANTIES. THE MATERIALS BEING SUPPLIED TO GENENTECH,
IF ANY, ARE BEING SUPPLIED WITH NO WARRANTIES EXPRESS OR IMPLIED, INCLUDING ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

     11.4  Publication. Neither Party shall publish, submit for publication or
present any data, results, Inventions, Confidential Information or materials of
any kind arising from the research and development hereunder, without written
approval from the non-publishing Party, such approval not to be unreasonably
withheld, or as otherwise provided in Article 9 above.


                                  Article 12
                         Infringement of Patent Rights

12.

     12.1  Notification of Infringement. Each Party shall promptly notify the
other of any violation by a Third Party of any applicable Patent(s) of which
that Party becomes aware, and shall provide the other with available evidence of
such violation.

     12.2  Enforcement of Patents. Upon reasonable notice and evidence of
infringement, Genentech shall have the first right but not the obligation, to
bring any suit or action for infringement of any Magainin Patents. For any
action under Magainin Patents controlled by Magainin by virtue of the Ludwig
Institute Agreement, Magainin shall (in accordance with Section 7.1 of the
Ludwig Institut Agreement: (i) provide Ludwig Insitut with sixty (60) days prior
notice of the alleged infringement, and (ii) notify Ludwig Institut of
Magainin's election to institute action against the

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

infringement. Magainin hereby agrees that Genentech shall have the sole right to
undertake and control any infringement action that Magainin is permitted to
bring pursuant to Section 7.1 of the Ludwig Insitut Agreement. The costs of any
suit or action undertaken by Genentech under this Section 12.2 shall be borne
and paid by Genentech. Any amount recovered by Genentech in the suit or action,
whether by judgment, award, decree or settlement, shall be first used to
reimburse all of Genentech's litigation costs, and any remainder shall be shared
equally between Genentech and Magainin. Magainin shall, upon request by
Genentech, actively assist in the prosecution of any such suit or action, but
the control of such prosecution shall reside with Genentech.

     12.3  Standstill for Interference. During the entire period of any patent
interference action, including any court proceeding or appeal relating to such
interference, ("Interference Period") involving a United States patent
application or patent within the Magainin Patents, royalties on Net Sales then
accruing shall be subject to the offsets provided in Section 6.8.1, to the
offset floor, and Genentech may elect at any time up to one hundred eighty (180)
days following the Interference Period to pay all or part of the offset amount
to obtain a license under any patent that is awarded to a Third Party in such
patent interference action, and such payment shall be considered a Third Party
Payment under Section 6.8.1.  Any portion of the offset amount that Genentech
does not pay to obtain such license from a Third Party shall be paid by
Genentech to Magainin without interest.

                                  Article 13
                             Term and Termination


13.

     13.1  Term and Expiration. The Term of this Agreement ("Term") shall expire
upon the expiration of the final royalty payment obligation under Section 6.4 or
fifteen (15) years from the first product sale, whichever comes first. With
respect to any Product being marketed under a profit share arrangement (pursuant
to Magainin's right to opt in under Section 8.6), expiration shall not occur
until such time as the Product subject of the profit-share arrangement is no
longer being marketed or sold.

     13.2  Unilateral Termination without Cause.

               (a)  Genentech's Unilateral Right to Terminate. Genentech shall
have the unilateral right to terminate this Agreement at any time for any reason
upon one hundred and eighty (180) days prior written notice to Magainin (which
notice shall be delivered as required by Section 14.9). Such unilateral right to
terminate may be as to the entire Agreement, or Compound by Compound, or Target
by Target, without the rights of the Parties impaired as to any Compounds or
Products then selected by the JPT for research, pre-clinical or clinical
development and not terminated hereby, and without the rights of Genentech
impaired as to any Target Compounds or Target Products for a Target not hereby
terminated. Genentech will only be responsible for uncancellable costs incurred
after the termination notices and before the termination is effective.

               (b)  Magainin Unilateral Right to Terminate. Magainin shall have
a right to terminate the entire Agreement for any reason on one hundred and
eighty (180) days prior written notice to Genentech, in accordance with the
notice provisions of Section 14.9 hereof. In the event that Magainin elects to
terminate its participation hereunder for any reason, Genentech shall be deemed
to have received an exclusive, irrevocable, freely transferable, and
sublicensable license under the assignments or licenses made in Section
13.8(b)(ii) in the Territory under the Magainin Technology to develop, have
developed, make, have made, use, sell and have sold, offer for sale,

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

import and export all Compounds, Products. Target Compounds and Target Products
in the Territory, subject only to a royalty payable in accordance with Sections
6.4 and 6.5(c), as the case may be, for Products Genentech shall sell after such
termination by Magainin; provided, however, that the maximum royalty under
Section 6.4 shall be [**], and subject to the offsets for third party rights set
forth in Section 6.8.

     13.3  Notice of Termination; Period to Cure; Uncured Defaults.

           13.3.1  Default and Cure Period. Any one of the following events
shall constitute an event of default hereunder: (i) the failure of either Party
to pay any amounts when due hereunder and the expiration of sixty (60) days
after receipt of a written notice which shall be delivered as required by
Section 14.9 requesting the payment of such amount; (ii) the failure of a Party
to perform a material obligation, other than a payment obligation, required to
be performed hereunder, and the failure to cure within one hundred twenty (120)
days after receipt of notice from the other Party specifying in reasonable
detail the nature of such default.

           13.3.2  Notice to Terminate. Upon the occurrence of any event of
default, and concomitant failure to cure as provided, the non-defaulting Party
may deliver to the defaulting Party written notice of intent to terminate, such
termination to be effective thirty (30) days after the date set forth in such
notice.

     13.4  Other Rights and Remedies Upon Default. Such termination rights shall
be in addition to and not in substitution for any other remedies that may be
available to the non-defaulting Party. Termination pursuant to this Article 13
shall not relieve the defaulting Party from liability and damages to the other
Party for breach of this Agreement. Waiver by either Party of a single default
or a succession of defaults shall not deprive such Party of any right to
terminate this Agreement arising by reason of any subsequent default.

     13.5  NASDAQ Delisting. In the event that Magainin's stock is delisted from
trading on the National Association of Securities Dealers Association Quotation
system ("NASDAQ"), for reason of the stock price falling below $1.00, under NASD
rules requiring the same, then Magainin shall promptly notify Genentech and make
any assignment of rights and licenses necessary, at Genentech's election, to
enable the Parties to continue operating under the Collaboration Program or in
the event Magainin elects no longer to be a part of the Collaboration Program,
then Magainin agrees to make any assignment of rights and licenses necessary, at
Genentech's election, to enable Genentech to continue in its development and
under all of the licenses granted hereunder. Genentech shall have a continuing
obligation, pursuant to this Agreement, for payment of milestones and royalties
(or profit-shares) as the case may be as provided in Article 6 above for
Products or Target Products.

     13.6  Change of Control.  This Agreement may be assigned by Magainin upon a
change of Control (as defined in Affiliate) in Magainin, but only if the
assignee accepts all performance requirements of it and assumes all of the
obligations hereunder.  Otherwise, Genentech, has the right and may elect to
terminate this Agreement by giving written notice of termination to other Party.
Termination shall be effective upon the date specified in such notice.

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

     13.7  Termination Upon Bankruptcy or Insolvency.  This Agreement may be
terminated by a Party giving written notice of termination to other Party upon
the filing of bankruptcy or bankruptcy of the other Party or the appointment of
a receiver of any of the other Party's assets, or the making by the other Party
of any assignment for the benefit of creditors, or the institution of any
proceedings against the other Party under any bankruptcy law.  Termination shall
be effective upon the date specified in such notice.

     13.8  Effects of Termination.

               (a)  Rights Upon Expiration. Following the Term of this
Agreement, as provided in Section 13.1 above, excluding a Genentech default or
breach, Genentech shall have and remain with a fully paid up, irrevocable freely
transferable and sublicensable license in the Territory under all Magainin
Patents, Magainin owned or Controlled Intellectual Property and Magainin
Technology that were transferred, developed and licensed hereunder for any
reason, including without limitation, rights to develop, have developed, make,
have made, use, sell and have sold, offer for sale, import and export all
Products. Other than these rights intended to survive termination, or as
otherwise provided hereunder, including any obligation for Genentech to make any
reports and payments due or then owing, neither Party shall have any further
obligation to the other upon the expiration of this Agreement upon its regularly
scheduled expiration date, except for the perpetual rights surviving expiration
as provided in this Sections 13.8(a) and 13.8(c).

               (b)  Rights Upon Termination.

                    (i)  In the event that this Agreement terminates in its
entirety or as it may be terminated with respect to a certain compound or
product (which may include a Compound, Product, Target, Target Compound, or
Target Product, , as the case may be hereunder), or the Term expires under
Section 13.1, the licenses and assignments granted hereunder from one Party to
another with respect to the agreement in general or the relevant Compound,
Product, Target, Target Compound or Target Product, as the case may be, shall
terminate except for the grants provided in Section 3.1.3, this Section 13.8 or
as otherwise provided in Section 13.9 (work in progress).

                         (1)  Upon a unilateral termination by Genentech
pursuant to Section 13.2(a), then with respect to the entire Agreement or the
terminated Product, Compound, Target Product or Target Compound, Genentech shall
promptly return only those relevant materials, samples, documents, information,
and other materials which embody or disclose Magainin Technology which Magainin
provided to Genentech hereunder and which relate to the relevant terminated
Product, Compound, Target Product or Target Compound. Notwithstanding the
foregoing, for consideration deemed paid and received, from termination and in
perpetuity, Genentech shall retain certain rights (the "Retained Rights")
consistent with Section 13.8(c) below.

                         (2)  In the event that Genentech affects an early
termination under Section 13.2(a) or is terminated by Magainin under Section
13.3.1 due to an uncured breach or default by Genentech hereunder, which may be
compound by compound or as to the entire program, and subject to the limitations
under Section 3.3, Genentech shall provide to Magainin the following grant back
of rights and licenses in the United States, and restricted to IL-9 as follows.
[**].

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

                         (3)  Notwithstanding the foregoing, for consideration
deemed paid and received, from termination and in perpetuity, Genentech shall
retain certain rights (the "Retained Rights") consistent with Section 13.8(c)
below.

                         (4)  With respect to a Compound for which IND-enabling
toxicology and pharmacology work has been successfully completed or that has
entered or completed human clinical trials under a Joint Development Plan and
for which Genentech is manufacturing clinical or commercial quantities of said
Compound or Product, then if Genentech terminates this Agreement under Section
13.2(a) as to said Compound or Product, then the following manufacturing
provisions shall apply. In the event that Magainin elects to go forward
independently to continue developing such Compound or Product pursuant to the
grantback of U.S. rights under Section 13.8(b)(i)(2) above, [**]. For so long as
Genentech or its designee manufactures said Compound or Product for Magainin,
Magainin shall pay Genentech's Fully Burdened Manufacturing Costs plus [**]. In
the event that Genentech elects to transfer manufacturing, then Genentech agrees
to a transition period of one (1) year for a Compound in clinical trials, and of
up to two (2) years for a Product currently being marketed, during which
transition period Genentech shall continue to manufacture said material for
Magainin. Genentech shall supply up to 6 months worth of FTE in Genentech
personnel time for the technology transfer process, and Magainin shall bear all
of Genentech's FTE time in excess thereof, and any other costs or expenses
Genentech may reasonably incur in such transfer. Magainin shall continue to pay
the full royalties set forth under Section 6.14, without regard to whether or
not a Valid Claim of a Genentech Patent covers the Product, for so long as the
Product is manufactured substantially utilizing Genentech's process.

                    (ii) In the event that Magainin affects an early termination
at its election or the agreement terminates for an uncured breach or default
hereunder by Magainin, or Genentech terminates this Agreement pursuant to
Sections 13.6 or 13.7, then Magainin agrees to affect an exclusive assignment of
rights and licenses as necessary to enable Genentech to continue in a program
under the Magainin and Joint Technology, restricted to IL-9. In addition,
Magainin shall be obligated to promptly turn over to Genentech all Compound,
Product and/or Target related data applicable to IL-9, and related Magainin
Technology, further providing Genentech with all reasonable assistance to affect
a transfer of right, title or ownership under any relevant IND's, such to enable
Genentech to continue its development efforts that Magainin shall have been
deemed hereby to have

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

abandoned. The rights in this Section 13.8(b)(ii) are then the same as provided
and contained in Sections 3.1.1 and 3.2(b) . Genentech shall have a continuing
obligation, pursuant to this Agreement, for payment of royalties as the case may
be as provided in Article 6 above for Products or Target Products.

                    (c)  Retained Rights; Perpetual Know-How License to
Improvements and Data Generated. Notwithstanding any other provisions of this
Agreement, during the term as well as from termination of this Agreement and in
perpetuity, Genentech retains and owns all rights to improvements, know how,
results, methods, processes, techniques, approaches, skill, experience,
knowledge that it develops, generates, studies, derives or employs in connection
with its performance hereunder ("Retained Rights"). In no event unless otherwise
agreed herein shall Magainin seek any further rights or remuneration or seek to
block Genentech for Genentech's exercise of Retained Rights from termination and
in perpetuity.

                    (d)  Rights Under the Ludwig Insitut Agreement. With respect
to a Magainin default or breach under its agreement with the Ludwig Insitut, (as
generally described in Section 11.2(d)), having the effect of impairing
Magainin's rights to operate thereunder, then, to the extent allowed and at
Genentech's sole option, Genentech shall be deemed (or named hereby) to assume
the responsibilities and own or license directly all rights under such
license(s).

     13.9  Work-in-Progress. Notwithstanding anything in this Agreement to the
contrary, upon any such early termination of the license granted hereunder in
accordance with this Agreement, Genentech shall be entitled to finish any work-
in-progress and to sell any completed inventory of a Compound or Product which
remain on hand as of the date of the termination, so long as Genentech pays to
Magainin the royalties applicable to said subsequent sales in accordance with
the terms and conditions as set forth in this Agreement, provided that no such
sales shall be permitted after the expiration of six (6) months after the date
of termination.

     13.10 Manufacturing Small Molecules for Magainin Default.  If Magainin is
manufacturing and this Agreement is or may be terminated for a breach by or
insolvency of Magainin, or at such time as Genentech's rights to operate freely
hereunder are impaired by a default of Magainin to Genentech or a Third Party,
Genentech shall have the right, itself or with a Third Party, to manufacture the
Small Molecule based Compound hereunder. Magainin shall on Genentech's request,
transfer the most current of Magainin's biological materials, Know-How, reagents
and expertise necessary for Genentech to undertake, solely or with Third
Parties, the manufacture of any Product licensed to it, to the extent such is
the case.

     13.11 Effect of Termination; Survival.    The termination of this Agreement
for whatever cause shall neither affect any of the rights or obligations of
either Party which have accrued until the effective Date of Termination, nor
shall it affect any rights or obligations of either Party under this Agreement
which are intended by the parties to survive such expiration or termination.
Termination of this agreement shall be without prejudice to or limitation on any
other remedies of either Party. In addition, the rights and obligations under
Article 13 and under Sections 6.14, 8.8, 10.2(a) and (b), 10.7, 11.3, 14.11 and
14.14 shall survive any termination, expiration or completion of this Agreement.

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

                                  Article 14
                                 Miscellaneous

14.

     14.1  No Other licenses. Unless otherwise provided hereunder, nothing in
this Agreement shall be construed as conferring on either Party an express or
implied license or option to license any disclosed Confidential Information,
Technology, or any Patent or patent application owned by the other Party.

     14.2  Independent Contractors. The Parties shall perform their obligations
under this Agreement as independent contractors and nothing contained in this
Agreement shall be construed to be inconsistent with such relationship or
status. This Agreement shall not constitute, create or in any way be interpreted
as a joint venture or partnership of any kind.

     14.3  Entire Agreement. This Agreement sets forth all the covenants,
promises, agreements, warranties, representations, conditions and understandings
between the Parties hereto and supercedes and terminates all prior agreements
and understanding between the parties hereto, and there are no covenants,
promises, agreements, warranties, representations, conditions or understandings,
either oral or written, between the parties hereto other than set forth herein.
No subsequent alteration, amendment, change or addition to this Agreement shall
be binding upon the parties hereto unless reduced to writing and signed by the
respective authorized officers of the Parties hereto.

     14.4  Governing Law. This Agreement shall be governed by the laws of the
State of California as those laws are applied to contracts entered into and to
be performed entirely in California by California residents.

     14.5  Headings. Heading are inserted for convenience and shall not affect
the meaning or interpretation of this Agreement.

     14.6  Severance. Any provision of this Agreement which is prohibited and
unenforceable in any jurisdiction, shall be ineffective as to such jurisdiction,
and to the extend of such prohibition or impossibility of enforcement, without
invalidating the remaining provisions thereof or affecting the validity or
enforcement of such provision in other jurisdictions, except if the economy of
this Agreement is obviously changed for one of the parties in which case the
parties shall negotiate to modify such illegal clause in a legal way, keeping
the financial equilibrium contemplated at the signature of this Agreement.

     14.7  Waiver.  The failure on the part of any Party hereto to exercise or
enforce any right conferred upon it hereunder, shall not be deemed to be a
waiver of any such right or operate to bar the enforcement thereof at any time
thereafter.

     14.8  Assignment.  This Agreement shall be binding upon and inure to the
benefit of the successors of the parties but shall not be assigned in whole or
in part by either party without the prior written consent of the other party,
which consent may be withheld in its absolute discretion.

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

     14.9   Notices. Any notice or consent each party shall give under this
Agreement shall be made by certified letter, telegram, telex, or telefax
followed by certified confirmation letter to the address of each party as
written in the forehead of this Agreement or to the possible new address each
party may have notified thereafter.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
For Genentech, Inc.:                                   For Magainin:

------------------------------------------------------------------------------------------------
<S>                                                    <C>
1 DNA Way                                              5110 Campus Drive
------------------------------------------------------------------------------------------------
South San Francisco, California. 94080                 Plymouth Meeting, Pennsylvania 19462

fax: 650-952-9881                                      fax: 610-941-5399
------------------------------------------------------------------------------------------------
Attention:  Stephen G. Juelsgaard                      Attention:  Michael R. Dougherty
------------------------------------------------------------------------------------------------
Executive Vice President, General Counsel and          President and CEO
Secretary
------------------------------------------------------------------------------------------------
</TABLE>


     14.10  Licensed Patents. Rights and licenses granted hereunder from
Magainin to Genentech are subject to the material terms, conditions and
restrictions of the Ludwig Insitut Agreement, a license granted to Magainin from
the Ludwig Insitut.

     14.11  Disputes. Any controversy arising under or related to the Agreement,
and any disputed claim by either Party against the other under the Agreement,
shall be settled by binding arbitration in accordance with the Rules for
American Arbitration Association in proceedings conducted in the State of
California, USA. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof.

     14.12  Counterparts. This Agreement may be executed simultaneously in one
(1) or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

IN WITNESS WHEREOF, the parties have by duly authorized persons, executed this
Agreement, as of the date first above written.


AGREED TO:                              AGREED TO:

Magainin Pharmaceuticals Inc.           Genentech, Inc.
5110 Campus Drive                       1 DNA Way
Plymouth Meeting, Pa. 19462             South San Francisco, Ca. 94080



/s/ Michael R. Dougherty                /s/ Arthur D. Levinson
------------------------                ----------------------
President & CEO                         Chairman and Chief Executive
Officer

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

                                  Schedule A
                             Aerosolized Anti IL-9
                               Antibody Program
                          Joint Development Plan # 1

                                    SUMMARY

          This research plan and cost estimates are for the completion of a
clinical efficacy experiment using an aerosolized anti IL-9 antibody. The
proposal covers our current understanding of the steps required to develop and
manufacture an antibody suitable for human testing and the requirements to
receive approval for administering an antibody to asthmatic patients in Europe.
This proposal is not IND enabling. The principal project milestones are as
follows:

[**]


________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

                                  SCHEDULE B
                                  ----------

                              Financial Appendix

     1.1  This Schedule B covers financial planning, accounting policies and
               ----------
procedures to be followed in determining Development Costs, Fully Burdened
Manufacturing Costs and Operating Profit or Loss and related sharing of revenue
and expenses pursuant to the Agreement.

     1.2  For such purpose, this Schedule B sets forth the principles for
                                 ----------
reporting actual results and budgeted plans of the combined operations in the
Territories, the frequency of reporting, the use of a single "Functional
Currency" (as defined below) and the methods of determining payments to the
Parties, auditing of accounts and other matters.

     1.3  For purposes of this Schedule B only, the consolidated accounting of
                               ----------
operations for the Territories shall be referred to as "GenGain."  GenGain is
not a legal entity and has been defined for identification purposes only.

     1.4  This Schedule B also provides the definitions of certain financial
               ----------
terms applicable to the Parties for purposes of the Agreement; provided,
however, that the definition of "Fully Burdened Manufacturing Costs" shall apply
to Genentech or Magainin to the extent it manufactures any Product (or component
thereof) under the Agreement and the definition of "Development Costs" shall
apply to the development work by both Parties under the Agreement. All
capitalised terms used herein without definition shall have the meanings
ascribed thereto in the Agreement, unless otherwise expressly provided herein.
References in this Schedule B to a "Party" or "Parties" shall be construed to
                   ----------
mean Genentech or Magainin, as the case may be, and in every case shall be
deemed to include the Party's Affiliates under the Agreement.

B.1. Principles of Reporting

          The presentation of results of operations of the Parties in the
Territories will be based on each Party's respective financial information
presented separately and on a consolidated basis in the reporting format
depicted as follows:

                                                   Genentech  Magainin  Total
                                                   ---------  --------  -----
       Gross Sales
       less [Returns and Allowances]
            = Net Sales
       less Cost of Sales
            = Gross Profits
       less Marketing Costs
       less Sales Costs of Genentech
       less Post-Approval Development Costs chargeable to GenGain
       less Other Operating Income/Expense
       less Distribution Costs
       less General and Administrative Costs
            = Operating Profit (Loss)
       It is the intention of the Parties that the interpretation of these
definitions will be consistent with GAAP in the United States.

       If necessary, a Party will make the appropriate adjustments to the
financial information it supplies under the Agreement to conform to the above
format of reporting results of operations.

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

B.2.   Frequency of Reporting

       The fiscal year of GenGain will be a calendar year.

       Reporting by each Party for GenGain revenues and expenses will be
performed as follows, with submissions due on the date indicated or the next
business day if such date is a weekend or U.S. holiday:

<TABLE>
<CAPTION>
          ---------------------------------------------------------------------------------------
          Reporting Event          Frequency                   Timing of Submission
          ---------------------------------------------------------------------------------------
          Actuals              Quarterly            Q1-Q4:  End of quarter + 30
                                                            working days
          ---------------------------------------------------------------------------------------
          <S>                  <C>                  <C>
          Forecasts            Approximately        As soon as practicable after each quarterly
                               Quarterly            meeting of Genentech's board of directors
          ---------------------------------------------------------------------------------------
          Preliminary          Annually             September 1 (one year; by year)
          Budgets
          ---------------------------------------------------------------------------------------
          Final Budgets        Annually             October 17 (one year; by quarter)
          ---------------------------------------------------------------------------------------
          Long-Range Plan      Annually             April 30 (current year plus 5 years)
          ---------------------------------------------------------------------------------------
</TABLE>

Reports of actual results compared to budget shall be made to the relevant Joint
Project Team on a quarterly basis.  After approval by the Joint Project Team as
to amounts, such Joint Project Team shall forward the report to the JSC for its
approval. Variances from the total overall budgets, and significant variances in
budget line items, shall only be included in calculation of Operating Profit or
Loss when approved by the JSC after referral by the Joint Project Team.

Genentech will be responsible for the preparation of consolidated reporting of
GenGain (including Operating Profit or Loss), calculation of the profit/loss
sharing and determination of the cash settlement.  Genentech will provide the
financial representatives from each Party a statement showing the consolidated
results and calculations of the Operating Profit or Loss sharing and cash
settlement required in a format agreed to by the Parties.

On a monthly basis, Genentech will supply Magainin with each month's Gross Sales
and Net Sales of Products in units, local currency and U.S. dollars (using the
month-end rate for conversion for such month as shown in Reuters) by country in
the Territories according to Genentech's sales reporting system, which shall be
consistent with the definitions herein.  Each such report shall be provided as
early as possible, but no later than fifteen (15) days after the last day of the
month in question, and shall provide monthly and year-to-date cumulative
figures.

The financial representatives from the Parties will meet as appropriate but at
least quarterly to review and approve the following:

          . actual results
          . forecasts
          . budgets
          . long range plans
          . inventory levels

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

       .  Sales Returns and Allowances
       .  other financial matters, including Genentech's methodologies for
          charging costs and allocating sales representatives to GenGain for
          determination of actuals, forecasts, budgets and long-range plans and
          the results of applying such methodologies.

B.3.   Budget and Long-Range Plan

Responsibility for the budget and long-range plan will rest with the relevant
Joint Project Team, which will develop budgets for development and
commercialization for the term of the Joint Project Team, subject to final
approval by the JSC.

Budgets will be prepared annually. In addition, headcount chargeable to GenGain
will be agreed to annually by the JSC.

Budgets will be supplemented with detailed business plans for clinical trials,
Regulatory Approval applications, and detailed plans for product introduction,
sales efforts and promotion as determined by each Joint Project Team. Budgets,
once approved by the JSC, can only be changed with the written approval of the
JSC.

The Joint Project Team, with the assistance of the financial representatives
from Genentech and Magainin, will be responsible for identifying, analyzing and
reporting all significant line item budget variances and all overall, total
budget variances. Only the JSC may approve materially unfavorable line item
budget variations, as defined by the Joint Project Team, and all overall, total
budget variations, chargeable to GenGain during the course of any year during
the term of the Agreement.

A five (5)-year long-range plan for GenGain shall be established on a yearly
basis under the direction of the JSC and submitted to Genentech and Magainin by
April 30 of each year beginning ninety (90) days after the end of Phase III
Clinical Trials.

B.4.   Definitions

       B.4.1   "Allocable Overhead" means costs incurred by a Party or for
its account which are attributable to a Party's supervisory services, occupancy
costs, corporate bonus (to the extent not charged directly to department), and
its payroll, information systems, human relations or purchasing functions and
which are allocated to company departments based on space occupied or headcount
or other activity-based method consistently applied by a Party, or a standard
rate if agreed to by the Parties. Allocable Overhead shall not include any costs
attributable to general corporate activities including, by way of example,
executive management, investor relations, business development, legal affairs
and finance.

       B.4.2.  "Cost of Sales" means Fully Burdened Manufacturing Costs (as
defined below).

       B.4.3.  "Post Approval Development Costs" shall mean those Development
Costs incurred after the filing.

       B.4.4.  "Distribution Costs" means the costs, including applicable
Allocable Overhead, specifically identifiable to the distribution of a Product
by a Party including customer services, collection of data about sales to
hospitals and other end users, order entry, billing, shipping, credit and
collection and other such activities. For the purpose of the Agreement,
Genentech will charge GenGain for Distribution Costs an amount equal to two
percent (2%) of Net Sales in a lump sum.

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

       B.4.5.  "Fully Burdened Manufacturing Costs" of an item or items,
including, without limitation, a Compound, Bulk Materials or a Product (in bulk,
vialed or finished product form, as the case may be) means one hundred percent
(100%) of a Party's fully burdened manufacturing cost (as defined in the Party's
generally accepted accounting policies consistently applied) which shall
comprise the sum of:

               (a)  The cost of goods produced, as determined by the Party(ies)
performing (or having performed by a Third Party) each stage of the
manufacturing process in accordance with GAAP consistently applied by such
Party(ies), including, but not limited to, direct labor and material costs and
product quality assurance/control costs as well as applicable Allocable
Overhead;

               (b)  All of the Party's allocable intellectual property
acquisition and licensing costs (including, without limitation, any royalties)
paid to Third Parties as such costs relate to Products; and

               (c)  Any other costs borne by the manufacturing Party for
transport, customs clearance and storage of product (if necessary) at the
request of another Party (i.e., freight, customs, duty, and insurance).

       B.4.6.  "General and Administrative Costs" means costs chargeable to
GenGain equal to ten (10%) of Genentech's Marketing Costs, Sales Costs, Post-
Approval Development Costs (excluding patent and trademark expenses) after
approval by the applicable Regulatory Authority in any country, of Genentech and
of Magainin, in the aggregate, but only to the extent these costs are chargeable
to GenGain.

       B.4.7.  "Gross Profit" means Net Sales less Cost of Sales for sales of a
Product by a Party to Third Parties in the Territory.

       B.4.8.  "Gross Sales" means the gross amount invoiced by either Party or
their Affiliates or Sublicensees for sales of a Product to Third Parties in the
Territory.

       B.4.9.  "Marketing Costs" means the direct costs of marketing, promotion,
advertising, Product promotional materials, professional education, product
related public relations, relationships with opinion leaders and professional
societies, market research (before and after product approval), healthcare
economics studies, post-marketing studies not required to maintain product
approvals, and other similar activities related to the Products and approved by
the Joint Project Team. Such costs will include both internal costs (e.g.,
without limitation, salaries, benefits, supplies and materials, etc.),
applicable Allocable Overhead, and outside services and expenses (e.g., without
limitation, consultants, agency fees, meeting costs, etc.). "Marketing Costs"
shall also include, without limitation, activities related to obtaining
reimbursement from payers and costs of sales and marketing data. "Marketing
Costs" will specifically exclude the costs of activities which promote either
Party's business as a whole without being product specific (such as corporate
image advertising).

       B.4.10. "Net Sales" means, for purposes of this Financial Appendix, Gross
Sales of a Product less applicable Sales Returns and Allowances.

       B.4.11. "Operating Profit or Loss" means Net Sales of all Products less
the following items with respect to each Product, all for a given period: Cost
of Sales, Marketing Costs, Sales Costs, Development Costs (to the extent
chargeable to GenGain), General and Administrative Costs,

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

Distribution Costs, and Other Operating Income/Expense [plus revenues other than
Gross Sales attributable to a Product--Robert Please review the plus language
here].
       B.4.12. "Other Operating Income/Expense" means other operating income or
expense from or to Third Parties which is not part of the primary business
activity of GenGain, but is considered and approved by the Joint Project Team
and JSC as income or expense for purposes of GenGain and is limited to the
following:

       . actual inventory write-offs of any Product
       . patent and trademark costs
       . product liability insurance to the extent the Parties obtain a joint
         policy
       . indemnification costs (as described in Section 11 of the Agreement)
       . other (to be approved by JSC)
       . non recurring start up costs associated with manufacturing of Product
         not included in cost of sales

       B.4.13. "Sales Costs" means Genentech's costs, including Allocable
Overhead, approved by the Joint Project Team with the annual budget, incurred by
the Parties or for their account and specifically identifiable to the sales
efforts of Products to all markets in the Territory including the managed care
market. "Sales Costs" shall include, without limitation, costs associated with
sales representatives for Products, including compensation, benefits and travel,
supervision and training of such sales representatives, sales meetings, and
other sales related expenses.

       B.4.14. "Sales Returns and Allowances" means the sum of (a), (b), and
(c), where: (a) is a provision, determined by a Party under GAAP for sales of
Products in the Territory for (i) trade, cash and quantity discounts or rebates
on Products (other than price discounts granted at the time of invoicing and
which are included in the determination of Gross Sales), (ii) credits or
allowances given or made for rejection or return of, and for creditable amounts
on, previously sold Products or for retroactive price reductions (including
Medicare and similar types of rebates and chargebacks), (iii) taxes, duties or
other governmental charges levied on or measured by the billing amount for
Products, as adjusted for rebates and refunds, (iv) charges for freight and
insurance directly related to the distribution of Products, to the extent
included in Gross Sales, and (v) credits for allowances given or made for
wastage replacement, indigent patient and any other sales programs agreed to by
the Parties for Products; (b) is a quarterly adjustment of the provision
determined in (a) to reflect amounts actually incurred by a Party in the
Territory for items (i), (ii), (iii), (iv) and (v) in clause (a); and (c) is an
adjustment for combination products (if any) under the Agreement. The provision
allowed in clause (a) and adjustments made in clauses (b) and (c) (if any) will
be reviewed by the Joint Project Team.

B.5    Foreign Exchange

The "Functional Currency" for accounting for Operating Profit or Loss will be
U.S. dollars. For billing and reporting, the statement of operations and sales
will be translated into U.S. dollars based on the "spot-rate" on the last
business day of the calendar quarter in which the sale was made as reported in
Reuters data service, and if not available in Bloomberg.

B.6.   Audits and Interim Reviews

       Either Party shall have the right to request that the other Party's
independent, certified accounting firm perform an audit or interim review of the
other Party's books in order to express an

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

opinion regarding such Party's compliance with GAAP. Such audits or review will
be conducted at the expense of the requesting Party in accordance with
procedures described in Section 6.12 of the Agreement.

B.7.   Payments between the Parties

Balancing Payments (meaning cost reimbursements plus profit share) by Genentech
to Magainin pursuant to Section 8.6 of the Agreement and, subject to Section B.2
above, payments to each Party of the agreed upon percentages of Operating Profit
or Loss as provided under Section B.10 below will be made quarterly, based on
actual results within sixty (60) days after the end of each quarter, adjusted
for reimbursement of the net expenses or income incurred or received by each
Party.  A report specifying how each payment was calculated shall also be
submitted with each payment to the non-paying Party.  In the event any payment
is made after the date specified herein, the paying Party shall increase the
amount otherwise due and payable by adding interest thereon, computed at the
rate of one percent (1%) over the prime rate of interest reported in Reuters
data service on the date so specified.  Genentech will perform the consolidation
and settlement calculations for submission to the JSC for its information.

B.8.   Responsibility for Reporting

The responsibility for the consolidated reporting of GenGain to the Joint
Project Team and JSC shall be with Genentech.  This will be the basis for the
GenGain accounting and determining of payments to the Parties.  Genentech shall
provide Magainin with a copy of the GenGain consolidated reporting and the
calculation serving as the basis of determining payments to the Parties.

B.9.   Accounting for Development Costs, Marketing Costs and Sales Costs

All Development Costs, Marketing Costs and Sales Costs will be based on the
appropriate costs definition stated in Section B.4 of this Schedule B. Each
                                                           ----------
Party shall report Development Costs in a manner consistent with its project
cost system. In general, these project cost systems report actual time spent on
specific projects, apply the actual labor costs, capture actual costs of
specific projects and allocate other expenses to projects. For commercial
support expenses, including without limitation, sales, marketing and product
experience, the Parties will report costs based on actual expenses at average
rates. The Parties acknowledge that the methodologies used will be based on
systems in place in the applicable departments.

B.10.  Operating Profit and Loss Sharing

In the event Magainin exercises its co-funding option pursuant to Section 8.6 of
the Agreement, Genentech and Magainin agree to share the Operating Profit or
Loss from the sale of Products in the United States in the following manner:


       (a) Genentech shall be allocated [**] of the Operating Profit or Loss
           from the sale of Products in the United States; and

       (b) Magainin shall be allocated [**] of the Operating Profit or Loss from
           the sale of Products in the United States.

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.
<PAGE>

The Party supplying commercial supplies of Product shall finance the cost of
building inventory necessary for product launch, other pre-launch marketing
activities approved by the Joint Project Team, and commercial sales of Product.
The non-supplying Party shall repay to the supplying Party its share of such
costs, as allocated in Section B.10(a) or (b) above, as applicable, following
first Regulatory Approval of such Products from the Operating Profit or Loss
allocated to the non-supplying Party in any calendar quarter. If such repayment
is not complete three (3) years following such first Regulatory Approval, the
non-supplying Party will complete such repayment in a lump sum paid at the end
of the next calendar quarter following such first Regulatory Approval. Interest
on any such repayment will be charged at a rate equal to one percent (1%) over
the prime rate of interest as published in Reuters on the first business day of
such calendar quarter.

B.11.  Start of Operations and Effective Accounting Date Termination

Operation of GenGain will be deemed to have commenced, retroactively, as of the
completion of filing for a Product if Magainin has exercised its co-funding
option under 8.6 of the Agreement. Costs and expenses incurred prior to such
date are not chargeable to GenGain.
For reporting and accounting purposes with respect to GenGain, the effective
termination date of the Agreement with regard to the last year a Product is sold
in the Territory will be the nearest month end to which such termination takes
place.

________________________________________________________________________________

** Certain portions of this exhibit have been omitted based upon a request for
confidential treatment that has been filed with the Commission. The omitted
portions have been filed separately with the Commission.