<PAGE>   1
                                                                   EXHIBIT 10.29

                                            ***TEXT OMITTED AND FILED SEPARATELY
                                                CONFIDENTIAL TREATMENT REQUESTED
                                           UNDER 17 C.F.R. SECTION 200.80(b)(4),
                                                            200.83 and 240.24b-2


                        AMENDMENT TO PRODUCT DEVELOPMENT
                         AND COMMERCIALIZATION AGREEMENT

     THIS AMENDMENT TO PRODUCT DEVELOPMENT AND COMMERCIALIZATION AGREEMENT (the
"Amendment") is made and entered into as of the date of mutual execution by the
parties (the "Mutual Execution Date") and retroactively effective as of August
13, 2000 (the "Amendment Effective Date"), by and between ARADIGM CORPORATION, a
California corporation having its principal place of business at 3929 Point Eden
Way, Hayward, California 94545 ("Aradigm"), and SMITHKLINE BEECHAM, PLC, a
United Kingdom corporation having its principal place of business at New
Horizons Court, Brentford, Middlesex, TW8 9EP England ("SB"), in order to amend
certain terms and provisions of the Product Development And Commercialization
Agreement dated as of September 30, 1997 (the "Agreement") between Aradigm and
SB. Aradigm and SB may be referred to herein as a "Party," or, collectively, as
"Parties."

                                    RECITALS

     WHEREAS, Aradigm and SB are Parties to the Agreement, pursuant to which
they entered into a collaborative relationship to complete human clinical
development and obtain necessary regulatory approvals for the AERx PAIN
MANAGEMENT SYSTEM for use in delivering ANALGESIC DRUGS via inhalation to treat
pain, and Aradigm granted SB the exclusive license under ARADIGM PATENTS and
INFORMATION to use, import, market, offer for sale and sell, solely in the
TERRITORY and solely for use in the FIELD, the AERx SYSTEMS, AERx DEVICES, DRUG
PRODUCTS and ACCESSORIES; and

     WHEREAS, Aradigm and SB desire to amend the Agreement to implement certain
changes regarding development and commercialization efforts under the Agreement;
and

     WHEREAS, to accomplish the foregoing and certain other changes to the
Agreement, the Parties desire to amend the terms of the Agreement as provided in
this Amendment.

     NOW, THEREFORE, the Parties agree as follows:

1.   AMENDMENT OF THE AGREEMENT.

     The Parties hereby agree to amend the Agreement as provided below. To the
extent that the Agreement is explicitly amended by this Amendment, the terms of
the Amendment will control where the terms of the Agreement are contrary to or
conflict with the following provisions. Where the Agreement is not explicitly
amended, the terms of the Agreement will remain in force. Capitalized terms used
in this Amendment that are not otherwise defined herein shall have the same
meanings as such terms are defined in the Agreement, provided that it is
understood that, the term DEVELOPMENT as applied to activities to be assumed by
Aradigm under this Amendment shall include those activities as defined in the
Agreement as well as pre-commercialization DEVELOPMENT activities, control over
the conduct of marketing research, formulation of launch strategy, establishment
of trademark, and establishment of packaging design for the AERx SYSTEMS, AERx
DEVICES, DRUG PRODUCTS and ACCESSORIES.


<PAGE>   2


2.   CONTROL OF DEVELOPMENT.

     2.1  TERMINATION OF DEVELOPMENT COMMITTEE. The Parties hereby agree that,
commencing as of the Amendment Effective Date and continuing through the term of
the Amendment, all of the DEVELOPMENT COMMITTEE's rights, responsibilities and
control, as established in Article 2 of the Agreement, are suspended and shall
not be exercised or enforced.

     2.2  ASSUMPTION OF CONTROL OF DEVELOPMENT BY ARADIGM. Commencing on the
Amendment Effective Date and continuing thereafter through the term of the
Amendment, Aradigm will assume and have sole and exclusive control of all
decisions and actions regarding DEVELOPMENT activities under the Agreement, and
shall have the sole and exclusive right to conduct or have conducted DEVELOPMENT
activities. Aradigm shall use reasonable efforts to conduct the Protocol for
Aradigm's Phase 2B activities attached hereto as Schedule A (the "Protocol").
Except as otherwise provided in Section 3 or Section 7 of this Amendment, SB
shall have no rights or responsibilities regarding conducting DEVELOPMENT during
the term of the Amendment.

     2.3  ARADIGM UPDATES. On a monthly basis during the term of the Amendment,
or more frequently in the event of significant occurrences related to
DEVELOPMENT, Aradigm shall provide to SB written reports of Aradigm's
DEVELOPMENT activities, including but not limited to the status of (i)
DEVELOPMENT COSTS incurred by Aradigm, (ii) Aradigm's DEVELOPMENT work in
progress and (iii) Aradigm's conduct of the Phase 2B clinical trial. The Parties
shall make reasonable efforts to agree on the reporting periods and the contents
of such Aradigm updates.

     2.4  REGULATORY FILINGS AND APPROVAL. Commencing on the Amendment Effective
Date and continuing thereafter through the term of the Amendment, Aradigm will
assume and have sole and exclusive control of all decisions and actions
regarding any and all APPROVAL APPLICATIONS, any other regulatory filings or
communications with any governmental regulatory agency relating to any PRODUCT,
and all matters relating to seeking or obtaining Regulatory Approval worldwide.

     2.5  SUSPENSION OF RIGHTS AND OBLIGATIONS.

          (a)  During the term of the Amendment, any and all provisions of the
Agreement that give SB any obligations to conduct DEVELOPMENT, or any rights
with respect to the conduct of DEVELOPMENT, are suspended and shall not be
exercised or enforced. Similarly, during the term of the Amendment, any terms or
provisions of the Agreement that impose any obligations on Aradigm with respect
to the conduct of DEVELOPMENT, or rights of Aradigm to require SB to perform any
actions with respect to DEVELOPMENT, shall be suspended and shall not be
exercised or enforced. In particular, but without limiting the generality of the
foregoing, Sections 5.8(b), 10.1 and 10.4 and the last two sentences of Section
3.3 of the Agreement are suspended and of no force or effect during the term of
the Amendment. Notwithstanding the above, the parties agree that during the term
of the Amendment Aradigm shall use its reasonable efforts and diligence to
conduct the Phase 2B clinical trial pursuant to the Protocol set forth in
Schedule A, attached hereto.

          (b)  During the term of this Amendment, Aradigm may submit for written
or oral publication any manuscript, abstract or the like which includes data or
other information relating

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to any PRODUCT, without first obtaining the prior written consent of SB, so long
as such submission does not include SB CONFIDENTIAL INFORMATION. Prior to
submitting a manuscript to a publisher, a copy of the manuscript will be
provided to SB by Aradigm for review and comment. At SB's request, and in
accordance with SB's direction, Aradigm shall remove any SB CONFIDENTIAL
INFORMATION from such publication or delay publication for up to sixty (60) days
to allow SB to seek intellectual property protection for any such disclosed SB
CONFIDENTIAL INFORMATION. The Parties hereby agree that during the term of this
Amendment, Aradigm may freely pursue licensing opportunities with THIRD PARTIES
for the development and/or commercialization of any PRODUCT for any and all
purposes, including entering into negotiations regarding such opportunity;
provided that Aradigm may not enter into a contract with a THIRD PARTY that
would prevent Aradigm from performing its obligations under this Amendment or
granting to SB the rights granted hereunder or that in any way diminishes SB's
rights under this Amendment (to the extent such rights are still in force at
such time).

          (c)  For further clarification, during the term of the Amendment, any
and all provisions of the Agreement that grant SB any license rights under any
Aradigm technology or intellectual property to conduct DEVELOPMENT are suspended
and shall not be exercised, except to the extent necessary to enable SB to carry
out its obligations under this Amendment as set forth in Section 3.1 hereof, and
except as otherwise provided in Article 7 of this Amendment. In addition, the
Parties hereby agree that Section 2.10 of the Agreement is terminated and of no
further effect.

3.   SB OBLIGATIONS DURING THE TRANSITION PERIOD.

     3.1  CONDUCT OF DEVELOPMENT AND TRANSFER OF INFORMATION. Promptly following
the Mutual Execution Date, SB shall complete the transfer to Aradigm of a copy
of all material documentation and INFORMATION generated under the Agreement, but
only to the extent requested by Aradigm and only to the extent that such
documentation and INFORMATION has not been provided to Aradigm by SB prior to
the Mutual Execution Date, including without limitation, the market plan,
current drafts of all contemplated clinical studies, market research studies,
trademark research, publications or drafts of contemplated publications, the
IND, consultant reports, advisory panel reports, Adverse Event reporting
materials, all APPROVAL APPLICATIONS and any other regulatory applications and
related documentation related to any PRODUCT, that are in SB's possession or
under its control. Aradigm shall complete all its requests for such
documentation and INFORMATION no later than thirty (30) days after the Mutual
Execution Date and, subject to the first sentence of this Section 3.1, SB shall
use its reasonable endeavors to complete the transfer of any requested
documentation or INFORMATION to Aradigm within thirty (30) days after the
receipt of any such request by Aradigm. Aradigm's rights with respect to such
documentation and INFORMATION are set forth in Section 5.1 of this Amendment.
The "Transition Period" shall mean that period of time beginning upon the
Amendment Effective Date and ending upon the date that SB completes the transfer
of any requested documentation or INFORMATION to Aradigm pursuant to this
Section 3.1. SB shall have no activities and/or responsibilities during the
Transition Period in relation to the conduct of DEVELOPMENT, and SB's activities
and responsibilities during the Transition Period related to the transfer of
documentation and INFORMATION to Aradigm shall be strictly limited to those set
forth in this Section 3.1.


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     3.2  PAYMENT OBLIGATIONS OF SB DURING THE TRANSITION PERIOD. No later than
December 15, 2000, SB shall pay Aradigm [...***...] which represents the total
amount of the two (2) outstanding invoices under the Agreement received by SB
from Aradigm prior to or on the Mutual Execution Date. Aradigm expressly
acknowledges and accepts that, once Aradigm has received the payment outlined in
the first sentence of this Section 3.2, SB will have fulfilled all of its
financial obligations under the Agreement up to the Amendment Effective Date
including, without limitation, any obligations to make any milestone payments
and all obligations to fund DEVELOPMENT carried out by Aradigm under the
Agreement up to the Amendment Effective Date. Aradigm further expressly
acknowledges and accepts that SB has no financial obligations to Aradigm as of
or after the Amendment Effective Date including, without limitation, any
obligations to make any milestone payments or to fund any DEVELOPMENT carried
out by Aradigm as of or after the Amendment Effective Date except in the event
that SB makes the election outlined in Section 7.1 in which case SB's
DEVELOPMENT funding obligations shall be as set forth in Sections 7.2 and 7.3.
Except for the aforementioned payments noted in this section 3.2 of this
Amendment, SB shall have no further payment obligations to Aradigm during the
Transition Period.

4.   TERMINATION OF SB OBLIGATIONS UNDER THE AGREEMENT.

     4.1  SUSPENSION OF SB DEVELOPMENT AND FUNDING OBLIGATIONS. As of the
Amendment Effective Date, and continuing thereafter during the term of the
Amendment, any and all of SB's obligations to perform or fund DEVELOPMENT under
the Agreement shall be suspended and of no force, and SB shall have no
continuing obligation to fund or support any DEVELOPMENT COSTS, make any
milestone payments or fund any clinical supply of PRODUCT or make any other
financial payments to Aradigm under the Agreement, except as otherwise provided
in Section 7.3(b) of this Amendment.

     4.2  ELECTIVE TERMINATION OF RESTRICTIVE COVENANT. During the term of this
Amendment, SB may not elect to terminate its exclusivity obligations under
Section 5.8(a) of the Agreement.

5.   INTELLECTUAL PROPERTY.

     5.1  TECHNOLOGY LICENSE GRANT TO ARADIGM. SB hereby grants to Aradigm and
its Affiliates the worldwide, non-exclusive, fully paid right and license, with
the right to sublicense through multiple tiers of distribution, under the SB
PATENTS in existence as of the Amendment Effective Date and any SB rights in
such SB INFORMATION in existence as of the Amendment Effective Date, to develop,
make, have made, import, use, offer for sale, and sell the PRODUCTS in the FIELD
in the TERRITORY.

     5.2  PATENT AND RELATED MATTERS. In Section 9.2 of the Agreement, the
second, eighth, tenth and eleventh sentences of such Section are suspended and
of no force or effect during the term of the Amendment.

          (a)  Sections 9.3 through 9.8 and 9.10 through 9.16 are suspended and
of no force or effect during the term of the Amendment. In Section 9.09, the
last sentence is deleted and replaced by the following:

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          "Any damages or other monetary awards recovered in an action against
          an infringer of a JOINT PATENT shall be allocated to the Parties in
          the following manner: first, to the reimbursement of Aradigm and SB
          for their respective out-of-pocket expenses (including reasonable
          attorneys' fees and costs) incurred in prosecuting such infringement
          action (if the recovery is less than the sum of both Party's costs,
          then on a pro rata basis based upon their respective out-of-pocket
          expenses); and second, [...***...] of the remaining balance from such
          recovery after reimbursement for each Party's out-of-pocket expenses
          shall be allocated to the Party bringing suit, and the remaining
          [...***...] of such balance shall be allocated to the other Party".

6.   TERMINATION RIGHTS.

     6.1  TERMINATION BY EITHER PARTY. In addition to any other rights of
termination either party may have under the Agreement, commencing on the Mutual
Execution Date and continuing thereafter, either party may terminate the
Agreement and this Amendment in their entirety by written notice to the other
party, which termination shall be effective either (i) [...***...] after
delivery of such written notice to the receiving party if such termination
notice is delivered on or prior to the date that SB receives the Phase 2B Trial
Results (as defined below) (the "Data Delivery Date"), or (ii) [...***...]
following the Delivery Date if such written termination notice is delivered to
the receiving party after the Delivery Date but before the end of [...***...]
following the Delivery Date, or (iii) [...***...] upon delivery of such written
notice to the receiving party if such notice is provided at any time following
[...***...] after the Data Delivery Date, and provided only that, in the event
that Aradigm is the party delivering such termination notice, SB has not given
Aradigm written notice, pursuant to Section 7.1 of this Amendment, of its
election under the terms of Article 7 hereof prior to the effectiveness of
Aradigm's termination hereunder. As used herein, the term "Phase 2B Trial
Results" means completion of all patients required by cross-over study portion
the Phase 2B trial specifically set forth in Schedule A to the Amendment
according to and in compliance with the Protocol, and the compilation of data in
a format that is an accurate and complete summary of the primary and secondary
endpoints in the case report forms and source documents generated by such trial.
In the event that either party exercises its right to terminate the Agreement
under this Section, all of SB's rights and obligations under the Agreement and
the Amendment shall terminate upon the effective date of any such termination
notice except as otherwise provided in Section 14.6 of the Agreement to the
extent that Section 14.6 has not been amended by this Amendment, and except as
otherwise provided in Section 9.2 of the Amendment.

     6.2  EXIT FEE. In the event that Aradigm terminates the Agreement pursuant
to Section 6.1 of this Amendment, and Aradigm continues or intends to continue
any DEVELOPMENT (as defined in Section 1 of this Amendment) activities, either
alone or in collaboration with a THIRD PARTY, then Aradigm shall pay SB a fee
(the "Exit Fee") equal to [...***...] no later than thirty (30) days following
the date that Aradigm delivers such termination notice to SB pursuant to Section
6.1 of the Amendment. In addition, if, at any time after such termination by
Aradigm, in the event that Aradigm has not paid SB the Exit Fee, but Aradigm
reinitiates any DEVELOPMENT (as defined in Section 1 of this Amendment)
activities, Aradigm shall pay SB the Exit Fee no later than thirty (30) days
following the date of such reinitiation. Moreover, if, at any time after such
termination by Aradigm, in the event that Aradigm has not paid SB the Exit Fee,
but Aradigm transfers its DEVELOPMENT technology to a THIRD PARTY

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who in turn initiates or continues DEVELOPMENT activities, Aradigm shall pay SB
the Exit Fee no later than thirty (30) days following the date that Aradigm
initiates the delivery of its DEVELOPMENT technology to such THIRD PARTY.
Moreover, if, at any time after such termination by Aradigm, in the event that
Aradigm has not paid SB the Exit Fee, but the Amendment expires in accordance
with Section 8.1, Aradigm shall pay SB the Exit Fee in accordance with the
provisions of Section 8.1 .For clarity, in the event that Aradigm terminates the
Agreement and the Amendment under Section 6.1 and neither Aradigm nor a THIRD
PARTY ever initiates or continues DEVELOPMENT activities pursuant to this
Section 6.2, then Aradigm shall not owe SB an Exit Fee.

7.   SB Restoration Rights.

     7.1  RESTORATION ELECTION. At any time prior to either (i) the termination
of the Amendment and Agreement by Aradigm pursuant to Section 6.1 of this
Amendment, or (ii) the expiration of the term of this Amendment pursuant to
Section 8.1 of this Amendment, SB may elect, by written notice to Aradigm, to
effect the modifications and changes to this Amendment set forth in Section 7.2,
with the result of SB regaining its rights to participate in DEVELOPMENT (as
defined in the Agreement) and commercialization of PRODUCT under the Agreement
(as set forth in the Agreement prior to the Amendment Effective Date), and
subject to the terms and conditions in Section 7.2 and 7.3. Such election shall
be subject to and contingent upon the payment of a fee (the "Restoration
Payment") to Aradigm as provided in Section 7.3.

     7.2  EFFECT OF EXERCISE OF RESTORATION RIGHTS. In the event that SB elects
under Section 7.1 to restore its rights to participate in DEVELOPMENT and
commercialization of PRODUCT and complies with the terms and conditions
therefore, the following shall occur:

          (a)  Aradigm's right to terminate the Agreement and the Amendment as
provided in Section 6.1 above will immediately terminate;

          (b)  The Parties will promptly thereafter meet and negotiate, in good
faith, a transition plan, regarding transition to SB of remaining DEVELOPMENT
(including regulatory) responsibilities contemplated under the Agreement (as
effective prior to the Amendment), and a DEVELOPMENT Plan and Budget for all
continuing and future DEVELOPMENT activities through Regulatory Approval,
including a plan for the work to be conducted by Aradigm in such DEVELOPMENT
efforts, and the parties shall memorialize such transition plan and DEVELOPMENT
Plan in writing;

          (c)  SB will be responsible for payment of all costs incurred by
Aradigm in conducting its efforts under the agreed DEVELOPMENT Plan and Budget
established as provided in subsection (b) above provided that such costs are
directly related to the mutually agreed upon activities under such DEVELOPMENT
Plan and are within the agreed upon budget therefor; and

          (d)  the Amendment will terminate, subject to survival for appropriate
periods of certain applicable provisions referenced in Section 9.2 here below.

     7.3  RESTORATION PAYMENT. For SB's rights under this Article 7 to be
effected, SB must agree to the following:

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          (a)  If SB elects to restore its DEVELOPMENT and commercialization
rights under the Agreement after Aradigm has given SB notice of intent to
terminate the Agreement under Section 6.1 of this Amendment, and in such notice,
Aradigm provides SB notice that it plans to enter into a development and
commercialization collaboration with a THIRD PARTY regarding PRODUCT, then the
Restoration Payment shall comprise (i) payment of an amount [...***...], the
terms and conditions of such payment by SB to Aradigm to be mutually agreed upon
in good faith, and (ii) a written, binding commitment in the form of an
amendment to the Agreement, to pay to Aradigm [...***...]; or

          (b)  If SB elects to restore its DEVELOPMENT and commercialization
rights under the Agreement in any circumstance other than that described in
Section 7.3(a) herein, SB shall pay a Restoration Payment equal to: (i)
Aradigm's actual fully-burdened costs of conducting DEVELOPMENT at a per FTE
rate of [...***...] per year that have been incurred by Aradigm after the
Amendment Effective Date through the date of SB's notice (and not otherwise paid
by SB) plus (ii) an amount equal to [...***...] of such costs, plus (iii)
interest on the amount calculated under Section 7.3(b)(i) calculated at a rate
of [...***...] (annual) applied since the date such costs were incurred by
Aradigm through the date of such payment, and (iv) the [...***...]. The term
"FTE" as used in this Section means the full time equivalent, in man-years, of
each Aradigm personnel, whether full time or not, directly devoted to carrying
out the DEVELOPMENT, but only for that time for which such personnel is directly
devoted to carrying out such DEVELOPMENT, provided that all such FTE's must be
professional level personnel actually carrying out DEVELOPMENT and shall not be
personnel engaged in administrative/supervisory support of such FTE's. The term
"FTE rate" as used in this Section means the annualized direct and indirect
costs associated with each Aradigm FTE, including, but not limited to, salaries,
overheads, and administrative/supervisory support.

8.   AMENDMENT TERM AND TERMINATION

     8.1  AMENDMENT TERM. This Amendment shall be retroactively effective as of
the Amendment Effective Date and shall continue until the earlier of the (a)
termination of the Amendment as provided in Section 6.1 or 8.2(b), or (b)
expiration of the Amendment which shall occur automatically on the date of the
first filing by Aradigm (or its Affiliate) of an NDA (or its equivalent
application outside of the USA) covering the AERx SYSTEM. Aradigm shall pay SB
the Exit Fee (as defined in Section 6.2 of this Amendment) no later than thirty
(30) days after the date of the first filing by Aradigm (or its Affiliate) of an
NDA covering the AERx SYSTEM. Upon expiration of this Amendment hereunder, the
Agreement shall automatically terminate.

     8.2  AMENDMENT TERMINATION.

          (a)  Subject to Section 6.1 and 8.1 above, this Amendment shall
terminate, and all provisions herein shall be ineffective, except for the
survival provisions of Section 9.2 below, upon the election by SB, with written
notice to Aradigm, to regain its rights to participate in the DEVELOPMENT
pursuant to Section 7 of this Amendment.

          (b)  This Amendment shall terminate automatically and immediately in
the event that SB terminates the Agreement under the terms of Section 14.3 of
the Agreement, as amended by this Amendment.

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9.   MISCELLANEOUS.

     9.1  FULL FORCE AND EFFECT. This Amendment amends the terms of the
Agreement and is deemed incorporated into, and unless expressly provided for
otherwise herein, is governed by all other terms of the Agreement. The
provisions of the Agreement, as amended by this Amendment, remain in full force
and effect so long as the Amendment is effective. However, upon early
termination of this Amendment as a result of SB's election under Section 8.1 of
the Amendment, the terms of this Amendment shall be ineffective, except as
otherwise provided in Section 9.2 below, and the original terms of the Agreement
shall be restored to their full force and effect.

     9.2  SURVIVAL. The following provisions of this Amendment shall survive the
termination or expiration of the Amendment: Sections 5.1, 5.2, 8.1, 9.2 and 9.4.

     9.3  COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

     9.4  INDEMNIFICATION.

          (a)  FULL FORCE AND EFFECT OF AGREEMENT INDEMNIFICATIONS. The Parties
agree that the Indemnification provisions of Section 12 of the Agreement,
including the procedures related thereto, shall remain in full force and effect
during the term of this Amendment and shall not be construed to conflict with or
be contrary to Sections 3.1, 3.2, 4.1 or the following provision 9.4(b) of this
Amendment, provided that it is understood that the indemnifications made by the
Parties under the provisions of Section 12 of the Agreement shall be applicable
only for (a) death or injury to any person or damage to any property to the
extent caused by the defective or negligent manufacture of a PRODUCT prior to
the Amendment Effective Date; (b) harm or damage attributable to or caused by
the acts or omissions committed prior to the Amendment Effective Date of either
Party or its AFFILIATES or their respective officers, directors,
representatives, agents or employees.

          (b)  AMENDMENT TERM INDEMNIFICATION BY ARADIGM. Aradigm agrees to
indemnify, defend and hold harmless SB, its AFFILIATES, and their respective
officers, directors, shareholders, representatives, agents and employees (the
"SB Indemnitees") from and against any and all losses, liabilities, damages,
costs, fees and expenses, including reasonable legal costs and attorneys' fees
("Losses") resulting from a THIRD PARTY claim, suit or action against an SB
Indemnitee arising on or after the Amendment Effective Date based upon (a) death
or injury to any person or damage to any property to the extent caused by the
defective or negligent manufacture of a PRODUCT on or after the Amendment
Effective Date; (b) harm or damage attributable to or caused by the acts or
omissions committed on or after the Amendment Effective Date by Aradigm or its
AFFILIATES or their respective officers, directors, representatives, agents or
employees.

          (b)  INDEMNITY PROCEDURE. In the event that SB (the "Indemnified
Party") is seeking indemnification under Section 9.4(b), the indemnity procedure
outlined in Section 12.3 of the Agreement shall be applicable.

          (c)  LIABILITY INSURANCE. Immediately upon the launch of AERx SYSTEM
in the TERRITORY by Aradigm, its AFFILIATES or its sublicensees, and for a
period of five (5)

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years after the expiration or earlier termination of such marketing, Aradigm
shall obtain and/or maintain, respectively, at its sole cost and expense, from
insurance companies reasonably satisfactory to SB, product liability insurance
and contractual liability coverage, in amounts, respectively, which are
reasonable and customary in the U.S. pharmaceutical industry for companies of
comparable size and activities at the respective place of business of each
party. Such product liability insurance shall insure against personal injury,
physical injury, or property damage arising out of the manufacture, sale,
distribution, or marketing of AERx SYSTEM in the TERRITORY. Aradigm shall
provide written proof of the existence of such insurance to SB upon request.
Notwithstanding the foregoing, during the period specified above Aradigm shall
maintain product liability insurance with a minimum of ten million U.S. dollars
(U.S. $10,000,000) per occurrence (or claim) and annual aggregate limit of
liability.


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     IN WITNESS WHEREOF, the Parties have executed this Amendment in duplicate
originals by their authorized officers as of the date and year first above
written.

                                  SMITHKLINE BEECHAM, PLC

                                  By: /s/ Elizabeth Posner
                                      --------------------
                                  Name: Elizabeth Posner
                                  Title: Attorney-in-Fact


                                  ARADIGM CORPORATION

                                  By: /s/ Richard P. Thompson
                                      -----------------------
                                  Name: Richard P. Thompson
                                  Title: President and CEO



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                                   SCHEDULE A

                                    PROTOCOL

                                 [ARADIGM LOGO]


                         AERX(R) PAIN MANAGEMENT SYSTEM
                                   [...***...]


                                   Amendment 1

                                   [...***...]


                                   Amendment 2

                                   [...***...]

                                   Amendment 3

                                   [...***...]





[...***...]

Study Sponsor: Aradigm Corporation
               3929 Point Eden Way
               Hayward, CA  94545


                           PROPRIETARY & CONFIDENTIAL

THIS DOCUMENT CONTAINS INFORMATION PROPRIETARY TO ARADIGM CORPORATION.
TRANSMITTAL, RECEIPT, OR POSSESSION OF THIS DOCUMENT DOES NOT EXPRESS, LICENSE,
OR IMPLY ANY RIGHTS OF USE, DESIGN, OR MANUFACTURE FROM THIS INFORMATION. NO
REPRODUCTION, PUBLICATION, OR DISCLOSURE OF THIS INFORMATION, IN WHOLE OR IN
PART, SHALL BE MADE WITHOUT PRIOR WRITTEN AUTHORIZATION FROM AN OFFICER OF
ARADIGM CORPORATION.

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I.   SYNOPSIS

     A.   COMPOUND/PROTOCOL NO.
[...***...]

     B.   PROTOCOL TITLE
[...***...]

     C.   RATIONALE
[...***...]

     D.   PRIMARY OBJECTIVE
[...***...]


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     E.   SECONDARY OBJECTIVES
[...***...]

     F.   STUDY POPULATION
[...***...]

     G.   STUDY DESIGN
[...***...]

     H.   SAFETY PARAMETERS
[...***...]

     I.   MANAGEMENT AND MONITORING OF THE STUDY
[...***...]


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