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                                                                 Exhibit 10.7
                                                                 26 July 2000

                                HEADS OF AGREEMENT
                    EPOTHILONE RESEARCH COLLABORATION AND LICENSE
         SLOAN-KETTERING INSTITUTE FOR CANCER RESEARCH & KOSAN BIOSCIENCES

Whereas Kosan Biosciences ("Kosan") and Sloan-Kettering Institute for Cancer
Research ("SKI") each have know-how, patents and technology relating to
epothilone compounds; and

Whereas Kosan and SKI desire to collaborate in the development of epothilone
compounds for the treatment of cancer;

Therefore, Kosan and SKI have set forth below in this Heads of Agreement the
significant terms and conditions of a definitive license and collaboration
agreement (the "Definitive Agreement") to be executed by them within one
month of the effective date hereof.

I.     RESEARCH COLLABORATION

Prior to signing the Definitive Agreement, the parties will agree on a
written plan (the "Research Plan") describing the activities to be conducted
by each party (the "Research") and the objectives thereof and budget
therefor. The Research Plan shall provide that the parties will collaborate
in the development of epothilone D ("EpoD") and one or more epothilone
analogs proprietary to SKI (EpoD and SKI proprietary epothilone analogs are
collectively referred to herein as "Collaboration Compounds") as anti-cancer
agents. Neither party shall engage in research with third parties relating to
Collaboration Compounds without the other party's approval. SKI will use its
best efforts to continue its research efforts on Collaboration Compounds and
conduct Phase I clinical trials with EpoD material produced with the support
of the RAID award from NCI. Kosan shall pay all other costs for the Phase I
clinical trials. Kosan will use its best efforts to develop a process for
making EpoD and epothilone intermediates with the aim of establishing a
process by which Collaboration Compounds can be made in quantities sufficient
and at a reasonable cost for the completion of clinical trials and
commercialization. Concurrently, Kosan will use its best efforts to produce
EpoD or EpoD intermediates [**] to make EpoD at commercial levels. Kosan will
prepare GMP-produced EpoD for Phase II clinical trials. In addition, the
parties will collaborate to identify and conduct pre-clinical testing on one
or more Collaboration Compounds as potential back-up development candidates
for EpoD and as second-generation anti-cancer agents. Kosan may also provide
its proprietary epothilone compounds to SKI for testing and clinical trials
as mutually agreed by the parties.

II.    MANAGEMENT OF RESEARCH COLLABORATION

General oversight and direction of the Research will be provided by a Joint
Research Committee ("JRC") with 3 SKI members and 3 Kosan members, each of
whom shall be actively engaged in managing the Research. The JRC shall meet
quarterly over at least [**] of Research and at least bi-annually thereafter
or as otherwise agreed by the parties. The JRC may meet by telephone
conference, in person in New York at SKI or in California at Kosan or as
otherwise agreed upon by the JRC. The JRC shall endeavor to make decisions on
a consensus

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[**]CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.


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basis. The JRC shall be responsible for making changes to the Research Plan
based on the results of the Research and other factors.

The JRC shall monitor the progress of the Research and shall be responsible
for determining, at each quarterly meeting, whether each party is making
satisfactory progress in achieving the objectives of the Research Plan.
Should the JRC determine that satisfactory progress is not being made, it
shall provide direction regarding the actions to be taken by either party in
the following quarter to address any problems identified that impede such
progress. Should the JRC determine, prior to the initiation of Phase II
clinical trials using Kosan supplied materials, that such action has not been
taken or that satisfactory progress cannot be made after such action has been
taken, then the Definitive Agreement shall terminate. In the event of a
dispute at the JRC, the matter in dispute shall be referred to the respective
heads of each party, or their designee, for resolution.

III.   CONTRIBUTION OF THE PARTIES TO RESEARCH

Kosan shall fund the Research to the extent the parties are unable to obtain
grant or other funding for such activities. SKI and Kosan use best efforts to
obtain funding from the NIH and other government agencies with which to
support such Research and shall continue to apply any such existing funding
supporting current activities that will continue as part of such Research.

The Research Plan shall direct SKI to continue its efforts in the chemical
synthesis of existing and new Collaboration Compounds and in the IN VITRO and
IN VIVO testing of Collaboration Compounds in animals and humans. The
Research Plan shall further direct the initiation and completion of a
physician-sponsored Phase I clinical trial of EpoD at SKI in 2001.

The Research Plan shall direct Kosan to contribute personnel, laboratory
facilities, equipment, and supplies to conduct biological synthesis of
Collaboration Compounds or related intermediates in amounts sufficient to
conduct IN VITRO testing and IN VIVO testing in animals and humans and to
manufacture any such approved epothilone product. The Research Plan shall
further direct Kosan to provide EpoD in amounts sufficient to initiate
Phase II clinical trials within three months of completion of the Phase I
clinical trial. The parties anticipate that the Phase II clinical trials will
begin [**].

IV.    MANAGEMENT AND FUNDING OF DEVELOPMENT OF BACK-UP AND SECOND GENERATION
COLLABORATION COMPOUNDS

The parties acknowledge that EpoD may not, whether as a result of clinical
trials or patent developments, be suitable for development. Kosan shall have
the right to select one or more Collaboration Compounds for development as
replacement or back-up candidates for EpoD and as second generation
anti-cancer products.


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[**]CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.


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V.     COMMERCIALIZATION

Kosan shall be responsible for commercialization activities relating to EpoD
and any other Collaboration Compound approved for therapeutic use. Before
filing an NDA, Kosan shall provide a Pre-Marketing Plan to SKI that describes
its proposed commercialization activities for such compounds. Thereafter,
Kosan shall provide annual reports summarizing its commercialization
activities for each approved compound. Kosan shall have the right to
sublicense one or more third parties to conduct marketing, sales and/or
distribution activities for any such compound; provided, however, that SKI
shall have the right to notify Kosan of third parties to which Kosan shall not
grant sublicenses, because the activities of such third parties are
incompatible with SKI's mission or inimical to its interests.

VI.    LICENSES

Each party shall grant the other such licenses as are required for each party
to conduct the Research. SKI shall grant Kosan an exclusive license, with the
right to sublicense, under its patents, patent applications, and other
intellectual property rights for making, using, and selling Collaboration
Compounds for any use by Kosan and Kosan's sublicenses. The license granted
to Kosan shall include due diligence requirements in developing a
Collaboration Compound as a commercial product. In addition, if Kosan is not
able to produce or otherwise provide EpoD in amounts sufficient to support
clinical development pursuant to the Research Plan, then SKI will have the
option to terminate the license.

VII.   THIRD PARTY AGREEMENTS

Until the earlier of [**], SKI and Kosan shall make joint decisions regarding
all third party agreements relating to EpoD or other Collaboration Compounds.
After that time, Kosan has the right and sole discretion to sublicense SKI's
patent and intellectual property rights to third parties; provided, however,
that SKI shall have the right to notify Kosan of third parties to which Kosan
shall not grants sublicenses, because the activities of such third parties
are incompatible with SKI's mission or inimical to its interests.

Kosan and SKI agree to negotiate in good faith with [**], to enter into a
sublicense of SKI intellectual property rights under which [**] will be
licensed to make, use, and sell [**] for the treatment of cancer. In such
negotiations, [**] shall be required to provide to the JRC a development plan
specifying the research to be conducted and a timeline for clinical trials,
as well as the amounts of [**] required and the source(s) from which it will
be obtained. If the JRC determines that sufficient [**] is available to
conduct the [**] development plan, and that the [**] development plan does
not jeopardize or pose a risk of serious delay to the Research, then the JRC
shall approve the development plan. Kosan and SKI shall agree upon the
business terms of a sublicense to [**] and negotiate diligently with [**] to
conclude a sublicense to [**] of the date the JRC approves the [**]
development plan. Such [**] sublicense shall include a timeline for the

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WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.


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development of the compound, with the right for Kosan to terminate such
sublicense if development milestones are not met in accordance with the
timeline, and such other terms and conditions as are commercially reasonable
and agreed upon by SKI and Kosan.

VIII.  PAYMENTS

In addition to funding research, development, and commercialization
activities. Kosan shall make the following payments to SKI:


Initial License Fee:                   $[**]
Annual Maintenance Fees:               $[**] prior to 1st commercial sale
Minimum Annual Royalties:              $[**] after 1st commercial sale;
                                       royalty payments, both minimum annual
                                       and on product sales, hereunder are to
                                       be paid, on a country-by-country basis,
                                       until the later of the expiration
                                       date of the last to expire SKI owned,
                                       solely or jointly with Kosan, patent
                                       claiming a Licensed Product (EpoD or
                                       any other Collaboration Compound
                                       marketed by Kosan) or its manufacture
                                       or use, or [**] years from the first
                                       commercial sale of a Licensed Product.
                                       Minimum annual royalties shall be fully
                                       creditable against royalties on product
                                       sales for the same fiscal year.
Milestones:
                [**]


Royalties:      [**] of Net Sales if the Licensed Product is claimed in an
                     issued and not expired patent owned by SKI, either solely
                     or jointly with Kosan;


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[**]CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.


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                                                                   26 July 2000


                             [**]of Net Sales if the approved use for which
                                 the Licensed Product is marketed is claimed
                                 in an issued and not expired patent owned by
                                 SKI and the Licensed Product is not patented
                                 by a third party;
                             [**]of Net Sales of any Licensed Product for
                                 which SKI holds an issued and not expired
                                 patent claiming the manufacture of such
                                 Licensed Product, which royalty rate shall
                                 apply in any country where the Licensed
                                 Product is sold provided the Licensed Product
                                 sold in that country was made using the
                                 patented method in the country where the
                                 patent issued;
                             [**]of Net Sales of any Licensed Product in any
                                 country for which SKI has no patents claiming
                                 the Licensed Product or its manufacture or
                                 use, provided that the Licensed Product or
                                 its manufacture or use is patented by SKI in
                                 the US, EPO, or Japan.

Sublicense                   For any sublicense of only SKI technology
                             entered into prior to the earlier of [**],
                             SKI shall receive [**] of all sublicensing
                             proceeds, and Kosan shall receive the
                             remainder. For any other sublicense, Kosan
                             shall pay SKI [**] of the sublicensing proceeds,
                             provided, however, that SKI's [**] share of any
                             royalties shall not exceed the royalty that Kosan
                             would have paid to SKI if Kosan marketed the
                             Licensed Product. Sublicensing proceeds include
                             both royalty and non-royalty income received by
                             Kosan, including anything of value in lieu of
                             cash payments, but excluding reimbursement for
                             research and development, including clinical
                             trial, expenses, equity (but not any premium
                             thereon), and manufacturing costs (but not any
                             profits therefrom) SKI shall have the right to
                             audit Kosan's business records to verify that
                             such expenses, premium, or costs reported by
                             Kosan are accurate. In the event Kosan
                             sublicenses SKI or Kosan technology as part of
                             an agreement to license third party technology
                             required to make, use, or sell a Licensed
                             Product, then such agreement shall not be
                             subject to the sharing of sublicensing proceeds
                             specified hereunder.

3rd party royalties:         Kosan may credit [**] royalty payments to 3rd
                             parties for patents required to make, use, or
                             sell a Licensed Product, provided, however, that
                             SKI royalty or other payments shall not be
                             reduced by [**].

Patents:                     Kosan shall reimburse SKI for all past and
                             future patent expenses. Kosan shall assume primary
                             responsibility for enforcing the patent rights.
                             All costs of any action to enforce the patent
                             rights shall be borne by Kosan, and Kosan shall
                             keep any recovery of damages


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[**]CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.

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                                                                   26 July 2000


                             derived therefrom; the excess of such recovery
                             over such costs shall be included in Net Sales.
                             No settlement, consent judgment, or other
                             voluntary final disposition of the suit may be
                             entered into without the prior written consent
                             of SKI, which consent shall not unreasonably be
                             withheld.

IX.    COMMERCIALIZATION OF KOSAN EPOTHILONE TECHNOLOGY

In the event that Kosan, by itself or its licensee, commercializes an
epothilone product or commercializes technology for producing epothilones
without utilization of SKI proprietary rights licensed hereunder ("Kosan
Epothilone Technology"), then Kosan agrees to pay SKI a royalty on the sales
by Kosan or its licensee of such product or any epothilone product made using
such technology. If SKI performs pre-clinical and Phase I clinical testing of
such epothilone product, then the royalty rate shall be [**] of such sales,
regardless of whether Kosan or its licensee markets the product. If SKI does
not perform such pre-clinical and Phase I clinical testing, then the royalty
shall be [**] of such sales, regardless of whether Kosan or its licensee
markets the product. In either event, such royalty shall be subject to the
third party royalty credit set forth in Section VIII. No other payments of
any type or kind shall be due SKI for the commercialization of Kosan
Epothilone Technology by Kosan or its licensee.

X.     Use of Name

Kosan and SKI agree that this Agreement and the contents therein shall be
maintained in confidence by the parties and shall not be shared with any third
party who is not interested in receiving a sublicense without the express
written permission of both SKI and Kosan. Kosan shall not use the names of
the SKI, or Memorial Sloan Kettering Cancer Center, nor any of its employees,
nor any adaptation thereof in any fund-raising, advertising, promotional or
sales literature without prior written consent obtained from SKI in each case.

XI.    FINAL AGREEMENT

The foregoing terms and provisions of this Heads of Agreement shall be
included in the Definitive Agreement to be negotiated and signed by the
parties hereto within [**], the effective date hereof.




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[**]CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.

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                                                                   26 July 2000


Each party agrees to negotiate diligently to complete such Definitive
Agreement within such time.


Sloan-Kettering Institute for Cancer        Kosan Biosciences, Inc.
Research

By:   /s/ James S. Quirk                    By:
   ---------------------------------           ------------------------------

James S. Quirk                              Daniel V. Santi, Ph.D.
Sr. Vice President, Research Resources       C.E.O.
Management

Date:      7/26               , 2000        Date:                      , 2000
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                                                                   26 July 2000


Each party agrees to negotiate diligently to complete such Definitive
Agreement within such time.


Sloan-Kettering Institute for Cancer        Kosan Biosciences, Inc.
Research

By:   /s/ James S. Quirk                    By:  /s/ Daniel V. Santi
   ---------------------------------           ------------------------------

James S. Quirk                              Daniel V. Santi, Ph.D.
Sr. Vice President, Research Resources       C.E.O.
Management

Date:      7/26               , 2000        Date:         7/31         , 2000
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