<PAGE>   1
                                                                   EXHIBIT 10.28

                                                           N65236-98-1-5400

                                              Grant No.:N65236-98-1-5400
                                              DARPA Order No.: F854/00
                                              Program Code: P8310
                                              Effective Date: 03 FEB 1998


Grantor:       Space and Naval Warfare Systems Command (SPAWAR)
               Systems Center Charleston
               P.O. Box 190022
               North Charleston, SC 29419-9022

Grantee:       Genelabs Technologies, Inc.
               505 Penobscot Drive
               Redwood City, CA 94063


Grantee Identification Numbers/Codes:

                DUNS No.:  180695348
                TIN:  94-3010150
                Cage Code:  0K7W3
Total Grant Amount:  $13,592,769.00
Accounting and Appropriation Data:

ACRN:    AA      9780400 1320 F854 P8310 2525 DPAM 8 0578 62383E S12123
                 JO #BMUE5X8I23 DOC #DRPA01980578/AA
                 REQ: N65236-8006-8F22                       $3,775.985.00

Authority:   This Grant is issued pursuant to the authority of 10 U.S.C. 2358.

                                 GRANT SCHEDULE


1. Purpose: The purpose of this Grant is for Genelabs Technologies for building
a stockpiled arsenal of chemically protected, sequence-specific DNA- and
RNA-binding subunits that may be rapidly deprotected and assembled
combinatorially into target-specific dimer drugs to combat biological weaponry,
including novel pathogens and the human response to toxins. This effort shall be
carried out generally as set forth in the Grantee's proposal entitled
"Stockpiling Drug Subunits for Rapid Response to Biological Warfare" dated 10
SEP 1997, a copy of which is in the possession of both parties.


                                       1


<PAGE>   2
                                                                N65236-98-1-5400

2. Term: The term of this Grant commences on the effective date of the grant and
continues through three (3) years thereafter.


3. Terms and Conditions: This Grant is subject to the General Terms and
Conditions set forth in the attached Exhibit A, entitled "DARPA Grant General
Terms and Conditions," and to any special terms and conditions in this Grant
Schedule.

4. Project Officer: The Project Officer representing the Government under this
Grant is Dr. Shaun B. Jones, Defense Advanced Research Projects Agency (DARPA),
3701 North Fairfax Drive, Arlington VA 22203-1714, telephone: (703) 696-4427.

5. Administrative Grants Officer: The Administrative Grants Officer (AGO) for
this Grant is the DCMC San Francisco, 1265 Borregas Avenue, Sunnyvale, CA 94089,
(408) 541-7099.

6. Principal Investigator: The Principal Investigator, Dr. Cynthia Edwards,
shall be responsible for this effort. The Grantee agrees to notify the Grantor
before changing the Principal Investigator.

7. This Grant is incrementally funded. The total amount of this Grant is
$13,592,769.00. The amount currently available for payment is $3,775,985.00,
which amount covers the period from the effective date of the grant through 31
JAN 1999. The Government's obligation for the difference of $9,816,784.00 is
contingent upon the availability of funds. Accordingly, no legal liability on
the part of the Government for payment of this difference shall exist unless and
until funds are made available to the Grantee by an amendment to the Grant.

8. Payments:

        8.1. Payment Method: Upon acceptance of the terms and conditions of this
Grant and submission of a Standard Form (SF) 270, "Request for Advance or
Reimbursement," by the Grantee to the AGO, the Grantee shall be entitled to an
initial advance payment covering work to be performed during the first three
months of the Grant (and any preaward costs as applicable). Subsequent quarterly
payments will be initiated upon receipt of the Grantee's SF 270 (original + 2
copies) by the AGO who will certify and transmit it for payment to the DFAS
Columbus Center, DFAS-CO/Van Nuys Division, PO Box 182157, Columbus, OH
43218-2157, (1-800-553-2839). Cash advances shall be limited to the minimum
amounts needed and be timed to be in accordance with the Grantee's actual,
immediate cash requirements in carrying out the purpose of the Grant. The timing
and amount of cash advances shall be as close as is administratively feasible to


                                       2


<PAGE>   3
                                                                N65236-98-1-5400

to the Grantee's actual disbursements for direct program costs and the
proportionate share of any allowable indirect costs.

        8.2. AGO Certification: The AGO shall not certify the Grantee's request
for additional cash payments until the Grantee has first disbursed any funds
available from repayments to and interest earned on a revolving fund, program
income, rebates, refunds, contract settlements, audit recoveries and interest
earned on such funds.

9. Reports and Reports Distribution: Reports shall be furnished as specified
below:

        9.1. Report Types:

        a. Quarterly R&D Status Report - This report shall keep the Government
informed of Grantee activity and progress toward accomplishment of Grant
objectives and advancement in state-of-the-art on the research and development
involved.

        b. Special Technical Report - This report, due as required, shall
document the results of a significant task, test, event or symposium.

        c. Final Technical Report - This report, due upon completion of the
Grant, shall document the results of the complete effort.

        d. Final Financial Status Report - This report, due 90 days after
completion of the Grant, shall be submitted on a Standard Form 269 or 269A. The
report shall be on a cash or accrual basis, depending on how the Grantee's
accounting records are normally kept.

        e. Report of Federal Cash Transactions - This report, due 15 days
following the end of each quarter, shall be submitted on a Standard Form 272
and, when necessary, its continuation sheet, SF-272a. The Grantee shall provide
forecasts of Federal cash requirements in the "Remarks" section of the report.

        9.2. Report Distribution:


<TABLE>
<CAPTION>
Addressees                                         Report Types (9.1)         Number of Copies
----------                                         ------------------         ----------------
<S>                                                <C>                        <C>
Project Officer                                    a., b., c.                        2
                                                   d., e.                            1

Administrative Grants Officer                      c.                                1
                                                   d., e.                            2
</TABLE>


                                       3


<PAGE>   4
                                                                N65236-98-1-5400

<TABLE>
<CAPTION>
Addressees                                         Report Types (9.1)         Number of Copies
----------                                         ------------------         ----------------
<S>                                                <C>                        <C>
DARPA/OASB Library                                 c.                                1
3701 North Fairfax Drive
Arlington, VA 22203-1714

Defense Technical Information Center               c.                                2
ATTN:  OCC
8725 John J. Kingman Road, Suite 0944
Ft. Belvoir, VA 22060-6218

SPAWAR Systems Center Charleston
Grants Officer                                     d., e.                            1
</TABLE>


10. Title to Property: Title to all real property and equipment purchased by the
Grantee with grant funds shall vest in the Grantee in accordance with the
provisions of Office of Management and Budget (OMB) Circular A-110. Title to all
equipment shall vest in the Grantee upon acquisition.

11. Audit: The Comptroller General and the Inspector General of the Department
of Defense shall have direct access to sufficient records and information of the
Grantee, as they determine, to ensure full accountability for federal funds.
Audit requirements shall be as set forth in either OMB Circular A-128 or A-133,
whichever is appropriate as determined by the organizational nature of the
Grantee.

12. Uniform Administrative Requirements: This Grant shall be administered in
accordance with the provisions of OMB Circular A-110.

13. Uniform Cost Principles: This Grant is subject to the uniform cost
principles of either OMB Circular A-21 or A-122, whichever is appropriate as
determined by the organizational nature of the Grantee.

14 Drug-Free Requirements: This Grant is subject to the requirements of the
Drug-Free Workplace Act of 1988 and the Drug-Free Schools and Communities Act
Amendments of 1989.

15. Revocation: Either party may terminate this Grant, in whole or in part, upon
notice to and consultation with the other party, and upon agreement of the
parties that continuation of the project would not produce beneficial results
commensurate with the further expenditure of funds. In addition, the Grants
Officer may revoke this Grant upon a finding that the Grantee has failed
materially to comply with the provisions of the Grant.


                                       4


<PAGE>   5
                                                                N65236-98-1-5400

16. Interest: The Grantee shall maintain grant funds in interest bearing
accounts. Interest earned on grant funds shall be remitted annually to the
Department of Health and Human Services, Division of Payment Management, P. O.
Box 6021, Rockville, MD 20852. A copy of each remittance shall be forwarded to
the AGO. Interest amounts up to $250.00 per year may be retained by the Grantee
for administrative expenses.

17. Program Income: Program income earned during the project period shall be
retained by the Grantee and shall be deducted from the total project or program
allowable cost in determining the net allowable costs on which the Government's
share of costs is based.

18. The United States is a State Party to the Convention on Biological and Toxin
Weapons (BWC). The contractor agrees that information learned or generated by
them as a result of this effort will not be used by them at any time to support
offensive biological warfare purposes.


FOR GRANTEE:


     /S/  IRENE A. CHOW
---------------------------------------------

(Grantee)

     President and Chief Executive Officer
---------------------------------------------
(Title)

February 3, 1998
---------------------------------------------
(Date)


                                 FOR THE UNITED STATES OF AMERICA, SPACE AND
                                 NAVAL WARFARE SYSTEMS COMMAND, SYSTEMS CENTER
                                 CHARLESTON

                                 By:        /S/  GRANT OFFICER
                                    ----------------------------------------
                                     (Grant Officer)

                                            February 3, 1998
                                    ----------------------------------------
                                     (Date)


                                       5


<PAGE>   6
                                                      GRANT NO. N65236-98-1-5400
                                                      EXHIBIT A - PAGE 1

EXHIBIT A

GRANT GENERAL TERMS AND CONDITIONS




ARTICLE

1.    Federal Requirements
2.    Order of Precedence
3.    Administration and Cost Principles
4.    Research Responsibilities
5.    Amendment Grant
6.    Prior Approvals
7.    Principal Investigator
8.    Restrictions on Printing
9.    Publications
10.   Acknowledgement of Sponsorship
11.   Grantee-Acquired Property
12.   Patent Rights
13.   Rights in Technical Data and Computer Software
14.   Human Subject
15.   Animal Welfare
16.   Research Involving Recombinant DNA Molecules
17.   Foreign Travel Approval
18.   Activities Abroad
19.   Civil Rights Act
20.   Clean Air and Water
21.   U.S. Flag Carriers
22.   Security
23.   Military Recruiting on Campus
24.   Subawards and Contracts/Subcontracts


                                       6


<PAGE>   7
                                                      GRANT NO. N65236-98-1-5400
                                                      EXHIBIT A - PAGE 2



1. Federal Requirements

This Grant is subject to the laws and regulations of the United States. If any
statute expressly prescribes policies or specific requirements that differ from
the requirements, standards, provisions, or terms and conditions of this Grant,
the provisions of the statute shall govern.

2. Order of Precedence

Any inconsistency or conflict in the terms and conditions specified in this
Grant shall be resolved according to the following order of precedence:

(a) The Grant Schedule

(b) Terms and Conditions In Exhibit A of this Grant

3. Administration and Cost Principles

Applicable to this Grant, and incorporated herein by reference, are the
requirements, standards, and provisions of the appropriate OMB Circulars and
attachments thereto, as revised as of the effective date of this Grant, listed
below. For purposes of this paragraph, the term "appropriate" is determined by
the organizational nature of the Grantee (educational institution, nonprofit
organization, state or local government).

(a) A-21, "Cost Principles for Educational Institutions"

(b) A-87, "Cost Principles for State and Local Governments"

(c) A-102, "Uniform Administrative Requirements for Grants-In-Aid to State and
Local Governments"

(d) A-110, "Uniform Administrative Requirements for Grants and Agreements with
Institutions of Higher Education, Hospitals, and Other Nonprofit Organizations"

(e) A-122, "Cost Principles for Nonprofit Organizations"

(f) A-128, "Audits of State and Local Governments"

(g) A-133, "Audits of Institutions of Higher Education and Other Nonprofit
Institutions"


                                       7


<PAGE>   8
                                                      GRANT NO. N65236-98-1-5400
                                                      EXHIBIT A - PAGE 3

4. Research Responsibility

The Grantee has full responsibility for the conduct of the research activity
supported by this Grant, in accordance with the Grantee's proposal, and the
terms and conditions specified in this Grant.

Grantees are encouraged to suggest or propose to discontinue or modify
unpromising lines of investigation or to explore interesting leads which may
appear during the development of the research. However, they must consult the
Project Officer through the Administrative Grants Officer before significantly
deviating from the objectives or overall program of the research originally
proposed.

5. Amendment of Grant

The only method by which this Grant can be amended is by a formal written
amendment signed by either the Grants Officer or the Administrative Grants
Officer. No other communications, whether oral or in writing, are valid.

6. Prior Approvals (Universities only)

The provisions of this Article are applicable to universities only.

a. All prior approvals required by OMB Circulars A-21 and A-110 are waived
hereby except for the following:

(1) Change of scope or objectives as required by Article 4 of the Terms and
Conditions entitled "Research Responsibility."

(2) Change of key personnel as required by Article 7 of the Terms and Conditions
entitled "Principal Investigator."

(3) Foreign travel as required by Article 17 of the Terms and Conditions
entitled "Foreign Travel Approval."

(4) Extension of the expiration period of this Grant.


b. Preaward Costs

(1) Grantees may incur preaward costs of up to ninety (90) days prior to the
effective date of the Grant award.

(2) Preaward costs as incurred by the Grantee must be necessary for the
effective and economical conduct of the project and the costs must be otherwise
allowable in accordance with the appropriate cost principles.


                                       8


<PAGE>   9
                                                      GRANT NO. N65236-98-1-5400
                                                      EXHIBIT A - PAGE 4

(3) Any preaward costs are made at the Grantee's risk. The incurring of preaward
costs by the Grantee does not impose any obligation on the Government, in the
absence of appropriations, if an award is not subsequently made or if an award
is made for a lesser amount than the Grantee expected.

c. Unobligated Balances

In the absence of any specific notice to the contrary, Grantees are authorized
to carry forward unexpended balances to subsequent funding periods.

7. Principal Investigator

Support for the project may not continue without the active direction of the
Principal Investigator (PI) approved for, and identified in, this Grant. If the
approved PI (1) severs his or her connection with the Grantee, or (2) otherwise
relinquishes active direction of the project, either permanently or for a
significant length of time (three months or more), then the Grantee must either:

(a) appoint a replacement PI with the approval of the Project Officer, or

(b) relinquish the Grant, in which case the Grant shall be terminated for
convenience in accordance with Attachment L of OMB Circular A-110.

8. Restrictions on Printing

Unless otherwise authorized in writing by the Grants Officer, reports, data, or
other written material produced using funds provided by this Grant and submitted
hereunder shall be reproduced only by duplicating processes and shall not exceed
5,000 single page reports or a total of 25,000 pages of a multiple page report.
These restrictions do not preclude the writing, editing, preparation of
manuscript or reproducible copy of related illustrative materials if required as
a part of this Grant, or incidental printing such as forms or materials
necessary to be used by the Grantee to respond to the terms of the Grant. To
satisfy the requirements of the Defense Technical Information Center, at least
one copy of each technical report submitted to the Defense Technical Information
Center must be black typing or reproduction of black on white paper or suitable
for reproduction by photographic techniques. Reprints of published technical
articles are not within the scope of this paragraph.

9.   Publication

Publication of results of the research project in appropriate professional
journals is encouraged as an important method of recording and reporting
scientific information. One copy of each paper planned for publication shall be
submitted to the Project Officer simultaneously with its submission for
publication. Following publication, copies of published papers shall be
submitted to the Project Officer.


                                       9


<PAGE>   10
                                                      GRANT NO. N65236-98-1-5400
                                                      EXHIBIT A - PAGE 5

10.   Acknowledgement of Sponsorship

(a) The Grantee agrees that in the release of information relating to this
Grant, such release shall include a statement to the effect that (1) the project
or effort depicted was or is sponsored by the Defense Advanced Research Projects
Agency, (2) the content of the information does not necessarily reflect the
position or the policy of the Government, and (3) no official endorsement should
be inferred.

(b) For the purpose of this article, information includes news releases,
articles, manuscripts, brochures, advertisements, still and motion pictures,
speeches, trade association proceedings, symposia, etc.

(c) Nothing in the foregoing shall affect compliance with the requirements of
the clause entitled "Security."

11. Grantee-Acquired Property

Title to all nonexpendable and expendable tangible personal property purchased
by the Grantee with grant funds shall be deemed to have vested in the Grantee
upon purchase, unless stated otherwise in this Grant schedule.

12. Patent Rights

Patent rights are as specified in 48 CFR 227 and 252, as amended, and 37 CFR
401.14 of July 1, 1987, which titles and sections are incorporated herein by
reference.

The Grantee shall utilize DD Form 882, Report of Inventions and Subcontracts,
for submission of interim and final invention reports. The DD Form 882 and all
invention disclosures shall be submitted to the Administrative Grants Officer
for proper disposition and forwarding to the Grants Officer.

13. Rights in Technical Data and Computer Software

Rights in Technical Data and Computer Software are as specified in the DoD FAR
Supplement (DFARS) clause 252.227.7013 which is incorporated herein by
reference.

14. Human Subjects

Grant funds may NOT be used for research that uses uninformed or nonvoluntary
humans as experimental subjects. The Grantee is responsible for the protection
of the rights and welfare of any human subjects involved in research,
development, and related activities supported by this Grant. The Grantee agrees
to comply, as appropriate, with the following directive and regulations which
are incorporated in the Grant by reference:

(a)     DoD Directive 3216.2, DoD Directive 3216.2, "Protection of Human
        Subjects in DoD


                                       10


<PAGE>   11
                                                      GRANT NO. N65236-98-1-5400
                                                      EXHIBIT A - PAGE 6

Supported Research," 7 January 1983;

(b)     DHHS Regulations, "Protection of Human Subjects" (45 Code of Federal
        Regulations, Part 46) of 26 January 1981, as amended; and,

(c)     FDA Regulations (21 Code of Federal Regulations, subchapters A, D, and
        H).

15. Animal Welfare

Any Grantee performing research on warm blooded vertebrate animals shall comply
with the Laboratory Animal Welfare Act of 1966, as amended, (7 U.S.C. 2131 et
seq.), and the regulations promulgated thereunder by the Secretary of
Agriculture (9 CFR, Subchapter A, Parts I through 4) pertaining to the care,
handling, and treatment of vertebrate animals held or used for research,
teaching, or other activities supported by Federal awards. In addition, the
Grantee shall comply with the provisions of DoD Directive 3216.1 and DFARS
clause 252.235-7003.

The Grantee is also expected to ensure that the guidelines described in DHHS
Publication No. (NIH) 85-23, "Guide for the Care and Use of Laboratory Animals,"
are followed and to comply with the U.S. Government Principles for the
Utilization and Care of Vertebrate Animals Used in Testing, Research, and
Training," included as an Appendix to the NIH Guide.

16. Research Involving Recombinant DNA Molecules

Any Grantee performing research involving recombinant DNA molecules and/or
organism and viruses containing recombinant DNA molecules agrees, by acceptance
of this award, to comply with the National Institutes of Health "Guidelines for
Research Involving Recombinant DNA Molecules," Nov 1984 (49 CFR 46266-46291, or
such later revision of those guidelines as may be published in the Federal
Register.

17. Foreign Travel Approval

Foreign travel requires liaison with the Project Officer for advance approval.
Grantee is cautioned that such advance approval could require 90 days in certain
situations.

18. Activities Abroad

The Grantee shall assure that project activities carried on outside the United
States are coordinated, as necessary, with appropriate Government authorities
and that appropriate licenses, permits, or approvals are obtained prior to
undertaking proposed activities. The awarding agency does not assume
responsibility for Grantee compliance with the laws and regulations of the
country in which the activity(ies) is (are) to be conducted.

19. Civil Rights Act


                                       11


<PAGE>   12
                                                      GRANT NO. N65236-98-1-5400
                                                      EXHIBIT A - PAGE 7

Grantees shall comply with the provisions of the Civil Rights Act of 1964, as
amended, and implementing regulations, and the Assurance of Compliance which the
Grantee must have on file prior to award of this Grant. Said Act, as amended,
and regulations are incorporated in this Grant by reference.

20. Clean Air and Water

If the amount of the Grant exceeds $100,000, the Grantee shall comply with the
Clean Air Act (42 U.S.C. 1857), as amended; the Water Pollution Control Act (33
U.S.C. 1251), as amended; Executive Order No. 11738; and the related regulations
of the Environmental Protection Agency (40 CFR, Part 15). Said regulations,
Executive Order, and Acts are incorporated in this Grant by reference.

21. U.S. Flag Carriers

The Grantee shall comply with Section 5 of the International Air Transportation
Fair Competitive Practices Act of 1974; the Comptroller General's Guidelines for
Implementation of said Act, March 12, 1976; and Comptroller General's Decision
B-138942, clarifying the guidelines. Such Act and guidelines are incorporated
into this Grant by reference.

22. Security

The Grantee shall not be granted access to classified information under this
Grant. If security restrictions should happen to apply to certain aspects of the
proposed research, the Grantee will be so informed. In the event that the
scientific work under this Grant may need classification, or involve access to
or storage of any classified data, the Government shall make its decision on the
need to classify, or require such access or storage, within 30 days after
receipt of written notice from the Grantee. If the decision is affirmative, the
Government shall invoke the clause in OMB Circular A-110, Attachment L,
paragraph 4.b. entitled, "Termination for Convenience."

23. Military Recruiting on Campus (Universities only)

As a condition for receipt of funds available to the Department of Defense (DoD)
under this award, the recipient agrees that it is not an institution of higher
education (as defined in 32 CFR part 216) that has a policy of denying, and that
it is not an institution of higher education that effectively prevents, the
Secretary of Defense from obtaining for military recruiting purposes: (A) entry
to campuses or access to students on campuses; or (B) access to directory
information pertaining to students. If the recipient is determined, using the
procedures in 32 CFR part 216, to be such an institution of higher education
during the period of performance of this agreement, and therefore to be in
breach of this clause, the Government will cease all payments of DoD funds under
this agreement and all other DoD grants and cooperative agreements to the
recipient, and it may suspend or terminate such grants and agreements
unilaterally for material failure to comply with the terms and conditions of
award.

24. Subawards and Contracts/Subcontracts


                                       12


<PAGE>   13
                                                      GRANT NO. N65236-98-1-5400
                                                      EXHIBIT A - PAGE 8

The applicable Federal cost principles for subawards and contracts/subcontracts
under this Grant shall be those otherwise applicable to the type of organization
receiving the subaward, contract or subcontract. In addition to OMB Circular
A-21, the other applicable cost principles are:

(a) OMB Circular A-122, applicable to other nonprofit organizations, except
those specifically exempted by the circular.

(b) Subpart 31.2 of the Federal Acquisition Regulation (48 CFR 31.2), applicable
to commercial firms and those nonprofit organizations specifically exempted from
the provisions of OMB Circular A-122.

(c) OMB Circular A-87 (34 CFR 255), for state and local governments.

(d) 45 CFR 74, Appendix E, for hospitals.


                                       13