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                                                                   EXHIBIT 10.23

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

                       DEVELOPMENT AND LICENSE AGREEMENT

This Agreement is made this 2nd day of June, 1998 ("the Effective Date") by and
between

                         ARADIGM CORPORATION
                         26219 Eden Landing Road
                         Hayward, California 94545
     

                         (hereinafter referred to as ARADIGM)

and                      NOVO NORDISK A/S
                         Novo Alle
                         DK-2880 Bagsvaerd
                         Denmark

                         (hereinafter referred to as NOVO NORDISK)

WHEREAS  ARADIGM is the owner of, and is beneficially entitled to, a number of
         patents and patent applications and Know-How related to the production
         and delivery of drugs, including proteins/peptides, via the pulmonary
         route using a breath controlled delivery device;

WHEREAS  NOVO NORDISK is the owner of, and is beneficially entitled to, a
         number of patents and patent applications and Know-How relating to the
         development and production of recombinant human insulin, as well as
         insulin analogues and other compounds useful in the control of blood
         glucose levels in humans;

WHEREAS  NOVO NORDISK and ARADIGM wish to enter into a Development and License
         Agreement to develop a system for pulmonary delivery of insulin (and
         potentially other compounds) and ARADIGM is willing to use its Patent
         Rights and Know-How in such a development programme;

WHEREAS  NOVO NORDISK and ARADIGM, in addition to the above mentioned
         development work, wish to enter into a licensing arrangement under
         which ARADIGM will grant to NOVO NORDISK an exclusive, world-wide
         license under ARADIGM's Patent Rights and ARADIGM's Know-How, to use,
         market, distribute, sell and sublicense products resulting from such
         development programme in the Field;

NOW, THEREFORE, it is hereby agreed as follows:






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SECTION 1.    -   DEFINITIONS

In the present Agreement the following definitions shall prevail:



     1.1     "Affiliates" of a party hereto shall mean an entity which
controls, is controlled by or is under common control with such party (by
majority ownership or otherwise). For the purposes hereof "control" shall mean
the power to direct or cause the direction of the management and the policies
of an entity, whether through the ownership of a majority of the outstanding
voting securities or by contract or otherwise.

     1.2     "ARADIGM" shall mean ARADIGM CORPORATION of 26219 Eden Landing
Road, Hayward, California 94545, and any of its Affiliates.

     1.3     "ARADIGM Know-How" shall mean all knowledge, information and
expertise possessed by ARADIGM prior to or at any time during the term of this
Agreement related to the development and production of the Device, Packaged
Products, Formulated Compounds and Programme Compounds, whether or not covered
by ARADIGM Patent Rights or any other industrial or intellectual property right
of ARADIGM, including but not limited to technical data, experimental results,
specifications, techniques, methods, processes and written materials.

     1.4     "ARADIGM Patent Rights" shall mean any and all of ARADIGM's
patents and patent applications related to the Device, Packaged Products,
Formulated Compounds and Programme Compounds, including those that relate to
the development, production and use of same, possessed by ARADIGM at any time
during the term of this Agreement.  A current and complete list of such rights,
entitled "ARADIGM Patents" and certified by an officer of ARADIGM, has been
delivered to NOVO NORDISK.  ARADIGM Patent Rights shall also include all
continuations, continuations-in- part, divisionals or re-issues of such patents
and patent applications and any patents issuing thereon or extensions thereof
or any foreign counterparts thereof.  Extensions of patents shall include: a)
extensions under the U.S. Patent Term Restoration Act, b) extensions of patents
under the Japanese Patent Law, c) Supplementary Protection Certificates for
members of the European Patent Convention and other countries in the European
Economic Area and d) similar extensions under any applicable law in the
Territory.

     1.5     "Development Costs" shall mean the fully burdened costs of
conducting development activities (including the supply by ARADIGM of clinical
trial quantities of Devices and Packaged Products) pursuant to the Development
Programme, including the costs of labor  (including all allocable benefits),
materials, outside consultants and research and development and corporate and
overhead amounts reasonably allocable to such development activities
[...***...].

     1.6     "Development Programme" shall mean the pharmaceutical development
of the Packaged Products (including Formulated Compounds and the disposable
unit dose packaging) and the Device, including the pre-clinical and clinical
development programmes required for registration and approval of the Device and
the Packaged Products in the Territory as provided for in this Agreement.  The
Development Programme shall initially consist of a development



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plan addressing the development of the Device and a Packaged Product containing
the Initial Compound, but may be enlarged to include the development of
Packaged Products containing one or more Other Compounds in accordance with
Article 2.1.

     1.7     "Device" shall mean any pulmonary delivery device, together with
any accessories, used to administer any Formulated Compounds contained in a
disposable unit dose package, developed in the course of the Development
Programme based on the device technology described in the ARADIGM Patent Rights
or utilizing ARADIGM Know-How.

     1.8     "Diligent Efforts" shall mean no less than the efforts that the
applicable party applies to development, manufacture or commercialization of
its own compounds or products with similar regulatory requirements and market
potential.

     1.9     "Field" shall mean pulmonary administration of insulin, insulin
analogs and any other compounds whose principal therapeutic effect is
[...***...].

     1.10    "First Marketing" shall mean making available for sale the Device
and a Packaged Product in commercial quantities in any country in the
Territory.

     1.11    "Formulated Compound" shall mean any formulation of any Programme
Compound developed in the course of the Development Programme for use in a
Packaged Product.

     1.12    "Fully Burdened Costs" shall mean the cost of raw materials
(excluding unless otherwise stated the Programme Compound), components, labour
(production), quality control (labour, material and external analysis), third
party royalties, freight, import duties, taxes and reasonably allocated
facilities, depreciation of equipment and manufacturing overheads relating to
the production of the specified item.

     1.13    "Gross Profit" shall mean NOVO NORDISK's Net Sales of Packaged
Products and Devices in the Territory minus the Fully Burdened Costs of all
Packaged Products and Devices (including finished goods, components and raw
materials such as Initial Compound that become obsolete or outdated, whether
due to inaccurate forecasting or any other reason) supplied to NOVO NORDISK or
produced by NOVO NORDISK as contemplated by Article 4.7 [...***...] and Article
4.9(a) (secondary packaging), including for this purpose the Fully Burdened
Costs of the applicable Programme Compound, other than product that is so
produced or provided as samples (Article 4.9(f)).

     1.14    "Initial Compound" shall mean recombinant human insulin.

     1.15    "Minimum Product Profile" shall mean any and all of the essential
minimum product specifications and other criteria for the Device and the
Packaged Products, set forth in a separate document entitled "Minimum Product
Profile" signed by the parties, which the parties have agreed must be met in
the course of the Development Programme to provide justification for commercial
launch and which may provide the basis for termination of this Agreement as set
forth in Article 9.2.





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* CONFIDENTIAL TREATMENT REQUESTED

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     1.16    "Net Sales" shall mean the invoiced gross revenue from sales of
product made by NOVO NORDISK and/or its sublicensees when invoiced to any third
party in an arm's length transaction less: a) Trade, cash and/or quantity
discounts or rebates, if any; b) Credits or allowances given for rejection or
return of such products previously sold; c) Any tax or governmental charge
other than income tax levied on the sale thereof or customs duties associated
therewith; d) Freight, insurance and other similar expenses billed separately
to the customer.  Upon a request by NOVO NORDISK supported by suitable
documentation reflecting actual operating experience, the parties will agree on
a fixed percentage of Net Sales to represent item (d).

     1.17    "NOVO NORDISK Know-How" shall mean knowledge, information and
expertise possessed by NOVO NORDISK prior to or at any time during the term of
this Agreement that relates to any Programme Compound or any Formulated
Compound or that NOVO NORDISK otherwise contributes to the Development
Programme, whether or not covered by NOVO NORDISK Patent Rights or other
industrial or intellectual property right of NOVO NORDISK, including but not
limited to technical data, experimental results, specifications, techniques,
methods, processes and written materials.

     1.18    "NOVO NORDISK" shall mean NOVO NORDISK A/S, Novo Alle, DK-2880
Bagsvaerd, Denmark, and any of its Affiliates.

     1.19    "NOVO NORDISK Patent Rights" shall mean any and all of NOVO
NORDISK's patents and patent applications related to any Programme Compound or
any Formulated Compound, including those that relate to the production,
development and use of same, possessed by NOVO NORDISK at any time during the
term of this Agreement.  NOVO NORDISK Patent Rights shall also include all
continuations, continuations-in-part, divisionals or re-issues of such patents
and patent applications and any patents issuing thereon or extensions thereof
or any foreign counterparts thereof.  Extensions of patents shall include: a)
extensions under the U.S. Patent Term Restoration Act, b) extensions under the
Japanese Patent Law, c) Supplementary Protection Certificates for members of
the European Patent Convention and other countries in the European Economic
Area and d) similar extensions under any applicable law in the Territory.

     1.20    "Other Compounds" shall mean compounds in the Field other than the
Initial Compound.

     1.21    "Packaged Products" shall mean the disposable unit dose packages
developed in the course of the Development Programme containing Formulated
Compounds, packaged for use with the Device for pulmonary delivery of such
Formulated Compounds.

     1.22    "Programme Compounds" shall mean the Initial Compound and any
Other Compounds that are added to the Development Programme in accordance with
Article 2.1.

     1.23    "Regulatory Approval" shall mean the granting of a commercial
marketing authorization for the Packaged Product for delivery of a Formulated
Compound using the Device and for the Device.







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     1.24    "Regulatory Submission" shall mean the filing of an application
for a commercial marketing authorization for a Packaged Product for delivery of
a Formulated Compound using the Device and for the Device.

    1.25     "Territory" shall include any and all countries of the world.

SECTION 2.    -   DEVELOPMENT ACTIVITIES AND RESPONSIBILITIES

     2.1     NOVO NORDISK and ARADIGM shall jointly conduct the Development
Programme, which shall initially consist of Diligent Efforts by the parties to
carry out a development plan addressing development of the Device and a
Packaged Product containing the Initial Compound for administration using the
Device.  The preliminary details of such development plan have been agreed upon
by the parties and are set forth in a separate document entitled "Milestone
Plan."  The details of this development plan shall be discussed and agreed on
in good faith between the parties and embodied in a document signed by both
parties, which shall thereafter be subject to further modification from time to
time as approved by the Steering Committee.  The product description for the
Packaged Product and the Device, including the Minimum Product Profile as well
as desired target profiles, shall be agreed by NOVO NORDISK and ARADIGM and
shall be included in the document defining the Development Programme.  It is
understood between the parties that the specifications for the Packaged Product
and the Device may require some changes during the course of the programme and
that such changes will be made when and as approved by the Steering Committee.
NOVO NORDISK shall specify within [...***...] after the initiation of a Phase
III trial of the initial Packaged Product one or more Other Compounds for study
by the Steering Committee as candidates for the second Packaged Product to be
added to the Development Programme and may from time to time thereafter propose
additional Other Compounds for the Development Programme.  Upon agreement by
the parties on a development plan to incorporate the preliminary details for
the development of such Other Compounds and determination by the Steering
Committee that such development is feasible and should be undertaken, such
Other Compounds will be added to the Development Progr*amme.  Each time an
Other Compound is added to the Development Programme in this manner, the
parties will agree in good faith on the financial terms not otherwise specified
herein for such development and commercialization, which will provide for a
reasonable sharing of the potential value of the Packaged Product containing
such compound, as well as on such other modifications of the other terms hereof
as may be reasonable under the circumstances.

     2.2     A Steering Committee will be established, consisting of an equal
number of people (at least three) from each party, whose responsibility will be
to ensure the Development Programme is carried out to the satisfaction of both
parties. The Steering Committee, [...***...], shall have responsibility for
approval of and release of funds, approving budgets, approving any changes to
the Development Programme, for approving reimbursement of costs for
pharmaceutical development as described in Article 2.5, as well as plans for
production capacity and budgets for capital expenditures associated therewith,
and for the review and approval of product specifications as contemplated by
Article 4.9(d). The Steering Committee will meet each quarter, during the first
year of this Agreement, and then as mutually agreed between the parties.  In
the event the Steering Committee is unable to resolve any matter to the
satisfaction of the Steering Committee, the matter will be referred to the
senior managements of the two parties for





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resolution.  While in general the parties intend to act by mutual agreement,
with respect to issues concerning the design and implementation of clinical
trials and approval of specifications as provided in Article 4.9(d), the senior
management of NOVO NORDISK shall have the right to make the final decision.

     2.3     ARADIGM agrees that it will use Diligent Efforts to develop,
manufacture and supply, to the deadlines included in the Development Programme
agreed between the parties, the Packaged Product and the Device consistent with
Good Manufacturing Practice and any other relevant practices as required to
obtain Regulatory Approval for the Device and the Packaged Product in all major
markets in the Territory.  ARADIGM shall use Diligent Efforts to obtain all the
required Regulatory Approvals in the Territory required for NOVO NORDISK
commercialization of the Device with the Packaged Products.  However, in such
cases where the Device Regulatory Submission is an integrated part of the
Regulatory Submission, then ARADIGM shall only timely submit to NOVO NORDISK
all the sections of the Regulatory Submission which are required for obtaining
Regulatory Approval of the Device with the Packaged Products.  For countries
other than the United States, NOVO NORDISK shall provide reasonable
non-monetary assistance in structuring such Device Regulatory Submission,
provided NOVO NORDISK has the necessary experience to provide such assistance.
The personnel of NOVO NORDISK having relevant expertise in technical areas
affecting ARADIGM's activities directed to product development, production
process development and manufacturing scale-up and cost reduction, including
those pertaining to the Device as well as the Packaged Product, shall
participate or advise in the Development Programme in such manner as is
approved by the Steering Committee.

     2.4     The Development Costs necessary for activities after the Effective
Date required to develop the Packaged Product and the Device as specified in
the Development Programme referred to in Article 2.1 shall be allocated and
paid as described below:





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Pre-clinical, clinical and regulatory Development                [...***...]

Programme Compound and Formulated Compound                       [...***...]

Packaged Product development work specific to                    [...***...]
Development Programme

Packaged Product supply for clinical development                 [...***...]

Device development and Device regulatory work
specific to Development Programme                                [...***...]

Device supply for clinical development 
(subject to Article 4.6)                                         [...***...]

Production validation and process qualification
specific to Development Programme                                [...***...]

All other production process development                         [...***...]

All other Device and Packaged Product Development                [...***...]



In addition to the foregoing, and in consideration of ARADIGM's past and future
development activities, NOVO NORDISK agrees to make the following milestone
payments  to ARADIGM at first occurrence of each of the following events:

         (a)      Twenty (20) days after the Effective Date: USD two million
                  (USD 2,000,000).

         (b)      Upon initiation of the Phase IIb clinical study (first
                  patient, first dose) (see development plan): [...***...].

         (c)      Upon initiation of the Phase III clinical study (first
                  patient, first dose) (see development plan): [...***...].

         (d)      At NOVO NORDISK's first Regulatory Submission in the United
                  States, the EEC or Japan: [...***...].

         (e)      Upon first Regulatory Approval in the United States:
                  [...***...].

         (f)      Upon first Regulatory Approval in the EEC: [...***...].

         (g)      Upon first Regulatory Approval in Japan: [...***...].

Notwithstanding any other provision of this Agreement, and for the avoidance of
doubt, each of the amounts referred to in [...***...] shall be payable only
once with respect to the development of the





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initial Packaged Product and shall be non-refundable. Consequently, maximum
total milestone payments to be paid by NOVO NORDISK to ARADIGM under this
Agreement in respect of such milestones shall amount to [...***...].

                  (h) Upon initiation (first patient, first dose) of a Phase IIb
clinical trial of a Packaged Product containing the second Programme Compound:
[...***...].

                  (i) Upon initiation (first patient, first dose) of a pivotal
Phase III clinical trial of such second Packaged Product: [...***...].

                  (j) When cumulative Net Sales of Devices and Packaged Products
reach [...***...].

                  (k) When cumulative Net Sales of Devices and Packaged Products
reach [...***...].

                  (l) When cumulative Net Sales of Devices and Packaged Products
reach [...***...].

For the avoidance of doubt, each of the amounts referred to in [...***...]
shall be payable only once.  Moreover, no further payments in respect of such
milestones will become due once NOVO NORDISK has paid ARADIGM a total of
[...***...].  Consequently, maximum total milestone payments to be paid by NOVO
NORDISK to ARADIGM under this Agreement in respect of such milestones shall
amount to [...***...].

Thus, the total milestone payments in respect of the Packaged Product
containing the second Programme Compound will be [...***...], plus milestone
amounts in respect of regulatory submission and approvals thereof to be agreed
upon at the time it is added to the Development Programme.  Upon request by
NOVO NORDISK to develop a third Programme Compound in the Development Programme
pursuant to Article 2.1, the parties will agree in good faith on the milestone
payments to apply to the clinical development of Packaged Products containing
such Other Compound.

Furthermore, NOVO NORDISK shall invest up to a total of USD ten million (USD
10,000,000) equity in ARADIGM at times and under terms as specified in a
separate agreement between the parties.

     2.5     Development Costs of ARADIGM to be borne by NOVO NORDISK will be
paid quarterly [...***...] by NOVO NORDISK based on budgeted expenses approved
by the Steering Committee, subject to a reconciliation to actual costs incurred
at the end of each year (based on a presentation to the Steering Committee no
later than sixty (60) days after the end of such year) approved by the Steering
Committee (such approval not to be unreasonably withheld or delayed) or more
frequently if requested by either party.  NOVO NORDISK shall pay or ARADIGM
shall refund, as applicable, any difference between amounts advanced and actual
costs incurred within thirty (30) days after such reconciliation is approved.
Any anticipated material deviations from established budgets will be reported
as promptly as practicable to the Steering Committee.





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     2.6     NOVO NORDISK and ARADIGM shall use their Diligent Efforts to
obtain all necessary regulatory approvals for pre-clinical and clinical
development work. All regulatory submissions required for clinical development
work in the USA to be filed initially by ARADIGM that are needed by NOVO
NORDISK to continue development will be transferred to NOVO NORDISK as soon as
practicable but in any event prior to the commencement of Phase III trials, and
NOVO NORDISK will thereafter be the holder thereof and will have responsibility
for all further regulatory filings worldwide unless otherwise approved by the
Steering Committee.

     2.7     NOVO NORDISK agrees that it will use its Diligent Efforts to
clinically develop and register, to the  deadlines included in the Development
Programme agreed between the Parties, and market the Packaged Products for
administration using the Device in the Territory.  [...***...].

     2.8     All supplies of Programme Compounds (including certificates of
analysis and safety handling data) required for the Development Programme,
shall be supplied by NOVO NORDISK to ARADIGM, [...***...], and in a timely
manner, so as not to adversely affect the expected duration of the Development
Programme.

     2.9     All supplies of Packaged Product and the Device plus safety and
handling information and training required for the Development Programme, shall
be supplied by ARADIGM to NOVO NORDISK, [...***...], and in a timely manner, so
as not to adversely affect the expected duration of the Development Programme.

     2.10    NOVO NORDISK shall furnish ARADIGM with such data and information
as ARADIGM shall reasonably require regarding each Programme Compound to enable
ARADIGM to carry out the work under the Development Programme.

     2.11    ARADIGM shall furnish NOVO NORDISK with such data and information
as NOVO NORDISK shall reasonably require regarding the  Packaged Products, the
Devices and components thereof, as well as the manufacturing processes
therefor, to enable NOVO NORDISK to carry out the work under the Development
Programme.

     2.12    ARADIGM shall only use Programme Compounds supplied by NOVO
NORDISK and the NOVO NORDISK Know-How as provided for in this Agreement. NOVO
NORDISK shall only use the ARADIGM Know-How as provided for in this Agreement.
Upon termination of this Agreement, ARADIGM undertakes to return, upon NOVO
NORDISK's written request, all written documentation embodying NOVO NORDISK
Know-How and any and all remaining Programme Compound to NOVO NORDISK, except
and to the extent retention thereof is reasonably necessary during any post
termination period in which NOVO NORDISK continues to supply insulin to
ARADIGM.  Upon termination of this Agreement, NOVO NORDISK undertakes to
return, upon Aradigm's written request, all written documentation embodying
ARADIGM Know-How to ARADIGM.

     2.13    ARADIGM hereby acknowledges that NOVO NORDISK may be
simultaneously conducting exploratory research and development on alternative
pulmonary delivery





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technologies that may be applicable in the Field and that NOVO NORDISK is free
to develop and commercialise such technology outside the Field.  NOVO NORDISK
may also supply insulin to third parties free of charge for use in such third
party's clinical studies using such third party's pulmonary delivery technology
in exchange for rights in such technology in the Field.  However, NOVO NORDISK
[...***...], and [...***...], provided that NOVO NORDISK has given written
notice (the "Alternative Technology Notice") to ARADIGM of its intention to
commence such commercialization at least one year prior to  such commencement.
Notwithstanding the foregoing, in the event NOVO NORDISK proposes to add an
Other Compound to the Development Programme pursuant to Article 2.1, and
ARADIGM is unwilling or unable to do so, NOVO NORDISK may thereafter develop
and commercialize such Other Compound with an alternative pulmonary delivery
technology without being in breach of this Agreement and such Other Compound,
together with equivalent compounds, will thereafter be excluded from the Field.

     2.14    During the term of this Agree*ment, in the event NOVO NORDISK
becomes aware of [...***...], it agrees subject to the rights and demands of
the potential licensor, to inform ARADIGM of such opportunity and, [...***...],
then the parties will jointly consider in good faith terms under which ARADIGM
would license such rights for application within pulmonary delivery, further
develop the applicable technology and make it available to a collaboration
between the two parties.

     2.15    For so long as the license to NOVO NORDISK under Article 3 is
exclusive, and subject to Article 2.13 above, ARADIGM shall not be entitled to
enter into any other agreement with any third party within the Field, and shall
not conduct any work programme with Initial Compound or any Other Compound from
any third party supplier without the written consent of NOVO NORDISK.

     2.16    NOVO NORDISK agrees that, in the event it cannot produce
sufficient quantities of the Initial Compound to satisfy all customer demand on
its capacity, [...***...] form.

SECTION 3.  -   GRANT OF LICENSE; OPTION

     3.1     ARADIGM hereby grants NOVO NORDISK a world-wide sole and exclusive
license under the ARADIGM Patent Rights and ARADIGM Know-How a) to use, market,
distribute, sell, offer for sale, import and export the Packaged Products and
the Device in and from the Territory for use within the Field, with the right
to sublicense, and b) to otherwise exercise and perform its rights and
obligations under this Agreement.

     3.2     ARADIGM hereby grants NOVO NORDISK the right to sublicense its
customers to a) use the Packaged Products and the Device, and b) sell, offer to
sell, import or export the Packaged Products and the Device, so long as said
items were bought from NOVO NORDISK.

     3.3     Notwithstanding the foregoing and except as set forth herein,
effective one year after NOVO NORDISK gives ARADIGM the Alternative Technology
Notice pursuant to Article 2.13, the licences granted to NOVO NORDISK under
Article 3.1 and 3.2 will [...***...], and ARADIGM shall be entitled from and
after receipt of the Alternative Technology Notice to





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engage marketing partners and other distributors and otherwise prepare itself
to commence commercial marketing of Devices and Packaged Products on the
effective date of such conversion.  If at the time of delivery of the
Alternative Technology Notice, NOVO NORDISK is engaged in clinical development
of one or more Packaged Products containing one or more Other Compounds, or
intends to promptly commence clinical development of one or more such Packaged
Products, it may at its option elect to [...***...] with respect to such Other
Compounds by specifying such Other Compounds in the Alternative Technology
Notice.  In this case, (a) the parties will proceed promptly under Article 2.1
to add any of such specified Other Compounds to the Development Programme (if
they are not already in development), (b) the parties will thereafter meet
their respective obligations to diligently develop and commercialize such
specified Other Compounds and (c) the terms and conditions of this Agreement,
including but not limited to Articles 2.13 (with NOVO NORDISK's obligation not
to conduct or fund clinical studies to apply until the first Regulatory
Approval of a specified Other Compound), 2.15 and 3.1, shall remain in full
force and effect but only with respect to Packaged Products containing such
specified Other Compounds until NOVO NORDISK provides a supplemental
Alternative Technology Notice at least one year in advance of its commencement
of commercialization of any of such specified Other Compounds using an
[...***...], provided that such supplemental notice may not be given prior to
the end of the fifth year after First Marketing of a Packaged Product
containing a specified Other Compound.  ARADIGM shall be granted access to, and
be given sufficient rights under, relevant [...***...], NOVO NORDISK Patents
and NOVO NORDISK Know-How to the extent reasonably necessary to enable it to
commercialise Devices and Packaged Products directly or through marketing
partners.  The foregoing notwithstanding, it is expressly understood that
neither ARADIGM nor any marketing partner of ARADIGM shall be granted access to
[...***...].  Moreover, NOVO NORDISK will continue to supply the Initial
Compound in bulk to ARADIGM for use in Packaged Products to be marketed by
ARADIGM during the term of this Agreement at the price specified in Article
9.5.

     3.4     In consideration of NOVO NORDISK undertaking the development and
marketing activities hereunder, ARADIGM hereby grants to NOVO NORDISK an
exclusive option to enter into a development and license agreement addressing
the development of a product for pulmonary delivery of [...***...] using the
Device or a modified version of the Device.  During the term of this option,
ARADIGM agrees to conduct feasibility studies on compounds covered by this
option, if requested to do so by NOVO NORDISK, [...***...].  Upon exercise of
this option, the parties will negotiate in good faith an agreement for the
development and commercialisation of such products.  The parties will negotiate
financial terms for such agreement which take into consideration product
economics and market conditions in the applicable field, which may be different
from those in the Field.  This option will expire [...***...].  During the term
of this option, ARADIGM will not enter into any agreement with any third party
concerning the development of any such product without the written consent of
NOVO NORDISK.

SECTION 4.  -   MANUFACTURING AND SUPPLY

     4.1     The parties hereto shall as soon as reasonably practicable after
the Effective Date enter into a supply agreement ("the Supply Agreement") for
the purpose of setting forth terms





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and conditions for ARADIGM's supply of the Packaged Product and the Device to
NOVO NORDISK. The Supply Agreement shall include provisions for arrangements
according to which NOVO NORDISK can maintain a) sufficient  supplies of the
Packaged Product and the Device in the event of ARADIGM becoming unable to
perform by reason of insolvency or bankruptcy and b) sufficient supply security
at all other times based on the maintenance of inventories, redundant
production capacity and contingency planning.

     4.2     ARADIGM shall, at its sole cost, establish and maintain in
operation at least one (1) fully validated site of manufacture, to all relevant
regulatory requirements within the Territory, to supply the Packaged Products
and the Device to NOVO NORDISK in accordance with the Supply Agreement.  NOVO
NORDISK shall have a right to inspect the site of manufacture. NOVO NORDISK
shall supply ARADIGM with any information specifically related to each
Programme Compound that may be required from ARADIGM by the relevant regulatory
authorities and required by ARADIGM to establish said manufacturing site.

     4.3     ARADIGM shall supply all clinical trial quantities and all
commercial quantities of the Packaged Products and the Device to NOVO NORDISK
in a timely fashion in accordance with the Supply Agreement.

     4.4     For the quantities referred to in Article 4.3 above, NOVO NORDISK
shall [...***...] supply sufficient amounts of each Programme Compound in solid
bulk form for filling and packaging of the Packaged Products by ARADIGM in a
timely fashion.

     4.5     ARADIGM shall supply the clinical trial quantities of the Packaged
Products referred to in Article 4.3 above at its Development Cost.  As payment
for the commercial quantities of the Packaged Product referred to in Article
4.3 above, NOVO NORDISK shall [...***...]. For clinical trial supplies of the
Packaged Products, the Development Costs will be estimated by the parties and
paid quarterly in advance by NOVO NORDISK based on the forecasted number of
units to be produced for the Development Programme in such quarter, subject to
reconciliation to actual costs and the actual number of units produced at the
end of each year.  For commercial supplies of the Packaged Products,
[...***...] will be estimated annually by the parties to establish an interim
transfer price, subject to reconciliation at the end of each year.  Payment of
the interim transfer price will be made net 30 days from date of shipment by
ARADIGM.

     4.6     As payment for the clinical trial quantities of the Device
referred to in Article 4.3 above, NOVO NORDISK shall [...***...].  The parties
will cooperate to minimize the number of such units required, consistent with
meeting the objectives of the Development Programme, and will provide for
re-use of Devices to the extent practicable.  As payment for the commercial
quantities of the Device referred to in Article 4.3 above, NOVO NORDISK shall
[...***...].  For clinical trial supplies of the Device, [...***...] will be
estimated by the parties and NOVO NORDISK's share thereof will be paid
quarterly in advance by NOVO NORDISK based on the forecasted number of units to
be produced for the Development Programme in such quarter, subject to
reconciliation to actual costs and the actual number of units produced at the
end of each year.  For commercial supplies of the Device, [...***...] will be
estimated annually by the parties to establish an interim transfer price,
subject to reconciliation at the end of each year.  [...***...].  The parties
will reset this component of the interim transfer price at the end of each





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<PAGE>   13


year based on anticipated commercial pricing for the coming year.  Payment of
the interim transfer price will be made net thirty (30) days from date of
shipment by ARADIGM.

     4.7     NOVO NORDISK may following consultation with ARADIGM, at its sole
cost and for the purpose of ensuring sufficient security of supply, choose to
establish and operate a second commercial production facility for the Packaged
Product or the Device, at a site owned either by NOVO NORDISK or by ARADIGM, at
the election of ARADIGM.  The location  of the second site of manufacture shall
be negotiated in good faith between the parties hereto, but NOVO NORDISK may
require that it be located at least fifty (50) miles from the first production
facility.  ARADIGM will provide NOVO NORDISK with any non-monetary assistance
required to design and construct a second site.  All costs directly related to
such transfer of manufacture will be borne by NOVO NORDISK.  In the event
ARADIGM elects to own such facility, it will do so through an Affiliate
established for the sole purpose of owning and operating such facility, and
NOVO NORDISK will not bear any such transfer costs or the cost of that portion
of such facility that will be used by ARADIGM to meet the needs of its other
customers.  In the event NOVO NORDISK is the owner of such facility, its
license under Article 3.1 above shall be enlarged to include the right to make
Devices and/or Packaged Products, as applicable, at such facility, and ARADIGM
shall continue to share in the Gross Profit as contemplated by Article 5.
Regardless of which party owns such facility, [...***...] of product produced,
[...***...], will be included in the calculation of Gross Profit.

     4.8     ARADIGM agrees to keep NOVO NORDISK informed as to its financial
condition during the term of this Agreement.  If at any time the financial
resources of ARADIGM are not reasonably sufficient to enable it to continue to
meet its obligations hereunder for at least the next six (6) months, the
parties will meet to review and consider steps that might be taken to ensure
that ARADIGM will be able to perform.  Such steps could include, but are not
limited to, the termination of ARADIGM activities that it is not contractually
obligated to perform in order to conserve resources.  If steps implemented by
ARADIGM are not sufficient to correct the situation within a sixty (60) day
period and ARADIGM cannot demonstrate to the reasonable satisfaction of NOVO
NORDISK that it will be able to complete any needed financing within the next
thirty (30) days, (a) then NOVO NORDISK shall have the right but not the
obligation to provide such financing on terms and conditions, including
security, that are reasonable under the circumstances and (b) if this situation
arises after Regulatory Approval, NOVO NORDISK may also exercise its right to
have a second commercial facility established pursuant to Article 4.7 and in
this case ARADIGM shall not have the right to elect to own such facility.

     4.9     The Supply Agreement will, in addition to the foregoing, contain
terms and conditions consistent with the following principles:

                 (a) Devices and Packaged Products will be supplied by ARADIGM
                     in final packaging or, if it is more efficient, in primary
                     packaging with secondary packaging to be done by NOVO
                     NORDISK (and [...***...] of any such secondary packaging
                     will be included in the calculation of Gross Profit).

                 (b) NOVO NORDISK, as part of its sales and marketing
                     responsibility, will provide [...***...], but ARADIGM will
                     provide [...***...] (the costs of which





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<PAGE>   14


                     will be included in product transfer pricing) as
                     reasonably requested by NOVO NORDISK.

                 (c) If for any reason a product recall is required, the
                     decision to implement the recall will be made by NOVO
                     NORDISK and ARADIGM will provide support as reasonably
                     requested. The cost of such recall, including the cost of
                     replacement product, shall be borne [...***...]; provided,
                     however, that if upon analysis of actually defective
                     recalled product the fault or relative fault can be
                     determined or allocated, then the cost of product to
                     replace such defective product shall be borne based on such
                     determination or allocation.

                     [...***...]

                     [...***...]

                     [...***...]

                     [...***...]

                     [...***...]

                     [...***...]

                     [...***...]

                     [...***...]
                    
                     [...***...]

                     [...***...]

                     [...***...]

                 (d) The specifications for the Device and Packaged
                     Products and production processes affecting safety or
                     efficacy will be subject to the review and approval of
                     NOVO NORDISK. NOVO NORDISK will accordingly be responsible
                     for all product liability other than product liability
                     attributable to the negligence of ARADIGM or any failure
                     by ARADIGM to manufacture the product in accordance with
                     applicable standards and practices. Product liabilities
                     that are incurred will be allocated between the parties
                     based on the fault or relative fault of the parties. If
                     negligence or fault cannot be so determined or allocated,
                     then such liability shall be borne [...***...].

                 (e) In view of the need to ensure customer satisfaction, NOVO
                     NORDISK's customer service operation is expected to accept
                     returns and provide replacements of products in response to
                     customer complaints often without reference to whether or
                     not such product was defective. Replacement product will be
                     pulled from regular inventories [...***...].






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                 (f) NOVO NORDISK will also have the right to order samples of
                     product containing active compound or placebo (i.e.,
                     product that is ordered, labeled and distributed as sample
                     product), which ARADIGM will supply at [...***...] and such
                     cost will not be included in the calculation of Gross
                     Profit. 

                 (g) ARADIGM will carry insurance against such risks and in such
                     amounts as is reasonable under the circumstances, including
                     insurance of bulk compound supplied by NOVO NORDISK against
                     loss and other casualties that can be reasonably insured
                     against. Since the efficiency with which bulk compound is
                     packaged into Packaged Product is an important cost factor,
                     ARADIGM and NOVO NORDISK will jointly develop and review
                     all aspects of the production process that affect
                     efficiency. If, notwithstanding these efforts, production
                     efficiencies are predicted to be below objectives
                     established by the Steering Committee [...***...], the
                     parties will meet to consiDEr corrective action, and any
                     improvements that are reasonable in light of anticipated
                     capital expenditures and the impact on profitability will
                     be implemented by ARADIGM. 

                 (h) In the event that this Agreement is terminated by NOVO
                     NORDISK pursuant to Article 9.7 or by ARADIGM other than
                     for a breach by NOVO NORDISK and if in such case NOVO
                     NORDISK elects to continue the commercialization of
                     Packaged Products and Devices, then NOVO NORDISK shall have
                     a right to set-up at its sole cost production facilities
                     for Packaged Products and Devices and ARADIGM shall in such
                     case provide NOVO NORDISK with access to all necessary or
                     useful documentation for its existing facilities and
                     reasonable non-monetary assistance required by NOVO NORDISK
                     for setting up such production facilities. Furthermore, in
                     such case NOVO NORDISK shall be granted a license to all
                     necessary rights under ARADIGM Patents and ARADIGM Know-How
                     required for production of Packaged Products and Devices in
                     its facilities. In such case ARADIGM shall continue to be
                     entitled to receive on an ongoing basis its [...***...] as
                     specified in Article 5.2, but reduced by the [...***...]
                     associated with thE transfer prices, as specified in
                     Articles 4.5 and 4.6, which shall be retained by NOVO
                     NORDISK as compensation for being required to undertake the
                     manufacturing function.

     4.10    In light of the length of time necessary to establish production
capacity, the Steering Committee will address long range capacity planning as a
part of the Development Programme. Within [...***...] of the Effective Date,
NOVO NORDISK will present to the Steering Committee a non-binding, long-term
forecast [...***...] of projected Device and Packaged Product unit sales on a
worldwide basis. Such forecast will be updated from time to time as part of NOVO
NORDISK's standard strategic planning process and such updates and any interim
forecast changes will be provided to the Steering Committee to ensure that
significant decisions with respect to capacity plans are made on the basis of
the most recent market forecasts. Subject to the review and approval of the
Steering Committee, ARADIGM and NOVO NORDISK will develop plans and associated
time lines for establishing needed



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<PAGE>   16


production capacity for [...***...] for at least [...***...] after First
Marketing. Each party will keep the other fully informed as to the status of
implementation of those aspects of such plans for which such party is
responsible. The Steering Committee will also assess the flexibility of the
planned production capacity to respond to changes in market demand and will
supervise the establishment of forecasting and order lead time procedures that
will optimize overall supply chain efficiency. It is the goal of the parties
that the ARADIGM will produce and ship product to NOVO NORDISK substantially as
follows:

             (a)     Once each quarter, NOVO NORDISK shall provide a [...***...]
rolling forecast to ARADIGM projecting unit volumes for Packaged Product and
Devices on a worldwide basis. The forecast for the first quarter will be binding
and may not be changed from the previous forecast. The second quarter forecast
may be changed by plus or minus [...***...] from the previous forecast. The
third quarter forecast may be changed by plus or minus [...***...] from the
previous forecast. The fourth quarter may be changed by plus or minus
[...***...] from the previous forecast. The fifth and sixth quarters may be
changed without limit subject to the limits of production capacity. The first
six quarter rolling order forecast will be provided to ARADIGM no later than
[...***...] months prior to First Marketing. The Steering Committee will review
and establish actual forecast and order procedures, which will be incorporated
in the Supply Agreement.

             (b)     NOVO NORDISK and ARADIGM shall use diligent efforts to keep
each other informed concerning changes in demand or capability to meet demand
and shall use diligent efforts to meet requests for changes in the forecast that
do not comply with the foregoing. 

             (c)     The Steering Committee will have the responsibility to
review and approve ARADIGM's inventory policies including the amounts carried at
each level of production. All orders will be shipped on completion and the
maintenance of finished goods inventory will be the responsibility of NOVO
NORDISK. Upon ARADIGM's request, NOVO NORDISK will provide an update of current
inventory levels held in finished goods at all NOVO NORDISK or Affiliate
locations. Likewise, ARADIGM will upon NOVO NORDISK's request provide an update
of current inventory levels of raw materials for Devices and Packaged Product,
including inventory levels of Initial Compound. 

             (d)     NOVO NORDISK shall use diligent efforts to maintain
sufficient production capacity for Initial Compound and shall keep ARADIGM
informed of its plans for increasing capacity as necessary to meet the
requirements of ARADIGM for the production of Packaged Product.

             (e)     The parties will on a regular basis review long term market
forecasts generated by NOVO NORDISK in its normal internal planning cycle for
the purpose of anticipating the need for expanded production capacity in
sufficient time to develop and implement plans for such expansions.

        4.11 If the volume of Packaged Products containing Initial Compound
supplied to NOVO NORDISK exceeds [...***...], NOVO NORDISK shall have the right,
after consultation



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<PAGE>   17

with ARADIGM, to establish at its sole cost an additional site for manufacturing
such Packaged Products at an existing NOVO NORDISK site where insulin is already
being processed. In such case, ARADIGM may require that the key production
equipment installed at this site will be [...***...] and that the production
steps involving laser drilling will be maintained and performed by ARADIGM at An
existing or new ARADIGM facility. In such case, ARADIGM will supply [...***...]
to NOVO NORDISK on the teRMs specified in Article 4.5 and in other respects in a
manner that is equivalent to how it provides such [...***...] to its own
Packaged Product production facility, with allocations in the event of a
shortage to be made on a pro rata basis. NOVO NORDISK's license under Article
3.1 above shall be enlarged to include the right to make such Packaged Products
at such facility, and ARADIGM will provide NOVO NORDISK reasonable non-monetary
assistance in establishing such production facility. All costs directly related
to such assistance will be borne by NOVO NORDISK. NOVO NORDISK shall have the
right to [...***...], provided that ARADIGM shall have the right to implemEnt
such improvements in its own facilities and to otherwise use such improvements
outside the Field as well as in its own production of Packaged Products. NOVO
NORDISK acknowledges and agrees that this facility will be used to meet demand
for Packaged Products in excess of the threshold volumes required to trigger
NOVO NORDISK's right to establish such facility and that priority will be given
to maintaining the production levels of ARADIGM at or above such threshold
volumes in order to ensure that ARADIGM's production capacity is used
efficiently. ARADIGM shall continue to share in the Gross Profit associated with
Packaged Products produced in this facility as specified by Article 5 (with the
[...***...] of product produced at such facility to be included in the
calculatIon of Gross Profit). In the event the parties determine that additional
capacity beyond that which has been established by ARADIGM and by NOVO NORDISK
hereunder, such additional capacity will be planned and added on such basis as
the parties agree upon.

SECTION 5. -  LICENSE PAYMENTS AND PROFIT SHARING

        5.1 In consideration of the licence and marketing rights granted by
ARADIGM in accordance with Article 3 above, NOVO NORDISK shall pay to ARADIGM
the sum of USD two million (USD 2,000,000) within twenty (20) days after the
Effective Date. Such payment is non-refundable and will be in addition to, and
may not be applied toward or otherwise credited against, any other payment
required hereunder, including but not limited to the payments provided for in
Article 2.4.

        5.2 In addition to the payments referred to in Article 5.1 above, each
year during the term of this Agreement NOVO NORDISK shall pay to ARADIGM
[...***...] on Net Sales of the Packaged Products and the Devices during such
year; provided, however, that a different percentage may be applicable to
Packaged Products containing Other Compounds as agreed by the parties pursuant
to Article 2.1. Interim payments shall be made to ARADIGM during such year in
the form of a percentage of Net Sales of Packaged Products and Devices intended
to approximate ARADIGM's interest in the Gross Profit. The applicable interim
payment percentage shall be established by agreement of the parties at the
beginning of each calendar year to govern payments during such year and a
reconciliation account established and settled at the end of the year to achieve
the Gross Profit specified above. The interim payments above and the transfer





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<PAGE>   18

price profit components referred to in Articles 4.5 and 4.6 shall be credited
against ARADIGM's share in t*he Gross Profit. 

        5.3 If the parties agree that it is necessary to enter into a Licence
Agreement with a third party to secure intellectual property rights in any
country in the Territory for the Packaged Products or the Device, [...***...].
Notwithstanding the foregoing, NOVO NORDISK shall bear all such costs that may
be payable in respect of any Programme Compound to secure freedom of operation
for that compound. 

        5.4 NOVO NORDISK shall keep complete and correct records of the Net
Sales of the Packaged Products and the Device and other financial information
necessary to determine the Gross Profit and shall report such information as is
pertinent along with each payment to ARADIGM. ARADIGM will maintain similar
records with respect to its pertinent costs hereunder. 

        5.5 Interim payments under Article 5.2 of this Agreement shall be due
and payable within [...***...] of each calendar year. To achieve a year-end
reconciliation, ARADIGM will provide NOVO NORDISK with [...***...] NOVO NORDISK
within thirty (30) days after receipt of ARADIGM's report or, if later, within
seventy-five (75) days after the end of the year. NOVO NORDISK shall pay or
ARADIGM shall refund, as applicable, any difference between interim payments
made and actual results within thirty (30) days after delivery of such
reconciliation report, subject to the audit rights of the parties. 

        5.6 Payments under this Agreement in respect of Net Sales made in
currencies other than USD shall be calculated on the average daily exchange rate
for the applicable year to date period (i.e., from January 1 of each year to the
last business day of the quarter in question) for exchanging the local currency
into USD at the rate for buying USD quoted by Den Danske Bank, and its
successor(s) in Copenhagen, Denmark. 

        5.7 Not more than once in a calendar year, at ARADIGM's request, NOVO
NORDISK agrees to provide to ARADIGM, at ARADIGM's expense, a statement from an
independent auditor selected by ARADIGM and reasonably acceptable to NOVO
NORDISK, attesting to the correctness of NOVO NORDISK's payments. In the event
such auditor determines that additional amounts are due to ARADIGM, such amounts
shall be promptly paid by NOVO NORDISK, together with the reasonable costs of
conducting the audit, it being understood that ARADIGM will otherwise bear such
audit costs. NOVO NORDISK shall likewise have the right to require an auditor's
statement as to the accuracy of the pertinent costs of ARADIGM. In the event
such auditor determines that additional amounts are due to NOVO NORDISK, such
amounts shall be promptly paid by ARADIGM, together with the reasonable costs of
conducting the audit, it being understood that NOVO NORDISK will otherwise bear
such audit costs. Notwithstanding the foregoing, relevant NOVO NORDISK personnel
shall once a year have a right to review with relevant ARADIGM personnel cost
and investment accounts related to activities under this Agreement. 

        5.8 NOVO NORDISK agrees to use Diligent Efforts to achieve commercial
success for the Packaged Products and the Device in each country in the
Territory in which Regulatory




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<PAGE>   19

Approval has been obtained, except for such countries in which it would not be
desirable to market such products in light of the overall commercialisation
strategy therefor. Prior to the initiation of Phase III clinical studies,
reasonably documented sales forecasts for such products for each of the United
States, the EEC and Japan for [...***...] following commercial launch will be
established. The initial [...***...] will be reviewed and approved by the
Steering Committee, provided that if the Steering Committee is unable to agree
on such forecast, the senior managements of the two parties will meet in an
effort to reach agreement. If agreement cannot be reached, NOVO NORDISK will
decide the matter. The initial sales forecasts for the EEC and Japan will be
established by NOVO NORDISK after review and comment by the Steering Committee.
Prior to First Marketing, NOVO NORDISK will update the [...***...] and review
and discuss wIth the Steering Committee the marketing plan by which it intends
to meet its marketing diligence obligation hereunder in respect of product
launch and during the first year after launch. At the end of the first and
second years following First Marketing, updated reasonably documented forecasts
for the [...***...] will be similaRly established and marketing plans will
likewise be reviewed and discussed. If NOVO NORDISK subsequently revises such
forecasts to less than [...***...] of initially forecasted levels for any year
or if actual results in any year are less than [...***...] of the [...***...]
for such year, NOVO NORDISK will develop and review with ARADIGM strAteGIES to
be implemented to ensure that the expected market potential will be realised.
The parties will also discuss the establishment of [...***...] and will likewise
in good faith discuss any failure or anticipated failure to achieve such minimum
pricing. If, notwithstanding such efforts, sales forecasts or actual sales
continue to be materially short of expectations or if pricing continues to be
below targeted minimums for more than a year, NOVO NORDISK agrees that upon
request by ARADIGM it will in good faith negotiate such modifications to this
Agreement or the Supply Agreement as may be reasonably necessary to enable
[...***...] in light of the scale of the forecasTed or actual commercial
results. Alternatively, NOVO NORDISK may at its election after such a
renegotiation request by ARADIGM elect to terminate this Agreement and the
Supply Agreement. At the end of each of the [...***...] commencing with the
third year following First Marketing, NOVO NORDISK will review and discuss its
latest reasonably documented [...***...] forecasts and marketing plans with
ARADIGM.

         ARADIGM agrees to use Diligent Efforts to realize its pre-Phase III
cost estimate contemplated by the Minimum Product Profile that is the basis for
a decision to proceed with Phase III trials. If, notwithstanding such efforts,
Aradigm's actual Fully Burdened Cost of producing Packaged Products (excluding
for these purposes the cost of the Initial Compound) and Devices are materially
higher than estimated (for reasons other than lower than expected volume or
externalities such as exchange rates or inflation) and as a result gross margins
contemplated by the Minimum Product Profile are not achieved, ARADIGM will
develop and review with NOVO NORDISK strategies to be implemented to reduce
costs to targeted levels. If, notwithstanding such efforts, ARADIGM costs
continue to be materially higher than targeted levels for more than a year, then
ARADIGM agrees that upon request by NOVO NORDISK it will in good faith negotiate
such modifications to this Agreement or the Supply Agreement as may be
reasonably necessary to enable NOVO NORDISK to realise a reasonable profit on
its sales of Packaged Products and Devices. In no event will NOVO NORDISK be
under any obligation to agree to pay ARADIGM Fully Burdened Cost amounts for
Packaged Products and 



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<PAGE>   20

Devices that do not enable a Gross Profit Margin of at least 70%. Alternatively,
ARADIGM may at its election after such a renegotiation request by NOVO NORDISK
elect to terminate this Agreement and the Supply Agreement. Notwithstanding the
foregoing, if in either of the above situations a party requests a renegotiation
of the terms of the Agreement or the Supply Agreement, it is expressly
understood that neither party will be required to agree to any terms that do not
enable it to realise a reasonable profit on its activities under this Agreement
and the Supply Agreement, it being further understood that the parties
anticipate a termination of this Agreement and the Supply Agreement if it is not
possible for both parties to realise a reasonable profit.

        5.9 Under no circumstances shall NOVO NORDISK be required to pay any
amount in excess of or in addition to the payments agreed under this Agreement.
If any payment made by NOVO NORDISK under this Agreement is subject to
withholding tax, such withholding tax shall be borne by ARADIGM and shall be
deducted from the payments made by NOVO NORDISK. Upon ARADIGM's written request,
NOVO NORDISK shall support ARADIGM in its efforts of minimizing any such
withholding taxes, and reasonably provide ARADIGM with relevant information
about documentation needed to reduce the withholding tax to a legal minimum or
to secure applicable credits in respect thereof.

SECTION 6.  -  INTELLECTUAL PROPERTY

        6.1 ARADIGM shall remain the sole owner of all ARADIGM Patent Rights and
ARADIGM Know-How obtained by ARADIGM individually prior to entering into this
Agreement and shall use best efforts to maintain and defend their position.
Furthermore, ARADIGM warrants that it is not aware of any third party patent
rights that would limit in any material respect the parties' freedom of
operation with respect to practicing the ARADIGM Patent Rights.

        6.2 NOVO NORDISK shall remain the sole owner of all NOVO NORDISK Patent
Rights and NOVO NORDISK Know-How obtained by NOVO NORDISK prior to entering into
this Agreement. 

        6.3 (a) ARADIGM shall retain ownership of any and all results,
improvements or inventions ("ARADIGM Programme Inventions") whether patentable
or not made jointly by the parties or individually by one of the parties as a
part of the Development Programme during the term of this Agreement and which
relate solely to [...***...]. ARADIGM shall be responsible for filing,
maintaining and defending any patents filed based on ARADIGM Programme
Inventions and will timely inform NOVO NORDISK of its intentions, activities and
filings in this respect. ARADIGM will grant NOVO NORDISK a royalty free license,
with the right to sublicense, under the ARADIGM Programme Inventions. Such
license will be perpetual but will be limited to applications [...***...]. (b)
Should ARADIGM decide not to patent an ARADIGM Programme Invention in any
country, NOVO NORDISK shall have the right to do so. In such case, NOVO NORDISK
shall be the owner of any patent or patent application based on such ARADIGM
Programme Invention and will grant ARADIGM a royalty free licence thereunder,
with the right to sublicence. Such licence will be for the life of the patent
but will be limited to applications [...***...] for so long as NOVO NORDISK's
rights under Article 3 remain exclusive (and thereafter for so long as NOVO
NORDISK retains exclusivity under Article 3.3 


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<PAGE>   21

with respect to specified Packaged Products, to applications other than those
for which there is continuing exclusivity under Article 3.3). Should ARADIGM
decide to abandon any such patent or patent application, in any country, NOVO
NORDISK shall have the option to take over such patent or patent application. In
such case, NOVO NORDISK shall be the owner thereof and will grant ARADIGM a
royalty free licence thereunder, with the right to sublicence. Such licence will
be for the life of the patent but will be limited to applications [...***...]
for so long as NOVO NORDISK's rights under Article 3 remain exclusive (and
thereafter for sO long as NOVO NORDISK retains exclusivity under Article 3.3
with respect to specified Packaged Products, to applications other than those
for which there is continuing exclusivity under Article 3.3). (c) Furthermore,
NOVO NORDISK shall be entitled to enter any litigation in the defence and
enforcement of any such patents by any infringer thereof in the Field and the
parties shall agree in good faith regarding any such defence and enforcement, as
well as how to pay for any costs incurred and how to share any rewards. 

        6.4 (a) NOVO NORDISK shall retain ownership of any and all results,
improvements or inventions whether patentable or not made jointly by the parties
or individually by one of the parties as a part of the Development Programme
during the term of this Agreement and which relate solely to [...***...].
Inventions relating to the Formulated Compound owned by NOVO NORDISK are
referred to as "NOVO Formulation Inventions." NOVO NORDISK shall be responsible
for filing, maintaining and defending any patents filed based on NOVO
Formulation Inventions and will timely inform ARADIGM of its intentions,
activities and filings in this respect. NOVO NORDISK will grant ARADIGM a
royalty free licence, with the right to sublicence, under the NOVO Formulation
Inventions. Such licence will be perpetual but will be limited to applications
[...***...]. (b) Should NOVO NORDISK decide not to patent a NOVO Formulation
Invention in any country, ARADIGM shall have the right to do so. In such case,
ARADIGM shall be the owner of any patent or patent application based on such
NOVO Formulation Invention and will grant NOVO NORDISK a royalty free licence
thereunder, with the right to sublicence, for the life of the patent. Should
NOVO NORDISK decide to abandon any such patent or patent application, in any
country, ARADIGM shall have the option to take over such patent or patent
application. In such case, ARADIGM shall be the owner of such patent or patent
application and will grant NOVO NORDISK a royalty free licence thereunder, with
the right to sublicence, for the life of the patent. (c) Furthermore, ARADIGM
shall be entitled to enter any litigation in the defence and enforcement of any
such patents by any infringer thereof [...***...] and the parties shall agree in
good faith regarding any such defence and enforcement, as well as how to pay for
any costs incurred and how to share any reward. 

        6.5 The foregoing is not intended to limit in any respect the rights of
ARADIGM under Articles 3.3, 9.3 and 9.5 to develop and commercialise Devices and
Packaged Products under the circumstances specified therein. NOVO NORDISK will
grant ARADIGM a perpetual royalty free licence, with the right to sublicence,
[...***...] utilized in the Development Programme needed by ARADIGM in order
only to conduct and continue the development, production and commercialisation
activities contemplated by Article 3.3, 9.3 and 9.5 of this Agreement.

SECTION 7.  -  SECRECY



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<PAGE>   22

        7.1 Any information from time to time communicated or delivered by one
of the parties to the other, including, without limitation, trade secrets,
business methods, and cost, supplier, manufacturing and customer information,
and information regarding such party's Patent Rights and Know-How, shall be
treated by NOVO NORDISK and ARADIGM, respectively, as confidential information,
and shall not be disclosed or revealed to any third party whatsoever or used in
any manner except as expressly provided for herein; provided, however, that such
confidential information shall not be subject to the restrictions and
prohibitions set forth in this Article 7 to the extent that such confidential
information:

        -       is available to the public in public literature or otherwise, or
                after disclosure by one party to the other becomes public
                knowledge through no default of the party receiving such
                confidential information; or

        -       was known to the party (as demonstrated by the written records
                of such party) receiving such confidential information with no
                obligation to maintain confidentiality prior to the receipt of
                such confidential information by such party, whether received
                before or after the date of this Agreement; or

        -       is obtained by the party receiving such confidential information
                from a third party not subject to a requirement of
                confidentiality with respect to such confidential information;
                or

        -       is required to be disclosed pursuant to (i) any order of a court
                having jurisdiction and power to order such information to be
                released or made public; or (ii) any lawful action of a
                governmental or regulatory agency.

        7.2 Each party shall take all such precautions as it normally takes with
its own confidential information to prevent any improper disclosure of such
confidential information to any third party; provided, however, that such
confidential information may be disclosed within the limits required to obtain
any authorization from any governmental or regulatory agency or, with the prior
written consent of the other party, which shall not be unreasonably withheld, or
as may otherwise be required in connection with the purposes of this Agreement.

        7.3 Each party agrees that it will not use, directly or indirectly, any
Know-How or otherwise confidential information received from the other party
pursuant to this Agreement other than as expressly provided herein. 

        7.4 NOVO NORDISK and ARADIGM will not publicise the existence of this
Agreement in any way without the prior written consent of the other subject to
the disclosure requirements of applicable law and regulations. However, it has
been agreed between the parties that the parties will issue a joint press
release, following signature of the Agreement, including information on the
total potential value of the collaboration and stating that the collaboration
involves the development of formulations for pulmonary administration within the
Field as well as an option to expand the collaboration into two additional
fields.

        7.5 As a part of its marketing obligations hereunder, NOVO NORDISK shall
be solely responsible for all publication planning, it being understood that
NOVO NORDISK will endeavor to present to the Steering Committee its overall
publication planning strategy in good time prior to implementation and will in
such event in good faith consider any reasonable suggestion made by ARADIGM for
amendments to such strategy, it being at all times understood that NOVO NORDISK
shall not be entitled to publish any information covered by 






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<PAGE>   23

Article 7.1 without the prior written consent of ARADIGM. For other publications
not covered by NOVO NORDISK's publication planning hereunder, the parties agree
not to publish in any technical or scientific article or otherwise any of the
results of the Development Programme without the review and approval of both
parties such approval not to be unreasonably withheld. 

7.6 The confidentiality conditions shall remain in force for seven years from
the day of termination of this Agreement.

SECTION 8. - NOTICE

        8.1 Any notice to be given under this Agreement shall be sent in writing
in English by registered airmail or telecopied to:

                  ARADIGM CORPORATION
                  26219 Eden Landing Road
                  Hayward, California 94545
                  Attention:  Chief Financial Officer
                  Telephone: 01 510-783-0100
                  Telefax:   01 510-783-0410

                  NOVO NORDISK A/S
                  Novo Alle
                  DK-2880 Bagsvaerd
                  Denmark
                  Attention: General Counsel
                  Telephone: 45 44 44 88 88
                  Telefax:   45 44 42 18 30

         or to such other addresses and telecopier numbers as may from time to
         time be notified by either party to the other hereunder.

8.2 Any notice sent by mail shall be deemed to have been delivered within seven
(7) working days after despatch and any notice sent by telex or telecopy shall
be deemed to have been delivered within twenty-four (24) hours of the time of
the despatch. Notice of change of address shall be effective upon receipt.



SECTION 9. - TERM AND TERMINATION

        9.1 This Agreement shall commence on the Effective Date and, unless
terminated in accordance with other Articles included in this Agreement, shall
continue to be in full force and legal effect for a period of [...***...] from
First Marketing and shall continue in effect thereafter until terminated by
either party by written notice of termination given at least [...***...] ahead
of the effective date thereof.

        9.2 Prior to the Initial Regulatory Approval, NOVO NORDISK shall have
the right to terminate this Agreement, by giving ARADIGM ninety (90) days prior
written notice, for technical or scientific reasons and at agreed time points in
the event that [...***...], which termination notice may be given only (a) if
the Steering Committee has met to review the



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<PAGE>   24

relevant problems and determined that they cannot reasonably be solved, or (b)
if within sixty (60) days after the Steering Committee's initial meeting to
review the relevant problems, such problems have not been solved or the Steering
Committee has not approved development actions reasonably likely to result in a
solution or (c) if such approved development actions fail to solve such problems
to the satisfaction of the Steering Committee. NOVO NORDISK shall reimburse
ARADIGM any reasonable costs and expenses incurred by ARADIGM during the ninety
(90) day notice period referred to above. ARADIGM will use their best efforts to
minimise such costs.

        9.3 Should NOVO NORDISK terminate this Agreement, as allowed for in
Article 9.2, or should ARADIGM terminate this Agreement due to a breach by NOVO
NORDISK, before Regulatory Approval in the Territory, ARADIGM shall be entitled
to use the data generated under the Agreement to work with a third party and
shall have full access to the relevant sections of [...***...]. In such case, if
in ARADIGM's reasonable judgement further efforts could result in a commercially
viable product, NOVO NORDISK shall also continue bulk supply of the Initial
Compound to ARADIGM at Fully Burdened Cost for the duration of any continued
development by ARADIGM. The foregoing notwithstanding, it is expressly
understood that neither ARADIGM nor any marketing partner of ARADIGM shall have
access to any [...***...].

        9.4 Either party shall be entitled to terminate this Agreement upon
thirty (30) days' written notice in the event that the other party shall commit
a material breach of any of the terms and conditions of this Agreement and shall
fail to remedy such breach within sixty (60) days of notice of such breach.*


        9.5 Should ARADIGM terminate this Agreement due to a breach by NOVO
NORDISK following Regulatory Approval in the Territory, ARADIGM will be entitled
to gain ownership of the marketing authorisations in the Territory. In such
case, the Marketing Authorisations, held by NOVO NORDISK, shall be transferred
to ARADIGM at NOVO NORDISK's cost of transfer; and NOVO NORDISK will agree to
supply bulk Initial Compound to ARADIGM at [...***...]. The foregoing
notwithstanding, it is expressly understood that neither ARADIGM nor any
marketing partner of ARADIGM shall have access to any NOVO NORDISK bulk insulin
Regulatory Approval or any [...***...].

        9.6 During the six calendar months following the Effective date, NOVO
NORDISK shall have a right to terminate the Agreement, with thirty days (30)
written notice, in the event of [...***...].

        9.7 Either party in addition to any other remedies available to it in
law may terminate this Agreement forthwith by written notice to the other party
in the event the other party shall 

                (a)     become insolvent or bankrupt;

                (b)     make an assignment for the benefit of its creditors;

                (c)     appoint a trustee or receiver for itself for all or a
                        substantial part of its property, seek reorganisation,
                        liquidation, dissolution, a winding arrangement,
                        composition or readjustment of its debts;




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<PAGE>   25

                (d)     have its controlling interests acquired by a third party
                        manufacturer of an approved insulin product at any time.

                (e)     [...***...].

        9.8 Termination or expiration of this Agreement shall not affect the
continuing validity and enforceability of Articles 6 and 7 of this Agreement.
All confidential information provided under the Agreement shall be returned to
the respective parties within 90 days of the termination date, except as
otherwise contemplated by this Agreement.

SECTION 10. - DISPUTE RESOLUTION AND APPLICABLE LAW

        10.1 Both parties will use their best endeavours to settle all matters
in dispute amicably. Any matter in dispute that cannot be resolved by the
Steering Committee will be referred to the senior management of the two parties,
who shall meet in an effort to settle such dispute before further proceedings.
All disputes and differences of any kind related to this Agreement, which cannot
be so solved amicably by the parties, shall be referred to, and finally settled
by, arbitration in New York, New York in accordance with the Arbitration Rules
of the American Arbitration Association. The number of arbitrators shall be
three (3). The award of the arbitrators shall be final and binding on both
parties. The parties bind themselves to carry out the award of the arbitrators.

        10.2 This Agreement shall be construed under and interpreted pursuant to
the Laws of New York.



Hayward, 1998- -                            Bagsvaerd, 1998--
ARADIGM CORPORATION                                 NOVO NORDISK A/S




/s/ RICHARD P. THOMPSON                     /s/ LARS REBIEN SORENSEN
--------------------------------            --------------------------------
By:  Richard P. Thompson                    By:  Lars Rebien Sorensen
President & CEO                             Executive Corporate Vice President
                                                       Health Care



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*CONFIDENTIAL TREATMENT REQUESTED


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