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                                                                   EXHIBIT 10.68


                        LEAD GENERATION PROGRAM AGREEMENT

                                     BETWEEN

                                 COMBICHEM, INC.

                                       AND

                          ONO PHARMACEUTICAL CO., INC.

                                DECEMBER 30, 1998















*** Certain confidential portions of this Exhibit were omitted by means of
blackout of the text (the "Mark"). This Exhibit has been filed separately with
the Secretary of the Commission without the Mark pursuant to the Company's
Application Requesting Confidential Treatment under Rule 24b-2 under the Act.


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                       LEAD GENERATION PROGRAM AGREEMENT

        THIS LEAD GENERATION PROGRAM AGREEMENT (this "Agreement") is entered
into and made effective as of December 30, 1998 (the "Effective Date"), by and
between COMBICHEM, INC., a Delaware corporation having its principal offices at
9050 Camino Santa Fe, San Diego, California 92121 ("CombiChem") and ONO
PHARMACEUTICAL CO., LTD., a Japanese corporation having its principal offices
located at 1-5 Doshomachi, 2-Chome, Chuo-Ku, Osaka 541-8526 Japan ("ONO").

        WHEREAS, CombiChem has developed, been licensed from a Third Party
and/or owns certain drug discovery technology and intellectual property rights,
including chemical library design software, multi-parallel synthesis and
purification methods, chemical libraries suitable for high throughput biological
screening assays and medicinal chemistry (collectively, the "CombiChem
Technology");

        WHEREAS, as of the Effective Date, ONO and its Affiliates have developed
and own certain drug discovery and intellectual property rights, including
certain assays, methods and know-how regarding the Research Target, among other
things (collectively, the "ONO Technology");

        WHEREAS, CombiChem and ONO have entered into the UIL (as defined herein)
Screening Agreement dated March 31, 1998 (the "Screening Agreement") under which
CombiChem supplied its proprietary UIL to ONO for the screening of targets in
which ONO has an interest for drug discovery. As a result of CombiChem's
analysis of ONO's screening data of the UIL on such targets, the Research Target
was identified as suitable for the initiation of a lead generation program as
set forth in this Agreement; and

        WHEREAS, CombiChem and ONO desire to conduct research under a lead
generation program focusing on such Research Target ("Lead Generation Program"
or "LGP") and ONO desires to develop therapeutic drugs in the Field with
compounds and information which result from such LGP.

        NOW, THEREFORE, the Parties agree as follows:

        1. DEFINITIONS

                1.1 "Active Compound(s)" means a Research Compound (or Research
Compounds) which:

                        (a) is synthesized by CombiChem in connection with the
Lead Generation Program;

                        (b) is selected by the RMC in connection with the Lead
Generation Program based on the criteria for classification of an Active
Compound or Inactive Compound as set forth in the Research Plan; and




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                        (c) is covered under claims of any Research Patent.

                1.2 "Affiliate" of a Party means any corporation or other
business entity controlled by, controlling or under common control with, such
Party. For this purpose "control" shall mean direct or indirect beneficial
ownership of more than fifty percent (50%) of the voting securities or income
interest in such corporation or other business, or if not meeting the preceding
requirements, any company owned or controlled by or owning or controlling such
Party at the maximum control or ownership right permitted in the country where
such company exists.

                1.3 "Assigned Hit Compound(s)" means a compound (or compounds)
which:

                        (a) is included in the UIL and is identified from the
screening of the UIL against the Research Target;

                        (b) is confirmed to be satisfactory for the First Year
Benchmarks and the Second Year Benchmarks; and

                        (c) CombiChem affirmatively assigns its property rights
to ONO under the Screening Agreement.

                1.4 "CombiChem Compound" means a chemical compound that is
proprietary to CombiChem, or whose use or manufacture is proprietary to
CombiChem or its Affiliates excluding any and all compounds in which all rights
and intellectual property are assigned to ONO.

                1.5 "CombiChem Technology" has the meaning set forth in the
preamble.

                1.6 "Confidential Information" means all non-public, proprietary
or otherwise confidential information, now owned, licensed or controlled or
hereafter acquired, developed, owned or licensed or controlled by a disclosing
Party prior to or during the term of this Agreement. Confidential Information
shall include, but is not limited to,

                        (a) all information and materials received by either
Party from the other Party pursuant to this Agreement which is confidential
under Article 10 hereof;

                        (b) all information and materials generated by either
Party arising out of the Lead Generation Program during the Research Period; and

                        (c) the terms and conditions of this Agreement.

                1.7 "Cycle" means, following the initiation of the Research
Period, the period of time between CombiChem's taking and starting to process
data received from ONO or CombiChem and ONO's screening of compounds resulting
from CombiChem's processing of such data.





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                1.8 "Derivative" means a compound (or compounds) which:

                        (a) has not been synthesized by CombiChem;

                        (b) has resulted from chemical synthesis by ONO to
generate a Preclinical Lead Compound or a Development Compound after the end of
the Research Period; and

                        (c) is covered under claims of any Research Patent.

                1.9 "Development Compound(s)" means a compound (or compounds)
which:

                        (a) (i) is an Active Compound or (ii) is a Derivative or
an Improved Derivative;

                        (b) is designated by ONO to be appropriate for
preclinical studies for the purpose of IND (as defined herein) filing by ONO;
and

                        (c) is intended by ONO to be developed or commercialized
for use within the Field.

                1.10 "Due Diligence" means the use of by a Party of its
resources for the purposes of this Agreement in a manner which is consistent
with the exercise of reasonable and prudent scientific and business judgment as
applied to other programs of ONO or CombiChem, as the case may be, as more fully
set forth in the Research Plan.

               1.11 "Exclusivity Period" means the Research Period *** , as may
be extended or reduced pursuant to Article 3 hereof.

               1.12 "Field" means all therapeutic indications in humans for the
Research Target against which a Development Compound or Products may be
directed.

               1.13 "First Commercial Sale" of a Product means the first sale
for use or consumption of such Product in a country after required marketing and
pricing approval has been granted by the governing health regulatory authority
of such country. Sale to an Affiliate shall not constitute a First Commercial
Sale unless the Affiliate is the end user of the Product.

               1.14 "First Year Benchmark" shall have the meaning set forth in
Schedule A attached hereto.

               1.15 "FTE" means a full-time equivalent employee of CombiChem
having the requisite skills to fulfill CombiChem's obligations under this
Agreement. For purposes of this Agreement, the FTEs shall include synthetic and
analytical chemists, compound control scientists and computational scientists.


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                1.16 "Improved Derivative" means a Derivative (or Derivatives)
which is included in the claims of a Selection Patent. No compound (or
compounds) proposed by CombiChem for synthesis by CombiChem during the Research
Period, and subsequently rejected by the RMC, shall be an Improved Derivative
under this Agreement, and if such is later pursued by ONO with respect to the
Research Target, such shall be treated as a Derivative under this Agreement.

                        ONO shall use commercially reasonable efforts to
demonstrate that a compound is an Improved Derivative to CombiChem's reasonable
satisfaction prior to any milestone or royalty *** pursuant to Sections 8.3 or
8.4 hereof.

                1.17 "Inactive Compound(s)" means a Research Compound (or
Research Compounds) which:

                        (a) is synthesized by CombiChem in connection with the
Lead Generation Program but is not selected as an Active Compound by the RMC;
and

                        (b) is not covered under the claims of any *** .

                1.18 "IND" means an Investigational New Drug notification or
equivalent application filed with the governing health regulatory authority in
the United States or any foreign equivalent in any country in the Territory.

                1.19 "Lead Generation Program" or "LGP" means the research
activities generically described in the preamble and to be conducted in
accordance with the Research Plan and provisions set forth in Sections 2.1 and
2.2 of this Agreement during the Research Period.

                1.20 "NDA" means a New Drug Application or equivalent filed with
the governing health regulatory authority in the United States or any foreign
equivalent in any country in the Territory.

                1.21 Net Sales" means, with respect to any Product, the invoiced
sales price of such Product billed by ONO, its licensees or its assignees to
independent customers (other than sales to Affiliates of ONO, unless such
Affiliate is the end user), less to the extent included in the invoiced sales
price, (a) actual credits, allowances, discounts and rebates to, and chargebacks
from the account of, such independent customers (b) any actual deductions for
spoiled, damaged, out-dated, and returned but not replaced Product; (c) actual
contributions made by ONO to the Japanese Fund for Sufferers for Adverse Drug
Events, but not to exceed 1% of what would be Net Sales without giving effect to
this subsection (c); (d) actual freight and insurance costs incurred in
transporting such Product in final form to such customers; (e) actual cash,
quantity and trade discounts and other price reduction programs; (f) actual
sales, use, value-added and other direct taxes incurred; and (g) actual customs
duties, surcharges and other governmental charges incurred in connection with
the exportation or importation of such Product in final form.



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                1.22 "ONO Compound" means any and all compounds covered under
the claims of a Research Patent including, but not limited to, any Assigned Hit
Compound, Active Compound, Derivative, Improved Derivative, Preclinical Lead
Compound and/or Development Compound.

                1.23 "ONO Technology" shall have the meaning set forth in the
preamble of this Agreement.

                1.24 "Party" means CombiChem or ONO, as the case may be,
including their respective Affiliates, permitted successors and assigns.

                1.25 "Patent" means (a) valid and enforceable U.S. or non-U.S.
Patent, and any non-U.S. equivalent, including any extension (including
Supplemental Protection Certificates), registration, confirmation, reissue,
continuation, divisionals, continuation-in-part, reexamination or renewal
thereof, or (b) pending applications for any of the foregoing, whether filed or
issued before or after the Effective Date.

                1.26 "Preclinical Lead Compound" means an Active Compound (or
Active Compounds), a Derivative (or Derivatives) or an Improved Derivative (or
Improved Derivatives) which satisfies the Second Year Benchmarks as set forth in
Schedule A attached hereto.

                1.27 "Product(s)" means any product containing a Development
Compound as the active ingredient or one of the active ingredients and which is
granted regulatory approval by the governing health regulatory authority of the
applicable country for marketing in the Field.

                1.28 "Research Compound(s)" means a compound (or compounds)
which (a) is synthesized following the Effective Date by CombiChem and provided
a sample of such to ONO for screening against the Research Target under the Lead
Generation Program, (b) is a pre-existing or hereafter acquired CombiChem
Compound which CombiChem desires to designate as a Research Compound, (c) is a
pre-existing or hereafter acquired chemical compound that is proprietary to ONO,
or whose use or manufacture is proprietary to ONO or its Affiliates, which ONO
desires to designate as a Research Compound or (d) is *** .

                1.29 "Research Libraries" means any and all compounds
(including, but not limited to, the Research Compounds) included in libraries
which are designed and synthesized for ONO by CombiChem following the Effective
Date as part of the Lead Generation Program.

                1.30 "Research Management Committee" or "RMC" has the meaning
set forth in Article 5 below.

                1.31 "Research Patent" means a Patent with composition of matter
claims and/or treating method claims relating to the Research Target which is
filed, maintained and/or prosecuted by ONO based on ONO's rights and
intellectual property assigned to ONO pursuant 


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to Section 4.2 hereof and which covers the results arising out of the Lead
Generation Program during the Research Period.

                1.32 "Research Period" means that part of the Lead Generation
Program commencing on the Effective Date, and ending *** thereafter, unless
earlier terminated, and which can be extended in accordance with Article 6 or
Section 8.5(a) hereof.

                1.33 "Research Plan" means the research plan to be agreed in
writing between the Parties and to be attached hereto as Schedule D, which
describes in mutually agreed upon detail the research activities to be performed
during the Research Period for the Research Target.

                1.34 "Research Target" means *** .

                1.35 "Returned Compounds" shall have the meaning set forth in
Section 7.3.

                1.36 "Royalty Term" means, in the case of any Product, in any
country, the period of time commencing on the First Commercial Sale and ending
*** from the date of First Commercial Sale in such country.

                1.37 "Second Year Benchmark" shall have the meaning set forth in
Schedule A attached hereto.

                1.38 "Selection Patent" means a Patent with claims covering a
compound (or compounds) which (i) is filed, maintained and/or prosecuted by ONO,
(ii) is included in a prior Research Patent but not specifically disclosed
therein and (iii) has superior effect which is unexpected from a prior Research
Patent.

                1.39 "Target Exclusivity Obligations" shall have that meaning
set forth in Section 3.1 hereof.

                1.40 "Territory" means the entire world.

                1.41 "Third Party" means an entity other than CombiChem or ONO
or their respective Affiliates, or permitted successors or assigns.

                1.42 "UIL" means CombiChem's proprietary Universal Informer
Library(TM).


        2. RESEARCH ACTIVITY

                2.1 CombiChem Responsibilities. CombiChem shall, with Due
Diligence, provide the following resources to ONO and conduct the following
activities under the Lead Generation Program, as more fully described in the
Research Plan:



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                        (a) Prior to the Effective Date, (i) CombiChem has
reviewed data and information regarding the Research Target provided by ONO and
derived from the UIL by CombiChem and (ii) both Parties have agreed upon the
Research Plan under the Screening Agreement. During the Research Period, based
on the data and information described above and such additional data and
information as may be provided by ONO after the Effective Date and using the
CombiChem Technology, CombiChem shall design Research Libraries as a part of the
LGP and supply all lead chemestries and synthesize Research Compounds as
provided in Section 4.4 hereof. CombiChem shall make commercially reasonable
efforts to identify Research Compounds which satisfy the First Year Benchmarks
on or before the first anniversary of the commencement of the Research Period
and to identify Preclinical Lead Compounds on or before the expiration of the
Research Period.

                        (b) During the Research Period, CombiChem shall keep ONO
informed of its activities performed in connection with the Lead Generation
Program, including, without limitation, providing ONO with data and information
(and, upon ONO's request, reasonable quantities of samples pursuant to Section
4.4 hereof) regarding the status of all Research Compounds prior to the meetings
of the RMC. CombiChem shall also establish a method of synthesis as provided in
Section 4.5 hereof.

                        (c) Subject to Section 2.3 and 8.2 hereof and Article 3
hereof, CombiChem shall provide one (1) project team ("Project Team") to conduct
CombiChem's activities in connection with the Lead Generation Program at a per
annum rate of *** *** to be paid by ONO pursuant to subsections 8.2 (a), (b) and
(c) hereof. The initial Project Team shall consist of a minimum of *** CombiChem
FTEs, unless both Parties determine otherwise pursuant to subsection 8.2(c)
hereof.

                        (d) CombiChem shall maintain research records in
reasonably sufficient detail comparable to the way they are maintained for
CombiChem's own research programs and in good scientific manner appropriate for
ONO's Patent purposes, which shall reflect all work done and results achieved in
accordance with the LGP. Upon ONO's request, CombiChem shall provide ONO with
copies of all such records.

                2.2 ONO Responsibilities. ONO shall, with Due Diligence, provide
the following resources to CombiChem and conduct the following activities under
the Lead Generation Program, as more fully described in the Research Plan:

                        (a) During the Research Period, ONO shall make payment
to CombiChem for the Lead Generation Program as set forth in Sections 8.1 and
8.2 hereof and shall provide screening, biological and structural data and
information to CombiChem necessary for CombiChem to perform its duties under
this Agreement. ONO will further assume scientific, financial and administrative
responsibility for screening and biological support activities, drug 



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development and regulatory filings during and after the term of the Lead
Generation Program on the terms set forth below.

                        (b) During the Research Period, ONO shall screen
Research Compounds for in vitro activity and, where appropriate, in vivo
activity against the Research Target. ONO shall provide CombiChem with data and
information which ONO develops pursuant to subsections 2.2(a) and (b) regarding
Research Compounds under the Lead Generation Program prior to the meetings of
the RMC.

                        (c) Following the Research Period, ONO shall select the
Development Compound from the Preclinical Lead Compounds, and if so selected,
ONO shall make reasonable commercial efforts to conduct preclinical and clinical
studies of the Development Compound for the purpose of filing an NDA and
thereafter to progress Products through to the marketplace as expeditiously as
possible. The Parties understand that there are inevitable delays in the
development process which lie outside ONO's direct accountability.

                        (d) Notwithstanding the provisions of subsection 2.2(c)
above, in the event that ONO reasonably determined that the Preclinical Lead
Compounds are not satisfactory for development and commercialization, following
the Research Period ONO may conduct chemistry work to generate and synthesize
the Derivatives and screen such Derivatives for in vitro and in vivo activities
against the Research Target only after ONO has thoroughly reviewed and conducted
biological testing on all Research Compounds synthesized by CombiChem and
provided to ONO. ONO will assume scientific, financial and administrative
responsibility for the medicinal chemistry, screening and biological support
activities.

                        (e) Following the Research Period through First
Commercial Sale, ONO shall use commercially reasonable efforts to prepare and
provide CombiChem with each of the reports related to ONO's activities under
this Agreement as specified in Schedule C attached hereto.

                        (f) During the Research Period and providing that ONO is
not in arrears on any payment specified in Sections 8.1, 8.2 and 8.3 hereof, ONO
shall, at its option, send one (1) research chemist to conduct ONO' activities
at CombiChem's facilities under the Lead Generation Program. ONO shall have sole
responsibility for the expenses associated with its visiting chemists,
including, without limitation, salary, travel, living and other associated
expenses of such chemist.

                2.3 Conduct of Lead Generation Program. The Parties hereby agree
that the Lead Generation Program shall be carried out with Due Diligence in
accordance with the Research Plan and this Agreement, as each may be amended
from time to time. The RMC shall review the Research Plan on a regular and
ongoing basis and may make written changes to the Research Plan so long as such
changes are mutually agreed to in writing by CombiChem and ONO.

                2.4 Third Party Licenses. Each Party shall be solely responsible
for acquiring any Third Party license and its associated fees required to
perform its obligations under this Agreement.




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        3. EXCLUSIVITY

                3.1 Research Target Exclusivity. Following the Effective Date,
so long as ONO or its Affiliates are proceeding with Due Diligence for the
Research Target, CombiChem shall not work on, or provide services, or advise,
either independently, or with any Third Parties (except where CombiChem is
providing its UIL to Third Parties without knowledge of such Third Parties'
target) with respect to the Research Target (the "Target Exclusivity
Obligations"), except (a) with respect to any Third Parties who are
collaborators or proposed collaborators of CombiChem, CombiChem shall have the
right, consistent with its corporate policy (but without identifying any
Research Target), to notify any such Third Party of its decision not to work on
and/or inability to work on such Research Target with that Third Party or (b)
ONO has provided CombiChem with a notice and release of Target Exclusivity
Obligations.

                3.2 Compound *** . Any Active Compound, Derivative or Improved
Derivative shall be *** available to ONO for research or application within or
outside the Lead Generation Program, during the Exclusivity Period, and
CombiChem shall not work on or provide information regarding such Active
Compound, Derivative or Improved Derivative to any Third Party, except to take
any steps necessary to protect ONO's exclusivity hereunder. Following the
expiration of the Research Period, Active Compounds, Derivatives or Improved
Derivatives for which a Research Patent has not been filed by the end of the
Exclusivity Period shall be deemed to be Inactive Compounds for all purposes
hereunder; provided, that any such Inactive Compound which is the subject of
claim(s) under a pending Research Patent shall continue to be *** available to
ONO until a Research Patent is issued with respect to one or more of such claims
or until all of such Research Patent claims have been denied and all appeals and
refiling procedures have been exhausted, at which time the compounds which are
the subject of those claims shall be Inactive Compounds hereunder.  

                3.3 Inactive Compounds.

                        (a) Except as otherwise provided in this Section 3.3,
any Inactive Compounds shall be available to CombiChem and ONO for any purpose.

                        (b) Research Compounds that are classified by the RMC as
an Inactive Compound during the *** in the Lead Generation Program or any
subsequent Cycle in the Lead Generation Program thereafter (each, a " *** "),
shall be exclusively available to ONO for research or application within or
outside the Lead Generation Program from the time of classification as an
Inactive Compound until the end of the Exclusivity Period. At the end of the
Exclusivity Period for any *** , if ONO has filed a *** with claims covering
such *** , such *** shall be treated as an Active Compound and shall continue to
be exclusively available to ONO as provided herein. If, however, ONO has not
filed a Research Patent with claims covering such *** by 




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the end of the Exclusivity Period for such *** , such *** shall thereafter
become available to CombiChem and ONO for research or application for any
purpose. With respect to each *** , during the Exclusivity Period, CombiChem
shall not work on or provide information regarding such *** to any Third Party,
except to take any steps necessary to protect ONO's exclusivity hereunder.

                        (c) Each Party shall promptly notify the other Party of
the filing of a Patent or Research Patent with claims covering an Inactive
Compound.


        4. COLLABORATION COMPOUNDS

                4.1 Pre-Existing Compounds or Other Pre-Existing Rights. Neither
Party shall have any rights with respect to any pre-existing compound of the
other Party unless and until such compound is designated as a Research Compound
by such other Party. Additionally, CombiChem may decline (after informing ONO)
to synthesize a particular compound or library of compounds by written notice to
ONO of existing Patents and/or contractual obligations with Third Parties
restricting CombiChem's performance of such activities.

                4.2 Intellectual Property Rights; License to ONO. Subject to
Section 7.3 hereof, and except as set forth in this Section 4.2, the ownership
rights in all Research Patents and intellectual property (whether or not
patentable) (including the right to file the Patent) relating to ONO Compound(s)
and the subject matter contained therein and resulting from the Lead Generation
Program shall be solely vested in ONO. Such ownership rights shall be achieved
by CombiChem assigning its right, title and interest in such Research Patents
and intellectual property relating to such ONO Compounds to ONO on (i)in the
case of Active Compounds, the date of the approved determination by the RMC that
a Research Compound is an Active Compound, (ii) in the case of Derivatives or
Improved Derivatives, upon notification by ONO to CombiChem of the synthesis by
ONO of such Derivative or Improved Derivative or (iii) in the case of any ONO
Compounds other than Active Compounds, Derivatives or Improved Derivatives, when
a Research Patent is filed by ONO and where such assignment is not possible, ONO
shall receive a worldwide, exclusive license under CombiChem's rights, with a
right to sublicense for all purposes *** to CombiChem other than those proposed
in Article 8. ONO shall be responsible for filing, maintaining and prosecuting
all Research Patents at its sole expense in those countries set forth on
Schedule E (individually, a "Major Country", and collectively, "Major
Countries") and CombiChem shall use commercially reasonable efforts to assist
ONO in filing such Research Patent; provided under no circumstances does
CombiChem warrant to ONO that its rights in any ONO Compounds are exclusive to
the extent such ONO Compounds may be covered under the patent claims of Third
Parties wherein such claims are not the direct result of a collaboration between
the Third Party and CombiChem. If ONO fails to so file, maintain or prosecute
all Research Patents in any Major Country, 


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CombiChem shall have the right to request ONO to do so. If ONO elects not to
file, maintain or prosecute all Research Patents in any Major Country ONO shall
promptly notify CombiChem of such election and provide CombiChem with a
fully-paid up license so that CombiChem can take over such filing, maintenance
or prosecution of those Research Patents for which ONO has elected not to file,
maintain or prosecute in such Major Country, at CombiChem's sole expense.

                4.3 Structural Information. Neither Party shall disclose the
structure of the other Party's compound, any Active Compound, Derivative,
Improved Derivative and Late Stage Inactive Compound to any Third Party without
the other Party's written permission, unless required to do so by law, in which
case such Party shall promptly notify the other Party of such required
disclosure; provided, however, that ONO is entitled to file a Research Patent at
its sole discretion and to disclose the structure of compounds covered by such
Research Patent to any Third Party following filing of such Research Patent.

                4.4 Supply of Research Compounds. Aliquots of any Research
Compound that has been synthesized will be prepared and given to ONO for in
vitro screening under the Research Plan. CombiChem shall replenish any amounts
provided to ONO as set forth in the Research Plan upon ONO's reasonable request.
CombiChem shall maintain aliquots of any Research Compound that has been
synthesized by CombiChem under the Research Plan. With respect to any Research
Compound which ONO intends to test in vivo under the Research Plan, CombiChem
shall also provide ONO with additional requirements of samples requested by ONO
at CombiChem's expense. To the extent the Research Compounds are not available
in a timely and sufficient quantity to allow the earliest start of necessary
large scale preclinical or other studies such unavailability of Research
Compounds shall not be cited as a lack of Due Diligence provided that CombiChem
has made commercially reasonable attempts, and continue such attempts, to
provide such unavailable Research Compounds in required quantities in the most
expedient manner.

                4.5 Method of Synthesis. In order to assist ONO in synthesizing
and manufacturing Preclinical Lead Compounds for clinical and commercial supply,
CombiChem shall use reasonable efforts to establish, and to provide any
reasonable information related to, a method of synthesis for Preclinical Lead
Compounds selected by ONO.


        5. RESEARCH MANAGEMENT COMMITTEE

                There shall be established a Research Management Committee (the
"RMC") comprised of four (4) core representatives, two (2) of whom shall be
chosen from time to time by ONO and two (2) of whom shall be chosen from time to
time by CombiChem to discuss between the Parties the progress, direction and/or
modification of the Research Plan, or determine whether a Research Compound is
an Active Compound or Inactive Compound. RMC meetings shall (i) be convened in
person once each quarter during the Research Period, or as otherwise reasonably
requested by either Party, (ii) take place alternating between San Diego or
Osaka, (iii) be chaired by a representative of a Party hosting the meeting and
(iv) be participated in by the members of the RMC, provided, however, that each
Party may have such other of its employees and consultants participate in the
meeting as may be required to adequately address the specific topics of the
meeting. The agenda of the meeting shall be coordinated between the Parties and




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established at least two (2) weeks prior to the meeting. In the event that a
Party wishes to present to the other Party its data and information relating to
the LGP, such Party shall furnish the other with such data and information to
the extent available, at least two (2) weeks prior to the meeting. A draft of
the meeting minutes reflecting matters addressed at such meeting shall be
prepared by the Party hosting the meeting and provided to the other for its
review and comment. Such minutes shall be considered accurate only upon signing
by representatives of both Parties. The Parties acknowledge that the RMC is not
authorized to amend or alter the terms of this Agreement; however, the RMC may
make appropriate scientific changes to the Research Plan and determination of
Active Compound or Inactive Compound which shall only be authorized by minutes
of the meeting executed by both Parties or any other written form. A Party may
authorize alternate members to act in the place of members of the RMC due to
their absence or other unavailability.


        6. RESEARCH PERIOD

                The initial term of the Lead Generation Program shall commence
on the Effective Date and conclude at the end of the Research Period, subject to
extension upon mutual agreement. To extend the Research Period, either Party
must notify the other Party no later than ninety (90) days prior to the
then-current expiration date and the Parties shall negotiate in good faith the
terms and conditions of any such extension based on a per annum rate of ***
***. Notwithstanding the foregoing, in the event that ONO requests CombiChem to
maintain FTEs pursuant to Section 8.5(a) of this Agreement, the Research Period
shall automatically be extended for an additional three (3)-month period on the
terms set forth in Section 8.5(a).


        7. LICENSE GRANTS; SUBLICENSE

                7.1 CombiChem License Grant to ONO. Subject to the terms and
conditions hereof, CombiChem hereby grants to ONO an exclusive, royalty bearing
(as set forth in Section 8.4 of this Agreement), worldwide license, with the
right to sublicense to use such CombiChem Technology as is necessary to make,
have made, use, have used, sell, have sold, import and export ONO Compounds
and/or Products in the Territory.

                7.2 ONO License. ONO shall have the right to transfer, assign or
license and sublicense to a Third Party ONO Compounds and/or the Products or
associated rights under the Research Patents covering ONO Compounds and/or the
Products, subject to CombiChem's right to receive all royalties and milestone
payments as provided in Sections 8.3, 8.4 and 8.5 hereof.

                7.3 ONO *** to CombiChem. Following the decision of ONO or its
licensee not to develop and commercialize nor to seek a Third Party to license
for commercialization in the Territory with Due Diligence any and all ONO
Compounds and/or 


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Products (collectively, "Returned Compounds"), ONO shall *** to CombiChem a ***
*** , under the Research Patents and know-how which result from the Lead
Generation Program and related exclusively to the Returned Compounds, to make,
have made, use, have used, sell, have sold, import and export such Returned
Compounds in the Territory. Prior to the *** under this Section 7.3 to
CombiChem, ONO and CombiChem shall negotiate in good faith the terms and
conditions of such *** regarding any Returned Compound.

                7.4 Rights to Inactive Compounds. Except as otherwise provided
in Section 3.3 hereof with respect to *** , each Party shall be free to screen
Inactive Compounds against any target other than a Research Target. In the event
that either ONO or CombiChem shall develop, market and/or sell, or enter into a
binding agreement with a Third Party to develop, market and/or sell, any product
containing the Inactive Compound as an active ingredient, then except to the
extent that such Inactive Compound is subject to a valid claim in a Patent owned
or controlled by the other Party, the other Party hereto shall not be entitled
to any payments, milestones, royalties, fees or compensation of any kind.

        8. CONSIDERATION

                8.1 Initiation Fee. As of the Effective Date, ONO shall be
obligated to pay CombiChem a non-refundable, noncontingent project initiation
fee of *** , by registered check or wire transfer, to initiate the Lead
Generation Program for the Research Target within thirty (30) days of the
Effective Date.

                8.2 Lead Generation Program Funding.

                        (a) First Year Research Support. Subject to subsection
8.2(c) below and Sections 9.2 and 9.3 hereof, as of the Effective Date, ONO
shall be obligated to pay CombiChem a non-refundable, non-contingent fee in
support of CombiChem's research activities to be conducted pursuant to this
Agreement during the first year of the Lead Generation Program on the Research
Target of *** by registered check or wire transfer within thirty (30) days of
the Effective Date.

                        (b) Second Year Research Support. ONO shall pay to
CombiChem on or before thirty (30) days prior to the first anniversary of the
execution of this Agreement (the "First Anniversary"), *** which is equal to the
fee necessary to support CombiChem's research activities to be conducted
pursuant to this Agreement during the initial three (3)-month period of the
second year of this Agreement . If ONO terminates this Agreement by delivering
written notice to CombiChem within two (2) months following the First
Anniversary pursuant to Section 9.3 hereof, *** *** during the second year of
this Agreement calculated on a 




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*** basis: i.e., in case ONO delivers such notice of termination within one (1)
month following the First Anniversary, *** shall be the amount equal to ***
*** and shall be made to ONO within fifteen (15) business days after CombiChem's
receipt of such notice, or is delivered within two (2) months after the First
Anniversary, *** shall be the amount equal to *** *** and shall be made to ONO
within fifteen (15) business days after CombiChem's receipt of such notice. If
ONO notifies CombiChem of its desire to continue this Agreement or fails to
notify CombiChem of its termination of this Agreement within two (2) months
following the First Anniversary, then *** of the second year research support
shall be due on or before the end of three (3) months following the First
Anniversary.

                        (c) Expansion or Contraction of Project Team.
Notwithstanding subsection 2.1(c) hereof, either Party may request that
CombiChem expand or contract its Project Team during the Research Period in
order to properly regulate the work-flow on the Research Target. In such event,
subject to the mutual agreement of both Parties, the RMC shall promptly confer
as to the appropriate number of FTEs to be added to or eliminated from the
Project Team. The current annual research support payments set forth in
subsections 8.2(a) and (b) above assume *** in both years at an annual cost to
ONO of *** .

                                (i) If the Project Team is expanded in the first
year of the Research Period, then within thirty (30) days of such expansion, ONO
shall pay to CombiChem a payment (for each additional FTE) equal to *** times a
fraction with the numerator equal to the number of days in the period of
addition of such FTE to the Project Team (which is agreed to by the RMC) and the
denominator equal to 365.

                                (ii) If the Project Team is expanded in the
second year of the Research Period (or if an expansion which occurred in the
first year of the Research Period continues into the second year of the Research
Period), then within thirty (30) days of such expansion (or if the expansion
occurred in the first year, within thirty (30) days of the First Anniversary),
ONO shall pay to CombiChem a payment (for each additional FTE) equal to ***
times a fraction with the numerator equal to the number of days in the period of
addition of such FTE to the Project Team and the denominator equal to 365.

                                (iii) If an FTE is eliminated from the Project
Team in the first year of the Research Period, then within thirty (30) days of
such elimination, CombiChem shall pay to ONO a payment (for each eliminated FTE)
equal to *** times a fraction with the numerator equal to the number of days in
the period of elimination of such FTE from the Project Team and the denominator
equal to 365.

                                (iv) If an FTE is eliminated from the Project
Team in the second year of the Research Period (or if an elimination which
occurred in the first year of the Research Period continues into the second year
of the Research Period), then within thirty (30) 




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days of such elimination (or if the elimination occurred in the first year,
within thirty (30) days of the First Anniversary), CombiChem shall pay to ONO a
payment (for each eliminated FTE) equal to *** times a fraction with the
numerator equal to the number of days in the period of elimination of such FTE
from the Project Team and the denominator equal to 365.

                        (d) During the Research Period, within forty-five (45)
days following the end of each six (6) month period (or the early termination),
CombiChem shall provide ONO with a *** *** . The amount of the *** shall not
effect ONO's obligation to make any payments set forth in this Article 8 or the
timing of such payments.

                8.3 Milestone Payments.

                        (a) Within thirty (30) days of the occurrence of a
milestone triggered by the activities of ONO or its Affiliates as shown on
Schedule B attached hereto, ONO shall pay CombiChem the related milestone
payment in U.S. dollars as set forth on Schedule B attached hereto by registered
check or wire transfer, provided, however, that in the event that the
characteristics of a Development Compound or Product that ONO intends to
develop, or is developing, for commercialization requires the review of
commercial value of such Development Compound and Product, then the Parties
shall *** of the *** . Each of such payments shall be a *** or Product (except
for payments with respect to *** where the payments shall be made for each
Product as provided in Schedule B attached hereto) for use within the Field. ONO
shall have no obligation to make any milestone payment pursuant to this
Agreement in the event that ONO develops and commercializes an ONO Compound ***
 .

                        (b) In the circumstance where ONO has milestone payment
obligations to CombiChem pursuant to subsection 8.3(a) above with respect to a
Product whose primary active ingredient is an *** that was *** and before the
end of the Exclusivity Period, *** with respect to such Product shall be *** .
For each *** which has elapsed from the end of the Research Period to the *** ,
the milestone payment will be *** by *** and reaching a *** at the end of the
twelfth month following the *** . By way of example, if the *** in the *** after
the end of the *** , each *** would be *** *** .

                        (c) In the circumstances where ONO has milestone payment
obligations to CombiChem pursuant to subsection 8.3(a) above with respect to a
Product whose primary active ingredient is an *** by ONO *** *** with respect to
such Product shall be *** .


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                8.4 Royalties.

                        (a) During the Royalty Term, ONO will pay CombiChem an
earned royalty of *** of Net Sales of Products for use within the Field. Each
payment of royalties shall be accompanied by a report of Net Sales of Products
in sufficient detail to permit confirmation of the accuracy of the royalty
payment made. ONO shall have no obligation to make any royalty payment pursuant
to this Agreement in the event that ONO develops and commercializes an ONO
Compound outside of the Field.

                        (b) In the circumstance where ONO has royalty
obligations to CombiChem pursuant to subsection 8.4(a) above with respect to a
Product whose primary active ingredient is an *** and before the end of the
Exclusivity Period, such royalty obligations with respect to such Product ***.
For each *** which has elapsed from the *** to the ***, the *** and reaching a
*** at the end of the twelfth month following the *** . By way of example, if
the *** in the *** after the *** ***, the *** would be *** to *** of such
Products.

                        (c) In the circumstances where ONO has royalty
obligations to CombiChem pursuant to subsection 8.4(a) above with respect to a
Product whose primary active ingredient is an *** by ONO after the end of the
*** , such royalty obligations shall be *** of Net Sales of such Products.

                8.5 *** of the Second Year Benchmarks.

                        (a) *** in its reasonable judgment that the Second Year
Benchmarks are not met by the second anniversary of this Agreement ("Second
Anniversary"), upon the request of ONO on or prior to the Second Anniversary,
CombiChem *** *** as of the Second Anniversary for a period of *** following the
Second Anniversary at *** and shall continue to conduct the research activities
pursuant to Section 2.1 hereof. If the Second Year Benchmarks are met on or
before such *** period ends, CombiChem shall be eligible for the Second Year
Benchmark *** under subsection 8.3(a) hereof as if such *** as if the Second
Anniversary.

                        (b) If ONO determines in its reasonable judgment that
the Second Year Benchmarks are not met by the Second Anniversary due solely to
delay *** of its research activities in each Cycle as set forth in the Research
Plan, and *** *** after the end of the Research Period, for each *** from the
end of the Research Period to the synthesis of the Derivative or Improved
Derivative, *** during the  *** 


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and *** pursuant to Sections *** and reaching a *** at the end of the twelve
(12) month period following the *** , whether the Product contains a Derivative
or an Improved Derivative; provided however, if ONO finally determines to
develop an Active Compound as a Development Compound, *** .

                        (c) *** shall have no obligation *** in the event that
*** has caused *** which has a material adverse affect on CombiChem's ability to
achieve the Second Year Benchmarks.

                8.6 *** of the Second Year Benchmarks. In the event that
CombiChem synthesizes an Active Compound within or before the *** *** which
meets the Second Year Benchmarks, ONO shall pay to CombiChem an *** within
fifteen (15) business days of ONO's confirmation of such achievement in addition
to the milestone payment payable upon the achievement of the Second Year
Benchmarks set forth in Schedule B attached hereto.

                8.7 *** . Notwithstanding the provisions of Sections 8.3(b),
8.3(c), 8.4 (b), 8.4 (c) and 8.5(b), under no circumstances shall the ***
*** provided in such sections *** *** provided in this Agreement.

                8.8 Manner and Place of Payment. Royalty payments and reports
for Net Sales of Products shall be calculated in local currencies and reported
for each calendar quarter. All royalty payments owed under this Agreement shall
be made by wire transfer to the bank account to be designated by CombiChem
within sixty (60) days following the end of each such calendar quarter in case
of Products sold by ONO or its Affiliates and within ninety (90) days following
the end of each such calendar quarter in the case of Products sold by its
licenses or sublicensees. The amount of such sales in foreign currencies shall
be converted into United States dollars at the exchange rate in effect on the
last business day for each calendar quarter as reported in The Wall Street
Journal. However, CombiChem acknowledges that ONO's fiscal term is on a
semi-annual basis and any royalty payments for the Net Sales of the second or
fourth calendar quarters are tentative and shall be calculated based on the
conditions used for the previous quarter. If any overpayment or underpayment is
identified in the calculation of the royalty using the conditions of such
current term at the end of ONO's official semi-annual term (the first and third
calendar quarter), then such overpayment or underpayment shall be deducted or
added to the royalty payments of the first or third calendar quarter, as the
case may be.

                8.9 Target Substitution. In the event that ONO and CombiChem
mutually agree in writing that the Research Target is unsuitable for further
research, the Parties shall meet to discuss the substitution of another Target.
If the Parties mutually agree in writing to such a 


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Target, ONO shall not be obligated to pay a second project initiation fee to
CombiChem as provided in Section 8.1 hereof.

                8.10 Records and Audit. ONO shall keep complete and accurate
records pertaining to the sale or other disposition of Products in sufficient
detail for a period of three (3) years following each royalty payment to permit
CombiChem to confirm the accuracy of all payments due hereunder. CombiChem shall
have the right to cause an independent certified public accounting firm
reasonably acceptable to ONO to audit such records to confirm ONO's Net Sales
for the preceding year. Any information obtained during such audit shall be
treated as Confidential Information. Such audits may be exercised after
reasonable notice during normal business hours of ONO no more than once each
year. CombiChem shall bear the full cost of such audit unless such audit
discloses a deficiency of the greater of *** or more than *** from the amount of
the Net Sales reported by ONO for such audited period. In such case, ONO shall
bear the reasonable cost of such audit.

                8.11 Taxes. All income and other taxes levied on account of the
royalties and other payments accruing to CombiChem under this Agreement shall be
paid by CombiChem, including taxes levied thereon as income to CombiChem. If
provision is made in law or regulation for withholding, such tax shall be
deducted from the royalty or other payment made by ONO to the proper taxing
authority and a receipt of payment of the tax secured and promptly delivered to
CombiChem. Each Party agrees to assist the other Party reasonably in claiming
exemption from such deductions or withholdings under any double taxation or
similar agreement or treaty from time to time in force.


        9. TERM AND TERMINATION OF THE AGREEMENT

                9.1 Term. The term of this Agreement shall commence upon the
Effective Date and unless earlier terminated as provided in this Agreement,
shall expire at the end of the Research Period.

                9.2 Termination by ONO or CombiChem Due to Breach. If either
Party materially breaches this Agreement and fails to remedy that breach within
ninety (90) days of receiving written notice thereof from the other Party, or
enters into any arrangement of compromise with its creditors or goes into
liquidation, insolvency, bankruptcy, receivership or reorganization proceedings,
whether voluntarily or compulsorily which is not dismissed by a court of
competent jurisdiction within ninety (90) days, then the other Party may at any
time, by notice in writing or by facsimile transmission, terminate this
Agreement. If ONO terminates this Agreement during the Research Period due to
CombiChem's material breach, CombiChem shall repay to ONO within fifteen (15)
business days following such termination any unused portion of ONO's research
support payment which has been paid pursuant to Section 8.2 hereof calculated on
a monthly basis. Within ninety (90) days following termination for any Lead
Generation Program and/or research related to the Research Target under this
Agreement, the 



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RMC shall prepare a detailed, final written report to each Party, and provide
any remaining supply of compounds in synthesis to date, for the Research Target
or Lead Generation Program being terminated.

                9.3 Other Termination by ONO or CombiChem.

                        (a) In the event that ONO reasonably determines that
CombiChem has failed to achieve the "First Year Benchmarks" during the initial
twelve (12) months of the Research Period, ONO shall be entitled to immediately
terminate this Agreement by delivering written notice of such termination to
CombiChem within two (2) months after the First Anniversary and ONO shall not be
required to make any further payments thereafter.

                        (b) This Agreement shall be terminable by either Party
(the "Notifying Party") giving the other Party (the "Notified Party") written
notice of a situation that is thought to materially affect the performance of
the Notified Party's obligations under this Agreement (the "First Notice").
Within four (4) weeks of the Notified Party's receipt of the First Notice, the
Parties shall meet together in a face-to-face meeting in a place to be mutually
agreed. The Parties shall work together to address the issues raised in the
First Notice for ninety (90) days following the Notified Party's receipt of the
First Notice. If such issues are not resolved to the Notifying Party's
reasonable satisfaction within such ninety (90)-day period, the Notifying Party
may then provide additional written notice (the "Second Notice") to the Notified
Party of the termination of this Agreement, effective immediately following the
Notified Party's receipt of the Second Notice. Upon any termination of this
Agreement pursuant to this Section 9.3, CombiChem shall repay to ONO within
fifteen (15) business days following such termination any unused portion of a
ONO research support payment which has been paid pursuant to Section 8.2 hereof
calculated on a monthly basis.

                9.4 After Termination. Any termination of this Agreement or the
Lead Generation Program shall be without prejudice to the accrued rights of
either Party prior to the termination. In case of termination of this Agreement
or the Lead Generation Program pursuant to Sections 9.2 or 9.3 above, all
royalty, milestone and other payment obligations set forth in Sections 8.3, 8.4,
8.5, 8.6 and 8.7 hereof shall survive any such termination. Moreover, unless
otherwise specified, ONO shall not be entitled to any refund of any payments
made to CombiChem hereunder upon the expiration of the term of this Agreement or
earlier termination pursuant to this Article 9.


        10. CONFIDENTIAL INFORMATION

                10.1 Nondisclosure. During the term of this Agreement and for a
period of five (5) years after termination or expiration thereof, each Party
shall maintain all Confidential Information in trust and confidence and shall
not disclose any Confidential Information to any third party or use any
Confidential Information for any purpose except (i) as expressly authorized by
this Agreement, (ii) as required by law or court order, after as much advance
notice as is practical to the other Party, (iii) to its consultants,
subcontractors, licensees or potential licensees, clinical investigators,
affiliates, employees or agents who need to know to accomplish the purposes of
this Agreement and who are bound by equivalent written confidentiality
obligations. 




                                      -19-
<PAGE>   21

Each Party may use the other Party's Confidential Information only to the extent
required to accomplish the purposes of this Agreement. Each Party will use at
least the same standard of care as it uses to protect proprietary or
confidential information of its own to ensure that its Affiliates, employees,
agents, consultants and other representatives do not disclose or make any
unauthorized use of the Confidential Information. Each Party will promptly
notify the other upon discovery of any unauthorized use or disclosure of the
Confidential Information. Notwithstanding the foregoing, CombiChem shall
maintain all Confidential Information in trust and confidence and shall not
disclose any Confidential Information to any Third Party or use any Confidential
Information for any purpose with regard to Confidential Information disclosed by
ONO to CombiChem pursuant to Sections 1 and 2 of Schedule C until the expiration
of the Research Patent covering the Product.

                10.2 Exceptions. Confidential Information shall not include any
information which the receiving Party can prove by competent evidence: (a) is
now, or hereafter becomes, through no act or failure to act on the part of the
receiving Party, generally known or available; (b) is known by the receiving
Party at the time of receiving such information, as evidenced by its written
records; (c) is hereafter disclosed to the receiving Party by a Third Party, as
a matter of right and without restriction on disclosure; (d) is independently
developed by the receiving Party without the aid, application or use of
Confidential Information; or (e) is the subject of a written permission to
disclose provided by the disclosing Party.


        11. PUBLICATIONS AND PUBLIC STATEMENTS

                11.1 Publications.

                        (a) Without affecting obligations under Article 10
above, neither Party shall publish any information with respect to any Research
Compound, Active Compound, Derivative, Improved Derivative, Preclinical Lead
Compound or Development Compound during the Exclusivity Period without the prior
written permission of the other Party. If the proposing Party wishes to obtain
such permission, it shall provide the other Party with the manuscript for
publication or presentation for the other Party's review prior to the submission
of such manuscript for publication or presentation. The other Party shall notify
the proposing Party of the disapproval or approval of such publication or
presentation within thirty (30) days after receipt of such manuscript by such
other Party. Such permission not to be unreasonably withheld. Such thirty (30)
day period shall not be extended unless the other Party requests additional time
until the submission of a Patent to the competent authorities for the purpose of
protecting its intellectual property position; provided, however, ONO may
publish scientific information with regard to pharmacology, pharmacy and
chemistry, toxicology, metabolism, pharmaceutical, clinical studies of the
Development Compound and Product without the prior written consent of CombiChem.

                        (b) Following the Exclusivity Period, ONO may publish
any information or material concerning an Active Compound, Derivative, Improved
Derivative, Preclinical Lead Compound, Development Compound or Product arising
out of the Lead Generation Program or generated solely by ONO after the Research
Period without the prior written consent of CombiChem.




                                      -20-
<PAGE>   22

                11.2 Public Statements. Neither Party shall use the name of the
other Party in any public statement, prospectus, annual report or press release
or other public communication (collectively "Public Statements") (except to the
extent that use of the name is required for disclosure by the Securities and
Exchange Commission or other governmental rules or regulations (with notice to
be provided by CombiChem to ONO in such circumstances)) without the prior
written approval of the other Party, which may not be unreasonably withheld or
delayed; provided, however, that both Parties shall endeavor in good faith to
give the other Party a minimum of five (5) business days to review such Public
Statements; provided, further, that, upon approval of any such Public Statement,
both Parties may disclose to Third Parties the information contained in such
Public Statement without the further approval of the other; and provided,
further, that if a Party does not approve such Public Statement, either Party
may still use the name of the other Party in any Public Statement, if such Party
is advised by counsel that such disclosure is required to comply with applicable
law so long as prior written notice of such counsel's view is provided to the
other Party.


        12. INDEMNIFICATION

                12.1 EACH PARTY HEREBY AGREES TO SAVE, DEFEND AND HOLD THE OTHER
PARTY, ITS AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, CONSULTANTS, AGENTS,
LICENSEES AND STOCKHOLDERS HARMLESS FROM AND AGAINST ANY AND ALL SUITS, CLAIMS,
ACTIONS, DEMANDS, LIABILITIES, EXPENSES AND LOSSES, INCLUDING REASONABLE LEGAL
EXPENSES AND ATTORNEYS' FEES ("LOSSES") RESULTING DIRECTLY OR INDIRECTLY FROM
(A) ANY BREACH OF THE INDEMNIFYING PARTY'S OBLIGATION HEREUNDER, OR (B) THE
NEGLIGENCE, OR RECKLESSNESS OR INTENTIONAL ACTS OR OMISSIONS IN CONNECTION WITH
THE WORK PERFORMED BY OR ON BEHALF OF THE INDEMNIFYING PARTY HEREUNDER.

                12.2 SUBJECT TO THE PROVISIONS ABOVE, EACH PARTY HEREBY AGREES
TO SAVE, DEFEND AND HOLD THE OTHER PARTY, ITS AFFILIATES, OFFICERS, DIRECTORS,
EMPLOYEES, CONSULTANTS, AGENTS, LICENSEES AND STOCKHOLDERS HARMLESS FROM AND
AGAINST THE LOSSES RESULTING DIRECTLY OR INDIRECTLY FROM (A) THE USE BY OR ON
BEHALF OF THE INDEMNIFYING PARTY, ITS AFFILIATES OR LICENSEES OF RESULTS
ACHIEVED BY INDEMNIFYING PARTY HEREUNDER OR (B) THE MANUFACTURE, DEVELOPMENT,
USE, HANDLING, STORAGE, SALE OR OTHER DISPOSITION OF CHEMICAL AGENTS, RESEARCH
COMPOUNDS, ACTIVE COMPOUNDS PRECLINICAL LEAD COMPOUNDS, DERIVATIVES, IMPROVED
DERIVATIVES, DEVELOPMENT COMPOUNDS OR PRODUCTS BY SUCH INDEMNIFYING PARTY, ITS
AFFILIATES OR LICENSEES, EXCEPT TO THE EXTENT SUCH LOSSES RESULT FROM THE
NEGLIGENCE (WHETHER ACTIVE, PASSIVE OR IMPUTED), BREACH OF THIS AGREEMENT OR
WILLFUL MISCONDUCT OF THE PARTY CLAIMING A RIGHT OF INDEMNIFICATION UNDER THIS
ARTICLE 12.

                12.3 Infringement.




                                      -21-
<PAGE>   23

                        (a) Subject to subsection 12.3(c) below, ONO shall hold
CombiChem and its officers, directors, employees, consultants, and agents
harmless from and against any and all losses resulting from the infringement of
any Third Party's Patent issued as of the Effective Date due to the performance
by ONO or its Affiliates of any activity contemplated hereunder, including, but
not necessarily limited to, ONO's responsibilities under Section 2.2 above,
developing Products, and selling Products.

                        (b) Subject to subsection 12.3(c) below, CombiChem shall
hold ONO and its officers, directors, employees, consultants, and agents
harmless from and against any and all losses resulting from the infringement of
any Third Party's Patent issued as of the Effective Date due to the performance
by CombiChem of any activity contemplated hereunder, including, but not
necessarily limited to, CombiChem's responsibilities under Section 2.1 above.

                        (c) The indemnity provided in subsections 12.3(a) and
12.3(b) above shall not apply where the loss is due to the breach by the
indemnified Party of a warranty made in Article 18.

                12.4 Procedures. If either Party (the "Indemnified Party") seeks
indemnification under this Article 12, it shall inform the other Party (the
"Indemnifying Party") of a claim as soon as reasonably practicable after it
receives notice of the claim, shall permit the Indemnifying Party to assume
direction and control of the defense of the claim (including the right to settle
any claim brought against the Indemnified Party upon prior written consent of
the Indemnified Party, which shall not be unreasonably withheld), and shall give
reasonable cooperation (at the expense of the Indemnifying Party) in the defense
of such claim.

                12.5 Insurance. CombiChem and ONO each shall maintain, through
self insurance or otherwise, insurance with respect to their respective
activities contemplated by this Agreement, in such amount and for such term as
CombiChem or ONO, respectively, customarily maintains covering its similar
activities.


        13. ASSIGNABILITY

                This Agreement may not be assigned by either Party without the
prior written consent of the other Party, not to be unreasonably withheld;
provided, however, that either Party may assign this Agreement, in whole or in
part, to an Affiliate or in whole to a successor of a Party in connection with
the merger, consolidation or sale of all or substantially all of such Party's
assets or that portion of its business pertaining to the subject matter of this
Agreement (and upon doing so will promptly notify the other Party in writing);
provided that the assigning Party remains fully liable as obligated hereunder.


        14. DISPUTE RESOLUTION PROCEDURES

                14.1 Senior Executive's Discussions. If a dispute arises between
CombiChem and ONO out of the performance of the obligations of either Party
hereunder during the term of this Agreement, such dispute will be referred to
the appropriate senior management in the area of the dispute. If such senior
management are unable to resolve such dispute within thirty (30) days 




                                      -22-
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following the initiation of discussions between them, such dispute shall be
settled by arbitration as described in Section 14.2 below.

                14.2 Binding Arbitration. If the Parties have not been able to
resolve the dispute as provided in Section 14.1 above, the dispute shall be
finally settled by binding arbitration. Any arbitration hereunder shall be
conducted under the arbitration rules of the *** . If arbitration is demanded by
*** , such arbitration shall take place in *** , and it demanded by *** , it
shall take place in *** . The arbitration shall be conducted before three
arbitrators (at lease one of which shall be an independent expert in
pharmaceutical product development, including clinical development and
regulatory affairs), chosen according to the following procedure: each of the
parties shall appoint one arbitrator and the two (2) so nominated shall choose
the third. If the arbitrators chosen by the Parties cannot agree on the choice
of the third arbitrator within a period of thirty (30) days after their
appointment, then the third arbitrator shall be appointed by arbitration
association in the place where arbitration shall take place. The arbitrators
shall have the authority to grant specific performance, and to allocate between
the Parties the costs of arbitration, including but not limited to the
reasonable attorneys' fees, in such equitable manner as they determine. The
arbitral award (i) shall be final and binding upon the Parties; and (ii) may be
entered into any court of competent jurisdiction.

                14.3 Confidentiality. All arbitration proceedings under this
Article 14 shall be confidential and the arbitrators may issue appropriate
protective orders to safeguard the Parties' Confidential Information. Except as
required by law, neither Party shall make (or instruct any arbitrator to make)
and public announcement with respect to the proceedings or decisions of any
arbitration without the prior written consent of the other Party. The existence
of any unresolved dispute, the submission of an unresolved dispute to
arbitration pursuant to this Article 14, and any award by arbitrators, shall be
kept in confidence by the Parties and the arbitrators, except as required in
connection with the enforcement of such award or implementation of such
decisions, as mutually agreed by the Parties or as required by law.

                14.4 Injunctive and Other Relief. Nothing contained in this
Article 14 or any other provisions of this Agreement shall be construed to limit
or preclude a Party from bringing any action in any court of competent
jurisdiction for injunctive or other provisional relief to compel the other
Party to comply with its obligations hereunder before or during the pendency of
arbitration proceedings.


        15. NOTICES

                Any notice required or permitted to be given hereunder shall be
deemed sufficient if sent by facsimile letter or overnight courier, or delivered
by hand to ONO or CombiChem at the respective addresses and facsimile numbers as
set forth below or at such other address and facsimile number as either Party
hereto may designate. If sent by facsimile letter, notice shall be 

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                                      -23-
<PAGE>   25

deemed given when the transmission is completed if the sender has a confirmed
transmission report. If a confirmed transmission report does not exist, then the
notice will be deemed given when the notice is actually received by the person
to whom it is sent. If delivered by overnight courier, notice shall be deemed
given when it has been signed for. If delivered by hand, notice shall be deemed
given when received.

               if to CombiChem, to:

                             CombiChem, Inc.
                             9050 Camino Santa Fe
                             San Diego, California 92121
                             Attention: President
                             Fax number: (619) 530-9998

                      with a copy to:

                             Brobeck, Phleger & Harrison LLP
                             550 West C Street, Suite 1200
                             San Diego, California 92101
                             Attention: Faye H. Russell, Esq.
                             Fax number: (619) 234-1966

                      if to ONO to:

                             ONO Pharmaceutical Co., Ltd.
                             1-5 Doshomachi, 2-Chome, Chuo-Ku
                             Osaka 541-8526 Japan
                             Attention:  Director, International Business
                             Fax Number:  (06) 6222-2381

                      with a copy to:

                             ONO Pharmaceutical Co., Ltd.
                             Minase Research Institute
                             3-7-1 Sakurai Shimamoto Mishima
                             Okasa 618-8585 Japan
                             Attention:  Director, Discovery Planning
                             Fax Number:  (075) 962-9314


        16. SURVIVAL

                Without prejudice to the provisions of Section 9.4 hereof, the
provisions of Sections 2.4, 4.1, 4.2, 4.3 and Articles 3, 7, 8, 10, 11, 12, 14,
15, 17 and this Article 16 shall survive expiration of this Agreement pursuant
to Section 9.1 or termination of this Agreement in addition to those provisions
which by their terms survive.




                                      -24-
<PAGE>   26

        17. ADDITIONAL TERMS

                17.1 Entire Agreement. This Agreement, including all Schedules
attached to this Agreement, constitutes the entire understanding between the
Parties with respect to the subject matter hereto and supersedes and replaces
all previous negotiations, understandings, representations, writings and
contract provisions and rights relating hereof.

                17.2 Amendment; No Waiver. No provision of this Agreement may be
amended, revoked or waived except by a writing signed and delivered by an
authorized officer of each Party. Any waiver on the part of either Party of any
breach or any fight or interest hereunder shall not imply the waiver of any
subsequent breach or waiver of any other right or interest.

                17.3 Validity. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, each of which shall remain in full force
and effect.

                17.4 English Language. This Agreement is entered into in the
English language. All meetings and correspondence between the Parties are to be
in English. In the event of any dispute concerning the construction or meaning
of this Agreement, reference shall be made only to this Agreement as written in
English and not to any translation into any other language.

                17.5 Headings. The descriptive headings are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning of or interpretation of this Agreement.

                17.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.

                17.7 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of California,
without regard to conflicts of laws principles.

                17.8 Further Assurances. At any time and from time to time after
the Effective Date, the Parties shall each do, execute, acknowledge and deliver,
and cause to be done, executed, acknowledged or delivered, all such further
acts, transfers, conveyances, or assignments as may be reasonably required to
carry out the transactions contemplated by this Agreement.


        18. REPRESENTATIONS AND WARRANTIES

                18.1 Authorization. All action on the part of each of CombiChem,
ONO and their respective officers, and directors necessary for the
authorization, execution and delivery of this Agreement and the performance of
all obligations of CombiChem, ONO and ONO, respectively, hereunder has been
taken.




                                      -25-
<PAGE>   27

                18.2 Rights to Intellectual Property. Each Party warrants that
it has the power to grant all of the rights granted and make such required
assignments, and to assume all of the obligations required, under this
Agreement. Under no circumstances does CombiChem warrant to ONO that ONO's
rights in any ONO Compound and/or Products are exclusive to the extent such ONO
Compound and/or Products may be covered under the patent claims of Third Parties
wherein such claims are not the direct result of a collaboration between the
Third Party and CombiChem.

                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]






                                      -26-
<PAGE>   28

        IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the Effective Date.

COMBICHEM, INC.                        ONO PHARMACEUTICAL CO., INC.


By:   /s/  Vicente Anido               By:   /s/ Illegible
   --------------------------------       --------------------------------------
           Vicente Anido               

Its:    President & CEO                Its: President
    -------------------------------        -------------------------------------

Date:      December 28, 1998           Date:     December 28th, 1998
     ------------------------------         ------------------------------------



                               [SIGNATURE PAGE TO
                       LEAD GENERATION PROGRAM AGREEMENT]


<PAGE>   29

                                   SCHEDULE A

                        First and Second Year Benchmarks


First Year Benchmarks



                                       ***


Second Year Benchmarks

                                       ***


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<PAGE>   30


                                   SCHEDULE B

                           Milestones and Payments(1)


                                      ***








(1)     Paid in U.S. Dollars

(2)     Paid for each compound which achieves the stated milestone.



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<PAGE>   31

                                   SCHEDULE C

                             Reporting Requirements


The reports with respect to Products to be delivered pursuant to this Agreement
will be submitted by ONO to CombiChem as follows and will include the following:

        1.      When filed and annually thereafter, if not previously provided:

                (a) Copies of the preclinical pharmacology and toxicology
summaries prepared for the IND and NDA (or foreign equivalents) for each
Product.

                (b) Copies of the Integrated Summary of Efficacy and Integrated
Summary of Safety prepared for the NDA (or foreign equivalent) for each Product.

        2.      During the month of July and January of each year:

                (a) Any projected and actual initiation dates and completion
dates and the phase, i.e., Phase I, Phase II and Phase III, of clinical trials
for each Product in the Field.

                (b) The projected and actual completion dates of each trial for
each Product in the Field.

                (c) Any projected and actual dates of NDA (or foreign
equivalent) submissions for each Product.

                (d) Status of Patents and Patent applications both within and
outside the United States.

                (e) Occurrence of any milestone events.

                (f) Any permitted licensing under this Agreement.

        3.      Promptly following publication, copies of any publications
(preclinical and clinical) by ONO or its investigators or ONO's third party
collaborators/investigators concerning a Product. Notwithstanding the provisions
of Section 17.4 of the Agreement, ONO shall not be obligated to translate such
copies into English for this provision.

        4.      Promptly following presentation, use good faith efforts to
provide copies of materials presented to financial analysts in significant
presentations which involved new information concerning a Product.
Notwithstanding the provisions of Section 17.4 of the Agreement, ONO shall not
be obligated to translate such copies into English for this provision.

                ONO will notify CombiChem of any delays in the development of
any Product as outlined above and will summarize the cause(s) of such delay.




<PAGE>   32

                                   SCHEDULE D

                                  Research Plan

                                       ***







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<PAGE>   33

                                   SCHEDULE E

                                 Major Countries

Japan
South Korea
United States
Any country included in the European Patent Convention (currently consisting of
the United Kingdom, France, Germany, Italy, Switzerland, Netherlands, Belgium,
Luxembourg, Denmark, Spain, Portugal, Greece, Sweden, Finland, Austria and
Ireland)