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                                                                    EXHIBIT 10.3


                              CONNETICS CORPORATION
                          REGISTRATION RIGHTS AGREEMENT


         This Registration Rights Agreement (the "Agreement") is made as of the
7th day of July, 1999, by and among Connetics Corporation, a Delaware
corporation ("Connetics") and Paladin Labs, Inc. ("Investor," which term for
purposes of this Agreement shall also include any assignee of Paladin Labs Inc.,
in accordance with this Agreement). Connetics and Investor are sometimes
referred to as a "Party" or as the "Parties" to this Agreement.

                                 R E C I T A L S

         A. Effective as of the same date as this Agreement, Connetics and the
Investor have entered into a Common Stock Purchase Agreement (the "Purchase
Agreement") pursuant to which Connetics has agreed to sell to the Investor and
the Investor has agreed to purchase from Connetics shares of Connetics' Common
Stock (all terms not otherwise defined in this Agreement shall have the meanings
ascribed in the Purchase Agreement).

         B. A condition to the Investor's obligations under the Purchase
Agreement is that Connetics and the Investor enter into this Agreement in order
to provide the Investor with certain rights to register the Common Stock
acquired by the Investor pursuant to the Purchase Agreement. Connetics desires
to induce the Investor to purchase the Common Stock pursuant to the Purchase
Agreement by agreeing to the terms and conditions set forth in this Agreement.

         NOW, THEREFORE, the parties hereby agree as follows:

                                    AGREEMENT

         1.       Registration Rights. Connetics and Investor covenant and agree
                  as follows:

                  1.1      Definitions.  For purposes of this SECTION 1:

                           (a) The terms "register," "registered," and
         "registration" refer to a registration effected by preparing and filing
         a registration statement or similar document in compliance with the
         Securities Act of 1933, as amended (the "Securities Act"), and the
         declaration or ordering of effectiveness of such registration statement
         or document.

                           (b) The term "Registrable Securities" means (i) the
         shares of Common Stock issued or sold in connection with the Purchase
         Agreement (such shares of Common Stock are collectively referred to as
         the "Shares" or "Stock") and (ii) any other shares of common stock of
         Connetics issued as (or issuable upon the conversion or exercise of any
         warrant, right or other security which is issued as) a dividend or
         other distribution with respect to, or in exchange for or in
         replacement of, the Stock; provided, that the foregoing definition
         shall exclude in all cases any Registrable Securities sold by a person
         in a transaction in which his or her rights under this Agreement are
         not assigned. Notwithstanding the foregoing, shares of common stock
         shall only be treated as


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         Registrable Securities if and so long as they have not been (x) sold to
         or through a broker or dealer or underwriter in a public distribution
         or a public securities transaction, or (y) sold in a transaction exempt
         from the registration and prospectus delivery requirements under
         Section 4(1) of the Securities Act so that all transfer restrictions,
         and restrictive legends with respect to such securities, if any, are
         removed upon the consummation of such sale.

                           (c) The number of shares of "Registrable Securities
         then outstanding" shall be determined by the number of shares of Common
         Stock then outstanding which are Registrable Securities, plus the
         number of shares of common stock issuable pursuant to then exercisable
         or convertible securities which are Registrable Securities.

                           (d) The term "Form S-3" means such form under the
         Securities Act as in effect on the date of this Agreement or any
         successor form under the Securities Act.

                           (f) The term "SEC" means the Securities and Exchange
         Commission.

                           (g) The term "Registration Expenses" means all
         expenses, except as otherwise stated below, incurred by Connetics in
         complying with SECTION 1.2 of this Agreement, including, without
         limitation, all registration, qualification and filing fees, printing
         expenses, escrow fees, fees and disbursements of counsel for Connetics
         and special counsel to the Investor, blue sky fees and expenses, the
         expense of any special audits incident to or required by any such
         registration (but excluding the compensation of regular employees of
         Connetics which shall be paid in any event by Connetics).

                           (h) The term "Selling Expenses" shall mean all
         underwriting discounts, selling commissions and stock transfer taxes
         applicable to the securities registered by the Investor.

                  1.2      Registration

                           (a) Notice of Registration. If at any time or from
         time to time Connetics determines to register any of its securities,
         either for its own account or the account of a security holder or
         holders, other than (i) a registration relating solely to employee
         benefit plans or (ii) a registration relating solely to a Commission
         Rule 145 transaction, Connetics will:

                                    (i) promptly give Investor written notice of
                           its intention to register securities; and

                                    (ii) include in such registration (and any
                           related qualification under blue sky laws or other
                           compliance), and in any underwriting involved in the
                           registration, all the Registrable Securities
                           specified in a written request or requests, made
                           within twenty (20) days after receipt of such written
                           notice from Connetics by Investor.



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                           (b) Underwriting. If the registration of which
         Connetics gives notice is for a registered public offering involving an
         underwriting, Connetics shall so advise Investor as a part of the
         written notice given pursuant to SECTION 1.2(a)(i). In such event
         Investor's right to registration pursuant to SECTION 1.2 shall be
         conditioned upon Investor's participation in such underwriting, and the
         inclusion of Investor's Registrable Securities in the underwriting to
         the extent requested shall be limited to the extent provided in this
         Agreement. If Investor proposes to distribute its securities through
         such underwriting, it shall (together with Connetics) enter into an
         underwriting agreement in customary form with the managing underwriter
         selected for such underwriting by Connetics. Notwithstanding any other
         provision of this SECTION 1.2, if the managing underwriter determines
         that marketing factors require a limitation of the number of shares to
         be underwritten, the managing underwriter may limit the Registrable
         Securities to be distributed through such underwriting and if so
         limited, such Registrable Securities shall be excluded from such
         underwriting and registration. Connetics shall so advise Investor (if
         Investor is distributing its securities through such underwriting) of
         such limitation, and the number of shares of Registrable Securities
         that may be included in the registration and underwriting shall be
         allocated among all sellers in proportion, as nearly as practicable, to
         the respective amounts of Registrable Securities requested by such
         sellers to be included in such registration statement. To facilitate
         the allocation of shares in accordance with the above provisions,
         Connetics may round the number of shares allocated to any seller to the
         nearest 100 shares. If any seller disapproves of the terms of any such
         underwriting, such seller may elect to withdraw from the underwriting
         by written notice to Connetics and the managing underwriter. Any
         securities excluded or withdrawn from such underwriting shall be
         withdrawn from such registration, and shall not be transferred in a
         public distribution prior to 90 days after the effective date of the
         registration statement relating thereto, or such other shorter period
         of time as the underwriters may require.

                           (c) Right to Terminate Registration. Connetics shall
         have the right to terminate or withdraw any registration that it
         initiates under this SECTION 1.2 prior to the effectiveness of such
         registration whether or not Investor has elected to include securities
         in such registration. Connetics shall bear the Registration Expenses of
         such withdrawn registration in accordance with SECTION 1.3 of this
         Agreement.

         1.3 Expenses of Registration. Connetics shall bear all Registration
Expenses incurred in connection with registrations pursuant to SECTION 1.2. All
Selling Expenses relating to securities registered on behalf of the Investor
shall be borne by the Investor pro rata with Connetics and any other sellers on
the basis of the number of shares so registered.

         1.4. Registration Procedures. In the case of any registration,
qualification or compliance effected by Connetics pursuant to this SECTION 1,
Connetics will keep Investor advised in writing as to the initiation and
completion of such registration, qualification and compliance. At its expense
Connetics will:

                           (a) Prepare and file with the Commission a
         registration statement with respect to such securities and use its best
         efforts to cause such registration statement to



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         become and remain effective for at least thirty (30) days or until the
         distribution described in the registration statement has been
         completed;

                           (b) Prepare and file with the Commission such
         amendments and supplements to such registration statement and the
         prospectus used in connection with such registration statement as may
         be necessary to comply with the provisions of the Securities Act with
         respect to the disposition of all securities covered by such
         registration statement;

                           (c) Furnish to the Investor and to the underwriters
         of the securities being registered such reasonable number of copies of
         the registration statement, preliminary prospectus, final prospectus
         and such other documents as such underwriters may reasonably request in
         order to facilitate the public offering of such securities;

                           (d) Furnish, at the Investor's request at the time
         any Registrable Securities are delivered to the underwriters (if any)
         for sale in connection with a registration pursuant to this SECTION
         1.4, (i) an opinion, dated such date, of the counsel representing
         Connetics for the purposes of such registration, in form and substance
         as is customarily given to underwriters in an underwritten public
         offering, addressed to the underwriters, if any, and to the Investor.

                           (e) Representations of Investor. The Investor hereby
         represents to and covenants with Connetics that, during the period in
         which a registration statement effected pursuant to SECTION 1.2 remains
         effective, it will:

                                    (i) not engage in any stabilization activity
                           in connection with any of Connetics' securities;

                                    (ii) cause to be furnished to any purchaser
                           of the Shares and to the broker-dealer, if any,
                           through whom Shares may be offered, a copy of the
                           Prospectus; and

                                    (iii) not bid for or purchase any securities
                           of Connetics or any rights to acquire Connetics'
                           securities, or attempt to induce any person to
                           purchase any of Connetics' securities or any rights
                           to acquire Connetics' securities other than as
                           permitted under the Securities Exchange Act of 1934,
                           as amended ("Exchange Act").

         1.5 Furnish Information. It shall be a condition precedent to
Connetics' obligations to take any action pursuant to this SECTION 1 with
respect to Investor's Registrable Securities that Investor shall furnish to
Connetics such information regarding itself, the Registrable Securities held by
it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Registrable Securities.

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         1.6 Delay of Registration. Investor shall not have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any dispute that might arise with respect to the interpretation or
implementation of this SECTION 1.

         1.7 Indemnification. If any Registrable Securities are included in a
registration statement under this SECTION 1:

                  (a) To the extent permitted by law, Connetics will indemnify
         and hold harmless Investor, any underwriter (as defined in the
         Securities Act) for the Investor, and each person, if any, who controls
         the Investor or underwriter within the meaning of the Securities Act or
         the Exchange Act, against any losses, claims, damages, or liabilities
         (joint or several) to which they may become subject under the
         Securities Act, the Exchange Act or other federal or state law, insofar
         as such losses, claims, damages, or liabilities (or actions in respect
         thereof) arise out of or are based upon any of the following
         statements, omissions or violations (collectively a "Violation"):

                           (i) any untrue statement or alleged untrue statement
                  of a material fact contained in such registration statement,
                  including any preliminary prospectus or final prospectus
                  contained in the registration statement, or any amendments or
                  supplements to the registration statement,

                           (ii) the omission or alleged omission to state
                  therein a material fact required to be stated therein, or
                  necessary to make the statements therein not misleading, or

                           (iii) any violation or alleged violation by Connetics
                  of the Securities Act, the Exchange Act, any state securities
                  law or any rule or regulation promulgated under the Securities
                  Act, the Exchange Act or any state securities law;

         and Connetics will pay to each such indemnified person, as incurred,
         any legal or other expenses reasonably incurred by them in connection
         with investigating or defending any such loss, claim, damage,
         liability, or action; provided, however, that the indemnity agreement
         contained in this SUBSECTION 1.7(a) shall not apply to amounts paid in
         settlement of any such loss, claim, damage, liability, or action if
         such settlement is effected without Connetics' consent (which consent
         shall not be unreasonably withheld), nor shall Connetics be liable in
         any such case for any such loss, claim, damage, liability, or action to
         the extent that it arises out of or is based upon a Violation which
         occurs in reliance upon and in conformity with written information
         furnished expressly for use in connection with such registration by any
         such indemnified person.

                  (b) To the extent permitted by law, Investor will indemnify
         and hold harmless Connetics, each of its directors, each of its
         officers who has signed the registration statement, each person, if
         any, who controls Connetics within the meaning of the Securities Act,
         any underwriter, any other person selling securities in such
         registration statement and any controlling person of any such
         underwriter or other seller, against any losses, claims, damages, or
         liabilities (joint or several) to which any of the foregoing


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         persons may become subject, under the Securities Act, the Exchange Act
         or other federal or state law, insofar as such losses, claims, damages,
         or liabilities (or actions in respect thereto) arise out of or are
         based upon any Violation, in each case to the extent (and only to the
         extent) that such Violation occurs in reliance upon and in conformity
         with written information furnished by Investor expressly for use in
         connection with such registration; and Investor will pay, as incurred,
         any legal or other expenses reasonably incurred by any person intended
         to be indemnified pursuant to this SUBSECTION 1.7(b), in connection
         with investigating or defending any such loss, claim, damage,
         liability, or action; provided, however, that the indemnity agreement
         contained in this SUBSECTION 1.7(b) shall not apply to amounts paid in
         settlement of any such loss, claim, damage, liability or action if such
         settlement is effected without the Investor's consent (which consent
         shall not be unreasonably withheld) and provided further, that in no
         event shall any indemnity under this SUBSECTION 1.7(b) exceed the net
         proceeds from the offering received by Investor, except in the case of
         willful fraud by Investor.

                  (c) Promptly after receipt by an indemnified party under this
         SECTION 1.7 of notice of the commencement of any action (including any
         governmental action), such indemnified party will, if a claim in
         respect thereof is to be made against any indemnifying party under this
         SECTION 1.7, deliver to the indemnifying party a written notice of the
         commencement of such action and the indemnifying party shall have the
         right to participate in, and, to the extent the indemnifying party so
         desires, jointly with any other indemnifying party similarly noticed,
         to assume the defense of such action with counsel mutually satisfactory
         to the parties; provided, however, that an indemnified party (together
         with all other indemnified parties which may be represented without
         conflict by one counsel) shall have the right to retain one separate
         counsel, with the reasonable fees and expenses to be paid by the
         indemnifying party, if representation of such indemnified party by the
         counsel retained by the indemnifying party would be inappropriate due
         to actual or potential differing interests between such indemnified
         party and any other party represented by such counsel in such
         proceeding. The failure to deliver written notice to the indemnifying
         party within a reasonable time of the commencement of any such action,
         if prejudicial to its ability to defend such action, shall relieve such
         indemnifying party of any liability to the indemnified party under this
         SECTION 1.7, but the omission so to deliver written notice to the
         indemnifying party will not relieve it of any liability that it may
         have to any indemnified party otherwise than under this SECTION 1.7.

                  (d) If the indemnification provided for in this SECTION 1.7 is
         held by a court of competent jurisdiction to be unavailable to an
         indemnified party with respect to any loss, liability, claim, damage,
         or expense referred to in this Section, then the indemnifying party, in
         lieu of indemnifying such indemnified party under this Agreement, shall
         contribute to the amount paid or payable by such indemnified party as a
         result of such loss, liability, claim, damage, or expense in such
         proportion as is appropriate to reflect the relative fault of the
         indemnifying party on the one hand and of the indemnified party on the
         other in connection with the statements or omissions that resulted in
         such loss, liability, claim, damage, or expense as well as any other
         relevant equitable considerations; provided that, in no event shall any
         contribution by the Investor under this SUBSECTION 1.7(d) exceed the
         net proceeds from the offering received by the Investor,



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         except in the case of willful fraud by the Investor. The relative fault
         of the indemnifying party and of the indemnified party shall be
         determined by reference to, among other things, whether the untrue or
         alleged untrue statement of a material fact or the omission to state a
         material fact relates to information supplied by the indemnifying party
         or by the indemnified party and the parties' relative intent,
         knowledge, access to information, and opportunity to correct or prevent
         such statement or omission.

                  (e) The obligations of Connetics and the Investor under this
         SECTION 1.7 shall survive the completion of any offering of Registrable
         Securities in a registration statement under this SECTION 1.

         1.8 Reports Under Securities Exchange Act Of 1934. With a view to
making available to the Investor the benefits of Rule 144 and any other rule or
regulation of the SEC that may at any time permit Investor to sell securities of
Connetics to the public without registration or pursuant to a registration on
Form S-3, Connetics agrees to:

                  (a) make and keep public information available, as those terms
         are understood and defined in Rule 144, so long as Connetics remains
         subject to the periodic reporting requirements under Sections 13 or
         15(d) of the Exchange Act;

                  (b) take such action, including the voluntary registration of
         its Common Stock under Section 12 of the Exchange Act, as is necessary
         to enable Investor to use Form S-3 for the sale of its Registrable
         Securities;

                  (c) file with the SEC in a timely manner all reports and other
         documents required of Connetics under the Securities Act and the
         Exchange Act; and

                  (d) furnish to Investor, so long as Investor owns any
         Registrable Securities, forthwith upon request (i) a written statement
         by Connetics that it has complied with the reporting requirements of
         the Exchange Act and the rules and regulations promulgated thereunder,
         or that it qualifies as a registrant whose securities may be resold
         pursuant to Form S-3, (ii) a copy of the most recent annual or
         quarterly report of Connetics and such other reports and documents so
         filed by Connetics, and (iii) such other information as may be
         reasonably requested in availing Investor of any rule or regulation of
         the SEC which permits the selling of any such securities without
         registration or pursuant to such form.

         1.9 Termination of Registration Rights. The rights granted under this
SECTION 1 shall terminate on the second anniversary of the effective date of
this Agreement.

         2.       MISCELLANEOUS.

         2.1 Successors and Assigns. Except as otherwise provided in this
Agreement, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties
(including transferees of any of the Shares). Nothing in this Agreement, express
or implied, is intended to confer upon any party other than


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the Parties or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.

         2.2 Governing Law. This Agreement and all acts and transactions
pursuant to this Agreement shall be governed, construed and interpreted in
accordance with the laws of the State of California, without giving effect to
principles of conflicts of laws.

         2.3 Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

         2.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

         2.5 Notices. Unless otherwise provided in this Agreement, any notice
required or permitted by this Agreement shall be in writing and shall be deemed
sufficient upon delivery, when delivered personally or by overnight courier and
addressed to the party to be notified at such party's address as set forth on
the signature page of this Agreement or as subsequently modified by written
notice. In the event that any date provided for in this Agreement falls on a
Saturday, Sunday or legal holiday, such date shall be deemed extended to the
next business day. Notwithstanding the foregoing, any notice delivered pursuant
to SECTION 1.6 of this Agreement must be made by personal delivery or confirmed
facsimile transmission.

         2.6 Expenses. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the prevailing party shall be entitled
to reasonable attorneys' fees, costs and necessary disbursements in addition to
any other relief to which such party may be entitled.

         2.7 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of Connetics and the holders of a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and Connetics.

         2.8 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. If the Parties cannot reach a mutually agreeable and
enforceable replacement for such provision, then (a) such provision shall be
excluded from this Agreement, (b) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (c) the balance of the
Agreement shall be enforceable in accordance with its terms.

         2.9 Entire Agreement. This Agreement, and the documents referred to in
this Agreement (with the exception of the registration statement) constitute the
entire agreement between the Parties pertaining to the subject matter of this
Agreement, and any and all other written or oral agreements existing between the
Parties are expressly canceled.


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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.


                                    COMPANY

<TABLE>
<S>                                                         <C>
Connetics Corporation                                        Address:

                                                             3400 West Bayshore Road
                                                             Palo Alto, California 94303
By:   /s/ T. Wiggans                                         Fax No.  (650) 843-2899
     -------------------------------
          Thomas G. Wiggans
          President and Chief Executive Officer



                                   INVESTOR
Paladin Labs Inc.                                            Address:
                                                             Paladin Labs Inc.
                                                             6111 Royalmount, Suite 102
                                                             Montreal, Quebec  H4P 2T4
By:   /s/ Jonathan Goodman                                   Fax No.
     -------------------------------
         Jonathan Goodman
         President


</TABLE>

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