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                                  EXHIBIT 10.2

     NOTE: CERTAIN CONFIDENTIAL PORTIONS OF THIS AGREEMENT HAVE BEEN OMITTED
        AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

                              LICENSE AGREEMENT FOR
                                INTERFERON GAMMA

         This Agreement is entered into effective as of May 5, 1998, ("Effective
Date") by and between Connetics Corporation, a Delaware corporation with its
principal office at 3400 West Bayshore Road, Palo Alto, California 94303
("Connetics"), and Genentech, Inc., a Delaware corporation with its principal
office at 1 DNA Way, South San Francisco, California 94080 ("Genentech").

         WHEREAS, Connetics wishes to obtain a non-exclusive license to
manufacture and an exclusive license to use, sell, offer for sale and import
Interferon Gamma (as defined herein) in the United States for the treatment of
certain medical disorders;

         WHEREAS, in consideration for the foregoing, Connetics will issue to
Genentech shares of Connetics Common Stock on the terms and conditions set forth
in that certain stock purchase agreement between Genentech and Connetics of even
date herewith (the "Stock Agreement");

         WHEREAS, Genentech will manufacture and supply Connetics with
Interferon Gamma-1B (as defined herein) under the terms and conditions set forth
in that certain supply agreement between Genentech and Connetics of even date
herewith (the "Supply Agreement");

         WHEREAS, Connetics and Genentech are parties to that certain Agreement
on Interferon Gamma-1B dated December 8, 1995 (the "Prior Agreement") and desire
to terminate the Prior 


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Agreement effective as of the date hereof and to accept the rights and
obligations created pursuant hereto in lieu of the rights and obligations under
the Prior Agreement; and

         WHEREAS, Genentech and Connetics therefore agree to undertake the
foregoing, all under the terms and conditions set forth in this Agreement and
for the consideration set forth herein and in the Stock Agreement.

         NOW, THEREFORE, in consideration of the mutual promises contained
herein, the Parties agree as follows:

1.0      DEFINITIONS

         1.1 "Best Efforts" shall mean every necessary and prudent effort of a
Party applied in a prompt, commercially reasonable manner, to the maximum extent
reasonably allowed by such Party's available financial resources, taking into
account all of such Party's business commitments for such financial resources.

         1.2 "[1]License" shall mean that certain license agreement between
Genentech and [1]dated January 5, 1990, as amended on November 23, 1992.

         1.3 "[1] License Rights" shall mean all sublicenseable rights granted
to Genentech by 

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         [1] under the [1] License.

         1.4 "BLA" shall mean Biologics License Application.

         1.5 "Bulk Product" shall mean Interferon Gamma-1B provided as bulk
protein manufactured in compliance with Good Manufacturing Practices, pursuant
to applicable FDA regulatory approvals and supplied to Connetics in such a form
and in such containers as shall be mutually determined by Genentech and
Connetics and as described in the Supply Agreement.

         1.6      "C.F.R." shall mean Code of Federal Regulations.

         1.7      "CGD" shall mean chronic granulomatous disease.

         1.8 "Connetics Knowhow" shall mean all proprietary information,
methods, processes, techniques and data that have not been publicly disclosed,
that relate to Interferon Gamma and that arise out of Connetics' and its
sublicensees' efforts in the development of Interferon Gamma (including
Interferon Gamma as part of a Licensed Product) hereunder and that on the
Effective Date and hereafter during the term of this Agreement are owned or
controlled by Connetics or its sublicensees or under which Connetics or its
sublicensees otherwise has the right to grant licenses or sublicenses.

         1.9 "Connetics Patent Rights" shall mean all patents, patent
applications and any patents issuing therefrom, together with any substitutions,
extensions, reexaminations, reissues, renewals, divisions, continuations and
continuations-in-part thereof, that (a) claim inventions constituting Interferon
Gamma or its manufacture or use that arise out of Connetics' or its
sublicensee's efforts in the development of Interferon Gamma (including
Interferon Gamma as 

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part of a Licensed Product) hereunder during the term of this Agreement, and (b)
are owned by Connetics or its sublicensees or under which Connetics or its
sublicensees otherwise has the right to grant licenses or sublicenses as
provided herein.

         1.10 "ELA" shall mean Establishment License Application.

         1.11 "FDA" shall mean the United States Food and Drug Administration.

         1.12 "Field of Use" shall mean the administration to humans of Licensed
Product for the treatment or prevention of: (a) any dermatological disease or
condition including, without limitation, atopic dermatitis, keloids/hypertrophic
scars, pustular psoriasis and scleroderma, but excluding any cancer disease or
condition, (b) any infectious disease or condition including, without
limitation, fungal, viral and bacterial infections, (c) osteopetrosis, (d)
chronic granulomatous disease, (e) pulmonary fibrosis, and (f) asthma.
Notwithstanding the foregoing, the Field of Use shall not include the
administration to humans of Licensed Product for the treatment or prevention of
any type of arthritis or cardiac or cardiovascular disease or condition, or use
of Licensed Product for any indication or use in the field of oncology or
endocrinology. Each of Subsections 1.12 (a) through (f) inclusive shall
hereinafter each be referred to individually as an "Area of the Field of Use"
and together as the "Areas of the Field of Use."

         1.13 "Finished Product" shall mean Interferon Gamma-1B supplied in
vialed form as 100 micrograms of Interferon Gamma-1B protein in a 0.5 ml fill
volume and as described in the Supply Agreement, manufactured in compliance with
Good Manufacturing Practices and intended for commercial sale to treat CGD and
osteopetrosis and for clinical studies.

         1.14 "Fully Burdened Non-human Interferon Gamma Manufacturing Cost"
shall mean 

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the cost of Genentech's production and testing of Non-human Interferon Gamma,
which shall be comprised of the sum of: [1]

         1.15 "Gene Therapy" shall mean the therapeutic or prophylactic
treatment of a human being with: (a) one or more oligonucleotides or nucleotide
sequences, in native form or chemically modified, which are introduced into the
body in free form, bound to a carrier molecule, contained in any molecular
vesicle (e.g. a liposome), incorporated into or attached to a vector of any
type, contained in any cellular construct and/or contained in any mechanical
device or (b) cells which have been manipulated ex vivo using one or more
oligonucleotides or nucleotide sequences.

         1.16 "Genentech Knowhow" shall mean all proprietary information,
methods, processes, techniques and data that are in the possession or control of
Genentech on the Effective Date or thereafter during the term of this Agreement,
that Genentech is free to license or sublicense, that have not been publicly
disclosed, and that are specific and reasonably necessary for the use, sale,
offer for sale or importation of Interferon Gamma in the Field of Use in the
Territory, but shall not include information regarding the manufacture of
Interferon Gamma.

         1.17 "Genentech Manufacturing Knowhow" shall mean all proprietary
information, methods, processes, techniques and data that are in the possession
of Genentech at such time as Genentech determines or is required pursuant to the
terms of the Supply Agreement to make a manufacturing technology transfer to
Connetics, that are not generally known, and that are specific and reasonably
necessary for the manufacture of Interferon Gamma in the Field of Use in 

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the Territory.

         1.18 "Genentech Patent Rights" shall mean all patents and patent
applications and any patents issuing therefrom, together with any extensions,
reissues, reexaminations, substitutions, renewals, divisions, continuations and
continuations-in-part thereof (a) that are owned or controlled by Genentech
presently or hereafter, during the term of this Agreement, and under which
Genentech is free to license or sublicense, and (b) to the extent they claim or
directly relate to Interferon Gamma or its manufacture or use in the Field of
Use, including, without limitation, the patent rights granted under that certain
license agreement between Genentech and [1], dated July 16, 1990 (the "[1]
License"), but specifically excluding any rights granted to Genentech under the
[1] License. Genentech Patent Rights shall include, without limitation, the
patents and patent applications listed in Exhibit A attached hereto.
Notwithstanding the foregoing, Genentech Patent Rights shall exclude any rights
Genentech acquires after the Effective Date of this Agreement under third-party
license agreements, with the exception of those acquired under the [1] License,
unless and until the Parties mutually agree on terms and conditions for the
sublicense of such rights from Genentech to Connetics.

         1.19 "IND" shall mean Investigational New Drug Application.

         1.20 "Interferon Gamma" shall mean a polypeptide having the 126 amino
acid sequence set forth on Exhibit B or a variant of such sequence having at
least 70% homology 

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thereto, or such polypeptide with one or more additional amino acid residue(s)
extending from the N-terminus thereof and/or one or more additional amino acid
residue(s) extending from the C-terminus thereof, such polypeptides including,
without limitation, Interferon Gamma-1B.

         1.21 "Interferon Gamma-1B" shall mean a single chain polypeptide
containing the 140 amino acid sequence set forth on Exhibit C hereto, i.e., the
active ingredient in the ACTIMMUNE? (Interferon Gamma-1B) Injection product.

         1.22 "Licensed Product" shall mean any pharmaceutical formulation
containing Interferon Gamma whether alone or together with or incorporated into
any other substance or product or material or device, whether active or not, and
which (i) but for the licenses granted hereunder, the manufacture, use, sale,
offer for sale or importation of which in the Territory would infringe or
contribute to the infringement of Genentech Patent Rights in the Territory, or
(ii) is based upon or incorporates or utilizes Genentech Knowhow. For purposes
of clarification, it is understood that this definition shall not include any
pharmaceutical formulation which induces the presence or activity of Interferon
Gamma in vivo, or the DNA encoding Interferon Gamma for Gene Therapy, or other
biological techniques aimed at establishing or modulating endogenous Interferon
Gamma in vivo.

         1.23     "NDA" shall mean New Drug Application.

         1.24     "NDC" shall mean National Drug Code.

         1.25 "Net Sales" shall mean, as to each calendar quarter, the gross
invoiced sales prices charged for all Licensed Products sold by Connetics and
its sublicensees in arm's length transactions to independent third parties
during such quarter, after deduction of the following items paid by Connetics
and its sublicensees during such calendar quarter with respect to sales of



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Licensed Products regardless of the calendar quarter in which such sales were
made, provided and to the extent that such items are incurred or allowed and do
not exceed reasonable and customary amounts in the market in which such sales
occurred:

         [1]

         Notwithstanding the foregoing, no deduction shall be made for bad debt
expense.

         1.26 "Party" shall mean Genentech or Connetics, and, when used in the
plural, shall mean both of

them.

         1.27 "PLA" shall mean Product License Application.

         1.28 "Territory" shall mean the United States of America and its
territories and possessions.

         1.29 "Transfer Date" shall mean, unless otherwise mutually agreed to by
the Parties, the last day of the second full calendar month following the first
delivery by Connetics to Genentech of Connetics' labeling and packaging
materials for Genentech's use in labeling and packaging Finished Product,
pursuant to a purchase order submitted by Connetics and accepted by Genentech,
to be sold commercially by Connetics for treatment of CGD, provided that the
activities set forth on Exhibit H have been completed.

2.0 LICENSE GRANT

         2.1 Patent and Knowhow License Grant

                  (a) Genentech grants to Connetics an exclusive license, even
as to Genentech, 

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under Genentech Patent Rights and under Genentech Knowhow to use, sell, offer
for sale and import (but not to make or have made) Licensed Products in the
Field of Use in the Territory, (excluding, with respect to the fields of (i)
scleroderma and (ii) infectious disease or condition caused by human
papillomavirus, Licensed Products containing any form of Interferon Gamma other
than Genentech Gamma Interferon (greek delta)3, as that term is defined in the
[1] License). Notwithstanding the foregoing, Genentech reserves the right to use
(but not to import, offer for sale or sell) Licensed Products within the Field
of Use for research purposes.

                  (b) Genentech grants to Connetics a non-exclusive license
under Genentech Patent Rights and under Genentech Knowhow to use, sell, offer
for sale and import (but not to make or have made) Licensed Products containing
any form of Interferon Gamma other than Genentech Gamma Interferon (greek
delta)3 (as that term is defined in the [1] License) in the Territory in the
fields of: (i) scleroderma and (ii) infectious disease or condition caused by
human papillomavirus.

                  (c) Genentech grants to Connetics a non-exclusive sublicense
under the [1] License Rights to use, sell, offer for sale and import Licensed
Products (excluding Licensed Products containing [1] Gamma Interferon (greek
delta)0 as that term is defined in the [1]License) in the Territory in the
fields of scleroderma and infectious disease or condition caused by human 

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papillomavirus.

                  (d) Genentech grants to Connetics a non-exclusive license
under Genentech Patent Rights to make or have made Licensed Products in the
Field of Use for use and sale in the Territory.

                  (e) Genentech grants to Connetics a non-exclusive license
under Genentech Patent Rights and Genentech Knowhow to use non-human animal
species derived homologues of Interferon Gamma (Non-human Interferon Gamma) for
non-commercial research purposes to support the Field of Use in the Territory.

                  Except as expressly granted herein, there are no implied
licenses under the Genentech Patent Rights or any other intellectual property
rights owned or controlled by Genentech.

         2.2 Trademark License Grant

                  (a) Genentech hereby grants to Connetics a non-exclusive,
royalty-free license to use the trademark, ACTIMMUNE, for the advertising,
promotion, marketing, distribution and sale of Licensed Products in the
Territory. Connetics shall have the right to grant sublicenses to such
non-exclusive license, subject, however, to the prior written consent of
Genentech, which consent shall not be unreasonably withheld. Genentech agrees
not to grant any other licenses to use the ACTIMMUNE trademark without the
consent of Connetics, which consent shall not be unreasonably withheld.

                  (b) Use of the Mark.  In using the ACTIMMUNE mark, Connetics
shall display said mark in upper case letters or otherwise display it in a style
or size of print 


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distinguishing the mark from any accompanying wording or text. Where feasible,
Connetics shall display the registration symbol (R) to the right of and slightly
above or below the last letter of the word, ACTIMMUNE. Prior to any new use by
Connetics of the ACTIMMUNE mark on product packaging or package inserts for the
Licensed Products, Connetics shall notify and provide Genentech with an example
of the proposed use for approval by Genentech, which approval shall not be
unreasonably withheld or delayed. Such additional use, with respect to the
ACTIMMUNE mark, shall automatically become a part of the license grant under
Section 2.2(a) above.

                  (c) Quality Control. If Connetics uses the ACTIMMUNE mark for
Licensed Products, such products shall be of at least the quality described in
the Specifications therefor as defined in the Supply Agreement.

                  (d) Ownership. Connetics hereby acknowledges Genentech's
exclusive right, title and interest in and to the ACTIMMUNE mark and agrees that
it will not at any time do, or cause to be done, any act or thing contesting or
in any way impairing or intending to impair the validity of and/or Genentech's
exclusive right, title and interest in and to the ACTIMMUNE mark. Connetics will
not in any manner represent that it owns the ACTIMMUNE mark and hereby
acknowledges that its use of the ACTIMMUNE mark as set forth in Section 2.2(b)
above shall not create any rights, title or interest in or to the ACTIMMUNE mark
in its favor, but that all use of the ACTIMMUNE mark by Connetics shall inure to
the benefit of Genentech.

         2.3 Sublicenses.

                  (a) Connetics may grant sublicenses under the rights granted
 in Section 2.1(d) 


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on thirty (30) days prior written notice to Genentech, subject to Genentech's
prior written approval, which approval shall be at Genentech's sole discretion.
Genentech agrees that [1] is acceptable to Genentech as a Connetics'
sublicensee under the rights granted in Section 2.1(d) for the purpose of
manufacturing and supplying Bulk Product and/or Finished Product to Connetics,
and/or to its sublicensees under Sections 2.1(a), (b) and (c). In the event that
Genentech approves the grant of a sublicense under Section 2.1(d), Genentech may
in its sole discretion, or as agreed by the Parties in the Supply Agreement,
agree to grant to Connetics and such approved sublicensee a non-exclusive
license under Genentech Manufacturing Knowhow solely to make or have made
Licensed Products for use and sale by Connetics and its sublicensees in the
Field of Use in the Territory, and Genentech shall thereafter disclose to
Connetics and such sublicensee such Genentech Manufacturing Knowhow as soon as
reasonably possible.

                  (b) Connetics may grant one or more sublicenses under the
rights granted in Sections 2.1(a), (b), (c) and (e) in any applicable Area of
the Field of Use, on thirty (30) days prior written notice to Genentech, subject
to Genentech's prior written approval, which approval shall not be unreasonably
withheld.

                  (c)  Notwithstanding the above,  Connetics may grant one 
sublicense to InterMune (as defined in Section 3.1) under any or all of the
rights granted in Sections 2.1 and 2.2(a) above without Genentech's prior
written approval. InterMune (but no other sublicensee of Connetics) may grant
further sublicenses under Sections 2.1 and 2.2(a) to the extent that Connetics
has the right to do so pursuant to the provisions of this Section 2.3 and
Section 2.2(a). 

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Connetics and InterMune shall give Genentech a copy of any sublicense agreement
entered into by either of them with a third party pursuant to this Agreement as
soon as reasonably possible after execution, provided that Connetics and
InterMune may each redact from such copies text of information or provisions
that are not relevant to this Agreement and the rights and obligations of the
Parties hereunder. Genentech agrees to permit InterMune to perform Connetics'
rights and obligations under Section 2.2(b), (c) and (d), Section 2.5, Sections
3.1 through 3.8 and Article 4.0 of this Agreement (excluding matters related to
any alleged breach of the Agreement, or dispute between the Parties concerning
the performance of this Agreement, under such enumerated Sections and Article),
to the extent such rights and obligations are sublicensed to InterMune by
Connetics, and Genentech agrees to deal with InterMune in lieu of Connetics as
if it were Connetics hereunder for purposes of performance under such enumerated
Sections and Article, provided that Connetics shall remain liable and
responsible for performance of all of the obligations of Connetics and InterMune
under this Agreement. In the event that Connetics sublicenses all of its rights
under Section 2.1 and 2.2(a) to InterMune pursuant to a written sublicense which
provides that InterMune (and not Connetics) shall make, have made, use, sell,
offer for sale, import and develop Licensed Products in all Areas of the Field
of Use in the Territory, then Genentech agrees to permit InterMune to also
perform Connetics' rights and obligations under Articles 5.0 and 6.0 and
Sections 8.2 through 8.8 of this Agreement (excluding matters related to any
alleged breach of the Agreement, or dispute between the Parties concerning the
performance of this Agreement, under such enumerated Sections and Articles), and
Genentech also agrees to deal with InterMune in lieu of Connetics as if it were
Connetics 

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hereunder for purposes of performance under such enumerated Sections and
Articles, provided that Connetics shall remain liable and responsible for
performance of all of the obligations of Connetics and InterMune under this
Agreement. In the event that InterMune sublicenses any of its rights to a third
party pursuant to this Agreement, such sublicensee shall not have the right to
perform the rights and obligations of Connetics or InterMune under the Sections
and Articles enumerated above, and Genentech shall not have any obligation to
deal directly with such sublicensee. Notwithstanding the above provisions of
this Section 2.3(c), with respect to any dispute concerning InterMune's
performance, or alleged breach by InterMune, of any applicable term of this
Agreement, Genentech shall have the right to deal directly with Connetics, and
to proceed either against InterMune or directly against Connetics, in
Genentech's sole discretion, to enforce this Agreement.

                  (d) In the event of the grant of any sublicense by Connetics
(including such grant to InterMune) or by InterMune, the sublicensee shall be
subject to all of the applicable obligations of Connetics hereunder. Connetics
guarantees to Genentech the performance of Connetics' applicable obligations
hereunder by Connetics' sublicensees and by InterMune's sublicensees.

         2.4 Grant Back License. Connetics hereby grants to Genentech under any
Connetics Patent Rights and Connetics Knowhow, a nonexclusive, sublicenseable
license in the Territory to make, have made, use, sell, offer for sale and
import Interferon Gamma for any use outside of the Field of Use, with a royalty
rate of [1] payable to Connetics on net sales of Interferon Gamma by Genentech,
its affiliates and its sublicensees covered by such Connetics Patent Rights or

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incorporating such Connetics Knowhow. Genentech shall have the right to grant
sublicenses under such license, subject to the prior written approval of
Connetics, which approval shall not be unreasonably withheld. The license
granted to Genentech under this Section 2.4 shall expire on the later of: (a)
the expiration of the last to expire of any Connetics Patent Rights or (b) if
Connetics Knowhow was used, twenty (20) years from the first commercial sale of
Interferon Gamma outside the Field of Use by Genentech, its affiliates or its
sublicensees hereunder. As used herein, "net sales" shall have the equivalent
definition given to Net Sales in Section 1.25 above.

         2.5 Data Transfer and Cooperation

                  (a) Genentech shall provide Connetics with reasonable access
to all such relevant information and materials in its possession (subject to
Genentech's own internal reasonable needs for the information and materials)
that Connetics reasonably needs to develop and commercialize Licensed Products
in the Field of Use under the license granted to Connetics under Section 2.1
above. Connetics shall submit requests for such information to Genentech's
Clinical Collaborations Operations Department - Medical Affairs at the address
set forth at the beginning of this Agreement. Access to such information and
materials shall be made in a timely and orderly fashion and in a manner such
that the value of the accessed information is preserved in all material
respects.

                  (b) Connetics shall provide Genentech with reasonable access
to such relevant information and materials in its possession as is reasonably
necessary for Genentech to exercise the license rights granted by Connetics
under Section 2.4 and Genentech shall submit requests for 


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such information to Connetics' Vice President - Intellectual Property at the
address set forth at the beginning of this Agreement. Access to such information
and materials shall be made in a timely and orderly fashion and in a manner such
that the value of the accessed information is preserved in all material
respects.

                  (c) Commencing on May 1, 1998 Connetics or its sublicensees
shall be responsible for any costs associated with maintaining the Genentech
breeding colony of interferon gamma gene knock-out mice at Charles River Labs
(the "Knock-Out Mice"). In consideration for Connetics paying these costs,
Genentech hereby transfers all ownership of such particular Knock-Out Mice to
Connetics, subject to Genentech's right to use such Knock-Out Mice and the
progeny thereof for Genentech's own research purposes to the extent such
Knock-Out Mice are not being used (or planned to be used) by Connetics or its
sublicensees. If Connetics and its sublicensees wish to discontinue the
maintenance of such Knock-Out Mice colony, Connetics shall give Genentech sixty
(60) days prior notice and the right to take over such maintenance, at
Genentech's sole discretion, before Connetics discontinues such maintenance.
Connetics acknowledges that Genentech has, prior to the Effective Date hereof,
transferred interferon gamma gene knock-out mice to other third parties.

                  (d) Connetics shall use its Best Efforts to obtain a license
from the FDA, which shall include obtaining a U.S. license number and an NDC
number, to enable the effective transfer from Genentech to Connetics of the PLA
for CGD on file with the FDA (the "CGD PLA"). Genentech shall use its Best
Efforts to assist such transfer, to the extent reasonably requested by
Connetics. Genentech also shall, before the Transfer Date, reasonably assist



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Connetics in initiating Connetics' sales of Licensed Product in the Area of the
Field of Use of CGD by transferring to Connetics information reasonably
requested by Connetics that relates to such sales efforts for CGD. Connetics
shall reimburse Genentech for all reasonable costs associated with Genentech's
providing of such information within ninety (90) days of Connetics' receipt of
an invoice of such cost from Genentech.

                  (e) Genentech shall transfer the CGD PLA, IND and copies of
all material correspondence with the FDA regarding such PLA and IND to Connetics
as soon as reasonably possible after the Effective Date of this Agreement and
Connetics shall be responsible for all activities, at its own cost, necessary to
maintain the CGD PLA and IND and keep them active with the FDA after such date.
Connetics shall reimburse Genentech for 50% of all reasonable costs associated
with Genentech's transfer of the CGD PLA, IND and such FDA correspondence within
ninety (90) days of Connetics' receipt of an invoice of such cost from
Genentech.

                  (f) Connetics shall not commence marketing and sales of
Finished Product prior to the Transfer Date. On the Transfer Date, Genentech
shall transfer to Connetics the responsibility for all marketing and sales of
Finished Product in the Field of Use in the Territory, provided that all the
activities listed on Exhibit H attached hereto are completed. The Parties shall
use Best Efforts to complete the tasks set forth on Exhibit H as expeditiously
as possible.

                  (g) Genentech shall provide Connetics with reasonable access
to relevant data and regulatory information in its possession in the form
existing as of the Effective Date, whether written or electronic, including all
clinical safety data and clinical efficacy data that are related to the
manufacture, use and sale of Interferon Gamma within the Field of Use and the
right to cross-


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reference Genentech's IND, ELA, and PLA information for Interferon Gamma in any
Genentech regulatory filings related to Interferon Gamma within the Field of
Use. Other than as expressly set forth herein, Genentech shall have no further
obligation with respect to Connetics' efforts to obtain the FDA license referred
to in Section 2.5(d) above. At Genentech's sole discretion, Genentech may
participate in regulatory filings in the Field of Use in the Territory if the
Parties agree that Genentech's participation in such regulatory filings would
expedite the approval and commercialization of a Licensed Product. Connetics
shall reimburse Genentech for all reasonable costs associated with Genentech's
providing of data and regulatory information and referencing within ninety (90)
days of Connetics' receipt of an invoice of such cost from Genentech. Connetics
shall submit requests for such information to Genentech's Clinical
Collaborations Operations Dept. - Medical Affairs at the address set forth in
the beginning of this Agreement. Such requests shall not be submitted more than
two (2) times in any twelve (12) month period, unless such requests concern
information that is critical to product registration activities. Access to such
information shall be made in a timely and orderly fashion and in a manner such
that the value of the accessed information is preserved in all material
respects.

                  (h) To the extent reasonably requested by Genentech, Connetics
shall provide Genentech with access to all data and regulatory information in
its possession, whether written or electronic, in the form existing as of the
date of Genentech's request, including all clinical safety data and clinical
efficacy data, that directly relates to the use of Interferon Gamma outside the
Field of Use and shall give Genentech the right to cross-reference Connetics'
IND, ELA, BLA and PLA information, if applicable, in any Genentech regulatory
filings that are related to the use or sale of Interferon Gamma outside the
Field of Use. Genentech shall reimburse Connetics for 


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<PAGE>   19

all reasonable actual costs associated with Connetics' providing of data and
regulatory information and referencing within ninety (90) days of the receipt of
an invoice of such cost by Genentech from Connetics. Such requests shall not be
submitted more than two (2) times in any twelve (12) month period, unless such
requests concern information that is critical to product registration
activities. Access to such information shall be made in a timely and orderly
fashion and in a manner such that the value of the accessed information is
preserved in all material respects.

                  (i) Commencing from Genentech's first delivery to Connetics or
Intermune of Finished Product for clinical studies in accordance with the Supply
Agreement, Connetics shall thereafter be responsible for supplying ACTIMUNE free
of charge to, and funding (if any) of, the third party sponsors of the clinical
studies listed in Exhibit D attached hereto and incorporated herein. Connetics
shall enter into clinical research agreements with such third party sponsors
governing such studies that commence after the Effective Date hereof. With
respect to clinical research agreements between Genentech and such sponsors in
effect prior to the Effective Date, Connetics shall replace Genentech, pursuant
to an assignment, as a party. ACTIMMUNE (and funding, if any) for all such
studies shall be supplied by Connetics to such sponsors as described in such
clinical research agreements.

                  (j) As of the Transfer Date, Connetics shall conduct an
indigent patient program for Licensed Products sold for use in the field of CGD.
As soon as reasonably possible after Genentech transfers information regarding
patients who have participated in Genentech's indigent patient program,
Connetics will inform Genentech whether or not such patients will be eligible
and participating in Connetics' indigent patient program.



                                       19
<PAGE>   20

3.0 PRODUCT DEVELOPMENT AND MILESTONES

         3.1 Commercialization Milestones.

                  (a) Connetics shall use its Best Efforts to develop, seek FDA
clearance for marketing of, commercialize and sell Licensed Products in the
Territory in all Areas of the Field of Use. The Parties acknowledge that a new
company, named InterMune Pharmaceuticals, Inc. ("InterMune"), has been
incorporated to conduct development and commercialization of Licensed Products
in the Field of Use pursuant to an appropriate sublicense from Connetics to
Intermune. Connetics agrees to perform the following Commercialization
Milestones no later than the date set forth below opposite the appropriate
Commercialization Milestone description:

<TABLE>
<CAPTION>
         Commercialization Milestone                                              Date of Completion
         ---------------------------                                              ------------------
<S>                                                                               <C>    
         (a) Completion of the formation of InterMune                                 May 1, 1998

         (b) Execution of a sublicense agreement granting to InterMune rights,
         as permitted in this Agreement, necessary to perform
         development of Licensed Products in the Field                                June 1, 1998

</TABLE>

                                       20
<PAGE>   21

<TABLE>
<S>                                                                               <C>
         (c) Closing of at least [1] in equity financing of InterMune by third
         parties and/or Connetics                                                     July 15, 1998

         (d) Closing of at least another additional [1] in equity financing of
         InterMune by third
         parties and/or Connetics                                                    September 1, 1998

         (e) Enrollment and active participation of the first patient in the
         first new clinical trial
         for a Licensed Product in the Field
         of Use in the Territory                                                     October 1, 1998
</TABLE>

                  (b) If Connetics fails to perform any of the Commercialization
Milestones described in 3.1 (a) through (e) inclusive by the applicable Date of
Completion for any reason within Connetics' control, then, notwithstanding the
termination provisions in Section 11.2 below, Genentech shall have the right to
terminate this Agreement and the licenses granted to Connetics hereunder, upon
written notice to Connetics, which termination shall become effective thirty
(30) days after Genentech's sending written notice of such termination, unless 
such

----------

[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC. 


                                       21
<PAGE>   22


Commercialization Milestone has been completed prior to the expiration of such
thirty day period. If Connetics fails to perform any of the Commercialization
Milestones for causes beyond Connetics' control, Genentech shall not have the
termination rights above, provided that Connetics has mitigated such causes to
the extent it can reasonably do so. If Connetics fails to reasonably mitigate
such causes, Genentech will have the termination rights described above. In
addition, if Genentech exercises such termination rights above, Genentech shall
be automatically granted a co-exclusive (with Connetics and Connetics'
sublicensees), sublicenseable, royalty-free, worldwide license: (i) to the
result of efforts made by Connetics and its sublicensees in the development of
Licensed Products hereunder, (ii) to use all regulatory submissions made by
Connetics and its sublicensees hereunder, and (iii) under all Connetics Patent
Rights and Connetics Knowhow, arising from the efforts made by Connetics and its
sublicensees hereunder in the research and development of Licensed Products, to
make, have made, use, sell, offer for sale or import Licensed Products. Upon
Genentech's exercise of such termination right described above, Connetics shall
promptly provide Genentech with copies of all related documentation, whether
written or electronic, and materials, including biological materials, in the
form existing as of the effective date of such termination, reasonably necessary
for Genentech to exercise its license rights under this Section 3.1(b). Such
transfer shall be made in an orderly fashion and in a manner such that the value
in what is being transferred is preserved in all material respects. The
foregoing shall constitute Genentech's exclusive remedies for Connetics failure
to complete one or more of the Commercialization Milestones above, provided,
however, that Genentech's rights and remedies for breach of other provisions of
this Agreement, and under 


                                       22
<PAGE>   23

the Supply Agreement and the Stock Agreement, shall remain in full force and
effect.

         3.2 Diligence

                  (a) Attached hereto as Exhibit E are Connetics' Clinical
Development Milestones (the "Clinical Development Milestones") for Licensed
Products in the Field of Use and the Dates of Completion for each such
milestone. Connetics shall use its Best Efforts to adhere to the Dates of
Completion as set forth in Exhibit E. Connetics shall notify Genentech in
writing when it achieves a Clinical Development Milestone.

                  (b) From time to time, Connetics may suggest modifications to
the Clinical Development Milestones based on new information. Such modifications
shall be effective only as mutually agreed upon, in writing, by the Parties.
Genentech shall consider such requested modifications in good faith and shall
agree to any modifications that are reasonably necessary to achieve the overall
objectives of the development of Licensed Product hereunder.

                  (c) In the event that Connetics determines that it will be
unable to meet any Date of Completion for a Clinical Development Milestone due
to an event within Genentech's control, including without limitation, delay in
the performance by Genentech of any of its obligations hereunder (e.g. the
transfer of technology or materials, including the supply of Interferon
Gamma-1B), Connetics shall give prompt notice to Genentech of such inability and
shall specify the amount of delay Connetics believes resulted from such event
within Genentech's control. Unless Genentech disagrees in writing on reasonable
grounds with the amount of such delay specified by Connetics, such Date of
Completion will automatically be extended by the length of time of the delay. In
the event Genentech disagrees in writing on reasonable grounds 


                                       23
<PAGE>   24

with the amount of delay specified by Connetics, the Parties shall negotiate a
new Date of Completion in good faith.

                  (d) In the event that Connetics determines that it will be
unable to meet any Date of Completion for a Clinical Development Milestone due
to an event which would be considered a force majeure (as described in Section
12.9), Connetics shall give prompt written notice to Genentech of such inability
and the length of the delay Connetics believes resulted from such force majeure.
Unless Genentech disagrees in writing on reasonable grounds with the length of
such delay specified by Connetics, such Date of Completion will be automatically
extended by such specified length of time of the delay. In the event Genentech
disagrees in writing on reasonable grounds with the length of delay specified by
Connetics, the Parties shall negotiate a new Date of Completion in good faith.

                  (e) In the event that Connetics determines that it will be
unable to meet any Date of Completion for a Clinical Development Milestone for
reasons other than (i) force majeure and/or (ii) an event within Genentech's
control, Connetics shall notify Genentech of such inability, identifying the
nature of the inability with reasonable specificity and may ask Genentech for a
reasonable extension of time in which to complete such Clinical Development
Milestone. In Genentech's sole discretion, Genentech may grant Connetics such an
extension to complete such Clinical Development Milestone.

                  (f) Except as set forth in Sections 3.2(c) or 3.2(d) or in the
event that Genentech shall have agreed to an extension of the time to complete a
Clinical Development Milestone as set forth in Section 3.2(e), if Connetics
fails to complete a Clinical Development Milestone by the corresponding Date of
Completion with respect to one or more of the Areas of 


                                       24
<PAGE>   25

the Field of Use (other than in the dermatological Area of the Field of Use as
described in Section 1.12(a) above) Genentech shall have the right to terminate
this Agreement with respect to such Area(s) of the Field of Use, by providing
Connetics written notice thereof, and the termination of the Agreement with
respect to such Area(s) of the Field of Use shall be effective thirty (30) days
after Connetics' receipt of such notice unless such Clinical Development
Milestone shall have been met prior to the expiration of such thirty (30) day
period, and such termination shall be Genentech's exclusive remedy for such
failure of Connetics to complete such Clinical Development Milestone. Upon such
termination of the Agreement with respect to such Area(s) of the Field of Use:
(i) Genentech shall automatically have all the rights set forth in Sections
11.3(a) and (b) solely with respect to such Area(s) of the Field of Use; and
(ii) any sublicense(s) granted by Connetics with respect to such Area(s) of the
Field of Use shall not automatically terminate, but instead, Genentech shall
have the option to either terminate or continue this Agreement with respect to
such Area(s) of the Field of Use with such sublicensee(s).

         3.3 Review of Clinical Development Plan and Marketing Programs. On or
about each August 1 during the term of this Agreement, Connetics shall supply
Genentech with a report on Connetics' development and marketing programs for
Licensed Products in the Field of Use in the Territory. The report shall include
the following: (i) a description of Connetics' progress in such programs during
the twelve (12) months prior to the date of each such report, (ii) a description
of Connetics' planned development and marketing programs for the twelve (12)
months after the date of each such report, (iii) a copy of the most recent
version of the Clinical Development Milestones (if not previously provided to
Genentech), (iv) a copy of all previous versions of 


                                       25
<PAGE>   26

the Clinical Development Milestones (if not previously provided to Genentech),
(v) an explanation of any discrepancies between Connetics' progress during the
prior twelve (12) months and the Clinical Development Milestones and (vi) a
proposal to address such discrepancies, as contemplated under Section 3.2.
Genentech shall have the right to comment on the Clinical Development Milestones
and the development and marketing programs, and at Genentech's discretion, the
Parties shall meet to discuss and agree upon changes to the Clinical Development
Milestones.

         3.4 New Delivery Forms. Connetics shall have the right to develop and
obtain regulatory approval for the marketing of new delivery forms of Interferon
Gamma for use in Licensed Products in the Field of Use in the Territory.

         3.5 Costs of Development. Connetics shall be responsible for all
aspects and costs of development, regulatory approval and registration of
Licensed Products.

         3.6 Joint Development and Marketing Activities. Upon written notice to
Genentech, Connetics and InterMune shall be permitted to discuss and enter into
agreements and participate in joint development and marketing activities for
Licensed Products in the Field of Use outside the Territory with other Genentech
Interferon Gamma licensees.

         3.7 Compliance with Law and Safety and Adverse Event Reporting.

                  (a) Connetics shall conduct clinical trials hereunder, and
shall make, use, sell and distribute Licensed Products in accordance with all
applicable laws and regulations. Genentech and Connetics shall make available to
each other during the term of this Agreement all safety data obtained which
relates to the use of Licensed Products in the Field of Use. Connetics will
provide to Genentech's Medical Information and Drug Experience department at 



                                       26
<PAGE>   27

the time of filing a copy of each adverse event report or any report, including
summary reports, it is required to file under Title 21 or any other applicable
provision of the C.F.R. regarding Interferon Gamma. Genentech will provide
Connetics at the time of filing with a copy of each adverse event report or any
report, including summary reports, it is required to file regarding Interferon
Gamma under Title 21 or any other applicable provision of the C.F.R..

                  (b) Connetics shall maintain a safety database for all
Licensed Products and clinical trials conducted hereunder and shall submit to
regulatory agencies all adverse event and safety reports required to be filed
pursuant to Title 21 or any other applicable provision of the C.F.R. Connetics
shall also be responsible for providing product, medical and clinical
information regarding Licensed Product to its customers.

         3.8 Clinical Development Reports. During the course of clinical
development of Licensed Products and clinical studies conducted by Connetics
hereunder, Connetics shall submit to Genentech the reports listed on Exhibit F
attached hereto and incorporated herein. Connetics shall submit such reports to
Genentech as promptly as reasonably practicable after such reports are completed
or such applicable information is available.

         3.9 Technology Outside the Field of Use

                  (a) Upon mutual written amendment to this Agreement, the
Parties may expand the Field of Use, subject to the terms and conditions for
supply of Interferon Gamma 1-B set forth in the Supply Agreement, the payments
set forth in Sections 8.2 through 8.8 below inclusive and all other applicable
obligations of Connetics under this Agreement.

                  (b) Connetics may request an expansion of the Field of Use in
the Territory, by providing Genentech with a written letter of intent which
incorporates the terms and 



                                       27
<PAGE>   28

conditions specified in the Supply Agreement and Sections 8.2 through 8.8 of
this Agreement and sets forth a detailed clinical development plan and
reasonable proposed timeline (through FDA clearance) for developing the
additional medical indication(s) sought. Such letter of intent shall be deemed
Confidential Information of Connetics. Upon receipt of such letter of intent,
unless Genentech is conducting research in, or developing, Interferon Gamma for
such specified use, is already engaged in negotiations with a third party for
such specified use, or is prevented by prior written agreements to grant rights
to such additional indications to Connetics, Genentech shall negotiate
exclusively in good faith with Connetics, for a period of sixty (60) days on a
one time basis only for each such new indication outside the Field of Use, to
expand the Field of Use as proposed in the letter of intent on terms
substantially similar to those contained in this Agreement. If the Parties do
not reach mutual written agreement with respect to such proposed expansion of
the Field of Use within sixty (60) days, Genentech shall continue to have the
right to license its rights to such proposed additional indications for
Interferon Gamma outside the Field of Use to third parties other than Connetics,
provided that, for a period of six (6) months after the 60 day exclusive
negotiation period with Connetics, the milestone fee and royalty terms offered
by Genentech to third parties for such indications are not more favorable to
such third parties than those in the final offer made by Connetics.

                  (c) Prior to offering any third party an opportunity to obtain
any right or license under Genentech Patent Rights, Genentech Knowhow, or [1]
License Rights to use, sell, offer for sale or import Licensed Products for any
indication outside the Field of Use in the Territory, Genentech shall first
offer to Connetics to expand the Field of Use to include such 

----------

[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC. 



                                       28
<PAGE>   29

indication, in accordance with Section 3.8(d) below. Such obligation to first
offer to Connetics such indication outside the Field of Use shall apply only to
the first time Genentech wishes to offer rights to another party to such
indication outside the Field of Use.

                  (d) Genentech may offer to expand the Field of Use by written
notice to Connetics ("Offer Notice"). Upon receipt of such Offer Notice,
Connetics shall have thirty (30) days to provide Genentech with a written letter
of intent which incorporates the terms and conditions specified in the Supply
Agreement and Sections 8.2 through 8.8 of this Agreement. Upon receipt of such
letter of intent, Genentech shall negotiate exclusively in good faith with
Connetics, for a period of thirty (30) days on a one time basis only for each
such new indication outside the Field of Use, to expand the Field of Use as
proposed in the letter of intent on terms substantially similar to those
contained in this Agreement. If the Parties do not reach mutual written
agreement with respect to such proposed expansion of the Field of Use within 30
days, Genentech shall continue to have the right to license its rights to such
proposed additional indications for Interferon Gamma outside the Field of Use to
third parties other than Connetics. To remain under consideration as a potential
licensee for such rights to Interferon Gamma outside the Field of Use, within
ninety (90) days of receipt of Genentech's Offer Notice, Connetics shall provide
Genentech with a detailed written clinical development plan and reasonable
proposed timeline for developing (through FDA clearance) the additional medical
indication(s) sought, which development plan shall be deemed the Confidential
Information of Connetics.

                                       29
<PAGE>   30

4.0      Supply of Interferon Gamma-1B

         4.1 Bulk Product and Finished Product. Genentech shall supply Connetics
with, and Connetics shall purchase, Bulk Product for clinical studies and for
sales of Licensed Product and Finished Product for commercial sale of Licensed
Product to treat CGD and osteopetrosis and for clinical studies, pursuant to the
terms and conditions of the Supply Agreement.

         4.2 Supply of Non-human Interferon Gamma. Upon Connetics' reasonable
request and in Genentech's sole discretion, Genentech may choose to sell to
Connetics Non-human Interferon Gamma at a price equal to [1]. Notwithstanding
the foregoing, Genentech shall have no obligation to (a) provide any minimum
amount of Non-human Interferon Gamma to Connetics or (b) produce additional
amounts of Non-human Gamma Interferon in the event its current inventory is
depleted.

5.0      Intellectual Property Rights

         5.1 Ownership. Genentech shall retain title to Genentech Patent Rights,
Genentech Knowhow, Genentech Manufacturing Knowhow, the ACTIMMUNE mark, and to
any patent rights and knowhow related to Interferon Gamma or Licensed Products
developed solely by Genentech. Connetics shall retain title to Connetics Patent
Rights and Connetics Knowhow and to any patent rights and knowhow related to
Interferon Gamma and Licensed Products developed solely by Connetics. Except as
expressly provided herein, each Party shall own and shall have the exclusive
right to exploit all intellectual property rights owned or acquired by such
Party.

----------

[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC. 



                                       30
<PAGE>   31

         5.2 Patent Prosecution and License Fees

                  (a) With the exception of Genentech Patent Rights under the
[1] License, Genentech shall be responsible for the prosecution and maintenance
of the Genentech Patent Rights in the Territory at Genentech's expense, in
consultation with Connetics. Genentech shall be responsible for the prosecution
and maintenance and outside counsel fees associated therewith of the Genentech
Patent Rights under the [1] License in the Field of Use in the Territory at
Connetics' expense, upon prior consultation with and approval from Connetics,
which approval shall not be unreasonably withheld or delayed. Genentech shall
keep Connetics promptly informed of the status of prosecution of Genentech
Patent Rights in the Territory, including providing copies of all material
correspondence with the U.S. Patent and Trademark Office. Connetics shall have
the right to comment upon such prosecution and Genentech agrees to take such
comments into consideration reasonably in advance of any action taken by
Genentech in such prosecution.

                  (b) Connetics shall assist Genentech in prosecuting and
maintaining the Genentech Patent Rights as contemplated by Section 5.2(a) above.

                  (c) At least thirty (30) days prior to the time each benchmark
payment of [1] under the [1] License becomes due during the term of this
Agreement, Genentech shall notify Connetics of such payment due and Connetics
shall have the option of paying such benchmark 


------------

[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC. 


                                       31
<PAGE>   32

payment, on Genentech's behalf, when due to [1]. In the event that Connetics
chooses not to pay the benchmark payment when due, Connetics shall so notify
Genentech and Genentech shall have the option of paying such benchmark payment.
If Genentech pays such benchmark payment, Connetics shall reimburse Genentech
for such payment within thirty (30) days of receipt of Genentech's request for
reimbursement.

         5.3 Patent Infringement

                  (a) If either Party learns that a third party is infringing
Genentech Patent Rights or Connetics Patent Rights, it shall promptly notify the
other in writing. The Parties shall use reasonable efforts in cooperation with
each other to stop such patent infringement without litigation.

                  (b) Genentech and Connetics each shall have the first
opportunity to take the appropriate steps to remove the infringement of its own
Patent Rights which claim Interferon Gamma and/or its manufacture or use in the
Field of Use including, without limitation, initiating suit. In either case, if
such Party decides not to take such steps with respect to its own Patent Rights
within one hundred twenty (120) days of discovering or being notified of the
infringement, the other Party may do so. Each of the Parties agrees to provide
reasonable assistance to the other in taking such steps. Any legal action taken
under this section will be at the expense of the Party by whom suit is filed and
will be controlled by the Party bringing suit. The Party not bringing suit may
choose to be represented in any such action by counsel of its own choice at its
own expense. The Party bringing suit shall be reimbursed for its costs
associated with bringing suit with the proceeds of any damages or costs
recovered. Any monies remaining 

----------

[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC. 


                                       32
<PAGE>   33

shall be split between the Parties on an equitable basis proportional to their
respective damage from the infringement. If both Parties bring suit, equitable
apportionment of the costs and damages to be recovered shall be agreed upon
before the filing of the suit.

         5.4 Third Party Rights. If a notice of infringement is received by, or
a suit is initiated against, either of Connetics or Genentech with respect to
Licensed Products or the ACTIMMUNE mark, the Parties will in good faith discuss
the best way to respond.

         5.5 Trademark Infringement

                  (a) If either Party learns that a third party is infringing
the ACTIMMUNE mark, it shall promptly notify the other in writing. The Parties
shall use reasonable efforts in cooperation with each other to stop such
trademark infringement without litigation.

                  (b) Genentech shall have the first opportunity to take the
appropriate steps to remove the infringement of the ACTIMMUNE mark, including,
without limitation, initiating suit. If Genentech decides not to take such steps
within one hundred twenty (120) days of discovering or being notified of the
infringement, Connetics may do so. Each of the Parties agrees to provide
reasonable assistance to the other in taking such steps. Any legal action taken
under this section will be at the expense of the Party by whom suit is filed and
will be controlled by the Party bringing suit. The Party not bringing suit may
choose to be represented in any such action by counsel of its own choice at its
own expense. The Party bringing suit shall be reimbursed for its costs
associated with bringing suit with the proceeds of any damages or costs
recovered. Any monies remaining shall be split between the Parties on an
equitable basis proportional to their respective damage from the infringement.
If both Parties bring suit, 

                                       33
<PAGE>   34

equitable apportionment of the costs and damages to be recovered shall be agreed
upon before the filing of the suit.

         5.6 [1] License. If Genentech receives notice that it has acquired any
Genentech Patent Rights under the [1] License after the Effective Date of this
Agreement, Genentech shall notify Connetics in writing of such additional rights
as soon as reasonable after Genentech receives such notice.

6.0      Product Promotion

         6.1 Promotion. Genentech agrees, and shall require its sublicensees, if
any, to agree, not to promote Interferon Gamma or a Licensed Product in the
Field of Use in the Territory. Connetics agrees, and shall require its
sublicensees to agree, not to promote Interferon Gamma or a Licensed Product
outside the Field of Use or outside the Territory.

         6.2 Encroachment. In the event that either Party becomes aware of
spillover sales of Interferon Gamma by Genentech that is used within the Field
of Use or of Licensed Product by Connetics that is used outside the Field of
Use, the Parties shall meet and agree in good faith on reasonably appropriate
steps (a) to abate such encroachment and (b) to compensate the Party which has
suffered encroachment in its field of use by such spillover sales.

7.0      Confidentiality

         In the course of performance of this Agreement, one Party may disclose
to the other or 

----------

[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC. 

                                       34
<PAGE>   35

receive information from the other relating to the subject matter of this
Agreement which information shall be considered to be the disclosing Party's
confidential information, if in the case of a written disclosure, it is
designated as confidential at the time of disclosure, or if in the case of oral
disclosure, the specific nature of the oral disclosure and its confidentiality
is confirmed in writing to the other Party within thirty (30) days of the oral
disclosure (the "Confidential Information"). Each Party shall protect and keep
confidential and shall not use, publish or otherwise disclose to any third
party, except as permitted by this Agreement or with the other Party's written
consent, the other Party's Confidential Information for a period of five (5)
years from the date of termination of this Agreement if it is terminated at any
time within five (5) years after the Effective Date of this Agreement, otherwise
for a period of three (3) years from date of termination or expiration of this
Agreement. A Party may disclose the other Party's Confidential Information to
its sublicensees hereunder, provided that such sublicensees are subject to
obligations of confidentiality at least equivalent to those set forth in this
Article 7. The Parties shall consult prior to the submission of any manuscript
for publication to determine if the publication will contain any Confidential
Information of the other Party. Such consultation shall include providing a copy
of the proposed manuscript to the other Party at least forty-five (45) days
prior to the proposed date of submission to a publisher, incorporating
appropriate changes proposed by the other Party into the manuscript submission
and deleting all of the other Party's Confidential Information which such Party
does not agree to the publication thereof. The foregoing notwithstanding,
Confidential Information may be disclosed: (a) during any official proceeding
before a court or governmental agency if reasonably related to that proceeding;
(b) as 



                                       35
<PAGE>   36

a part of a patent application filed on inventions made under this Agreement,
provided that the Party whose Confidential Information is included in such
application shall have the opportunity to review such disclosure at least
fifteen (15) business days prior to the date of such filing and such Party does
not object to such disclosure; and (c) as may be reasonably required to comply
with applicable governmental laws or regulations. For the purposes of this
Agreement, Confidential Information shall not include such information that:

                  (i)      was known to the receiving Party at the time of
                           disclosure;

                  (ii)     was generally available to the public or was
                           otherwise part of the public domain at the time of
                           disclosure or became generally available to the
                           public or otherwise part of the public domain after
                           disclosure other than through any act or omission of
                           the receiving Party in breach of this Agreement;

                  (iii)    became known to the receiving Party after disclosure
                           from a source that had a lawful right to disclose
                           such information to others; or

                  (iv)     was independently developed by the receiving Party
                           without the use of Confidential Information of the
                           other Party, as evidenced by written records.

If Connetics sublicenses any of its rights hereunder to InterMune pursuant to
this Agreement, Genentech and InterMune shall enter into a mutual
confidentiality agreement, substantially in the form of this Article 7.0, to
protect confidential information that may be disclosed by InterMune to
Genentech.



                                       36
<PAGE>   37

8.0      Up-front Payment, Milestone Payments and Royalties

         In consideration for the licenses granted to Connetics by Genentech
pursuant to Section 2.0 above, Connetics shall make the following payments to
Genentech:

         8.1 Up-front Payment. Connetics shall issue to Genentech upon the
Original Closing Date (as defined in the Stock Agreement) shares of Connetics
Common Stock ("Original Issuance Shares" as defined in the Stock Agreement) with
a fair market value equal to two million dollars ($2,000,000), on the terms and
conditions set forth in the Stock Agreement. If, on the Second Closing Date (as
defined in the Stock Agreement), the aggregate market value of the Original
Issuance Shares (based on the Second Issuance Price (as defined in the Stock
Agreement)) is less than four million dollars ($4,000,000), Connetics shall
issue to Genentech upon the Second Closing Date the number of additional shares
of Connetics Common Stock (the ?Second Issuance Shares," as defined in the Stock
Agreement) equal to the lesser of: (i) the number of shares necessary to
increase the aggregate market value of the Original Issuance Shares (based on
the Second Issuance Price) plus the Second Issuance Shares (based on the Second
Issuance Price) to four million dollars ($4,000,000) or (ii) the number of
shares necessary to increase the aggregate number of the Company's shares of
Common Stock held by Genentech (exclusive of any shares that Genentech has
purchased from parties other than the Company) to 9.9% of the Company's total
outstanding shares of Common Stock as of the close of business on the third
trading day before the Second Closing Date, on the terms and conditions set
forth in the Stock Agreement. In lieu of all or any portion of the Second
Issuance Shares that the Company is obligated to issue to Genentech on the
Second Closing Date, the Company may elect to pay Genentech the cash value of
such Second Issuance Shares (based on the Second Issuance Price). 


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The Original Closing and the Second Closing of the stock issuances shall take
place as described in the Stock Agreement. In the event that Connetics does not
issue to Genentech all of the Second Issuance Shares or the cash value of the
Second Issuance Shares, Genentech may, in addition to other remedies available
to it by law or in equity, immediately terminate this Agreement and the licenses
granted to Connetics hereunder. Such termination by Genentech of the Agreement
and the licenses hereunder does not discharge Connetics' obligation to issue all
of the Second Issuance Shares or to pay to Genentech the cash value of the
Second Issuance Shares. The up-front payment shall not be creditable against any
royalty payments owed by Connetics under Sections 8.3 and 8.4 below.

         8.2 Milestone Payments for Licensed Products. Connetics shall make the
following cash milestone payments to Genentech:

                  (a) [1] within thirty (30) days following the dates on which
each of the first three (3) NDA's or BLA's for a Licensed Product is filed with
the FDA by Connetics for a new indication in the Field of Use; provided however,
that such milestone payments shall not be paid upon the filing of a NDA or BLA
for an osteopetrosis or atypical mycobacterial infection indication.

                  (b) [1] within thirty (30) days following the date Connetics
receives FDA clearance of each new indication for a Licensed Product for
commercial sale in the United States; provided however, that such milestone
payment shall not be paid upon receipt of FDA clearance for an osteopetrosis or
atypical mycobacterial infection indication.

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                  (c) [1] within thirty (30) days following the first date
Connetics' aggregate Net Sales of all Licensed Products in the Territory exceed
[1] in any calendar year.

                  (d) [1] within thirty (30) days following the first date
Connetics' aggregate Net Sales of all Licensed Products in the Territory exceed
[1] in any calendar year.

         Notwithstanding the foregoing, upon the expiration or revocation of the
last remaining issued patent within the Genentech Patent Rights during the term
of this Agreement, each of the milestones payments set forth in (a)-(d) above
thereafter shall be reduced by fifty percent (50%). Milestone payments shall not
be creditable against any royalty payments owed under Sections 8.3 and 8.4
below.

         8.3 Royalties. Connetics shall pay Genentech the following royalties on
Net Sales of Licensed Products by Connetics and its sublicensees:

                  (a) For annual aggregate Net Sales of all Licensed Products in
the Territory of up to three million seven hundred thousand dollars
($3,700,000), a royalty rate equal to [1] of such Net Sales.

                  (b) In addition to the payment of the royalty rate specified
in (a) above, for annual aggregate Net Sales of all Licensed Products in the
Territory exceeding three million seven hundred thousand dollars ($3,700,000), a
royalty rate equal to [1] of such Net Sales 

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exceeding $3,700,000.

                  (c) The above royalties shall be payable until the later of:
(i) the expiration or revocation of the last remaining issued patent within the
Genentech Patent Rights or (ii) twenty (20) years from the Effective Date of
this Agreement. Notwithstanding the foregoing, upon the expiration of the last
to expire issued patent within the Genentech Patent Rights during the term of
this Agreement, thereafter each of the royalty rates set forth in (a) and (b)
above shall be reduced by fifty percent (50%).

         8.4 Third-Party Royalties. If Genentech or Connetics is required to pay
any third party a royalty due to the manufacture, use, sale, offer for sale or
importation of a Licensed Product in the Territory for or by Connetics or its
sublicensees, Connetics shall be responsible for the payment of [1] of such
third-party royalty, provided however, that Connetics may deduct from the
royalties payable to Genentech under Section 8.3 above [1] of such third party
royalties incurred only due to use patents in the Field of Use in the Territory,
up to a maximum total deduction of [1] percentage points from the royalties
payable by Connetics to Genentech under Section 8.3. For purposes of
clarification, such deductions shall not apply to any benchmark payment under
the [1] License made by Connetics pursuant to Section 5.2(c) above. Attached
hereto as Exhibit G is a list of all such royalty obligations to third parties
known to Genentech as of the Effective Date without diligent search. No later
than thirty (30) days from the Effective Date, Genentech shall complete a
reasonable internal investigation of its records and update Exhibit G, as
necessary, to accurately reflect all such royalty obligations to third parties
to the 

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omitted. All such omitted material has been filed separately with the SEC. 

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best of Genentech's knowledge; provided however, Connetics acknowledges that
Genentech has no obligation to conduct due diligence or any investigation with
respect to third party patent rights related to Licensed Products. Genentech
shall notify Connetics in writing during the term of this Agreement if it
becomes aware of any additional Genentech third party royalty obligations.

         8.5 Royalty Payments. Royalty payments shall be made to Genentech
quarterly within ninety (90) days following the end of each calendar quarter for
which royalties are due. Each royalty payment shall be accompanied by a report
summarizing the total Net Sales during the relevant three-month period, and the
calculation of royalties, if any, due thereon pursuant to Section 8.3.

         8.6 Taxes. Genentech shall pay any and all taxes levied on account of,
or measured by, any payment, including, without limitation, royalties, it
receives under this Agreement.

         8.7 Termination. If the license granted to Connetics herein is
terminated by the Parties, Connetics shall have no obligation to make any
milestone or royalty payments to Genentech that has not accrued prior to the
effective date of such termination, but shall remain liable for all such
payments accruing prior to termination.

         8.8 Records and Reporting

                  (a) Records. Connetics and any sublicensee of Connetics shall
keep full, true and accurate books of account containing all particulars which
may be necessary for the purpose of showing Net Sales. Said books of account
shall be kept at the principal place of business of Connetics or its
sublicensee, as the case may be. Said books and the supporting data shall be


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open at all reasonable times, for three (3) years following the end of the
calendar year to which they pertain (and access shall not be denied thereafter,
if reasonably available), to the inspection of an independent public accountant
retained by Genentech and reasonably acceptable to Connetics (or its
sublicensee) for the purpose of verifying Net Sales under this Agreement;
subject to the provisions of Section 8.8(c) below

                  (b) Reports. Connetics shall within ninety (90) days after the
end of each calendar quarter beginning with the quarter of the first commercial
sale of Licensed Product in the Field of Use in the Territory by Connetics or
its sublicensee, deliver to Genentech a true and accurate report, setting forth
such particulars of the business conducted by Connetics and its sublicensees
during the preceding quarter as are pertinent to an accounting for Net Sales and
deductible expenses under this Agreement. Such reports shall include at least
the following: (i) the total gross sales of Licensed Products occurring during
that calendar quarter, (ii) the allowable deductions therefrom, (iii) the total
Net Sales of Licensed Products occurring during that calendar quarter and (iv)
the calculation of royalties, if any, due thereon pursuant to the above Section
8.3.

                  (c) Auditing. At Genentech's request and expense, Connetics
shall permit a certified public accountant selected by Genentech and acceptable
to Connetics to examine, not more than once in any four consecutive calendar
quarters during the term of this Agreement, but including one (1)
post-termination audit, Connetics' books of account and records of all sales of
Licensed Products by Connetics for the sole purpose of determining the
correctness of the reports provided by Connetics under the above Section 8.8(b).
If such accountant reasonably 


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<PAGE>   43

determines that the royalties owed by Connetics to Genentech under the above
Section 8.3 have been, for any calendar year in total, understated by Connetics,
Connetics shall immediately pay all understated royalties, together with
interest on such royalties from the date accrued at a rate of [1] and shall pay
the reasonable costs of the examination if Connetics has understated such
royalties by more than [1].

9.0      Representations and Warranties

         9.1 Disclaimer. Except as expressly provided herein, the Parties
disclaim all other representations and warranties, express or implied, including
without limitation, WARRANTIES OF COMMERCIAL UTILITY, MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, VALIDITY OR SCOPE OF GENENTECH PATENT RIGHTS or
NON-INFRINGEMENT OF THIRD PARTY INTELLECTUAL PROPERTY RIGHTS.

         9.2 Representations and Warranties.

                  (a) Each party represents and warrants to the other that: (a)
it is free to enter into this Agreement; (b) in so doing it will not violate any
other agreement to which it is a party; (c) it is currently capable of making
the grant of rights described in Sections 2.1(a), (b), (c), (d), 2.2 and 2.4;
and (d) it will not enter into any agreement in the future which conflicts with
or violates any term or provision of this Agreement. Genentech makes no
representation or warranty that all intellectual property rights necessary for
Connetics to make, have made, use, sell, offer for sale and import Licensed
Products in the Field of Use in the Territory have been granted to Connetics
under Section 2.0 of this Agreement.

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omitted. All such omitted material has been filed separately with the SEC. 

                                       43
<PAGE>   44

                  (b) Connetics further represents and warrants that, prior to
the Effective Date of this Agreement, Connetics' officers (acting under
delegated authority of its Board of Directors) have determined that the fair
market value of the exclusive license granted to Connetics hereunder is less
than $15,000,000 and therefore that the execution and delivery of this exclusive
license Agreement, or the performance of the obligations by Genentech or
Connetics hereunder, do not require that filings be made under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or under the
rules or regulations promulgated thereunder, by Connetics, Genentech, or their
respective affiliates or ultimate parent entities, if any.

                  (c) Genentech represents and warrants to Connetics that as of
the Effective Date: (i) to Genentech's knowledge, it has not received any notice
of a claim by a third party for infringement of such third party's intellectual
property relating to the use and practice of the Genentech Knowhow, the
Genentech Manufacturing Knowhow, the Genentech Patent Rights or the [1] License
Rights; and (ii) to the knowledge of Genentech's patent counsel, there is no
issued patent that would be infringed by the practice of the Genentech Knowhow,
the Genentech Manufacturing Knowhow or the Genentech Patent Rights as permitted
under the license rights granted under Section 2.1; and (iii) it has no
knowledge of any actual infringement by any third party in the Field of Use in
the Territory of the Genentech Patent Rights.

10.0     Liability

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omitted. All such omitted material has been filed separately with the SEC. 

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         10.1 Limitation of Liability. Neither Party shall be liable to the
other for indirect, incidental, special or consequential damages arising out of
any of the terms or conditions of this Agreement or with respect to their
performance or lack thereof.

         10.2 Connetics Indemnification. Connetics shall indemnify, defend and
hold harmless Genentech and its affiliates from and against all third party
costs, claims, suits, expenses (including reasonable attorneys' fees) and
damages arising out of or resulting from: (a) any willful or negligent act or
omission by Connetics relating to the subject matter of this Agreement or (b)
the use by or administration to any person of a Licensed Product, Bulk Product
or Finished Product that was sold, distributed or otherwise provided to a third
party by Connetics or its sublicensees under this Agreement; except where such
costs, claims, suits, expenses or damages arose or resulted from any negligent
act or omission by Genentech or any defect in the manufacture of Bulk Product or
Finished Product by Genentech that was not discovered by Connetics, provided
that Genentech gives reasonable notice to Connetics of any such claim or action,
tenders the defense of such claim or action to Connetics and assists Connetics
at Connetics' expense in defending such claim or action and does not compromise
or settle such claim or action without Connetics' prior written consent.

         10.3 Genentech Indemnification. Genentech shall indemnify, defend and
hold harmless Connetics, its affiliates and sublicensees from and against all
third party costs, claims, suits, expenses (including reasonable attorney's
fees) and damages arising out of or resulting from: (a) any willful or negligent
act or omission by Genentech relating to the subject matter of this Agreement;
(b) any defect in the manufacture of Bulk Product or Finished Product by
Genentech that was not discovered by Connetics; or (c) the use by or
administration to any 


                                       45
<PAGE>   46

person of a product containing Interferon Gamma sold, distributed or otherwise
provided to a third party by Genentech or its sublicensees; except where the
foregoing costs, claims, suits, expenses or damages arose or resulted from (i)
any negligent act or omission by Connetics or (ii) the use by or administration
to any person of a Licensed Product sold, distributed or otherwise provided by
Connetics or its sublicensees other than resulting from a defect in the
manufacture of such Licensed Product by Genentech, provided that Connetics gives
reasonable notice to Genentech of any such claims or action, tenders the defense
of such claim or action to Genentech and assists Genentech at Genentech's
expense in defending such claim or action and does not compromise or settle such
claim or action without Genentech's prior written consent.

11.0     Term and Termination

         11.1 Term. This Agreement shall commence on the Effective Date of this
Agreement and, unless terminated earlier, shall expire at the later to occur of
(a) the expiration of the last to expire of any Genentech Patent Rights or (b)
twenty (20) years from the Effective Date of this Agreement; provided, however,
that in the event that either the [1] License or the [1] License is
terminated, the licenses granted by Genentech to Connetics under the [1]License
or the [1]License shall also terminate. Genentech shall use its Best Efforts to
keep the [1]License and the 

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[1]License in effect during the term of this Agreement, provided, however, that
if Connetics declines to pay a [1] benchmark payment as outlined in Section
5.2(c) or pay any royalty owed to [1] under the [1] License for the sales of
Licensed Products, then Genentech shall not be obligated to make such payment
and Genentech shall have the option, in its sole discretion, to terminate the
[1] License. One year before the expiration of this Agreement under this
Section 11.1, the Parties agree to meet and to discuss in good faith extending
the term of this Agreement on terms mutually agreeable to the Parties.

         11.2 Termination for Default. If either Party shall default in a
material manner with respect to any material provision of this Agreement and the
other Party shall have given the defaulting Party written notice of such
default, the defaulting Party shall have thirty (30) days to cure such default.
If such default is not cured within such thirty (30) day period, the
non-defaulting Party shall have the right, upon notice to the defaulting Party
and without prejudice to any other rights the non-defaulting Party may have, to
terminate this Agreement unless the defaulting Party is in the process of
attempting in good faith to remedy such default, in which case, the thirty (30)
day cure period shall be extended by an additional thirty (30) days. If
Genentech terminates this Agreement pursuant to this Section 11.2, Genentech
shall automatically have all of the rights set forth in Sections 11.3(a) and (b)
of this Agreement. Upon 

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omitted. All such omitted material has been filed separately with the SEC. 


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such termination, any sublicenses granted under this Agreement shall not
automatically terminate, but instead, Genentech shall have the option to either
terminate or continue this Agreement with each sublicensee. If Connetics
terminates this agreement pursuant to this Section 11.2, Connetics shall
automatically have all of the rights set forth in Section 11.4 of this
Agreement. Connetics shall have no right to terminate this Agreement pursuant to
this Section 11.2 in the event of Genentech's failure to supply Bulk Product or
Finished Product. In the event of Genentech's failure to supply Bulk Product or
Finished Product, Connetics shall have the rights set forth in the Supply
Agreement.

         11.3 Genentech's Rights on Termination

                  (a) If Genentech terminates this Agreement pursuant to Section
11.2 above, Genentech shall be automatically granted a nonexclusive,
sublicenseable, license in the Territory under Connetics Patent Rights and
Connetics Knowhow arising from the efforts made by Connetics and its
sublicensees hereunder in the research and development of Licensed Products, to
make, have made, use, sell, offer for sale or import Licensed Products and shall
be automatically granted a right to use all of Connetics' regulatory submissions
made by or on behalf of Connetics for Interferon Gamma and Licensed Products. If
Genentech sells a commercial product under the license granted in this Section
11.3 that would, but for the license granted herein, infringe a claim of such
Connetics Patent Rights or that is based upon, incorporates or utilizes such
Connetics Knowhow, Genentech shall pay Connetics a royalty, under terms and
conditions to be mutually agreed upon by the Parties, such royalty to be
commensurate with the value contributed by such Connetics Patent Rights and
Connetics Knowhow to such commercial product, but in no event shall such royalty
exceed two percent (2%) of Genentech's net sales of 



                                       48
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such commercial product. As used herein, "net sales" shall have the equivalent
definition given to Net Sales in Section 1.25 above.

                  (b) Upon the effective date of termination by Genentech
pursuant to Section 11.2 above, Connetics shall promptly provide Genentech with
copies of all related documentation regarding Connetics Patent Rights and
Connetics Knowhow arising from the efforts made by Connetics and its
sublicensees hereunder in the research, development and manufacture of Licensed
Products, whether written or electronic, and materials, including biological
materials, in the form existing as of the effective date of such termination,
reasonably necessary for Genentech to exercise its license rights under Section
11.3(a) above. Such transfer shall be made in a timely and orderly fashion and
in a manner such that the value of what is being transferred is preserved in all
material respects. Connetics shall promptly take all appropriate and necessary
actions, including action before the involved regulatory agency, to effect
transfer to Genentech of, and shall also permit Genentech to reference, any FDA
submissions, including, without limitation, any PLA or BLA filed with the FDA
with respect to Licensed Products. Within ninety (90) days of such assignment
and completion of all such appropriate and necessary actions, Genentech will
reimburse Connetics for its actual expenses incurred in preparing documentation
for filing or referencing the submission and in taking such appropriate and
necessary action related to such transfer or referencing.

         11.4 Connetics' Rights on Termination. Should Connetics terminate this
Agreement pursuant to Section 11.2 above, Genentech shall grant to Connetics (a)
an exclusive, sublicenseable, royalty-bearing license, according to royalty
terms described in Sections 8.3 and 8.4 within the Field of Use in the
Territory, under terms and conditions agreed upon by the 



                                       49
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Parties, under the Genentech Patent Rights and Genentech Knowhow in order to
permit Connetics to continue using, selling, offering for sale and importing
Licensed Products in the Field of Use in the Territory (excluding, with respect
to the fields of scleroderma and infectious disease or condition caused by human
papillomavirus, Licensed Products containing any form of Interferon Gamma other
than Genentech Gamma Interferon (greek delta)3, as that term is defined in the
[1] License), (b) a non-exclusive, sublicenseable, royalty-bearing license,
(conforming to the license grant in Section 2.1 (b) above) according to royalty
terms described in Sections 8.3 and 8.4 in the Territory , under terms and
conditions agreed upon by the Parties, under the Genentech Patent Rights and
Genentech Knowhow in order to permit Connetics to continue using, selling,
offering for sale and importing Licensed Products containing any form of
Interferon Gamma other than Genentech Gamma Interferon (greek delta)3 (as that
term is defined in the [1] License) in the Territory in the fields of
scleroderma and infectious disease or condition caused by human papillomavirus,
(c) a non-exclusive, sublicenseable license (the royalty for which is already
included in clause (a) above) in the Territory in the fields of scleroderma and
infectious disease or condition caused by human papillomavirus, under terms and
conditions agreed upon by the Parties, under the [1] License Rights in order to
permit Connetics to continue using, selling, offering for sale and importing
Licensed Products (except those Licensed Products containing [1] Gamma
Interferon (greek delta)0) in the field of scleroderma and infectious disease or
condition caused by human 

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<PAGE>   51

papillomavirus in the Territory and (d) a non-exclusive sublicenseable license
(the royalty for which is already included in clause (a) above) under Genentech
Patent Rights and Genentech Manufacturing Knowhow in order to permit Connetics
to continue making and having made Licensed Products in the Field of Use in the
Territory.

         11.5 Bankruptcy. Either Party may, in addition to any other remedies
available to it by law or in equity, terminate this Agreement, in whole or in
part as the terminating Party may determine, by written notice to the other
Party in the event the other Party shall have become bankrupt, or shall have
made an assignment for the benefit of its creditors or there shall have been
appointed a trustee or receiver of the other Party or for all or a substantial
part of its property or any case or proceeding shall have been commenced or
other action taken by or against the other Party in bankruptcy or seeking
reorganization, liquidation, dissolution, winding-up, arrangement, composition
or readjustment of its debts or any other relief under any bankruptcy,
insolvency, reorganization or other similar act or law of any jurisdiction now
or hereafter in effect and any such event shall have continued for sixty (60)
days undismissed, unbonded and undischarged. All rights and licenses granted
under to this Agreement by one Party to the other Party are, and shall otherwise
be deemed to be, for purposes of Section 365 (n) of the Bankruptcy Code,
licenses of rights to "intellectual property" as defined under Section 101 (56)
of the Bankruptcy Code. The Parties agree that the licensing Party under this
Agreement shall retain and may fully exercise all of its rights and elections
under the Bankruptcy Code in the event of a bankruptcy by the other Party. The
Parties further agree that in the event of the commencement of a bankruptcy
proceeding by or against one Party under the Bankruptcy Code, the other Party
shall be entitled to complete access to any such intellectual property
pertaining to 



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the rights granted in the licenses hereunder of the Party by or against whom a
bankruptcy proceeding has been commenced and all embodiments of such
intellectual property.

         11.6 Unilateral Termination. In addition to any other right of
termination provided herein, Connetics shall have the right to terminate this
Agreement for any reason, with or without cause upon six (6) months' prior
written notice to Genentech. If Connetics terminates this Agreement pursuant to
this Section 11.6, Connetics agrees that for the following three (3) years it
will not use, sell or acquire from any third party (whether by license or
otherwise) any Licensed Product in the Field of Use. If Connetics terminates
this Agreement pursuant to this Section 11.6, the licenses granted hereunder
shall terminate and Genentech shall automatically have all of the rights set
forth in Sections 11.3(a) and (b) of this Agreement.

         11.7 Survival of Certain Provisions. Termination of this Agreement for
any reason shall not release either Party from any obligation arising prior to
the date of termination. The provisions of Sections 1.0, 2.4 (except in the
event of termination of this Agreement by Connetics pursuant to Section 11.2),
11.3(a) and (b) (except in the event of termination of this Agreement by
Connetics pursuant to Section 11.2), 11.4 (except in the event of termination of
this Agreement by Genentech pursuant to Section 11.2), and Articles 5.0, 7.0,
9.0, 10.0, 11.0 (except as provided in this paragraph) and 12.0 shall survive
any termination of this Agreement.

12.0     General Provisions

         12.1 Notices. All notices which may be required pursuant to this
Agreement: (i) shall be in writing, (ii) shall be addressed, in the case of
Genentech (except as otherwise specified herein), to the Corporate Secretary at
the address set forth at the beginning of this Agreement, 



                                       52
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and in the case of Connetics, to the Vice President - Intellectual Property at
the address set forth at the beginning of this Agreement, (or to such other
person or address as either Party may so designate from time to time), (iii)
shall be mailed, postage-prepaid, by registered mail or certified mail, return
receipt requested, or transmitted by courier for hand delivery or transmitted by
facsimile and (iv) shall be deemed to have been given on the date of receipt if
sent by mail or on the date of delivery if transmitted by courier or facsimile.
Notices by facsimile may be sent to the following numbers: for Connetics, to
(650) 843-2899; for Genentech, to (650) 952-9881.

         12.2 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the state of California (other than its choice of
law principles).

         12.3 Entire Agreement. This Agreement is the entire agreement between
the Parties, and there are no prior written or oral promises or representations
not incorporated herein or therein, except that certain Confidentiality
Agreement between the Parties dated January 9, 1997 which shall remain in full
force and effect. This Agreement shall supersede and replace the Prior Agreement
in its entirety, and the Prior Agreement shall be terminated automatically as of
the Effective Date. No amendment or modification of the terms of this Agreement
shall be binding on either Party unless reduced to writing and signed by an
authorized officer of the Party to be bound.

         12.4 Binding Effect and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties hereto and their respective
permitted successors and assigns. This Agreement shall not be assignable by
either Party without the other's prior written consent, provided however, that
either Party may assign this Agreement, without the other Party's written
consent but after providing thirty (30) days prior written notice to the other
Party, to any 



                                       53
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successor pursuant to a consolidation or merger of such Party with or into any
other corporation or corporations that results in a change of greater than 50%
of the voting control of such Party, or a sale, conveyance or disposition of all
or substantially all of the assets of such Party or the effectuation by such
Party of a transaction or series of related transactions in which more than 50%
of the voting power of such Party is disposed of.

         12.5 Waiver. The waiver by a Party hereto of any breach of or default
under any of the provisions of this Agreement or the failure of a Party to
enforce any of the provisions of this Agreement or to exercise any right
thereunder shall not be construed as a waiver of any other breach or default or
as a waiver of any such rights or provisions hereunder.

         12.6 Severability. If any part of this Agreement shall be invalid or
unenforceable under applicable law, such part shall be ineffective only to the
extent of such invalidity or unenforceability, without in any way affecting the
remaining parts of this Agreement. In addition, the part that is ineffective
shall be reformed in a mutually agreeable manner so as to as nearly approximate
the intent of the Parties as possible.

         12.7 Publicity. Connetics and Genentech agree that, except as may
otherwise be required by applicable laws, regulations, rules, or orders,
including the disclosure requirements of the Securities and Exchange Commission
("SEC"), no information concerning this Agreement and the transactions
contemplated herein (except information which is already in the public domain)
shall be made public by either Party without the prior written consent of the
other Party. Notwithstanding the foregoing, with respect to complying with the
disclosure requirements of the SEC, in connection with any required SEC filing
of this Agreement by Connetics, Connetics shall seek confidential treatment of
portions of this Agreement from the SEC and Genentech 


                                       54
<PAGE>   55

shall have the right to review and comment on such an application for
confidential treatment prior to its being filed with the SEC. Genentech shall
provide its comments, if any, on such application as soon as practicable and in
no event later than seven (7) days after such application is provided to
Genentech. To assist Connetics in its compliance with SEC disclosure
obligations, Genentech shall provide to Connetics, within fourteen (14) days of
the Effective Date, electronic copies of this Agreement (and all exhibits
hereto) and the Supply Agreement. In addition, notwithstanding the foregoing,
Connetics shall have the right to disclose information concerning this Agreement
and the transactions contemplated herein to its legal representatives, advisors,
prospective investors, investors, third party auditors, sublicensees and
prospective sublicensees hereunder to the extent reasonably necessary and under
obligations of confidentiality no less stringent than those provided for in
Article 7.0.

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

         12.9 Force Majeure. Neither Party shall be liable to the other for its
delay or failure to perform under this Agreement or shall have any right to
terminate this Agreement for any such delay or failure in performance
attributable to any act of God, flood, fire, explosion, strike, lockout, labor
dispute, casualty or accident, war, revolution, civil commotion, act of public
enemies, blockage or embargo, injunction, law, order, proclamation, regulation,
ordinance, demand or requirement of any government or subdivision, authority or
representative of any such government, or any other cause beyond the reasonable
control of such Party, if the Party affected shall give prompt notice of any
such cause to the other Party. The Party giving such notice shall 


                                       55
<PAGE>   56

thereupon be excused from such of its obligations, hereunder for the period of
time that it is so disabled.

         12.10 Headings. Headings are for the convenience of reference only and
shall not control the construction or interpretation of any of the provisions of
this Agreement.

         12.11 No Partnership. Nothing in this Agreement is intended or shall be
deemed to constitute a partnership, agency, employer-employee, or joint venture
relationship between the Parties.

                           [SIGNATURE PAGE TO FOLLOW]



                                       56
<PAGE>   57

         IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed by its duly authorized representatives as of the date set forth above.

GENENTECH, INC.                         CONNETICS CORPORATION

By: /s/ Nick Simon                      By: /s/ Thomas G. Wiggans

Name:  Nick Simon                       Name:  Thomas G. Wiggans

Title: V.P., Business and               Title:  President and CEO
       Corporate Development     



                                       57
<PAGE>   58

                                    EXHIBIT A

       PATENT APPLICATIONS AND PATENTS INCLUDED IN GENENTECH PATENT RIGHTS


<TABLE>
<CAPTION>
           U.S. SERIAL NUMBER                            U.S. PATENT NUMBER
           ------------------                            ------------------
<S>                                                      <C>
                08/460,524                                    pending

                08/460,539                                    pending

                                                             5,690,925

                                                             5,582,824

                                                             5,151,265

                                                             5,200,177

                                                             5,112,605

                                                             5,196,191

                                                             5,096,705

                                                             5,574,137

                                                             5,248,499

</TABLE>


                                       55
<PAGE>   59

                                    EXHIBIT B

[1]

----------

[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC. 


                                       56
<PAGE>   60

                                    EXHIBIT C

[1]

----------

[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC. 


                                       57
<PAGE>   61


                                    EXHIBIT D

                          THIRD PARTY SPONSORED STUDIES

[1]

----------

[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC. 


                                       58
<PAGE>   62


                                    EXHIBIT E

                         CLINICAL DEVELOPMENT MILESTONES

[1]

----------

[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC. 


                                       59
<PAGE>   63


                                    EXHIBIT F

                                CLINICAL REPORTS

The following information/reports will be provided to Genentech in a timely
manner:

o    FDA Meeting Minutes

o    IND(s)

-    Initial

-    Updates (if applicable)

o    Annual Report(s)

o    Investigator Brochure(s)

o    Clinical Studies:

-    Protocol(s)
-    Prior to FDA submission
-    First Patient-In (FPI)
-    First Patient-Out (FPO)
-    Last Patient-In (LPI)
-    Last Patient-Out (LPO)

o    Serious Adverse Event (SAE) Summary

o    Clinical Study Interim Analysis and Update(s)
     (if applicable)

o    Go/No-Go Decision Minutes

o    Clinical Study Final Report(s)

-    Draft

-    Final Copy


<PAGE>   64

                                    EXHIBIT G

                              THIRD PARTY ROYALTIES

Royalties are payable under the [1] License, as follows (capitalized terms
shall have the meanings defined in the [1] License): a [1] royalty is payable
on Net Sales of gamma interferon in Approved Countries in the Territory for the
prophylaxis or treatment of atopic dermatitis and/or steroid-dependent asthma,
where there is substantial protection from an issued Licensed Patent for the
approved indication and where the Licensee has enjoyed Market Exclusivity. The
royalty rate is [1] on Net Sales in the Licensed Field in Approved Countries
where the Licensee enjoyed Market Exclusivity but where there is no substantial
patent protection, or while the Licensed Patent applications covering the
indication are still pending, provided that such applications have been
diligently prepared, filed and maintained. The royalty rates described above are
reduced by [1] for Approved Countries where the Licensee has not enjoyed Market
Exclusivity.

----------

[1] Confidential treatment has been requested for the language which has been
omitted. All such omitted material has been filed separately with the SEC. 




<PAGE>   65



EXHIBIT H

                     TRANSFER DATE ACTIVITIES FOR COMMERCIAL
                           SALES OF ACTIMMUNE FOR CGD

         Prior to the Transfer Date, as defined in Section 1.29 of this
Agreement, the following activities must be completed by the appropriate Party
as described below:

         I.        Regulatory Requirements

                  1.       FDA License - Connetics must obtain all licenses,
                           including license numbers, required for the sale of
                           Actimmune for CGD by Connetics. Connetics shall also
                           obtain a NDC number.

                  2.       PLA/IND Transfer - Genentech shall transfer to
                           Connetics the PLA and IND for CGD on file with the
                           FDA.

                  3.       Connetics must obtain FDA review and approval, as
                           required by law or regulation, for Connetics' labels,
                           product insert and packaging for sale of Actimmune
                           for CGD.

                  4.       Genentech shall transfer its safety information to
                           Connetics for Actimmune, as provided in Section
                           2.5(g) of this Agreement. Connetics shall establish a
                           safety database system for Actimmune, such that as of
                           the Transfer Date, Connetics shall be responsible for
                           all safety-related requirements under FDA
                           regulations, including the reporting of adverse
                           events.

                  5.       Prior to the Transfer Date, Connetics shall establish
                           all procedures, controls and other methods and
                           capabilities needed in order to comply with all
                           requirements, laws and regulations applicable to the
                           use, distribution and sale of Actimmune for CGD.

         II.       Quality Control, Product Testing

                  1.       To the extent that Connetics is required by law or
                           regulation to conduct any quality control, quality
                           assurance and/or stability testing of Actimmune sold
                           for CGD, in addition to any such testing to be
                           conducted by Genentech pursuant to the Supply
                           Agreement, Connetics shall establish procedures and
                           obtain regulatory approval to do so prior to the
                           Transfer Date.

         III.      Uninsured Patient Program

                  Connetics shall have established an uninsured patient program,
                  including procedures for determining patient eligibility.
                  Genentech shall transfer to Connetics its existing information
                  regarding such patients prior to the Transfer Date, to the
                  extent it has received consent from such patients to do so.
                  Connetics shall notify Gennetech prior to the Transfer Date
                  which of the patients participating in Genentech's uninsured
                  patient program, and for which Genentech 




<PAGE>   66

                  has transferred information, shall receive drug under
                  Connetics' uninsured patient program.

         IV.      Product Distribution and Sale

                  1.       Connetics shall establish product distribution and
                           inventory systems for Actimmune. Genentech will
                           provide to Connetics the name of its current
                           distributor.

                  2.       Connetics shall establish systems and personnel
                           required to address customer inquiries, medical
                           information requests and product returns.