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                                  EXHIBIT 10.3

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

                                Supply Agreement

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

         Genentech and Connetics are parties to that certain License Agreement
for Interferon Gamma of even date herewith (the "License Agreement"). Pursuant
to the terms and conditions of the License Agreement, Genentech has agreed to
supply Connetics with Interferon Gamma-1B, and Connetics has agreed to purchase
Interferon Gamma-1B from Genentech for clinical studies of and commercial sales
of Licensed Products containing Interferon Gamma-1B in the Field of Use in the
Territory. This Supply Agreement, which is referred to in Section 4.0 of the
License Agreement, describes the specific terms and conditions under which
Genentech will supply Interferon Gamma-1B to Connetics for such clinical use and
commercial sale.

         Genentech and Connetics agree as follows:

1.0      Definitions

         Unless specified otherwise below, the terms with initial capitalization
in this Agreement shall have the same meanings as those given to them in the
License Agreement. In addition, for the purposes of this Supply Agreement, the
following terms shall have the following meanings:

         1.1 "Benchmark Costs" shall have the meaning defined in Section 2.6(e)
below.

         1.2 "Bulk Product" shall mean Interferon Gamma-1B provided hereunder as
bulk 



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protein manufactured in compliance with Good Manufacturing Practices, pursuant
to FDA regulatory approvals as applicable during the term of this Agreement, 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 Specifications.

         1.3 "Certificate of Analysis" shall mean a summary of the quality
control testing, as described in the Specifications, performed by Genentech for
Bulk Product and Finished Product supplied hereunder.

         1.4 "Finished Product" shall mean Interferon Gamma-1B supplied in an
unlabeled vialed form as 100 micrograms of Interferon Gamma-1B protein in a 0.5
ml fill volume, manufactured in compliance with Good Manufacturing Practices,
pursuant to FDA regulatory approvals as applicable during the term of this
Agreement, and intended for commercial sale to treat CGD and osteopetrosis and
for clinical studies.

         1.5 "Fully Burdened Manufacturing Cost" shall mean the cost of
Genentech's production, testing and (if applicable) labeling and packaging, of
Bulk Product and Finished Product, which shall be comprised of the sum of: [1].

         1.6 "Fully Burdened Supply Cost" shall mean the cost to Genentech of
obtaining from a third party contract manufacturer Bulk Product or Finished
Product, or portion thereof, as the case may be, which Genentech supplies to
Connetics, which shall be comprised of [1].

         1.7 "Specifications" shall mean those specifications set forth in
Exhibit A attached hereto and which is incorporated herein.

         1.8 "Third Party Manufacturing Royalties" shall mean all royalties paid
or incurred by Genentech to third parties under licenses taken by Genentech with
respect to patents or patent 

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

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applications that, but for such license(s), would be infringed by the
manufacture, use, sale, offer for sale or importation of Bulk Product or
Finished Product, which royalties are based on the manufacture and sale of Bulk
Product or Finished Product by Genentech (or its contract manufacturer) on
behalf of Connetics or its sublicensees, or by Connetics or its sublicensees (or
a contract manufacturer on their behalf). Attached hereto as Exhibit B 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 B, as necessary, to accurately reflect all such
royalty obligations to third parties to best of Genentech's knowledge. Genentech
shall notify Connetics in writing during the term of this Agreement if it
becomes aware of any additional Third Party Manufacturing Royalties.

2.0      Supply of Products

         2.1      Purchase and Sale of Bulk Product and Finished Product

                  During the term of this Agreement, and subject to the terms
and conditions of this Agreement, Genentech agrees to supply to Connetics, and
Connetics agrees to purchase from Genentech, quantities of Bulk Product for
clinical studies and commercial sales of Licensed Product, and Finished Product
for commercial sales of Licensed Product to treat CGD and osteopetrosis and for
clinical studies, pursuant to the License Agreement.

         2.2      Product Requirement Forecasts and Production



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                  (a) By thirty (30) days after the date of execution of this
Agreement, Connetics shall provide Genentech with an eighteen (18) month advance
forecast of the expected quantity requirements, and timing of those
requirements, of Connetics and InterMune for Bulk Product and Finished Product.
Thereafter, Connetics shall provide rolling eighteen (18) month advance
forecasts at the end of each calendar quarter. Connetics agrees to use its Best
Efforts in preparing all forecasts. Forecasts shall include the amounts of Bulk
Product and Finished Product to be supplied by Genentech and the expected timing
for the delivery of each shipment during the forecast period. The Parties shall
discuss each of the forecasts and shall mutually agree in good faith on the
appropriateness of each forecast versus anticipated demand for Bulk Product and
Finished Product. Genentech shall have the right to review and approve all
forecasts submitted by Connetics and to make reasonable requests of Connetics to
modify such forecasts based on Genentech's anticipated production capabilities.

                  (b) Genentech will produce Bulk Product and Finished Product
to meet the mutually agreed upon forecasts, subject to the provisions of Section
2.3 below. Genentech will notify Connetics of all scheduled production activity
for Bulk Product or Finished Product. The timing of such production and final
vial fills will be dependent upon Genentech's requirements to utilize its
manufacturing facilities for its own uses and for other purposes, subject to
Genentech's obligation under Section 2.4(d) to use its Best Efforts to meet
delivery dates in accepted purchase orders.

         2.3      Quantity Obligation Limit

                  (a) Genentech's obligation to supply Bulk Product and Finished
Product to Connetics shall be limited to a total maximum amount of [1] grams per
year of Interferon Gamma-1B supplied in the form of Bulk Product and Finished
Product. Of this total amount, Genentech shall be obligated to provide no more
than [1] grams per year of Interferon Gamma-1B 

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


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as Finished Product unless otherwise agreed to by Genentech.

                  (b) Genentech's obligation to supply Bulk Product and Finished
Product to Connetics shall terminate pursuant to the provisions of Article 4.0
below.

         2.4      Purchase Orders

                  (a) No later than thirty (30) days after the Effective Date,
Connetics shall place firm purchase orders for Finished Product and Bulk Product
required by Connetics for clinical studies through December 31, 1998 and firm
purchase orders for Finished Product and Bulk Product required by Connetics for
commercial sale for treatment of CGD through December 31, 1998. Each such
purchase order shall specify the precise quantity of Finished Product and Bulk
Product required. Genentech shall respond in writing as to its acceptance of
each firm purchase order within thirty (30) days of receipt of such order,
provided that Genentech may not withhold acceptance of any quantity of Finished
Product for commercial sale specified in the purchase order therefor that is not
more than [1] of the pro-rata quantity of Finished Product manufactured by
Genentech for commercial sale in the twelve months prior to the Effective Date,
and any portion of the order that is in excess thereof shall be accepted at
Genentech's discretion. The Parties agree that purchase orders for Finished
Product for clinical studies and Bulk Product for any use submitted pursuant to
this Section 2.4(a) shall be accepted by Genentech and scheduled for delivery as
soon as reasonably possible if Genentech has sufficient quantities of Finished
Product and Bulk Product in its inventory, or if no sufficient quantities of
Finished Product and Bulk Product exist in Genentech's inventory, at the
earliest time at which Genentech can reasonably supply such quantities of
Finished Product and Bulk Product specified in the purchase order taking into
account Genentech's available plant capacity and timing of its production of
Bulk Product and/or Finished Product. The Parties agree that Finished Product
for commercial sale ordered pursuant to this Section 2.4(a) shall be scheduled
for delivery at the earliest time at which Genentech can reasonably supply such
quantities of Finished Product specified in the purchase order taking into
account Genentech's available plant capacity and timing of its production, but
in no event later than the Transfer Date.

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


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                  (b) For Bulk Product and Finished Product that Connetics
wishes to receive after December 31, 1998, Connetics shall place firm purchase
orders for Bulk Product and Finished Product with Genentech by August 1 of the
calendar year prior to the calendar year in which Bulk Product or Finished
Product will be produced. The firm purchase order shall specify the precise
quantity and form of Bulk Product or Finished Product required and the delivery
dates for deliveries of the specified quantities. Genentech shall promptly
acknowledge its receipt of purchase orders and shall use its Best Efforts to
meet the terms of a purchase order that it accepts, taking into account mutually
agreed upon forecasts under Section 2.2(a), available plant capacity and timing
of its production. Genentech shall respond in writing as to its acceptance of
each firm purchase order within thirty (30) days of receipt of such order
provided that Genentech may not withhold acceptance of a purchase order that is
within [1] of the quantity requirement listed in the most recent eighteen (18)
month forecast. Any portion of the order that is more than [1] greater or less
in quantity than the most recent corresponding eighteen (18) month forecast will
be accepted at Genentech's discretion. Notwithstanding the above, Connetics
shall have the right to submit one purchase order for Finished Product for
clinical studies only on or prior to December 31, 1998 for delivery by June 30,
1999, which shall be a replacement for the purchase order placed by Connetics on
or just prior to August 1, 1998 for Finished Product for clinical studies only.
Genentech shall accept such replacement purchase order provided that the
quantity of Finished Product for clinical studies specified in such purchase
order is within [1] of the quantity specified in the purchase order placed on or
just prior to August 1, 1998, and provided that sufficient Finished Product is
available in Genentech's inventory. If sufficient Finished Product is not
available in Genentech's inventory, Genentech shall accept such replacement
purchase order at its discretion, and subject to available plant capacity and
the timing of its production campaigns. If Genentech accepts such replacement
purchase order, Connetics shall pay for such Finished Product, and Bulk Product
if required to produce such Finished Product, at the prices provided in Section
2.6 below. After Genentech fills such replacement purchase order, it shall have
no further obligation to supply Finished Product to Connetics for clinical
studies. Once a 

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

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specified quantity, form and delivery date terms have been agreed to by the
Parties in any purchase order placed pursuant to this Section 2.4(a), the
purchase order may not be canceled by either Party except as provided in this
Section 2.4 or in Section 3.3 below.

                  (c) The Parties acknowledge and agree that the yield of
product from each production lot run may vary. If Bulk Product is to be filled
as Finished Product pursuant to a purchase order, each lot of such Bulk Product
will be filled in multiple fill runs, and, due to shelf life, each lot of Bulk
Product must be completely filled within six (6) months of production.

                  (d) Genentech shall use Best Efforts to ship Bulk Product and
Finished Product to Connetics by the delivery date specified in the accepted
purchase order. If Genentech believes there will be a significant delay in
shipment of Bulk Product or Finished Product beyond the delivery dates specified
in any accepted purchase order, Genentech shall promptly inform Connetics of
such expected delay and shall use its Best Efforts to minimize the delay. In the
event that Genentech cannot deliver to Connetics the Bulk Product or Finished
Product conforming to the Specifications by the delivery dates in an accepted
purchase order, Connetics will have the following rights in lieu of the rights
provided in Section 4.2 below: (a) in the event that Genentech cannot deliver
the conforming Bulk Product or Finished Product to Connetics within ninety (90)
days after the delivery date specified in an accepted purchase order, Connetics
either may cancel such portion of the purchase order by written notice to
Genentech or may accept delivery at a later date specified by Genentech, but
subject to subsection (b) below; (b) if Genentech continues to fail to deliver
conforming Bulk Product or Finished Product within six (6) months of the
delivery date specified in an accepted purchase order, Connetics may terminate
this Agreement effective upon written notice given to Genentech, and after such
termination, Genentech will transfer Genentech Manufacturing Knowhow to
Connetics at Genentech's expense, and shall be deemed to have granted Connetics
a nonexclusive, sublicenseable license, under Genentech Manufacturing Knowhow to
make or have made Licensed Products in the Field of Use for use and sale by
Connetics and its sublicensees in the Territory.


         2.5      Change Orders

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                  Except as set forth in Section 2.4(c) above, the time of
delivery and quantities specified in a purchase order accepted by Genentech
pursuant to Section 2.4(a) above shall be binding upon the Parties and may not
be changed or canceled, except as provided in Section 3.3 below.

         2.6      Price

                  (a) Connetics shall pay for Bulk Product and Finished Product
supplied pursuant to this Agreement at the prices set forth below in Sections
2.6(b), 2.6(c) and 4.1, as applicable. All payments shall be made in the manner
set forth in Section 2.7 of this Agreement.

                  (b) Genentech shall sell Bulk Product to Connetics for
clinical studies at a price equal to [1]. Genentech shall sell Bulk Product to
Connetics for commercial sale of Licensed Products at a price equal to [1]. If
Genentech chooses to have a third party contract manufacturer produce or
contribute to the production of Bulk Product for clinical studies, Genentech
shall sell such Bulk Product to Connetics at a price equal to [1]. If Genentech
chooses to have a third party contract manufacturer produce or contribute to the
production of Bulk Product for commercial sale of Licensed Product, Genentech
shall sell such Bulk Product to Connetics at a price equal to [1].

                  (c) Genentech shall sell Finished Product to Connetics at a
price equal to [1]. If Genentech chooses to have a third party contract
manufacturer produce or contribute to the production of Finished Product,
Genentech shall sell such Finished Product to Connetics at a price equal to [1].
The size and form of the vials to be filled hereunder by Genentech shall be
those used by Genentech prior to the Effective Date for its ACTIMMUNE product.
All costs incurred by the Parties related to any change in such vials, or in
labels or packaging materials, 

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

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shall be paid by Connetics.

                  (d) Genentech will label and package Finished Product vials,
pursuant to a firm purchase order accepted by Genentech as described in Section
2.4, provided, however, that Connetics shall supply all labels, inserts and
packaging materials to Genentech, at Connetics' sole cost. Genentech will label
and package such Finished Product vials at a price equal to [1]. If Genentech
chooses to have a third party contract manufacturer produce or contribute to the
labeling and packaging of Finished Product, Genentech shall sell such Finished
Product to Connetics at a price equal to [1].

                  (e) Genentech shall use its Best Efforts to maintain its Fully
Burdened Manufacturing Cost and its Fully Burdened Supply Cost for Bulk Product
and Finished Product that is manufactured and configured according to the
Specifications at or below the benchmark costs of [1] (the "Benchmark Costs").
The Parties agree that the Fully Burdened Manufacturing Cost, Fully Burdened
Supply Cost and Benchmark Costs are based upon Bulk Product and Finished Product
being produced in multiples of the following production lot size and fill
quantity, respectively: (i) a production lot size which has an expected yield of
[1] of Bulk Product (the actual yield of such lots may vary; the yield range,
observed to date, has been [1] of Bulk Product) and (ii) a filled vial quantity
of [1] for Finished Product. Adjustments to such Benchmark Costs of up to [1]
annually may be made for any increases in the Fully Burdened Manufacturing Cost
and Fully Burdened Supply Cost that are within Genentech's sole control. If
increases in the Fully Burdened Manufacturing Cost and Fully Burdened Supply
Cost, within Genentech's sole control, in any calendar year result in the Fully
Burdened Manufacturing Cost and/or Fully Burdened Supply Cost exceeding the
adjusted Benchmark Costs, Connetics shall pay to Genentech an amount equal to
[1] of the amount that exceeds the adjusted Benchmark Costs. Adjustments to
Benchmark Costs due to increases in the Fully Burdened Manufacturing Cost and
Fully Burdened Supply Cost that are not within the sole control of Genentech may
be 

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

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made without regard to such [1] annual limit, including, without limitation,
any increases due to inflation, raw material costs, changes in the manufacturing
process required by the FDA, or changes in United States generally accepted
accounting principles.

                  (f) For any Third Party Manufacturing Royalties paid directly
by Connetics to Genentech hereunder, Genentech shall pay such amounts of Third
Party Manufacturing Royalties to the third party licensors to which such Third
Party Manufacturing Royalties are due and payable (provided Genentech has not
already made such payments prior to the time of such Connetics' payment).

         2.7      Payment

         Payment by Connetics shall be made within sixty (60) days after
Connetics' receipt of Genentech's invoice for the supply of Bulk Product or
Finished Product. Such invoice shall be submitted on or after delivery by
Genentech of Bulk Product or Finished Product to the carrier as provided in
Section 3.1. If within thirty (30) days after the delivery of Bulk Product or
Finished Product and the accompanying Certificate of Analysis to Connetics,
Connetics demonstrates non-conformance under Section 2.9 below and Genentech
agrees with such finding, which agreement shall not be unreasonably withheld,
Connetics shall not be obligated to pay for such non-conforming shipment of Bulk
Product or Finished Product. All payments to Genentech by Connetics under this
Agreement shall be made in United States dollars by wire transfer (or such other
reasonable means as Genentech may direct) to such United States bank account as
Genentech may designate from time to time. If a wire transfer is to be made,
Connetics shall provide notice at least five (5) days prior to the date of
transfer of the amount of payment and the date good funds will be received. Such
notice should be given to the Treasurer of Genentech at the address set forth at
the beginning of this Agreement or such other address as Genentech may
subsequently direct.

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

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         2.8      Records; Audit Rights

                  (a) Genentech shall keep full, true and accurate books of
account containing all particulars which may be necessary for the purpose of
showing Fully Burdened Manufacturing Cost, Fully Burdened Supply Cost and Third
Party Manufacturing Royalties. Said books of account shall be kept at the
principal place of business of Genentech. Said books and the supporting data
shall be 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 Connetics and reasonably acceptable to Genentech for the
purpose of verifying Fully Burdened Manufacturing Cost, Fully Burdened Supply
Cost and Third Party Manufacturing Royalties under this Agreement; provided,
however, that Connetics shall give Genentech reasonable prior notice of such
review by Connetics' independent public accountant and that such review shall
not take place more often than once a year. If such review reveals that
Connetics has overpaid Genentech for Bulk Product or Finished Product supplied
hereunder, Genentech shall refund to Connetics the amount of such overpayment,
plus interest thereon at the prime rate of interest as reported by Bank of
America in San Francisco, California at the time of such review. If such
overpayment is greater than [1] of the actual amount that should have been
charged to Connetics, then Genentech shall pay Connetics' actual costs of such
review.

                  (b) Connetics shall pay to Genentech [1] of Genentech's fully
burdened costs related to requests by Connetics to audit or inspect Genentech's,
or Genentech's third party contract manufacturer's, manufacturing facility, and
such audits or inspections may occur only for the purpose of compliance with
regulatory obligations. Connetics shall have the right to conduct such an audit,
or such an inspection, of Genentech's, or Genentech's third party contract
manufacturer's, manufacturing facility once every twenty-four (24) months from
the Effective Date hereof and no more frequently than in twenty-four (24) month
intervals, with at least ten 

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

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(10) days prior written notice. Notwithstanding the above, for any audit or
inspection of Genentech's facilities for the purpose of complying with
regulatory obligations for the transfer to Connetics of the fill, labeling and
packaging of Bulk Product or Finished Product, Connetics shall pay [1] of
Genentech's fully burdened costs related to such audit or inspection. Connetics
may inspect or audit only those physical areas of Genentech's, or its contract
manufacturer's, facility that are directly involved in the manufacture of Bulk
Product or Finished Product, as applicable.

                  (c) Genentech shall pay to Connetics [1] of Connetics' fully
burdened costs related to requests by Genentech to audit or inspect Connetics',
or Connetics' sublicensees' or third party contract manufacturer's, quality
assurance and quality control records and facilities, and such audits or
inspections may occur only for the purpose of compliance with regulatory
obligations or of verifying the capability of Connetics to adequately test and
confirm conformity of Bulk Product and Finished Product with the Specifications.
Genentech shall have the right to conduct such an audit or inspection of
Connetics', or Connetics' sublicensees' or third party contract manufacturer's,
quality assurance and quality control facility and records once every
twenty-four (24) months from the Effective Date hereof and no more frequently
than in twenty-four (24) month intervals, with at least ten (10) days prior
written notice. Notwithstanding the above, for any audit or inspection of
Connetics' facilities for the purpose of complying with regulatory obligations
for the transfer to Connetics of the fill, labeling and packaging of Bulk
Product and Finished Product, Genentech shall pay [1] of Connetics' fully
burdened costs related to such audit or inspection. Genentech may inspect or
audit only those physical areas of Connetics', or of its sublicensees' or its
contract manufacturer's, facility that are directly involved in the quality
assurance and quality control of Bulk Product or Finished Product, as
applicable.

         2.9      Non-Conforming Product

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

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                  (a) The Bulk Product and Finished Product supplied by
Genentech to Connetics hereunder shall be in conformance with the
Specifications. Non-conformance of Bulk Product and Finished Product shall be
proved by establishing non-conformity of the Bulk Product or Finished Product
delivered as compared to the Specifications. Any claim by Connetics of
non-conforming Bulk Product or Finished Product must be submitted to Genentech,
in writing, within thirty (30) days after the delivery of Bulk Product or
Finished Product and the accompanying Certificate of Analysis to Connetics,
accompanied by a report of Connetics' analysis (which analysis shall be
conducted in good faith) and a sample of the Bulk Product or Finished Product at
issue, explaining in reasonable detail the basis on which the allegedly
non-conforming Bulk Product or Finished Product does not meet the
Specifications. Only those tests listed in the Specifications may be used to
demonstrate non-conformance of Bulk Product or Finished Product.

                  (b) If after Genentech's own analysis of the sample (which
shall be conducted in good faith and completed within thirty (30) days after the
receipt by Genentech of the report and sample from Connetics, and the results of
which shall be provided to Connetics) Genentech agrees with the claim of
non-conformity, Connetics shall promptly inform Genentech if it wishes to have
Genentech replace the non-conforming Bulk Product or Finished Product with
conforming Bulk Product or Finished Product. If Connetics wishes to receive such
replacement Bulk Product or Finished Product, Genentech shall provide such
replacement as soon as reasonably practicable thereafter, in which case
Connetics shall be obligated to pay only for such replacement Bulk Product or
Finished Product. Connetics shall not be obligated to pay for the nonconforming
Bulk Product or Finished Product, and Genentech shall: (i) credit Connetics for
the amount paid by Connetics for the non-conforming Bulk Product or Finished
Product if Connetics has already paid for such non-conforming Bulk Product or
Finished Product or (ii) cancel its invoice to Connetics for such non-conforming
Bulk Product or Finished Product if Connetics has not yet paid for such
non-conforming Bulk Product or Finished Product, and 

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Connetics shall not be obligated to pay such canceled invoiced amount. If, after
its own analysis, Genentech does not agree with the claim of non-conformity or
determines that Connetics is responsible for the non-conformity, the Parties
shall in good faith discuss and agree upon a settlement of the issue, and
Connetics shall not be obligated to pay for such alleged nonconforming Bulk
Product or Finished Product until such settlement is reached.

                  (c) If there are procedures by which Connetics, without
unreasonable effort, inconvenience or expense, can convert, or cause to be
converted, the non-conforming Bulk Product or Finished Product into conforming
Bulk Product or Finished Product, Connetics shall upon Genentech's request and,
if Genentech is responsible for the non-conformity, at Genentech's expense, do
so. If Connetics converts the non-conforming Bulk Product or Finished Product
into conforming Bulk Product or Finished Product, upon such conversion the Bulk
Product or Finished Product shall be deemed to be conforming Bulk Product or
Finished Product delivered hereunder on the date on which such conversion is
completed. If Genentech is responsible for the cost of such conversion pursuant
to this Section 2.9(c), unless the Parties shall have agreed on the cost of such
conversion in advance, Connetics shall provide to Genentech such evidence as
Genentech may reasonably need to substantiate such cost.

                  (d) After Genentech has agreed that Bulk Product or Finished
Product shipment is non-conforming, and if Parties have agreed that it cannot be
converted to conforming Bulk Product or Finished Product pursuant to Section
2.9(c) above and Genentech is responsible for the non-conformity, Connetics
shall return or destroy it at Genentech's request and cost in the most cost
effective and environmentally safe and appropriate manner available, consistent
with federal, state and local laws and regulations.

                  (e) If conforming Bulk Product or Finished Product supplied
under this Agreement becomes non-conforming or unsuitable for use in Licensed
Products at no fault of Genentech, Connetics will remain obligated to pay
Genentech for such Bulk Product or Finished Product at the prices set forth in
Section 2.6 or 4.1 as applicable. At Genentech's request, Connetics shall return
such unsuitable Bulk Product or Finished Product to Genentech. 



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Otherwise, Connetics shall destroy it in the most environmentally safe and
appropriate manner available, consistent with federal, state and local laws and
regulations.



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3.0      Shipment of Bulk Product and Finished Product

         3.1      Shipment

                  For each purchase order for Bulk Product or Finished Product
accepted by Genentech pursuant to Section 2.4, Genentech shall deliver Bulk
Product or Finished Product to Connetics to a single destination in the United
States chosen by Connetics. Such shipment will be by carrier identified by
Connetics. Title and risk of loss as to all Bulk Product and Finished Product
shall pass to Connetics at point of origin (FOB Genentech). Connetics shall be
responsible for all freight, freight brokerage, insurance and other costs
associated with shipping the Bulk Product or Finished Product hereunder.

         3.2      Shipping Documents

                  As soon as reasonably possible after each shipment of Bulk
Product or Finished Product ordered and shipped pursuant to this Agreement,
Genentech shall forward to Connetics all customary documents concerning the
shipment, including Genentech's invoice relating to such shipment. A packing
list and, to the extent possible, a Certificate of Analysis will be included in
each shipment. Where it is not possible to include a Certificate of Analysis
with a shipment, Genentech shall use its Best Efforts to furnish the same to
Connetics as soon as reasonably possible.

         3.3      Purchase Order Cancellation

                  Except as provided in Section 2.4(d) above, Connetics, on 60
days prior written notice to Genentech, may cancel any or all outstanding
purchase orders only in the event that:

                  (a) Connetics has first terminated this Supply Agreement
pursuant to Section 4.2 below; or

                  (b) a recall of the Bulk Product or Finished Product is
reasonably deemed 



                                       16
<PAGE>   17

necessary by Genentech, Connetics or the FDA.

                  (c) Connetics has entered into a written supply agreement with
a third party manufacturer, as described in Section 4.1 below.

                  For any cancellation of an outstanding purchase order, for any
reason, after the first step in production has begun, Genentech shall provide
Connetics with a written estimate of all expenses specifically incurred by
Genentech with regard to filling such purchase order as of the date of
cancellation. No later than ten (10) days after receipt of such estimate,
Connetics shall notify Genentech in writing as to whether it elects to: (i)
proceed with the order, at the prices set out in Section 2.6 or 4.1 as
applicable or (ii) compensate Genentech for all expenses specifically incurred
by Genentech with regard to filling such purchase order as of the date of
cancellation.

         3.4      Governing Terms

                  All sales hereunder shall be subject to the provisions hereof
(including, without limitation, the Specifications) and shall not be subject to
the terms and conditions contained on any purchase order of Connetics or
confirmation of Genentech, except insofar as any such purchase order or
confirmation establishes:

                  (i)      the quantity and form of any Bulk Product or Finished
                           Product ordered;

                  (ii)     the shipment date;

                  (iii)    the shipment routes and destinations; or

                  (iv)     the carrier.


                                       17
<PAGE>   18


         3.5      Taxes

                  Connetics shall bear all applicable taxes such as sales, use,
value added or similar taxes. All payments from Connetics to Genentech under
this Agreement shall be made without setoff and without any deduction or
withholding for or on account of any taxes, duties, levies, imports, fees or
charges.

         3.6      Compliance with Law

                  Connetics shall be responsible, at its expense, for complying
with all applicable regulatory requirements relating to its use, marketing or
sale of the Bulk Product or Finished Product supplied hereunder. Genentech shall
be responsible, at its expense, for complying with all applicable regulatory
requirements relating to the manufacture of the Bulk Product or Finished Product
supplied hereunder.

         3.7      No Implied Representations, Warranties or Conditions

                  EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN OR IN THE
LICENSE AGREEMENT, GENENTECH MAKES NO REPRESENTATIONS OR WARRANTIES AND THERE
ARE NO CONDITIONS, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO
BULK PRODUCT OR FINISHED PRODUCT SUPPLIED HEREUNDER, INCLUDING, WITHOUT
LIMITATION, ANY REPRESENTATIONS, WARRANTIES OR CONDITIONS WITH RESPECT TO
NONINFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF SUCH
BULK PRODUCT OR FINISHED PRODUCT.

         3.8      Quality Control and Identity Test

                  (a) Each shipment of Bulk Product and Finished Product
hereunder shall have been manufactured in accordance with U.S. Good
Manufacturing Practices in a duly licensed 


                                       18
<PAGE>   19

facility and shall have been subject to a quality control inspection by
Genentech in accordance with the Specifications and with Genentech's then
current quality control standards and systems. Genentech shall number each Bulk
Product or Finished Product shipment with a vendor lot number that is traceable
to raw materials and/or components used to manufacture such Bulk Product and
Finished Product.

                  (b) Prior to any use or distribution by Connetics, Connetics
shall subject all Bulk Product and Finished Product to be so used or distributed
to Connetics' then current quality control review for Licensed Products which
shall be consistent with those quality control standards and systems in general
use in the pharmaceutical industry. Connetics shall identify Licensed Products
sold by it or its distributors with a vendor lot number and NDC number that is
traceable to the shipment of Bulk Product or Finished Product purchased from
Genentech. For each Bulk Product or Finished Product shipment, Connetics shall
maintain a complete record of the raw data associated with all material aspects
of the processing of Bulk Product or Finished Product performed by it or under
its direction until all Bulk Product or Finished Product from that shipment is
sold.

                  (c) All costs incurred by Genentech for the transfer to
 Connetics of technical procedures, documents, assays and other materials and
 information reasonably necessary for Connetics' quality

control procedures and other purposes hereunder shall be paid by Connetics.

                  (d) All costs incurred by the Parties' related to any changes
in the Specifications shall be paid by Connetics, including, without limitation,
changes in vial size, fill quantity, and development and validation of new
methodologies.



                                       19
<PAGE>   20

4.0      Term; Termination

         4.1      Term

                  The term of this Supply Agreement shall commence on the
Effective Date hereof and, unless terminated earlier pursuant to Section 2.4(d),
4.2 or 4.3 below, shall terminate as follows:

                  (a) Subject to Section 4.1(d) below, the provisions under this
Agreement governing the rights and obligations of the Parties with respect to
the supply and purchase of Bulk Product for clinical studies and for sales of
Licensed Product shall terminate on the earlier of: (i) three (3) years from the
Effective Date of this Agreement or (ii) the date on which that a third party
manufacturer, approved by the Parties, enters into a supply agreement with
Connetics to manufacture Bulk Product and, if for the supply of Licensed Product
for sale, has received a FDA license to manufacture Bulk Product. Genentech
agrees that [1] (or its successor entity) will be approved by Genentech if
proposed by Connetics as a third party manufacturer of Bulk Product for supply
to Connetics and its sublicensees. For the supply of Bulk Product for sales of
Licensed Product, Connetics shall replace Genentech with such third party as a
contract manufacturer on the PLA or any subsequent BLA filed with the FDA.
Connetics shall use Best Efforts to locate a third party manufacturer to produce
Bulk Product within three (3) years of the Effective Date of this Agreement. As
soon as reasonably possible after finding a third party manufacturer that is
approved by the Parties to manufacture Bulk Product, Connetics shall enter into
a supply agreement directly with such manufacturer. Genentech will then transfer
Genentech Manufacturing Knowhow to such third party manufacturer at Connetics'
expense, and shall be deemed to have granted Connetics and such third party
manufacturer a nonexclusive license, under Genentech Manufacturing Knowhow to
make or have made Licensed Products for supply to Connetics and its sublicensees
for use and sale by Connetics and its sublicensees in the Field 

----------

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

                                       20
<PAGE>   21

of Use in the Territory. Connetics thereafter shall pay to Genentech [1] of
Third Party Manufacturing Royalties, if any, attributable to the manufacture of
Bulk Product by Connetics, its sublicensee or its third party manufacturer, and
Genentech shall timely pay all such Third Party Manufacturing Royalties as
required under license agreements with the applicable licensors.

                  (b) Subject to Section 4.1(e) below, the provisions under this
Agreement governing the rights and obligations of the Parties with respect to
the supply and purchase of Finished Product for clinical studies shall terminate
on the earlier of: (i) June 30, 1999 or (ii) the date on which a third party
manufacturer, approved by the Parties, enters into a supply agreement with
Connetics to fill and finish Bulk Product. Genentech agrees that [1] (or its
successor entity) will be approved by Genentech if proposed by Connetics as a
third party manufacturer of Finished Product for supply to Connetics and its
sublicensees. As soon as reasonably possible after finding a third party
manufacturer approved by the Parties to fill and finish Bulk Product, Connetics
shall enter into a supply agreement directly with such manufacturer. Genentech
will then transfer Genentech Manufacturing Knowhow to such third party
manufacturer at Connetics' expense, and shall be deemed to have granted
Connetics and such third party manufacturer a nonexclusive license, under
Genentech Manufacturing Knowhow to make or have made Licensed Products for
supply to Connetics and its sublicensees for use and sale by Connetics and its
sublicensees in the Field of Use in the Territory. Connetics thereafter shall
pay to Genentech [1] of Third Party Manufacturing Royalties attributable to the
production of Finished Product by Connetics, its sublicensee or its third party
manufacturer, and Genentech shall timely pay all such Third Party Manufacturing
Royalties as required under license agreements with the applicable licensors.

                  (c) Subject to Section 4.1(e) below, the provisions under this
Agreement governing the rights and obligations of the Parties with respect to
the supply and purchase of 

----------

[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

Finished Product for sales of Licensed Product to treat CGD and osteopetrosis
shall terminate on the earlier of: (i) three (3) years from the Effective Date
of this Agreement or (ii) the date on which a third party manufacturer, approved
by the Parties to fill and finish Bulk Product, receives a FDA license to
produce Finished Product and enters into a supply agreement with Connetics to
fill and finish Bulk Product. Genentech agrees that [1] (or its successor
entity) or [1] will be approved by Genentech if proposed by Connetics as its
third party manufacturer to fill and finish Bulk Product for supply to Connetics
and its sublicensees. At the time such third party receives a FDA license,
Connetics shall replace Genentech with such third party as a contract
manufacturer on the PLA or any subsequent BLA filed with the FDA. As soon as
reasonably possible after finding a third party manufacturer approved by the
Parties to fill and finish Bulk Product, Connetics shall enter into a supply
agreement directly with such manufacturer. Genentech will then transfer
Genentech Manufacturing Knowhow to such third party manufacturer at Connetics'
expense, and shall be deemed to have granted Connetics and such third party
manufacturer a nonexclusive license, under Genentech Manufacturing Knowhow to
make or have made Licensed Products for supply to Connetics and its sublicensees
for use and sale by Connetics and its sublicensees in the Field of Use in the
Territory. Connetics shall pay to Genentech [1] of Third Party Manufacturing
Royalties attributable to the production of Finished Product by Connetics, its
sublicensees or its third party manufacturer, and Genentech shall timely pay all
such Third Party Manufacturing Royalties as required under license agreements
with the applicable licensors.

                  (d) If no third party manufacturer has entered into an
agreement with Connetics to manufacture Bulk Product within three (3) years from
the Effective Date of this Agreement, the Parties shall continue to work
together in good faith to find an acceptable third party manufacturer. Until
such manufacturer is found, and provided that Connetics has used Best 

----------

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


                                       22
<PAGE>   23

Efforts to find such acceptable third party manufacturer, the provisions of this
Agreement governing the rights and obligations of the Parties with respect to
the supply and purchase of Bulk Product shall remain in effect until the fifth
anniversary of the Effective Date of this Agreement, after which date the rights
and obligations of the Parties with respect to Bulk Product shall terminate and
Connetics solely shall be responsible for the supply of Bulk Product except as
otherwise provided below. After three years from the Effective Date of this
Agreement, Genentech's supply of Bulk Product for clinical studies shall be at a
price equal to [1]. After three years from the Effective Date of this
Agreement, Genentech's supply of Bulk Product for commercial sale of Licensed
Product shall be at a price equal to [1]. Notwithstanding the above, if during
the three (3) years after the Effective Date of this Agreement, Connetics has
used Best Efforts to locate a third party manufacturer for Bulk Product and has
requested that Genentech approve a reasonable, capable third party for the
manufacture of Bulk Product, and Genentech does not give such approval,
Genentech's obligation to supply Bulk Product to Connetics shall continue until
the fifth anniversary of the Effective Date at the prices described in Section
2.6(b) above. If , after the third anniversary of the Effective Date, Connetics
has used Best Efforts to locate a third party manufacturer for Bulk Product and
has requested that Genentech approve a reasonable, capable third party for the
manufacture of Bulk Product, and Genentech does not give such approval,
Genentech's obligation to supply Bulk Product to Connetics shall continue beyond
the fifth anniversary of the Effective Date, at the prices described in this
Section 4.1(d), until the Parties agree upon a third party manufacturer.

                  (e) If no third party manufacturer has entered into an
agreement with Connetics and received a FDA license to manufacture Finished
Product within three (3) years from the Effective Date of this Agreement, the
Parties shall continue to work together in good faith to find a third party
manufacturer. Until such manufacturer is found, the provisions of this Agreement
governing the rights and obligations of the Parties with respect to the supply
and purchase of Finished Product shall remain in effect with the prior written
consent of Genentech (which 

----------

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


                                       23
<PAGE>   24

consent shall be in the sole discretion of Genentech), until the fifth
anniversary of the Effective Date of this Agreement, after which date the rights
and obligations of the Parties with respect to Finished Product shall terminate
and Connetics solely shall be responsible for the supply of Finished Product
except as otherwise provide below. After three years from the Effective Date of
the Supply Agreement, if Genentech consents to continue to supply Finished
Product, such supply shall be at a price equal to [1]. Notwithstanding the
above, if during the three (3) years after the Effective Date of this Agreement,
Connetics has used Best Efforts to locate a third party manufacturer and has
requested that Genentech approve a reasonable, capable third party for the
manufacture of Finished Product, and Genentech does not give such approval,
Genentech's obligation to supply Finished Product to Connetics shall continue
until the fifth anniversary of the Effective Date at the prices described in
Section 2.6(b) above. If, after the third anniversary of the Effective Date,
Connetics has used Best Efforts to locate a third party manufacturer for
Finished Product and has requested that Genentech approve a reasonable, capable
third party for the manufacture of Finished Product, and Genentech does not give
such approval, Genentech shall continue to supply Finished Product to Connetics
beyond the fifth anniversary of the Effective Date, at the prices described in
this Section 4.1(e), until the Parties agree upon a third party manufacturer.

                  (f) This Agreement and any licenses granted to Connetics
and/or its third party manufacturers hereunder shall terminate automatically,
without any action on the part of either of the Parties, on the effective date
of any termination of the License Agreement.

                  (g) Notwithstanding the termination of this Agreement as a
result of Connetics' entering into an agreement with a third party manufacturer
approved by Genentech for the supply of Bulk Product and Finished Product,
Genentech shall retain the right to approve each new third party manufacturer
selected by Connetics who has not previously been approved by Genentech for
supply of Bulk Product and/or Finished Product to Connetics and its sublicensees
prior to 

----------

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


                                       24
<PAGE>   25

Connetics' entering into an agreement with such new third party manufacturer,
provided, however, if Genentech does not give such approval, Genentech shall be
obligated to supply Bulk Product and Finished Product to Connetics and its
sublicensees at the prices set forth in Section 4.1(d) until Connetics enters
into an agreement with a third party manufacturer approved by Genentech for the
manufacture and supply of Bulk Product and Finished Product for Connetics and
its sublicensees. This Section 4.1(g) shall survive the termination of this
Agreement.

         4.2      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 nondefaulting Party shall have the
right, upon written notice to the defaulting Party and without prejudice to any
other rights the nondefaulting Party may have, to terminate this Agreement and
any licenses granted to Connetics and/or its third party manufacturers
hereunder, effective upon such notice, 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.
Connetics shall have no right to terminate this Supply Agreement under this
Section 4.2 in the event that Genentech fails to supply Bulk Product or Finished
Product pursuant to a firm purchase order or a fails to provide Bulk Product or
Finished Product conforming to the Specifications. In such event, Connetics will
have the rights set forth in Sections 2.4(c) and 2.9 above.

         4.3      Bankruptcy

                  Either Party may, in addition to any other remedies available
to it by law or in equity, terminate this Agreement immediately by written
notice to the other Party in the event the other Party shall have made an
assignment for the benefit of its creditors, or there shall have been 


                                       25
<PAGE>   26

appointed a trustee or receiver of the other Party for all or a substantial part
of its property, or any case or proceeding shall have been voluntarily initiated
by or commenced against 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, in the event of any such
involuntary proceeding, shall have continued for sixty (60) days undismissed,
unbonded and undischarged.

         4.4 Termination by Connetics. Connetics may terminate this Agreement at
any time upon sixty (60) days prior written notice to Genentech, provided,
however, that Connetics:

         (a)          accept and pay Genentech for all deliveries of Bulk
                      Product and Finished Product ordered by Connetics
                      hereunder, under purchase orders, that conform to the
                      Specifications, or

         (b)          if Connetics so elects in writing, cancel any amounts of
                      products not yet delivered under unfulfilled, outstanding
                      purchase orders hereunder (or portions thereof) and pay
                      Genentech for all expenses incurred by Genentech with
                      regard to each unfulfilled, outstanding purchase orders
                      hereunder as of the date of termination.

         4.5      Effect of Termination

                  The expiration or termination of this Supply Agreement shall
not relieve either of the Parties from any of its outstanding obligations to the
other Party as of the effective date of such expiration or termination,
including, without limitation, Genentech's obligation to deliver Bulk Product or
Finished Product ordered under purchase orders received and accepted by
Genentech prior to the effective date of such expiration or termination, unless
such termination is effected by Genentech pursuant to Section 4.2, and
Connetics' obligation to accept, and, upon delivery, pay for any such Bulk
Product or Finished Product, unless termination is effected by Connetics
pursuant to Section 4.2 and Connetics has canceled the purchase order(s) for
such 


                                       26
<PAGE>   27

Bulk Product or Finished Product in its written notice of termination provided
under Section 4.2. Notwithstanding the above, the Parties may mutually agree to
cancel any outstanding purchase order if this Agreement, or any portion thereof,
is terminated pursuant to Section 4.1 above.



                                       27
<PAGE>   28


5.0      General Provisions

         5.1      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, and in the case of
Connetics, to the Chief Executive Officer 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.

         5.2      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).

         5.3      Entire Agreement

                  This Agreement and the License Agreement and their respective
exhibits are the entire agreements between the Parties with respect to the
subject matter herein, and there are no prior written or oral promises or
representations not incorporated herein or therein. 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 representative of the Party to be bound.

         5.4      Binding Effect and Assignment



                                       28
<PAGE>   29

                   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, to any 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. In addition, Connetics may assign this Agreement to
InterMune, described in Section 3.1 of the License Agreement, upon thirty (30)
days written notice to Genentech, without Genentech's prior written consent,
provided that Connetics has granted to InterMune a sublicense to use and/or sell
Licensed Product under the License Agreement and in accordance with the terms of
the License Agreement. In the event of such assignment to InterMune, Connetics
shall promptly notify Genentech in writing of such assignment. Connetics hereby
guarantees the performance by InterMune of all of Connetics' obligations under
this Agreement.

         5.5       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 hereunder shall not
be construed as a waiver of any other breach or default or as a waiver of any
such rights or provisions hereunder.

         5.6      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 



                                       29
<PAGE>   30

ineffective shall be reformed in a mutually agreeable manner so as to as nearly
approximate the intent of the Parties as possible.

         5.7      Publicity

                  Connetics and Genentech agree that, except as may otherwise be
required by applicable laws, regulations, rules, or orders, including, without
limitation, 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 this Agreement from the SEC and Genentech shall have
the right to review and comment on such an application for confidential
treatment prior to its being filed with the SEC.

         5.8      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.

         5.9      Confidentiality

                  The confidentiality provisions of the License Agreement shall
apply to the exchanged confidential information of the Parties under this
Agreement ("Confidential Information") in the same manner and respect as those
provisions apply to the exchange of such information under the License
Agreement.

         5.10     Force Majeure



                                       30
<PAGE>   31

                  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 written notice of any such cause to the
other Party. The Party giving such notice shall thereupon be excused from such
of its obligations hereunder for the period of time that it is so disabled.

         5.11     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.



                                       31
<PAGE>   32


         IN WITNESS WHEREOF, the Parties have caused this Supply Agreement to be
duly executed by their respective duly authorized officers effective on the
Effective Date first 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 Corporate    Title:  President and CEO
        Development     



                                       32
<PAGE>   33


                                    EXHIBIT A

[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.

<PAGE>   34


                                    EXHIBIT B

                       THIRD PARTY MANUFACTURING ROYALTIES

         None (as of the Effective Date)


                                       iv