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                                                                    EXHIBIT 10.4

                               LICENSE AGREEMENT
                                 (KETOCONAZOLE)


THIS AGREEMENT, effective as of July 14, 1999 (the "EFFECTIVE DATE"), is entered
into by and between Soltec Research Pty Limited ("SOLTEC"), an organization
organized under the laws of Australia (A.C.N. 006 363 891), having an address at
8 Macro Court, Rowville, Victoria 3178 Australia and Connetics Corporation
("CONNETICS"), a Delaware corporation, having an address at 3400 West Bayshore
Road, Palo Alto, California 94303 U.S.A.


                               B A C K G R O U N D

        A. Soltec owns all rights for the Territory to develop, manufacture,
use, distribute, market or sell the ketoconazole hydroalcoholic quick-break
foam/mousse product defined in this Agreement as the "Product."

        B. Pursuant to the Exclusive Option Letter Agreement dated March 25,
1996 as amended on June 14, 1996 and January 6, 1998 (collectively, the "OPTION
AGREEMENT," copies attached as EXHIBIT A). Connetics (under its former name,
Connective Therapeutics, Inc.) has acquired from Soltec an exclusive option for
a license to the exclusive rights, including the right to grant sublicenses,
under Soltec's entire rights in and to "Pharmaceutical Mousse Delivery System
Technology," including "all active agents and/or uses of the Technology" as
defined in the Option Agreement.

        C. The Product, as defined in this Agreement, is subject to the Option
set forth in the Option Agreement, and Connetics wishes to exercise its option
for the Product pursuant to the Option Agreement.

NOW, THEREFORE, IT IS HEREBY AGREED as follows:

                                A G R E E M E N T


                                    ARTICLE 1
                                   DEFINITIONS

In addition to certain terms defined in the body of this Agreement, the
following terms shall be deemed to have the meanings stated below:

        "AFFILIATE" means in respect of either party any corporation or business
entity controlled by, controlling, or under common control with Soltec or
Connetics, respectively. For this purpose "control" means the direct or indirect
beneficial ownership of at least fifty percent (50%) of the voting stock of, or
at least fifty percent (50%) interest in the income of, such corporation or
other business entity, or such other relationship as, in fact, constitutes
actual control.

        "COMMENCEMENT OF COMMERCIAL MARKETING" shall mean the first arms' length
sale of the Product by Connetics or an Affiliate or sublicensee of Connetics to
a third party, forming part


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of a continuous program or campaign designed to market the Product in the
Territory during the term of this Agreement.

        "CONNETICS BREACH" shall have the meaning set forth in SECTION
9.4(b)(i).

        "DELIVERY SYSTEM" means Soltec's hydroalcoholic quick-break foam
delivery system encompassed by the Technology that is the subject of Connetics'
option.

        "DULY AUTHORIZED REPRESENTATIVE" means a representative of Connetics who
is authorized in a written notice, from Connetics to Soltec to receive
information under this Agreement, and who is bound to Soltec by obligations of
confidentiality at least as stringent as those by which Connetics is bound under
this Agreement.

        "EUROPE" means the countries of France, Germany, the United Kingdom,
Italy and Spain.

        "FDA" means the United States Food and Drug Administration.

        "MINIMUM ROYALTY" means aggregate annual royalties of [*] beginning in
the first full calendar year following Commencement of Commercial Marketing in
the United States, and increasing to [*] beginning in the third full calendar
year following Commencement of Commercial Marketing in the United States. The
Minimum Royalty shall be reduced to [*] and [*], respectively, if Connetics does
not have Market Exclusivity in NAFTA.

        "NAFTA" means the United States of America, Canada, and Mexico.

        "NDA" means a new drug application filed with the FDA.

        "NET SALES" means the proceeds actually received by Connetics, its
Affiliates and its sublicensees from the sale of Product to purchasers who are
not Affiliates, less:

        (a)    trade, quantity and cash discounts actually allowed and taken;

        (b)    credits actually allowed on account of the rejection or return or
               billing error relating to any Product previously billed and paid;

        (c)    freight, other transportation and insurance costs;

        (d)    taxes imposed on account of such sale (including, without
               limitation, sales, value-added and distribution taxes); and

        (e)    rebates and adjustments, including chargebacks.


        "PATENT(S)" means PCT application WO 99/20250, filed 19 October 1998
(copy attached as EXHIBIT B) together with any extensions, reissues,
reexaminations, substitutions, renewals, divisions, continuations,
continuations-in-part and counterparts thereof or therefor.

        "PRODUCT" or "PRODUCTS" means a hydroalcoholic quick break foam product
incorporating the Technology and containing ketoconazole, particularly (but not
exclusively) as described in the Product Specification.




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        "PRODUCT INFORMATION" means the dossier, data and results of clinical
and other trials and investigations relating to the Product, including
regulatory status and information, together with all other information relating
to the specification of the Product and information relating to the manufacture
(including method, conditions, and process equipment), testing (including
quality control standards, assay methods and stability studies), storage and use
of the Product now or hereafter during the term of this Agreement owned by
Soltec. If Soltec controls or otherwise possesses Product Information that is
owned by a third party, Soltec shall use commercially reasonable efforts to help
Connetics secure permission from that third party to share the information with
Connetics.

        "PRODUCT SPECIFICATIONS" means the description of the Product set forth
in EXHIBIT C, a copy of which is attached.

        "PROJECTED DEADLINE" means, with respect to the United States, the dates
set forth in SECTION 4.2, and with respect to each of Japan, Europe, and South
East Asia, the dates set forth in SECTION 4.3.

        "PROPRIETARY INFORMATION" means any information of value, not generally
known to the public, including (but not limited to):

        (a)    the Product Information; the development status of the Product;
               Product indications and modes of administration; technical
               information, such as clinical, biological, pharmaceutical and
               characterizing data; and know-how; and

        (b)    business information, such as reports; records; customer lists;
               supplier lists; marketing and sales plans; financial information;
               costs; and pricing information.

        "QUARTER" means calendar quarter, except when used to refer to the first
or last year this Agreement is in effect, in which case the first "Quarter"
shall be deemed to mean the period from the Effective Date until the first to
occur thereafter of the dates March 31, June 30, September 30 or December 31,
and the last "Quarter" shall be deemed to mean the period from the last to occur
of the dates January 1, April 1, July 1 or October 1 and ending on the date of
termination.

        "SOLTEC BREACH" shall have the meaning set forth in SECTION 9.4(b)(ii).

        "SOUTH EAST ASIA" means at least Hong Kong, Indonesia, Malaysia,
Singapore, and the Philippine Islands.

        "TECHNOLOGY" has the same meaning as set forth in the Option Agreement.

        "TERRITORY" means the world, except for (a) Australia, (b) New Zealand,
and (c) any country group excluded from the definition of Territory pursuant to
SECTION 4.2.

        "VALID CLAIM" means a claim of an issued, unexpired Patent in the
Territory that has not been abandoned for any reason, which, but for the license
to Connetics under this Agreement would be infringed by Connetics' manufacture,
use or sale of a Product, which claim has not been held invalid or unenforceable
by a decision of a court of competent jurisdiction, nonappealable or



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unappealed within the time allowed for appeal, and which has not been admitted
to be invalid through reissue, reexamination or disclaimer. With respect to
countries in which patents cannot be "abandoned" or which do not recognize the
concept of "abandonment," the term "Valid Claim" shall mean a claim of any
issued, unexpired Patent in that country.


                                    ARTICLE 2
                           GRANT/ACQUISITION OF RIGHTS

2.1     As of the Effective Date, Soltec exclusively licenses the following
        rights to Connetics in the Territory free and clear from all liens,
        interests or equities, charges and encumbrances, namely: the Product and
        the Product Information, for the purpose of the development,
        manufacture, use, distribution, marketing and sale of the Product in the
        Territory, with the right of sublicense.

2.2     As of the Effective Date, and only to the extent required to enable
        Connetics to develop, manufacture, use, distribute, market, offer to
        sell, and/or sell the Product directly or indirectly, Soltec hereby
        grants to Connetics the exclusive license under the Patents in the
        Territory with the right to sublicense.

2.3     Soltec undertakes to do all such acts and provide all such formal
        assignments, transfers and licenses as may be legally permissible and
        appropriate to ensure that Connetics is licensed to (directly or
        indirectly) develop, manufacture, distribute, use, market and sell the
        Product in the Territory as of the Effective Date.

2.4     During the term of this Agreement, and within the Territory, Soltec
        shall not (a) manufacture, distribute, use, market or sell, directly or
        indirectly, the Product or a hydroalcoholic quick-break foam containing
        an antifungal agent [excluding Hexifoam(TM) (being a quick-break foam
        product incorporating chlorhexidene and ethanol)] except on Connetics'
        behalf, or (b) authorize or purport to authorize any person, firm or
        company other than Connetics to develop such a product.

2.5     Nothing in this Agreement shall prevent Soltec from granting licenses
        under the Patents in respect of products or product information which is
        not within the definition of "Product" or "Product Information" (as the
        case may be) under this Agreement.

2.6     Soltec agrees to promptly inform Connetics of any inquiries of it for
        purchase of the Product in the Territory. Connetics agrees to promptly
        inform Soltec of any inquiries of it for purchase of the Product outside
        the Territory.

2.7     Connetics agrees that it will not manufacture or sell the Product
        outside the Territory, nor permit any other person to manufacture or
        sell the Product outside the Territory, during the term of this
        Agreement. Connetics further agrees not to sell the Product to any
        person whom Connetics knows or reasonably believes will resell the
        Product outside the Territory. For purposes of this provision, a written
        notification from Soltec to Connetics given in good faith to the effect
        that Soltec knows or reasonably believes that a person will so resell
        the Product shall be deemed to give Connetics a reasonable belief of
        such resale or proposed resale.



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2.8     If Soltec determines at any time during the Term of this Agreement to
        license the rights to the Product outside the Territory, Soltec shall
        first notify Connetics that the countries outside of the Territory are
        available, and give Connetics the opportunity to license or acquire such
        rights.


                                    ARTICLE 3
                       TECHNOLOGY TRANSFER AND ASSISTANCE

3.1     Promptly after the Effective Date, Soltec shall transfer and communicate
        the Product Information to Connetics or its Duly Authorized
        Representative(s). Until such transfer is completed, Soltec will allow
        Connetics or its Duly Authorized Representatives to inspect and/or to be
        provided with copies of all such information.

3.2     At Connetics' request, Soltec shall promptly provide to Connetics or its
        Duly Authorized Representatives such technical assistance and the
        services of its suitably qualified staff as may reasonably be required
        to assist Connetics (on its own behalf, or on behalf of its authorized
        assigns under SECTION 9.8) to acquire a proper understanding of the
        Product Information, whether at Connetics' United States premises or at
        Soltec's premises, at Soltec's cost and expense (except as modified by
        the last sentence of this SECTION 3.2). The obligation to provide such
        assistance and services shall terminate twelve (12) months after the
        beginning of manufacture of the Product by Connetics or its nominee or
        assignee as the case may be. Where the provision of assistance and
        services requires the attendance of Soltec's staff in the United States,
        Connetics shall pay all of Soltec's reasonable travel-related expenses,
        and Soltec's representatives shall be paid [*] per hour for services
        rendered to Connetics during the trip.

3.3     As part of or in addition to the foregoing, Soltec shall give Connetics
        the following assistance (subject to Connetics' reimbursement
        obligations stated in SECTION 3.2):

        (a)    Provision of formula, manufacturing methods, test specifications,
               packaging specification and raw material specifications.

        (b)    Written reports on formulation development and stability studies
               conducted by Soltec as part of the development process, to the
               extent necessary for inclusion in Connetics' regulatory
               submissions.

        (c)    Prompt responses to Connetics' or manufacturers' queries with
               regard to the technology.

        (d)    Provision of qualified chemist to supervise pre-production or
               manufacturing trials. Limited to no more than 2 visits per annum
               where the trials do not fit in with a regular visit.

        (e)    Technical improvements to the Products as and when they become
               available.




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        (f)    Validation of Production Methodology, analysis of Product and
               validation of Product assay.

        (g)    Provision of information with regard to any application for
               patent protection.

3.4     Nothing in this ARTICLE 3 shall be construed to require Soltec to
        provide any assistance or services in respect of which Soltec does not
        have the existing skills or capabilities.


                                    ARTICLE 4
                               PRODUCT DEVELOPMENT

4.1     It shall be Connetics' responsibility to apply for all product licenses
        and other marketing authorizations required in the Territory, in
        sufficient time to enable Connetics to comply with its obligations under
        SECTIONS 4.1, 4.2 and 4.3. Connetics agrees that, within three (3)
        months after the Effective Date, it will present Soltec with a written
        development plan that will, among other things, include the anticipated
        timing of:

        (a)    the filing of an NDA with the FDA as soon as practicable after
               the Effective Date, but in any event no later than [*]
               (subject to the provisions of SECTION 4.2);

        (b)    the date of projected Commencement of Commercial Marketing of the
               Product in the United States;

        (c)    applications for those drug registrations and approvals required
               in Europe, Japan and South East Asia (as defined) for the
               commercial marketing of the Product; and

        (d)    the date of projected Commencement of Commercial Marketing of the
               Product in Europe, Japan and South East Asia (as defined).

4.2     Connetics agrees that it shall file an NDA for the Product by [*],
        provided that Connetics shall have the option to extend that date for
        six months by paying an additional [*] to Soltec no later than the [*].
        If Connetics has not filed an NDA for the Product by [*], Soltec shall
        have the right to terminate this Agreement and rescind Connetics'
        license under this Agreement, upon written notice to Connetics. The [*]
        and [*] dates are hereinafter referred to as the "Projected Deadlines"
        for the United States. Notwithstanding the foregoing, it shall not be
        deemed a failure by Connetics under this SECTION 4.2 if Connetics is
        unable to meet the Projected Deadlines in the U.S. due to (a) a force
        majeure event, (b) failure of the clinical trial(s) for the Product in
        the U.S., or (c) failure of the product development effort, in each case
        such that the event would reasonably be expected to significantly impact
        the Projected Deadlines in the U.S. In the latter event, the Projected
        Deadlines in the U.S. shall automatically be extended by the length of
        time equal to the delay caused by such event. Notwithstanding anything
        contained in SECTION 9.4 to the contrary, the rights of Soltec in the
        event of Connetics' failure to comply with SECTION 4.2 are limited to
        those set forth in this SECTION.


* Certain information on this page has been omitted and filed
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4.3     (a)    Connetics agrees that in addition to any other obligations it
               may have in this Agreement, it will meet the Projected Deadlines
               (defined below) for each of Japan, Europe, and South East Asia,
               subject to the penalties described in this Section.

        (b)    For purposes of this Agreement, the "Projected Deadlines" are the
               dates by which Connetics must file drug registration applications
               or otherwise partner the Product, with respect to each of Europe,
               Japan, and South East Asia, as follows: either (i) partner by
               [*] and secure the partner's commitment to file the drug
               registration application no later than [*], or (ii) file the drug
               registration application no later than [*].

        (c)    Connetics shall keep Soltec promptly informed regarding the
               status of the Projected Deadlines in each of Europe, Japan and
               South East Asia, including providing Soltec with copies of any
               distribution, sublicense or other agreements immediately upon
               execution thereof.

        (d)    If Connetics fails to comply with any of its obligations
               contained in this SECTION 4.3, then Soltec may give written
               notice to Connetics identifying that failure with respect to one
               or more of Europe, Japan and South East Asia and stating that the
               countries or groups of countries referred to in the notice no
               longer form part of the Territory. Such notice will take effect
               from the date the notice is received by Connetics, and the
               definition of "Territory" is modified accordingly, and Connetics'
               obligations under this Agreement will cease to apply to that one
               or more of Europe, Japan, and South East Asia which has ceased to
               form part of the Territory pursuant to the operation of this
               Section.

        (e)    Notwithstanding anything contained in SECTION 9.4 to the
               contrary, the rights of Soltec in the event of Connetics' failure
               to comply with SECTION 4.3 are limited to those set forth in
               SECTION 4.3(d).

4.4     All product licenses and marketing authorizations for the Product in the
        Territory shall be and remain the property of Connetics. Connetics
        agrees that, upon written request by Soltec, it will sell to Soltec at
        the cost to Connetics or at such other prices as may be agreed upon any
        information developed by Connetics in connection with the Product that
        Soltec may require in order to apply for approval to commercialize the
        Product outside of the Territory. In addition, if Soltec rescinds any
        license pursuant to SECTION 4.3, Soltec shall have the right to purchase
        at a price to be agreed upon any such licenses or authorizations from
        Connetics, and Connetics agrees to cooperate with Soltec to effect a
        transfer at Soltec's sole expense of any market authorizations or
        regulatory approvals of the Product relating to any country which is
        deleted from the definition of "Territory."

4.5     Connetics and Soltec shall make available to each other during the term
        of this Agreement all safety data obtained, including any details
        regarding complaints and adverse event reports relating to the use of
        the Product. Connetics shall assume responsibility for compliance with
        governmental regulations in the Territory, including without limitation
        adverse event reporting requirements. To the extent that Soltec receives
        any adverse event reports (distinguished as serious and non-serious by
        FDA regulations), Soltec shall promptly forward copies of such reports
        to Connetics at the address set forth above. To the extent


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        that Connetics receives any adverse event reports (distinguished as
        serious and non-serious by FDA regulations), Connetics shall promptly
        forward copies of such reports to Soltec at the address set forth above.
        For purposes of this SECTION 4.5, "promptly" shall mean (a) for serious
        adverse events, no later than two business days after the appropriate
        adverse experience reporting form (e.g., for the U.S., MedWatch Form
        3500A) is completed by the party responsible for reporting it to the FDA
        or other regulatory authorities, or (b) for non-serious adverse events,
        a monthly line-listing of all adverse experience reports received by
        Soltec or Connetics, as the case may be, during a given month, such
        report due on the 15th day after the end of each month in which any such
        reports are received.


                                    ARTICLE 5
                                  CONSIDERATION

5.1     Connetics agrees to pay Soltec a License Fee of [*] payable as
        follows:

        -  [*] upon signing this License Agreement,

        -  [*] upon [*], and

        -  [*] upon [*].


5.2     Connetics will pay Soltec a royalty on Net Sales of Product in the
        Territory as follows:

        (a)    [*] of Net Sales by Connetics, an Affiliate, or an unaffiliated
               third party Connetics sublicensee, of Product in a country in the
               Territory where [*];

        (b)    [*] of Net Sales by Connetics, an Affiliate, or an unaffiliated
               third party Connetics sublicensee, of Product in a country in the
               Territory where [*].

        Notwithstanding the foregoing, if the Minimum Royalty is higher than the
        royalties described above with respect to sales of Product in NAFTA,
        Connetics shall pay the Minimum Royalty for NAFTA, and the royalties
        referred to above in respect of sales of Product outside NAFTA.

5.3     In addition to the amounts set forth in SECTIONS 5.1 and 5.2, Connetics
        will pay Soltec [*] of any upfront payments (excluding payments for
        development) that Connetics receives in connection with a sublicense of
        the rights to the Product.

5.4     In the event of any dispute between Soltec and Connetics as to (a)
        whether there are any material sales of a ketoconazole quick-break foam
        product or other antifungal quick-break foam product; or (b) whether a
        product is a ketoconazole quick-break foam product or


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        other antifungal quick-break foam product (as those terms are used in
        the definition of "Market Exclusivity"), then the matter will be
        determined in accordance with the procedures set forth in SECTION 9.2.

5.5     All royalties payable on Net Sales pursuant to this Agreement shall be
        paid within two (2) months after the close of the Quarter during which
        the Net Sales were actually made. Each royalty payment shall be
        accompanied by a statement that sets forth Net Sales (including details
        of all amounts deducted from the proceeds invoiced for the purpose of
        calculating Net Sales) during the Quarter in question and the royalty
        payment due thereon.

5.6     Unless the parties agree otherwise in writing, the payments of SECTIONS
        5.2 and 5.3 will be paid in U.S. Dollars and by wire transfer to the
        U.S. bank account(s) specified by Soltec from time to time. Connetics
        shall apply a conversion rate from all other currencies to Dollars for
        amounts payable under this Agreement equal to the average of the
        conversion rates in effect on each day of the quarterly period for which
        such payment is due. The conversion rates to be used in this Agreement
        shall be the rates reported by Olsen & Associates, Ltd. and referenced
        on the internet website at http://www.olsen.ch/, and if that source is
        no longer available from a comparable source to be agreed upon from time
        to time by the parties.

5.7     If any taxes, withholding or otherwise, are levied by any taxing
        authority in connection with the accrual or payment of royalties under
        this Agreement and are required to be paid by Connetics in connection
        with such accrual or payment, then Connetics shall pay such taxes to the
        local taxing authorities on behalf of Soltec and remit to Soltec in full
        satisfaction of its royalty obligations under this Agreement the net
        amount due after reduction by the amount of such taxes, together with
        evidence of payment of such taxes.

5.8     No royalty payment shall be made with respect to any non-commercial sale
        or transfer of a product between and among Connetics, its Affiliates,
        and/or its sublicensees where such sale or transfer is made in the
        course of a subsequent royalty-generating transaction under this
        Agreement. No multiple royalties shall be payable on account of the sale
        of any Product, regardless of whether or not more than one patent, or
        patent and other intellectual property rights, exist(s) covering such
        Product in any country. No royalty shall be payable with respect to
        reasonable quantities of samples provided free of charge to physicians
        and reasonable quantities of free "trade goods" including indigent
        patient programs.

5.9     Connetics shall keep records of all items in a manner and in sufficient
        detail to accurately and fully determine Net Sales in accordance with
        this Agreement and in accordance with U.S. generally accepted accounting
        principles and to regularly maintain such records in sufficient detail
        to permit calculation of Net Sales. Such records shall be retained for
        five (5) years after the end of the relevant Quarter.

5.10    Soltec shall have the right to nominate an independent firm of certified
        public accountants reasonably acceptable to Connetics to verify records
        of Connetics pertaining to, the calculation of any royalties payable
        under this Agreement with respect to the preceding calendar year, and
        Connetics shall maintain records for at least five (5) years after each
        year to which the records apply. Such verification shall not occur more
        than once each calendar year during the term of this Agreement and shall
        be conducted during normal business



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        hours. Soltec shall be responsible for the fees and expenses of the
        accountants performing such verification. The accountants appointed
        under this Agreement shall not be authorized to disclose to Soltec any
        information other than the accuracy or inaccuracy of the item(s) to be
        verified. If the audit reveals that Connetics has over-reported for the
        period of the audit, Soltec shall immediately remit to Connetics any
        refund due, together with interest at [*] over the then-current U.S.
        prime rate, accruing from the date the original overpayment was made. If
        the audit reveals that Connetics has under-reported for the period of
        the audit, Connetics shall immediately remit to Soltec any balance
        owing, together with interest at [*] over the then-current U.S. prime
        rate, accruing from the date the original payment was due. In addition,
        if the audit reveals that Connetics under-reported by more than [*],
        Connetics shall be responsible for paying the accountants' fees in
        connection with the audit. Except in the event that the audit reveals
        fraud, Soltec shall have no right under this Section to audit records
        for periods that have already been audited under this provision.

5.11    The royalties payable under this Agreement shall be reduced by the
        amount of any consideration Connetics pays if required to obtain a
        patent license from a third party in respect of the Delivery System in
        order to make, use or sell Product in the Territory.


                                    ARTICLE 6
                                     PATENTS

6.1     Soltec confirms that the Patents represent the only patent protection it
        or its Affiliates have applied for in relation to an antifungal agent in
        the formulation used in the Product [excluding [*].

6.2     Soltec shall retain title to the Patents and to any patent rights and
        know-how related to the Product developed solely by Soltec in the
        future. Connetics shall retain title to any patent rights and know-how
        related to the Product developed solely by Connetics in the future.
        Connetics and Soltec shall own in equal undivided interests any patent
        rights and know-how related to the Product developed jointly by Soltec
        and Connetics in the future.

6.3     Soltec shall be responsible for the prosecution and maintenance of the
        Patents at Soltec's expense. Soltec shall keep Connetics promptly
        informed of the status of prosecution of the Patents, including
        providing copies of all material correspondence with the U.S. or other
        Patent Office. Connetics shall have the right to comment upon and make
        suggestions for such prosecution and Soltec agrees to give such comments
        and suggestions due consideration, but the decision whether to implement
        Connetics' comments and suggestions shall rest solely with Soltec.

6.4     Connetics shall assist Soltec in prosecuting the Patents as contemplated
        by SECTION 6.3. If Soltec decides to discontinue prosecution or
        maintenance of any or all of the Patents, at its option Connetics may
        elect to continue such prosecution and maintenance at its own expense,
        upon which election title to such Patent(s) shall be assigned to
        Connetics.


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6.5     (a)    Action. If either party learns that a third party is infringing
               the Patents, 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. If
               such efforts are unsuccessful, Soltec may take steps to remove
               the infringement of the Patents, including, without limitation,
               initiating suit. If Soltec decides not to take such steps to
               remove the infringement within three (3) months of discovering or
               being notified of the infringement, Connetics may, but shall not
               be required to, take steps to remove the infringement.

        (b)    Expenses; Control. 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 moneys
               remaining 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.

6.6     If a notice of infringement is received by, or a suit is initiated
        against either Soltec or Connetics with respect to the Product as made,
        used or sold in the Territory, the parties will in good faith discuss
        the best way to respond.


                                    ARTICLE 7
                         REPRESENTATIONS AND WARRANTIES

7.1     Soltec represents and warrants to Connetics as follows:

        (a)    Capacity. Soltec has all requisite power and authority to enter
               into and perform this Agreement.

        (b)    Accuracy of Information. To the best of Soltec's knowledge and
               belief, as of the Effective Date the Product Information
               comprises all information necessary to enable the Product to be
               manufactured to the Product Specifications.

        (c)    Investigations. Soltec is not aware of any complaint concerning
               or relating to the Product or the Delivery System and nor is
               Soltec aware of any regulatory authority or any other
               governmental authority proposing to carry out or carrying out an
               investigation into the Product or the Delivery System.

        (d)    Competitive Products. Soltec has not entered into any agreements
               or arrangements with any other party for the sale of the Product
               in the Territory.

        (e)    Litigation. Soltec is not engaged in any litigation, arbitration,
               or other legal or administrative proceedings with respect to the
               Product, the Delivery System or the Patents, and to the best of
               Soltec's knowledge and belief no such litigation,



                                    Page 11
<PAGE>   12

               arbitration, or administrative proceedings are threatened by or
               against Soltec in relation to the Product, the Delivery System,
               or the Patents.

        (f)    Intellectual Property.

               (i)  To the best of Soltec's knowledge and belief, no claim has
                    been made or threatened against Soltec alleging any
                    infringement by the Product or the Delivery System of the
                    patent rights of any other person.

               (ii) To the best of Soltec's knowledge and belief, none of the
                    processes or materials (with the exception of ketoconazole)
                    used in the Delivery System or the Product infringes the
                    intellectual property rights of any other person.


7.2     Connetics represents and warrants to Soltec that Connetics:

        (a)    has all requisite power and authority to enter into and perform
               its obligations under this Agreement; and

        (b)    is not aware, having made full and proper inquiry, of any state
               of affairs existing or which may come to exist which will
               adversely affect Connetics' ability to market (or have marketed
               by an Affiliate or sublicensee) the Product in any country in the
               Territory.

7.3     Connetics covenants to Soltec as follows:

        (a)    Connetics will provide for and maintain a sales organization and
               a marketing program reasonably adequate and competent to promote,
               sell and stimulate interest in the Product;

        (b)    Connetics will conduct its business in a proper and businesslike
               manner;

        (c)    Connetics will actively and diligently promote and advertise the
               sale of the Product in the U.S., Europe, Japan, and South East
               Asia;

        (d)    the Product will be manufactured, filled, packaged, stored and
               shipped in accordance with all applicable laws, rules,
               regulations or requirements;

        (e)    Connetics shall obtain and maintain sufficient liability
               insurance to cover its activities and obligations (including
               without limitation indemnified obligations) contemplated under
               this Agreement, in such amount normal and customary for companies
               engaged in industry and activities similar to Connetics; and

        (f)    Connetics will carry sufficient liability insurance to cover its
               indemnification obligations under this Agreement and will, as and
               when reasonably requested by Soltec, provide Soltec with evidence
               of such insurance (including evidence of payment of premiums).



                                    Page 12
<PAGE>   13

                                    ARTICLE 8
                                 INDEMNIFICATION

8.1     Soltec hereby undertakes to indemnify and hold harmless Connetics from
        and against any and all liabilities and obligations to third parties
        incurred or arising in connection with or arising out of any default by
        Soltec under the terms of this Agreement, save to the extent that such
        default arises out of any negligence, wrongful act or default of
        Connetics.

8.2     Connetics hereby undertakes to indemnify Soltec from and against all
        liabilities and obligations incurred or arising in connection with or
        arising out of any default by Connetics under the terms of this
        Agreement, save to the extent that such default arises out of any
        negligence, wrongful act or default of Soltec.


                                    ARTICLE 9
                          GENERAL TERMS AND CONDITIONS

9.1     Confidentiality. In order to facilitate this Agreement it will be
        necessary for the parties to exchange certain Proprietary Information,
        each recipient of which agrees to retain such Proprietary Information in
        strict confidence and not to disclose or transfer to any party or use
        other than as authorized by the terms of this Agreement or otherwise in
        writing by the discloser. The parties hereby acknowledge that such
        Proprietary Information can constitute "inside information" for
        securities purposes and the responsibility to refrain from any
        unauthorized disclosure, trading or other such use. These obligations of
        confidentiality and non-use shall not apply to Proprietary Information:
        (a) that was previously known to the recipient as evidenced by
        recipient's written records, (b) that is lawfully obtained by recipient
        from a source independent of the discloser, or (c) that is now or
        becomes public knowledge other than by breach of this Agreement. These
        obligations of confidentiality and non-use shall survive the expiration
        or termination of this Agreement.

9.2     Arbitration and Applicable Law

        (a)    Any dispute, controversy or claim arising out of or relating to
               this Agreement, including any dispute, controversy or claim
               surrounding a breach or termination of this Agreement, shall
               first be referred to the chief executive officer of each of
               Soltec and Connetics for resolution at a place to be agreed
               between such chief executive officers and, failing agreement, at
               the head office of the Soltec (if Connetics requests the
               referral) or Connetics (if Soltec requests the referral).

        (b)    If the dispute, controversy or claim is not settled or agreed
               between such chief executive officers within a period of one (1)
               month, then it shall be settled by arbitration in accordance with
               the Commercial Arbitration Rules of the American Arbitration
               Association then in effect. At the written request of either
               party, Soltec and Connetics may each nominate one or more
               appropriately qualified experts, but both parties must agree to
               the expert to be appointed. If the Parties are unable to agree on
               an expert or experts, the arbitration will be conducted by a
               panel of three (3) arbitrators who are knowledgeable in the
               subject matter that is at issue in the dispute, are not
               affiliated directly or indirectly with either Party, one of whom
               is



                                    Page 13
<PAGE>   14

               selected by Soltec, one of whom is selected by Connetics, and one
               of whom is selected by the mutual agreement of the other two
               arbitrators. During the arbitration, the Parties shall have such
               discovery rights as the arbitrators may allow, consistent with
               the discovery permitted by the Federal Code of Civil Procedure.
               The place of arbitration shall be Palo Alto, California. The
               arbitrators shall apply the law of the State of California
               (regardless of that jurisdiction's or any other jurisdiction's
               choice of law principles).

        (c)    In any arbitration pursuant to this section, the arbitrators
               shall be able to decree any and all relief of an equitable
               nature, including but not limited to such relief as a temporary
               restraining order, a preliminary or permanent injunction, as well
               as specific performance. The arbitrators shall also be able to
               award direct and indirect damages, but shall not award any other
               form of damage (e.g., punitive or exemplary damages). The
               reasonable fees and expenses of the arbitrators, the fees and
               expenses of a court reporter, and any expenses for a hearing
               room, shall be borne equally by the Parties. The decision of the
               arbitrators shall be final and will be handed down within a
               period of sixty days of being appointed; The Party in whose favor
               the decision runs may enter, sued on or enforced the decision in
               any court of competent jurisdiction at the option of such Party.

9.3     Notices. Any notice required or permitted by the terms of this Agreement
        shall be given by registered mail, prepaid and properly addressed, or
        delivered by hand to Soltec or Connetics at the respective addresses
        first given above or at such other address as either party to this
        Agreement may designate by notice pursuant to this SECTION 9.3. Any such
        notice shall be deemed to have been given when received. All notices to
        Connetics shall be sent to the attention of its President. All notices
        to Soltec shall be sent to the attention of its Managing Director, with
        a copy to the Company Secretary of F. H. Faulding and Co. Limited,
        Sheriff Street Underdale, South Australia, or at such other address as
        Soltec and/or Faulding may designate by notice given pursuant to this
        Section.

9.4     Term and Termination

        (a)    Term. This Agreement shall come into force with effect from the
               Effective Date and shall remain in force for the Territory, for
               the longer of ten (10) years after Commencement of Commercial
               Marketing of the Product, or expiration of the last to expire
               Patent having a Valid Claim in the respective segment of the
               Territory, unless earlier terminated by Soltec pursuant to
               SECTION 4.2, or otherwise terminated in accordance with the terms
               of this Agreement.

        (b)    Termination. In addition to and notwithstanding the termination
               rights stated elsewhere in this Agreement, this Agreement may be
               terminated as follows:

               (i)    For Breach by Connetics. Upon breach by Connetics of any
                      of its material obligations contained in this Agreement
                      ("CONNETICS BREACH"), Soltec shall be entitled to give
                      Connetics notice specifying the nature of the Connetics
                      Breach and stating its intent to terminate this Agreement
                      if the Connetics Breach is not cured. This Agreement shall
                      terminate forty-five (45) days after Connetics



                                    Page 14
<PAGE>   15

                      receives such notice (A) if Connetics does not cure the
                      Connetics Breach to the reasonable satisfaction of Soltec,
                      or (B) if a plan, reasonably acceptable to Soltec, is not
                      implemented to cure as soon as practicable after notice of
                      the Connetics Breach.

               (ii)   For Breach by Soltec. Upon breach by Soltec of any of its
                      material obligations contained in this Agreement ("SOLTEC
                      BREACH"), Connetics shall be entitled to give Soltec
                      notice specifying the nature of the Soltec Breach and
                      stating its intent to terminate this Agreement if the
                      Soltec Breach is not cured. This Agreement shall terminate
                      forty-five (45) days after Soltec receives such notice (A)
                      if Soltec does not cure the Soltec Breach to the
                      reasonable satisfaction of Connetics, or (B) if a plan,
                      reasonably acceptable to Connetics, is not implemented to
                      cure as soon as practicable after notice of the Soltec
                      Breach.

               (iii)  Termination for Insolvency. Either party may terminate
                      this Agreement immediately upon delivery of written notice
                      to the other party (A) upon the institution by or against
                      the other party of insolvency, receivership or bankruptcy
                      proceedings or any other proceedings for the settlement of
                      the other party's debts, provided, however with respect to
                      involuntary proceedings, that such proceedings are not
                      dismissed within one hundred and twenty (120) days; (B)
                      upon the other party's making an assignment for the
                      benefit of creditors; or (C) upon the other party's
                      dissolution or ceasing to do business.

        (c)    Effect of Termination. Upon the expiration or earlier termination
               of this Agreement, the rights licensed under this Agreement shall
               be treated as follows:

               (i)    Upon the expiration of the Term, Connetics shall have a
                      fully paid-up, perpetual, irrevocable, royalty-free,
                      transferable, worldwide, non-exclusive right and license
                      to make, have made, use, offer to sell, and sell Products
                      in the Territory.

               (ii)   Upon termination by Soltec pursuant to SECTIONS 9.4(b)(i)
                      or 9.4(b)(iii), all rights to the Product in the Territory
                      shall revert to Soltec, and all rights of Connetics to
                      develop, manufacture, use, distribute, market and sell
                      Products in the Territory shall thereupon cease.

        (d)    Ongoing Obligations. Except as expressly provided in this
               Agreement, termination of this Agreement pursuant to the terms
               and conditions set forth in this Agreement shall not relieve the
               parties of any right or obligation, including but not limited to
               any payment obligations, accruing prior to or upon such
               expiration or termination. Upon expiration or termination of this
               Agreement for any reason, each party shall immediately return to
               the other party or destroy any Confidential Information disclosed
               by the other party, except that each party may retain one copy of
               such Confidential Information marked and used for legal archival
               purposes only.



                                    Page 15
<PAGE>   16

        (e)    No Refunds. Except as described in SECTION 5.10 regarding
               overpayment of royalties, no payment by Connetics under any
               clause of this agreement is refundable to Connetics for any
               reason whatsoever including, but without limitation, whether or
               not any patent issues in respect of the Product in any country in
               the Territory or, if issued, whether or not such patent is valid,
               or if valid, whether or not such patent covers the Product.

9.5     Remedies. If either party breaches any of its obligations with respect
        to this Agreement, or if such a breach is likely to occur, the other
        party shall be entitled to seek equitable relief, including specific
        performance or an injunction, in addition to any other rights or
        remedies, including money damages, provided by law, without posting a
        bond.

9.6     Announcements/Publicity. Subject to the requirements of law and/or The
        Australian Stock Exchange Limited or the Nasdaq National Market System,
        any announcements or publicity (whether verbal or written, including,
        but not limited to shareholder reports, prospectuses, communications
        with stock market analysts, press releases or other communications with
        the media) to be made or given in respect of this Agreement by either
        party shall be subject to the prior approval in writing of the other
        party (such approval not to be unreasonably withheld or delayed) where
        such announcement or publicity refers to such other party, the Product
        or the Delivery System. The parties agree that once approval for
        disclosure of information has been obtained in accordance with the
        provisions of this SECTION 9.6, the party that requested such approval
        shall be entitled to use such information without any obligation to seek
        further approval.

9.7     Force Majeure. Neither party shall be liable for failure to perform any
        duty or obligation that party may have under this Agreement where such
        failure has been occasioned by any force majeure which shall mean and
        include government regulation, fire, strike, inevitable accident,
        national emergency, or any other cause outside the reasonable control of
        the party having the duty so to perform. Such failure to perform shall
        only be excusable under the provisions of this Section for so long as,
        and to the extent that, the same is rendered impossible by force
        majeure. The party claiming that force majeure has occurred shall send
        full particulars to the other party within five working days of the
        first occurrence of force majeure including its date of first occurrence
        and of the cause or event giving rise to it. Notwithstanding the relief
        granted to any party by this Section, the relevant party shall
        nevertheless use its reasonable endeavors in any situation where it has
        invoked this Section to perform its relevant obligations as soon as
        possible after force majeure has ceased.

9.8     Assignment.

        (a)    Each party agrees that its rights and obligations under this
               Agreement may not be transferred or assigned directly or
               indirectly, except as follows: (i) either party may transfer or
               assign this Agreement to an Affiliate of such party, or in
               connection with the sale of all or substantially all of the
               assigning party's related business, provided that the assignee
               agrees in writing to undertake the obligations under this
               Agreement provided the assigning party remains primarily liable,
               and (ii) either party may transfer or assign this Agreement to a
               non-Affiliate Third party with the prior written consent of the
               other party, which consent shall not be unreasonably



                                    Page 16
<PAGE>   17

               withheld. In addition, in the case of an assignment by Connetics,
               Connetics agrees that Soltec may seek to enforce Connetics'
               remedies against the assignee directly against such assignee
               without first exhausting its remedies against Connetics if the
               assignee breaches its agreement so as to cause Connetics to
               become liable to Soltec for damages due to Connetics' breach in
               accordance with the terms of this Agreement. As to each such
               assignee, Connetics shall use commercially reasonable efforts to
               cause each assignee to execute and deliver to Soltec prior to the
               date of the assignment a letter acknowledging Soltec's right to
               enforce Connetics' remedies directly against the assignee.
               Notwithstanding the preceding sentence, if Soltec shall seek to
               exercise such remedies, Connetics shall remain primarily liable
               and obligated to Soltec under all provisions of this Agreement.

        (b)    Subject to the foregoing, this Agreement shall be binding upon
               and inure to, the benefit of the Parties, their successors and
               assigns. Any attempted assignment contrary to the provisions of
               this SECTION 9.8 shall be deemed ineffective, and shall give rise
               to the right to terminate this Agreement for breach. Nothing set
               forth in this SECTION 9.8 shall prevent Connetics, or any
               Affiliate to which it has assigned its rights, from sublicensing
               the rights granted to Connetics under this Agreement; provided
               that:

               (i)    such sublicensing shall be effected on terms which are not
                      inconsistent or in conflict with the terms of this
                      Agreement;

               (ii)   Connetics shall remain responsible for royalty payments in
                      accordance with the terms of this Agreement on Products
                      sold by such sublicensee as if such sales had been made by
                      Connetics; and

               (iii)  the sublicensee shall specifically be bound by the
                      confidentiality provisions of this Agreement and by
                      Soltec's audit rights under this Agreement.

9.9     Survival. The covenants and agreements set forth in SECTIONS 5.10,
        6.5(b), 6.6 and 9.1, and ARTICLE 8, shall survive any termination or
        expiration of this Agreement and remain in full force and effect
        regardless of the cause of termination. All other rights and obligations
        of the parties shall cease upon expiration or termination of this
        Agreement.

9.10    Nonwaiver of Rights. No failure or delay on the part of a party in
        exercising any right under this Agreement will operate as a waiver of,
        or impair, any such right. No single or partial exercise of any such
        right will preclude any other or further exercise thereof or the
        exercise of any other right. No waiver of any such right will be deemed
        a waiver of any other right under this Agreement.

9.11    Headings. Section headings contained in this Agreement are included for
        convenience only and form no part of the agreement between the parties.

9.12    Validity of Provisions and Severability. If any provision of this
        Agreement is or becomes or is deemed to be invalid, illegal, or
        unenforceable in any jurisdiction: such provision will be deemed amended
        to conform to applicable laws of such jurisdiction so as to be valid and



                                    Page 17
<PAGE>   18

        enforceable, or, if it cannot be so amended without materially altering
        the intention of the parties, it will be stricken; the validity,
        legality and enforceability of such provision will not in any way be
        affected or impaired thereby in any other jurisdiction; and the
        remainder of this Agreement will remain in full force and effect.

9.13    No Waiver. No waiver of any term or condition of this Agreement shall be
        valid or binding on either party unless agreed in writing by the party
        to be charged. The failure of either party to enforce at any time any of
        the provisions of this Agreement, or the failure to require at any time
        performance by the other party of any of the provisions of this
        Agreement, shall in no way be construed to be a present or future waiver
        of such provisions, nor in any way affect the validity of either party
        to enforce each and every such provision thereafter. No amendment or
        modification of this Agreement shall be valid or binding upon the
        Parties unless made in writing and signed by the duly authorized
        representatives of both Parties.

9.13    Entire Agreement. This Agreement, together with its exhibits which are
        incorporated in this Agreement by reference, sets forth the entire
        agreement of the parties with respect to the subject matter set forth.
        In the event of any conflict between this Agreement and the Option
        Agreement with respect to ketoconazole, this Agreement shall control.
        This Agreement may not be modified except by a writing signed by the
        parties' authorized representatives.

9.14    Counterparts. This Agreement may be executed in two or more
        counterparts, each of which shall be deemed an original and all of which
        together shall constitute one instrument.


IN WITNESS WHEREOF, the parties have entered into this Agreement as of the date
first written above.

Connetics Corporation                        Soltec Research Pty Ltd.



By  /s/ T. Wiggans                           By:  /s/ Ross A. Macdonald
    -------------------------------------         ------------------------------
    Thomas G. Wiggans                             Ross A. Macdonald, Ph.D.
    President and Chief Executive Officer         Managing Director



                                    Page 18
<PAGE>   19

                         EXHIBIT A TO LICENSE AGREEMENT


                           [OPTION LETTER AS AMENDED]

<PAGE>   20

                         EXHIBIT B TO LICENSE AGREEMENT


                                    [PATENTS]

<PAGE>   21

                         EXHIBIT C TO LICENSE AGREEMENT


                            [PRODUCT SPECIFICATIONS]






                                      [*]








* Certain information on this page has been omitted and filed
  separately with the Commission. Confidential treatment has
  been requested with respect to the omitted portions.