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                                                                    EXHIBIT 10.3

                          REVENUE ADJUSTMENT AGREEMENT

                                 BY AND BETWEEN

                         INTERMUNE PHARMACEUTICALS, INC.

                                       AND

                              CONNETICS CORPORATION

                                  JUNE 27, 2000





                          REVENUE ADJUSTMENT AGREEMENT

         THIS REVENUE ADJUSTMENT AGREEMENT (the "Agreement") is made effective
and entered into as of June 27, 2000 (the "Effective Date") by and between
CONNETICS CORPORATION, a Delaware corporation, with its principal place of
business at 3400 West Bayshore Road, Palo Alto, CA 94303 ("Connetics"), and
INTERMUNE PHARMACEUTICALS, INC., a Delaware corporation, with its principal
place of business at 1710 Gilbreth Road, Suite 301, Burlingame, CA 94010
("InterMune"). Connetics and InterMune may be referred to herein as a "Party" or
collectively as the "Parties."

                                    RECITALS

A.       WHEREAS, the Parties have entered into that certain Collaboration
         Agreement, dated as of April 27, 1999 (the "Collaboration Agreement"),
         by which, among other provisions, InterMune became obligated to pay to
         Connetics: (i) a $500,000 milestone payment on or before March 31,
         2001; and (ii) a $1.5 million milestone payment on or before March 31,
         2002;
B.       WHEREAS, The Parties have entered into that certain Assignment and
         Option Agreement, dated as of June 23, 2000 (the "Assignment
         Agreement"), pursuant to which, among other provisions: (i) Connetics
         assigned to InterMune Connetics' entire right, title and interest in,
         to and under that certain License Agreement for Interferon Gamma by and
         between Connetics and Genentech, Inc. ("Genentech") dated May 5, 1998,
         as amended (the "Genentech License") and (ii) InterMune affirmed its
         obligation to pay to Connetics the $1.5 million milestone payment
         pursuant to the Collaboration Agreement;
C.       WHEREAS, the Parties have entered into that certain Transition
         Agreement, dated as of April 27, 1999 (the "Transition Agreement"), by
         which, among other provisions, the parties have set forth certain
         rights and obligations with respect to the revenue from the sales of
         Actimmune-Registered Trademark-; and
D. WHEREAS, by this Amendment, the Parties now desire to delete Section 5.2 of
the Assignment Agreement and terminate the Collaboration Agreement and
Transition Agreement (each generically, an "Original Agreement," and
collectively, the "Original Agreements") as set forth herein in order to adjust
the Parties' rights and obligations with respect to the revenue from the sales
of Actimmune.

         NOW, THEREFORE, in consideration of the foregoing recitals and mutual
promises hereinafter set forth, the Parties agree as follows:


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1.       DEFINITIONS.

         1.1 ACTIMMUNE. "Actimmune" means the filled and finished form of the
protein encoded by the interferon gamma-1b gene, and sold and distributed under
the trademark ACTIMMUNE-Registered Trademark-, which is owned by Genentech and
licensed to Connetics and its sublicenses under the Genentech License.

         1.2 ACTIMMUNE GROSS MARGIN. "Actimmune Gross Margin" means Actimmune
Net Sales less all applicable Product Cost of Actimmune Units sold, GNE
Royalties, third party royalties payable pursuant to Section 8.4 of the
Genentech License and CORD Distribution Costs.

         1.3 ACTIMMUNE GROSS SALES. "Actimmune Gross Sales" means all revenue
recorded in connection with shipments of Actimmune Units multiplied by the price
per Actimmune Unit, including revenue with associated accounts receivable for
accounting purposes for specific shipment/invoicing transactions with respect to
Actimmune Units, and assumes that invoices are prepared immediately following
notification of shipment of goods, and are dated the same day of shipment.

         1.4 ACTIMMUNE NET SALES. "Actimmune Net Sales" means Actimmune Gross
Sales less adjustments for the following: product returns, Medicare and Medicaid
reimbursements, chargebacks, rebates, state payments, other contractual
reimbursement, and cash discounts.

         1.5 ACTIMMUNE UNITS. "Actimmune Units" means vials of ACTIMMUNE(R) that
are sold as commercial product by InterMune in an arm's length transaction.

         1.6 CORD DISTRIBUTION COSTS. "CORD Distribution Costs" means the actual
payment by InterMune to CORD Logistics, Inc., for distribution services for
sales of Actimmune.

         1.7 GNE ROYALTIES. "GNE Royalties" means the amount of royalties
payable to Genentech, Inc. pursuant to section 8.3 of the Genentech License for
Actimmune Net Sales.

         1.8 PRODUCT MANAGEMENT COSTS. "Product Management Costs" means
InterMune's actual costs to manage sales of Actimmune Units, including all
expenses and services related to sales of such Actimmune Units, such as
maintenance of safety databases, etc., tracked on a regular basis and properly
accounted for.

2.       AMENDMENT OF ASSIGNMENT AGREEMENT.

         Section 5.2 of the Assignment Agreement is deleted in its entirety.
Section 5.1 of the Assignment Agreement is unaffected by this Agreement.

3.       TERMINATION OF COLLABORATION AGREEMENT.

         The Collaboration Agreement is terminated in its entirety.

4.       TERMINATION OF TRANSITION AGREEMENT.

         The Transition Agreement is terminated in its entirety.

5.       INTERMUNE PAYMENTS TO CONNETICS.

         5.1 JUNE 30, 2000. On June 30, 2000, InterMune shall be obligated to
pay and shall pay $5,218,172 to Connetics; provided however, InterMune shall be
credited $484,305 toward this payment.

         5.2 MARCH 31, 2001. On March 31, 2001, InterMune shall pay $942,478 to
Connetics.


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6.       REVENUE RECOGNITION.


         For the fiscal quarter beginning April 1 and ending June 30, 2000, and
without regard to the Effective Date of this Agreement, InterMune shall be
entitled to book and recognize Actimmune Net Sales for sales of all Actimmune
Units and the Actimmune Gross Margin. Effective July 1, 2000, InterMune shall be
entitled to book and recognize all revenues, sales, margins, etc. from the sales
of Actimmune.

7.       OBLIGATIONS TO THIRD PARTIES AND INDEMNIFICATION OF CONNETICS.

         InterMune hereby affirms its obligations pursuant to Section 2.5 of the
Transition Agreement and Section 5.4 of the Assignment Agreement to remit to
Genentech any accounts payable on Actimmune Net Sales for third-party royalties
and for GNE Royalties, all as required by the Genentech License. InterMune
affirms its covenant and agreement to remit the full amount of such royalties
directly to Genentech or the applicable third party, and shall indemnify
Connetics against any action by Genentech or such third party to collect
royalties for Actimmune Unit Sales made after April 27, 1999.

8.       CONFIDENTIALITY.

         8.1 CONFIDENTIAL INFORMATION OBLIGATIONS. As used herein, "Confidential
Information" means all information that a Party discloses to the other Party
under this Agreement or had disclosed to the other Party under the Original
Agreement, provided that Confidential Information shall not include such
information excluded under Section 8.2. Except to the extent expressly
authorized by this Agreement or otherwise agreed in writing by the Parties, each
Party agrees that, during the term of this Agreement and for five (5) years
after the expiration or termination of this Agreement, it shall keep
confidential and shall not publish or otherwise disclose and shall not use for
any purpose other than as provided for in this Agreement any Confidential
Information furnished to it by the other Party pursuant to this Agreement, the
Collaboration Agreement and/or the Transition Agreement.

         8.2 EXCEPTIONS. The obligations set forth in Section 8.1 shall not
apply to any Information that the receiving Party can demonstrate by competent
evidence:

                  (a) was already known to the receiving Party, other than under
an obligation of confidentiality, at the time of disclosure by the other Party;

                  (b) was generally available to the public or otherwise part of
the public domain at the time of its disclosure to the receiving Party by the
other Party;

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

                  (d) was disclosed to the receiving Party, other than under an
obligation of confidentiality to a third party, by a third party who had no
obligation to the disclosing Party not to disclose such information to others;
or

                  (e) is independently developed by the receiving Party without
using any of the other Party's Confidential Information.


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         8.3 TERMS OF THE AGREEMENT. The Parties agree that the terms of this
Agreement will be considered Confidential Information of both Parties.
Notwithstanding the foregoing, a Party shall have the right to disclose the
material financial terms of the Agreement to any bona fide potential investor,
investment banker, acquirer, merger partner or other potential financial
partner, subject to such Party obtaining the agreement of such party receiving
such Confidential Information to keep such information confidential.

         8.4 PERMITTED DISCLOSURE. Notwithstanding the limitations in this
Section 8, each Party may disclose Confidential Information belonging to the
other Party (or otherwise subject to this Section 8), to the extent such
disclosure is reasonably necessary in the following instances, but solely for
the limited purpose of such necessity:

                  (a)      filing or prosecuting patents;

                  (b)      regulatory and tax filings;

                  (c)      prosecuting or defending litigation;

                  (d) complying with applicable governmental laws or regulations
or valid court orders; and

                  (e) disclosure to a party's affiliates, licensees,
sublicensees, employees, consultants or agents who agree to be bound by similar
terms of confidentiality and non-use at least equivalent in scope to those set
forth in this Article 8.

         Notwithstanding the foregoing, in the event a Party is required to make
a disclosure of the other Party's Confidential Information pursuant to this
Section 8.4, it will give reasonable advance notice to the other Party of such
disclosure and endeavor in good faith to secure confidential treatment of such
information. In any event, the Parties agree to take all reasonable action to
avoid disclosure of Confidential Information hereunder. Further, the Parties
agree to consult with one another on the provisions of this Agreement to be
redacted in any filings made by a Party with the United States Securities and
Exchange Commission or as otherwise required by law.

9.       TERMINATION

         9.1 TERM OF AGREEMENT. The term of this Agreement shall expire upon
InterMune's payment of the full amounts to Connetics pursuant to Sections 5.1
and 5.2.

         9.2 TERMINATION FOR MATERIAL BREACH. If either Party shall default in a
material manner with respect to any material provision of this Agreement and the
other Party shall have given the defaulting Party written notice of such
default, the defaulting Party shall have thirty (30) days to cure such default.
If such default is not cured within such thirty (30) day period, the
non-defaulting Party shall have the right, upon notice to the defaulting Party
and without prejudice to any other rights the non-defaulting Party may have, to
terminate this Agreement unless the defaulting Party is in the process of
attempting in good faith to remedy such default, in which case, the thirty (30)
day cure period shall be extended by an additional thirty (30) days.

         9.3 SURVIVING RIGHTS. The obligations and rights of the Parties under
Sections 7, 8, 9, 10.3, 10.6, 10.7, and 10.11 shall survive any termination or
expiration of the Agreement.

         9.4 ACCRUED RIGHTS AND SURVIVING OBLIGATIONS. The termination or
expiration of the Agreement for any reason shall be without prejudice to any
rights which shall have accrued to the benefit of either Party prior to such
termination or expiration, including any damages arising from any breach


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hereunder. Such termination or expiration shall not relieve either Party from
obligations, which are expressly indicated to survive termination or expiration
of the Agreement.

         9.5 BANKRUPTCY RIGHTS. In the event that this Agreement is terminated
or rejected by a Party or its receiver or trustee under applicable bankruptcy
laws due to such Party's bankruptcy, then all rights and licenses granted under
or pursuant to this Agreement by such Party to the other Party are, and shall
otherwise be deemed to be, for purposes of Section 365(n) of the Bankruptcy Code
and any similar law or regulation in any other country, licenses of rights to
"intellectual property" as defined under Section 101(52) of the Bankruptcy Code.

10.      MISCELLANEOUS.

         10.1 WAIVER. No waiver by either Party hereto of any breach or default
of any of the covenants or agreements herein set forth shall be deemed a waiver
as to any subsequent or similar breach or default.

        10.2 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the Parties hereto and their permitted successors and assigns;
provided, however, that InterMune may not assign any of its rights and
obligations hereunder without the prior written consent of Connetics, except as
incident to the merger, consolidation, reorganization or acquisition of stock or
assets affecting substantially all of the assets or actual voting control of
InterMune. Any assignment or attempted assignment by InterMune in violation of
the terms of this Section 10.2 shall be null and void and of no legal effect.

         10.3 NOTICES. Any notice or other communication required or permitted
to be given to either Party hereto shall be in writing and shall be deemed to
have been properly given and to be effective on the date of delivery if
delivered in person or by facsimile or five (5) days after mailing by registered
or certified mail, postage paid, to the other Party at the following address:




         In the case of InterMune:               InterMune Pharmaceuticals, Inc.
                                                 1710 Gilbreth Road,
                                                 Suite 301
                                                 Burlingame, CA 94010
                                                 Fax: (650) 259-0774
                                                 Attention:  General Counsel

         with a copy to:                         Cooley Godward LLP
                                                 Five Palo Alto Square
                                                 3000 El Camino Real
                                                 Palo Alto, CA 94306
                                                 Fax: (650) 849-7400
                                                 Attention:  Barclay Kamb

         In the case of Connetics:               Connetics Corporation
                                                 3400 West Bayshore Road
                                                 Palo Alto, CA 94303
                                                 Fax: (650) 843-2899
                                                 Attention:  General Counsel



Either Party may change its address for communications by a notice to the other


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Party in accordance with this Section.

         10.4 HEADINGS. The headings of the several sections are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.

         10.5 AMENDMENT. No amendment or modification hereof shall be valid or
binding upon the Parties unless made in writing and signed by both Parties.

         10.6 GOVERNING LAW. This Agreement shall be governed exclusively by the
laws of the State of California as such law applies to contracts entered into
between and to be performed by California residents entirely in the State of
California.

         10.7 DISPUTE RESOLUTION.

                (a) In the event of any controversy or claim arising out of,
relating to or in connection with any provision of this Agreement, or the rights
or obligations of the Parties hereunder, the Parties shall try to settle their
differences amicably between themselves by referring the disputed matter to the
President of InterMune and the Chief Executive Officer of Connetics for
discussion and resolution. Either Party may initiate such informal dispute
resolution by sending written notice of the dispute to the other Party, and
within ten (10) days after such notice such representatives of the Parties shall
meet for attempted resolution by good faith negotiations. If such personnel are
unable to resolve such dispute within thirty (30) days of initiating such
negotiations, either Party may seek to have such dispute resolved by binding
arbitration under this Section 10.7. The arbitration shall be held in Palo Alto,
California according to the Commercial Arbitration Rules of the American
Arbitration Association (the "Rules"). 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, and are selected by mutual agreement of the Parties. Failing such
agreement, the arbitrators shall be selected appointed as provided in the Rules.
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. In conducting the arbitration, the arbitrators shall
apply the rules of evidence applicable in California, and 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 injunction, a
permanent injunction, or replevin of property, 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, along with the reasonable
legal fees and expenses of the prevailing Party (including all expert witness
fees and expenses), the fees and expenses of a court reporter, and any expenses
for a hearing room, shall be paid as follows: If the arbitrators rule in favor
of one Party on all disputed issues in the arbitration, the losing Party shall
pay one hundred percent (100%) of such fees and expenses; if the arbitrators
rule in favor of one Party on some issues and the other Party on other issues,
the arbitrators shall issue with the rulings a written determination as to how
such fees and expenses shall be allocated between the Parties. The arbitrators
shall allocate fees and expenses in a way that bears a reasonable relationship
to the outcome of the arbitration, with the Party prevailing on more issues, or
on issues of greater value or gravity, recovering a relatively larger share of
its legal fees and expenses. The decision of the arbitrators shall be final and
may be entered, sued on or enforced by the Party in whose favor it runs in any
court of competent jurisdiction at the option of such Party. Whether a claim,
dispute or other matter in question would be barred by the applicable statute of
limitations, which statute of limitations also shall apply to any claim or


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disputes subject to arbitration under this Section, shall be determined by
binding arbitration pursuant to this Section.

                  (b) Notwithstanding anything to the contrary in this
Agreement, either Party may (without resort to arbitration) seek immediate
injunctive or other interim relief from any court of competent jurisdiction with
respect to any breach of Section 9 hereof, or as necessary to enforce and
prevent infringement of the patent rights, copyright rights, trademarks, trade
secrets, or other intellectual property rights owned or controlled by a Party or
its Affiliates.

         10.8 FORCE MAJEURE. Any delays in performance by any Party under this
Agreement shall not be considered a breach of this Agreement if and to the
extent caused by occurrences beyond the reasonable control of the Party
affected, including but not limited to acts of God, embargoes, governmental
restrictions, fire, flood, explosion, riots, wars, civil disorder, rebellion or
sabotage. The Party suffering such occurrence shall immediately notify the other
Party as soon as practicable, and any time for performance hereunder shall be
extended by the actual time of delay caused by the occurrence.

         10.9 SEVERABILITY. If any part of this Agreement is declared invalid by
any legally governing authority having jurisdiction over either Party, then such
declaration shall not affect the remainder of the Agreement and the Parties
shall revise the invalidated part in a manner that will render such provision
valid without impairing the Parties' original interest.

        10.10 CUMULATIVE RIGHTS. The rights, powers and remedies hereunder shall
be in addition to, and not in limitation of, all rights, powers and remedies
provided at law or in equity, or under any other agreement between the Parties.
All of such rights, powers and remedies shall be cumulative, and may be
exercised successively or cumulatively.

         10.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which shall
constitute together the same document.

         10.12 ENTIRE AGREEMENT. This Agreement embodies the entire
understanding of the Parties with respect to the subject matter hereof and
supersedes and terminates all previous communications, representations or
understandings, either oral or written, between the Parties relating to the
subject matter hereof.

         IN WITNESS WHEREOF, both InterMune and Connetics have executed this
Agreement, as of the day and year first written above.


  INTERMUNE PHARMACEUTICALS, INC.                      CONNETICS CORPORATION

By: /s/ W. SCOTT HARKONEN                   By: /s/ THOMAS G. WIGGANS
   -----------------------------                --------------------------------
Print Name: W. Scott Harkonen               Print Name: Thomas G. Wiggans
            --------------------                        ------------------------
Title: Pres. & CEO                          Title: Pres. & CEO
       -------------------------                   -----------------------------




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