<PAGE>

                                                                    EXHIBIT 10.2

Confidential materials omitted and filed separately with the Securities and
Exchange Commission. Asterisks denote omissions.

                       COLLABORATION AND LICENSE AGREEMENT

      THIS COLLABORATION AND LICENSE AGREEMENT (this "Agreement") is dated as of
July 15, 2005 (the "Effective Date") and is made by and among LEXICON GENETICS
INCORPORATED, a Delaware corporation ("Lexicon"), THE TEXAS A&M UNIVERSITY
SYSTEM ("TAMUS") for the benefit of TEXAS A&M UNIVERSITY ("TAMU") and the TEXAS
A&M HEALTH SCIENCE CENTER ("TAMHSC"), and the TEXAS INSTITUTE FOR GENOMIC
MEDICINE, a Texas non-profit corporation ("TIGM"). Lexicon, TAMUS and TIGM are
sometimes referred to herein individually as a "party" and collectively as the
"parties."

                                    RECITALS

      WHEREAS, Lexicon has technology for and expertise in the generation of
mouse embryonic stem cell clones containing gene trap mutations that can be used
in the production of knockout mice;

      WHEREAS, Lexicon and TAMUS are interested in collaborating in the start-up
and initial operations of TIGM, including the endowment of TIGM with a library
of such mouse embryonic stem cell clones containing gene trap mutations;

      WHEREAS, the State of Texas, acting by and through the Office of the
Governor, Economic Development and Tourism (the "State"), has committed to
provide fifty million dollars ($50,000,000) in funding for the foregoing under
an Economic Development Agreement, dated as of the Effective Date, among the
State, Lexicon and TAMUS (the "Economic Development Agreement");

      NOW, THEREFORE, in consideration of the premises and of the covenants
herein contained, the parties hereto mutually agree as follows:

                             ARTICLE 1. DEFINITIONS

      For purposes of this Agreement, the terms defined in this Article 1 shall
have the respective meanings specified below:

      1.1 "Academic Institution" means any university or non-profit entity.

      1.2 "Affiliate" means any corporation, company, partnership, joint venture
or firm that controls, is controlled by or is under common control with a party
to this Agreement. For purposes hereof, "control" means (a) in the case of a
corporate entity, direct or indirect ownership of more than fifty percent (50%)
of the stock or shares entitled to vote for the election of directors; and (b)
in the case of a non-corporate entity, direct or indirect ownership of more than
fifty percent (50%) of the equity interests with the power to direct the
management and policies of such non-corporate entity. For clarity, TIGM, as a
non-profit corporation without stock, shares or equity interests, shall not be
deemed an Affiliate of Lexicon or TAMUS.

      1.3 "Bioinformatics Software" means the software described in Exhibit 1.3
for the management and analysis of data relating to the OmniBank II Library and
the production, genotyping and phenotypic analysis of knockout mice.

<PAGE>

      1.4 "Commercial Entity" means any person or entity other than an Academic
Institution or Government Agency.

      1.5 "Confidential Information" means any proprietary information and data
received by a party or its Affiliates (the "Receiving Party") from the other
party or its Affiliates (the "Disclosing Party") in connection with this
Agreement. Notwithstanding the foregoing, Confidential Information shall not
include any part of such information or data that:

                  (a) is or becomes part of the public domain other than by
            unauthorized acts of the Receiving Party or its Affiliates;

                  (b) can be shown by written documents to have been already in
            the possession of the Receiving Party or its Affiliates prior to
            disclosure under this Agreement, provided such Confidential
            Information was not obtained directly or indirectly from the
            Disclosing Party under an obligation of confidentiality;

                  (c) can be shown by written documents to have been disclosed
            to the Receiving Party or its Affiliates by a Third Party, provided
            such Confidential Information was not obtained directly or
            indirectly from the Disclosing Party under an obligation of
            confidentiality; or

                  (d) can be shown by written documents to have been
            independently developed by the Receiving Party or its Affiliates
            without use of, or access to, Confidential Information of the
            Disclosing Party.

Specific Confidential Information of a Disclosing Party shall not be deemed to
come under the foregoing exceptions merely because it is embraced by more
general information that is or becomes part of the public domain, or is known
by, disclosed to or independently developed by the Receiving Party.

      1.6 "Control" or "Controlled" means, with respect to any (a) material,
document, item of information, method, data or other know-how or (b) Patent
Right or other intellectual property right, the possession (whether by ownership
or license, other than by a license granted pursuant to this Agreement) by a
party or its Affiliates of the ability to grant to the other party access,
ownership, a license or a sublicense as provided herein under such item or right
without violating the terms of any agreement or other arrangement with any third
party as of the time such party would first be required hereunder to grant the
other party such access, ownership, license or sublicense.

      1.7 "Cover," "Covered" or "Covering" means, with respect to a Patent
Right, that, but for rights granted to a person or entity under such Patent
Right, the practice by such person or entity of an invention claimed in such
Patent Right would infringe a Valid Claim included in such Patent Right, or in
the case of a Patent Right that is a patent application, would infringe a Valid
Claim in such patent application if it were to issue as a patent.

      1.8 "Cre-Lox Patents" means the United States and foreign patents listed
in Exhibit 1.8, and any continuations, continuations-in-part, divisionals,
reissues, reexaminations or extensions of any of the foregoing. The terms "Cre"
and "lox" (also referred to as "loxP") have the meanings as described and
embodied by the Cre-Lox Patents.

      1.9 "Development Plan" means the plan described in Exhibit 1.9 for the
generation and delivery to TIGM of the OmniBank II Library.

                                        2
<PAGE>

      1.10 "Diligent Efforts" means the carrying out of obligations or tasks by
a party (or, as applicable, its Affiliates) in a sustained manner using good
faith commercially reasonable and diligent efforts, which efforts shall be
consistent with the exercise of prudent scientific and business judgment in
accordance with the efforts such party devotes to products or research,
development or marketing projects of similar scientific and commercial
potential. Diligent Efforts requires that the party or its applicable
Affiliates: (a) promptly assign responsibility for such obligations to specific
employees who are held accountable for progress and monitor such progress on an
on-going basis, (b) set and consistently seek to achieve specific and meaningful
objectives for carrying out such obligations, and (c) consistently make and
implement decisions and allocate resources designed to advance progress with
respect to such objectives.

      1.11 "Disclosing Party" has the meaning specified in Section 1.5 hereof.

      1.12 "Economic Development Agreement" has the meaning specified in the
recitals of this Agreement.

      1.13 "Effective Date" means the date specified in the initial paragraph of
this Agreement.

      1.14 "Event of Default" means an event described in Section 9.3.1 hereof.

      1.15 "Existing OmniBank(R) Library" means Lexicon's library of mouse
embryonic stem cell clones with Selected Mutations in existence as of the
Effective Date.

      1.16 "Facilities" means the facilities funded under the Economic
Development Agreement to house TIGM and the OmniBank II Library at TAMHSC's
Institute of Biosciences and Technology in Houston, Texas and at TAMU's Research
Park in College Station, Texas, as more fully described in Exhibit 1.16.

      1.17 "Gene Trapping Patents" means the United States and foreign patents
listed in Exhibit 1.17.

      1.18 "Government Agency" means any agency or unit of any federal,
national, state, provincial, county, city or other government, domestic or
foreign.

      1.19 "Joint Management Committee" has the meaning specified in Section
2.1.2 of this Agreement.

      1.20 "Laws" means all laws, statutes, rules, regulations, ordinances and
other pronouncements having the effect of law of any federal, national, state,
provincial, county, city or other political subdivision, domestic or foreign.

      1.21 "Lexicon" has the meaning specified in the initial paragraph of this
Agreement.

      1.22 "Library Technology" means any inventions, information, methods,
know-how, trade secrets or data, including, without limitation, the inventions
Covered by the Gene Trapping Patents, that (a) are Controlled by Lexicon and (b)
are utilized in the generation of the OmniBank II Library or Mutant Mice, but
only to the extent so utilized; provided that Library Technology excludes the
inventions Covered by the Cre-Lox Patents.

      1.23 "Lox Mice" has the meaning specified in Section 3.1.1.2 of this
Agreement.

                                        3
<PAGE>

      1.24 "Materials" means Mutant Mice, Progeny and cells, tissues and other
biological materials derived from any of the foregoing; provided that Materials
shall not include cells, tissues or other biological materials that do not
contain a Selected Mutation.

      1.25 "Materials Access Agreement" has the meaning specified in Section 3.2
of this Agreement.

      1.26 "Mutant Mouse" means mouse cell or mouse containing a Selected
Mutation that is delivered to TIGM under this Agreement, whether as part of the
OmniBank II Library or from the Existing OmniBank Library. A "line of Mutant
Mice" means Mutant Mice having the same Selected Mutation.

      1.27 "[**]" shall mean all payments and other consideration received by
TIGM and its Affiliates from Sublicensed Recipients [**] for the generation or
development of, or access to or licensing of, Materials (including, without
limitation, for the delivery of Materials or the grant of a license under any
intellectual property rights relating thereto), less any (a) freight, insurance
and other transportation costs, (b) taxes (excluding federal, state or local
taxes based on income), duties or other governmental charges imposed on the
production, sale, importation, exportation or use, in each case that are
actually paid by TIGM and its Affiliates with respect to the delivery of such
Materials, (c) trade, quantity and cash discounts, (d) refunds, rebates,
chargebacks, retroactive price adjustments and billing errors, and (e)
allowances or credits due to rejections or returns.

      1.28 "OmniBank II Library" has the meaning specified in Section 2.2.1.

      1.29 "Patent Rights" means all existing patents and patent applications
and all patent applications hereafter filed and patents hereafter issued,
including, without limitation, any continuations, continuations-in-part,
divisions, provisionals or any substitute applications, any patent issued with
respect to any such patent applications, any reissue, reexamination, renewal or
extension (including any supplemental protection certificate) of any such
patent, and any confirmation patent or registration patent or patent of addition
based on any such patent, and all foreign counterparts of any of the foregoing.

      1.30 "Progeny" means mice, including successive generations thereof, that
are produced, developed or derived by or on behalf of TIGM or Sublicensed
Recipients directly or indirectly from a Mutant Mouse progenitor, including,
without limitation, by breeding or rederivation; provided that Progeny shall not
include mice that do not contain a Selected Mutation.

      1.31 "Receiving Party" has the meaning specified in Section 1.5 hereof.

      1.32 "Selected Mutation" means a specific mutation in a particular portion
of a gene originally introduced by Lexicon in a mouse embryonic stem cell
through the use of gene trapping technology.

      1.33 "State" has the meaning specified in the recitals of this Agreement.

      1.34 "Sublicensed Recipient" means any Academic Institution, Commercial
Entity or Government Agency to which TIGM sells or licenses Materials under this
Agreement.

      1.35 "TAMHSC" has the meaning specified in the initial paragraph of this
Agreement.

      1.36 "TAMU" has the meaning specified in the initial paragraph of this
Agreement.

                                        4
<PAGE>

      1.37 "TAMUS" has the meaning specified in the initial paragraph of this
Agreement.

      1.38 "TIGM" has the meaning specified in the initial paragraph of this
Agreement.

      1.39 "Valid Claim" means either (a) a claim of an issued and unexpired
patent which has not been held permanently revoked, unenforceable or invalid by
a decision of a court or other governmental agency of competent jurisdiction,
unappealable or unappealed within the time allowed for appeal, or (b) a claim of
a pending patent application that has not been pending for more than seven (7)
years and that has not been abandoned or finally rejected without the
possibility of appeal or refiling.

                            ARTICLE 2. COLLABORATION

      2.1 General.

            2.1.1 Overview. The parties intend to collaborate in the start-up
      and initial operations of TIGM, as set forth in this Article 2. In support
      of the foregoing and as set forth in the present Agreement, (a) Lexicon
      will develop and deliver to TIGM the OmniBank II Library, install and
      support the Bioinformatics Software, and provide training to TIGM's staff
      in the use of the OmniBank II Library and the production, genotyping and
      phenotyping of knockout mice; (b) TAMUS will construct and make available
      to TIGM the Facilities and will furnish to TIGM the operating funds and/or
      in-kind services needed to fund TIGM's operations as provided herein until
      TIGM has established sufficient revenue to be self-sufficient unless
      earlier dissolved; and (c) TIGM will use Diligent Efforts to obtain
      research grants and contracts, expand its membership and promote, through
      the development of its research operations and collaborations with third
      parties, the expansion of the biotechnology and pharmaceutical industries
      and associated employment in the state of Texas; in each case, subject to
      and in accordance with the terms of this Agreement.

            2.1.2 Collaboration Management. Lexicon, TAMUS and TIGM shall
      establish a committee whose members shall be responsible for managing
      their respective efforts under this Agreement (the "Joint Management
      Committee"), including but not limited to the coordination (as between the
      parties) and management of the following matters:

            (a) planning and implementation of the parties' efforts under this
      Agreement; and

            (b) timely transfer of relevant information and progress reports in
      connection with the collaboration contemplated by this Agreement.

            Lexicon, TAMUS and TIGM shall each appoint one member of its senior
      management and one member of its senior technical staff to the Joint
      Management Committee. The members of the Joint Management Committee
      initially designated by the parties are set forth in Exhibit 2.1.2. In
      addition, subject to the approval of the other parties, which approval
      shall not be unreasonably withheld, Lexicon, TAMUS and TIGM shall each
      assign a project coordinator (a) to act as a conduit for timely transfer
      of relevant information and progress reports in connection with the
      collaboration and (b) to be responsible for managing its day-to-day
      efforts under the collaboration. Subject to the approval of the other
      parties, which approval shall not be unreasonably withheld, each party
      shall have the right to replace its representatives on the Joint
      Management Committee and its project coordinator by giving written notice
      to the other parties.

            2.1.3 Resources. The parties agree to commit to the collaboration
      the personnel and resources necessary to meet their respective
      responsibilities set forth in this Agreement.

                                        5
<PAGE>

            2.1.4 Reports. Each party shall submit quarterly reports to the
      Joint Management Committee detailing its activities under this Agreement.

            2.1.5 No Authority to Direct Actions of the Other Party. Although
      the parties acknowledge and agree that the coordination of their
      respective efforts under this Agreement is essential, each party shall
      retain the authority to direct, and the responsibility for, its own
      efforts under this Agreement. Nothing in this Article 2 shall be deemed to
      grant the Joint Management Committee the authority to direct the actions
      of Lexicon, TAMUS or TIGM or to modify the rights and obligations of the
      parties under this Agreement.

            2.1.6 Further Discussions. With respect to any dispute among the
      parties to the collaboration, the parties will periodically consult with
      one another regarding the collaboration and discuss in good faith whether
      modifications or amendments to the Economic Development Agreement,
      Development Plan or this Agreement are advisable in light of the purposes
      of the collaboration contemplated hereby and the respective interests of
      the parties. No such modification or amendment shall be effective unless
      agreed to by each party, in its sole discretion, in accordance with
      Section 10.7.

      2.2 Lexicon Obligations

            2.2.1 Development and Delivery of OmniBank II Library and Mutant
      Mice.

            2.2.1.1 Development of OmniBank II Library. Subject to the terms of
      this Agreement, Lexicon will generate and deliver to TIGM two (2) complete
      copies of a library consisting of three hundred fifty thousand (350,000)
      mouse embryonic stem cell clones with Selected Mutations, each identified
      by DNA sequence of its genomic integration site (the "OmniBank II
      Library"). Subject to the terms of this Agreement, Lexicon will use
      Diligent Efforts to generate and deliver the OmniBank II Library in
      accordance with the schedule set forth in the Development Plan. Lexicon
      will not purposefully exclude clones with Selected Mutations in any
      particular gene or genes from the OmniBank II Library.

            2.2.1.2 Requests for Clones from Existing OmniBank Library. Subject
      to the terms of this Agreement, until the generation and delivery of the
      OmniBank II Library has been completed, TIGM may request mouse embryonic
      stem cell clones with Selected Mutations from the Existing OmniBank
      Library, and shall be provided with reasonable access to the database and
      search tools of Lexicon as may be necessary for TIGM to make such
      requests. Promptly following any such request, Lexicon shall notify TIGM
      of its acceptance or rejection thereof; provided that Lexicon may reject
      such requests only in the event that it has obligations under any
      collaboration or license agreement with a third party or an active bona
      fide internal discovery program with respect to knockout mice with a
      mutation in the same gene in which the requested embryonic stem cell clone
      has a Selected Mutation, in which concrete, verifiable laboratory studies
      have been initiated by Lexicon prior to the time of such request. In the
      event of its acceptance of such a request, Lexicon shall use Diligent
      Efforts to process mouse embryonic stem cell clones with a Selected
      Mutation in the requested gene and, provided that such clones pass
      Lexicon's quality control tests, to deliver a vial of such clones to TIGM.

            2.2.1.3 Deliveries. Beginning no earlier than six (6) months
      following the Effective Date, Lexicon shall deliver notices to TIGM of the
      availability for shipment to

                                        6
<PAGE>

      TIGM of embryonic stem cell clones comprising part of the OmniBank II
      Library or requested by TIGM from the Existing OmniBank Library. Promptly
      following its receipt of such notice, TIGM shall notify Lexicon confirming
      that it is prepared to accept such shipment. Lexicon shall be responsible
      for making shipping arrangements for all such materials; provided that
      TIGM shall be responsible for (a) paying all shipment and delivery charges
      in connection therewith and (b) obtaining, if desired, and paying for any
      insurance relating to such shipment. TIGM shall also be responsible for
      complying with all customs, regulations, veterinary handling procedures
      and protocols, and obtaining any and all permits, forms or permissions
      that may be required for TIGM to accept such shipments. All such materials
      will be shipped F.O.B. Lexicon. If TIGM fails to provide confirmation that
      it is prepared to accept a shipment within thirty (30) days after
      Lexicon's notice that such materials are available for shipment, TIGM
      shall pay Lexicon a storage and maintenance charge of Five Thousand
      Dollars (U.S.$5,000) with respect to such shipment for each month or
      partial month thereafter until Lexicon receives such written confirmation.
      If TIGM fails to provide such written confirmation within three (3) months
      after Lexicon's delivery of such notice to TIGM, Lexicon shall be deemed
      to have delivered such materials and satisfied all of its obligations with
      respect thereto, and may dispose of such materials at its discretion.

            2.2.1.4 Title to Physical Materials. As between the State, TAMUS and
      TIGM, title to the physical materials comprising the OmniBank II Library
      will be held in the name of TAMUS, and TAMUS will provide TIGM with access
      to the OmniBank II Library pursuant to the arrangements described below.

            2.2.1.5 Restrictions on Creation of Competitive Library. For a
      period ending on the earliest to occur of (a) ten (10) years from the
      Effective Date, (b) the date on which Lexicon and TAMUS have accumulated
      funding offsets and surplus job credits sufficient to offset the full
      amount of the potential repayment penalty liability for shortfalls in
      achieving their collective job target commitments to the State under the
      Economic Development Agreement, and (c) the date that TIGM commences
      dissolution proceedings, but in no event earlier than the later of (i)
      five (5) years from the Effective Date and (ii) two (2) years following
      the satisfaction or earlier termination of Lexicon's obligations to
      generate and deliver to TIGM the OmniBank II Library, Lexicon will not
      make or commence making for a third party a new library of mouse embryonic
      stem cell clones with Selected Mutations under a license that would permit
      such party to use and sell such library in direct competition with the
      OmniBank II Library, or grant to a third party the right under the Gene
      Trapping Patents and related Library Technology to make such a library for
      such purposes. For purposes of the foregoing, the duplication of fifty
      percent (50%) or more of the clones represented in the Existing OmniBank
      Library for delivery to a third party under a license that would permit
      such party to use and sell such library in direct competition with the
      OmniBank II Library shall be deemed to constitute the making of a new
      library for such third party. For clarity, except as specifically provided
      in the foregoing sentence, no restrictions whatsoever will be imposed with
      respect to the Existing OmniBank Library.

            2.2.1.6 Technical Difficulties. TIGM and TAMUS recognize that the
      generation of mouse embryonic stem cell clones with Selected Mutations
      involves a number of technologically complex steps and that technical
      obstacles may, on occasion, delay or, in the case of clones requested from
      the Existing OmniBank Library, even prevent such clones from being made
      available for shipment to TIGM. Lexicon shall promptly notify TIGM of any
      such technical obstacle and its estimate of the delay, if any, in the
      timelines

                                        7
<PAGE>

      contemplated by the Development Plan and this Agreement for the delivery
      of mouse embryonic stem cell clones with Selected Mutations hereunder.
      Lexicon shall not be held liable or responsible to TIGM or TAMUS nor be
      deemed to have defaulted under or breached this Agreement for any such
      delay; provided, however, that (a) Lexicon shall use Diligent Efforts to
      limit any such delay and overcome the relevant technical obstacle as
      promptly as possible and (b), subject to Section 10.1, such delay does not
      extend the completion of the OmniBank II Library beyond the third
      anniversary of the Effective Date.

            2.2.1.7 Third Party Rights. Lexicon shall not be obligated to
      develop or deliver a Mutant Mouse where Lexicon reasonably believes, with
      the advice of its counsel and after consultation with TIGM, that such
      action would infringe any valid intellectual property or contractual
      rights of a third party.

      2.2.2 Installation and Support of Bioinformatics Software.

            2.2.2.1 Installation. Lexicon shall deliver the Bioinformatics
      Software to TIGM promptly following the Effective Date. Lexicon will
      provide services necessary to install the Bioinformatics Software on
      TIGM's computer systems at each of the two (2) locations housing a copy of
      the OmniBank II Library. TIGM shall be responsible for obtaining all
      necessary hardware and third party-software necessary to install and
      operate the Bioinformatics Software.

            2.2.2.2 Support Services. Promptly following the installation of the
      Bioinformatics Software at TIGM, Lexicon shall provide initial training
      for TIGM's staff, at each of the two (2) locations housing a copy of the
      OmniBank II Library, in the operation and use of the Bioinformatics
      Software. During the period ending one year after the satisfaction or
      earlier termination of Lexicon's obligations to generate and deliver to
      TIGM the OmniBank II Library, Lexicon shall provide, at no additional
      charge to TIGM, (a) such services as may be necessary to load the
      databases relating to the Bioinformatics Software with the gene sequence
      data identifying clones in the OmniBank II Library, (b) reasonable
      training at each of the two (2) locations housing a copy of the OmniBank
      II Library on the use of the Bioinformatics Software and the database
      containing data relating to the OmniBank II Library and (c) reasonable
      telephone support of the Bioinformatics Software during business hours.
      For a period of five years from the Effective Date, Lexicon shall provide,
      at no additional charge to TIGM, all error corrections to the
      Bioinformatics Software that Lexicon makes in the course of its business.

            2.2.2.3 Source Code Escrow Arrangements. At TAMUS or TIGM's request,
      Lexicon will make arrangements reasonably satisfactory to TAMUS and TIGM
      for an escrow of the source code, programmers notes and other materials
      that TIGM can access and use in the event that Lexicon becomes unable to
      perform the foregoing obligations.

      2.2.3 Provision of Training in the Production of Knockout Mice. Promptly
following the Effective Date, Lexicon shall provide reasonable training for
TIGM's staff, at each of the two (2) locations housing a copy of the OmniBank II
Library, in the production, genotyping and phenotyping of knockout mice.

                                        8
<PAGE>

      2.3 TAMUS Obligations

            2.3.1 Facilities. TAMUS shall make available to TIGM, on
      commercially reasonable terms, adequate facilities in Houston and College
      Station, Texas to house the OmniBank II Library and conduct its
      operations. In connection with the foregoing obligation, TAMUS shall use
      Diligent Efforts to complete the Facilities and lease the Facilities to
      TIGM on commercially reasonable terms, taking into account, in
      establishing such terms, the funding provided by the State to TAMUS under
      the Economic Development Agreement for TIGM's benefit.

            2.3.2 Access to OmniBank II Library. TAMUS shall furnish TIGM with
      the use of the OmniBank II Library, and unless and until TIGM commences
      dissolution proceedings, TAMUS shall access the OmniBank Library only as a
      Sublicensed Recipient through TIGM.

            2.3.3 Funding of TIGM Operations. TAMUS will furnish to TIGM the
      operating funds and/or in-kind services needed to fund TIGM's operations
      until it has established sufficient revenue to be self-sufficient, but in
      no event shall TAMUS be obligated to furnish more than three million
      dollars ($3,000,000) in net cumulative funds or in-kind services.

      2.4 TIGM Obligations

            2.4.1 Operations. TIGM shall use Diligent Efforts to (a) obtain
      research grants and contracts, on its own and in collaboration with its
      members; (b) expand its membership, particularly with respect to Academic
      Institutions within the State of Texas; and (c) promote, through the
      development of its research operations and collaborations with third
      parties, the expansion of the biotechnology and pharmaceutical industries
      and associated employment in the State of Texas.

            2.4.2 Reporting. Within ten (10) days after each calendar quarter,
      TIGM shall furnish to Lexicon and TAMUS a written quarterly report
      showing, in reasonable detail, funds received during the reporting period
      (and, to the extent not previously reported, during previous reporting
      periods) by TIGM and, to the extent related to research using materials
      obtained from TIGM, by TIGM members directly or indirectly from funding
      sources other than the State, including, without limitation, all such
      funds received under grants and contracts from the National Institutes of
      Health, other federal government agencies, research institutes,
      foundations, and companies in the biotechnology and pharmaceutical
      industries, together with evidence thereof (e.g., in the form of grant and
      contract documents or third party reports) that is sufficient to satisfy
      the standards of the Economic Development Agreement for purposes of
      establishing entitlement to funding offsets. Within ten (10) days after
      each calendar year, TIGM shall furnish to Lexicon and TAMUS a written
      annual report showing, in reasonable detail, "Employment Positions" (as
      defined in the Economic Development Agreement) for the year attributable
      to (a) TIGM, (b) TIGM members, (c) employers in the biotechnology or
      pharmaceutical industries, and (d) other positions for which TIGM or TIGM
      members are significantly responsible for creating through efforts
      specifically targeted at attracting or creating biotechnology and
      pharmaceutical industry-related positions to Texas, in each case without
      duplication, together with evidence thereof that is sufficient to satisfy
      the standards of the Economic Development Agreement for such purposes.
      TIGM shall keep complete and accurate records in sufficient detail to
      properly reflect its activities under this Agreement and to enable the
      preparation of the foregoing reports and supporting documentation, and
      shall require its members to provide it with periodic written reports and
      supporting information as may be reasonably necessary therefor. Each such
      report shall include a certification by TIGM as to the accuracy of the
      information contained therein.

                                       9
<PAGE>

            2.4.3 Clawback Payment Obligation. TIGM shall pay TAMUS any
      obligation it may have under its job target commitment guarantee prior to
      the due date for TAMUS's payment to the State under the Economic
      Development Agreement.

      2.5 Obtaining of TIGM Research Grants and Contracts. To effect the goals
of the collaboration contemplated by this Agreement, Lexicon and TAMUS shall
provide reasonable assistance to TIGM in its efforts to obtain research grants
and contracts involving use of the OmniBank II Library, including, in the case
of Lexicon, providing (a) scientific and technical information to support the
submission of any grant or contract request and (b) technical support in the
preparation of grant or contract requests. In furtherance of the foregoing,
Lexicon and TAMUS will notify TIGM of opportunities for obtaining research
grants and contacts from Government Agencies that either such party, in its
respective discretion, deems suitable for application by TIGM or for joint
application by TIGM, Lexicon and/or TAMUS. In addition, TIGM may request that
Lexicon and/or TAMUS participate in joint applications with TIGM for research
grants and contracts from Government Agencies in the event TIGM believes that
such participation will improve the award potential for any such grant or
contract; provided that neither Lexicon nor TAMUS shall have any obligation to
participate in such application. To the extent TIGM, Lexicon and/or TAMUS elect
to participate in any such joint application, each such participating party will
provide reasonable cooperation to, and will coordinate efforts with, the other
participating party or parties.

                          ARTICLE 3. GRANTS OF RIGHTS

      3.1 Grants of Licenses.

          3.1.1 OmniBank II Library and Mutant Mice.

                3.1.1.1 Library Technology. Subject to the terms of this
          Agreement, Lexicon hereby grants to TIGM a worldwide, non-exclusive
          right and license (without any right to grant sublicenses except to
          Sublicensed Recipients under the terms and subject to the conditions
          set forth in Section 3.2) under Lexicon's rights in the Library
          Technology, including, without limitation, any Patent Rights
          Controlled by Lexicon Covering the foregoing, (a) to use the OmniBank
          II Library and Mutant Mice obtained from the Existing OmniBank Library
          and (b) to make, use and sell Materials derived therefrom. TIGM's
          right under the foregoing license to sell Materials shall be subject
          to the conditions set forth in Section 3.2.

                3.1.1.2 Cre-Lox Patents. The following provisions shall apply to
          the extent that a Mutant Mouse or Progeny contains one or more lox
          sites in its genome:

                (a) Subject to the terms of this Agreement, Lexicon hereby
          grants to TIGM the non-transferable, non-exclusive right under
          Lexicon's rights in the Cre-Lox Patents to use, breed and cross-breed
          Mutant Mice and Progeny that contain one or more lox sites in their
          genome ("Lox Mice"), at the internal research facilities of TIGM,
          solely for research purposes; provided however, that TIGM shall not
          manipulate the genetic information at any lox site of a Lox Mouse by
          using the technology claimed by the Cre-Lox Patent Rights (including
          without limitation cross-breeding a Lox Mouse with a mouse containing
          DNA capable of expressing a Cre recombinase protein) or otherwise
          further practice under a Valid Claim of the Cre-Lox Patent Rights
          without first obtaining a license from DuPont Pharmaceutical Company
          or its successors.

                                       10
<PAGE>
                 (b) Upon TIGM's request, Lexicon will enter into agreement(s)
            with Sublicensed Recipients granting rights to such Sublicensed
            Recipients under Lexicon's rights in the Cre-Lox Patents
            substantially equivalent to those granted to TIGM in the foregoing
            subsection (a). TIGM shall not transfer any Lox Mice or any progeny
            or material in any way derived from such Lox Mice to any third
            party, except for such transfers as may be permitted pursuant to
            Section 3.2 to Sublicensed Recipients that have entered into such an
            agreement with Lexicon with respect thereto.

                 (c) No right is granted to TIGM to sell (or lease or otherwise
            transfer for consideration) or develop or manufacture for sale (or
            lease or other transfer for consideration) any product, the
            manufacture, use, sale or importation of which would infringe a
            Valid Claim of the Cre-Lox Patents, including but not limited to any
            product which is manufactured using a composition or method which
            would infringe a Valid Claim of the Cre-Lox Patents.

                 (d) Subject to the restricted non-exclusive license granted to
            TIGM, Lexicon (and its licensors as applicable) shall retain all
            rights under the Cre-Lox Patents with respect to the Lox Mice.

            3.1.2 Bioinformatics Software. Subject to the terms of this
      Agreement, Lexicon hereby grants to TIGM a worldwide, non-exclusive right
      and license (without any right to grant sublicenses) to use the
      Bioinformatics Software, under the copyrights and know-how Controlled by
      Lexicon with respect thereto. TIGM shall have the right under the
      foregoing license to custom configure the Bioinformatics Software for its
      internal use.

            3.1.3 Covenant Not to Sue. TIGM shall not assert or enforce, and
      shall obligate Sublicensed Recipients not to assert or enforce, against
      Lexicon, or any of Lexicon's licensees, any claim of an issued patent
      arising from the use by TIGM or a Sublicensed Recipient of Materials
      containing a Selected Mutation which claim would, absent a license, be
      infringed by, or otherwise prevent Lexicon or its licensees from, making,
      using, selling or importing transgenic or knockout mice having a mutation
      in the same gene as such Selected Mutation or cells, tissues and other
      biological materials derived therefrom.

      3.2 Conditions of Sale and Use of Materials. Any sale or license of
Materials by TIGM to a Sublicensed Recipient shall be made pursuant to an
agreement between TIGM and such Sublicensed Recipient (a "Materials Access
Agreement") that expressly (a) permits the use of Materials solely for the
research purposes of such Sublicensed Recipient and its Affiliates and (b)
prohibits the sale or transfer of Materials by such Sublicensed Recipient or its
Affiliates to any third party; provided that such Materials Access Agreement may
permit a Sublicensed Recipient or its Affiliates to transfer Materials, without
receiving any consideration therefor, to (i) an Academic Institution or
Government Agency subject to a material transfer agreement that contains terms
substantially equivalent to those required above with respect to Materials
Access Agreements or (ii) to a third party contractor for purposes of such
contractor's performance of fee-for-service contract research services for such
Sublicensed Recipient and its Affiliates, subject to a material transfer
agreement that (A) permits the use of Materials by such contractor solely for
the research purposes of such Sublicensed Recipient and its Affiliates, (B)
assigns exclusively to such Sublicensed Recipient or its Affiliates any and all
rights to all data and information generated or developed, and all discoveries
and inventions made (including, without limitation, all patent and other
intellectual property rights therein), by such contractor through use of such
Materials, (C) prohibits the sale or transfer of such Materials by such
contractor to any third party and (D) obligates such contractor to return or
destroy such Materials upon the completion of its services for such Sublicensed
Recipient or its Affiliates. TIGM and its Affiliates may use Materials
constituting, or produced, developed or derived

                                       11
<PAGE>

from, a line of Mutant Mice in providing services to or for the benefit of a
Sublicensed Recipient only if and to the extent that TIGM or its Affiliates have
first sold or licensed Materials constituting, or produced, developed or derived
from, the same line of Mutant Mice to such Sublicensed Recipient under a
Materials Access Agreement. Each Materials Access Agreement shall expressly
provide that Lexicon is an intended third-party beneficiary of such Materials
Access Agreement with the right to enforce the terms and conditions described
above. TIGM shall provide Lexicon with copies of any such Materials Access
Agreement within thirty (30) days after execution and delivery thereof.

      3.3 No Grant of Other Technology or Patent Rights. Except as otherwise
expressly provided in this Agreement, under no circumstances shall a party
hereto, as a result of this Agreement, obtain any ownership interest in or other
right to any technology, know-how, patents, patent applications, gene or genomic
sequence data or information, products, or biological materials of the other
party, including items owned, controlled or developed by, or licensed to, the
other party, or transferred by the other party to said party, at any time
pursuant to this Agreement.

                         ARTICLE 4. PAYMENT OBLIGATIONS

      4.1 Fees for Clones from Existing OmniBank Library. TIGM shall pay to
Lexicon the fees specified below for each line of Mutant Mice requested from the
Existing OmniBank Library (in the form of mouse embryonic stem cell clones)
under Section 2.2.1.2 of this Agreement, which fee shall be payable within
thirty (30) days after Lexicon's delivery of notice under Section 2.2.1.3 of the
availability for shipment to TIGM of embryonic stem cell clones for such line of
Mutant Mice.

<TABLE>
<CAPTION>
                      TIMING OF REQUEST                           FEE FOR EACH LINE OF MUTANT MICE REQUESTED
------------------------------------------------------------      ------------------------------------------
<S>                                                               <C>
From the Effective Date until eighteen (18) months after the                        $[**]
Effective Date

From eighteen months after of the Effective Date to thirty                          $[**]
(30) months after the Effective Date

After thirty (30) months from Effective Date                                        $[**]
</TABLE>

Notwithstanding the foregoing, in the event that Lexicon has failed to satisfy
its obligations with respect to the completion and delivery of the OmniBank II
Library by the third anniversary of the Effective Date, subject to Section 10.1,
TIGM shall have no obligation to pay the fee contemplated by this Section 4.1
with respect to requests made by TIGM under Section 2.2.1.2 of this Agreement
following such date until Lexicon's obligations with respect to the completion
and delivery of the OmniBank II Library are subsequently satisfied.

      4.2 Cre-Lox Royalties. During the term of this Agreement, until the
expiration or termination of the last to expire of any Valid Claim included in
the Cre-Lox Patents, TIGM shall pay Lexicon a royalty of one percent (1%) of the
gross invoice price to Sublicensed Recipients of Lox Mice, which royalty shall
be payable upon Lexicon's execution and delivery of the agreement contemplated
by Section 3.1.1.2(b) with such Sublicensed Recipient with respect to such Lox
Mice.

      4.3 Royalty on [**].

            4.3.1 Royalty Payment Obligations. During the term of this
      Agreement, TIGM shall pay Lexicon a royalty of ten percent (10%) of [**]
      (subject to a minimum royalty in the amount

                                       12
<PAGE>
      of ten thousand dollars ($10,000), on a Sublicensed Recipient-by-
      Sublicensed Recipient and line-by-line basis, with respect to the sale or
      licensing to each Sublicensed Recipient of Materials derived from a line
      of Mutant Mice), which royalty shall be payable within thirty (30) days
      after the end of the calendar quarter in which such [**] are received.
      Notwithstanding the foregoing, to the extent that TIGM is obligated to pay
      Lexicon a royalty on [**] with respect to such Materials under the
      Sublicense Agreement of even date herewith between Lexicon and TIGM (e.g.,
      in the event that the Materials consist of Progeny derived both from a
      line of Mutant Mice and from mice made under the Sublicense Agreement),
      subject to TIGM's payment of such royalty under the Sublicense Agreement,
      TIGM shall not be obligated to pay the royalty set forth in this Section
      4.3.1 with respect to the same [**].

            4.3.2 Reporting. Within thirty (30) days after each calendar
      quarter, TIGM shall furnish to Lexicon a written quarterly report showing,
      in reasonable detail: (a) [**] for the reporting period and (b) the
      calculation of royalties under Section 4.3.1, including the basis for each
      element thereof. TIGM shall keep complete and accurate records in
      sufficient detail to properly reflect its activities under this Agreement
      and to enable [**] and the royalties payable hereunder to be determined.

            4.3.3 Audit Rights. Upon the written request of Lexicon, TIGM shall
      permit an independent certified public accountant selected by Lexicon and
      acceptable to TIGM, which acceptance shall not be unreasonably withheld,
      to have access, at reasonable times and during normal business hours, to
      such records of TIGM and its Affiliates as may be reasonably necessary to
      verify the accuracy of the royalty reports described herein, in respect of
      any fiscal year ending not more than twenty-four (24) months prior to the
      date of such request. Lexicon and TIGM shall use commercially reasonable
      efforts to schedule all such verifications within forty-five (45) days
      after Lexicon makes its written request. All such verifications shall be
      conducted not more than once in, or with respect to, each calendar year.
      The report of Lexicon's independent certified public accountant shall be
      made available to both parties. In the event Lexicon's independent
      certified public accountant concludes that additional royalties were owed
      to Lexicon for such period, the additional royalties shall be paid by TIGM
      within thirty (30) days of the date Lexicon delivers to TIGM such
      independent certified public accountant's written report so concluding,
      unless such report contains manifest error. The fees charged by such
      independent certified public accountant shall be paid by Lexicon unless
      such audit discloses an underpayment of more than five percent (5%) of the
      amount due under this Agreement for the period in question, in which case
      TIGM will bear the full cost of such audit. Lexicon agrees that all
      information subject to review under this Section 4.3.3 is confidential and
      that Lexicon shall cause its independent certified public accountant to
      retain all such information in confidence.

      4.4 No Withholding Taxes. All payments due hereunder shall be paid in
full, without deduction of taxes or other fees that may be imposed by any
government.

      4.5 Interest on Late Payments. Any payments by TIGM to Lexicon that are
not paid when due under this Agreement shall bear interest, to the extent
permitted by applicable law, at one percent (1.0%) per month, calculated on the
total number of days payment is delinquent.

      4.6 Manner of Payment. Payments to be made by TIGM to Lexicon under this
Agreement shall be payable in United States dollars and shall be paid by bank
wire transfer in immediately available funds to such bank account in the State
of Texas as is designated in writing by Lexicon from time to time.

                                       13
<PAGE>

                        ARTICLE 5. INTELLECTUAL PROPERTY

      5.1 Ownership of Intellectual Property.

            5.1.1 Ownership by Lexicon of the Library Technology. Subject to the
      rights and licenses granted under this Agreement, Lexicon (and its
      licensors, as applicable) shall own and retain all rights to the Library
      Technology.

            5.1.2 Ownership of Other Technology and Inventions. Except as set
      forth in Section 5.1.1, as between the parties, (a) each party shall own
      all patentable inventions and discoveries conceived or reduced to practice
      during the course of the performance of activities pursuant to this
      Agreement solely by employees, agents, consultants or contractors of such
      party and its Affiliates; and (b) the relevant parties shall jointly own
      all patentable inventions and discoveries conceived or reduced to practice
      during the course of the performance of activities pursuant to this
      Agreement jointly by employees, agents, consultants or contractors of such
      parties and their respective Affiliates. For purposes of the foregoing,
      inventorship shall be determined in accordance with U.S. patent law.

      5.2 Prosecution and Enforcement of Patent Rights. Each party shall have
the sole right, but not the obligation, to file, prosecute and maintain Patent
Rights solely owned by such party, and to institute and direct legal proceedings
against any person or entity believed to be infringing such patent rights. The
relevant parties shall consult with each other regarding the filing, prosecuting
and maintaining of Patent Rights jointly owned by such parties and the
institution, prosecution and control of any action or proceeding with respect to
infringement of any of such Patent Rights.

                           ARTICLE 6. CONFIDENTIALITY

      6.1 Nondisclosure Obligations.

            6.1.1 General. Except as otherwise provided in this Article 6,
      during the term of this Agreement and for a period of five (5) years
      thereafter, each Receiving Party shall maintain the Confidential
      Information of each Disclosing Party in confidence and use it only for
      purposes specifically authorized under this Agreement.

            6.1.2 Limitations. To the extent it is reasonably necessary or
      appropriate to fulfill its obligations or exercise its rights under this
      Agreement and subject to advance written notification to the Disclosing
      Party, a party may disclose Confidential Information it is otherwise
      obligated not to disclose under this Section 6.1 to its Affiliates,
      (sub)licensees, consultants and outside contractors, on a strict
      need-to-know basis for the purposes contemplated by this Agreement and on
      condition that such entities or persons agree to keep the Confidential
      Information confidential for the same time periods and to the same extent
      as such party is required to keep the Confidential Information
      confidential hereunder. Furthermore, a Receiving Party may request
      permission from the Disclosing Party to disclose such Confidential
      Information to the extent that such disclosure is reasonably necessary to
      obtain patents which such Receiving Party is permitted to obtain
      hereunder, which permission shall not be unreasonably withheld or delayed.

            6.1.3 Required Disclosure. A Receiving Party may disclose
      Confidential Information pursuant to interrogatories, requests for
      information or documents, subpoena, civil investigative demand issued by a
      court or governmental agency or as otherwise required by law; provided,
      however, that the Receiving Party shall notify the Disclosing Party
      promptly upon receipt thereof,

                                       14
<PAGE>

      giving (where practicable) the Disclosing Party sufficient advance notice
      to permit it to oppose, limit or seek confidential treatment for such
      disclosure; and provided, further, that the Receiving Party shall furnish
      only that portion of the Confidential Information which it is advised by
      counsel is legally required whether or not a protective order or other
      similar order is obtained by the Disclosing Party.

      6.2 Injunctive Relief. The parties hereto understand and agree that
remedies at law may be inadequate to protect against any breach of any of the
provisions of this Article 6 by either party or their employees, agents,
officers or directors or any other person acting in concert with it or on its
behalf. Accordingly, each party shall be entitled to the granting of injunctive
relief by a court of competent jurisdiction against any action that constitutes
any such breach of this Article 6.

                   ARTICLE 7. REPRESENTATIONS AND WARRANTIES

      7.1 Representations, Warranties and Covenants of Lexicon. Lexicon
represents and warrants to and covenants with TIGM and TAMUS that:

            7.1.1 Lexicon is a corporation duly organized, validly existing and
      in corporate good standing under the laws of the State of Delaware;

            7.1.2 Lexicon has the corporate and legal right, authority and power
      to enter into this Agreement, and to extend the rights and licenses
      granted to TIGM and TAMUS in this Agreement;

            7.1.3 Lexicon has taken all necessary action to authorize the
      execution, delivery and performance of this Agreement;

            7.1.4 upon the execution and delivery of this Agreement, this
      Agreement shall constitute a valid and binding obligation of Lexicon,
      enforceable in accordance with its terms, except as enforceability may be
      limited by applicable bankruptcy, insolvency, reorganization, moratorium
      or similar laws affecting creditors' and contracting parties' rights
      generally and except as enforceability may be subject to general
      principles of equity (regardless of whether such enforceability is
      considered in a proceeding in equity or at law); and

            7.1.5 the performance of Lexicon's obligations under this Agreement
      will not conflict with its charter documents or result in a breach of any
      agreements, contracts or other arrangements to which it is a party.

      7.2 Representations, Warranties and Covenants of TIGM. TIGM represents and
warrants to and covenants with Lexicon and TAMUS that:

            7.2.1 TIGM is a non-profit corporation duly organized, validly
      existing and in corporate good standing under the laws of the State of
      Texas;

            7.2.2 TIGM has the corporate and legal right, authority and power to
      enter into this Agreement, and to extend the rights and licenses granted
      to Lexicon and TAMUS in this Agreement;

            7.2.3 TIGM has taken all necessary action to authorize the
      execution, delivery and performance of this Agreement;

                                       15
<PAGE>

            7.2.4 upon the execution and delivery of this Agreement, this
      Agreement shall constitute a valid and binding obligation of TIGM
      enforceable in accordance with its terms, except as enforceability may be
      limited by applicable bankruptcy, insolvency, reorganization, moratorium
      or similar laws affecting creditors' and contracting parties' rights
      generally and except as enforceability may be subject to general
      principles of equity (regardless of whether such enforceability is
      considered in a proceeding in equity or at law); and

            7.2.5 the performance of its obligations under this Agreement will
      not conflict with TIGM's charter documents or result in a breach of any
      agreements, contracts or other arrangements to which it is a party.

      7.3 Representations, Warranties and Covenants of TAMUS. TAMUS represents
and warrants to and covenants with Lexicon and TIGM that:

            7.3.1 TAMUS is a public educational institution duly organized,
      validly existing and in good standing under the laws of the State of
      Texas;

            7.3.2 TAMUS has the legal right, authority and power to enter into
      this Agreement, and to extend the rights and licenses granted to Lexicon
      and TIGM in this Agreement;

            7.3.3 TAMUS has taken all necessary action to authorize the
      execution, delivery and performance of this Agreement;

            7.3.4 upon the execution and delivery of this Agreement, this
      Agreement shall constitute a valid and binding obligation of TAMUS
      enforceable in accordance with its terms, except as enforceability may be
      limited by applicable bankruptcy, insolvency, reorganization, moratorium
      or similar laws affecting creditors' and contracting parties' rights
      generally and except as enforceability may be subject to general
      principles of equity (regardless of whether such enforceability is
      considered in a proceeding in equity or at law); and

            7.3.5 the performance of its obligations under this Agreement will
      not conflict with TAMUS's charter documents or result in a breach of any
      agreements, contracts or other arrangements to which it is a party.

      7.4 Warranty Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS
AGREEMENT, NEITHER PARTY MAKES ANY WARRANTY WITH RESPECT TO ANY MUTANT MOUSE OR
PROGENY (INCLUDING THE MUTAGENICITY THEREOF), PATENT RIGHTS, GOODS, SERVICES,
BACKGROUND MATERIALS OR ANY OTHER SUBJECT MATTER OF THIS AGREEMENT, AND EACH
PARTY HEREBY DISCLAIMS WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE AND NON-INFRINGEMENT WITH RESPECT TO ANY AND ALL OF THE FOREGOING. IN
ADDITION, THE PARTIES ACKNOWLEDGE THAT THE GENERATION OR USE OF BACKGROUND
MATERIALS MAY BE COVERED BY ONE OR MORE VALID PATENTS OF THIRD PARTIES. EACH
PARTY ACKNOWLEDGES THAT EXERCISE BY IT OF THE RIGHTS AND LICENSES GRANTED TO IT
PURSUANT TO ARTICLE 3 HEREOF MAY BE COVERED BY ONE OR MORE VALID PATENTS OF
THIRD PARTIES.

      7.5 Limited Liability. EXCEPT AS SPECIFICALLY SET FORTH IN THIS AGREEMENT,
NONE OF THE PARTIES TO THIS AGREEMENT WILL BE LIABLE WITH RESPECT TO ANY MATTER
ARISING UNDER THIS AGREEMENT UNDER ANY CONTRACT,

                                       16
<PAGE>

NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY
PUNITIVE, EXEMPLARY, INCIDENTAL OR CONSEQUENTIAL DAMAGES OR LOST PROFITS.

                              ARTICLE 8. INDEMNITY

      8.1 Breaches of Representations, Warranties and Covenants. Each party
shall indemnify, defend and hold harmless the other parties, their Affiliates
and their respective directors, officers, employees and agents from and against
any and all liabilities, obligations, fees, including attorneys' fees and costs,
expenses and losses resulting from any breach of any representation, warranty or
covenant on the part of the indemnifying party contained in this Agreement.

      8.2 Use of Materials. Each party hereto shall indemnify, defend and hold
harmless all other parties hereto, their Affiliates and their respective
directors, officers, employees and agents from and against any and all
liabilities, obligations, fees, including attorneys' fees and costs, expenses
and losses incurred in connection with a claim against the indemnified party by
a third party based on any action or omission of the indemnifying party, its
Affiliates or their respective agents or employees in connection with or
relating to the sale, use, handling or storage of Materials by any such
indemnifying party.

      8.3 Procedure. If a party or any of its Affiliates or their respective
directors, officers, employees or agents (collectively, the "Indemnitee")
intends to claim indemnification under this Article 8, the Indemnitee shall
promptly notify the other party (the "Indemnitor") of any loss, claim, damage,
liability or action in respect of which the Indemnitee intends to claim such
indemnification, and the Indemnitor shall assume the defense thereof with
counsel selected by the Indemnitor and reasonably acceptable to the Indemnitee,
provided, however, that an Indemnitee shall have the right to retain its own
counsel, with the fees and expenses to be paid by the Indemnitee, if
representation of such Indemnitee by the counsel retained by the Indemnitor
would be inappropriate due to actual or potential differing interests between
such Indemnitee and any other party represented by such counsel in such
proceedings. The Indemnitor shall have the right to settle or compromise any
claims for which it is providing indemnification under this Article 8, provided
that the consent of the Indemnitee (which shall not be unreasonably withheld or
delayed) shall be required in the event any such settlement or compromise would
adversely affect the interests of the Indemnitee. The indemnity agreement in
this Article 8 shall not apply to amounts paid in settlement of any loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Indemnitor. The failure to deliver notice to the Indemnitor within a
reasonable time after the commencement of any such action, if prejudicial to the
Indemnitor's ability to defend such action, shall relieve such Indemnitor of any
liability to the Indemnitee under this Article 8, but the omission so to deliver
notice to the Indemnitor will not relieve it of any liability that it may have
to any Indemnitee otherwise than under this Article 8. The Indemnitee under this
Article 8, its employees and agents, shall cooperate fully with the Indemnitor
and its legal representatives in the investigation of any action, claim or
liability covered by this indemnification.

      8.4 No Waiver of Sovereign Immunity. Notwithstanding the foregoing, the
authority of TAMUS to indemnify a third party for a claim is limited to those
claims for which sovereign immunity has been waived by the Texas legislature.
Nothing in this Agreement or the actions undertaken by TAMUS, or its officers or
employees, shall be construed as a waiver of sovereign immunity.

                     ARTICLE 9. EXPIRATION AND TERMINATION

      9.1 Term of Agreement. The term of this Agreement shall commence on the
Effective Date and shall continue until the later of (a) the expiration or
termination of the last to expire of any Valid Claim included in the Patent
Rights Controlled by Lexicon Covering the Library Technology or (b) fifteen (15)
years after the Effective Date

                                       17
<PAGE>

      9.2 Termination Option. Subject to Sections 2.2.1.6 and 10.1, if Lexicon
has not generated and delivered the notice contemplated by Section 2.2.1.3 with
respect to the following percentages of the clones scheduled under the
Development Plan to be delivered to TIGM by the relevant date set forth below,
TIGM shall have the right, by delivering notice to Lexicon within ten (10) days
of such date, to terminate the remaining obligations of Lexicon with respect to
the generation and delivery to TIGM of the OmniBank II Library and receive a
payment from Lexicon in the amount calculated as set forth herein.

<TABLE>
<CAPTION>
                                       PERCENTAGE OF AGGREGATE NUMBER OF CLONES
                                         SCHEDULED UNDER THE DEVELOPMENT PLAN
                                        TO BE DELIVERED BY SUCH DATE FOR WHICH              PERCENTAGE OF
                                           LEXICON HAS DELIVERED THE NOTICE              POTENTIAL RECAPTURE
               DATE                         CONTEMPLATED BY SECTION 2.2.13                     AMOUNT
------------------------------------  ------------------------------------------  ----------------------------------
<S>                                   <C>                                         <C>
First Anniversary of Effective Date   30%                                         66.7%
18 Months After Effective Date        50%                                         50.0%
Second Anniversary of Effective Date  70%                                         33.3%
30 Months After Effective Date        90%                                         16.7%
</TABLE>

The "Potential Recapture Amount" to which the relevant percentage set forth in
the table would be applied to determine the amount of such payment from Lexicon
shall be equal to (a) the thirty million dollar ($30,000,000) amount received by
Lexicon from the State under the Economic Development Agreement for the
generation and delivery to TIGM of the OmniBank II Library less (b) Lexicon's
aggregate maximum potential liability for repayment penalties under the Economic
Development Agreement with respect to shortfalls in satisfying its job target
obligations thereunder. In the event TIGM duly exercises the right set forth in
this Section 9.2, (i) TIGM shall be deemed to have elected such right to the
exclusion of any claims under Section 9.3 below or otherwise that Lexicon's
failure to deliver the number of clones contemplated by the Development Plan
constitutes an Event of Default and (ii) Lexicon shall make the required payment
within thirty (30) days of the notice thereof.

      9.3 Termination for Cause.

            9.3.1 Events of Default. An "Event of Default" by either party shall
      have occurred upon (a) the occurrence of a material breach of this
      Agreement if such party fails to remedy such breach within sixty (60) days
      after written notice thereof by the non-breaching party (thirty (30) days
      in the event of a party's failure to make a payment required hereunder)
      or, if remediation of such breach in sixty (60) days is not practicable,
      if such party fails to commence and diligently pursue such remediation
      during such 60-day period, or (b) the commencement of any proceeding in or
      for bankruptcy, insolvency, dissolution or winding up by or against such
      party that is not dismissed or otherwise disposed of within sixty (60)
      days thereafter.

            9.3.2 Effect of an Event of Default. In the event of an Event of
      Default, the non-defaulting party shall have the right, at its option
      exercisable in its sole discretion, in addition to any other rights or
      remedies available to it at law or in equity (including, without
      limitation, specific performance, injunctive relief and damages) and
      subject to the limitations set forth in Sections 7.5 and 10.6 hereof, to
      terminate this Agreement upon sixty (60) days notice thereof to the other
      party, in which case (a) the licenses granted to the defaulting party
      pursuant to Article 3 shall terminate and (b) the defaulting party shall
      return to the non-defaulting party or, upon the non-defaulting party's
      written instruction, destroy all information, materials or documentation
      provided by the non-defaulting party pursuant to this Agreement.

                                       18
<PAGE>

      9.4 Termination Without Cause. TIGM shall have the right to terminate this
Agreement without cause at any time upon thirty (30) days written notice thereof
to Lexicon. Upon any such termination, (a) the licenses granted to TIGM pursuant
to Article 3 shall terminate, (b) TIGM shall return to Lexicon, or upon
Lexicon's written instruction destroy, all information, materials or
documentation provided to TIGM by Lexicon pursuant to this Agreement, and (c)
Lexicon shall have no further obligation to TIGM or TAMUS under Article 2 or
Section 9.2 of this Agreement.

      9.5 Effect of Expiration or Termination of Agreement. The expiration or
termination of this Agreement shall not relieve the parties of any obligation
accruing prior to such expiration or termination. The provisions of Articles 4,
5, 6 and 8, Sections 7.4 and 7.5, and Sections 10.2 through 10.6 hereof shall
survive the expiration or termination of this Agreement.

                           ARTICLE 10. MISCELLANEOUS

      10.1 Force Majeure. Neither party shall be held liable or responsible to
the other party nor be deemed to have defaulted under or breached this Agreement
for failure or delay in fulfilling or performing any obligation under this
Agreement when such failure or delay is caused by or results from causes beyond
the reasonable control of the affected party, including but not limited to fire,
floods, embargoes, war, acts of war (whether war is declared or not),
insurrections, riots, civil commotions, strikes, lockouts or other labor
disturbances, acts of God or acts, omissions or delays in acting by any
governmental authority; provided, however, that the party so affected shall use
reasonable commercial efforts to avoid or remove such causes of nonperformance,
and shall continue performance hereunder with reasonable dispatch whenever such
causes are removed. Either party shall provide the other party with prompt
written notice of any delay or failure to perform that occurs by reason of force
majeure. The parties shall mutually seek a resolution of the delay or the
failure to perform as noted above.

      10.2 Assignment. This Agreement may not be assigned or otherwise
transferred, in whole or in part, by either party without the consent of the
other party; provided, however, that any party, without such consent, assign its
rights and obligations under this Agreement (a) to any Affiliate, (b) in
connection with a merger, consolidation or sale of such portion of a party's
assets that includes rights under this Agreement to an unrelated third party or
(c) in the case of TIGM, to TAMUS in connection with the dissolution of TIGM and
distribution of TIGM's assets to TAMUS; provided, further, that such party's
rights and obligations under this Agreement shall be assumed by its successor in
interest in any such transaction and shall not be transferred separate from all
or substantially all of its other business assets, including those business
assets that are the subject of this Agreement. Any purported assignment in
violation of the preceding sentence shall be void. Any permitted assignee shall
assume all obligations of its assignor under this Agreement, unless the parties
otherwise agree.

      10.3 Severability. Each party hereby agrees that it does not intend to
violate any public policy, statutory or common laws, rules, regulations, treaty
or decision of any government agency or executive body thereof of any country or
community or association of countries. Should one or more provisions of this
Agreement be or become invalid, the parties hereto shall substitute, by mutual
consent, valid provisions for such invalid provisions which valid provisions in
their economic effect are sufficiently similar to the invalid provisions that it
can be reasonably assumed that the parties would have entered into this
Agreement with such valid provisions in lieu of such invalid provisions. In case
such valid provisions cannot be agreed upon, the invalidity of one or several
provisions of this Agreement shall not affect the validity of this Agreement as
a whole, unless the invalid provisions are of such essential importance to this
Agreement that it is to be reasonably assumed that the parties would not have
entered into this Agreement without the invalid provisions.

                                       19
<PAGE>

      10.4 Notices. Any consent, notice or report required or permitted to be
given or made under this Agreement by one of the notification parties hereto to
the other shall be in writing, delivered personally or by facsimile (and
promptly confirmed by telephone, personal delivery or courier) or courier,
postage prepaid (where applicable), addressed to such other party at its address
indicated below, or to such other address as the addressee shall have last
furnished in writing to the addressor and shall be effective upon receipt by the
addressee.

      If to Lexicon:        Lexicon Genetics Incorporated
                            8800 Technology Forest Place
                            The Woodlands, Texas 77381
                            Attention: President and Chief Executive Officer
                            Telephone: (281) 863-3000
                            Facsimile: (281) 863-8095

      With a copy to:       Lexicon Genetics Incorporated
                            8800 Technology Forest Place
                            The Woodlands, Texas 77381
                            Attention: General Counsel
                            Telephone: (281) 863-3000
                            Facsimile: (281) 863-8010

      If to TAMUS:          A&M System Building
                            Suite 2043
                            200 Technology Way
                            College Station, Texas 77845-3424
                            Attention: Chancellor
                            Telephone: (979) 458-6000
                            Facsimile: (979) 458-6044

      With a copy to:       A&M System Building
                            Suite 2043
                            200 Technology Way
                            College Station, Texas 77845-3424
                            Attention: General Counsel
                            Telephone: (979) 458-6122
                            Facsimile: (979) 458-6150

      If to TIGM:           A&M System Building
                            Suite 2043
                            200 Technology Way
                            College Station, Texas 77845-3424
                            Attention: Executive Director
                            Telephone: (979) 458-6000
                            Facsimile: (979) 458-6044

All such communications shall be effective upon receipt.

      10.5 Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, without reference to the
conflicts of law principles thereof.

                                       20
<PAGE>

      10.6 Dispute Resolution. The parties hereby agree that they will attempt
in good faith to resolve any controversy or claim arising out of or relating to
this Agreement promptly by negotiations. If a controversy or claim should arise
hereunder, the matter shall be referred to individuals designated for such
purpose, respectively, by the chief executive officer of Lexicon, the chancellor
of TAMUS and the president of TIGM. If the matter has not been resolved within
thirty (30) days of the first meeting of the representatives of the parties
(which period may be extended by mutual agreement) concerning such matter, the
parties shall be free to pursue all available recourse both at law and in
equity. Notwithstanding the foregoing provisions of this Section 10.6, with
respect to any claim by Lexicon or TIGM that TAMUS has breached this Agreement,
the following terms shall apply:

      (a)   The dispute resolution process provided for in Chapter 2260 of the
            Texas Government Code ("Government Code") shall be used by the
            parties to attempt to resolve any claim by Lexicon or TIGM that
            TAMUS has breached the Agreement;

      (b)   Any Lexicon or TIGM claim that TAMUS has breached this Agreement
            that the parties cannot resolve in the ordinary course of business
            shall be submitted to the negotiation process provided in Chapter
            2260, subchapter B, of the Government Code. To initiate the process,
            Lexicon or TIGM shall submit written notice, as required by
            subchapter B, to the Executive Vice Chancellor for Finance or a
            person with similar or equal authority. The notice shall
            specifically state that the provisions of Chapter 2260, subchapter B
            are being invoked. Compliance by Lexicon or TIGM with subchapter B
            is a condition precedent to the filing of a contested case
            proceeding under Chapter 2260, subchapter C, of the Government Code;

      (c)   The contested case process provided in Chapter 2260, subchapter C,
            of the Government Code is Lexicon's and TIGM's sole and exclusive
            process for seeking a remedy for any and all alleged breaches of
            contract by TAMUS if the parties are unable to resolve their
            disputes under the preceding paragraph; and

      (d)   Compliance with the contested case process provided in subchapter C
            is a condition precedent to seeking consent to sue from the
            Legislature under Chapter 107 of the Civil Practices and Remedies
            Code. Neither the execution of this contract by TAMUS nor any other
            conduct of any representative of TAMUS relating to the contract
            shall be considered a waiver of sovereign immunity to suit to the
            extent such immunity can be claimed by TIGM. The submission,
            processing and resolution of Lexicon's or TIGM's claim is governed
            by the published rules adopted by the attorney general pursuant to
            Chapter 2260, as currently effective, hereafter enacted or
            subsequently amended. Neither the occurrence of an event nor the
            pendency of a claim constitutes grounds for the suspension of
            performance by Lexicon or TIGM, in whole or in part. The designated
            individual responsible on behalf of TAMUS for examining any claim or
            counterclaim and conducting any negotiations related thereto as
            required under section 2260.052 of H.B. 826 of the 76th Texas
            Legislature shall be the Executive Vice Chancellor for Finance.

      10.7 Entire Agreement. This Agreement, together with the exhibits and
appendices hereto and any confidentiality agreement(s) executed in contemplation
of this Agreement, contains the entire understanding of the parties with respect
to the subject matter hereof. All express or implied agreements and
understandings, either oral or written, heretofore made are expressly merged in
and made a part of this Agreement. This Agreement may be amended, or any term
hereof modified, only by a written instrument duly executed by both parties
hereto.

                                       21
<PAGE>

      10.8 Publicity. Subject to the Texas Public Information Act, the parties
each agree not to disclose any terms or conditions of this Agreement to any
third party without consulting the other party prior to such disclosure.
Notwithstanding the foregoing, prior to execution of this Agreement, the parties
shall agree upon the substance of information that can be used as a routine
reference in the usual course of business to describe the existence and general
nature of this transaction, and each party may disclose such information without
consulting the other parties. The parties may thereafter from time to time
mutually agree on revisions to material to be used as a routine reference, which
revisions shall be submitted by one party for the review and approval of the
other parties at least ten (10) days prior to the anticipated use or disclosure
of the revised material, such approval not to be unreasonably withheld. The
terms of this Agreement shall be treated as the Confidential Information of the
parties, and, except to the extent required by applicable law, shall not be
disclosed to anyone (except for the parties' respective employees, consultants,
agents and attorneys assisting in the review and negotiation of this Agreement
who have a need to know the terms of this Agreement) without the written
permission of the other parties. If any party desires to release a separate
announcement relating to this Agreement, it shall first allow the other parties
to approve in writing such proposed announcement; provided that such approval
shall not be unreasonably withheld or delayed.

      10.9 Headings. The captions to the several Articles and Sections hereof
are not a part of this Agreement, but are merely guides or labels to assist in
locating and reading the several Articles and Sections hereof.

      10.10 No Partnership. It is expressly agreed that the relationship between
Lexicon, TAMUS and TIGM shall not constitute a partnership, joint venture or
agency. No party shall have the authority to make any statements,
representations or commitments of any kind, or to take any action, which shall
be binding on any other party, without the prior consent of such other party to
do so.

      10.11 Exports. The parties acknowledge that the export of technical data,
materials or products is subject to the exporting party receiving any necessary
export licenses and that the parties cannot be responsible for any delays
attributable to export controls which are beyond the reasonable control of
either party. TIGM agrees not to export or re-export, directly or indirectly,
any information, technical data, the direct product of such data, samples or
equipment received or generated under this Agreement in violation of any
applicable export control laws or governmental regulations. TIGM agrees to
obtain similar covenants from their licensees, (sub)licensees, or corporate
partners, as the case may be, and contractors with respect to the subject matter
of this Section 10.11.

      10.12 Waiver. The waiver by either party hereto of any right hereunder or
the failure to perform or of a breach by the other party shall not be deemed a
waiver of any other right hereunder or of any other breach or failure by said
other party whether of a similar nature or otherwise.

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

                                       22
<PAGE>

      IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute and deliver this Agreement as of the Effective Date.

LEXICON GENETICS INCORPORATED

By: _________________________________________        Date: ____________________

Name: _______________________________________

Title: ______________________________________

THE TEXAS A&M UNIVERSITY SYSTEM

By: _________________________________________        Date: ____________________

Name: _______________________________________

Title: ______________________________________

THE TEXAS INSTITUTE OF GENOMIC MEDICINE

By: _________________________________________        Date: ____________________

Name: _______________________________________

Title: ______________________________________

                                       23
<PAGE>

                                   EXHIBIT 1.3

                             BIOINFORMATICS SOFTWARE

      The Bioinformatics Software is an online analytical and decision-support
system that catalogs the in vivo characterization of all mouse embryonic stem
cell clones contained in the OmniBank II Library. Users can assess and search a
wide range of phenotypic information at different levels, including raw data,
calculated graphs with annotated summaries, and statistical analysis for
selected diagnostic areas, by means of a standard web browser. Information can
be retrieved through an intuitive search interface by gene description and
sequence, disease indication, keywords, related publications and statistical
significance.

      The Bioinformatics Software is broken down into two components:
"Production" and "Analysis." The Production software is primarily a workflow
system used in the generation and breeding of knockout mice. It is used in the
production, gathering, and recording of all relevant data of the mice and tracks
their lifecycle through the various projects to which they are assigned. The
main processes of the Production software consist of microinjection and
breeding. These components are used to ensure that all active participants in
the breeding process know when an action needs to occur and when data is ready
to be uploaded into the Analysis software.

      The Analysis software is used to store data and analysis from phenotypic
assays. The Analysis software currently supports data upload and data validation
for a wide range of scientific equipment. It also provides tools for annotating
and summarizing the physiological observations of knockout phenotypes compared
to wild-type controls and background data.

      The technical requirements for the Bioinformatics Software consist of the
following:

      Hardware Environment

      Sun Enterprise 450
      Dual CPU UltraSPARC-II 400MHz
      Memory size: 2.0 Gb
      Two (2) 9 Gb Internal HDs

      Server Software Environment

      Sun Solaris 8 Generic sun4u SPARC SUNW, Ultra-4

      Server Software System

      Oracle Server 9i from 8.1.6, plus appropriate client support files

      Apache with SSL module (TLS 1.0, RC4 with 128 bit encryption (High);
         RSA with 1024 bit exchange)/tomcat
      MySQL 3.23.33
      Apache 1.3x
      PHP 4.0.5
      PHP 4.07
      Java 1.4

                                       24
<PAGE>

                                   EXHIBIT 1.8

                                 CRE-LOX PATENTS

<TABLE>
<CAPTION>
COUNTRY            APPLICATION SER. NO.      PATENT NO.      ISSUE DATE      EXPIRY DATE
-------------      --------------------      ----------      ----------      -----------
<S>                <C>                       <C>             <C>             <C>
USA                                          4,959,317       9/25/90         9/25/2007
Canada                                       1,293,460       12/24/91        12/24/2008
Ireland                                      60421           7/8/94          10/6/2006
Japan              86/236385
EPO                                          0 220 009       2/10/93         10/6/2006
Austria                                      E0085649        2/10/93         10/6/2006
Belgium                                      0 220 009       2/10/93         10/6/2006
France                                       0 220 009       2/10/93         10/6/2006
Great Britain                                0 220 009       2/10/93         10/6/2006
Germany                                      3687734         2/10/93         10/6/2006
Greece                                       3007809         2/10/93         10/6/2006
Italy                                        0 220 009       2/10/93         10/6/2006
Luxembourg                                   0 220 009       2/10/93         10/6/2006
Netherlands                                  0 220 009       2/10/93         10/6/2006
Sweden                                       0 220 009       2/10/93         10/6/2006
Switzerland                                  0 220 009       2/10/93         10/6/2006
</TABLE>

<PAGE>

                                   EXHIBIT 1.9

                                DEVELOPMENT PLAN

      Lexicon will use Diligent Efforts to generate the OmniBank II Library by
means of its gene trapping technology. This high-throughput method uses
genetically-engineered retroviruses to infect mouse embryonic stem cells in
vitro, integrate into the chromosome of the cell and deliver molecular traps for
genes. The gene trap construct disrupts the function of the gene into which it
integrates and enables determination of the genomic integration site and
identity of the disrupted gene.

      Lexicon will use Diligent Efforts to deliver to TIGM two (2) complete
copies of the OmniBank II Library, each consisting of three hundred fifty
thousand (350,000) mouse embryonic stem cell clones with Selected Mutations,
each identified by DNA sequence of its genomic integration site, in accordance
with the following schedule:

<TABLE>
<CAPTION>
                                                 AGGREGATE NUMBER OF CLONES SCHEDULED TO BE
              DATE                                  AVAILABLE FOR DELIVERY BY SUCH DATE
-----------------------------                    -------------------------------------------
<S>                                              <C>
6 Months After Effective Date                                       4,400

12 Months After Effective Date                                     73,520

18 Months After Effective Date                                    142,640

24 Months After Effective Date                                    211,760

30 Months After Effective Date                                    280,880

36 Months After Effective Date                                    350,000
</TABLE>

<PAGE>

                                  EXHIBIT 1.16

                                   FACILITIES

<PAGE>

                                  EXHIBIT 1.17

                              GENE TRAPPING PATENTS

<TABLE>
<CAPTION>
COUNTRY    APPLICATION/PUB. NO.    PATENT NO.    ISSUE DATE    EXPIRY DATE
-------    --------------------    ----------    ----------    -----------
<S>        <C>                     <C>           <C>           <C>
PCT        PCT/US97/17791
USA                                6,136,566     10/24/00      10/4/2016
USA                                6,207,371     3/27/01       10/4/2016
PCT        PCT/US98/16373
USA                                6,139,833     10/31/00      8/8/2017
PCT        PCT/US99/06474
USA                                6,080,576     6/27/00       4/8/2018
PCT        PCT/US99/27366
USA                                6,436,707     8/20/02       4/8/2018
USA                                6,776,988     8/17/04       7/26/2019
USA                                6,218,123     4/17/01       8/10/2019
USA                                6,855,545     2/15/05       2/27/2017
USA                                6,808,921     10/26/04      4/18/2018
</TABLE>

<PAGE>

                                  EXHIBIT 2.1.2

                           JOINT MANAGEMENT COMMITTEE