<PAGE>   1
                                                                   EXHIBIT 10.28

                  COLLABORATIVE RESEARCH AND LICENSE AGREEMENT


                                     BETWEEN


                                MERCK & CO., INC.


                                       AND


                         AURORA BIOSCIENCES CORPORATION


                                       1
<PAGE>   2





                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

<S>                                                                          <C>
1    Definitions..............................................................3
2    System Development and Delivery..........................................9
3    Collaborative Screen Program............................................15
4    Service and Support.....................................................22
5    Intellectual Property Rights............................................22
6    Payments of Royalties, Accounting for Royalties, and Records............24
7    Intellectual Property Enforcement and Defense of Infringement Claims....25
8    Treatment of Confidential Information; Publicity........................26
9    Patent Prosecution and Copyrights.......................................29
10   Warranties and Indemnification..........................................29
11   Term, Partial Performance and Termination...............................31
12   Miscellaneous...........................................................32
</TABLE>



                                       2

<PAGE>   3
                  COLLABORATIVE RESEARCH AND LICENSE AGREEMENT

THIS AGREEMENT is entered into as of December 18, 1997 (the "Effective Date") by
and between MERCK & CO., INC., a New Jersey corporation, having offices at One
Merck Drive, White House Station, NJ 08889-0100 ("Merck"), and AURORA
BIOSCIENCES CORPORATION, a Delaware corporation having offices at 11010
Torreyana Rd., San Diego, California 92121 ("Aurora").

                                    RECITALS

WHEREAS, Aurora has expertise in the development of automated ultra-high
throughput screening systems and screening biologies used therein and has rights
to certain intellectual property related thereto; and

WHEREAS, Aurora has the scientific expertise and capacity to undertake the
activities described below; and

WHEREAS, Merck has the capability to undertake screening and development of drug
products for the prevention and treatment of human and animal diseases and
disorders.

NOW, THEREFORE, in consideration of the foregoing premises and of the covenants,
representations and agreements set forth below, the parties agree as follows:

1    DEFINITIONS

As used herein, the following terms shall have the following meanings:

    1.1     "Affiliate" means any corporation, association or other entity,
            which directly or indirectly controls, is controlled by or is under
            common control with a party. As used in this definition, the term
            control shall mean direct or indirect beneficial ownership of more
            than *** of the voting or equity interest in such corporation or
            other business entity.

    1.2     "Agreement" means this agreement, together with all appendices,
            exhibits and schedules hereto, and as the same may be amended or
            supplemented from time to time hereafter by a written agreement duly
            executed by authorized representatives of each party hereto.

    1.3     "Annual Work Plan" means ***.

    1.4     "Aurora Copyrights" means all ***.

    1.5     "Aurora Patent Rights" means ***.

    1.6     "Aurora Reporter" means ***.



*** CONFIDENTIAL TREATMENT REQUESTED
                                       3
<PAGE>   4

    1.7     "Aurora Reporter System" means the ***.

    1.8     "Aurora Reporter System Technology" means all ***.


    1.9     "Aurora Reporter System Patent Rights" means ***.

    1.10    "Aurora Screening Program" shall have the meaning set forth in
            Section 3.1.1.7.

    1.11    "Aurora Technology" means ***.

    1.12    "Aurora System Patent Rights" means ***.

    1.13    "Aurora System Technology" means ***.

    1.14    "Aurora VIPR Copyrights" means ***.

    1.15    "Aurora VIPR Patent Rights" means ***.

    1.16    "Aurora VIPR Technology" means ***.

    1.17    "Authorized Affiliates" means the affiliates of Merck listed on
            Exhibit 1.15.

    1.18    "Automated Plate Replication System" or "APRS" shall have the
         meaning set forth in Section 2.1.2.1.2, the features of which are
         set forth in Exhibit 1.1 hereto.

    1.19    "Collaborative Screen" means ***.

    1.20    "Collaborative Screen Program" shall have the meanings set forth in
            Section 3.1.

    1.21    "Collaborative Period" shall have the meaning set forth in Section
            3.1

    1.22    "Combination Product" means a ***.

    1.23    "Compound" means ***.

    1.24    "Compound Supply" has the meaning set forth in Section 3.1.1.8.

    1.25    "Confidential Information" means all information, data, and
         Materials received by either party from the other party pursuant to
         this Agreement and all information, data, and Materials developed in
         the course of the collaboration and/or activities of the parties under
         this Agreement, including, without limitation, Technology of each
         party, subject to the exceptions set forth in Section 8.1.3.

    1.26    "Control" or "Controlled" means, with respect to tangible and
         intellectual property, possession by a party of the ability to grant a
         license or sublicense in accordance with the 

*** CONFIDENTIAL TREATMENT REQUESTED

                                       4
<PAGE>   5
         terms of this Agreement, and without violating the terms of any
         agreement by such party with any Third Party.

    1.27    "CSP Steering Committee" shall have the meaning set forth in Section
         3.1.1.1.

    1.28    "CSP Work Plan" shall have the meaning set forth in Section 3.1.1.4.

    1.29    "Deliverables" has the meaning set forth in Section 2.1.2.1 hereof.

    1.30    "Derivative" means ***.

    1.31    "Development Candidate" means ***.

    1.32    "Effective Date" means December 18, 1997.

    1.33    "FDA" shall mean ***.

    1.34    "FTE" shall have the meaning set forth in Section 3.1.1.5.

    1.35    "Hit" means ***.

    1.36    "IND" means an ***.

    1.37    "Internal Research" means ***.

    1.38    "Invention" means any new and useful idea or discovery, including
         without limitation a new and useful process, machine, manufacture, or
         composition of matter, or improvement thereto, whether or not
         patentable.

    1.39    "Know-How" means information and data that is not generally known to
         the public, including, but not limited to : Inventions, designs,
         concepts, algorithms, formulae, software, techniques, practices,
         processes, methods, knowledge, skill, experience, expertise and
         technical information.

    1.40    "Licensee" means a Third Party to whom Merck grants a license,
         sublicense or other right to manufacture, use, sell, offer for sale,
         distribute and/or import one or more Products or Development
         Candidates.

    1.41    "Licensor" means a Third Party that grants Merck a license, 
         sublicense or other right to manufacture, use, sell, offer for sale,
         distribute and/or import one or more Products or Development
         Candidates.

    1.42    "Manufacturing Cost" means ***.

*** CONFIDENTIAL TREATMENT REQUESTED

                                       5
<PAGE>   6

    1.43    "Materials" means ***.

    1.44    "Merck Copyrights" means ***.

    1.45    "Merck Patent Rights" means ***.

    1.46    "Merck Technology" means Technology owned or Controlled by Merck
         which is necessary for the performance of Aurora's obligations in the
         Collaborative Screen Program.

    1.47    "Module 1" has the meaning set forth in Section 2.1.2.1.1 hereof.

    1.48    "Module 2" has the meaning set forth in Section 2.1.2.1.4 hereof.

    1.49    "Module 3" has the meaning set forth in Section 2.1.2.1.5 hereof.

    1.50    "NDA" means a ***.

    1.51    "Net Sales" shall mean, with respect to Product(s), *** less the 
         following items:

                          i)  trade, and/or, quantity discounts, cash discounts,
                              bad debt, sales and excise taxes, freight or other
                              transportation costs, insurance charges,
                              additional special packaging, duties, tariffs, and
                              other governmental charges (other than and an
                              income tax), actually paid or allowed;

                          ii) the standard inventory cost of devices used for
                              dispensing or administering the Product(s) which
                              accompany the Product(s) as they are sold;

                         iii) credits, charge-back rebates, reimbursements or
                              similar payments granted or given to wholesalers
                              and other distributors, buying groups, health care
                              insurance carriers, governmental agencies and
                              other institutions, but only to the extent
                              actually allowed;

                          iv) credits or allowances for rejection or return of
                              Products previously sold; and


                          v)  payment or rebates actually paid in connection
                              with government sponsored health insurance
                              programs.


        Such amounts shall be determined from the books and records of Merck
        maintained in accordance with GAAP consistently applied.

*** CONFIDENTIAL TREATMENT REQUESTED
                                       6
<PAGE>   7

        ***

  1.52      "Optional Deliverable" shall have the meaning set forth in Section
        2.1.5.5.

  1.53      "Optional Module 1" shall have the meaning set forth in Section 
        2.1.5.1.

  1.54      "Optional Module 2" shall have the meaning set forth in Section 
        2.1.5.2.

  1.55      "Optional SDS" shall have the meaning set forth in Section 2.1.5.3.

  1.56      "Optional VIPR" shall have the meaning set forth in Section 2.1.5.4.

  1.57      "Patent Rights" means all ***.

  1.58      "Product" means ***.

  1.59      "Royalty Term" means, in the case of any Product and as to any
        country, the period of time commencing on the first commercial sale for
        use or consumption of such Product in such country and ending upon the
        date that is *** after the date of such first commercial sale for use or
        consumption of such Product in such country.

*** CONFIDENTIAL TREATMENT REQUESTED

                                       7
<PAGE>   8

  1.60      "Screen Development Stage" shall have the meaning set forth in
        Section 2.1.2.1.3, the features of which are set forth in Exhibit 1.1
        hereto.

  1.61      "Selection Procedure" of molecular targets shall have the meaning
        set forth in Section 3.1.1.2 hereof.

  1.62      ***.

  1.63      "Specifications" of the System or the VIPR shall have the meaning
        set forth in Section 2.1 hereof.

  1.64      "Subsidiary" means any corporation, association or other entity in
        which a party directly or indirectly beneficially owns 100% of the
        voting or equity interest.

  1.65      "System" means ***.

  1.66      "System Steering Committee" shall have the meaning set forth in
        Section 2.1.1.

  1.67      "System Target Delivery Date" has the meaning set forth in Section
        2.1.2.1 hereof.

  1.68      "Technology" means Materials and Know-How.

  1.69      "Term" means the period beginning on the Effective Date and
        terminating in accordance with this Agreement, as set forth in Article
        11.

  1.70      "Third Party" means any entity other than Aurora, its Subsidiaries
        or its Affiliates or Merck, its Subsidiaries or its Authorized
        Affiliates.

  1.71      "Tracking Record" shall have the meaning set forth in Section
        6.4.2.1 hereof.

  1.72      "Valid Claim" means: (a) an issued claim under an issued patent
         within the Patent Rights, which has not (i) expired or been canceled,
        (ii) been declared invalid by an unreversed and unappealable decision of
        a court or other appropriate body of competent jurisdiction, (iii) been
        admitted to be invalid or unenforceable through reissue, disclaimer or
        otherwise, and/or (iv) been abandoned; or (b) a claim included in a
        pending patent application within the Patent Rights that is being
        actively prosecuted in accordance with this Agreement and which has not
        been (i) canceled, (ii) withdrawn from consideration, (iii) finally
        determined to be unallowable by the applicable governmental authority
        for whatever reason (and from which no appeal is or can be taken), or
        (iv) abandoned.

  1.73      "Validation" has the meaning set forth in Section 2.1.3 and 2.1.5.6.

  1.74      "VIPR" shall have the meaning set forth in Section 2.1.2.2, the
        features of which are set forth in Exhibit 1.3 hereto.

*** CONFIDENTIAL TREATMENT REQUESTED

                                       8
<PAGE>   9

2    SYSTEM DEVELOPMENT AND DELIVERY

    2.1 System Development. Aurora will use reasonable efforts to design,
        develop, supply, and install the System and VIPRs within the time
        periods and in accordance with the terms hereof. The Specifications for
        the Deliverables and VIPRs to be provided by Aurora are set forth in
        Exhibit 1.1 and Exhibit 1.3 hereto, respectively (the "Specifications").

        2.1.1 Project Management. The parties shall establish a steering
           committee to coordinate the development of the System and to perform
           testing for the Validation of the Deliverables and VIPR(s) (the
           "System Steering Committee"). The System Steering Committee will be
           established not later than thirty (30) days after the Effective Date.
           The System Steering Committee will consist of three (3)
           representatives designated by Merck and three (3) representatives
           designated by Aurora. Each representative will have one vote
           resulting in each party having exactly three votes. Decisions by the
           System Steering Committee shall be made by unanimous vote, requiring
           a quorum of four (4) voting representatives. The System Steering
           Committee will meet at least four times per year at mutually agreed
           upon times and locations using mutually agreed upon meeting formats,
           including tele- and video-conferencing provided, that the members of
           the System Steering Committee shall use reasonable efforts to
           schedule such meetings at least thirty (30) calendar days prior to
           each payment date for the quarterly payments required pursuant to
           Section 2.1.4.7. The System Steering Committee shall maintain
           accurate records to document the discussions and decisions at each
           meeting. Meeting minutes or summaries shall be prepared in accordance
           with procedures established by the System Steering Committee at its
           first meeting and shall be distributed to all members of the System
           Steering Committee for review and approval. Aurora will also submit
           progress reports to the System Steering Committee at such time(s) as
           the System Steering Committee may reasonably request and no less than
           twice per year. Each party shall bear its own expenses in connection
           with attendance by its representatives at meetings of the System
           Steering Committee.


        2.1.2 Development and Delivery. During the term of this Agreement, Merck
           representatives shall have the right, upon reasonable advance written
           notice to Aurora, to visit the facilities where the System is being
           developed. During the System development, Aurora shall provide Merck
           with information regarding recommended facility specifications for
           housing and operating the System and shall share information
           regarding recommended operating conditions.

           2.1.2.1 Development. Aurora will use reasonable efforts to develop
           and install the deliverables for the System ("Deliverables")
           according to the estimated delivery dates set forth below (each such
           date referred to as a "System Target Delivery Date"):

               2.1.2.1.1  Module 1 - Automated Storage and Retrieval - ***;

               2.1.2.1.2  One Automated Plate Replication System ("APRS") - ***;

*** CONFIDENTIAL TREATMENT REQUESTED

                                       9
<PAGE>   10

               2.1.2.1.3  One Screen Development Stage - ***(Screen Development 
                  Stage);

               2.1.2.1.4 Module 2 - Liquid handling, Screening Formats,
                  Detection and Three (3) Screen Development Stages - ***; and

               2.1.2.1.5 Module 3 - Informatics, Integration, and Control System
                  ("Module 3") - ***.

           2.1.2.2 VIPR Development. In addition, Aurora will use reasonable
               efforts to develop the voltage ion probe reader, as further
               described in Exhibit 1.3 (the "VIPR") and ***. If such
               installation includes integration of a VIPR into an existing
               screening system, the parties will negotiate in good faith for
               the terms of such integration.

           2.1.2.3 Shipment, and Installation. Aurora will be responsible for 
               the appropriate packaging of all Deliverables and VIPRs to be
               delivered to Merck. Aurora will provide Merck with written notice
               at least thirty (30) days before the anticipated date that each
               Deliverable or VIPR will be ready for shipping, and Merck will be
               responsible for arranging the shipment and for paying associated
               delivery charges, including insurance and sales tax, if
               applicable. Aurora will provide Merck with written notice of
               actual shipment for accounting purposes pursuant to Section
               2.1.4. Aurora will begin installation of each Deliverable and
               VIPR within fifteen (15) working days of delivery to Merck and
               will use reasonable efforts to complete such installation
               promptly thereafter and Merck will use reasonable efforts to
               prepare in advance for such installation and to facilitate such
               installation after delivery. Merck will provide Aurora with
               written notice at least thirty (30) days before such installation
               of any expected delays or problems with the installation site at
               Merck. Aurora will install all Deliverables and VIPRs, unless
               otherwise mutually agreed to in writing. Aurora will be
               responsible for its employees or contractors performing such
               installation including salaries, benefits and workers
               compensation. Aurora shall provide Merck with timely notice of
               any anticipated change in a System Target Delivery Date. Merck
               may agree, but shall not be required, to accept delivery of a
               Deliverable earlier than the relevant System Target Delivery
               Date. Merck shall provide Aurora with timely notice of any
               anticipated change in being able to accommodate the delivery of a
               Deliverable on a System Target Delivery Date. If Merck is unable
               to take of delivery of a Deliverable within sixty (60) days after
               the relevant System Target Delivery Date, the System Steering
               Committee may Validate such Deliverable pursuant to Section 2.1.3
               at Aurora instead of at Merck; provided, however, that the
               Deliverable will also be Validated by the System Steering
               Committee at Merck and Merck will be entitled to the cure
               provisions pursuant to Section 2.1.3 (i), (ii) or (iii).

        2.1.3 Validation Testing. All Deliverables and VIPRs shall be subject to
           testing by or for Aurora and by or for Merck. Within thirty days (30)
           day after installation of a Deliverable or VIPR, the System Steering
           Committee shall perform tests necessary to determine that a
           Deliverable or a VIPR conforms to the Specifications for such

*** CONFIDENTIAL TREATMENT REQUESTED

                                       10


<PAGE>   11

           Deliverable or VIPR ("Validation"). Upon such Validation Aurora shall
           give Merck written notice. If the members of the System Steering
           Committee, acting in good faith, cannot agree that a Deliverable or
           VIPR satisfies the criteria for Validation within such thirty (30)
           day period, Aurora shall have an additional sixty (60) days to cure
           such Deliverable's or VIPR's inability to satisfy the Specifications.
           If Aurora is unable to cure such Deliverable or VIPR within sixty
           (60) days of such notice, Merck may elect to:

                 (i)  accept such Deliverable or VIPR and such Deliverable or
                         VIPR will be considered Validated;

                 (ii) permit Aurora to cure such Deliverable's or VIPR's
                         inability to satisfy the Specifications during an
                         additional cure period determined by Merck; or

                (iii) request, and receive from Aurora, a refund of the full
                         amount paid for such Deliverable (not including any
                         payments made as an entry payment paid under Section
                         2.1.4.1 or an ongoing quarterly payment paid under
                         Section 2.1.4.7) within thirty (30) days of the end of
                         such cure period(s).

           If Merck elects to receive a refund pursuant to Section 2.1.3 (iii),
           Merck must ship such Deliverable or VIPR to Aurora in substantially
           its original condition within thirty (30) days of such election, and
           Aurora shall bear all delivery risks and charges, including insurance
           and sales tax, if applicable. Merck's rights under this Section 2.1.3
           are in addition to it rights pursuant to Section 11.3.2 hereof.

        2.1.4 Payments relating to System Deliverables and VIPR. Merck will make
           the following payments to Aurora in consideration of the development,
           delivery, and Validation of Deliverables and VIPRs:

           2.1.4.1 An entry payment of *** shall be made within thirty (30)
               business days after the Effective Date.

           2.1.4.2 Module 1: A payment of *** shall be made in two equal
               installments: one installment of *** within thirty (30) days 
               after *** and one installment of ***.

           2.1.4.3 For the APRS of Section 2.1.2.1.2, a payment ***shall be made
               in two equal installments: one installment of *** and one
               installment of ***.

           2.1.4.4 For the Screen Development Stage of Section 2.1.2.1.3, a
               payment *** shall be made in two equal installments: one
               installment of *** and one installment of ***.

           2.1.4.5 Module 2: A payment *** shall be made in two equal
               installments: one installment of ***.2.1.4 and one installment 
               ***.

*** CONFIDENTIAL TREATMENT REQUESTED

                                       11
<PAGE>   12

           2.1.4.6 Module 3: A payment of *** shall be made in two equal
               installments: one installment of *** and one installment of ***.

           2.1.4.7 As partial consideration for the design and development of
               the System, Merck shall make payments to Aurora of *** each, the
               first payment to be made on or before the first January 15, April
               15, July 15 or October 15 occurring after the Effective Date and
               then every three months thereafter, which payments shall cease
               upon the first to occur of (i) the date that represents *** or
               (ii) the date of Validation of Module 3 pursuant to Section
               2.1.3; provided, however, that (subject to Section 2.1.2.3) if
               the Validation of Module 3 pursuant to Section 2.1.3 occurs prior
               to the date that Merck shall have ***hereunder, Merck shall pay
               to Aurora in a lump sum, within thirty (30) days after Validation
               of Module 3 pursuant to Section 2.1.3 those payments remaining
               that would raise the total number of payments made under this
               Section 2.1.4.7 by Merck ***.

           2.1.4.8 For each VIPR developed pursuant to Section 2.1.2.2 a payment
               of *** shall be made in two equal installments: one installment
               of ***.

        2.1.5  Option for Additional Deliverables.

           2.1.5.1 Optional Module 1: Merck will have the option to obtain an
               additional Module 1, *** during the period from the Effective
               Date to twelve (12) months after the Validation of Module 1
               pursuant to Section 2.1.3. To exercise such option, Merck will
               notify Aurora in writing within such option period and pay to
               Aurora *** within thirty (30) days of such election. The option
               may be extended to the period from the Effective Date to twenty
               *** during such initial option period. Such amount is
               non-refundable ***. Aurora will use reasonable efforts to develop
               and install the Optional Module 1 according to the estimated
               delivery date of twelve (12) months after the receipt by Aurora
               of the total payment for Optional Module 1. The parties
               understand that the delivery date may vary due to availability of
               supplies and components. Aurora will promptly notify Merck of
               changes in the estimated delivery date for the Optional Module 1.
               The Optional Module 1 shall be subject to Validation testing in
               accordance with Section 2.1.5.6.

           2.1.5.2 Optional Module 2: Merck will have the option to obtain an
               additional Module 2 (the "Optional Module 2***. To exercise such
               option, Merck will notify Aurora in writing within such option
               period and pay to Aurora *** within thirty (30) days of such
               election. Aurora will use reasonable efforts to develop and
               install each Optional Module 2 according to the estimated
               delivery date of Eighteen (18) months after the receipt by Aurora
               of such payment for the first Optional Module 2. The estimated
               delivery date of all subsequent Optional Modules 2(s), if any,
               will be mutually agreed upon by the parties. The parties
               understand that the delivery date may vary due to availability of
               supplies and components. Aurora will promptly notify Merck of
               changes in the estimated delivery date for an Optional Module 2.

*** CONFIDENTIAL TREATMENT REQUESTED

                                       12


<PAGE>   13

               Each Optional Module 2 shall be subject to Validation testing in
               accordance with Section 2.1.5.6.

           2.1.5.3 Optional SDS: Merck will have the option to obtain an
               additional Screen Development Stage (the "Optional SDS"), ***,
               during the period from ***. To exercise such option, Merck will
               notify Aurora in writing within such *** for each Optional SDS
               within thirty (30) days of such election. Aurora will use
               reasonable efforts to develop and install the first Optional SDS
               according to the estimated delivery date of Twelve (12) months
               after the receipt by Aurora of such payment for the first
               Optional SDS. The estimated delivery date of all subsequent
               Optional SDS(s) will be mutually agreed upon by the parties. The
               parties understand that the delivery date may vary due to
               availability of supplies and components. Aurora will promptly
               notify Merck of changes in the estimated delivery date for an
               Optional SDS. Each Optional SDS shall be subject to Validation
               testing in accordance with Section 2.1.5.6.

           2.1.5.4 Optional VIPRs: Merck will have the option to obtain an
               additional VIPR (the "Optional VIPR"), or up to a total of ***
               each, during the period from the Effective Date to twelve (12)
               months after the first Validation of a VIPR pursuant to Section
               2.1.3. To exercise such option, Merck will notify Aurora in
               writing within such option period and pay to ***. Aurora will use
               reasonable efforts to develop and install the first Optional VIPR
               according to the estimated delivery date of twelve (12) months
               after the receipt by Aurora of such payment for the first
               Optional VIPR. The estimated delivery date of all subsequent
               Optional VIPR(s) will be mutually agreed upon by the parties. The
               parties understand that the delivery date may vary due to
               availability of supplies and components. Aurora will promptly
               notify Merck of changes in the estimated delivery date for an
               Optional VIPR. Each Optional VIPR shall be subject to Validation
               testing in accordance with Section 2.1.5.6.

           2.1.5.5 Delivery of the Optional Deliverables: Aurora will be
               responsible for the appropriate packaging of each Optional Module
               1, Optional Module 2, Optional SDS, and Optional VIPR ("Optional
               Deliverables") to be delivered to Merck. Aurora will provide
               Merck with written notice at least thirty (30) days before the
               anticipated date that each Optional Deliverable will be ready for
               shipping, and Merck will be responsible for arranging the
               shipment and for paying associated delivery charges, including
               insurance and sales tax, if applicable. Aurora will begin
               installation of each Optional Deliverable within fifteen (15)
               working days of delivery to Merck and will use reasonable efforts
               to complete such installation promptly thereafter and Merck will
               use reasonable efforts to prepare in advance for such
               installation and to facilitate such installation after delivery.
               Merck will provide Aurora with written notice at least thirty
               (30) days before such installation of any expected delays or
               problems with the installation site at Merck. Aurora will install
               all Optional Deliverables, unless otherwise mutually agreed to in
               writing. Aurora will be responsible for its employees or
               contractors performing such installation including salaries,
               benefits and workers compensation. Aurora shall provide Merck
               with timely notice of any anticipated change in a scheduled
               delivery date for an 

*** CONFIDENTIAL TREATMENT REQUESTED

                                       13

<PAGE>   14

               Optional Deliverable. Merck may agree, but shall not be required,
               to accept delivery of an Optional Deliverable earlier than the
               relevant scheduled delivery date. Merck shall provide Aurora with
               timely notice of any anticipated change in being able to
               accommodate the delivery of an Optional Deliverable.

           2.1.5.6 Validation Testing for Optional Deliverables. All Optional
               Deliverables shall be subject to testing by or for Aurora and by
               or for Merck. Within thirty days (30) day after installation of
               an Optional Deliverable, the System Steering Committee shall
               perform tests necessary to determine that an Optional Deliverable
               conforms to the Specifications for such Optional Deliverable.
               Upon such Validation Aurora shall give Merck written notice. If
               the members of the System Steering Committee, acting in good
               faith, cannot agree that an Optional Deliverable satisfies the
               criteria for Validation within such thirty (30) day period,
               Aurora shall have an additional sixty (60) days to cure such
               Optional Deliverable's inability to satisfy the Specifications.
               If Aurora is unable to cure such Optional Deliverable within
               sixty (60) days of such notice, Merck may elect to:

               (i) accept such Optional Deliverable and such Optional
                      Deliverable will be considered Validated;

               (ii) permit Aurora to cure such Optional Deliverable's inability
                      to satisfy the Specifications during an additional cure
                      period determined by Merck; or

              (iii) request, and receive from Aurora, a refund of the full
                      amount paid for such Optional Deliverable (not including
                      any payments made as an entry payment paid under Section
                      2.1.4.1 or an ongoing quarterly payment paid under Section
                      2.1.4.7) within thirty (30) days of the end of such cure
                      period(s).

           If Merck elects to receive a refund from Aurora under Section 2.1.5.6
           (iii), Merck must ship such Optional Deliverable to Aurora in
           substantially its original condition within thirty (30) days of such
           election, and Aurora shall bear all delivery risks and charges,
           including insurance and sales tax, if applicable. Merck's rights
           under this Section 2.1.5.6 are in addition to it rights pursuant to
           Section 11.3.2 hereof.

        2.1.6  Syndicate Formation, Limitations and Most Favored Nations.

           2.1.6.1 Syndicate Formation and Limitations. It is understood that
               Aurora may collaborate with, and supply to, and grant certain
               license rights with respect to the use and supply of a system
               substantially conforming to the specifications of the System and
               the Aurora Reporter System to Third Parties.

               2.1.6.1.1 System. Notwithstanding the foregoing, Aurora covenants
                  and agrees that, so long as Merck is not in default of a
                  payment obligation hereunder with respect to the System and
                  Aurora Reporter Systems for more than thirty (30) days after
                  receiving notice of such payment default, and Merck has not

*** CONFIDENTIAL TREATMENT REQUESTED

                                       14
<PAGE>   15

                  terminated its purchase of the System pursuant to Section
                  11.2, 11.3, or 11.4, then, ***.

               2.1.6.1.2 Aurora Reporter Systems. Notwithstanding Section
                  2.1.6.1, Aurora covenants and agrees that, so long as Merck is
                  not in default of a payment obligation hereunder with respect
                  to the System or the Aurora Reporter System for more than
                  thirty (30) days after receiving notice of such payment
                  default and Merck has not terminated its purchase of the
                  System pursuant to Section 11.2, 11.3, or 11.4, then, ***.

           2.1.6.2 Most Favored Nations. If, during the ***. Upon written
               notification by Merck to Aurora, Aurora will select a consultant
               reasonably acceptable to Merck who will perform a confidential
               review of the value of the terms of such Third Party agreement.
               If Merck chooses to substitute such terms, as a whole, and such
               substituted terms would require payments from Merck that have not
               then been made by Merck, then Merck shall promptly pay the same
               to Aurora. If Merck chooses to substitute such terms, as a whole,
               and such substituted terms exceed the amount owed to Aurora,
               Aurora shall credit the difference of such overpayments to future
               payments to be made hereunder by Merck under Article 2 or Article
               3, as appropriate.

3    COLLABORATIVE PROGRAM

    3.1 Collaborative Program. For a period of five (5) years following the
        Effective Date (the "Collaborative Period") the parties will collaborate
        in the development of Inventions and Technology and the development and
        validation of Collaborative Screens as part of development programs (the
        "Collaborative Screen Programs" or a "CSPs"), as follows:

        3.1.1 Development Program. Merck and Aurora will use reasonable efforts
           to identify targets for screen development, improvements to the
           System, new instrumentation or new reporters for development as part
           of an Annual Work Plan.

           3.1.1.1 CSP Steering Committee. No later than thirty (30) days after
               the Effective Date, the parties shall establish a CSP Steering
               Committee (the "CSP Steering Committee"). The CSP Steering
               Committee shall consist of three (3) representatives designated
               by Merck and three (3) representatives designated by Aurora. Each
               representative will have one vote resulting in each party having
               exactly three votes. Decisions by the CSP Steering Committee will
               be made by unanimous vote, requiring a quorum of four voting
               representatives. The CSP Steering Committee will meet at least
               three times per year at mutually agreed upon times and locations
               using mutually agreed upon meeting formats, including tele- and
               video-conferencing; provided, that the members of the CSP
               Steering Committee shall use reasonable efforts to schedule such
               meetings at least thirty (30) calendar days prior to each payment
               date for the quarterly payments required pursuant to Section
               3.1.1.5. The CSP Steering Committee shall maintain accurate
               records to document the discussions and decisions at each
               meeting. Meeting minutes or summaries shall 

*** CONFIDENTIAL TREATMENT REQUESTED

                                       15


<PAGE>   16

               be prepared in accordance with procedures established by the CSP
               Steering Committee at its first meeting and shall be distributed
               to all members of the CSP Steering Committee for review and
               approval.

           3.1.1.2 Screen Selection. Within fifteen (15) days after the 
               Effective Date, and at least ninety (90) days prior to the first,
               second, third and fourth anniversaries of the Effective Date,
               Merck will propose in writing to Aurora molecular targets which
               Merck believes are reasonably feasible for development of screens
               for the next Annual Work Plan. For each proposed molecular
               target, Merck shall provide Aurora with a written proposal
               describing such molecular target. Within thirty (30) days after
               the Effective Date, and in subsequent years, within forty-five
               (45) days after receiving such information from Merck, and
               further information as Aurora may reasonably request regarding a
               proposed molecular target, Aurora shall provide to Merck an
               estimate of the approximate resources required for such screen
               development and shall notify Merck as to whether Aurora accepts
               such proposed target; provided, however, that Aurora may only
               reject a proposed target if it reasonably believes that the
               development of a Collaborative Screen for such proposed target
               (i) would be inconsistent with Aurora's Third Party obligations,
               (ii) would cause Aurora to infringe the intellectual property
               rights of a Third Party, (iii) would require more than two FTEs
               for twelve months or (iv) would not be feasible in view of the
               resources and expertise required to complete such Collaborative
               Screen . Merck and Aurora will repeat the foregoing selection
               procedure ("Selection Procedure") and will use reasonable
               efforts, to select at least three (3) molecular targets, for the
               Annual Work Plan for each year, for which screen development
               shall be initiated ***.

           3.1.1.3 Instrumentation and New Reporter Development. During the
               Collaborative Period, Merck may also propose new instrumentation
               (including improvements to the System) and new reporters that
               Merck believes are reasonably feasible for development as part of
               an Annual Work Plan. Within forty five (45) days of receiving
               such proposal, and further information as Aurora may reasonably
               request regarding such new instrumentation or new reporters,
               Aurora shall notify Merck whether Aurora reasonably believes that
               the development of such instrumentation or reporters are
               reasonably feasible and if such development is consistent with
               Aurora's Third Party obligations and will notify the CSP Steering
               Committee of the following: (i) the approximate resources that
               Aurora believes would be required to be provided by Merck through
               the CSP Steering Committee and funded pursuant to Section 3.1.1.3
               for the development of such new instrumentation or reporters; or
               (ii) the approximate resources that Aurora believes would be
               required to be provided by Merck through the CSP Steering
               Committee and funded pursuant to Section 3.1.1.3 and the
               resources that Aurora proposes to provide for the development of
               such new instrumentation or reporters. Within thirty (30) days of
               such notification, Merck, in its sole discretion, shall determine
               whether to initiate such development of new instrumentation or
               reporters under Sections 3.1.1.3(i) or 3.1.1.3(ii) and the CSP
               Steering Committee will coordinate the preparation of a written
               work plan for such 

*** CONFIDENTIAL TREATMENT REQUESTED

                                       16


<PAGE>   17

               development. Merck and Aurora may mutually agree upon additional
               funding to be provided by Merck for such development.

           3.1.1.4 Coordination of Development. The CSP Steering Committee will
               coordinate the development of Collaborative Screens, new
               instrumentation or new reporters during the Collaborative Period
               (including the formation and management of a CSP Work Plan
               described below in this Section 3.1.1.4 for each Collaborative
               Screen within sixty (60) days of Aurora choosing to accept a
               Merck proposed molecular target), generate (or modify) and
               implement each CSP Work Plan, as defined below, and Annual Work
               Plan, and approve the validation of each Collaborative Screen.
               Promptly following mutual agreement on the selection of each
               target, the CSP Steering Committee will coordinate the
               preparation of a written work plan (a "CSP Work Plan"), which
               shall set forth the respective responsibilities of the parties in
               the development of each Collaborative Screen, and which must be
               approved by the CSP Steering Committee. Each such CSP Work Plan
               will also contain a description of the specific assay components
               and documentation to be produced and proposed validation criteria
               for each Collaborative Screen. Each CSP Work Plan will be adopted
               from an Annual Work Plan on a target by target basis. Promptly
               following the approval of each CSP Work Plan, the parties will
               commence their respective duties under the CSP Work Plan for the
               development of the applicable Collaborative Screen. All work
               under a CSP Work Plan shall be performed in accordance with the
               provisions of this Agreement, and each party will use its
               reasonable efforts to complete its obligations under the CSP Work
               Plan as expeditiously as practicable. ***.

*** CONFIDENTIAL TREATMENT REQUESTED

                                       17



<PAGE>   18

           3.1.1.5 Payments for Development. As partial consideration for the
               development of Inventions and Technology and the Collaborative
               Screens to be developed by Aurora or by Aurora and Merck, Merck
               shall pay *** per year for a period of *** beginning on the
               Effective Date for such development. The fully-burdened rate for
               each Aurora full time equivalent shall *** per year based on a
               minimum *** per year, annually increased on the anniversary of
               the Effective Date to reflect adjustment in the CPI, using
               January 1, 1997 as the base year (a "FTE"). Such payments shall
               be payable in quarterly payments ***, the first payment to be
               made on or before the first January 15, April 15, July 15 or
               October 15 occurring after the Effective Date and the subsequent
               Nineteen (19) such quarterly payments made every three months
               thereafter. Such payments shall be non-refundable and
               non-creditable. In no event shall Merck be obligated to pay more
               than *** under this Section 3.1.1.5 per year of the Collaborative
               Period. The parties acknowledge that the total number of FTEs may
               be reduced due to CPI adjustment. Of the Aurora FTEs funded by
               Merck, Aurora will dedicate three (3) FTEs to ***. All other FTEs
               each year will be allocated from a pool of Aurora personnel
               resources that will contain individuals that may have expertise
               or experience that can be applied to a particular Collaborative
               Screen, new instrumentation or new reporter. The parties
               understand and agree that Aurora is not obligated to enter into a
               CSP Work Plan where more than two (2) FTEs for one year would
               reasonably be needed to complete the work under such CSP Work
               Plan.

           3.1.1.6 Screen Validation. When Aurora completes the development of a
               Collaborative Screen, it shall provide the CSP Steering Committee
               with a written report describing the Collaborative Screen and the
               data demonstrating compliance with the CSP Work Plan including
               the validation criteria. Aurora will also permit Merck
               representatives to visit the facilities of Aurora to test and
               verify compliance of the Collaborative Screen with the validation
               criteria. Merck, through the CSP Steering Committee, will approve
               the report and accept the Collaborative Screen, or provide Aurora
               a written explanation for declining such acceptance within thirty
               (30) days of receipt of the report by committee members. Upon
               acceptance of each Collaborative Screen to be developed by
               Aurora, Aurora will submit to Merck an invoice for *** of the
               date of such invoice.

           3.1.1.7 Screening by Aurora. For the Collaborative Screens validated,
               pursuant to Section 3.1.1.6, Merck may elect to have Aurora test,
               using reasonable efforts, up to *** provided by Merck or agreed
               to by the parties pursuant to Section 3.1.1.8. Aurora shall with
               regard to each such Collaborative Screen, screen Compounds in a
               manner determined by the CSP Steering Committee and provide
               retests of Compounds for putative Hits, and determination of
               crude IC50's or EC50's as determined by the CSP Steering
               Committee (collectively referred to as an "Aurora Screening
               Program"). At Merck's request, the parties will negotiate in good
               faith the terms for alternative screening arrangements to be
               provided by Aurora. The data resulting from such activities using
               the Compound Supply shall be owned by Merck and shall be stored
               in a separate file in the Aurora database. Merck employees or
               agents shall have access to such data and shall have the right to
               transfer such data to 

*** CONFIDENTIAL TREATMENT REQUESTED

                                       18
<PAGE>   19

               Merck's internal database. Aurora shall not have any right to use
               such data for any purpose, for itself or for any Third Party.

           3.1.1.8 Compound Supply. Merck shall, at its expense, supply Aurora
               with Compounds selected by Merck for an Aurora Screening Program.
               In the event that Merck desires to have Aurora test in an Aurora
               Screening Program a chemical (including a library of chemicals)
               owned, accessed or Controlled by Aurora, the parties agree to
               negotiate in good faith the terms and conditions under which such
               chemicals may be screened. Any Compound supplied by Merck for use
               in an Aurora Screening Program will be provided in 96-well or
               384-well-microtiter plates, in quantities, form and format as
               agreed by the CSP Steering Committee ("Compound Supply"). Aurora
               agrees not to transfer the Compound Supply to any Third Party,
               attempt to analyze the Compound Supply for purposes of
               determining structure, or to use the Compound Supply for purposes
               not contemplated herein without Merck's prior written consent.
               Aurora will return or destroy (at Merck's election) such Compound
               Supply upon written notice by Merck.

           3.1.1.9 Screening Payments. If Merck during the Collaborative Period
               elects to have Aurora use a Collaborative Screen to screen
               Compounds or other chemicals pursuant to Section 3.1.1.7, in
               partial consideration for each such Aurora Screening Program
               Merck will pay ***. Such payment shall be inclusive of all costs
               incurred by Aurora relating to labor, screening equipment, and
               supplies (other than chemicals or reagents unique to a
               Collaborative Screen). If Aurora determines that the expenses
               which would be incurred by Aurora with respect to any such Aurora
               Screening Program would ***, Aurora shall notify Merck, and Merck
               may in its sole discretion, elect to provide additional funding
               in an amount to be determined by Merck.

        3.1.2 Deployment of Collaborative Screen by Merck. For each
           Collaborative Screen, upon receipt of the payment made by Merck to
           Aurora pursuant to Section 3.1.1.6, Aurora will ship the
           Collaborative Screen to Merck. For each such transferred
           Collaborative Screen, Merck will use reasonable efforts to employ
           such Collaborative Screen to screen Compounds, using Merck's then
           current screening practices, consistent with Merck's usual drug
           discovery and development practices. If after one hundred and eighty
           (180) days after such shipment, Merck does not, or is unable to
           successfully employ such Collaborative Screen to identify Hits, Merck
           will notify Aurora. At Merck's sole discretion, Merck may request
           that Aurora initiate an Aurora Screening Program for such
           Collaborative Screen at Aurora as set forth in Section 3.1.1.7.

        3.1.3 Additional Screens. Subject to the same terms and conditions set
           forth in Sections 3.1.1, and 3.1.2 and Aurora's approval, such
           approval shall not be unreasonably withheld, Merck may elect to
           increase the number of Collaborative Screens initiated during any
           year of the Collaborative Period to ***.

*** CONFIDENTIAL TREATMENT REQUESTED

                                       19


<PAGE>   20

        3.1.4 Payments to Aurora. In addition to such payments as are made by
           Merck to Aurora pursuant to Section 3.1.1 hereof, the following
           payments shall be made to Aurora for each Collaborative Screen:

           3.1.4.1Milestones. Merck will pay to Aurora:

               For the first *** that reaches the following milestone events,
               Merck will promptly provide Aurora with written notification and
               will pay the following amounts to Aurora within thirty (30) days
               following such notification from Merck. 

<TABLE>
<CAPTION>

                  Milestone
                  Event                                    Payment (US$)
                  ---------                                -------------

                  <S>                                     <C>
                      i)     ***

                     ii)     ***

                    iii)     ***

                     iv)     ***
</TABLE>

                      Each of the foregoing payments shall only be made for ***
                      to reach the milestone event and ***

           3.1.4.2 Royalties. For *** Merck shall pay Aurora a royalty with 
               respect to *** that become Products developed and marketed for
               the activity of the kind and direction intended to be detected by
               such Collaborative Screen. Such royalty shall be payable during
               the Royalty Term in the amount of ***of worldwide Net Sales of
               each such Product. Exhibit 3.1 sets forth examples for
               determining Products on which royalties will be payable.

           3.1.4.3 If Merck provides any Hit, Derivative, Development Candidate,
               or Product as consideration to a Third Party, including as
               consideration for another chemical or target from a Third Party
               for development at Merck, Merck will: (i) remain obligated to the
               payment to Aurora of any milestones and royalties provided for in
               Article 3; or (ii) obligate such Third Party to pay to Aurora
               directly any milestones and royalties provided for in Article 3;
               or (iii) negotiate with Aurora in good faith alternative
               compensation for any such Hits, Derivatives, Development
               Candidates, or Products.

           3.1.4.4 Exceptions. Notwithstanding the foregoing, Merck shall not be
               obligated to pay Milestones or Royalties pursuant to 3.1.4.1 and
               3.1.4.2 with respect to the following:


*** CONFIDENTIAL TREATMENT REQUESTED

                                       20

<PAGE>   21

               (a)  ***;

               (b)  ***

               (c)  Compounds identified by Merck without using a Collaborative
                    Screen.

    3.2 Access to the Aurora Reporter System Technology and Aurora Reporter
        System Patent Rights. Merck's right to use the Aurora Reporters and
        Aurora Reporter System, as set forth in the license in Section 5.1.3,
        requires that Merck pay to Aurora an up-front license payment of *** for
        the first year following the Effective Date and an annual license
        payment of *** following the first anniversary of the Effective Date.
        The first annual payment will be made within ten (10) business days of
        the Effective Date and the remaining four annual payments will be made
        on the respective anniversaries of the first payment. ***, Merck may
        elect to maintain the annual license, as set forth in Section 5.1.3, for
        Aurora Reporters and the Aurora Reporter System for an annual payment of
        *** for consecutive one-year periods thereafter; provided, however, that
        any such obligation to pay such annual license payment shall terminate
        when there is no longer a Valid Claim of an issued patent within Aurora
        Reporter System Patent Rights. Upon expiration of such Valid Claim,
        Merck shall retain a fully paid-up, royalty free license to use any
        Aurora Reporter System Technology then in Merck's possession.

    3.3 Supply of Materials. So long as Merck has made payments in accordance
        with Section 3.2 hereof, then, at Merck's written request, Aurora will
        use reasonable efforts to supply within thirty (30) days after receipt
        of a written purchase order therefor, Materials pertaining to Aurora
        Reporters and the Aurora Reporter System as Merck may require in order
        to use the Aurora Reporters. Merck will be charged for all supplies so
        delivered at Aurora's ***. Merck will pay for all Materials so ordered
        within thirty (30) days after delivery to Merck. ***. The parties agree
        that if Merck requests ***, Aurora may, at its sole discretion, develop
        such cell lines and provide to ***shall be provided to Merck at ***.

    3.4 Ownership of Data. Subject to Sections 5.3.2 and 5.3.3, all results and
        data generated by or for Merck arising out of the use of the System,
        development and use of any Collaborative Screen, the exercise of any of
        the rights licensed under Section 5 hereof, or otherwise arising out of
        this Agreement shall be owned exclusively by Merck and shall be treated
        as Merck Confidential Information hereunder.

    3.5 Development of Products. Merck will in its discretion determine which,
        if any, Hit(s), or Derivative(s), will be approved as Development
        Candidates. Merck will use reasonable efforts consistent with Merck's
        usual drug development practices, for all pre-clinical and clinical
        development, including all regulatory filings, of Hits and Development
        Candidates arising out of this Agreement at no expense to Aurora. Merck
        shall have discretion and control over the conduct of all activities
        associated with the development or abandonment of any Hit, Derivative or
        Development Candidate, all regulatory activities relating to the
        manufacture, use or sale of any Development Candidate or Product, and
        the commercialization and marketing of any Product in any country and
        Merck will use its reasonable efforts, consistent with Merck's usual
        practice in developing, commercializing 

*** CONFIDENTIAL TREATMENT REQUESTED

                                       21


<PAGE>   22

        and marketing its other similar pharmaceutical products, to attain all
        of the foregoing. All INDs, NDAs and other regulatory filings made or
        filed by Merck for any Development Candidate or Product shall be owned
        solely by Merck.

    3.6 Laboratory Facilities and Personnel. Aurora and Merck shall each, at
        their respective cost and expense, provide suitable and sufficient
        laboratory facilities and equipment, and will devote sufficient,
        experienced personnel, as is needed to carry out their respective
        obligations under this Agreement. In performing their activities
        hereunder, the parties shall maintain records in sufficient detail and
        in good scientific manner appropriate for patent and regulatory
        purposes, which shall be complete and accurate and shall fully and
        properly reflect all work done and results achieved in the performance
        of such work or activities. Where appropriate, such records shall be
        written into research notebooks and countersigned.

4    SERVICE AND SUPPORT

    4.1 Service and Support for the System. For the period commencing upon the
        Validation of Module 1 and ending *** after the Validation of Module 3
        pursuant to Section 2.1.3, Aurora will provide service and support for
        the System and all system components, without additional charge to Merck
        with the exception of reasonable travel expenses within limits
        pre-approved by the parties. Service and support is more fully described
        on Exhibit 4.1 attached hereto ("Service and Support"). Aurora will be
        responsible for providing and paying for this Service and Support,
        whether provided by Aurora itself or through Third Party contractors.
        Aurora will designate an appropriate Aurora employee to coordinate such
        Service and Support. Following such initial period, Merck and Aurora
        will in good faith negotiate additional Service and Support.

    4.2 Service and Support for the VIPR(s). For the period commencing upon the
        Validation of a VIPR and ending *** after the Validation of such VIPR
        pursuant to Section 2.1.3, Aurora will provide Service and Support for
        such VIPR*** parties. After such ***, service and support for such VIPR
        will be on terms to be negotiated by the parties.

    4.3 Service and Support for Optional Deliverable. If Merck elects to
        purchase an Optional Deliverable, Aurora will provide Service and
        Support with respect ***, until twelve (12) months after the Validation
        of such Optional Deliverable pursuant to Section 2.1.3. After ***,
        service and support for such Optional Deliverable will be on terms to be
        negotiated by the parties.

    4.4 ***.

5    INTELLECTUAL PROPERTY RIGHTS

    5.1 Grant of Rights from Aurora to Merck.

        5.1.1 Intellectual Property Rights related to the System. Aurora hereby
           grants to ***.

*** CONFIDENTIAL TREATMENT REQUESTED

                                       22



<PAGE>   23

        5.1.2 Intellectual Property Rights Related to Collaborative Screens.
           Aurora, upon payment under Section 3.1.1.6, grants to Merck a
           non-exclusive, ***.

        5.1.3 Intellectual Property Rights related to Aurora Reporters. Aurora
           grants to Merck a non-exclusive, non-transferable, ***.

        5.1.4 Intellectual Property Rights Related to the VIPR. Aurora, hereby
           grants to Merck a non-exclusive, non-transferable, ***.

        5.1.5 Third Party Rights. The rights granted in Sections 5.1.1, 5.1.2,
           5.1.3 and 5.1.4 do ***. If during the Term of this Agreement Merck
           desires to obtain Third Party intellectual property rights that
           relate to the following:

           ***
           ***.

        5.1.6 During the Term of this Agreement, Merck will not enter into an
           agreement with a Third Party under which Merck will use Aurora
           Technology or Aurora Patent Rights in conjunction with such Third
           Party's targets or chemicals where Merck does not have an obligation
           in such agreement to develop and/or market pharmaceuticals to be
           identified using such targets or chemicals.

        5.1.7 Merck shall have ***; provided, however, that i) any ***of any of
           its obligations hereunder, including its payment obligations and ii)
           the rights of ***under Sections 5.1.1, 5.1.2, 5.1.3, and 5.1.4 will
           *** under such section pursuant to this Agreement. ***.

        5.1.8  ***.

    5.2 ***.

    5.3 Ownership of Intellectual Property and Property

        5.3.1  ***.

        5.3.2 ***Inventions and other Technology (including, without limitation,
           the intellectual property rights associated with Collaborative
           Screens, Compounds and Derivatives and pharmaceutical uses thereof)
           conceived or reduced to practice by its employees and agents, ***.
           Aurora agrees to execute any and all documentation necessary to
           perfect Merck's rights in such Inventions and Technology. Merck will
           grant to Aurora an irrevocable, worldwide, fully paid up,
           sublicensable, unrestricted, non-exclusive license to any
           improvements and associated intellectual property rights with respect
           to any Aurora Reporter or the Aurora Reporter System Technology that
           are conceived or made by the employees and agents of Merck, its
           Subsidiaries and Authorized Affiliates.

*** CONFIDENTIAL TREATMENT REQUESTED

                                       23


<PAGE>   24

        5.3.3  ***.

        5.3.4 Inventorship of patentable Inventions shall be determined in
           accordance with U.S. patent law.

6    PAYMENTS OF ROYALTIES, ACCOUNTING FOR ROYALTIES, AND RECORDS

    6.1 Payment and Reporting. The royalties due under Article 3 and as follows
        in this Article 6, shall be paid within sixty (60) days after the end of
        each calendar quarter period in which such royalties are earned during
        the Royalty Term for each Product. With each such quarterly payment
        Merck shall furnish Aurora a royalty statement, setting forth on a
        country-by-country basis: (i) gross sales (less returns and on-invoice
        allowances), (ii) deductions from gross sales, and (iii) Net Sales for
        such Product.

    6.2 Currency of Payment. All payments to be made under this Agreement,
        including the royalties payable to Aurora by Merck, shall be paid in
        U.S. dollars by wire transfer or other mutually acceptable means to a
        bank account designated by the recipient. Royalties earned shall be
        determined from the Net Sales in the currency of the country in which
        they are earned and then converted into dollars using the rate of
        exchange published by Reuters Ltd. for the spot purchase of U.S. dollars
        at 7:15 a.m., Eastern Standard Time, on the third (3rd) banking day
        preceding the end of the calendar quarter for which royalties are being
        calculated.

    6.3 Taxes Withheld. Any income or other tax that Merck, its Subsidiaries,
        its Authorized Affiliates, Licensees, or Licensors is required by a
        government agency to withhold and pay on behalf of Aurora with respect
        to the royalties payable under this Agreement shall be deducted from and
        offset against said royalties prior to remittance to the recipient;
        provided, however, that in regard to any tax so deducted, Merck shall
        give or cause to be given to Aurora such assistance as may reasonably be
        necessary to enable Aurora to claim exemption therefrom or credit
        therefor, and in each case shall furnish the recipient proper evidence
        of the taxes paid on Aurora's behalf.

    6.4 Records.

        6.4.1 Net Sales and Royalty Calculations. During the Royalty Term and
           for two (2) years from the date of each payment of royalties, Merck
           shall keep complete and accurate records of sales and all other
           information necessary to calculate Net Sales of each Product in
           sufficient detail to allow the accrued royalties to be determined
           accurately in accordance with GAAP. Aurora, with reasonable written
           notice to Merck, shall have the right to cause Aurora's independent,
           certified public accountant to audit such records not more than once
           each year at the place or places of business where such records are
           customarily kept in order to verify the accuracy of the reports of
           Net Sales and royalty payments. Aurora shall bear the full cost of
           such audit unless such audit discloses an underpayment of more than
           ten percent (10%) from the amount of the royalties due under this
           Agreement, in which event, Merck shall bear the reasonable cost of
           such audit. Such accountant shall disclose only whether the royalty
           reports are correct and 

*** CONFIDENTIAL TREATMENT REQUESTED

                                       24
<PAGE>   25

           the details of any discrepancies. Aurora shall cause such accountant
           to enter into a confidentiality agreement with Merck. Within thirty
           (30) days of notification by Aurora of any underpayment of royalties,
           Merck will notify Aurora whether it agrees with the conclusion of
           such accountant. If Merck agrees with the conclusion of such account,
           Merck will remit to Aurora the amount of any such underpayment. If
           such accountant concludes that Merck has made an overpayment of
           royalties, Aurora will so notify Merck. If Merck agrees with the
           conclusion of overpayment, the amount of such overpayment will be
           credited toward any future royalties payable hereunder.

        6.4.2  Tracking Records for Collaborative Screens.

           6.4.2.1 The compounds, screens and targets tested using a
               Collaborative Screen will be recorded by Merck using its
               customary means and in a computer searchable database on a
               storage device. The information stored will include the target,
               screen type, the concentration, structure and activity of the
               compound tested, and date of testing. Records of any Hits or any
               compound subject to additional screening will be stored by Merck
               in a computer searchable database. Upon written request by
               Aurora, Merck will create an annual written report of Hits or
               Derivatives subjected to additional screening, in vivo testing,
               computer modeling, medicinal chemistry or an IND to date. All the
               records described in this Section 6.4.2.1 are collectively
               referred to as tracking records (the "Tracking Records"). The
               Tracking Records shall be securely retained for no less than ten
               (10) years from the last use of a Collaborative Screen. Upon
               reasonable request by Aurora and at a minimum once every six (6)
               months, Merck will provide Aurora with a list of Development
               Candidates and Products on which royalties or milestones will be
               payable.

    6.5 Trade Secret Royalty. The parties acknowledge that the principal value
        contributed by Aurora under this Agreement is the enhanced probability
        of identifying leads for Products, such as human pharmaceutical products
        (or other products having commercial value), and the potential to
        generate multiple leads, either or both of which the parties reasonably
        believe will lessen the time required to bring pharmaceutical products
        to market and increase the efficiency of drug discovery and development
        processes and technologies. Additionally, the parties acknowledge that
        Aurora may not own or Control patent applications or patents covering
        the manufacture, sale, use, or importation of a particular Development
        Candidate or Product. Merck acknowledges and agrees that the value it
        receives hereunder is in the access and use of the System, Collaborative
        Screens or Aurora Technology. Accordingly, Merck agrees to pay those
        royalties and other amounts at the applicable rate specified under the
        Agreement, regardless of whether a Product is covered by a patent
        application or patent within the Aurora Patent Rights.

7    INTELLECTUAL PROPERTY ENFORCEMENT AND DEFENSE OF INFRINGEMENT CLAIMS

    7.1 Intellectual Property Enforcement. Merck and Aurora shall have the
        right, but not the obligation, to bring proceedings against any Third
        Party for the inappropriate use, including patent infringement, of
        Technology, Copyrights or Patent Rights solely owned or Controlled by
        it, and at its own risk and expense. Such party shall be entitled to
        retain any 

*** CONFIDENTIAL TREATMENT REQUESTED

                                       25


<PAGE>   26

        and all awards or damages obtained in any such proceeding. At the
        request of either party, the other party shall give the requesting
        party, at the requesting party's expense, all reasonable assistance
        required to file and conduct any such proceeding. For jointly owned
        Technology, Copyrights or Patent Rights, Merck and Aurora shall use
        their best efforts to coordinate pursuing a commercially reasonable
        action to address inappropriate use, including patent infringement, by
        Third Parties of such Technology, Copyrights and Patent Rights and to
        determine how expenses and any recovery from such action shall be
        allocated between the parties. Merck will make reasonable efforts to
        provide Aurora with any information known to Merck relating to the
        suspected or actual inappropriate use, including patent infringement, of
        Aurora Technology and Aurora Patent Rights.

    7.2 Defense of Infringement Claims Pertaining to Hits, Development
        Candidates, and Products. Aurora will cooperate with Merck, at Merck's
        expense, in the defense of any suit, action or proceeding against
        Aurora, or Merck and its Affiliates alleging the infringement of the
        intellectual property rights of a Third Party by reason of the
        manufacture, use or sale of a Hit, Development Candidate, or Product by
        Merck, its Subsidiaries or Authorized Affiliates. Merck shall give
        Aurora prompt written notice of the commencement of any such suit,
        action, proceeding or claim of infringement. Aurora shall give to Merck
        all authority, information and assistance necessary to defend or settle
        any such suit, action or proceeding; provided, however, that if Aurora
        should join in any such suit, action or proceeding pursuant to this
        Section 7.2 and at the request of Merck, Merck shall hold Aurora, free,
        clear and harmless from any and all costs and expenses of such
        litigation, including reasonable attorneys' fees, and Aurora shall
        execute all documents, provide pertinent records, and take all other
        actions, including requiring persons within its control to give
        testimony, which may be reasonably required in connection with such
        litigation.

    7.3 Defense of Infringement Claims Pertaining to Aurora Technology and
        Aurora Patent Rights. Merck will cooperate with Aurora, at Aurora's
        expense, in the defense of any suit, action or proceeding against Aurora
        alleging the infringement of the intellectual property rights of a Third
        Party by reason of Aurora's use of any Aurora Patent Rights and Aurora
        Technology in performing its obligations under this Agreement. Aurora
        shall give Merck prompt written notice of the commencement of any such
        suit, action, proceeding or claim of infringement. Merck shall give to
        Aurora all authority, information and assistance necessary to defend or
        settle any such suit, action or proceeding; provided, however, that if
        Merck should join in any such suit, action or proceeding pursuant to
        this Section 7.3 and at the request of Aurora, Aurora shall hold Merck,
        free, clear and harmless from any and all costs and expenses of such
        litigation, including reasonable attorneys' fees, and Merck shall
        execute all documents, provide pertinent records, and take all other
        actions, including requiring persons within its control to give
        testimony, which may be reasonably required in connection with such
        litigation.

8    TREATMENT OF CONFIDENTIAL INFORMATION; PUBLICITY

    8.1 Confidentiality.

*** CONFIDENTIAL TREATMENT REQUESTED

                                       26


<PAGE>   27

        8.1.1 Subject to the terms and conditions of this Agreement, Merck and
           Aurora each agree that, during the term of this Agreement and for
           ***, it will use best efforts to keep confidential all Confidential
           Information that is disclosed to it or to any of its Affiliates by
           the other party in connection with the performance of this Agreement.
           Neither Merck nor Aurora nor any of their respective Affiliates shall
           use the other party's Confidential Information except as expressly
           permitted in this Agreement. Nor will either party disclose the other
           party's Confidential Information to an Affiliate that is not a
           Subsidiary or Authorized Affliliate, without the written consent of
           such other party.

        8.1.2 Merck and Aurora each agree that any disclosure of the other's
           Confidential Information to any officer, employee, contractor,
           consultant, sublicensee, or agent of the other party shall be made
           only if and to the extent necessary to carry out its responsibilities
           under this Agreement and to exercise the rights granted to it
           hereunder, shall be limited to the extent consistent with such
           responsibilities and rights, and shall be provided only to such
           persons or entities who are bound to maintain same in confidence in a
           like manner as the party receiving same hereunder is so required.
           Each party shall use reasonable efforts to take such action, and to
           cause its Affiliates to take such action, to preserve the
           confidentiality of each other's Confidential Information, using
           efforts which are not less than efforts it would customarily take to
           preserve the confidentiality of its own Confidential Information.
           ***. Each party, upon the other's request, will return all the
           Confidential Information disclosed to it by the other party pursuant
           to this Agreement, including all copies and extracts of documents,
           within sixty (60) days of the request of the other party following
           any termination of this Agreement, except for one (1) copy which may
           be kept for the purpose of ascertaining and complying with continuing
           confidentiality obligations under this Agreement.

        8.1.3 Confidential Information shall not include any information which
           the receiving party can prove by competent evidence:

                      i) is now, or hereafter becomes, through no fault of the
                      receiving party, generally known or available;

                      ii) is known by the receiving party at the time of
                      receiving such information, as evidenced by its records;

                      iii) is hereafter furnished to the receiving party without
                      restriction as to disclosure or use by a Third Party
                      lawfully entitled to so furnish same;

                      iv) is independently developed by the employees, agents or
                      contractors of the receiving party without the aid,
                      application or use of the disclosing party's Confidential
                      Information;

                      v) is the subject of a written permission to disclose
                      provided by the disclosing party; or

*** CONFIDENTIAL TREATMENT REQUESTED

                                       27


<PAGE>   28

                      vi) is provided by the disclosing party to a Third Party
                      without restriction as to confidentiality.

        A party may also disclose Confidential Information of the other where
        required to do so by law or legal process, provided that, in such event,
        the party required to so disclose shall give maximum practical advance
        written notice of same to the other party and will cooperate with the
        other party's efforts to seek, at the request and expense of the other
        party, all confidential treatment and protection for such disclosure as
        is permitted by applicable law. The parties agree that the material
        financial terms of this Agreement will be considered Confidential
        Information of both parties. A party shall have the further right to
        disclose the material financial terms of this Agreement under strictures
        of confidentiality to any potential acquirer, bona fide potential
        strategic partner or collaborator, merger partner, bank, venture capital
        firm, or other financial institution to obtain financing with the
        consent of the other party hereto, not to be unreasonably withheld. The
        parties agree that information developed during the course of a
        Collaborative Screen Program or a Merck-funded project pursuant to
        Section 3.1.1.3 (i) will be considered Confidential Information of Merck
        and shall be subject to the confidentiality requirements of this Section
        8.1. Notwithstanding the foregoing, Aurora may disclose and use such
        information which is related to the improvements licensed to Aurora by
        Merck pursuant to Section 5.3.2 in the course of screen development
        under strictures of confidentiality to bona fide sublicensees. The
        parties agree that information developed during a jointly funded project
        pursuant to Section 3.1.1.3 (ii) will be considered Confidential
        Information of both parties and shall be subject to the confidentiality
        requirements of this Section 8.1.

    8.2 Publication of Results. If either party desires to publish or otherwise
        disclose the results and data obtained by the parties in the course of a
        Collaborative Screen Program or in the course of a project pursuant to
        Section 3.1.1.3, such party shall provide a copy of any such proposed
        public disclosure to the other party at least sixty (60) calendar days
        prior to such disclosure. The other party shall have forty-five (45)
        calendar days from the receipt of such proposed public disclosure to
        object to the proposed disclosure or any portion thereof (a) on the
        basis that it contains or references unprotected patentable subject
        matter or (b) violates any provision of this Agreement, including the
        confidentiality provisions hereof or (c) is factually inaccurate.
        Notwithstanding anything herein to the contrary, if such party objects
        on the basis that the disclosure contains unprotected patentable subject
        matter, the disclosing party shall refrain from making the disclosure
        for ninety (90) calendar days from the date of the other party's
        objection in order to allow the other party an opportunity to obtain
        proper legal protection for the subject matter contained in the proposed
        public disclosure. In the event that the other party objects to any
        proposed public disclosure on the basis that some or all of said
        disclosure violates the confidentiality terms of this Agreement, said
        disclosure shall not be made. In addition the parties agree to credit
        each other when a publication is based in whole or in significant part
        of the other party's Technology.

    8.3 Publicity. Neither party may make any public announcement or otherwise
        disclose the terms of this Agreement without the prior written consent
        of the other party, which consent shall not be unreasonably withheld.
        Upon execution of this Agreement, the parties shall issue a press
        release in the form mutually agreed upon variant thereof. Any additional
        press 

*** CONFIDENTIAL TREATMENT REQUESTED

                                       28


<PAGE>   29

        releases or public announcements with respect to this Agreement or
        the transactions and activities contemplated herein shall be at such
        time and in such manner as the parties shall mutually agree upon.

9    PATENT PROSECUTION AND COPYRIGHTS

    9.1 Patent Filing, Prosecution and Maintenance. Merck will have
        responsibility and sole control, at Merck's expense, for the filing,
        prosecution (including an opposition or interference) and maintenance of
        patents and patent applications claiming Compounds, Derivatives, Hits
        Development Candidates or Products and the pharmaceutical uses thereof
        and any Inventions owned by Merck or assigned to Merck hereunder and
        which are not licensed to Aurora pursuant to Sections 5.3.2. Aurora will
        have responsibility and sole control, at Aurora's expense, for the
        filing, prosecution (including an opposition or interference) and
        maintenance of patents and patent applications relating to the System
        and Aurora Reporters; provided, however, that with respect to patents or
        patent applications claiming Inventions licensed by Merck to Aurora
        pursuant to Sections 5.3.2 and jointly owned patents and patent
        applications, Merck and Aurora will cooperate in the filing, prosecution
        (including an opposition or interference), and maintenance of such
        patents and patent applications and the parties will share equally in
        the control and expenses (including attorney fees) for such patents and
        such patent applications. Should one party choose not to share in the
        control, filing, prosecution, expense or maintenance of such patents or
        patent applications, the other party with thirty (30) days written
        notice to the non-sharing party may choose either (i) to gain sole
        control of the filing, prosecution (including an opposition or
        interference) or maintenance of such patents or patent applications or
        (ii) to abandon the same; provided, however, that the party that
        proceeds with the filing, prosecution (including an opposition or
        interference), and maintenance will have sole responsibility for, and
        sole control of the same and expenses; further provided, however, that
        the party that does not proceed with such filing, prosecution,
        maintenance and expenses will perfect the assignment of rights to the
        party proceeding with such filing, prosecution, maintenance and
        expenses. At Merck's reasonable request, not to exceed one request per
        year, Aurora will use reasonable efforts to provide Merck with copies of
        patent applications related to Aurora Patent Rights licensed under
        Section 5.1, including patent applications covering improvements to
        Aurora Reporters.

    9.2 Copyrights. The parties agree to treat and handle, to the maximum
        practical extent, any copyrights owned or Controlled by a party or
        parties in the same manner as Patent Rights owned or Controlled by such
        party or the parties.

10   WARRANTIES AND INDEMNIFICATION

    10.1       Mutual Representations and Warranties. The parties make the
        following representations and warranties to each other:

        10.1.1 Corporate Power. Each party hereby represents and warrants that
           such party is duly organized and validly existing under the laws of
           the state of its incorporation and has 

*** CONFIDENTIAL TREATMENT REQUESTED

                                       29


<PAGE>   30

           full corporate power and authority to enter into this Agreement and
           to perform its obligations under the Agreement.

        10.1.2 Due Authorization. Each party hereby represents and warrants that
           such party (a) has the requisite power and authority and the legal
           right to enter into the Agreement and to perform its obligations
           hereunder; and (b) has taken all necessary action on its part to
           authorize the execution and delivery of the Agreement and to
           authorize the performance of its obligations hereunder and the grant
           of rights extended by it hereunder.

    10.2     Warranties and Aurora Technology. Aurora represents and warrants to
        Merck on and before the Effective Date that to the best knowledge of
        Aurora:

           ***.

        10.2.1 ***.

        10.2.2 EXCEPT AS SET FORTH IN SECTION 10.2 ABOVE, AURORA (INCLUDING ITS
           OFFICERS, EMPLOYEES AND AGENTS) EXPRESSLY DISCLAIMS ANY
           REPRESENTATIONS AND WARRANTIES, WHETHER EXPRESS OR IMPLIED, RELATING
           TO AURORA PATENT RIGHTS, AURORA COPYRIGHTS AND AURORA TECHNOLOGY.
           AURORA FURTHER DISCLAIMS I) ANY EXPRESS OR IMPLIED WARRANTY OF
           MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF AURORA
           TECHNOLOGY, A DELIVERABLE, A VIPR, AN OPTIONAL DELIVERABLE, AND
           AURORA PATENT RIGHTS, II) ANY EXPRESS OR IMPLIED WARRANTY THAT THE
           PRACTICE OF AURORA COPYRIGHTS, AURORA TECHNOLOGY OR AURORA PATENT
           RIGHTS WILL NOT INFRINGE A PATENT, COPYRIGHT, TRADEMARK OR OTHER
           RIGHT OF A THIRD PARTY, AND III) ANY EXPRESS OR IMPLIED WARRANTY
           REGARDING THE PATENTABILITY OF ANY AURORA TECHNOLOGY, INCLUDING
           AURORA TECHNOLOGY CLAIMED IN PATENT APPLICATIONS AS PART OF AURORA
           PATENT RIGHTS.

    10.3   Aurora Indemnification. Aurora hereby agrees to indemnify, defend and
           hold Merck, and its officers, directors, employees, and agents
           (collectively, the "Merck Indemnitees") harmless from and against all
           damages or other amounts payable to a Third Party, including
           reasonable attorneys' fees and costs of litigation, resulting from a
           suit or ***.

    10.4     Warranties and Merck Technology. Merck represents and warrants to
        Aurora on and before the Effective Date that to the best knowledge of
        Merck:
           ***.

        10.4.1 EXCEPT AS SET FORTH IN SECTION 10.4 ABOVE, MERCK (INCLUDING ITS
           OFFICERS, EMPLOYEES AND AGENTS) EXPRESSLY DISCLAIM ANY
           REPRESENTATIONS AND WARRANTIES, WHETHER EXPRESS OR IMPLIED, 

*** CONFIDENTIAL TREATMENT REQUESTED

                                       30


<PAGE>   31

           RELATING TO MERCK PATENT RIGHTS, MERCK COPYRIGHTS AND MERCK
           TECHNOLOGY. MERCK FURTHER DISCLAIMS: I) ANY EXPRESS OR IMPLIED
           WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF
           MERCK TECHNOLOGY OR MERCK PATENT RIGHTS; II) ANY EXPRESS OR IMPLIED
           WARRANTY THAT THE PRACTICE OF MERCK COPYRIGHTS, MERCK TECHNOLOGY OR
           MERCK PATENT RIGHTS WILL NOT INFRINGE A PATENT, COPYRIGHT, TRADEMARK
           OR OTHER RIGHT OF A THIRD PARTY; AND III) THE PATENTABILITY OF ANY
           MERCK TECHNOLOGY, INCLUDING MERCK TECHNOLOGY CLAIMED IN PATENT
           APPLICATIONS AS PART OF MERCK PATENT RIGHTS.

    10.5     Merck Indemnification. Merck hereby agrees to indemnify, defend and
        hold Aurora, and its officers, directors, employees, and agents
        (collectively, the "Aurora Indemnitees") harmless from and against all
        damages or other amounts payable to a Third Party, including reasonable
        attorneys' fees and costs of litigation, ***.

11   TERM, EARLY SYSTEM PURCHASE CONCLUSION AND TERMINATION

    11.1     Term. The term of this Agreement will begin on the Effective Date 
        and shall continue until expiration of the ***.

    11.2     Termination by Mutual Agreement. The parties may at any time 
        terminate this Agreement, in whole or in part, by written agreement
        executed by both Aurora and Merck. In such event, the document effecting
        such termination shall specify the continuation or termination of any
        license rights granted hereunder, as well as any other terms agreed to
        by both parties.

        11.2.1 ***.

    11.3      ***.

    11.4     Effect of Expiration or Termination. Except as provided by Section
        11.4, Expiration or termination of this Agreement shall not relieve the
        parties of any obligation accruing prior to such expiration or
        termination. The obligations and rights of the parties under Sections
        3.1.4, 5.3, 5.1.8,, 10.2.2, 10.3, 10.4.1, 10.5, Articles 6, 7, 8, 9, and
        12, thereof, as well as any provisions, which, by their intent or
        meaning are intended to so survive, shall survive termination or
        expiration of this Agreement. Except as otherwise expressly provided in
        this Agreement, the rights and obligations of the parties under Sections
        5.1.1, 5.1.2, 5.1.3 and 5.1.4 hereof shall terminate and be of no
        further force or effect whatsoever upon any termination of this
        Agreement.

    11.5    Effect of Expiration or Termination. Except as provided by Section
        11.4, Expiration or termination of this Agreement shall not relieve the
        parties of any obligation accruing prior to such expiration or
        termination. The obligations and rights of the parties under ***,
        thereof, as well as any provisions, which, by their intent or meaning
        are intended to so survive, shall survive termination or expiration of
        this Agreement. Except as otherwise 

*** CONFIDENTIAL TREATMENT REQUESTED

                                       31


<PAGE>   32


        expressly provided in this Agreement, the rights and obligations of the
        parties under *** hereof shall terminate and be of no further force or
        effect whatsoever upon any termination of this Agreement.

12   MISCELLANEOUS

    12.1     Assignment. Notwithstanding any provision of this Agreement to the
        contrary, ***.

    12.2     Binding Effect. This Agreement shall be binding upon and inure to 
        the benefit of the successors and permitted assigns of the parties. Any
        assignment not in accordance with this Agreement shall be void.

    12.3     Force Majeure. Neither party shall lose any rights hereunder or be
        liable to the other party for damages or losses on account of failure of
        performance by the defaulting party if the failure is occasioned by war,
        fire, explosion, flood (including but not limited to, floods caused by
        El Nino), earthquake, strike, lockout, embargo, act of God, or any other
        similar cause beyond the control of the defaulting party, provided that
        the party claiming force majeure has exerted all reasonable efforts to
        avoid or remedy such force majeure and thereafter takes all reasonable
        steps to mitigate any such delay in performance hereunder and any
        damages that may be incurred by the other party thereby.

    12.4     Notices. Any notices or communications provided for in this 
        Agreement to be made by either of the parties to the other shall be in
        writing, in English, and shall be made by prepaid air mail with return
        receipt addressed to the other at its address set forth below. Any such
        notice or communication may also be given by hand, by courier or by
        facsimile to the appropriate designation. Notices shall be sent:

If to Merck, to:      Merck & Co., Inc.
                      P.O. Box 100
                      One Merck Drive
                      Whitehouse Station, NJ 08889-0100

Attention:            Vice President, Corporate Licensing

Copy:                 Office of Secretary
                      Fax: 908-735-1246

If to Aurora, to:     Aurora Biosciences Corporation
                      11010 Torreyana Road
                      San Diego, CA  92121

Attention:            Timothy J. Rink, M.D., Sc.D.
                      Chairman, CEO, and President

Copy:                 Paul A. Grayson
                      Senior Vice President, Corporate Development

*** CONFIDENTIAL TREATMENT REQUESTED

                                       32


<PAGE>   33

                      Fax: 619-452-5723

        provided that if such notice or communication relates to an amendment to
        this Agreement or to any notice pursuant to Article 11 hereof, a copy
        shall also be sent to:

If to Aurora, to:            John Mendlein, Ph.D., J.D.
                             Vice President, Senior Legal Counsel
                             Aurora Biosciences Corporation
                             11010 Torreyana Road
                             San Diego, CA  92121

    Either party may by like notice specify or change an address to which
    notices and communications shall thereafter be sent. Notices sent by mail,
    facsimile or courier shall be effective upon receipt and notices given by
    hand shall be effective when delivered.

    12.5     Governing Law and Jurisdiction. This Agreement shall be governed by
        the laws of the State of California, without regard to its rules of
        conflict of laws as such laws are applied to contracts entered into and
        to be performed within such state.

    12.6     Waiver. Except as specifically provided for herein, the waiver from
        time to time by either of the parties of any of their rights or their
        failure to exercise any remedy shall not operate or be construed as a
        continuing waiver of same or any of other of such party's rights or
        remedies provided in this Agreement.

    12.7     Severability. If any term, covenant or condition of this Agreement 
        or the application thereof to any party or circumstance shall, to any
        extent, be held to be invalid or unenforceable, then the remainder of
        this Agreement, or the application of such term, covenant or condition
        to parties or circumstances other than those as to which it is held
        invalid or unenforceable, shall not be affected thereby and each term,
        covenant or condition of this Agreement shall be valid and be enforced
        to the fullest extent permitted by law; and the parties hereto covenant
        and agree to renegotiate any such term, covenant or application thereof
        in good faith in order to provide a reasonably acceptable alternative to
        the term, covenant or condition of this Agreement or the application
        thereof that is invalid or unenforceable, it being the intent of the
        parties that the basic purposes of this Agreement are to effectuated.

    12.8     Independent Contractors. It is expressly agreed that Aurora and 
        Merck shall be independent contractors and that the relationship between
        the two parties shall not constitute a partnership or agency of any
        kind. Neither Aurora nor Merck shall have the authority to make any
        statements, representations or commitments of any kind, or to take any
        action, which shall be binding on the other, without the prior written
        authorization of the party to do so.

*** CONFIDENTIAL TREATMENT REQUESTED

                                       33


<PAGE>   34
    12.9     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.

    12.10    Entire Agreement. This Agreement between the parties sets forth all
        of the covenants promises, agreements, warranties, representations,
        conditions and understandings between the parties hereto, and supersedes
        and terminates all prior agreements and understanding between the
        parties, with respect to the subject matter hereof. There are no
        covenants, promises, agreements, warranties, representation conditions
        or understandings; either oral or written, between the parties other
        than as set forth herein and therein. No subsequent alteration,
        amendment, change or addition to this Agreement shall be binding upon
        the parties hereto unless reduced to writing and signed by the
        respective authorized officers of the parties. This Agreement shall not
        be strictly construed against either party hereto. Any conflict between
        the terms set forth in the text of this Agreement and the terms of any
        Exhibit hereto shall be resolved in favor of the text of this Agreement.

    12.11    No Third Party Beneficiaries. No Third Party, including any 
        employee of any party to this Agreement when acting within the scope of
        his or her employment, shall have or acquire any rights by reason of
        this Agreement. Nothing contained in this Agreement shall be deemed to
        constitute the parties partners with each other or any third party.

    12.12    Construction. The term "Article" or "Section" can refer to any 
        single paragraph level found herein or any collection of multiple
        paragraphs.

    12.13    Dispute Resolution. The parties recognize that disputes as to 
        certain matters may from time to time arise during the term of this
        Agreement which relate to either party's rights and/or obligations
        hereunder. It is the objective of the parties to establish procedures to
        facilitate the resolution of disputes arising under this Agreement in an
        expedient manner by mutual cooperation and without resort to
        arbitration. The parties agree that prior to any arbitration concerning
        this Agreement, a member of Merck's senior management and Aurora's
        president will meet in person or by video-conferencing in a good faith
        effort to resolve any disputes concerning this Agreement. Within thirty
        (30) days of a formal request by either party to the other, any party
        may, by written notice to the other, have such dispute referred to their
        respective officers designated or their successors, for attempted
        resolution by good faith negotiations, such good faith negotiations to
        begin within thirty (30) days after such notice is received. Any dispute
        arising out of or relating to this Agreement which is not resolved
        between the parties or the designated officers of the parties pursuant
        to Section 12.13 shall be resolved by final and binding arbitration
        conducted in Denver, Colorado (unless the parties mutually agree to
        another location) under the then current Licensing Agreement Arbitration
        Rules of the American Arbitration Association ("AAA"). The arbitration
        shall be conducted by three (3) arbitrators who are knowledgeable in the
        subject matter which is at issue in the dispute. One arbitrator will be
        selected by Merck and one arbitrator will be selected by Aurora and the
        third arbitrator will be appointed by the AAA. In conducting the
        arbitration, the arbitrator shall determine what discovery will be
        permitted, consistent with the goal of limiting the cost and time which
        the parties must expend for discovery (and provided that the arbitrators
        shall permit such discovery they 

*** CONFIDENTIAL TREATMENT REQUESTED

                                       34


<PAGE>   35
        deem necessary to permit an equitable resolution of the dispute), 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, specific
        performance or replevin of property. The arbitrators shall also be able
        to award actual or general damages, but shall not award any other form
        of damage (e.g., consequential, punitive or exemplary damages). The
        parties shall share equally the arbitrator's fees and expenses pending
        the resolution of the arbitration unless the arbitrators require the
        non-prevailing party to bear all or any portion of the costs of the
        prevailing party. The decision of the arbitrators shall be final and may
        be sued on or enforced by the party in whose favor it runs in any court
        of competent jurisdiction at the option of such party. Notwithstanding
        anything to the contrary in this Section 12, either party may seek
        immediate injunctive or other interim relief from any court of competent
        jurisdiction with respect to any breach of Articles 5, or 8 hereof, or
        otherwise to enforce and protect the patent rights, copyrights,
        trademarks, or other intellectual property rights owned or Controlled by
        such party. In no event shall a demand for arbitration be made after the
        date when the institution of a legal or equitable proceeding based on
        such claim, dispute or other matter in question would be barred by the
        applicable statute of limitations.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.


MERCK & CO., INC.                     AURORA BIOSCIENCES CORPORATION

By: /s/ EDWARD M. SCOLNICK            By: /s/ TIMOTHY J. RINK
   -----------------------------         ---------------------------------------
Name: Edward M. Scolnick              Name: Timothy J. Rink
     ---------------------------           -------------------------------------
Title: President, Merck Research      Title: President & Chief Executive Officer
      --------------------------            ------------------------------------
       Laboratories
      --------------------------


*** CONFIDENTIAL TREATMENT REQUESTED

                                       35
<PAGE>   36
                                LIST OF EXHIBITS



***


*** CONFIDENTIAL TREATMENT REQUESTED


                                       36