<PAGE>   1
Certain confidential portions of this Exhibit were omitted by means of blackout
of the text (the "Mark"). This Exhibit has been filed separately with the
Secretary of the Commission without the Mark pursuant to the Company's
Application Requesting Confidential Treatment under Rule 24b-2 under the
Securities Exchange Act.

                                                                Exhibit 10.38

                           FURTHER EXTENSION AGREEMENT


         This agreement (the "Further Extension Agreement"), effective as of
November 1, 1996, by and between:

         Eli Lilly and Company, a corporation having its principal place of
business at Lilly Corporate Center, Indianapolis, Indiana 46285, hereinafter
referred to as "Lilly", and SIBIA Neurosciences, Inc., a corporation having its
principal place of business at 505 Coast Boulevard South, La Jolla, California
92037-4641, hereinafter referred to as "SIBIA".

                                    RECITALS

         1. Lilly and SIBIA have been conducting research directed to the
discovery of compounds for the treatment of central nervous system disorders,
based on the modulation of voltage-dependent calcium channels. The research is
being performed under an Agreement between the parties, effective May 1, 1992,
as modified and extended by an Extension Agreement effective May 1, 1995, which
created a plan of collaborative research to be carried out by SIBIA and Lilly.
The Agreement expires by its terms on May 1, 1997.

         2. SIBIA and Lilly have decided that they wish to further extend the
Agreement and the collaboration until October 31, 1998, to modify the scope of
the research to be carried out under the Agreement, and to amend some other
aspects of the Agreement.

         3. This Further Extension Agreement records the new arrangement between
Lilly and SIBIA, by restating Sections of the 1992 Agreement and the 1995
Extension Agreement which are amended by the new arrangement of the parties.
Effective as of November 1, 1996, such restatement shall have the effect of
amending certain other Sections of the 1992 Agreement as amended by the 1995
Extension Agreement, whose meanings or terms are affected by the Sections
restated hereby. All Sections of the 1992 Agreement and the 1995 Extension
Agreement which are not restated in or otherwise amended by this Further
Extension Agreement are continued in force unchanged.


                                    Article I

         ***Restate Section 1.02 to read as follows:

         Section 1.02. "Project" means a collaborative research project to be
carried out by SIBIA and Lilly [*] human neuronal calcium channels ("VDCCs") as
targets for the discovery of new therapeutic agents. Information and materials
generated in the course of this research, including Cell Lines, will be utilized
by both parties in biological test systems to identify chemical entities which
interact with VDCCs within the Project.


[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   2
         The Project and the technical approach is more fully described in the
action plan prepared by SIBIA and approved by the Project Team. The action plan
may be amended from time to time by written agreement of the Project Team but
the scope of the Project will stay with the same general definition provided
here. A copy of the action plan is attached to this Further Extension Agreement.

         ***Restate Section 1.06 to read as follows:

         Section 1.06. "Project Compound" means any chemical entity which is
identified or further developed for a Project Use, by Lilly independently, or
jointly by Lilly and SIBIA, subsequent to November 1, 1996 and during the term
of the Project under this Further Extension Agreement, or within a [*] period
following the termination or expiration of this Further Extension Agreement, by
use of a Cell Line, and which chemical entity interacts with a VDCC. Project
Compound shall also include any derivative or analogue of a Project Compound, as
defined above, which is conceived or reduced to practice anytime during the term
of the Project under this Further Extension Agreement or within [*] period
following termination or expiration of this Further Extension Agreement, and
which is specifically synthesized in an effort to optimize therapeutic utility
based upon information learned from a Project Compound.

         Project Compound shall exclude any chemical substance identified by
Lilly as having therapeutic application or any other utility by a method other
than evaluation using a Cell Line, and not further developed using a Cell Line.
Project Compound shall additionally exclude any chemical entity which Lilly
receives from a third party who has identified the substance as potentially
useful prior to submission to Lilly, and not further developed using a Cell
Line.

        Notwithstanding any other provision of this Further Extension Agreement,
SIBIA and Lilly shall retain all of their respective rights and obligations
pursuant to Article VI of the Prior Agreement with respect to Products and
Project Compounds as defined under the Prior Agreement; provided that the [*]
period following expiration or termination in the definition of "Project
Compound" under the Prior Agreement shall begin as of November 1, 1996.

         ***Restate Section 1.12. to read as follows:

         Section 1.12. "SIBIA Compound" means a chemical entity identified or
developed by SIBIA subsequent to November 1, 1996 and during the term of the
Project defined in Article V for this Further Extension Agreement that strongly
or primarily interacts [*] with a VDCC within the Project, and to which SIBIA
has, or has licensed, rights to its composition.

         SIBIA Compound shall exclude any chemical substance identified by SIBIA
as having therapeutic application or any other utility by a method other than
evaluation using a Cell Line, and not further developed using a Cell Line. SIBIA
Compound shall additionally exclude any chemical entity which SIBIA receives
from a third party who has identified the substance as potentially useful prior
to submission to SIBIA, and not further developed using a Cell Line.

                                   Article II

         ***Restate Section 2.00 to read as follows:

         Section 2.00. Duration of Funding. Subject to the terms and conditions
of this Further Extension Agreement, Lilly shall provide Project Funds to SIBIA
pursuant to this Further Extension Agreement for the sole purpose of conducting
the Project for the period from November 1, 1996 to October 31, 1998.

         For the time period November 1, 1996 to October 31, 1997, Project Funds
shall be [*] increased or decreased by a factor (a) which reflects changes in
the Employment Cost Index (for Private Industry Workers, by occupational group,
in the "Professional specialty and technical occupations" category) as reported
by the U.S. Bureau of Labor Statistics as of September , 1996 when compared to
the comparable statistic for September of the previous year, and for the time
period November 1, 1997 to October 31, 1998, that same amount, increased or
decreased by a factor (b) which again reflects changes in the Employment Cost
Index (for Private Industry Workers, by occupational group, in the "Professional
specialty and technical occupations" category) as reported by the U.S. Bureau of
Labor Statistics as of September, 1996 when compared to the comparable statistic
for September of the previous year. Accordingly, Project Funds for the time
period November 1, 1996 to October 31, 1998 shall be:

         [*]
         [*]

         ***Restate Section 2.01 to read as follows:

         Section 2.01. Schedule of Payments. Project funds shall be paid to
SIBIA by Lilly in substantially equal quarterly payments on or before January 1,
April 1, July 1, and October 1 of each calendar year during the term of the
Further Extension Agreement. Because of the way that payments were made during
the first year of the 1992 Agreement, the last quarterly payment will be that
which is due on or before July 1, 1998.

         ***Restate Section 2.03 to read as follows:

         Section 2.03. Use of Project Funds. SIBIA shall use Project funds
solely for work on the Project [*].




[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   3
[*] SIBIA shall at substantially all times during the term of this Further
Extension Agreement assign up to [*] to work on the Project. While the level of
training and research experience of these FTEs may vary from time to time, SIBIA
will use its best efforts to ensure that at least [*] of the FTEs assigned to
the Project will have educational degrees of Ph.D. or M.D., or research
experience of greater than [*] years in a relevant scientific field that
qualifies them as equivalent to a Ph.D. or M.D. level researcher. SIBIA shall
have the ability to subcontract specific tasks as needs and efficiency suggest
upon approval of the Project Team.

                                   Article III

         ***Restate Section 3.00 to read as follows:

         Section 3.00. Planning and Review. Upon execution of this Further
Extension Agreement and from time to time during the term of the Further
Extension Agreement under Article V, the Project Team shall meet to discuss the
direction and progress of the Project. The Project shall be conducted
substantially in accordance with the action plan attached hereto. The action
plan will be modified from time to time with the written approval of the Project
Team to direct the Project in an optimal way. The Project Team shall endeavor to
assign specific tasks to both SIBIA and Lilly so as to maximize progress on the
Project and to avoid any duplication of research effort.

         ***Restate Section 3.05 to read as follows:

         Section 3.05. Exclusivity of Research. During the term of the Further
Extension Agreement under Article V, SIBIA shall not enter into an agreement
with another company for support of the Project as defined in Section 1.02
without the written consent of Lilly. SIBIA may conduct research on, as well as
drug discovery with, calcium channels which are outside the Project, either
independently or with or for other companies, including, but not limited to,
calcium channels which may have been included within the meaning or definition
of "VDCC" or "Project" prior to the effect [Effective Date?] of this Further
Extension Agreement, and new constructs or cell lines that may be incorporated
into the Project in accord with Section 6.11.

         SIBIA may use the products of the Project, including Cell Lines, for
its own drug discovery research, and as negative controls for research conducted
with or for other companies on other receptor or ion channel classes or
subtypes, but not in any other manner without the written consent of Lilly.


                                   Article IV

         ***Add a new paragraph to Section 4.00 as follows:

         On November 1, 1998, Lilly shall prepare and provide to SIBIA a report
listing all Project Compounds, as defined in the Prior Agreement, including
those which are in active preclinical or clinical development or could
potentially be entered into development. In addition, one (1) year after the
termination or expiration of this Further Extension Agreement, Lilly shall
prepare and provide to SIBIA a report listing all Project Compounds as defined
in this Further Extension Agreement, including those which are in active
preclinical or clinical development or could potentially be entered into
development.




[*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   4
         ***Replace the second paragraph of Section 4.01 with the following:

         In addition, SIBIA will [*].

         ***Add the following sentence to the end of Section 4.03:

         The foregoing is more fully described in Section 6.00.

                                    Article V

         ***Restate Section 5.00 to read as follows:

         Section 5.00. Term. The Project defined in Section 1.02 and covered by
the Further Extension Agreement shall continue until October 31, 1998, unless
sooner terminated in accordance with the provisions of Section 5.02 or 5.03, or
extended pursuant to Section 5.01.

         ***Restate Section 5.01 to read as follows:

         Section 5.01. Extension. By mutual written agreement of both SIBIA and
Lilly, the Further Extension Agreement may be extended beyond October 31, 1998
for additional periods, with such extension contemplating additional funding by
Lilly and continuing studies on the Project pursuant to direction by the Project
Team.

         ***Restate Section 5.02 to read as follows:

         Section 5.02. Voluntary Termination. Either party may terminate the
Further Extension Agreement upon three (3) months advance written notice
provided anytime after August 1, 1997. Should Lilly terminate the Further
Extension Agreement, it shall be relieved of its obligation to pay any further
Project Funds after the effective date of termination (i.e. three (3) months
after written notice of its intent to terminate has been given).

         ***Restate the first sentence of Section 5.04 to read as follows:

         Section 5.04. Effect of Termination or Expiration. Termination or
expiration of the Further Extension Agreement shall not affect the rights and
obligations of the parties accrued under Articles III, IV and VI prior to
termination or expiration, and under Section 1.06 as it relates to Article VI
after termination or expiration. Any Project Funds paid by Lilly but not
committed by SIBIA at the effective date of termination shall be refunded to
Lilly, and Lilly shall have no further obligation to pay Project Funds.


                                   Article VI

         ***Restate Section 6.00 to read as follows:

Pursuant to this Agreement, SIBIA warrants that it has the right to grant and
hereunder so grants Lilly a worldwide license without the right to sublicense,
to use all SIBIA Project Technology as defined in Section 1.07, and Cell Lines,
and any patents covering such Technology, as well as any patents and patent
applications held by SIBIA at the time of execution of this Agreement, or at any
time thereafter except as limited by Section 1.07, the licensing of which may
be required to make, use or sell Products or to otherwise practice Project
Technology. for clarity, Lilly does not have the right to further modify the
Cell Lines.

         As to SIBIA Project Technology and Cell Lines generated during the term
of the Project under this Further Extension Agreement, and the claims of patents
which relate directly to SIBIA Project Technology and Cell Lines, said license
shall be exclusive except as to SIBIA during the term of the Project under this
Further Extension Agreement, and nonexclusive thereafter.

         As to SIBIA Project Technology and Cell Lines generated during the
term of the Prior Agreement and the claims of any patents or patent
applications referred to in Section 6.00 of the Prior Agreement, Lilly's
license shall be worldwide, nonexclusive, non-sublicensable and royalty-bearing
to the extent provided therein. For clarity, Lilly does not have the right to
further modify Cell Lines generated during the term of the Prior Agreement.

         As to Lilly Project Technology generated during the term of the Project
under this further Extension Agreement, and the claims of any patents or patent
applications which relate directly to Lilly Project Technology, SIBIA shall have
a non-royalty-bearing, non-sublicensable license to practice or use Lilly
Project Technology, with said license being exclusive except as to Lilly during
the term of the Project under this Further Extension Agreement, and nonexclusive
thereafter.

         As to Lilly Project Technology generated during the term of the Prior
Agreement and the claims of any patents or patent applications referred to in
Section 6.00 of the Prior Agreement, SIBIA's license shall be worldwide,
nonexclusive, non-sublicensable and non-royalty-bearing.

         ***Restate Section 6.07 to read as follows:

         Section 6.07. Additional Rights. If SIBIA identifies or develops a
SIBIA Compound pursuant to this Further Extension Agreement prior to the
expiration of the term of the Project hereof, or, if earlier, the date notice of
termination is given under Article V, subject to the rights of or SIBIA's
obligations to third parties, SIBIA shall disclose it and its properties to
Lilly, and Lilly may decide to negotiate for commercial rights to it. The timing
of such disclosure shall be at SIBIA's discretion but must occur by the
expiration of the term of the Project or within ten (10) days of the date notice
of termination is given under Article V. If Lilly so decides the parties shall
negotiate in good faith and SIBIA shall not offer the SIBIA Compound to a third
party unless Lilly fails to notify SIBIA of its intent to negotiate for the
SIBIA Compound within ninety (90) days from the date of disclosure, or SIBIA and
Lilly fail to reach an agreement within one hundred and eighty (180) days from
the date of disclosure. The provisions of this Section 6.07 set forth the sole
right of first negotiation of Lilly with respect to any SIBIA Compounds as
defined. Without limiting the foregoing, effective November 1, 1996, Lilly shall
not have such right with respect to compounds that may have been included in the
meaning of "SIBIA Compounds" prior to the effect of this Further Extension
Agreement.

         ***Add a new Section 6.11 as follows:

         Section 6.11. New Constructs.

         (a) At any time during the term of this Further Extension Agreement
         upon thirty (30) days advance written notice to SIBIA or the Project
         Team, Lilly shall have the right to expand the direction of the Project
         to include the preparation of new constructs or new cell lines ("New
         Constructs") based upon, derived from or comprising VDCC subunits that
         were part of the Project as previously defined under the Prior
         Agreement and in existence as of October 31, 1996 [*] human neuronal
         VDCCs as defined in Section 1.02. In the event such a New Construct is
         proposed and the FTEs assigned to the Project are insufficient to
         prepare such New Constructs:

                (i)     SIBIA shall provide Lilly with a budget for the
                requested work and shall, in conjunction with the Project Team,
                assign additional FTEs to work on the New Constructs, subject to
                then current availability within SIBIA's research staff as
                determined by SIBIA (without any obligation on SIBIA's part to
                hire additional FTEs);

                (ii)    Lilly shall advance to SIBIA, on each scheduled payment
                date as described under Section 2.01, Lilly's share of the
                expenses related to work on the New Constructs, based on the
                budget for New Constructs submitted by SIBIA pursuant to Section
                6.11(a)(i) ("Projected New Construct Expenses"), which expenses
                shall be deemed Project Funding for the following quarter. SIBIA
                shall maintain records of expenses related to work on the New
                Constructs actually incurred by it ("Actual New Construct
                Expenses") in accordance with procedures to be agreed upon
                between the parties. SIBIA shall report quarterly to Lilly on
                Actual New Construct Expenses, with such reports to be submitted
                within thirty (30) days after the end of each calendar quarter
                and sixty (60) days after the end of each calendar year. Any
                difference between the Actual New Construct Expenses and
                Projected New Construct Expenses for such quarter upon which
                Lilly's advance payment was made to SIBIA shall be applied as an
                adjustment to the payment due from Lilly for the quarter
                immediately following the determination by SIBIA of such
                difference as follows:

                        (A)     In the case of Actual New Construct Expenses
                exceeding Projected New Construct Expenses for a particular
                quarter, the amount of the difference shall be added to Lilly's
                advance payment of Projected New Construct Expenses for the
                quarter immediately following the determination by SIBIA of such
                difference.

                        (B)     In the case of Actual New Construct Expenses
                being less than Projected New Construct Expenses, for a
                particular quarter, the amount of the difference shall be
                subtracted from Lilly's advance payment of Projected New
                Construct Expenses for the quarter immediately following the
                determination by SIBIA of such difference.

                        (C)     Notwithstanding the foregoing paragraphs (A) and
                (B) above, upon the date of expiration or termination of this
                Agreement, if Projected New Construct Expenses exceed Actual New
                Construct Expenses, such excess shall be promptly refunded to
                Lilly by SIBIA, or if Actual New Construct Expenses exceed
                Projected New Construct Expenses as of such date, Lilly shall
                promptly pay such excess to SIBIA, as applicable.

                (iii)   Lilly shall, at its option, be entitled to reduce the
                term of the Project in this Further Extension Agreement as set
                forth in Section 5.00 by one calendar month for each additional
                four months of FTE effort added to the Project under this
                Section 6.11; and

                (iv)    the terms Project and Cell Line as used in this Further
                Extension Agreement shall thereupon include such additional New
                Constructs.

                (v)     SIBIA will retain records of FTE days worked on the
                Project, as well as the work performed, and Lilly shall have the
                right to audit such records during business hours upon
                reasonable request.

         (b) Notwithstanding any other provision of this Section 6.11, Lilly's
         right under the foregoing paragraph (a) to request New Constructs shall
         be subject in all respects to the rights of third parties pursuant to
         any agreements which SIBIA may enter into following the date hereof and
         prior to Lilly's request for New Constructs under (a) above, and to the
         rights of SIBIA in the event SIBIA has already generated or is in the
         process of generating New Constructs requested by Lilly prior to
         Lilly's request.

         [*] CONFIDENTIAL TREATMENT REQUESTED
<PAGE>   5

IN WITNESS WHEREOF, the parties hereto have executed this Agreement, in
duplicate originals, by their respective officers thereunto duly authorized, the
day and year herein written.

                                        ELI LILLY AND COMPANY


                                        By /s/ AUGUST M. WATANABE
                                           ----------------------------
                                               August M. Watanabe
                                               Vice President

                                        Date   January 7, 1997
                                            ---------------------------


                                        SIBIA NEUROSCIENCES, INC.


                                        By /s/ WILLIAM T. COMER
                                            ---------------------------
                                               William T. Comer
                                               President and CEO

                                        Date   December 19, 1997
                                            ---------------------------