<PAGE>   1

                                                                    EXHIBIT 10.3

CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.


                                LICENSE AGREEMENT


        THIS LICENSE AGREEMENT dated as of November 3, 1994 (the "Agreement"),
is entered into between STUART A. KAUFFMAN, M.D., an individual ("Kauffman"),
having a place of business located at 15 Montecito, Santa Fe, New Mexico 87501,
and IXSYS, INC., a Delaware corporation ("Ixsys"), having a place of business
located at 3550 Dunhill Street, San Diego, California 92121.

                              W I T N E S S E T H :

        WHEREAS, Kauffman owns or has rights in certain technology relating to
the random generation of genes.

        WHEREAS, Ixsys desires to obtain, and Kauffman desires to grant to
Ixsys, an exclusive worldwide license under Kauffman's rights in certain patent
rights and know-how relating to such technology, on the terms and subject to the
conditions of the Agreement.

        NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, the parties hereby agree as follows:

                                    ARTICLE 1
                                   DEFINITIONS

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

        1.1 "Affiliate" shall mean, with respect to any Person, any other Person
which directly or indirectly controls, is controlled by, or is under common
control with, such Person. A Person shall be regarded as in control of another
Person if it owns, or directly or indirectly controls, at least fifty percent
(50%) of the voting stock or other ownership interest of the other Person, or if
it directly or indirectly possesses the power to direct or cause the direction
of the management and policies of the other Person by any means whatsoever.

        1.2 "B&K Know-How" shall mean all information and data, which is not
generally known, including, but not limited to, formulae, procedures, protocols,
techniques and results of experimentation and testing, which are necessary for
Ixsys to make, use, develop, sell or seek regulatory approval to market a
composition, or to practice a method or process, claimed in the B&K Patent
Rights in which Kauffman has an ownership or licensable interest.

        1.3 "B&K Patent Rights" shall mean (a) United States Patent Application
Serial No. 08/133,952, filed November 20, 1986, and all foreign counterpart
patents and patent applications thereto, and (b) all divisionals, continuations,
continuations-in-part, reissues, renewals, extensions or additions to such
patents and patent applications



                                      -1-
<PAGE>   2

(excluding the Random Chemistry Patent Rights if filed as a continuation-in-part
to the B&K Patent Rights).

        1.4 "First Commercial Sale" shall mean, with respect to any Product, the
first sale for use or consumption by the general public of such Product.

        1.5 "Huse Patent Rights" shall mean United States Patent No. 5,264,5634,
and all foreign counterpart patents and patent applications thereto, together
with all divisionals, continuations, continuations-in-part, reissues, renewals,
extensions or additions to such patents and patent applications.

        1.6 "Net Sales" shall mean, with respect to any product (including any
Product), the invoiced sales price of such product or Product billed to
independent customers who are not Affiliates, less, to the extent included in
the invoiced sales price, (a) credits, allowances, discounts and rebates to, and
chargebacks from the account of, such independent customers for spoiled,
damaged, out-dated, rejected or returned product or Product; (b) actual freight
and insurance costs incurred in transporting such product or Product in final
form to such customers; (c) cash, quantity and trade discounts; (d) sales, use,
value-added and other taxes or governmental charges incurred in connection with
the exportation or importation of such product or Product in final form; and (e)
the cost to Ixsys of the devices for dispensing or administering such product or
Product as well as diluents or similar materials which accompany such product or
Product as it is sold.

        1.7 "Person" shall mean an individual, corporation, partnership, trust,
business trust, association, joint stock company, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.

        1.8 "Products" shall mean all products which contain or are derived from
any compositions, which at the time such compositions are conceived, (a)
incorporate, use or are based upon any process, method or composition claimed in
a Valid B&K Patent Claim, or (b) if made, used or sold absent the license
granted under the Agreement would infringe a Valid B&K Patent Claim.

        1.9 "Random Chemistry Patent Rights" shall mean (a) United States Patent
Application Serial No. 08/049,268, filed April 19, 1993, and all foreign
counterpart patents and patent applications thereto, and (b) all divisionals,
continuations, continuations-in-part, reissues, renewals, extensions or
additions to such patents and patent applications.

        1.10 "Royalty Term" shall mean, with respect to each Product, the period
of time beginning on the date when a valid patent issues in the United States
which claims a Valid B&K Patent Claim and ending on the date when all United
States patents which claim any Valid B&K Patent Claim have expired or have been
held permanently revoked, unenforceable or invalid by a decision of a court or
other governmental agency of competent jurisdiction, unappealable or unappealed
within the time allowed for appeal,



                                      -2-
<PAGE>   3

and which has not been admitted to be invalid or unenforceable through reissue
or disclaimer or otherwise.

        1.11 "Territory" shall mean the entire world.

        1.12 "Third Party" shall mean any Person other than Kauffman, Ixsys and
their respective Affiliates.

        1.13 "Valid B&K Patent Claim" shall mean a claim of an issued and
unexpired patent in the United States included within the B&K Patent Rights,
which has not been held permanently revoked, unenforceable or invalid by a
decision of a court or other governmental agency of competent jurisdiction,
unappealable or unappealed within the time allowed for appeal, and which has not
been admitted to be invalid or unenforceable through reissue or disclaimer or
otherwise.

                                    ARTICLE 2
                         REPRESENTATIONS AND WARRANTIES

        2.1 Kauffman Representations. Kauffman hereby represents and warrants to
Ixsys as follows:

                2.1.1 Existence and Power. He is an individual, resident in the
State of New Mexico, and competent to conduct his affairs and to enter into and
perform his obligations under the Agreement.

                2.1.2 Capacity and Enforcement of Obligations. Kauffman has the
capacity and the legal right to enter into the Agreement and to perform his
obligations hereunder. The Agreement has been duly executed and delivered by
Kauffman, and constitutes a legal, valid, binding obligation, enforceable
against Kauffman in accordance with its terms.

                2.1.3 No Consents. All necessary consents, approvals and
authorizations of all governmental authorities and other Persons required to be
obtained by Kauffman in connection with the Agreement have been obtained.

                2.1.4 No Conflict. The execution and delivery of the Agreement
and the performance of Kauffman's obligations hereunder (a) do not conflict with
or violate any requirement of applicable laws or regulations, and (b) do not
conflict with, or constitute a default under, any contractual obligation of him.

                2.1.5 Licensed Technology. Kauffman is the sole owner of the B&K
Patent Rights, the B&K Know-How and the Random Chemistry Patent Rights and has
not granted to any Third Party any license or other interest in the B&K Patent
Rights or the B&K Know-How that would limit his ability to exclusively license
such rights to Ixsys hereunder.



                                      -3-
<PAGE>   4

        2.2 Ixsys Representations. Ixsys hereby represents and warrants to
Kauffman as follows:

                2.2.1 Corporate Existence and Power. Ixsys (a) is a corporation
duly organized, validly existing and in good standing under the laws of the
state in which it is incorporated; (b) has the corporate power and authority and
the legal right to own and operate its property and assets, to lease the
property and assets it operates under lease, and to carry on its business as it
is now being conducted and (c) is in compliance with all requirements of
applicable law, except to the extent that any noncompliance would not have a
material adverse effect on the properties, business, financial or other
condition of it and would not materially adversely affect its ability to perform
its obligations under the Agreement.

                2.2.2 Authorization and Enforcement of Obligations. Ixsys (a)
has the corporate power and authority and the legal right to enter into the
Agreement and to perform its obligations hereunder and (b) has taken all
necessary corporate action on its part to authorize the execution and delivery
of the Agreement and the performance of its obligations hereunder. The Agreement
has been duly executed and delivered on behalf of Ixsys, and constitutes a
legal, valid, binding obligation, enforceable against such party in accordance
with its terms.

                2.2.3 No Consents. All necessary consents, approvals and
authorizations of all governmental authorities and other Persons required to be
obtained by Ixsys in connection with the Agreement have been obtained.

                2.2.4 No Conflict. The execution and delivery of the Agreement
and the performance of Ixsys' obligations hereunder (a) do not conflict with or
violate any requirement of applicable laws or regulations, and (b) do not
conflict with, or constitute a default under, any contractual obligation of it.

                                    ARTICLE 3
                                 LICENSE GRANTS

        3.1 License Grants to Ixsys.

                3.1.1 Exclusive Grant to B&K Technology. Kauffman hereby grants
to Ixsys an exclusive license (including the right to grant sublicenses) in the
Territory under the B&K Patent Rights and the B&K Know-How to use the processes
and methods, and to make, use and sell the compositions, claimed in the B&K
Patent Rights or which constitute B&K Know-How.

                3.1.2 Non-Exclusive Grant to B&K Technology. Kauffman hereby
grants to Ixsys a non-exclusive, fully paid-up, royalty-free license (including
the right to grant sublicenses) in the Territory (a) to use the processes and
methods, and to make, use and sell the compositions, disclosed (but not claimed)
in the B&K Patent Rights, and (b) to use all information and data, which is not
generally known, including, but not limited



                                      -4-
<PAGE>   5

to, formulae, procedures, protocols, techniques and results of experimentation
and testing which are necessary for Ixsys to make, use, develop, sell or seek
regulatory approval to market a composition, or to practice a method or process,
claimed or disclosed in the B&K Patent Rights.

                3.1.3 Random Chemistry Patent Rights. Kauffman hereby grants to
Ixsys a non-exclusive, fully paid-up, royalty-free license (including the right
to grant sublicenses) in the Territory under the Random Chemistry Patent Rights
to the extent necessary or useful to use the processes and methods, and to make,
use and sell the compositions, claimed or disclosed in the B&K Patent Rights or
which constitute B&K Know-How.

                3.1.4 Sublicenses. Ixsys shall give written notice to Kauffman
of each sublicense under the Agreement promptly after granting the same. Each
such sublicense shall be subject to the terms and conditions of the Agreement.

        3.2 Sublicense Grantback to Kauffman.

                3.2.1 B&K Technology. Ixsys hereby grants to Kauffman a limited
non-exclusive, fully paid-up, royalty-free sublicense (including the right to
grant further sublicenses) in the Territory under the B&K Patent Rights in the
Territory to the extent necessary or useful to use the processes and methods,
and to make, use and sell the compositions, claimed or disclosed in the Random
Chemistry Patent Rights and B&K Know-How. Kauffman's use of the B&K Patent
Rights under such sublicense shall be limited to (a) the right to produce
catalysts and if necessary, to use such catalysts for a reaction or sequence of
reactions in the subsequent production of the discovered chemical molecules, (b)
produce substrates in the process claimed by the Random Chemistry Patent Rights
in which substrates are significantly modified in such process prior to being
identified as candidate compositions or (c) other intermediate compounds or
agents for use in the processes and methods claimed in the Random Chemistry
Patent Rights but not for use as Products. Kauffman shall not use the B&K Patent
Rights or the B&K Know-How under such sublicense to (x) use any composition
derived through the limited sublicense as an end product or (y) derive a
composition as an end product by any means other than directly through the
processes and methods claimed in the Random Chemistry Patent Rights.

                3.2.2 Sublicenses. Kauffman shall give written notice to Ixsys
of each sublicense under the Agreement promptly after granting the same. Each
such sublicense shall be subject to the terms and conditions of the Agreement.

                3.3 Availability of the B&K Patent Rights and the B&K Know-How.
Promptly upon execution of the Agreement, Kauffman shall provide Ixsys with all
information available to Kauffman regarding the B&K Patent Rights, the B&K
Know-How and, to the extent of the rights granted to Ixsys under the Agreement,
the Random Chemistry Patent Rights.



                                      -5-
<PAGE>   6

                                    ARTICLE 4
                IXSYS LICENSE AND MAINTENANCE FEES AND ROYALTIES

        4.1 License Fee. In consideration for the grant of the license under the
B&K Patent Rights and the B&K Know-How, Ixsys shall pay to Kauffman a license
fee in the aggregate amount of ***, payable in installments as follows:

<TABLE>
<CAPTION>
                      Amount                       Payment Date
                      ------                       ------------
<S>                                                <C>
                      ***                          November 3, 1994
                      ***                          November 3, 1995
                      ***                          November 3, 1996
</TABLE>

        4.2 Annual Maintenance Fee. In consideration for the grant of the
license under the B&K Patent Rights and the B&K Know-How, beginning November 3,
1997 and on each anniversary until the expiration or the earlier termination of
the Agreement, Ixsys shall pay to Kauffman an annual maintenance fee. Such
annual maintenance fee shall equal *** per year prior to, and *** per year
after, either the issuance of one or more valid patents in the United States
which claim, or the irrevocable rejection of, all material claims originally
claimed in United States Patent Application Serial No. 08/133,952, filed
November 20, 1986, and claimed within the B&K Patent Rights as of the date
hereof; provided, however, that all material claims originally claimed in United
States Patent Application Serial No. 08/133,952, filed November 20, 1986, shall
be included, and shall not be materially narrowed or materially modified, in the
issued claims of such valid issued patent in the United States within the B&K
Patent Rights. Notwithstanding the foregoing, if any material claim stated in
United States Patent Application Serial No. 08/133,952, filed November 20, 1986,
is not included, or has been materially narrowed or materially modified, in the
issued claims of such valid issued patent in the United States within the B&K
Patent Rights, Ixsys and Kauffman shall negotiate in good faith a reduced annual
maintenance fee. Ixsys shall have the right to credit the aggregate amount of
all such annual maintenance fees against any royalties payable to Kauffman
pursuant to Section 4.4 below.

        4.3 Sublicense Fees.

                4.3.1 Random Chemistry Patent Rights. In consideration for the
grant of the license under the Random Chemistry Patent Rights, Ixsys shall pay
to Kauffman for each sublicense granted by Ixsys to a Third Party under the
Random Chemistry Patent Rights (a) a sublicense fee equal to *** payable upon
the grant of such sublicense and (b) a sublicense maintenance fee equal to ***
(or until the earlier expiration or termination of each such sublicense).

                4.3.2 B&K Patent Rights Aggregate Sublicense and Maintenance
Fees. Ixsys shall pay to Kauffman an amount equal to *** of the aggregate
sublicense and maintenance fees received by Ixsys, in excess of *** in any
calendar year, in consideration for the grant of all such sublicenses to Third
Parties under the B&K



* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.

                                      -6-
<PAGE>   7

Patent Rights in any given calendar year. Such payments shall be made by Ixsys
to Kauffman on a quarterly basis and shall commence after Ixsys has received in
excess of *** in such calendar year.

        4.4 Royalties. In consideration for the grant of the license under the
B&K Patent Rights and the B&K Know-How, during the Royalty Term, Ixsys shall
pay, on a quarterly basis as set forth in Section 7.1 below, the following
royalties to Kauffman:

                4.4.1 On Sales by Ixsys and its Affiliates. With respect to
sales in the Territory of Products by Ixsys, its Affiliates or its
collaborators, Ixsys shall pay to Kauffman royalties equal to (a) *** of Net
Sales of any Product which contains one or more compositions conceived through a
process or method claimed in the B&K Patent Rights and which is not modified or
altered by Ixsys or others; (b) *** of Net Sales of any Product which contains
one or more compositions which are derivatives of any composition conceived
through a process or method claimed in the B&K Patent Rights and in which at
least one or more amino acid molecule has been modified or altered by Ixsys or
others; or (c) *** of Net Sales of any Product which contains one or more
compositions which are not conceived through a process or method claimed in the
B&K Patent Rights or a derivative thereof, but which are substantially based
upon the structure of any composition conceived through a process or method
claimed in the B&K Patent Rights.

                4.4.2 On Sales by Third Party Sublicensees.

                (a) With respect to sales in the Territory of Products by Third
Party sublicensees, Ixsys shall pay to Kauffman royalties equal to *** percent
*** of the aggregate royalties received by Ixsys directly in consideration for
the sublicense by Ixsys of the B&K Patent Rights. If the B&K Patent Rights are
sublicensed to a Third Party in conjunction with any additional patent or other
intellectual property rights of Ixsys, then Ixsys shall, in its reasonable
business judgment, apportion the royalties received from the Third Party under
this Section 4.4.2(a) which are attributable to the B&K Patent Rights
sublicense.

                (b) Notwithstanding the foregoing, if Ixsys grants a sublicense
under the B&K Patent Rights to any Third Party, in which such Third Party grants
a cross-license under any patent or other intellectual property rights of such
Third Party to Ixsys but which is not obligated to pay any royalties to Ixsys
calculated on the basis of sales of products by or on behalf of such Third
Party, then Ixsys shall pay to Kauffman royalties equal to (i) *** of Net Sales
by Ixsys, its Affiliates and sublicensees (other than such Third Party) of each
product which incorporates, uses or is based on the B&K Patent Rights and which
also incorporates, uses or is based on such cross-licensed patent or other
intellectual property rights of such Third Party, or (ii) *** of Net Sales by
Ixsys, its Affiliates and sublicensees (other than such Third Party) of each
product (other than a Product) which incorporates, uses or is based on such
cross-licensed patent or other intellectual property rights of such Third Party.



* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.

                                      -7-
<PAGE>   8

                4.4.3 Reduction of Royalties. Notwithstanding the foregoing, the
royalties owing from Ixsys to Kauffman under this Section 4.4 shall be subject
to the following reductions:

                (a) If a product or a Product incorporates, uses or is based on
the Huse Patent Rights, or would infringe the valid claim of the Huse Patent
Rights if made, used or sold, then the royalty rates set forth in Sections 4.4.1
and 4.4.2(b) above shall be reduced to *** of the respective percentages set
forth therein.

                (b) if any material claim stated in United States Patent
Application Serial No. 08/133,952, filed November 20, 1986, is not included, or
has been materially narrowed or materially modified, in the issued claims of
such valid issued patent in the United States within the B&K Patent Rights,
Ixsys and Kauffman shall negotiate in good faith a reduced royalty rate under
Sections 4.4.1 and 4.4.2(b) above.

                                    ARTICLE 5
                    KAUFFMAN SUBLICENSE AND MAINTENANCE FEES

        In consideration for the grantback of the sublicense under the B&K
Patent Rights, Kauffman shall pay to Ixsys for each sublicense granted by
Kauffman to a Third Party under the B&K Patent Rights (a) a sublicense fee equal
to *** payable upon the grant of such sublicense, and (b) a sublicense
maintenance fee equal to *** payable on each anniversary of the grant of each
such sublicense during the Royalty Term (or until the earlier expiration or
termination of each such sublicense).

                                    ARTICLE 6
                         ROYALTY REPORTS AND ACCOUNTING

        6.1 Royalty Reports. During the term of the Agreement following the
First Commercial Sale of a Product, Ixsys shall furnish to Kauffman a quarterly
written report showing in reasonably specific detail (a) the gross sales of each
Product sold by Ixsys, its Affiliates and its sublicensees in the Territory
during the reporting period and the calculation of Net Sales from such gross
sales; (b) the royalties received by Ixsys from Third Parties in consideration
for the sublicense of the B&K Patent Rights; (c) the royalties payable, if any,
which shall have accrued hereunder based upon the foregoing; and (d) withholding
taxes, if any, required by law to be deducted in respect of such sales. Reports
shall be due on the 90th day following the close of each quarter. Ixsys shall
keep complete and accurate records in sufficient detail to properly reflect all
gross sales, Net Sales and sublicense royalties and to enable the royalties
payable hereunder to be determined.

        6.2 Audits.

                6.2.1 Independent Accounting. Upon the written request of
Kauffman and not more than once in each calendar year, Ixsys shall permit an
independent certified



* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.

                                      -8-
<PAGE>   9

public accounting firm of nationally recognized standing selected by Kauffman
and reasonably acceptable to Ixsys, at Kauffman's expense, to have access during
normal business hours to such of the records of Ixsys as may be reasonably
necessary to verify the accuracy of the royalty reports hereunder for any year
ending not more than twenty-four (24) months prior to the date of such request.
The accounting firm shall disclose to Kauffman only whether the records are
correct or not and the specific details concerning any discrepancies. No other
information shall be shared.

                6.2.2 Additional Payment. If such accounting firm concludes that
additional royalties were owed during such period, Ixsys shall pay the
additional royalties within thirty (30) days of the date Kauffman delivers to
Ixsys such accounting firm's written report so concluding. The fees charged by
such accounting firm shall be paid by Kauffman; provided, however, if the audit
correctly discloses that the royalties payable by Ixsys for the audited period
are more than *** of the royalties actually paid for such period, then Ixsys
shall pay the reasonable fees and expenses charged by such accounting firm.

        6.3 Confidential Financial Information. Kauffman shall treat all
financial information subject to review under this Article 6 or under any
sublicense agreement as confidential, and shall cause his accounting firm to
retain all such financial information in confidence under Article 9 below.

                                    ARTICLE 7
                                    PAYMENTS

        7.1 Payment Terms. Royalties shown to have accrued by each royalty
report provided for under Article 6 above shall be due on the date such royalty
report is due. Payment of royalties in whole or in part may be made in advance
of such due date.

        7.2 Exchange Control. If at any time legal restrictions prevent the
prompt remittance of part or all royalties with respect to any country in the
Territory where the Product is sold, Ixsys shall have the right, in its sole
discretion, to make such payments by depositing the amount thereof in local
currency to Kauffman's account in a bank or other depository institution in such
country. If the royalty rate specified in the Agreement should exceed the
permissible rate established in any country, the royalty rate for sales in such
country shall be adjusted to the highest legally permissible or
government-approved rate.

        7.3 Withholding Taxes. Ixsys shall be entitled to deduct the amount of
any withholding taxes, value-added taxes or other taxes, levies or charges with
respect to such amounts, other than United States taxes, payable by Ixsys, its
Affiliates or sublicensees, or any taxes required to be withheld by Ixsys, its
Affiliates or sublicensees, to the extent Ixsys, its Affiliates or sublicensees
pay to the appropriate governmental authority on behalf of Kauffman such taxes,
levies or charges. Ixsys shall use reasonable efforts to minimize any such
taxes, levies or charges required to be withheld on behalf of Kauffman by Ixsys,
its Affiliates or sublicensees. Ixsys shall deliver promptly to



* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.

                                      -9-
<PAGE>   10

Kauffman proof of payment of all such taxes, levies and other charges, together
with copies of all communications from or with such governmental authority with
respect thereto.

                                    ARTICLE 8
                             DEVELOPMENT OBLIGATIONS

        Ixsys shall use its commercially reasonable efforts to develop, as Ixsys
determines is necessary or desirable, such Products as Ixsys determines are
commercially feasible in the Territory.

                                    ARTICLE 9
                                 CONFIDENTIALITY

        9.1 Confidential Information. During the term of the Agreement, and for
a period of four (4) years following the expiration or earlier termination
hereof, Kauffman shall maintain in confidence all information of Ixsys
(including samples) disclosed by Ixsys to Kauffman pursuant to the Agreement, if
such information of Ixsys (including samples) is (i) disclosed in writing and
marked "Confidential" or (ii) disclosed orally and Ixsys has stated prior to or
at the time of such disclosure that the information is confidential and Ixsys
subsequently reduces such oral disclosure to a writing marked "Confidential" and
delivers such marked writing to Kauffman within thirty (30) days if such oral
disclosure (collectively, (i) and (ii) above shall be referred to as the
"Confidential Information"), and shall not use, disclose or grant the use of the
Confidential Information except on a need-to-know basis to those directors,
officers, Affiliates, employees, permitted licensees, permitted assignees and
agents, consultants, clinical investigators or contractors, to the extent such
disclosure is reasonably necessary in connection with Kauffman's activities as
expressly authorized by the Agreement. To the extent that disclosure is
authorized by the Agreement, prior to disclosure, Kauffman shall obtain
agreement of any such Person to hold in confidence and not make use of the
Confidential Information for any purpose other than those permitted by the
Agreement. Kauffman shall notify Ixsys promptly upon discovery of any
unauthorized use or disclosure of the Confidential Information.

        9.2 Permitted Disclosures. The confidentiality obligations contained in
Section 9.1 above shall not apply to the extent that (a) Kauffman is (i)
required to disclose information by law, order or regulation of a governmental
agency or a court of competent jurisdiction, or (ii) Kauffman is required to
disclose information to any governmental agency for purposes of obtaining
approval to test or market a product, provided in either case that Kauffman
shall provide written notice thereof to Ixsys and sufficient opportunity to
object to any such disclosure or to request confidential treatment thereof; or
(b) Kauffman can demonstrate that (i) the disclosed information was or had
become public knowledge at the time of such disclosure by Kauffman other than as
a result of actions of Kauffman, its Affiliates, employees, permitted licensees,
permitted assignees and agents, consultants, clinical investigators or
contractors in violation hereof;



                                      -10-
<PAGE>   11

(ii) the disclosed information was rightfully known by Kauffman or its
Affiliates (as shown by Kauffman's written records) or permitted licensees prior
to the date of disclosure to Kauffman by Ixsys; (iii) the disclosed information
was received by Kauffman or its Affiliates or permitted licensees on an
unrestricted basis from a source unrelated to Ixsys and not under a duty of
confidentiality to Ixsys; or (iv) the disclosed information was independently
developed by Kauffman, without the use of Confidential Information as evidenced
by Kauffman's written records.

        9.3 Terms of the Agreement. Except as otherwise provided in Section 9.2
above, Kauffman shall not disclose any terms or conditions of the Agreement to
any Third Party without the prior consent of Ixsys. Notwithstanding the
foregoing, Kauffman may disclose the information set forth on Exhibit A attached
hereto, to those certain Third Parties with whom Kauffman has, or proposes to
enter into, a business relationship.

                                   ARTICLE 10
                                     PATENTS

        10.1 Past Expenses. In consideration for the grant of the license under
the B&K Patent Rights, and subject to proof of such past expenditures by
Kauffman, Ixsys shall reimburse Kauffman for his past expenses incurred in the
prosecution and maintenance of the B&K Patent Rights according to the following
schedule:

<TABLE>
<CAPTION>
                      Amount                              Payment Date
                      ------                              ------------
<S>                                                       <C>

                      ***                                 November 3, 1994
                      ***                                 November 3, 1995
                      ***                                 November 3, 1996
</TABLE>

        10.2 Patent Prosecution and Maintenance.

                10.2.1 B&K Patent Rights. Ixsys shall be responsible for and
shall control, at its sole cost, the preparation, filing, prosecution and
maintenance of all patents and patent applications related to the B&K Patent
Rights (including any interference actions related to the B&K Patent Rights) in
a commercially reasonable manner. If Ixsys elects to abandon any material claim
in any patent application within the B&K Patent Rights without filing a
continuation or continuation-in-part application containing such material claim,
Kauffman shall have the right to assume control, at his sole cost, of the
preparation, filing, prosecution and maintenance of such material claim in any
patent application and all patent claims which issue therefrom, and such
material claim in such patent application and patent claims shall be excluded
from the B&K Patent Rights. Kauffman shall cooperate with Ixsys, execute all
lawful papers and instruments and make all rightful oaths and declarations as
may be necessary in the preparation, prosecution and maintenance of all patents
and other filings referred to in this Section 10.2.1.

                10.2.2 Random Chemistry Patent Rights. Kauffman shall be
responsible for and shall control, at his sole cost, the preparation, filing,
prosecution and maintenance of all patents and patent applications related to
the Random Chemistry Patent Rights



* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.

                                      -11-
<PAGE>   12

(including any interference actions relating thereto). Kauffman shall have the
right, but not the obligation, to include the claims set forth in United States
Patent Application Serial No. 08/049, 268, filed April 19, 1993, as a
continuation-in-part to United States Patent Application Serial No. 08/133,952,
filed November 20, 1986; provided, however, that such filing shall not (a) alter
or impact negatively the claims set forth in United States Patent Application
Serial No. 08/133,952, filed November 20, 1986 and licensed to Ixsys hereunder
and (b) grant to Kauffman any additional rights to the B&K Patent Rights except
as provided for in the Agreement. Ixsys shall cooperate with Kauffman, execute
all lawful papers and instruments and make all rightful oaths and declarations
as may be necessary in the preparation, prosecution and maintenance of all
patents and other filings referred to in this Section 10.2.2.

        10.3 Notification of Infringement. Each party shall notify the other
party of any infringement in the Territory known to such party of any Patent
Rights of the other party and shall provide the other party with the available
evidence, if any, of such infringement.

        10.4 Enforcement of Patent Rights. Ixsys, at its sole expense, shall
have the right, at any time and at its sole discretion, to determine the
appropriate course of action to enforce the B&K Patent Rights or otherwise abate
the infringement thereof, to take (or refrain from taking) appropriate action to
enforce the B&K Patent Rights, to control any litigation or other enforcement
action and to enter into, or permit, the settlement of any such litigation or
other enforcement action with respect to the B&K Patent Rights. Notwithstanding
the foregoing, Ixsys shall have no obligation to abate any infringement of the
B&K Patent Rights or to file any action to enforce the B&K Patent Rights against
an infringing party in the Territory. Neither Kauffman, an Affiliate of Kauffman
nor any Third Party shall take any action which (a) claims that the Agreement is
invalid and/or (b) seeks or claims damages from Ixsys because Ixsys failed to
abate any infringement of the B&K Patent Rights or to file any action to enforce
the B&K Patent Rights against any infringing party in the Territory. Kauffman
shall fully cooperate with Ixsys in the planning and execution of any
enforcement action regarding the B&K Patent Rights. Ixsys shall be entitled to
receive all monies recovered upon the final judgment or settlement of any such
suit to enforce the B&K Patent Rights; provided, however, that if Ixsys receives
monies in excess of Ixsys' aggregate costs associated with any such suit to
enforce the B&K Patent Rights (including, but not limited to, attorneys' fees
and costs), Ixsys shall pay to Kauffman any royalties owed to Kauffman pursuant
to Section 4.4. Ixsys shall reimburse Kauffman for reasonable out-of-pocket
expenses incurred by Kauffman in connection therewith; provided, however, that
such expenses shall have been approved in advanced, in writing, by Ixsys, which
approval shall not be withheld unreasonably.

        10.5 Reimbursement to Ixsys. If Ixsys, its Affiliates or sublicensees
incur any un-reimbursed costs, including reasonable attorneys' fees and costs
(the "Reimbursement Amount"), in connection with the defense of any claim,
demand or action by any Third Party alleging the infringement of a Third Party's
patent rights by the exercise of the license rights granted to Ixsys hereunder
or the invalidity of any B&K Patent Rights (including, but not limited to, any
allowed claims or issued patents in the Territory,



                                      -12-
<PAGE>   13
including, but not limited to, in Europe or any country thereof), Ixsys shall
have the right to credit (a) an amount equal to twenty-five percent (25%) of the
Reimbursement Amount against any amounts owed by Ixsys to Kauffman under Section
4.4.2(a) above, and (b) the Reimbursement Amount against any royalties owed to
Kauffman under Section 4.4.1 above; provided, however, that (i) Ixsys shall not
reduce the amount of the royalties paid to Kauffman under Section 4.4.1 in any
payment period to less than *** of the royalties owed to Kauffman under Section
4.4.1 above (after giving effect to any royalty reductions contemplated in
Section 4.4.3 above) for such period, and (ii) the aggregate amount of the
credits under clauses (a) and (b) above shall not exceed the Reimbursement
Amount.

                                   ARTICLE 11
                                   TERMINATION

        11.1 Expiration. Subject to the provisions of Sections 11.2 and 11.3
below, the Agreement shall expire on the date when all issued patents which
constitute B&K Patent Rights have expired or have been held permanently revoked,
unenforceable or invalid by a decision of a court or other governmental agency
of competent jurisdiction, unappealable or unappealed within the time allowed
for appeal, and which has not been admitted to be invalid or unenforceable
through reissue or disclaimer or otherwise. Upon the expiration of the
Agreement, (a) Ixsys shall have a paid-up, non-exclusive license under the B&K
Know-How to use the processes and methods, and to make, use and sell the
compositions, claimed in the B&K Patent Rights or which constitute B&K Know-How;
and (b) the paid-up, non-exclusive licenses granted under Sections 3.1.2, 3.1.3
and 3.2.1 shall survive.

        11.2 Termination by Ixsys. Ixsys may terminate the Agreement, in its
sole discretion, upon thirty (30) days prior written notice to Kauffman.

        11.3 Termination for Cause. Except as otherwise provided in Article 13,
either party may terminate the Agreement upon or after the breach of any
material provision of the Agreement by the other party if the other party has
not cured such breach within ninety (90) days after notice thereof by the
non-breaching party; provided, however, if any default is not capable of being
cured within such ninety (90) day period and the other party is diligently
undertaking to cure such default as soon as commercially feasible thereafter
under the circumstances, the non-breaching party shall have no right to
terminate the Agreement.

        11.4 Effect of Expiration or Termination. Upon the expiration or earlier
termination of the Agreement, all rights relating to the grant of the B&K Patent
Rights license to Ixsys and all obligations of Ixsys and Kauffman, including
without limitation, Ixsys' obligations to pay maintenance or royalty fees
pursuant to Sections 4.2 and 4.4, shall terminate. The expiration or earlier
termination of the Agreement shall not relieve the parties of any obligation
accruing prior to such expiration or earlier termination, including the payment
of pro-rata amounts, if any, owed to Kauffman, and the provisions of Articles 9
and 12 shall survive the expiration or earlier termination of the Agreement.



* CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.

                                      -13-
<PAGE>   14

                                   ARTICLE 12

                                 INDEMNIFICATION

        12.1 Indemnification. Ixsys shall defend, indemnify and hold Kauffman
harmless from all claims, demands, liabilities, damages and expenses, including
attorneys' fees and costs arising out of any breach of the Agreement by Ixsys,
or the gross negligence or willful misconduct of Ixsys, its Affiliates or
permitted sublicensees in the performance of its obligations contemplated by the
Agreement.

        12.2 Procedure. Kauffman promptly shall notify Ixsys of any liability or
action in respect of which Kauffman intends to claim such indemnification, and
Ixsys shall have the right to participate in, and, to the extent Ixsys so
desires, jointly with any other indemnitor similarly noticed, to assume the
defense thereof with counsel selected by Ixsys; provided, however, that Kauffman
shall have the right to retain his own counsel, at his sole expense, if
representation of Kauffman by the counsel retained by Ixsys would be
inappropriate due to actual or potential differing interests between Kauffman
and any other party represented by such counsel in such proceedings. The
indemnity agreement in this Article 12 shall not apply to amounts paid in
settlement of any loss, claim, damage, liability or action if such settlement is
effected without the consent of Ixsys, which consent shall not be withheld
unreasonably. The failure to deliver notice to Ixsys within a reasonable time
after the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve Ixsys of any liability to Kauffman under this
Article 12, but the omission so to deliver notice to Ixsys will not relieve it
of any liability that it may have to Kauffman otherwise than under this Article
12. Kauffman under this Article 12, his employees and agents, shall cooperate
fully with Ixsys and its legal representatives in the investigation and defense
of any action, claim or liability covered by this indemnification.

                                   ARTICLE 13

                                  FORCE MAJEURE

        Neither party shall be held liable or responsible to the other party nor
be deemed to have defaulted under or breached the Agreement for failure or delay
in fulfilling or performing any term of the Agreement to the extent, and for so
long as, such failure or delay is caused by or results from causes beyond the
reasonable control of the affected party including but not limited to fire,
floods, embargoes, war, acts of war (whether war be declared or not),
insurrections, riots, civil commotions, strikes, lockouts or other labor
disturbances, acts of God or acts, omissions or delays in acting by any
governmental authority or the other party.



                                      -14-
<PAGE>   15

                                   ARTICLE 14

                                  MISCELLANEOUS

        14.1 Notices. Any consent, notice or report required or permitted to be
given or made under the Agreement by one of the parties hereto to the other
party shall be in writing, delivered personally or by facsimile (and promptly
confirmed by personal delivery, U.S. first class mail or courier), U.S. first
class mail or courier, postage prepaid (where applicable), addressed to such
other party at such party's address indicated below, or to such other address as
the addressee shall have last furnished in writing to the addressor and (except
as otherwise provided in the Agreement) shall be effective upon receipt by the
addressee.

        If to Kauffman:             Stuart A. Kauffman, M.D.
                                    15 Montecito
                                    Santa Fe, NM 87501

        with a copy to:             Holtzman, Wise & Shepard
                                    3030 Hansen Way
                                    Palo Alto, CA 94304
                                    Attention:  Thomas L. Barton

        If to Ixsys:                Ixsys, Inc.
                                    3550 Dunhill Street
                                    San Diego, CA 92121
                                    Attention:  Michael J. Hanifin

        with a copy to:             Pillsbury Madison & Sutro
                                    235 Montgomery Street, 15th Floor
                                    San Francisco, CA 94104
                                    Attention: Thomas E. Sparks, Jr.

        14.2 Governing Law. The Agreement shall be governed by and construed in
accordance with the laws of the State of California, without regard to the
conflicts of law principles thereof.

        14.3 Arbitration. Any dispute, controversy or claim originally initiated
by either party relating to, arising out of or resulting from the Agreement, or
the performance by either party of such party's obligations hereunder, whether
before or after termination of the Agreement, shall be finally resolved by
binding arbitration. Whenever a party shall decide to institute arbitration
proceedings, such party shall give written notice to that effect to the other
party. The party giving such notice shall refrain from instituting the
arbitration proceedings for a period of sixty (60) days following such notice.
Any arbitration hereunder shall be conducted under the Commercial Arbitration
Rules of the American Arbitration Association. Each such arbitration shall be
conducted by a panel of three (3) arbitrators appointed in accordance with such
rules. Any such arbitration shall be held in San Diego, California. The
arbitrators shall have the authority



                                      -15-
<PAGE>   16

to grant specific performance, and to allocate between the parties the costs of
arbitration in such equitable manner as they determine. Judgment upon the award
so rendered may be entered in any court having jurisdiction or application may
be made to such court for judicial acceptance of any award and an order of
enforcement, as the case may be. In no event shall a demand for arbitration be
made after the date when institution of a legal or equitable proceeding based
upon such claim, dispute or other matter in question would be barred by the
applicable statute of limitations.

        14.4 Assignment. Ixsys shall not assign its rights or obligations under
the Agreement without the prior written consent of Kauffman; provided, however,
that Ixsys may, without such consent, assign the Agreement and its rights and
obligations hereunder in connection with the transfer or sale of all or
substantially all of its business, or in the event of its merger or
consolidation or change in control or similar transaction. Any permitted
assignee shall assume all obligations of its assignor under the Agreement.

        14.5 Waivers and Amendments. No change, modification, extension,
termination or waiver of the Agreement, or any of the provisions herein
contained, shall be valid unless made in writing and signed by duly authorized
representatives of the parties hereto.

        14.6 Entire Agreement. The Agreement embodies the entire understanding
between the parties and supersedes any prior understanding and agreements
between and among them respecting the subject matter hereof. There are no
representations, agreements, arrangements or understandings, oral or written,
between the parties hereto relating to the subject matter of the Agreement which
are not fully expressed herein.

        14.7 Severability. Any of the provisions of the Agreement which are
determined to be invalid or unenforceable in any jurisdiction shall be
ineffective to the extent of such invalidity or unenforceability in such
jurisdiction, without rendering invalid or unenforceable the remaining
provisions hereof and without affecting the validity or enforceability of any of
the terms of the Agreement in any other jurisdiction.

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



                                      -16-
<PAGE>   17

        14.9 Counterparts. The 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.

        IN WITNESS WHEREOF, the parties have executed the Agreement as of the
date first set forth above.




                                      STUART A. KAUFFMAN, M.D.

                                      /S/ STUART A. KAUFMAN, M.D.

                                      IXSYS, INC.

                                      By /S/ JANINE M. TAYLOR
                                         --------------------

                                      Title   Director, Finance & Administration
                                              ----------------------------------



                                      -17-
<PAGE>   18

                                    EXHIBIT A

                          Abstract of License Agreement


        Kauffman shall be entitled to inform Third Parties of the existence of
the Agreement, but not the terms therein (except Section 3.2.1 as set forth
below), and to further inform any potential licensee of the Random Chemistry
Patent Rights of the existence of (a) the Kauffman grant to Ixsys of a
non-exclusive license under the Random Chemistry Patent Rights, but not the
terms therein other than the specific terms of Section 3.1.3 of the Agreement
and (b) the Ixsys grantback to Kauffman of a non-exclusive sublicense under the
B&K Patent Rights, including the terms set forth in Section 3.2.1 of the
Agreement.



                                      -18-