Document:

<PAGE>

Certain confidential information contained in this document, marked by brackets,
has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                                                    EXHIBIT 10.6

                            COLLABORATION AGREEMENT

     This Collaboration Agreement (the "Agreement") is entered into as of the
20th day of December, 1996 (the "Effective Date") by and between Sanwa Kagaku
Kenkyusho Co., Ltd., a Japanese corporation with its offices at 35 Higashi
Sotobori-cho, Higashi-ku Nagoya, 461, Japan ("Sanwa") and Terrapin Technologies,
Inc., a Delaware corporation with its offices at 750 Gateway Boulevard, South
San Francisco, California 94080, U.S.A. ("Terrapin").  Sanwa and Terrapin are
sometimes referenced in this Agreement individually as a "Party" and
collectively as the "Parties."

                                   Recitals

     Whereas, Terrapin has knowledge of a novel target in the insulin signal
transduction pathway and compounds that activate the insulin receptor; and

     Whereas, Terrapin possesses a library of compounds and is able to determine
the affinity of each compound versus Terrapin's reference proteins employed in
Terrapin's proprietary TRAP (TM) technology; and

     Whereas, Sanwa is engaged in the research, development, marketing,
manufacture and distribution of therapeutic pharmaceutical products; and

     Whereas, Terrapin and Sanwa desire to enter into a collaborative program to
research and discover compounds that act through activation of the insulin
signal transduction pathway for purposes of the treatment of diabetes mellitus
or insulin resistance; and

     Whereas, Terrapin and Sanwa have entered into a binding letter of intent,
dated November 6, 1996, setting forth their intent to enter into a definitive
agreement with respect to such collaborative program; and

     Whereas, Terrapin and Sanwa will enter into a separate agreement under
which Terrapin shall utilize its proprietary TRAP (TM) technology to evaluate
certain of Sanwa's drug targets for the purpose of identifying compounds for
pharmaceutical development.

     Now, Therefore, in consideration of the foregoing and the covenants and
premises contained in this Agreement, the Parties agree as follows:

                                       1
<PAGE>

                                   Article 1

                                  Definitions

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

     1.1  "Affiliate" shall mean any company or entity controlled by,
controlling, or under common control with a Party hereto and shall include
without limitation any company fifty percent (50%) or more of whose voting stock
or participating profit interest is owned or controlled, directly or indirectly,
by a Party, and any company which owns or controls, directly or indirectly,
fifty percent (50%) or more of the voting stock of a Party.

     1.2  "Clinical Candidate" shall mean any compound identified under the
Research Program which the RMC determines may be useful in the Field.

     1.3  "Confidential Information" shall mean all information, inventions,
know-how or data of either Party disclosed pursuant to, or in contemplation of,
this Agreement in written, graphic or electronic form if marked as confidential
or in oral form if designated as confidential and confirmed in writing promptly
after oral disclosure, including, without limitation, (i) information regarding
the Research Program, Clinical Candidates, Licensed Products, and other matters
material to this Agreement or the business of the disclosing Party, including
manufacturing, marketing, financial, personnel, scientific and other business
information and plans, and (ii) the material terms of this Agreement.

     1.4  "Control" shall mean possession of the ability to grant the licenses
as provided for herein without violating the terms of any agreement or
arrangement with a third party.

     1.5  "FDA" shall mean the United States Food and Drug Administration.

     1.6  "Field" shall mean compounds that act through activation of the
insulin signal transduction pathway for the treatment of diabetes mellitus or
insulin resistance in humans.

     1.7  "IND" shall mean an Investigational New Drug Application as defined in
the FDA regulations, as such regulations may be amended from time to time.

     1.8  "Letter of Intent" shall mean that Letter of Intent between the
Parties dated November 6, 1996.

     1.9  "License Agreement" shall mean the license agreement referenced in
Article 3.

[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       2
<PAGE>

     1.10  "Licensed Product" shall have the meaning assigned to it in the
License Agreement.

     1.11  "NDA" shall mean a New Drug Application as defined in the United
States Federal Food, Drug and Cosmetic Act and applicable regulations
thereunder, as amended from time to time.

     1.12  "Phase I" shall mean the clinical trials which are the equivalent in
the relevant country of the Sanwa Territory to that phase of clinical
development of pharmaceutical products defined as "Phase I" in FDA regulations
as amended from time to time.

     1.13  "Phase II" shall mean the clinical trials which are the equivalent in
the relevant country of the Sanwa Territory to that phase of clinical
development of pharmaceutical products defined as "Phase II" in FDA regulations
as amended from time to time.

     1.14  "Phase III" shall mean the clinical trials which are the equivalent
in the relevant country of the Sanwa Territory to that phase of clinical
development of pharmaceutical products defined as "Phase III" in FDA regulations
as amended from time to time.

     1.15  "Research Plan" shall have the meaning set forth in Section 2.1.

     1.16  "Research Program" shall have the meaning set forth in Section 2.1.

     1.17  "Research Term" shall have the meaning set forth in Section 2.1.

     1.18  "RMC" shall mean the Research Management Committee established by the
Parties pursuant to Section 2.2.

     1.19  "Sanwa Technology" shall mean all technology, inventions,
information, data, know-how, patents and patent applications (including any
divisions, continuations, continuations-in-part, reissues, extensions, renewals,
supplementary protection certificates and foreign counterparts thereof) that are
useful in the Field and which Sanwa owns or Controls during the term of this
Agreement.

     1.20  "Sanwa Territory" shall mean Japan, Korea, Taiwan and the People's
Republic of China.

     1.21  "Terrapin Technology" shall mean all technology, inventions,
information, data, know-how, patents and patent applications (including any
divisions, continuations, continuations-in-part, reissues, extensions, renewals,
supplementary

[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       3
<PAGE>

protection certificates and foreign counterparts thereof) that are useful in the
Field and which Terrapin owns or Controls during the term of this Agreement.

                                   Article 2

                     Research Program Scope and Governance

     2.1  Research Program; Research Plan.  The Parties will participate in a
collaborative program (the "Research Program") to research and discover novel
compounds for use in the Field.  The Research Program shall commence on the
Effective Date and continue until the [ * ] unless earlier terminated pursuant
to Section 9.2 and 9.3 or extended by mutual written agreement of the Parties.
The period of time during which the Research Program is in effect shall be the
"Research Term."  The Research Program shall be conducted pursuant to a detailed
research plan attached hereto as Exhibit A, which may be modified from time to
time by the RMC (the "Research Plan").  Terrapin shall commence the Research
Program promptly upon execution of this Agreement.  Each Party shall devote
commercially reasonable efforts to its obligations under the Research Program,
consistent with the efforts it devotes to its own research programs of
comparable market potential.

     2.2  Research Management Committee Formation and Procedure.  Within [ * ]
of the Effective Date, the Parties will form a Research Management Committee
(the "RMC") having the functions and powers described in Section 2.3.  The RMC
will be comprised of [ * ] from each of Terrapin and Sanwa.  All decisions of
the RMC must be unanimously approved by the members of the RMC.  The RMC shall
agree, in good faith, upon the chairperson of the RMC, the time and place of
meetings of the RMC, substitutions for RMC members, qualifications of RMC
members, and other similar matters.  Within [ * ] days after each meeting, the
RMC will provide the Parties with a written report describing the status of the
Research Program, issues requiring resolution and resolutions of previously
reported issues, all in reasonable detail.  In the event the RMC is unable to
reach a decision concerning the designation of a Clinical Candidate, such
matters will be resolved in accordance with the provisions of Section 11.2.

     2.3  Research Management Committee Functions and Powers.  The RMC shall:
(i) encourage and facilitate ongoing cooperation between the Parties, (ii)
periodically review the progress of the Research Program, including all
screening results and other work done and new developments in the Field, and
propose changes to the Research Plan based upon such review, (iii) designate
compounds as Clinical Candidates from time to time based upon the results of the
Research Program, (iv) allocate tasks and coordinate activities required to
perform the Research Program, (v) monitor progress of the Research Program and
the Parties' diligence in carrying out their responsibilities

[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       4
<PAGE>

thereunder, and (vi) carry out any other duties and responsibilities described
for it in this Agreement.

     2.4  Research Liaison.  Each Party shall appoint a qualified representative
(each a "Research Liaison") to be the liaison to the other Party and to the RMC.
The Research Liaisons shall serve as the principal point of communication
between the parties and shall confer together at least monthly concerning the
details of the Research Program.

     2.5  Basic Responsibilities of Terrapin

          2.5.1  Terrapin will be responsible for providing all infrastructure
[*] necessary for conducting [ * ] Phase 1 of the Research Plan, relating to
identification and selection of advanced lead compounds and Phase 2 of the
Research Plan, relating to identification and selection of Clinical Candidates.
If Terrapin shall choose to develop or have developed the same Clinical
Candidate outside the Sanwa Territory, then Terrapin will also be responsible
for providing all infrastructure [ * ] necessary for and conducting [ * ], Phase
3 of the Research Plan, relating to all IND enabling work for Clinical
Candidates, except that portion of Phase 3 work identified therein as uniquely
required for an IND application in Japan.

          2.5.2  All research and development work to be performed by Terrapin
pursuant to this Agreement shall be performed in a timely manner and meet all
FDA quality standard requirements.  In performing such work and without limiting
the obligations set forth in this Section 2.5, Terrapin shall provide [ * ] a
sufficient number of full-time, trained, experienced researchers, chemists,
pharmacologists, biologists and technicians and other specialists competent and
qualified to perform the work to be performed pursuant to this Agreement.

     2.6  Use of Third Parties by Terrapin.  During the term of this Agreement,
Terrapin may utilize the services of outside consultants or third parties in
connection with performing its research and development work provided that
Terrapin assumes full responsibility and liability for such third parties.

     2.7  Basic responsibilities of Sanwa.  Sanwa will be responsible for
providing all infrastructure [ * ] necessary for and conducting [ * ] that
portion of Phase 3 of the Research Plan identified therein as uniquely required
for an IND application in Japan with respect to Clinical Candidates for which
Sanwa has sent or plans to send a Development and Commercialization Notice to
Terrapin and which Terrapin chooses not to develop or have developed outside of
Japan.

[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       5
<PAGE>

     2.8  Cooperation; Reports; Reciprocal Sharing of Data.

          2.8.1  Each Party will cooperate with each other in conducting the
Research Program.

          2.8.2  The Parties shall make available and disclose to one another,
on a quarterly basis through the RMC, all results of the work conducted pursuant
to Phase 1 and Phase 2 of the Research Program.

          2.8.3  Terrapin shall make available and disclose to Sanwa, on a [ * ]
basis through the RMC, all work related to Phase 3 of the Research Program for
which Terrapin is responsible pursuant to Section 2.5.  Terrapin shall also make
available to Sanwa data within the Field relevant to the Research Program
arising from arrangements between Terrapin and third parties similar to this
Agreement but only to the extent, and upon such terms, as such third party shall
agree including, if necessary, an agreement by Sanwa to provide similar
information to such third party upon a reciprocal basis.  Without limiting the
generality of the foregoing, Terrapin agrees to use its reasonable efforts in
good faith to cause any third party having rights to Clinical Candidates outside
the Sanwa Territory to provide the results of tests and other work corresponding
to Phase 3 of the Research Plan to Sanwa for such Clinical Candidates.

          2.8.4  Sanwa shall disclose all Phase 3 work relating to Clinical
Candidates to Terrapin.  Terrapin may use such information solely for the
purposes of the Research Program and shall not use it for any other purpose or
disclose it to any third party unless Sanwa agrees to the terms of such use or
disclosure (which may include cost reimbursement for all or a portion of the
Phase 3 work conducted by Sanwa or on Sanwa's behalf by a third party).

     2.9  Supply of Preclinical and Clinical Material.  Terrapin will provide
Sanwa [ * ] of Clinical Candidate requested by Sanwa.  Such materials will be
produced using a process to be developed by Terrapin which complies with then
current good manufacturing processes in accordance with the requirements of the
FDA; provided, however, that the parties may hereafter agree that Sanwa will
produce some or all of the Clinical Candidate material.  Sanwa will notify
Terrapin of the quantities and delivery dates of the material needed and pay
Terrapin [ * ] for such material, all according to such reasonable procedures as
the parties shall hereafter agree.

                                   Article 3

         Election to Pursue Further Development and Commercialization

     3.1  Development and Commercialization Notice.  At any time during the
Research Term or within [ * ] thereafter, Sanwa may provide written notice (the

[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       6
<PAGE>

"Development and Commercialization Notice") to Terrapin of its intention to
develop a Clinical Candidate for use in the Field and, if results of the human
clinical studies justify, to prepare and file the Japanese equivalent of an NDA
on such Clinical Candidate for use in the Field.  Such notice shall be in the
form attached hereto as Exhibit B and shall be made prior to the filing of the
Japanese equivalent of an IND by Sanwa for such Clinical Candidate.  Upon
Terrapin's receipt of the first Development and Commercialization Notice,
Terrapin and Sanwa shall promptly enter into a license agreement with respect to
the Clinical Candidate described in such Development and Commercialization
Notice, upon substantially the terms set forth in the form of License Agreement
set forth in Exhibit C attached hereto.  For each subsequent Clinical Candidate
which Sanwa elects to develop and commercialize as set forth in this Article 3,
Sanwa shall provide a new Development and Commercialization Notice to Terrapin
and, upon Terrapin's receipt of such Development and Commercialization Notice,
such Clinical Candidate(s) shall be added to Exhibit 1 to the License Agreement
and shall be regarded as a Licensed Product for all purposes of the License
Agreement.

     3.2  Discussion Concerning Third Party Program in Territories.  In the
event Sanwa shall not deliver a Development and Commercialization Notice as
provided in Section 3.1 with respect to at least [ * ] after the termination of
this Agreement Terrapin shall be free to enter into an agreement with a third
party in the Sanwa Territory pertaining to the Field without any obligation or
liability to Sanwa other than as provided in this Section 3.2; provided,
however, that at least [ * ] prior to entering into any such agreement, Terrapin
shall notify Sanwa of its intention to do so and discuss with Sanwa in good
faith during such period any proposal Sanwa may make concerning a further
arrangement relating to the Field and Sanwa Territory.  Terrapin's obligation to
provide such notice to Sanwa and to discuss any such proposal with Sanwa shall
survive the termination of this Agreement for a period of [ * ]

     3.3  Rights with Respect to Clinical Candidates Not Selected.  With respect
to a Clinical Candidate which enters Phase 3 of the Research Program but for
which Sanwa did not give a Development and Commercialization Notice as provided
in Section 3.1 prior to [ * ] if, at any time during the first [ * ] thereafter,
Terrapin determines it wishes to grant rights outside the Field to such Clinical
Candidate to a third party, then, provided Sanwa has entered into the License
Agreement with respect to at least one Clinical Candidate, Terrapin will first
provide notice of its intention to Sanwa.  If within [ * ] of receipt of
Terrapin's notice, Sanwa provides Terrapin a Development and Commercialization
Notice with respect to such Clinical Candidate, then such Clinical Candidate
shall be added to Exhibit I to the License Agreement and shall be regarded as a
Licensed Product for all purposes of the License Agreement.  If, at or before
the end of such period, Sanwa does not provide a Development and
Commercialization Notice with respect to such Clinical Candidate, then Terrapin
shall have no further obligation or

[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       7
<PAGE>

liability to Sanwa with respect to such Clinical Candidate and shall be free to
enter into one or more transactions with third parties with respect thereto.

     3.4  Royalty Rates in Certain Countries.  The parties intend that the Sanwa
Territory shall include Korea, Taiwan and the People's Republic of China, in
addition to Japan, but have not as of the Effective Date of this Agreement
agreed to royalty rates for such countries.  As soon as practicable after the
Effective Date of this Agreement but not later than the Effective Date of the
License Agreement, the parties shall meet and agree on the royalty rates for
such countries.  Upon such agreement each such country and agreed rate shall be
included in Appendix 2 to the License Agreement.  In the event, however, that
the parties shall fail to agree on the royalty rate for one or more of such
countries, then such country shall not be included in Appendix 2 to the License
Agreement and Sanwa shall have no rights hereunder or under the License
Agreement with respect to such country.

                                   Article 4

                                License Grants

     4.1  Grant by Terrapin. Terrapin hereby grants to Sanwa, during the
Research Term, a non-exclusive, worldwide, royalty-free license under the
Terrapin Technology for the sole purpose of allowing Sanwa to carry out its
responsibilities under the Research Program.  Sanwa may grant a sublicense under
the foregoing license.  In the event Sanwa grants a sublicense under the
preceding sentence, it shall provide prior written notice to Terrapin of the
name of the sublicensee and the purposes for such sublicense.

     4.2  Grant by Sanwa.  Sanwa hereby grants to Terrapin, during the Research
Term, a non-exclusive, worldwide, royalty-free license under the Sanwa
Technology for the sole purpose of allowing Terrapin to carry out its
responsibilities under the Research Program.  Terrapin may grant a sublicense
under the foregoing license.  In the event Terrapin grants a sublicense under
the preceding sentence, it shall provide prior written notice to Sanwa of the
name of the sublicensee and the purposes for such sublicense.

     4.3  Documentation of License Rights.  To the extent necessary to permit a
party to carry out its responsibilities under the Research Program, the licensor
of technology under Sections 4.1 or 4.2 above, promptly after request by the
licensee, shall provide a complete and organized set of written materials
embodying the requested technology.  The licensor providing those materials may
provide them in their original language.  The licensee may from time to time
convey questions to the licensor regarding the subject of the technology, and
the licensor shall cause its technical personnel to respond promptly and fully
to those questions without additional charge to the licensee.

[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       8
<PAGE>

     4.4  Exclusive Collaboration.  Each party to this Agreement covenants and
agrees that the Research Program shall be its sole and exclusive activity within
the Field in the Sanwa Territory during the term of this Agreement.  Terrapin
covenants and agrees that during the term of this Agreement, it will not license
compounds to third parties in the Sanwa Territory where the development of such
compounds is directed toward the Field.

                                   Article 5

                             Financial Provisions

     5.1  Collaboration Agreement Signing Fee.  Within five (5) business days
after the Effective Date, Sanwa shall make a nonrefundable payment to Terrapin
of [ * ]

     5.2  Equity Investment in Terrapin.

          5.2.1  Stock Purchase Agreement.  Simultaneous with the execution of
this Agreement, the Parties are entering into a Stock Purchase Agreement, in the
form attached hereto as Exhibit D ("Stock Purchase Agreement").

          5.2.2  Initial Public Offering. In the event that Terrapin consummates
an initial public offering in which Terrapin receives net proceeds of not less
than Ten Million United States Dollars (US$10,000,000) at a per share price of
not less than One United States Dollar and Twenty-Five United States Cents
(US$1.25) (the "IPO"), Sanwa and Terrapin agree that, upon written request of
Terrapin, Sanwa shall purchase and Terrapin shall issue and sell Three Million
United States Dollars (US$3,000,000) worth of Terrapin common stock ("Additional
Shares") in a separate private placement, but at a price per share equal to the
price paid by investors in the IPO. The obligation set forth in this Section
5.2.2 shall continue for a period of three (3) years following the Effective
Date, notwithstanding any termination of this Agreement prior to the expiration
of such period, unless such termination occurs as a result of Terrapin's
material breach under Section 9.2. The agreement or agreements pursuant to which
Terrapin shall sell and Sanwa shall purchase the Additional Shares shall (i)
provide that the closing of the sale of the Additional Shares shall occur on the
second business day following the closing of the sale of shares in the IPO, (ii)
contain a lock-up covenant ("Lock-up") substantially the same as Section 7.1 of
the Stock Purchase Agreement, (iii) contain a demand registration right ("Demand
Right") substantially the same as Section 1.2 of the Sixth Amended and Restated
Investor Rights Agreement attached as Exhibit C1 to the Stock Purchase Agreement
("Investor Rights Agreement"), except that (A) such Sanwa provision shall be
modified to reflect the fact that Sanwa will be the only "Holder", as such term
is used therein, (B) only one (1) registration may be effected thereunder, (C)
the Demand Right may be exercised by Sanwa in its sole discretion at any time
after one hundred eighty (180) days following the date of closing of the IPO,
subject to the Lock-up, (D) the Demand Right shall expire on the date which is
the earlier of (1) the one hundred eighty-first (181) day following the date the
Lock-up shall expire or (2) the day Sanwa could sell within six months of such
date all the Additional Shares then held by Sanwa pursuant to Rule 144 and (E)
the Company shall bear all Registration Expenses but no Selling Expenses, as
such terms are defined in Section 1.1 of the Investor Rights Agreement, in
connection with the registration effected pursuant to the Demand Right upon
terms substantially the same as Section 1.4 of the Investor Rights Agreement and
(iv) provide that Sanwa may rely on the statements contained in the prospectus
distributed to investors in the IPO as if the statements contained therein were
made directly to Sanwa and that Sanwa shall be entitled to all rights and
remedies that an investor in the IPO would have under applicable laws.

     5.3  Research Payments.  In support of Terrapin's activities under the
Research Program, Sanwa shall pay Terrapin (i) [ * ] within five (5) business
days after the [ * ] (ii) [ * ] within five (5) business days after the [ * ]
and (iii) [ * ] within five (5) business days after the [ * ]  In the event this
Agreement shall be terminated within a [ * ] period following any of the
foregoing payment dates, then Terrapin shall [ * ] under this Section 5.3 in
respect of such payment date.  Such [ * ] shall equal [ * ] where X equals [ * ]

[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       9
<PAGE>

     5.4  Milestone Payments to Terrapin.  Sanwa shall make the following
nonrefundable payments to Terrapin, within [ * ] after the occurrence of the
following events:

==================================================================
MILESTONE EVENT                                  AMOUNT OF PAYMENT
------------------------------------------------------------------
(1)  [ * ]                                             [ * ]
------------------------------------------------------------------
(2)  [ * ]                                             [ * ]
------------------------------------------------------------------
(3)  [ * ]                                             [ * ]
------------------------------------------------------------------
(4)  [ * ]                                             [ * ]
------------------------------------------------------------------
(5)  [ * ]                                             [ * ]
------------------------------------------------------------------
(6)  [ * ]                                             [ * ]
==================================================================

Each of the foregoing payments shall be made only once regardless of the number
of products licensed to Sanwa.

     5.5  Japan Withholding Taxes.

          5.5.1   Payments under Section 5.1 and Section 5.3. Any withholding
taxes to be levied on the payments to Terrapin under Section 5.1 and Section 5.3
by any tax authority in Japan shall be borne by [ * ] Terrapin agrees to make
reasonable good faith efforts to assist Sanwa in the characterization of the
payments under Section 5.3 as research expenses.

          5.5.2   Other Payments.  Except as set forth in Section 5.5.1, any
income, withholding or other taxes to be levied on the income of Terrapin by any
tax authority by reason of the execution of, or any performance under, this
Agreement, other than as provided in Section 5.5.1, shall be borne by Terrapin.
In the event that Sanwa deducts such tax from the amount of the income to be
remitted to Terrapin in order to pay such tax authority on behalf of Terrapin,
Sanwa shall send to Terrapin, in due course, reasonable evidence showing the
payment of such tax.

     5.6  Payments.  All payments to be made by either Party to the other Party
hereunder, except as otherwise provided herein, shall be remitted by wire
transfer to the

[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       10
<PAGE>

account of the other Party with such bank as may be designated by the other
Party, and shall be made in U.S. dollars.

                                   Article 6

                             Intellectual Property

     6.1  Ownership Of Pre-Existing Technology And Technology Developed Outside
Of The Research Program.  Each Party shall remain the sole owner of all of its
respective technology, compounds, discoveries and inventions which are either
(i) in existence as of the Effective Date or (ii) made outside of the Research
Program, subject to the license grants set forth in Article 4 and any license
granted under the License Agreement.

     6.2  Ownership Of Research Program Technology.  Inventions or discoveries
made, and materials and information created solely by one Party in the course of
the Research Program shall be owned solely by such Party, subject to the license
grants set forth in Article 4 and any license granted under the License
Agreement.  Inventions or discoveries made, and materials and information
created jointly by the Parties in the course of the Research Program shall be
owned jointly by the Parties.  In all cases, inventorship under the Research
Program shall be determined in accordance with the United States patent laws.

     6.3  Patent Prosecution.

          6.3.1    Under the Research Program.  The RMC shall consider and
recommend to each party from time to time which inventions arising from the
Research Program shall be the basis of patent applications and which shall be
maintained as trade secrets.  Patent applications and patents for inventions
arising under the Research Program which are owned by one Party pursuant to
Section 6.2 shall be prosecuted and maintained by the Party owning such
invention, at such Party's option and its own expense.  Terrapin shall be
responsible, on a worldwide basis, for filing and prosecuting patent
applications for, and maintaining patents on, jointly owned inventions arising
under the Research Program pursuant to Section 6.2 (the "Joint Research Program
Patents"), using counsel of its choice, and at its own expense.  Terrapin shall
confer with Sanwa on the content of all filings with the United States Patent
and Trademark Office (or the foreign equivalent), and, taking into account
Sanwa's knowledge and expertise with respect to filing and maintaining patents
in the Sanwa Territory, shall provide Sanwa with the opportunity to review the
content of such filings prior to their submission to such authorities and give
due consideration to its recommendations thereto.

          6.3.2  Under the License Agreement.  In the event that Sanwa provides
a Development and Commercialization Notice to Terrapin regarding a Clinical
Candidate

[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       11
<PAGE>

and the Parties enter into a License Agreement with respect to the Clinical
Candidate described in such Notice, Sanwa shall, at its own expense, assume
responsibility for filing and prosecuting in the Sanwa Territory patent
applications for, and maintaining patents on, such Clinical Candidate and/or
Licensed Products containing such Clinical Compound or derived therefrom. In
such event, Terrapin shall transmit to Sanwa all information reasonable and
appropriate then in its possession relating to such patent application or patent
and execute all consents or other filings reasonably necessary to permit Sanwa
to assume such responsibility.

          6.3.3  Back-up Prosecution.  In the event that a Party decides not to
proceed with prosecuting a patent application for, or maintaining a patent on,
an invention for which it is responsible under this Section 6.3 in any country
of the Sanwa Territory, it shall give the other Party sixty (60) days notice
before any relevant deadline and transmit all information reasonable and
appropriate relating to such patent application or patent, and such other Party
shall have the right to pursue, at its own expense, prosecution of such
application for, or maintenance of, such patent.

     6.4  Infringement.  The License Agreement shall provide for enforcement of
Licensed Patents (as defined in the License Agreement) and defense against third
party claims of infringement, and such matters will be governed thereby.  If any
patent infringement matters arise prior to execution of the License Agreement,
the Parties will discuss in good faith the manner in which they will proceed to
address such issues, in accordance with the provisions set forth in Section 5.3
of the License Agreement attached hereto as Exhibit C.

     6.5  Disclosure Of Inventions.  Terrapin and Sanwa will disclose promptly
to each other all discoveries or inventions made pursuant to the Research
Program, including discoveries or inventions made by consultants or contractors
of Terrapin and Sanwa pursuant to the Research Program, prior to any public
disclosure or filing of patent applications and allowing sufficient time for
comment and review by the other Party; provided, however, review and comment
shall be subject to the time limitations necessitated as a practical matter by
Japan's first to file patent system.

                                   Article 7

                        Representations and Warranties

     7.1  Representations And Warranties.

          7.1.1  Both Parties.  Each Party represents and warrants to the other
that:

[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       12
<PAGE>

               (a)  Corporate Power.  It is duly organized and validly existing
under the laws of its state or country of incorporation, and has full corporate
power and authority to enter into this Agreement and to carry out the provisions
hereof.

               (b)  Due Authorization.  It is duly authorized to execute and
deliver this Agreement and to perform its obligations hereunder, and the person
executing this Agreement on its behalf has been duly authorized to do so by all
requisite corporate action.

               (c)  Binding Agreement.  This Agreement is legally binding upon
it and enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement by it does not conflict with any agreement,
instrument or understanding, oral or written, to which it is a party or by which
it may be bound, nor violate any material law or regulation of any court,
governmental body or administrative or other agency having jurisdiction over it.

               (d)  Grant of Rights; Maintenance of Agreements.  It has not, and
will not during the term of this Agreement, grant any right to any third party
which would conflict with the rights granted to the other Party hereunder. It
has (or will have at the time performance is due) maintained and will maintain
and keep in full force and effect all agreements necessary to perform its
obligations hereunder.

               (e)  Validity.  It is aware of no action, suit or inquiry or
investigation instituted by any governmental agency which questions or threatens
the validity of this Agreement.

               (f) Third Party Rights. To the best of its knowledge, it has
all right, power and authority to perform its obligations under, and [ * ] To
the best of its knowledge, there are [ * ]

               (g)  Accuracy of Information.  All documentation and other
information conveyed by one Party to another hereunder or in connection
herewith, was, at the time it was conveyed or provided, accurate and complete in
light of the purposes for which it was intended.

          7.1.2  By Terrapin.  The compounds identified by Terrapin for use in
the Research Program and described by Terrapin to Sanwa act at least in part
through activation of the insulin signal transduction pathway.

     7.2  Disclaimer Concerning Technology.  EXCEPT AS SET FORTH IN SECTION 7.1
ABOVE, THE TECHNOLOGY PROVIDED BY EACH PARTY HEREUNDER IS PROVIDED "AS IS" AND
EACH PARTY EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND, EXPRESS OR

[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       13
<PAGE>

IMPLIED, INCLUDING WITHOUT LIMITATION THE WARRANTIES OF DESIGN, MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY
RIGHTS OF THIRD PARTIES OR ARISING FROM A COURSE OF DEALING, USAGE OR TRADE
PRACTICES, IN ALL CASES WITH RESPECT THERETO.  Without limiting the generality
of the foregoing, each Party expressly does not warrant (i) the success of any
study or test commenced under the Research Program or (ii) the safety or
usefulness for any purpose of the technology it provides hereunder.

     7.3  Disclaimer Concerning Compounds.  EXCEPT AS SET FORTH IN  SECTION 7.1
ABOVE, THE COMPOUNDS PROVIDED BY EACH PARTY PURSUANT TO THE RESEARCH PROGRAM ARE
PROVIDED BY EACH PARTY "AS IS" AND EACH PARTY EXPRESSLY DISCLAIMS ANY AND ALL
WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE
WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-
INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES OR ARISING
FROM A COURSE OF DEALING, USAGE OR TRADE PRACTICES, IN ALL CASES WITH RESPECT
THERETO.  Without limiting the generality of the foregoing, each Party expressly
does not warrant (i) that any compound it provides hereunder is free from any
third party rights or (ii) the safety or usefulness for any purpose of any
compound it provides hereunder.

     7.4  Terrapin Grant of Rights.  Terrapin has not, and will not during the
term of this Agreement, grant any right to any third party which would conflict
with the rights granted to Sanwa hereunder.  It has (or will have at the time
performance is due) maintained and will maintain and keep in full force and
effect all agreements necessary to perform its obligations hereunder.

                                   Article 8

                         Confidentiality; Publication

     8.1  Confidentiality.  Except to the extent expressly authorized by this
Agreement or otherwise agreed in writing by the Parties, the Parties agree that,
for the term of this Agreement and for [ * ] after its expiration or
termination, the receiving Party shall keep confidential and shall not publish
or otherwise disclose and shall not use for any purpose other than as provided
for in this Agreement any Confidential Information furnished to it by the other
Party pursuant to this Agreement or the Letter of Intent unless the receiving
Party can demonstrate by competent written proof that such Confidential
Information:

[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       14
<PAGE>

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

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

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

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

          (e)  was independently discovered or developed by the receiving Party
without the use of Confidential Information belonging to the disclosing Party.

     8.2  Authorized Disclosure.  Each Party may disclose Confidential
Information belonging to the other Party to the extent such disclosure is
reasonably necessary in the following instances:

          (a)  filing or prosecuting patents relating to Clinical Candidates or
Licensed Products;

          (b)  regulatory filings;

          (c)  prosecuting or defending litigation;

          (d)  complying with applicable governmental regulations;

          (e)  conducting preclinical or clinical trials of Clinical Candidates;

          (f)  disclosure to Affiliates, sublicensees, employees, consultants,
or agents each of whom prior to disclosure must be bound by similar obligations
of confidentiality and non-use at least equivalent in scope to those set forth
in this Article 8; and,

          (g)  disclosure to investment bankers; provided, however, that no such
disclosure shall be made of Sanwa Confidential Information without its written
consent, which consent shall not be unreasonably withheld.

Notwithstanding the foregoing, in the event a Party is required to make a
disclosure of the other Party's Confidential Information pursuant to this
Section 8.2 it will, except where impracticable, give reasonable advance notice
to the other Party of such disclosure and use best efforts to secure
confidential treatment of such information.  In any event, the

[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       15
<PAGE>

Parties agree to take all reasonable action to avoid disclosure of Confidential
Information hereunder.

                                   Article 9

                             Term and Termination

     9.1  Term Of The Agreement. This Agreement shall become effective upon the
Effective Date. Unless earlier terminated pursuant to Sections 9.2, 9.3 or 9.4,
this Agreement shall continue in effect until the expiration or termination of
the License Agreement or, if no License Agreement has been entered into by the
one year anniversary of the end of the Research Term this Agreement shall
terminate on the one year anniversary of the end of the Research Term. The term
of this Agreement may be extended by mutual written agreement of the Parties.

     9.2  Termination For Material Breach.  Each Party shall have the right to
terminate this Agreement after [ * ] prior written notice to the other that the
other Party has committed a material breach of the Agreement, unless the other
Party cures (to the extent practicable) the material breach within such period
of time.  In the event of such termination by Sanwa due to Terrapin's material
breach, Sanwa may, for a period of [ * ] after such written notice of
termination, provide a Notice of Development and Commercialization with respect
to one or more Clinical Candidates.  Terrapin and Sanwa shall thereafter enter
into a License Agreement for any such Clinical Candidates or add any such
Clinical Candidate to any existing License Agreement as provided under Section
3.1 above; provided, however, that Sanwa shall, at its own expense, develop such
Clinical Candidates as set forth under Section 3.1.

     9.3  Termination Upon Bankruptcy.  Each Party shall have the right to
terminate this Agreement if the other Party (the "Bankrupt Party") becomes
insolvent or a petition in bankruptcy or for corporate reorganization or for any
similar relief is filed by or against such other Party or a receiver is
appointed with respect to any of the assets of such other Party or a liquidation
proceeding is commenced by or against such other Party.

     9.4  Accrued Rights; Surviving Obligations.  Termination of this Agreement
shall not affect any accrued rights of either Party.  The terms of Articles 3
(other than Section 3.4), 6, 8 and 10 of this Agreement shall survive
termination of this Agreement.  Except as set forth in the License Agreement,
promptly after termination of this Agreement each Party shall return or dispose
of any know-how of the other in accordance with the instructions of the other,
including without limitation any compounds, assays or other biological or
chemical materials.

[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       16
<PAGE>

                                  Article 10

                                   Indemnity

     10.1  Indemnification.  Each Party hereby agrees to save, defend and hold
the other Party and its directors, officers, employees, and agents harmless from
and against any and all claims, suits, actions, demands, liabilities, expenses
and/or loss, including reasonable legal expense and attorneys' fees
(collectively, "Claims") for damage to persons or property resulting directly or
indirectly from actions in connection with the Research Program by the
indemnifying Party, its Affiliates, agents or sublicensees, but only to the
extent such Claims result from the gross negligence or willful misconduct of the
indemnifying Party or its Affiliates, agents or sublicensees and do not result
from the negligence of the Party seeking indemnification.

     10.2  Control Of Defense.  Any entity entitled to indemnification under
this Article shall give notice to the indemnifying Party of any Claims that may
be subject to indemnification, promptly after learning of such Claim, and the
indemnifying Party shall assume the defense of such Claims with counsel
reasonably satisfactory to the indemnified Party.  If such defense is assumed by
the indemnifying Party with counsel so selected, the indemnifying Party will not
be subject to any liability for any settlement of such Claims made by the
indemnified Party without its consent (but such consent will not be unreasonably
withheld or delayed), and will not be obligated to pay the fees and expenses of
any separate counsel retained by the indemnified Party with respect to such
Claims.

                                  Article 11

                       Governing Law; Dispute Resolution

     11.1  Governing Law.  This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of California, (i) without giving
effect to any choice or conflict of law provision or rule that would cause the
application of the laws of any jurisdiction other than the State of California,
and (ii) except that the rights of the parties to resolve by arbitration any
dispute arising between them regarding the subject matter of this Agreement
shall not be governed by the California arbitration act or international
arbitration act (Cal. Code of Civ. Proc. (S) 1280 et seq. and 1297.11 et seq.)
but rather by the United States Arbitration Act (9 U.S.C. (S)(S) 1-14, 201-208).

     11.2  Dispute Resolution.  In the event of any controversy or claim arising
out of, relating to or in connection with any provision of this Agreement, the
Parties shall try to settle their differences amicably and in good faith between
themselves first, by referring the disputed matter to the respective heads of
research of each Party and, if not resolved by the research heads, by referring
the disputed matter to the respective Chief

[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       17
<PAGE>

Executive Officers of each Party.  In the event such executives are unable to
resolve such dispute within such thirty (30) day period, either Party may invoke
the provisions of Section 11.3.

     11.3  Arbitration.  Upon failure to resolve any controversy or claim
arising out of, relating to or in connection with any provision of this
Agreement using the dispute resolution procedure described in Section 11.2, such
controversy or claim shall be finally settled by arbitration.  Arbitration shall
be held in Honolulu, Hawaii in the English language and conducted in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
The decision of such arbitration shall be conclusive and binding upon both
Parties.  If a Party commences any action or proceeding against the other Party
to enforce this Agreement or any rights related thereto, the prevailing Party in
such action shall be entitled to recover from the other Party the reasonable
attorneys' fees and other reasonable costs and expenses incurred by that
prevailing Party in connection with such action or proceeding and in connection
with enforcing any judgment, award or order thereby obtained.

                                  Article 12

                              General Provisions

     12.1  Notices.  All notices required or permitted to be given under this
Agreement shall be in writing and shall be mailed by registered or certified
mail, postage prepaid, addressed to the signatory to whom such notice is
required or permitted to be given and transmitted by facsimile to the number
indicated below.  All notices shall be deemed to have been given when mailed, as
evidenced by the postmark at the point of mailing, or transmitted by facsimile.

     All notices to Sanwa shall be addressed as follows:

     Sanwa Kagaku Kenkyusho Co., Ltd.
     35 Higashi Sotobori-cho
     Higashi-ku Nagoya, 461
     Japan
     Attention:  President
     Fax:  011-81-52-9571067

     With a copy to:

     Graham & James, L.L.P.
     One Maritime Plaza, Suite 300
     San Francisco, California 94111
`
[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       18
<PAGE>

     U.S.A.
     Attention:  Michael R. Moyle, Esq.
     Fax:  (415) 391-2493

     All notices to Terrapin shall be addressed as follows:

     Terrapin Technologies, Inc.
     750 Gateway Boulevard
     South San Francisco, California 94080
     U.S.A.
     Attention:  President
     Fax: (415) 244-9388

     with a copy to:

     Cooley Godward LLP
     Five Palo Alto Square
     3000 El Camino Real
     Palo Alto, California  94306
     Attention:  Brian C. Cunningham, Esq.
     Fax:  (415) 857 0663

     Any Party may, by written notice to the other, designate a new addressee,
address or facsimile number to which notices to the Party giving the notice
shall thereafter be mailed or faxed.

     12.2  Force Majeure.  No Party shall be liable for any delay or failure of
performance to the extent such delay or failure is caused by circumstances
beyond its reasonable control and that by the exercise of due diligence it is
unable to prevent, provided that the Party claiming excuse uses its best efforts
to overcome the same.

     12.3  Entirety Of Agreement.  This Agreement embodies the entire, final and
complete agreement and understanding between the Parties and replaces and
supersedes all prior discussions and agreements between them with respect to its
subject matter, including the Letter of Intent, except as expressly stated
herein.  No modification or waiver of any terms or conditions hereof shall be
effective unless made in writing and signed by a duly authorized officer of each
Party.

     12.4  Non-Waiver.  The failure of a Party in any one or more instances to
insist upon strict performance of any of the terms and conditions of this
Agreement shall not constitute a waiver or relinquishment, to any extent, of the
right to assert or rely upon any such terms or conditions on any future
occasion.

[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       19
<PAGE>

     12.5  Disclaimer Of Agency.  Neither Party is, or will be deemed to be, the
legal representative or agent of the other, nor shall either Party have the
right or authority to assume, create, or incur any third party liability or
obligation of any kind, express or implied, against or in the name of or on
behalf of another except as expressly set forth in this Agreement.

     12.6  Severability.  If a court of competent jurisdiction declares any
provision of this Agreement invalid or unenforceable, or if any government or
other agency having jurisdiction over either Terrapin or Sanwa deems any
provision to be contrary to any laws, then that provision shall be severed and
the remainder of the Agreement shall continue in full force and effect.  To the
extent possible, the Parties shall revise such invalidated provision in a manner
that will render such provision valid without impairing the Parties' original
interest.

     12.7  Affiliates; Assignment.  Except as otherwise provided in this Section
12.7, neither Party may assign its rights or obligations under this Agreement
without the prior written consent of the other Party, except that a Party may
assign its rights or obligations to a third party in connection with the merger,
consolidation, reorganization or acquisition of stock or assets affecting
substantially all of the assets or actual voting control of the assigning Party.
This Agreement shall be binding upon the successors and permitted assigns of the
Parties. Any attempted delegation or assignment not in accordance with this
Section 12.7 shall be of no force or effect.

     12.8  Headings.  The headings contained in this Agreement have been added
for convenience only and shall not be construed as limiting.

     12.9  Limitation Of Liability.  No Party shall be liable to another for
indirect, incidental, consequential or special damages, including but not
limited to lost profits, arising from or relating to any breach of this
Agreement, regardless of any notice of the possibility of such damages.  Nothing
in this Section is intended to limit or restrict the indemnification rights or
obligations of any Party.

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

     12.11  English Language.  This Agreement has been prepared in the English
language and shall be construed in the English language.

[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       20
<PAGE>

     IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement.

TERRAPIN TECHNOLOGIES, INC.                 SANWA KAGAKU
                                            KENKYUSHO CO., LTD.

By:  /s/ Clifford Orent                     By:  /s/ Keiji Tanimoto
   -----------------------------               ---------------------------------

Name:   Clifford Orent                      Name:  Keiji Tanimoto

Title:  Chairman, President and Chief       Title: President and Chief Executive
        Executive Officer                          Officer

[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       21
<PAGE>

                                   EXHIBIT A

                                      TO

                           COLLABORATION AGREEMENT

                                 RESEARCH PLAN

                                     [*]
              (9-2/3 successive pages have been redacted here.)

[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as  amended.

                                       22
<PAGE>

                                   EXHIBIT B

                                      TO

                           COLLABORATION AGREEMENT

                   DEVELOPMENT AND COMMERCIALIZATION NOTICE

This Development and Commercialization Notice is provided by Sanwa Kagaku
Kenkyusho Co., Ltd. ("Sanwa") to Terrapin Technologies, Inc. ("Terrapin"),
pursuant to Article 3 of the Collaboration Agreement between Sanwa and Terrapin,
dated as of December 20, 1996 (the "Collaboration Agreement").  All capitalized
terms contained in this notice but not defined herein will have the meaning set
forth in the Collaboration Agreement.

Sanwa hereby notifies Terrapin of its intention to develop the following
Clinical Candidate for use in the Field and, if results of the human clinical
studies justify, to prepare and file the Japanese equivalent of an NDA on such
Clinical Candidate for use in the Field:

                ______________________________________________
                     [Chemical Name of Clinical Candidate]

Such Clinical Candidate shall be included on Exhibit 1 to the License Agreement.

Sanwa Kagaku Kenkyusho Co., Ltd.

By:_______________________________

Printed Name:_____________________

Title:____________________________

Date:_____________________________

The undersigned has received the foregoing notice:

Terrapin Technologies, Inc.

By:_______________________________

Printed Name:_____________________

Title:____________________________

Date:_____________________________

[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as  amended.

                                       23
<PAGE>

                  FIRST AMENDMENT TO COLLABORATION AGREEMENT

     This First Amendment to Collaboration Agreement (this "First Amendment") is
made and dated September 24, 1997 (the "First Amendment Effective Date"), by and
between Sanwa Kagaku Kenkyusho Co., Ltd., a Japanese corporation ("Sanwa") and
Terrapin Technologies, inc., a Delaware corporation ("Terrapin").

                                   RECITALS

     A.   The Parties are parties to that Collaboration Agreement dated as of
December 20, 1996 (the "Collaboration Agreement') pursuant to which the parties
have jointly engaged in research to identify one or more compounds which
activate the insulin signal transduction pathway and appear to be useful for
treatment of diabetes mellitus or insulin resistance in humans.

     B.   The Parties are entering into a Series 1 Stock Purchase Agreement of
even date herewith (the `Stock Purchase Agreement") in connection with which, as
one of the conditions to Sanwa consummating the transactions contemplated by the
Stock Purchase Agreement, the parties have agreed to execute and deliver this
First Amendment, the License Agreement attached hereto as Exhibit A and a First
Amendment to Screening Services Agreement.

     NOW, THEREFORE, in consideration of the above recitals and for other good
and valuable consideration, the adequacy and receipt of which are hereby
acknowledged, the parties hereby agree as follows:

                                   AGREEMENT

     1.    Amendments.  The Collaboration Agreement is hereby amended as
follows:
          (a)  In Section 2.7 to the Collaboration Agreement, delete the
following phrase: "for which Sanwa has sent or plans to send a Development and
Commercialization Notice to Terrapin and"

          (b)  Revise Section 2.8.2 to the Collaboration Agreement to provide in
 its entirety as follows:

          2.8.2   The Parties shall make available and disclose to one another,
          on a quarterly basis through the RMC, all results of the work
          conducted pursuant to Phase 1 and Phase 2 of the Research Program.

          Further, upon the reasonable request of Sanwa and notice to Terrapin,
          Terrapin shall disclose to Sanwa all results of Terrapin's work
          conducted

[ * ] - Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       1
<PAGE>

          pursuant to the Research Program since the last date Terrapin
          disclosed such results to Sanwa.

          (c)  Add a new Section 2.10 to provide in its entirety as follows:

          2.10   Research Budget.  Within fifteen (15) business days after the
          First Amendment Effective Date, the parties shall agree and finalize a
          detailed budget ("Budget"), which shall be incorporated by reference
          herein in its entirety, and attached to this Agreement as Exhibit E.
          To the best of its present knowledge, Terrapin represents and warrants
          that [ * ].  Terrapin shall ensure at all times that it [ * ] and
          shall not [ * ] without the prior written consent of Sanwa, which
          consent shall not be unreasonably withheld.

          (d)  Article 3 shall be revised to read "License Agreement," and
Article 3 shall be revised in its entirety to read as follows:

          Article 3.  License Agreement.  As of the First Amendment Effective
          Date, the Parties are entering into a License Agreement, in the form
          attached hereto as Exhibit A, pursuant to which Terrapin is granting
          to Sanwa an exclusive license to all technology developed to date and
          technology to be developed under this Collaboration Agreement, such
          license to be in the Field and in the Sanwa Territory (as defined in
          such License Agreement to include Japan, Korea, Taiwan and the
          People's Republic of China).  At any time during the term of this
          Agreement, Sanwa shall provide written notice (the "Development and
          Commercialization Notice") to Terrapin of its intention to develop a
          Licensed Product for use in the Field and, if results of the human
          clinical studies justify, to prepare and file the Japanese equivalent
          of NDA on such Licensed Product for use in the Field.  Such notice
          shall be in the form attached hereto as Exhibit B and shall be made
          prior to the filing of the Japanese equivalent of an IND by Sanwa for
          such Licensed Product.  For each Licensed Product which Sanwa elects
          to develop and commercialize as set forth in this Article 3, Sanwa
          shall provide a new Development and Commercialization Notice to
          Terrapin.

          (e)  Delete Sections 3,1, 3.2, 3.3 and 3.4 in their entirety.

          (f)  Delete Section 5.2.2 in its entirety.

          (g)  Revise Section 6.3.2 to provide in its entirety as follows:

          6.3.2   Under the License Agreement.  Sanwa shall, at its own expense,
          assume responsibility for filing and prosecuting in the Sanwa
          Territory

[ * ] - Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       2
<PAGE>

          patent applications for, and maintaining patents on, Licensed
          Products. Upon the request of Sanwa, Terrapin shall transmit to Sanwa
          all information reasonable and appropriate in its possession relating
          to such patent application or patent and execute all consents or other
          filings reasonably necessary to permit Sanwa to assume such
          responsibility.

          (h)  Delete the last two sentences of Section 9.2.

          (i)  Revise Section 12.7 to provide in its entirety as follows:

          12.7  Assignment.

          12.7.1   General.  Except as otherwise provided in Section 12.7.2 or
          12.7.3, neither party may assign its rights or obligations under this
          Agreement without the prior written consent of the other party.  This
          Agreement shall be binding upon the permitted successors and permitted
          assigns of the Parties.  Any attempted delegation or assignment not in
          accordance with this Section 12.7 shall be of no force and effect.

          12.7.2   Permitted Assignment by Sanwa.  Sanwa may assign its rights
          or obligations under this Agreement to a third party in connection
          with the merger, consolidation, reorganization or acquisition of stock
          or assets affecting substantially all of the assets or actual voting
          control of Sanwa.

          12.7.3  Permitted Assignment by Terrapin.  Upon the written consent of
          Sanwa, such consent not to be unreasonably withheld or delayed,
          Terrapin may assign its rights or obligations under this Agreement to
          a third party in connection with the merger, consolidation,
          reorganization or acquisition of stock or assets affecting
          substantially all of the assets or actual voting control of Terrapin.
          Sanwa may only withhold its consent under the preceding sentence if
          (a) such third party [ * ] according to the terms of this Agreement or
          (b) such third party [ * ].

     2.   Defined Terms:  Incorporation.  Unless otherwise expressly provided
herein, defined terms used in this First Amendment shall have the same meaning
as set forth in the Collaboration Agreement, and all terms herein shall be
incorporated into the Collaboration Agreement. From and after the First
Amendment Effective Date, all reference to the "Collaboration Agreement" in all
other documents delivered in connection with the Collaboration Agreement shall
refer to the Collaboration Agreement, as amended hereby.

     3.   Counterparts:  Facsimile.  This First Amendment may be executed in
counterparts and by facsimile.

[ * ] - Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       3
<PAGE>

     IN WITNESS WHEREOF, the Parties have executed this First Amendment
effective as of the date first set forth above.

TERRAPIN TECHNOLOGIES, INC.            SANWA KAGAKU KENKYUSHO, CO. LTD.

/s/ Clifford Orent                     /s/ Keiji Tanimoto
------------------                     ------------------------------
By:                                    By:  Keiji Tanimoto

Its:                                   Its: President and CEO

[ * ] = Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as  amended.
                                       4
<PAGE>

                  SECOND AMENDMENT TO COLLABORATION AGREEMENT

     This Second Amendment to Collaboration Agreement (this "Second Amendment")
is made and dated October 29, 1998 (the "Second Amendment Effective Date"), by
and between Sanwa Kagaku Kenkyusho Co., Ltd., a Japanese corporation ("Sanwa")
and Telik, Inc. (formerly Terrapin Technologies, Inc.), a Delaware corporation
("Telik").

                                   RECITALS

     A.   Sanwa and Telik are parties to that Collaboration Agreement dated as
of December 20, 1996, as amended by that certain First Amendment to
Collaboration Agreement dated September 24, 1997 (the "Collaboration Agreement")
pursuant to which the Parties have jointly engaged in research to identify one
or more compounds which activate the insulin signal transduction pathway and
appear to be useful for treatment of diabetes mellitus or insulin resistance in
humans.

     B.   Sanwa and Telik are entering into a Series J Preferred Stock Purchase
Agreement of even date herewith (the "Stock Purchase Agreement") in connection
with which, as one of the conditions to Sanwa consummating the transactions
contemplated by the Stock Purchase Agreement, the parties have agreed to execute
and deliver this Second Amendment.

     NOW, THEREFORE, in consideration of the above recitals and for other good
and valuable consideration, the adequacy and receipt of which are hereby
acknowledged, the parties hereby agree as follows:

                                   AGREEMENT

     4.   Amendments.  The Collaboration Agreement is hereby amended as follows:

          (a)  Each reference in the Collaboration Agreement to "Terrapin
Technologies, Inc." is amended and replaced by "Telik, Inc." Each reference in
the Collaboration Agreement to "Terrapin" is amended and replaced by "Telik."

          (b)  Section 2.1 is amended in its entirety as follows:

               The Parties will participate in a collaborative program (the
               "Research Program") to research and discover novel compounds for
               use in the Field.  The Research Program shall commence on the
               Effective Date and continue until the [ * ], unless (i) earlier
               terminated pursuant to Sections 9.2 and 9.3, (ii) extended
               pursuant to Section 2.10, or (iii) extended by mutual written
               agreement of the Parties.  The period of time during which the
               Research Program is in effect shall be the "Research Term."  The
               Research Program shall be

[ * ] - Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       1
<PAGE>

               conducted pursuant to a detailed research plan attached hereto as
               Exhibit A, which may be modified from time to time by the RMC
               (the "Research Plan"). Telik shall commence the Research Program
               promptly upon execution of this Agreement. Each Party shall
               devote commercially reasonable efforts to its obligations under
               the Research Program, consistent with the efforts it devotes to
               its own research programs of comparable market potential.

          (c)  Section 2.5.1 is amended in its entirety as follows:

               Telik will be responsible for providing [ * ] (the [ * ] all
               infrastructure [ * ] necessary for conducting [ * ] Phase 1 of
               the Research Plan, relating to identification and selection of
               advanced lead compounds and Phase 2 of the Research Plan,
               relating to identification and selection of Clinical Candidates.
               Telik, [ * ] will also be responsible for providing all
               infrastructure [ * ] necessary for and conducting [ * ], Phase 3
               of the Research Plan, relating to all IND enabling work for
               Clinical Candidates, except that portion of Phase 3 work
               identified in the Research Plan as uniquely required for an IND
               application in Japan, for:

               (i)  The first Clinical Candidate; and

               (ii) Subsequent Clinical Candidates if Telik shall choose by
written notice to Sanwa, to develop or have developed the same Clinical
Candidate(s) outside the Sanwa Territory.

               If, as of the date Telik provides notice to Sanwa pursuant to
               Section 2.5.l(ii), Sanwa has commenced work on that portion of
               Phase 3 of the Research Plan for which Telik would be responsible
               as a result of providing such notice using protocols for such
               Phase 3 work as may be recommended by the RMC, then Telik shall
               promptly [ * ] such portion of Phase 3 of the Research Plan and
               Telik shall take over and complete or have such work completed.

          (d)  Section 2.10 is amended by renumbering the existing Section 2.10
as Section 2.10 "(a)" and by adding the following at the end of that section:

               (b)  At each of the RMC meetings, the RMC will discuss whether it
               would be scientifically advisable to extend the Research Term for
               an additional [ * ] period.  By no later than [ * ] ("Cut-Off
               Date"), the RMC shall make a final recommendation to the Parties
               of whether to extend the Research Term for an additional [ * ]
               period.

[ * ] - Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       2
<PAGE>

               If at any RMC meeting the RMC recommends to extend the Research
               Term for an additional [ * ] period, the Research Term shall be
               extended until the [ * ]. If by the Cut-Off Date the RMC has not
               made a final recommendation to extend the Research Term for an
               additional [ * ] period or if the RMC has recommended not to
               extend the Research Term for an additional [ * ] period, Sanwa
               may, at its option exercisable no later than [ * ] after the Cut-
               Off Date upon written notice to Telik, extend the Research Term
               for an additional [ * ]. Upon Sanwa's exercise of its option to
               extend the Research Term, the Research Term shall be extended
               until the [ * ].

               (c) Sanwa agrees that if the Research Term is extended for an
               additional [ * ] period pursuant to Section 2.10 (b), then Sanwa
               will make an additional research payment to Telik of [ * ] within
               [ * ] after the [ * ], subject to the conditions set forth in the
               last two sentences in Section 5.3.

               (d) Telik shall be fully responsible for performing all work [ *
               ] (the [ * ] during any extensions to the Research Term and
               ensuring that at all times Telik [ * ] during any such extensions
               to the Research Term.

          (e)  Section 5.4 is amended by adding the following clause to the
end of that section:

               Furthermore, the amount of each of the foregoing payments shall
               be [ * ] at the time the Milestone Events occur as follows:

               (i)    [ * ]

               (ii)   [ * ]; and

               (iii)  [ * ].

     5.   Defined Terms; Incorporation.  Unless otherwise expressly provided
herein, defined terms used in this Second Amendment shall have the same meaning
as set forth in the Collaboration Agreement, and all terms herein shall be
incorporated into the Collaboration Agreement. From and after the Second
Amendment Effective Date, all references to the "Collaboration Agreement" in all
other documents delivered in connection with the Collaboration Agreement shall
refer to the Collaboration Agreement, as amended hereby.

     6.   Counterparts; Facsimile.  This Second Amendment may be executed in
counterparts and by facsimile.

[ * ] - Certain confidential information contained in this document, marked by
brackets, has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the Securities Act of 1933, as amended.

                                       3
<PAGE>

     IN WITNESS WHEREOF, the Parties have executed this Second Amendment
effective as of the date first set forth above.

TELIK, INC.                            SANWA KAGAKU KENKYUSHO, CO. LTD.

/s/ Clifford Orent                     /s/ Keiji Tanimoto
-----------------------------          -----------------------------------
By:  Clifford Orent                    By:  Keiji Tanimoto
Its: Chairman and Chief                Its: President and Chief Executive
     Executive Officer                      Officer
<PAGE>

                                   Exhibit C

                               LICENSE AGREEMENT

The License Agreement has been filed with the SEC by Telik, Inc. as Exhibit 10.7
to this Telik Registration Statement Form S-1, filed March 31, 2000, which is
titled "License Agreement by and between Registrant and Sanwa Kagaku Kenkyusho
Co., Ltd., dated September 24, 1997, as amended," and is hereby incorporated by
reference.

[*]=CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.<PAGE>

Certain confidential information contained in this document, marked by brackets,
has been omitted and filed separately with the Securities and Exchange
Commission pursuant to Rule 406 of the securities Act of 1933, as amended.

                                                                    EXHIBIT 10.7
                               LICENSE AGREEMENT

     This License Agreement (the "Agreement") is entered into as of the 24th day
of September 1997 (the "Effective Date") by and between Terrapin Technologies,
Inc., a Delaware corporation ("Terrapin") and Sanwa Kagaku Kenkyusho co., Ltd.,
a Japanese corporation ("Sanwa").  Sanwa and Terrapin are sometimes referenced
in this Agreement individually as a "Party" and collectively as the "Parties."

                                   Recitals

     Whereas, Terrapin and Sanwa have entered into a Collaboration Agreement
dated as of December 20, 1996, as amended by the First Amendment to
Collaboration Agreement dated September 24, 1997, (the "Collaboration
Agreement"); and

     Whereas, pursuant to the Collaboration Agreement, the Parties have jointly
engaged in research to identify one or more compounds which activate the insulin
signal transduction pathway and appear to be useful for treatment of diabetes
mellitus or insulin resistance in humans.

     Now, Therefore, in consideration of the foregoing and the covenants and
premises contained herein, the Parties agree as follows:

                                   ARTICLE 1

                                  DEFINITIONS

     Capitalized terms used but not defined herein will have the meaning set
forth in the Collaboration Agreement.  In addition, as used herein, the
following terms shall have the following meanings:

     1.1  Collaboration Agreement shall have the meaning assigned in the first
recital above.

     1.2  Confidential Information shall mean all information, inventions, know-
how or data of either Party disclosed pursuant to this Agreement, whether in
oral, written, graphic or electronic form, including, without limitation, (i)
information regarding the Licensed Product and all other matters material to
this Agreement or the business of the disclosing Party, including manning,
marketing, financial, personnel, scientific and other business information and
plans, and (ii) the material terms of this Agreement.

     1.3  Licensed Field shall mean all human pharmaceutical uses.

     1.4  Licensed Know-How shall mean any know-how and other information which
(i) is necessary or useful to the manufacture, use, sale, offer for sale or
import of the Licensed

                                       1
<PAGE>

Products in the Licensed Field in the Sanwa Territory and (ii) is owned or
Controlled by Terrapin.

     1.5  Licensed Patent Rights shall mean all of (i) Terrapin's interest in
any patents and patent applications (including any divisions, continuations-in-
part, reissues, extensions, renewals, supplementary protection certificates and
foreign counterparts thereof) covering inventions made in the course of the
Research Program (the "Research Program Patents") and (ii) other patents and
patent applications (including any divisions, continuations-in-part, reissues,
extensions, renewals, supplementary protection certificates and foreign
counterparts thereof) owned or Controlled by Terrapin, but only to the extent
such other patents and patent applications are necessary or useful for Sanwa for
the manufacture, use, sale, offer for sale or import of Licensed Products which
are covered by the Research Program Patents.

     1.6  Licensed Product shall mean:

          (i)   any Clinical Candidate (as defined in the Collaboration
Agreement);

          (ii)  any compound (a) which is identified, developed or discovered by
Sanwa using Licensed Technology and (b) which acts through activation of the
insulin signal transduction pathway for the treatment of diabetes mellitus or
insulin resistance in humans; and

          (iii) any compound which is an analog, homolog or chemical
modification of a compound described in clause (i) or (ii) and which acts
through activation of the insulin signal transduction pathway for the treatment
of diabetes mellitus or insulin resistance in humans.

     1.7   Licensed Technology shall mean the Licensed Patent Rights and the
Licensed Know-How.

     1.8   Net Sales shall mean the gross sales price of the Licensed Product in
finished product form realized or invoiced by Sanwa, its Affiliates and
sublicensees from sales to arm's-length third party purchasers, less, to the
extent such amounts are included in the invoiced sales price, taxes, shipping
costs (including freight and insurance), and duties and other governmental
charges paid for.  Additional allowances will be permitted for (i) cash, trade
and/or quantity discounts actually allowed; (ii) amounts repaid or credited by
means of rejection or return of goods; (iii) discounts mandated by or granted in
response to law.  Net Sales shall not be reduced for [ * ].  A sale of a
Licensed Product is deemed to occur upon the earliest of invoicing or transfer
of title in the Licensed Product to an arm's-length third party purchaser.

     1.9   Regulatory Approval shall mean any approval, licenses, registrations,
or authorizations, other than pricing approvals, of any national, regional or
local regulatory agency, department, bureau or other government entity,
necessary for the manufacture, use, storage, import, transport or sale of
Licensed Product in a country within the Sanwa Territory.

     1.10  Sanwa Territory shall mean Japan and the other countries listed on
Exhibit 2 hereto.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS,  HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                       2
<PAGE>

     1.11  Valid Claim shall mean a claim in an issued, unexpired patent that
has not been held invalid or unenforceable in an unappealed and unappealable
judgment of a court of competent jurisdiction.

                                   ARTICLE 2

                       INTELLECTUAL PROPERTY; DILIGENCE

     2.1   License to Sanwa.  Subject to the other provisions of this License
Agreement, Terrapin hereby grants to Sanwa, under the Licensed Technology, an
exclusive, royalty-bearing license, with the right to grant sublicenses, to
develop, have developed, make, have made, use, sell, offer for sale and import
Licensed Products within the Licensed Field in the Sanwa Territory.

     2.2   Trademarks. Sanwa shall be free to use such trademarks in connection
with the sale of Licensed Products as it may choose; provided, however, neither
Party hereby grants the other Party any right or license to use its name or any
of its trademarks nor shall the other Party use such name or trademarks without
prior written consent.

     2.3   Diligence. Sanwa is responsible for [ * ] the preclinical and
clinical development plan for the Licensed Products in the Sanwa Territory.
Sanwa shall use [ * ] efforts to develop and market the Licensed Products,
consistent with the efforts it expends on products of its own research have
comparable market potential, unless and until Sanwa terminates this Agreement.
If Sanwa fails to use such efforts with respect to a particular Licensed Product
in a country of the Sanwa Territory, Terrapin may give notice to Sanwa
describing such failure. Within [ * ] after receipt of such notice (the "First [
* ]"), Sanwa shall either remedy such failure or propose to Terrapin a written
plan reasonably designed to correct such failure. If Sanwa does not correct such
failure within the First [ * ] or propose a plan within the First [ * ] and
carry out such plan within an additional [ * ], Terrapin may, at any time
thereafter upon written notice to Sanwa, convert the license granted to Sanwa in
Section 2.1 of this Agreement to a nonexclusive license for the Licensed Product
and country of the Sanwa Territory for which Sanwa has not satisfied its
obligations pursuant to the preceding clause of this sentence. In the event the
Parties disagree on whether Sanwa's actions are [ * ] or on whether Sanwa's plan
is [ * ], the Parties shall submit the dispute to arbitration as described in
Section 11.3.

     2.4   Obligation to Inform and Share Data. Sanwa agrees to keep Terrapin
fully informed on a reasonable basis of the development and commercialization of
all Licensed Products for which [ * ], including but not limited to providing
periodic written updates on the progress of each filing for Regulatory Approval
in the Sanwa Territory. In addition to the foregoing, Sanwa will make available
to Terrapin any preclinical and clinical data it creates or obtains with respect
to the Licensed Products for which [ * ]. Terrapin may make such data available
to each of its licensees of the Licensed Product outside of the Sanwa Territory
(each, an "Other Licensee"), but only to the extent such Other Licensee agrees
to make its preclinical and clinical data relating to the Licensed Product
available to Sanwa (either directly or through Terrapin) on a reciprocal basis.
It is understood by the Parties that neither Sanwa's commitment to exchange such
data, nor the actual exchange of such data implies [ * ].

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS,  HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                       3
<PAGE>

     2.5  Complaints and Adverse Reactions.  Sanwa shall advise Terrapin of any
adverse reactions, safety issues or toxicity issues relating to the Licensed
Products for which [ * ] of which it becomes aware, in the manner mandated by
FDA regulations.

     2.6  Data Sharing for Certain Licensed Products. With respect to any
Licensed Products for which [ * ], Sanwa agrees to keep Terrapin informed on a
reasonable basis of the development and commercialization of such Licensed
Products, to the extent reasonably necessary for Terrapin to evaluate whether
Terrapin is interested in developing and commercializing such Licensed Products
in the Field outside the Sanwa Territory. Terrapin shall maintain the
confidentiality of all information received from Sanwa regarding such Licensed
Products, and Terrapin shall use all such information solely for the purpose of
evaluating whether Terrapin is interested in developing and commercializing such
Licensed Products in the Field outside the Sanwa Territory. Sanwa shall advise
Terrapin of any adverse reactions, safety issues or toxicity issues relating to
the Licensed Products, to the extent and in the manner mandated by FDA
regulations. Terrapin shall reimburse Sanwa, upon receipt of invoice therefor,
for reasonable copying and mailing costs of the information transmitted to
Terrapin pursuant to this Section 2.6.

     2.7  Negotiation for License Outside the Sanwa Territory. In the event
Sanwa decides to develop and commercialize a product described in clause (ii) or
(iii) of the definition of Licensed Product (a "Sanwa-Identified Licensed
Product"), and Terrapin is interested in developing and commercializing such a
Sanwa-Identified Licensed Product in the Field outside the Sanwa Territory,
Terrapin shall notify Sanwa of such interest and the Parties shall thereafter
enter into good faith negotiations for Sanwa to grant Terrapin a royalty-bearing
license to make, have made, use, offer for sale, sell and import such Sanwa-
Identified Licensed Product in the Field outside the Sanwa Territory, upon terms
mutually acceptable to the Parties.

                                   ARTICLE 3

                                   ROYALTIES

     3.1  Royalty Rate. Sanwa shall pay Terrapin a royalty on Net Sales in Japan
and the other countries of the Sanwa Territory at the rates which are set forth
in Exhibit 2 hereto; provided, however, that the royalty rate in a country shall
be [ * ] for so long as [ * ] in such country during a calendar year shall have
been [ * ] as compared to the previous calendar year due to [ * ]. In the event
of [ * ] during the first year of the sale of Licensed Product by Sanwa in such
country, the royalty rate in such country shall be [ * ] of Sanwa's Net Sales of
Licensed Product in that country for that year. As soon as is practicable after
the Effective Date of this Agreement, the parties shall meet and agree on the
royalty rates for Taiwan, Korea, and the People's Republic of China. Upon such
agreement, each such agreed rate shall be included in Appendix 2 hereto. For
purposes of this Section 3.1, the phrase [ * ] shall be determined by reference
to [ * ] or another comparable source.

     3.2  Period of Royalty Obligation. The royalty obligation under Section 3.1
shall commence on the date of first commercial sale or a Licensed Product in a
country and shall expire, on a product-by-product and country-by country basis,
upon the later of: (a) the last to expire patent containing a composition of
matter patent claim that covers such Licensed Product

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS,  HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                       4
<PAGE>

(corresponding to a claim of a bushitsu tokkyo in Japan) in a country or (b) the
date that is [ * ] after the date of first commercial sale of such Licensed
Product in such country.

                                   ARTICLE 4

                            PAYMENT; RECORDS; AUDIT

     4.1  Payments; Reports. All amounts payable to Terrapin under this
Agreement shall be paid in U.S. dollars. Payments made to Terrapin under this
Agreement shall be paid within [ * ] after the end of each calendar quarter.
Each payment of royalties and amounts due to Terrapin under Section 3.1 shall be
accompanied by a statement of the amount of Net Sales during such period on a
product-by-product and country-by-country basis, and all other information
necessary to determine the appropriate amount of such payments.

     4.2  Exchange Rate. The rate of exchange to be used in computing the amount
of currency equivalent in United States dollars due Terrapin shall be the
average of the closing spot rate quoted by the Tokai Bank, Nagoya Head Office,
on the last business day of each month of the quarterly royalty period in
question.

     4.3  Records and Audit. During the term of this Agreement and for a period
of three (3) years thereafter, Sanwa shall keep complete and accurate records
pertaining to the sale or other disposition of the Licensed Products
commercialized by it, in sufficient detail to permit Terrapin to confirm the
accuracy of all payments due hereunder. Terrapin shall have the right to cause
an independent, certified public accountant to audit such records to confirm
Sanwa's Net Sales and royalty payments; provided, however, that such auditor
shall not disclose Sanwa's Confidential Information to Terrapin, except to the
extent such disclosure is necessary to verify the amount of royalties and
reimbursement due under this Agreement. Such audits may be exercised once a
year, within three (3) years after the royalty period to which such records
relate, upon notice to Sanwa and during normal business hours. Terrapin shall
bear the full cost of such audit unless such audit discloses a variance of more
than [ * ] from the royalties and reimbursement previously paid for such year.
In such case, Sanwa shall bear the full cost of such audit. The terms of this
Section shall survive any termination or expiration of this Agreement for a
period of three (3) years.

     4.4  Withholding of Taxes. Any withholding of taxes levied by tax
authorities outside the United States on the payments hereunder shall be borne
by [ * ]. At least [ * ] prior to the date Sanwa intends to make payment of any
such withholding tax, notice of such intent to be given to Terrapin at least [ *
] prior to such date, Terrapin shall provide to Sanwa such documents as may be
required by Japanese law and as are identified by Sanwa so as to permit Sanwa to
make application to the Japanese tax authorities pursuant to the U.S.- Japan
treaty regarding relief from income tax on royalty payments. Sanwa agrees to
cooperate with Terrapin in the event [ * ] under any double taxation or other
similar treaty or agreement from time to time in force, such cooperation to
consist of [ * ] reasonably available to Sanwa. If in the opinion of either
Party the provisions of this Section become extremely burdensome, the Parties
agree to meet and discuss such other options as may be available to them.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS,  HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                       5
<PAGE>

     4.5  Non-Monetary Consideration. In the event Sanwa receives any non-
monetary consideration in connection with the sale of Licensed Products, Sanwa's
royalty and, if applicable, reimbursement obligations to Terrapin under Article
3 shall be based on the monetary value of such other consideration. In such
case, Sanwa shall disclose the terms of such arrangement to Terrapin and the
Parties shall endeavor in good faith to agree on such monetary value.

                                   ARTICLE 5

                               OWNERSHIP; PATENTS

     5.1  Ownership.  Sanwa acknowledges and agrees that Sanwa has rights to the
Licensed Technology only as set forth in this Agreement and the Collaboration
Agreement.

     5.2  Patents.  Provision is made in the Collaboration Agreement for the
ownership, filing, prosecution and maintenance of patents on inventions arising
under the Research Program and such matters shall be governed thereby.

     5.3  Infringement of Licensed Patent Rights by Third Parties.

          (a)  Notice. Each Party shall promptly notify the other in writing of
any alleged or threatened infringement of the Licensed Patent Rights which may
adversely impact the rights of the Parties hereunder, of which it becomes aware.

          (b)  Enforcement Action. In the event that the Parties become aware of
any alleged or threatened infringement of the Licensed Patent Rights, Sanwa
shall have the right, but not the obligation, to take appropriate action against
any person or entity directly or contributorily infringing such Licensed Patent
Rights in the Sanwa Territory. In the event Sanwa fails to institute an
infringement suit or take other reasonable action in response to such
infringement within [ * ], Terrapin shall have the right, but not the obligation
upon [ * ] notice to Sanwa, to institute such suit or take other appropriate
action in its own name, Sanwa's name or both names. Regardless of which Party
brings such enforcement action, the other Party hereby agrees to cooperate
reasonably in any such effort, including, if required, bringing a legal action
or furnishing a power of attorney. The Party not bringing the action shall have
the right to participate in such action at its own expense with its own counsel
and any recovery obtained by settlement or otherwise shall be disbursed as
follows: Each Party shall first recover any reasonable expenses incurred in such
action (including counsel fees). Thereafter, the Parties shall share any
remaining recovery in accordance with their economic interests as directly
related to the profitability of the product.

     5.4  Infringement of Third Party Patent Rights.

          (a)  Joint Strategy. In the event that the use or sale of a Licensed
Product becomes the subject of a claim of infringement or a patent, copyright or
other proprietary right anywhere in the Sanwa Territory, and without regard to
which Party is charged with said infringement, and the venue of such claim, the
Parties shall promptly confer to discuss the claim.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS,  HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                       6
<PAGE>

          (b)  Defense.  Unless the Parties otherwise agree, Sanwa shall assume
the primary responsibility for the conduct of the defense of any such claim
brought in the Sanwa Territory. Terrapin shall have the right, but not the
obligation, to participate in any such suit at its sole option and at its own
expense. Each Party shall reasonably cooperate with the Party conducting the
defense of the claim. Neither Party shall enter into any settlement that affects
the other Party's rights or interests without such other Party's written
consent, not to be unreasonably withheld. If Sanwa and Terrapin agree that
payment must be made to a third party (the "Third Party Payment") to avoid
infringement of such third party's patent, Sanwa may offset [ * ] of any Third
Party Payment against royalties due Terrapin under Section 3.1; provided,
however, that in no event shall the royalties under Section 3.1 otherwise due
Terrapin in any quarter be reduced by more than [ * ]. Unused credits may be [ *
].

          (c)  Patent Marking. Sanwa shall mark, if necessary, all products
manufactured, used or sold under the terms of this Agreement, or their
containers, in accordance with the applicable patent marking laws, as required.

                                   ARTICLE 6

               DOCUMENTATION OF LICENSE RIGHTS; CONFIDENTIALITY

     6.1  Documentation of License Rights. From time to time, upon the
reasonable request of Sanwa and notice to Terrapin, Terrapin shall disclose to
Sanwa a complete and organized report of written materials embodying the
Licensed Technology and additions or changes to such Licensed Technology.
Terrapin shall provide such written materials in English. From time to time,
Sanwa may request, orally or in writing, that Terrapin provide further
explanations or supplements to the written materials, and Terrapin shall cause
its technical personnel to respond promptly and fully to Sanwa's requests
without additional charge to Sanwa. All disclosure from Terrapin to Sanwa under
this Section 6.1 shall be deemed Confidential Information of Terrapin.

     6.2  Confidentiality.  Except to the extent expressly authorized by this
Agreement or otherwise agreed in writing by the Parties, the Parties agree that,
for the term of this Agreement and for [ * ] after its expiration or
termination, the receiving Party shall keep confidential and shall not publish
or otherwise disclose and shall not use for any purpose other than as provided
for in this Agreement any Confidential Information furnished to it by the other
Party pursuant to this Agreement unless the receiving Party can demonstrate by
competent written proof that such Confidential Information:

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

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

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

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS,  HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                       7
<PAGE>

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

          (e)  was independently discovered or developed by the receiving Party
without the use of Confidential Information belonging to the disclosing Party.

     6.3   Authorized Disclosure. Each Party may disclose Confidential
Information belonging to the other Party to the extent such disclosure is
reasonably necessary in the following:

          (a)  filing or prosecuting patents relating to Licensed Products;

          (b)  regulatory filings;

          (c)  prosecuting or defending litigation;

          (d)  complying with applicable governmental regulations;

          (e)  conducting preclinical or clinical trials of Licensed Products;

          (f)  disclosure to Affiliates, sublicensees, employees, consultants,
or agents each of whom prior to disclosure must be bound by similar obligations
of confidentiality and non-use at least equivalent in scope to those set forth
in this Article 6; and

          (g)  disclosure to investment bankers; provided, however, that no
disclosure shall be made of Sanwa Confidential Information without its written
consent, which consent shall not be unreasonably withheld.

     Notwithstanding the foregoing, in the event a Party is required to make a
disclosure of the other Party's Confidential Information pursuant to this
Section 6.2 it will, except where impracticable, give reasonable advance notice
to the other Party of such disclosure and use [ * ] to secure confidential
treatment of such information.  In any event, the Parties agree to take all
reasonable action to avoid disclosure of confidential information hereunder.

                                   ARTICLE 7

                        REPRESENTATIONS AND WARRANTIES

     7.1  Representations and Warranties.

          (a)  Both Parties. Each Party represents and warrants to the other
that:

               (i)  Corporate Power. It is duly organized and validly
existing under the laws of its state or country of incorporation and has full
corporate power and authority to enter into this Agreement and to carry out the
provisions hereof.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS,  HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                       8
<PAGE>

                    (ii)   Due Authorization. It is duly authorized to execute
     and deliver this Agreement and to perform its obligations hereunder, and
     the person executing this Agreement on its behalf has been duly authorized
     to do so by all requisite corporate action.

                    (iii)  Binding Agreement. This Agreement is legally binding
upon it and enforceable in accordance with its terms. The execution, delivery
and performance of this Agreement by it does not conflict with any agreement,
instrument or understanding, oral or written, to which it is a Party or by which
it may be bound, nor violate any material law or regulation of any court,
governmental body or administrative or other agency having jurisdiction over it.

                    (iv)   Validity. It is aware of no action, suit or inquiry
or investigation instituted by any governmental agency which questions or
threatens the validity of this Agreement.

                    (v) Third Party Rights. To the best of its knowledge, it
has all right, power and authority to perform its obligations under, and [ *
]. To the best of its knowledge, there are [ * ].

                    (vi)   Accuracy of Information. All documentation and other
information conveyed by one Party to another hereunder or in connection
herewith, was, at the time it was conveyed or provided, accurate and complete in
light of the purposes for which it was intended.

           (b)  By Terrapin.

                    (i)    Grant of Rights; Maintenance of Agreements. It has
not, and will not during this Agreement, grant any right to any third party
which would conflict with the rights granted to the other Party hereunder. It
has (or will have at the time performance is due) maintained and will maintain
and keep in full force and effect all agreements necessary to perform its
obligations hereunder.

                    (ii)   The compounds identified by Terrapin for use in the
Research Program and described by Terrapin to Sanwa act at least in part through
activation of the insulin signal transduction pathway.

     7.2  Terrapin Disclaimer.  EXCEPT AS SET FORTH IN SECTION 7.1 ABOVE, THE
LICENSED TECHNOLOGY IS PROVIDED "AS IS" AND TERRAPIN EXPRESSLY DISCLAIMS ANY AND
ALL WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE
WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
NONINFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES OR ARISING
FROM A COURSE OF DEALING, USAGE OK TRADE PRACTICES, IN ALL CASES WITH RESPECT
THERETO. Without limiting the generality of the foregoing, Terrapin expressly
does not warrant (i) the success of any study or test commenced by Sanwa under
this Agreement or (ii) the safety or usefulness for any purpose of the Licensed
Technology.

     7.3  Terrapin Grant of Rights. Terrapin has not, and will not during the
term of this Agreement, grant any right to any third party which would conflict
with the rights granted to

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS,  HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                       9
<PAGE>

Sanwa hereunder. It has (or will have at the time performance is due) maintained
and will maintain and keep in full force and effect all agreements necessary to
perform its obligations hereunder.

                                   ARTICLE 8

                                INDEMNIFICATION

     8.1  Indemnification. Each Party hereby agrees to save, defend and hold the
other Party and its agents and employees harmless from and against any and all
suits, claims, actions, demands, liabilities, expenses and/or loss, including
reasonable legal expense and attorneys' fees, other than claims for infringement
as provided in Section 5.4, (collectively, "Claims") resulting directly or
indirectly from actions by the indemnifying Party, its Affiliates, agents or
sublicensees in connection with the manufacture, use or sale of Licensed
Products, but only to the extent such Claims result from the gross negligence or
willful misconduct of the indemnifying Party or its employees and agents and
only to the extent such Claims do not result from the negligence of the Party
seeking indemnification.

     8.2  Control of Defense.  Any entity entitled to indemnification under this
Article shall give written notice to the indemnifying Party of any Claims that
may be subject to indemnification, promptly after learning of such Claim, and
the indemnifying Parry shall assume the defense of such Claims with counsel
reasonably satisfactory to the indemnified Party.  If such defense is assumed by
the indemnifying Party with counsel so selected, the indemnifying Party will not
be subject to any liability for any settlement of such Claims made by the
indemnified Party without its consent (but such consent will not be unreasonably
withheld or delayed), and will not be obligated to pay the fees and expenses of
any separate counsel renamed by the indemnified Party with respect to such
Claims.

                                   ARTICLE 9

                             COMPLIANCE WITH LAWS

     9.1  Compliance with Laws. Sanwa and Terrapin shall review in good faith
and cooperate in taking actions to ensure the compliance of this Agreement with
all applicable laws. Sanwa and Terrapin shall each provide the other Party with
such reasonable assistance as may be required for the Party requesting such
assistance to comply with all laws, ordinances, rules, regulations and the like
of all governmental units or agencies having jurisdiction pertaining to this
Agreement, including without limitation, obtaining all import, export and other
permits, certificates, licenses or the like required by such laws, ordinances,
rules, regulations and the like, necessary to permit the Parties to perform
hereunder and to exercise their respective rights hereunder.

                                  ARTICLE 10

                       TERM AND TERMINATION OF AGREEMENT

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS,  HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                       10
<PAGE>

     10.1  Term.  Except as provided under Section 10.2 below, the term of this
Agreement shall commence upon the Effective Date and shall expire, on a country-
by-country basis, on the expiration date of the last to expire royalty
obligation contained herein in such country.  Upon expiration of this Agreement
with respect to a given country in the Sanwa Territory, Sanwa shall have a fully
paid, non-exclusive license, under the Licensed Technology, to develop, have
developed, make, have made, use, sell, offer for sale, and import the Licensed
Product in such country.

     10.2  Termination for Material Breach.  Each Party shall have the right to
terminate this Agreement after [ * ] prior written notice to the other that the
other Party has committed a material breach of the Agreement unless the other
Party cures (to the extent practicable) the material breach within such period
of time.

     10.3  Accrued Rights; Surviving Obligations.  Termination of this Agreement
shall not affect any accrued rights of either Party.  The terms of Articles 6
and 8 of this Agreement shall survive termination of this Agreement.  The terms
of Article 4 shall survive as pertains to any accrued obligations owed by Sanwa
at the time termination.  Promptly after termination of this Agreement each
Party shall return or dispose of any know how of the other in the accordance
with the instructions of the other, including without limitation any compounds,
assays or other biological or chemical materials.

                                  ARTICLE 11

                       Governing LAW; DiSpUTE rESOLUTION

     11.1  Governing Law.  This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of California, (i) without giving
effect to any choice or conflict of law provision or rule that would cause the
application of the laws of any jurisdiction other than the State of California,
and (ii) except that the rights of the parties to resolve by arbitration any
dispute arising between them regarding the subject matter of this Agreement
shall not be governed by the California arbitration act or international
arbitration act (Cal. Code of Civ. Proc. (S) 1280 et seq. and 1297.11 et seq.)
but rather by the United States Arbitration Act (9 U.S.C. (S)(S) 1-14, 201-208).

     11.2  Dispute Resolution. In the event of any controversy or claim arising
out of, relating to or in connection with any provision of this Agreement, the
Parties shall try to settle their differences amicably and in good faith between
themselves first, by referring the disputed matter to the respective heads of
research of each Party and, if not resolved by the research heads, by referring
the disputed matter to the respective Chief Executive Officers of each Party. In
the event such executives are unable to resolve such dispute within such thirty
(30) day period, either Party may invoke the provisions of Section 11.3.

     11.3  Arbitration. Upon failure to resolve any controversy or claim arising
out of, relating to or in connection with any provision of this Agreement using
the dispute resolution procedure described in Section 11.2, such controversy or
claim shall be finally settled by arbitration. Arbitration shall be held in
Honolulu, Hawaii in the English language and conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS,  HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                       11
<PAGE>

The decision of such arbitration shall be conclusive and binding upon both
Parties. If a Party commences any action or proceeding against the other Party
to enforce this Agreement or any rights related thereto, the prevailing Party in
such action shall be entitled to recover from the other Party the reasonable
attorneys' fees and other reasonable costs and expenses incurred by that
prevailing Party in connection with such action or proceeding and in connection
with enforcing any judgment, award or order thereby obtained.

                                  ARTICLE 12

                              GENERAL PROVISIONS

     12.1  Notices.  All notices required or permitted to be given under this
Agreement shall be in writing and shall be mailed by registered or certified
mail, postage prepaid, addressed to the signatory to whom such notice is
required or pertained to be given and transmitted by facsimile to the number
indicated below.  All notices shall be deemed to have been given when mailed, as
evidenced by the postmark at the point of mailing, or faxed.

     All notices to Sanwa shall be addressed as follows:

     Sanwa Kagaku Kenkyusho Co., Ltd.
     35 Higashi Sotobori-cho
     Higashi-ku Nagoya, 461
     Japan
     Attention: President
     Fax: 011-81-52-9571067

     Graham & James LLP
     One Maritime Plaza
     San Francisco, California 94111
     U.S.A.
     Attention: Michael R. Moyle, Esq.
     Facsimile: (650) 391-2493

     All notices to Terrapin shall be addressed as follows:

     Terrapin Technologies, Inc.
     750 Gateway Boulevard
     South San Francisco, California 94080
     U.S.A.
     Attention: President
     Fax: (650) 244- 9388

     with a copy to:

     Cooley Godward LLP
     Five Palo Alto Square
     3000 El Camino Real
     Palo Alto, California 94306

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS,  HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                       12
<PAGE>

     Attn.: Brian C. Cunningham, Esq.
     Fax: (650) 857 0663

     Any Party may, by written notice to the other, designate a new addressee,
address or facsimile number to which notices to the Party giving the notice
shall thereafter be mailed or faxed.

     12.2  Notices.  Force Majeure.  No Party shall be liable for any delay or
failure of performance to the extent such delay or failure is caused by
circumstances beyond its reasonable control and that by the exercise of due
diligence it is unable to prevent, provided that the Party claiming excuse uses
its best efforts to overcome the same.

     12.3  Entirety of Agreement.  This Agreement embodies the entire, final and
complete agreement and understanding between the Parties and replaces and
supersedes all prior discussions and agreements between them with respect to its
subject matter.  No modification or waiver of any terms or conditions hereof
shall be effective unless made in writing and signed by a duly authorized
officer of each Party.

     12.4  Non-Waiver. The failure of a Party in any one or more instances to
insist upon strict performance of any of the terms and conditions of this
Agreement shall not constitute a waiver or relinquishment, to any extent, of the
right to assert or rely upon any such terms or conditions on any future
occasion.

     12.5  Disclaimer of Agency. Neither Party is, nor will be deemed to be, the
legal representative or agent of the other, nor shall either Party have the
right or authority to assume, create, or incur any third party liability or
obligation of any kind, express or implied, against or in the name of or on
behalf of another except as expressly set forth in this Agreement.

     12.6  Severability. If a court of competent jurisdiction declares any
provision of this Agreement invalid or unenforceable, or if any government or
other agency having jurisdiction over either Terrapin or Sanwa deems any
provision to be contrary to any laws, then that provision shall be severed and
the remainder of the Agreement shall continue in full force and effect. To the
extent possible, the Parties shall revise such invalidated provision in a manner
that will render such provision valid without impairing the Parties' original
interest.

     12.7  Assignment

           12.7.1  General. Except as otherwise provided in Section 12.7.2 or
12.7.3, neither party may assign its rights or obligations under this Agreement
without the prior written consent of the other party. This Agreement shall be
binding upon the permitted successors and permitted assigns of the Parties. Any
attempted delegation or assignment not in accordance with this Section 12.7
shall be of no force and effect.

           12.7.2  Permitted Assignment by Sanwa. Sanwa may assign its rights or
obligations under this Agreement to a third party in connection with the merger,
consolidation, reorganization or acquisition of stock or assets affecting
substantially all of the assets or actual voting control of Sanwa.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS,  HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                       13
<PAGE>

           12.7.3  Permitted Assignment by Terrapin. Upon the written consent of
Sanwa, such consent not to be unreasonably withheld or delayed, Terrapin may
assign its rights or obligations under this Agreement to a third party in
connection with the merger, consolidation, reorganization or acquisition of
stock or assets affecting substantially all of the assets or actual voting
control of Terrapin. Sanwa may only withhold its consent under the preceding
sentence if (a) such third party is [ * ] according to the terms of the
Collaboration Agreement or (b) such third party is [ * ].

     12.8  Headings. The headings contained in this Agreement have been added
for convenience only and shall not be construed as limiting.

     12.9  Limitation of Liability.  No Party shall be liable to another for
indirect, incidental, consequential or special damages, including but not
limited to lost profits, arising from or relating to any breach of this
Agreement, regardless of any notice of the possibility of such damages.  Nothing
in this Section is intended to limit or restrict the indemnification rights or
obligations of any Party.

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

     12.11 English Language.  This Agreement has been prepared in the English
language and shall be construed in the English language.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS,  HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                       14
<PAGE>

     IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement.

<TABLE>
<CAPTION>

<S>                                            <C>
TERRAPIN TECHNOLOGIES, INC.                    SANWA KAGAKU KENKYUSHO CO., LTD.

By: /s/ Clifford Orent                         By: /s/ Keiji Tanimoto
    ------------------                             ------------------

Name:  Clifford Orent                          Name:  Keiji Tanimoto

Title: Chairman, President and Chief           Title: President and Chief Executive Officer
       Executive Officer
</TABLE>

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS,  HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                               [SIGNATURE PAGE]

<PAGE>

                                   EXHIBIT 1

                                      TO

                               LICENSE AGREEMENT

                              CLINICAL CANDIDATES

                          [INTENTIONALLY LEFT BLANK]

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS,  HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      E-1
<PAGE>

                                   EXHIBIT 2

                                      TO

                               LICENSE AGREEMENT

                    ADDITIONAL COUNTRIES AND ROYALTY RATES

                                      FOR

                                SANWA TERRITORY

     With respect to any Licensed Product, Sanwa shall pay royalty to Terrapin
as follows:

COUNTRY    ROYALTY RATE

Japan      [ * ]

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS,  HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                     E-2.
<PAGE>

                      FIRST AMENDMENT TO LICENSE AGREEMENT

     This First Amendment to License Agreement (this "First Amendment") is made
and dated October 29, 1998 (the "First Amendment Effective Date"), by and
between Sanwa Kagaku Kenkyosho Co., Ltd., a Japanese corporation ("Sanwa") and
Telik, Inc. (formerly Terrapin Technologies, Inc.), a Delaware corporation.

                                   Recitals
                                   --------

     A.  Sanwa and Telik are parties to that License Agreement dated as of
September 24, 1997 (the "License Agreement") pursuant to which Telik granted
Sanwa a license in relation to the Licensed Products (as defined therein).

     B.  Sanwa and Telik are entering into a Series J Preferred Stock Purchase
Agreement of even date herewith (the "Stock Purchase Agreement") in connection
with which, as one of the conditions to Sanwa consummating the transactions
contemplated by the Stock Purchase Agreement, the parties have agreed to execute
and deliver this First Amendment.

     NOW, THEREFORE, in consideration of the above recitals and for other good
and valuable consideration, the adequacy and receipt of which are hereby
acknowledged, the parties hereby agree as follows:

                                   AGREEMENT
                                   ---------

1.  Amendments. The License Agreement is hereby amended as follows:
    ----------

    (a)  Each reference in the License Agreement to "Terrapin Technologies,
Inc." is amended and replaced by "Telik, Inc." Each reference in the License
Agreement to "Terrapin" is amended and replaced by "Telik".

    (b)  Section 2.3 is amended in its entirety as follows:

         Sanwa is responsible for [ * ] the preclinical and clinical development
         plan for the Licensed Products in the Sanwa Territory.

    (c)  Section 2.4 is amended in its entirety as follows:

         2.4 Obligation to inform and Share Data; Collaborative Development.

             (a) Obligation to Inform and Share Data. Sanwa agrees to keep Telik
         fully informed on a reasonable basis of the development and
         commercialization of all Licensed Products for which [ * ], including
         but not limited to providing [ * ] in the Sanwa Territory. In addition
         to the foregoing, Sanwa will make available to Telik any preclinical
         and clinical data it creates or obtains with respect to the Licensed
         Products for which [ * ]. Telik may make such data available to a Third
         Party Licensee (as defined below) outside of the Sanwa Territory [ * ]
         to the [ * ] pursuant to the [ * ].

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS,  HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      1
<PAGE>

               (b) Collaborative Development [ * ]. Telik covenants that [ * ]
          or a [ * ] to [ * ], in countries outside the Sanwa Territory any
          Clinical Candidates (as such term is defined in the Collaboration
          Agreement) [ * ] into a [ * ] or [ * ] which would [ * ] that [ * ]
          will (i) [ * ] and [ * ] for such Clinical Candidates, (ii) [ * ]
          covering such Clinical Candidates, (iii) [ * ] with respect to the
          Clinical Candidates [ * ] unless otherwise [ * ] and (iv) [ * ] an
          appropriate [ * ]"). Telik further agrees to use all reasonable
          efforts to facilitate and assist [ * ] and [ * ]. If after good faith
          efforts, Telik has been unable to [ * ] containing the [ * ] enter
          into [ * ] then Sanwa and Telik shall meet and jointly decide how to
          proceed. If Sanwa transfers all or substantially all control, [ * ]
          Sanwa's rights to develop Clinical Candidates for commercialization in
          Japan to a third party, Telik [ * ] with the [ * ]. For purposes of
          the preceding sentence, Sanwa shall not be deemed to have transferred
          control of Sanwa's rights to develop Clinical Candidates for
          commercialization by entering into any joint [ * ] or similar
          arrangement.

               (c) Sanwa's Collaborative Development [ * ]. Given continuing
          developments concerning the harmonization of regulatory approval
          processes within the Sanwa Territory [ * ] the parties recognize that
          it may be in the parties', [ * ] best interest for certain pre-
          clinical and/or clinical studies to be [ * ], then:

               (i) if Sanwa desires to conduct any such study [ * ] to [ * ] or
               [ * ] Clinical Candidates [ * ] then any such study shall be [ *
               ], and the RMC shall be responsible for [ * ] any protocols for
               such studies as well as [ * ] shall be [ * ] and

               (ii) if Sanwa desires to conduct any such study [ * ] to [ * ] or
               [ * ] Clinical Candidates [ * ] then any such study shall be [ *
               ] to the [ * ] and [ * ].

2.  Defined Terms; Incorporation. Unless otherwise expressly provided herein,
    ----------------------------
defined terms used in this First Amendment shall have the same meaning as set
forth in the License Agreement, and all terms herein shall be incorporated into
the License Agreement. From and after the First Amendment Effective Date, all
reference to the "License Agreement" in all other documents delivered in
connection with the License Agreement shall refer to the License Agreement, as
amended hereby.

3.  Counterparts: Facsimile. This First Amendment may be executed in
    -----------------------
counterparts and by facsimile.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS,  HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      2.
<PAGE>

IN WITNESS WHEREOF, the parties have executed this First Amendment
effective as of the date first set forth above.

TELIK, INC.                      SANWA KAGAKU KENKYUSHO CO., LTD.

By:   /s/ Clifford Orent         By:  /s/ Keiji Tanimoto
      ------------------              --------------------------------------
By:   Clifford Orent             By:  Keiji Tanimoto
Its:  Chairman and               Its: President and Chief Executive Officer
      Chief Executive Officer

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS,  HAS BEEN OMITTED AND FILED SEPARATELY WITH THE sECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      3

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