Document:

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                                                                 EXHIBIT 10.206
                                SUPPLY AGREEMENT

         This Supply Agreement ("Agreement") is entered as of December 31, 1999
("Effective Date") by and between Cygnus, Inc., a Delaware corporation, with its
principal place of business at 400 Penobscot Drive, Redwood City, California
94063 ("Cygnus"), and Hydrogel Design Systems Inc., a Delaware corporation, with
its principal place of business at 2150 Cabot Boulevard West, Langhorne,
Pennsylvania 19047 ("HDS").

         Whereas, Cygnus is in the business of making and selling medical
devices to be used in conjunction with the monitoring of blood glucose levels in
the human body (hereinafter referred to as "Medical Devices");

         Whereas, a component of these Medical Devices is a material known as
Hydrogel Laminate (as defined below);

         Whereas, HDS is in the business of providing services for producing
Hydrogel Laminate;

         Whereas, Cygnus wishes to purchase from HDS the specific Hydrogel
Laminate produced in strict compliance with specifications created by Cygnus and
set forth in Exhibit A, attached hereto and hereby made part of this Agreement
to be used by Cygnus in the manufacture of said Medical Devices;

                  NOW THEREFORE, in consideration of the above premises and the
mutual covenants contained herein, the Parties hereto agree as follows:

1.       DEFINITIONS. When used in this Agreement, each of the following terms
shall have the meaning provided below:

         a.       "Affiliate" means, with respect to a Party hereto, any
corporation, partnership, joint venture or other business arrangement which is
controlled by, controlling or under common control with such Party, and shall
include without limitation any direct or indirect beneficial ownership of fifty
percent (50%) or more of the voting stock or participating profit interest of
such corporation or other business entity.

         b.       "Parties" means HDS and Cygnus and when used in the singular
means either of them.

         c.       "Hydrogel Laminate" means the hydrogel materials only for
glucose monitoring produced by HDS under this Agreement and as more specifically
set forth in Exhibit A attached hereto, including without limitation all
improvements made by HDS during the term of this Agreement.

         d.       "Specifications" means the performance specifications for the
Hydrogel Laminate as set forth in Exhibit A attached hereto including any
amendments thereto. It is agreed that the Specifications for the Hydrogel
Laminate may only be amended by Cygnus, and that HDS will

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strictly follow the specifications until advised of a change by Cygnus in
writing, such change being mutually agreed upon by Cygnus and HDS.

         e.       "HDS Technology" means all Technology relating solely to the
[CONFIDENTIAL TREATMENT REQUESTED] process for the manufacture of hydrogel
materials which was proprietary to, owned or developed by or for HDS prior to
the Effective Date and all improvements thereto and all such Technology and all
improvements invented solely by HDS during the term of this agreement. As
between the parties, HDS shall own all such HDS Technology.

         f.       "Cygnus Technology" means all Technology other than "HDS
Technology" owned or developed by or for Cygnus prior to the Effective Date
(including but not limited to the Hydrogel Laminate and the Specifications) and
all Technology and improvements thereto, which are invented by the Parties
either solely or jointly in connection with this Agreement. As between the
parties, Cygnus shall own all such Cygnus Technology.

         g.       "Technology" means all foreign and domestic patents, patent
applications, patent rights, know-how, trade secrets, copyrights, technical
data, inventions (whether patentable or not), discoveries, designs,
specifications, ideas, plans, works of authorship, techniques, methods,
procedures, processes, test procedures, trademarks, trade names, service marks
and all other scientific or technical information or materials, in whatever
form.

         h.       "Raw Materials" means those materials required to manufacture
Hydrogel Laminate.

2.       SUPPLY OF PRODUCTS.

                  a. SUPPLY TO CYGNUS. During the first [CONFIDENTIAL TREATMENT
REQUESTED] years of the term of this Agreement HDS agrees to supply
[CONFIDENTIAL TREATMENT REQUESTED] of Cygnus' total worldwide commercial
requirements of Hydrogel Laminate solely to Cygnus and Cygnus agrees to
purchase [CONFIDENTIAL TREATMENT REQUESTED] of Cygnus' total worldwide
commercial requirements of Hydrogel Laminate from HDS in accordance with this
Section 2 and pursuant to the terms and conditions of this agreement.
Thereafter, HDS agrees to supply [CONFIDENTIAL TREATMENT REQUESTED] of
Cygnus' total worldwide commercial requirements of Hydrogel Laminate solely
to Cygnus and Cygnus agrees to purchase [CONFIDENTIAL TREATMENT REQUESTED] of
Cygnus' total worldwide commercial requirements of Hydrogel Laminate from HDS
in accordance with this Section 2 and pursuant to the terms and conditions of
this agreement. In the event that HDS is unwilling or unable to supply the
required amount of Product (pursuant to conditions in this Section above) in
the aggregate for [CONFIDENTIAL TREATMENT REQUESTED], the Parties shall
consult with each other within [CONFIDENTIAL TREATMENT REQUESTED] in order to
resolve the problem. HDS shall have [CONFIDENTIAL TREATMENT REQUESTED] from
the scheduled delivery date for the [CONFIDENTIAL TREATMENT REQUESTED] to
resolve the problem. If after this [CONFIDENTIAL TREATMENT REQUESTED] cure
period HDS is unwilling or unable to resolve the problem, Cygnus shall be
free to terminate this Agreement in its entirety as described in Section 7
hereto and/or shall be free to purchase

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Product from a third-party during said period of supply deficiency,
notwithstanding this Section 2.a. of this Agreement..

         b.       SUPPLY TO CYGNUS SUBCONTRACTORS. In the event that Cygnus
should choose to have its Affiliates or subcontractors purchase the Hydrogel
Laminate directly from HDS, HDS agrees to accept purchase orders directly from
Cygnus' Affiliates or subcontractors, provided however, that the terms and
conditions of this Agreement shall apply to those purchase orders and Cygnus
shall guarantee the performance of its Affiliates or subcontractors under such
purchase orders.

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         c.       FORECASTS. Cygnus shall send HDS by [CONFIDENTIAL TREATMENT
REQUESTED] of each year a non-binding, written estimate of the delivery
quantities and dates of Hydrogel Laminate to be purchased in the following
calendar year. Cygnus shall provide HDS with quarterly rolling written updates
on the non-binding forecasts for the following three months, during the term of
this Agreement. HDS shall not be obligated to supply Hydrogel Laminate in
accordance with Cygnus' non-binding quarterly forecasts until HDS has provided
written acknowledgment of Cygnus' non-binding quarterly forecasts to Cygnus,
such written acknowledgment to be provided within ten (10) days of receipt of
the forecasts. Based on the foregoing forecasts, HDS shall order Raw Materials
to meet up to two quarters of such forecasts.

         d.       ORDERS.

        i.      ORDERING AND ACKNOWLEDGMENT. In ordering Hydrogel Laminate from
                HDS, Cygnus, its Affiliates or subcontractors shall issue
                written purchase orders referencing and incorporating this
                Agreement. Minimum order quantities, if any, are set forth in
                Exhibit B attached hereto. Cygnus, its Affiliates or
                subcontractors will provide HDS with a purchase order at least
                forty-five (45) days prior to a requested delivery date for
                Hydrogel Laminate. HDS will provide Cygnus, within three working
                (3) days after receipt of an order, a firm shipment schedule and
                an order acknowledgment. All orders shall be subject to
                acceptance by HDS at its headquarters. HDS shall accept Cygnus',
                its Affiliates' or subcontractors' purchase orders to the extent
                that the purchase orders are in accordance with the most recent
                non-binding quarterly forecast acknowledged by HDS pursuant to
                Section 2(c) above. HDS shall accept purchase orders otherwise
                in accordance with the provisions of this Agreement, provided
                such purchase orders are for quantities of Hydrogel Laminate
                which are not more or less than [CONFIDENTIAL TREATMENT
                REQUESTED] of the most recent acknowledged non-binding quarterly
                forecast. HDS shall use its best efforts to manufacture and ship
                quantities of Hydrogel Laminate that exceed the most recent
                acknowledged non-binding forecast by more than [CONFIDENTIAL
                TREATMENT REQUESTED].

        ii.     SHIPMENT. HDS will use reasonable commercial efforts to ship
                ordered Hydrogel Laminate on or five working days before the
                date requested. HDS will be solely responsible for the costs of
                expediting Hydrogel Laminate in order to meet the scheduled
                shipment dates for each firm order (including, without
                limitation, overtime charges, fees required to expedite Hydrogel
                Laminate or services used in manufacturing), provided that
                Cygnus has complied with the terms of this Agreement in placing
                such order. HDS will use reasonable commercial efforts to meet
                Cygnus' reasonable requests for orders of Hydrogel Laminate
                which require short lead time or expedited shipment dates.

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        iii.    CHANGES. Except with respect to Raw Materials, Cygnus, its
                Affiliates or subcontractors may, without being subject to a
                cancellation fee, modification fee or any other fee or charge,
                (1) cancel in whole or in part, or (2) extend the shipment
                schedule set forth in any purchase order of Hydrogel Laminate,
                provided that the ordering party provides HDS with written
                notice of such cancellation or modification at least three (3)
                weeks prior to the shipment date for such order. HDS will only
                use reasonable efforts to accommodate cancellations or
                modifications within three (3) weeks of shipment. Any
                cancellation or extension permitted hereunder which, if accepted
                by HDS, would result in any charge or cost associated with Raw
                Materials shall be the sole responsibility of Cygnus. HDS
                reserves the right to use any Raw Materials rendered surplus
                pursuant to the terms of this Section 2(d).

e.       PRICING AND PAYMENTS.

        i.      Pricing for units of Hydrogel Laminate sold to Cygnus is set
                forth in Exhibit B and shall remain fixed for the term of this
                agreement subject to changes in raw material costs as follows.
                In the event that raw material costs change by [CONFIDENTIAL
                TREATMENT REQUESTED] or more (either an increase or decrease)
                from the cost identified on the Effective Date, HDS will adjust
                the pricing by the amount of such cost change. Such price
                changes will occur no more than once per three (3) month period
                and shall be documented in writing by HDS. Raw material cost
                changes of less than [CONFIDENTIAL TREATMENT REQUESTED] (either
                an increase or decrease) shall be absorbed by HDS.

                All prices are exclusive of any sales, use or other applicable
                taxes, which shall be paid or reimbursed by Cygnus, its
                Affiliates or subcontractors. If Cygnus claims such sales are
                exempt from such taxes, then Cygnus, its Affiliates or
                subcontractors shall furnish HDS with satisfactory evidence of
                such exemption from such taxes.

        ii.     Payment terms will be net thirty (30) days after delivery of a
                shipper's bill of lading to Cygnus for a shipment of Hydrogel
                Laminate. HDS reserves the right to charge interest on overdue
                balances in the amount of [CONFIDENTIAL TREATMENT REQUESTED] per
                month.

        iii.    All Hydrogel Laminate is to be shipped F.O.B. HDS' Facility,
                Langhorne, Pennsylvania, freight pre-paid and billed. Risk of
                loss shall pass at the F.O.B. point.

         f.       CONFLICTING TERMS. In ordering and delivering Hydrogel
Laminate, HDS and its Affiliates and Cygnus, its Affiliates and subcontractors
may use their standard forms, however, nothing in such forms shall be construed
to amend or modify the terms of this Agreement. If Cygnus', its Affiliates' or
subcontractors' purchase order forms or HDS' order acknowledgement forms contain
terms that contradict or vary any terms contained in this Agreement, then the
terms of this Agreement shall prevail and control.

         g.       ACCEPTANCE PROCEDURES. Cygnus, its Affiliates or
subcontractors, shall inspect the Hydrogel Laminate within twenty (20) days of
its receipt. If Cygnus finds that the Hydrogel Laminate has a defect ("Defect"
meaning that such Hydrogel Laminate fails to conform to the applicable
Specifications or otherwise fail to conform to the warranties given by HDS under
this

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Agreement), Cygnus will notify HDS in writing. HDS agrees to promptly
investigate such reported defect and promptly provide to Cygnus, in writing the
findings of their investigation. If it is found that HDS is responsible for the
reported defect, HDS agrees to remedy such reported defect by supplying
replacement Hydrogel Laminate within a reasonable time period. If HDS fails to
remedy such reported defects within two months from the date of receipt of such
a report, then HDS agrees to issue a credit for the face amount of the affected
purchase order.

         h.       EXCLUSIVITY. During the term of this Agreement, HDS shall not
develop, manufacture, produce, or supply to any third parties any Hydrogel
Laminate. HDS shall not assign or delegate all or any portion of its obligations
under the terms of this Agreement without prior written consent of Cygnus at
Cygnus' sole discretion. HDS shall at all times remain fully responsible for all
obligations and commitments hereunder.

3.       MANUFACTURING; TESTING

         a.       MANUFACTURING.

                  i. HDS will manufacture the Hydrogel Laminate such that it
meets the Specifications set forth in Exhibit A attached hereto.

                  ii. HDS shall at all times comply with all applicable current
FDA and other applicable government, regulatory and administrative agency
requirements for the manufacture of the Hydrogel Laminate for use in connection
with Medical Devices, including, without limitation, manufacturing all Hydrogel
Laminate in a facility which meets all applicable current Good Manufacturing
Practices ("cGMP") requirements. HDS shall permit Cygnus to audit and inspect
HDS's records (including, without limitation, copies of relevant licenses and
approvals) and facility from time to time for purposes of confirming the
foregoing compliance, and HDS shall promptly correct issues reasonably
identified by Cygnus as a result of such audit and inspection. HDS shall
indemnify, defend and hold Cygnus and its directors, officers, employees and
agents harmless from any liability, damages, claims, settlements, costs and
expenses for its failure to obtain and maintain relevant approvals and licenses
and for its failure to comply with any relevant government, regulatory or
administrative requirements relating to the manufacture of the Hydrogel
Laminate.

         b.       QUALITY CONTROL; TESTING. Prior to each shipment of Hydrogel
Laminate, HDS shall perform or cause to be performed quality control procedures,
as set forth the Quality Agreement Between HDS and Cygnus attached in Exhibit C
hereto. Each shipment of Hydrogel Laminate shall be accompanied by a
certificate, which contains the information as required by the Specification.

         c.       LATENT DEFECTS. It is recognized that it is possible for
Hydrogel Laminate to have defects which would not be discoverable upon
reasonable physical inspection or testing ("Latent Defects"). As soon as either
Party becomes aware of a Latent Defect in any lot or batch of Hydrogel Laminate,
it shall immediately notify the other Party in writing of the lot or batch
involved. HDS agrees to promptly investigate such reported defect and promptly
provide to Cygnus, in writing the findings of their investigation. If it is
found that HDS is responsible for the reported defect found after the inspection
described in Section 2(g) and within

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[CONFIDENTIAL TREATMENT REQUESTED] after receipt by Cygnus, its Affiliates or
subcontractors, then HDS will reimburse Cygnus for the total cost of the failed
materials plus all other costs incurred, including, but not limited to the costs
of other materials, subsequent processing costs, transportation costs, and the
costs of product recalls as are attributable to HDS' failure to provide
conforming Hydrogel Laminate. Such reimbursement in any [CONFIDENTIAL TREATMENT
REQUESTED] period is limited to the total value of the Hydrogel Laminate
purchased by Cygnus from HDS within the [CONFIDENTIAL TREATMENT REQUESTED]
period prior to the written notification of the defect.

4.       CONFIDENTIALITY.

         Each Party agrees that all inventions (whether or not patentable),
trade secrets, ideas, processes, formulas, materials, chemicals, technology,
know-how and all other business, technical and financial information it obtains
from the other are the confidential property of the disclosing Party
("Proprietary Information" of the disclosing Party). Except as expressly allowed
in this Agreement, (i) the receiving Party will hold in confidence and not use
or disclose any Proprietary Information of the disclosing Party during the term
of this Agreement and for a period of five (5) years after termination of this
Agreement, and its employees shall be similarly bound, and (ii) in addition,
with respect to HDS's obligations hereunder, HDS shall not allow the disclosure
or use of Cygnus Proprietary Information outside of HDS. The receiving Party
shall not be obligated under this Section 5 with respect to any information the
receiving Party can document:

                  a. is or has become readily publicly available through no
fault of the receiving Party or its employees or agents; or

                  b. is received from a third party lawfully in possession of
such information and lawfully empowered to disclose such information and
provided the receiving Party abides by all restrictions, if any, imposed by such
third party; or

                  c. was rightfully in the possession of the receiving Party
prior to its disclosure by the other Party as shown by the receiving Party's
written records provided the receiving Party abides by all restrictions, if any,
imposed on its possession of such information; or
                  d. was independently developed by employees or consultants of
the receiving Party as shown by the receiving Party's written records without
use of or access to Proprietary Information of the disclosing Party.

Notwithstanding the foregoing, the receiving Party may disclose Proprietary
Information to the extent it is required to be disclosed to a governmental
entity or agency in connection with seeking any governmental or regulatory
registration, approval or license, or pursuant to the lawful requirement or
request of a governmental entity or agency, provided that reasonable measures
are taken to obtain confidential treatment thereof and to guard against further
disclosure.

5.       PRODUCT WARRANTY.

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         HDS hereby covenants, represents and warrants to Cygnus that:

         a. On the date of shipment, all Hydrogel Laminate sold by HDS to Cygnus
hereunder will comply with the Specifications set forth in Exhibit A or then
current Specification and conform with the information shown on the Certificate
of Conformance or Certificate of Analysis provided for the particular shipment
according to Section 3(b) above;

         b. All Hydrogel Laminate sold hereunder shall have been manufactured,
packaged and stored in conformance with all applicable current Good
Manufacturing Practices which are in force or hereinafter adopted by the FDA or
any successor agency thereto;

         c. Title to all Hydrogel Laminate sold hereunder shall pass to Cygnus
as provided herein free and clear of any security interest, lien, or other
encumbrance; and

         d. The Hydrogel Laminate sold hereunder shall have been manufactured,
packaged and stored in facilities which meet the requirements set forth in the
Quality Agreement between HDS and Cygnus attached here to as Exhibit C. HDS has
no other obligation or duty other than the manufacture and supply of the
Hydrogel Laminate in accordance with the terms and conditions of this Agreement.
EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION, HDS MAKES NO REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, AS TO THE HYDROGEL LAMINATE, AND HDS HEREBY
EXPRESSLY DISCLAIMS ANY AND ALL IMPLIED OR STATUTORY WARRANTIES, INCLUDING
WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.

6. LIMITATION OF LIABILITY.

         EXCEPT FOR A BREACH OF SECTION 4 (CONFIDENTIALITY), NOTWITHSTANDING
ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE, NEITHER PARTY WILL BE LIABLE TO
THE OTHER WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY
CONTRACT, TORT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES, EXCEPT IN THE CASE OF GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT.

         THE PARTIES ACKNOWLEDGE THAT THE HYDROGEL LAMINATE ITSELF IS NOT A
MEDICAL DEVICE. THE PARTIES FURTHER ACKNOWLEDGE THAT THE HYDROGEL LAMINATE WILL
BE USED, PROCESSED OR INCORPORATED INTO OTHER GOODS BY CYGNUS AND ITS AFFILIATES
WHICH ARE MEDICAL DEVICES, WHICH MEDICAL DEVICES WILL BE SUBJECT TO REGULATION
BY THE UNITED STATES FOOD AND DRUG ADMINISTRATION (FDA). HDS SHALL NOT BE LIABLE
TO CYGNUS, ITS AFFILIATES, OR ANY THIRD PARTIES FOR ANY USE, PROCESS,
APPLICATION OR INCORPORATION INTO OTHER GOODS OF THE HYDROGEL LAMINATE AFTER IT
HAS BEEN ACCEPTED BY CYGNUS OR ITS AFFILIATES PURSUANT TO THE PROVISIONS OF THIS
AGREEMENT, WITH THE EXCEPTION OF THE PROVISIONS SET FORTH IN SECTIONS 3(c) AND
5(a)-(d) OF THIS AGREEMENT. HDS SHALL NOT BE LIABLE FOR ANY LIABILITY WHATSOEVER
RELATED TO THE

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ENFORCEMENT OF FDA REGULATIONS CONCERNING THE HYDROGEL LAMINATE AFTER ACCEPTANCE
BY CYGNUS OR ITS AFFILIATES.

         THE FOREGOING PARAGRAPH IS A SEPARATE ESSENTIAL PROVISION OF THIS
AGREEMENT.

7.       TERM AND TERMINATION.

         a. TERM. This Agreement will commence as of the Effective Date and,
unless terminated as provided below, shall continue in effect for a period of
five (5) years. Thereafter, this Agreement shall automatically renew for
successive one (1) year terms, unless terminated as provided below, and provided
that either Party may elect not to renew this Agreement by providing the other
Party with six (6) months written notice prior to the corresponding renewal
period.

         b.       TERMINATION.

                  i. This Agreement may be terminated in its entirety by a Party
upon the occurrence of any of the following events:

                           (1)      By a Party upon thirty (30) days' written
notice if there has been a material breach of any representation, warranty,
product warranty, covenant or obligation contained in this Agreement on the part
of the other Party provided the non-breaching Party has given written notice to
the breaching Party and afforded a thirty (30) day cure period and the breaching
Party has failed to cure the alleged breach within the thirty (30) days.

                           (2)      If the other ceases to do business, or
otherwise terminates its business operations;

                           (3) If the other shall fail to promptly secure or
renew any license, registration, permit, authorization or approval necessary for
the conduct of its business in the manner contemplated by this Agreement, or if
any such license, registration, permit, authorization or approval is revoked or
suspended and not reinstated within sixty (60) days or if reinstatement is not
possible within sixty (60) days, diligent efforts are not being made to effect
such reinstatement, and any such failure shall have a material adverse affect on
that Party's performance under this Agreement; or

                           (4) If the other shall seek protection under any
bankruptcy, receivership, trust deed, creditors arrangement, composition or
comparable proceeding, or if any such proceeding is instituted against the other
(and not dismissed within one hundred and twenty (120) days).

         c.       NO LIABILITY FOR TERMINATION. Except as otherwise provided in
this Agreement, neither Party shall incur any liability whatsoever for any
damage, loss or expenses of any kind suffered or incurred by the other (or for
any compensation to the other) arising from or incident to any termination of
this Agreement by such Party which complies with the terms of this Agreement,
whether or not such Party is aware of any such damage, loss or expenses.

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         d.       EFFECT OF TERMINATION. In addition to provisions that by their
terms survive termination, the following provisions shall survive the
termination of this Agreement: Sections 3(c), 4, 5, 6, 7, 8 and 9 and accrued
payment obligations. Remedies for all breaches hereunder will also survive. Each
Party will promptly return all Proprietary Information of the other (and all
copies and abstracts thereof, except that one (1) copy may be retained and shall
be kept in its legal archives for legal record keeping purposes only) that it is
not entitled to under the surviving terms of this Agreement. Upon termination by
either Party pursuant to Section 7(b) i (1), Cygnus shall have the right to
purchase HDS' existing inventory of Hydrogel Laminate at the then applicable
prices. Further, within sixty (60) days after termination, Cygnus shall have the
right place purchase orders for Product, delivery of such Product to be within
nine (9) months of termination, pursuant to the terms of this agreement. HDS
shall, in good faith, use reasonable commercial efforts to assist Cygnus in
securing a replacement supplier of the Hydrogel Laminate.

8.       INDEMNIFICATION AND INSURANCE.

         a.       INDEMNIFICATION. Cygnus agrees to indemnify and hold harmless
HDS, its officers, directors, shareholders, employees, parents and subsidiaries,
successors and assigns from any loss, judgment, liability, damage, claim,
demand, lawsuit, or injury whether to person or property, arising out of any
claim, lawsuit or legal proceeding, and regardless of the legal theory asserted,
involving the sale, use or other disposition by Cygnus of the Hydrogel Laminate
either directly or as a component in any product or good; provided however,
Cygnus shall have no obligation under this Section 8(a) for any claim arising
from the gross negligence or willful misconduct of HDS, infringement of any
third party rights by any aspect of the Hydrogel Laminate that relates solely to
Hydrogel Technology, any aspect of the Hydrogel Laminate based upon manufacture
by HDS and provided further, Cygnus' obligations hereunder are conditioned upon
and subject to (i) prompt receipt of notice from HDS of any claim, threatened
claim or action, (ii) Cygnus having sole control of any litigation or settlement
of such claim or action, and (iii) HDS' reasonable cooperation in the defense of
such claim or action.

        b.        INSURANCE. HDS shall procure and maintain policies of
insurance to cover any and all claims that may arise from or in connection with
HDS' use, manufacture, sale or distribution of the Hydrogel Laminate to Cygnus
or its Affiliates. Cygnus and its Affiliates shall procure and maintain policies
of insurance to cover any and all claims that may arise from or in connection
with Cygnus' and its Affiliates' use, processing, sale, or distribution of
Hydrogel Laminate and/or goods produced or distributed by Cygnus or its
Affiliates which incorporate the Hydrogel Laminate. Such insurance coverage
under this Section 8(b) shall be in the amount of not less than [CONFIDENTIAL
TREATMENT REQUESTED]. The parties shall furnish each other with a certificate of
insurance evidencing such insurance coverage.

9.       GENERAL.

         a.       AMENDMENT AND WAIVER. Except as otherwise expressly provided
herein, any provision of this Agreement may be amended and the observance of any
provision of this Agreement may be waived (either generally or in any particular
instance and either retroactively or prospectively) only with the written
consent of both Parties. However, it is the intention of the Parties that this
Agreement be controlling over additional or different terms of any purchase

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order, confirmation, invoice or similar document, even if accepted in writing by
both Parties, and that waivers and amendments of any provision of this Agreement
shall be effective only if made by non-pre-printed agreements signed by both
Parties and clearly understood by both Parties to be an amendment or waiver. The
failure of either Party to enforce its rights under this Agreement at any time
for any period shall not be construed as a waiver of such rights.

         b.       GOVERNING LAW AND LEGAL ACTIONS. This Agreement shall be
governed by and construed under the laws of the State of Delaware and the United
States without regard to conflicts of laws provisions thereof.

         c.       HEADINGS. Headings and captions are for convenience only and
are not to be used in the interpretation of this Agreement.

         d.       NOTICES. Any notice or other communication required or
permitted to be made or given to either Party under this Agreement shall be
deemed sufficiently made or given on the date of delivery if delivered in person
or by overnight commercial courier service with tracking capabilities with costs
prepaid, or three (3) days after the date of mailing if sent by certified first
class U.S. mail, return receipt requested and postage prepaid, at the address of
the Parties set forth below or such other address as may be given from time to
time under the terms of this notice provision:

              If to HDS:                HDS
                                        2150 Cabot Boulevard. West
                                        Langhorne, PA 19047

                                        Attention:  President and CEO

              If to Cygnus:             Cygnus, Inc.
                                        400 Penobscot Drive
                                        Redwood City, California 94063

                                        Attention: President and CEO

         e.       ENTIRE AGREEMENT. This Agreement (and all Exhibits hereto)
constitutes the entire understanding and agreement with respect to the subject
matter hereof and supersedes all proposals, oral or written, all negotiations,
conversations, or discussions, with the exception of the Confidential Disclosure
Agreement, effective January 1, 1997, the Extension Letter thereto, dated
February 5, 1997 and Amendment #1 to the Confidential Disclosure Agreement,
dated February 8, 1999, shall remain in full force and effect, between or among
Parties relating to the subject matter of this Agreement and all past dealing or
industry custom. No other rights or licenses, except those rights set forth in
this Agreement, have been granted or implied to be granted.

         f.       SEVERABILITY. If any provision of this Agreement is held to be
illegal or unenforceable, that provision shall be limited or eliminated to the
minimum extent necessary so

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that this Agreement shall otherwise remain in full force and effect and
enforceable.

         g.       RELATIONSHIP OF PARTIES. The Parties hereto expressly
understand and agree that the other is an independent contractor in the
performance of each and every part of this Agreement, is solely responsible for
all of its employees and agents and its labor costs and expenses arising in
connection therewith.

         h.       ASSIGNMENT. This Agreement and the rights hereunder are not
transferable or assignable without the prior written consent of the Parties
hereto.

         i.       PUBLICITY AND PRESS RELEASES. Except to the extent necessary
under applicable laws or for ordinary marketing purposes, the Parties agree that
no press releases or other publicity relating to the substance of the matters
contained herein will be made without approval by both Parties.

         j.       FORCE MAJEURE. No liability or loss of rights hereunder shall
result to either Party from delay or failure in performance caused by an event
of force majeure (that is, circumstances beyond the reasonable control of the
Party affected thereby, including, without limitation, acts of God, fire, flood,
war, government action, compliance with laws or regulations (including, without
limitation, those related to infringement), strikes, lockouts or other serious
labor disputes) for so long as such event of force majeure continues in effect;
provided that if such force majeure event continues and affects or delays a
Party's performance hereunder for more than sixty (60) days, the other Party may
terminate this Agreement pursuant to Section 8(b).

         k.       REMEDIES. Except as otherwise expressly stated in this
Agreement, the rights and remedies of a Party set forth herein with respect to
failure of the other to comply with the terms of this Agreement (including,
without limitation, rights of full termination of this Agreement) are not
exclusive, the exercise thereof shall not constitute an election of remedies and
the aggrieved Party shall in all events be entitled to seek whatever additional
remedies may be available in law or in equity.

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
Effective Date.

CYGNUS, INC.                                   HYDROGEL DESIGN SYSTEMS INC.

By:      /s/ Barbara G. McClung                By:      /s/ Matthew Harriton
   ------------------------------------           ----------------------------
Name:    Barbara G. McClung                    Name:    Matthew Harriton
     ----------------------------------             --------------------------
Title:   Sr. VP & General Counsel              Title:   CEO
      ---------------------------------              -------------------------

                                       12
<PAGE>

                                    EXHIBIT A
                                 SPECIFICATIONS
                       [CONFIDENTIAL TREATMENT REQUESTED]

                                       13
<PAGE>

                                    EXHIBIT B

                          PRICING FOR HYDROGEL LAMINATE
                       [CONFIDENTIAL TREATMENT REQUESTED]

                                       14
<PAGE>

                                    EXHIBIT C

                    QUALITY AGREEMENT BETWEEN HDS AND CYGNUS

                                       15<PAGE>

                           EXCLUSIVE LICENSE AGREEMENT

                                     between

                   THE REGENTS OF THE UNIVERSITY OF CALIFORNIA

                                       and

                        CYGNUS THERAPEUTIC SYSTEMS, INC.

                                       for

                 DEVICE FOR IONTOPHORETIC NON-INVASIVE SAMPLING
                            OR DELIVERY OF SUBSTANCES

                              U.C. Case No. 87-162

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

<S>                                                                        <C>
BACKGROUND .................................................................1
1.       DEFINITIONS .......................................................2
2.       EXCLUSIVE LICENSE GRANT ...........................................5
3.       SUBLICENSES .......................................................6
4.       LICENSE ISSUE FEE .................................................7
5.       ROYALTIES .........................................................7
6.       DUE DILIGENCE ....................................................13
7.       PROGRESS AND ROYALTY REPORTS .....................................16
8.       BOOKS AND RECORDS ................................................18
9.       LIFE OF THE AGREEMENT ............................................19
10.      TERMINATION BY THE REGENTS .......................................20
11.      TERMINATION BY THE LICENSEE ......................................20
12.      DISPOSITION OF LICENSED PRODUCTS ON
         HAND UPON TERMINATION ............................................21
13.      USE OF NAMES, TRADEMARKS, AND CONFIDENTIAL
         INFORMATION ......................................................21
14.      LIMITED WARRANTY .................................................22
15.      PATENT PROSECUTION AND MAINTENANCE ...............................23
16.      PATENT MARKING ...................................................28
17.      PATENT INFRINGEMENT ..............................................28
18.      INDEMNIFICATION ..................................................31
19.      NOT ICES .........................................................32
20.      ASSIGNABILITY ....................................................33
21.      LATE PAYMENTS ....................................................33
22.      WAIVER ...........................................................34

<PAGE>

23.      FAILURE TO PERFORM ...............................................34
24.      GOVERNING LAWS ...................................................34
25.      FOREIGN GOVERNMENT APPROVAL OR REGISTRATION ......................34
26.      EXPORT CONTROL LAWS ..............................................35
27.      FORCE MAJEURE ....................................................35
28.      CONFIDENTIALITY ..................................................35
29.      INFRINGEMENT UNDER DRUG PRICE COMPETITION ACT ....................37
30.      MISCELLANEOUS ....................................................39
</TABLE>

<PAGE>

UC Case No. 87-162

                           EXCLUSIVE LICENSE AGREEMENT
                                       for
                      DEVICE FOR IONTOPHORETIC NONINVASIVE
                       SAMPLING OR DELIVERY OF SUBSTANCES

          THIS EXCLUSIVE LICENSE AGREEMENT (the "Agreement") is made and is
effective this 31st day of January, 1995, ("Effective Date") by and between THE
REGENTS OF THE UNIVERSITY OF CALIFORNIA, a California corporation having its
statewide administrative offices at 300 Lakeside Drive, 22nd Floor, Oakland,
California 94612-3550 (hereinafter referred to as "The Regents"), and Cygnus
Therapeutic Systems, a California corporation having a principal place of
business at 400 Penobscot Drive, Redwood City, California 94063 (hereinafter
referred to as the "Licensee").

                                   BACKGROUND

          Certain inventions, generally characterized as a noninvasive
continuous iontophoretic blood monitor/drug delivery system (hereinafter
collectively referred to as the "Invention") were made in the course of research
at the University of California, San Francisco, by Dr. Richard Guy, Dr.
Christopher Cullander, Dr. Peretz Glikfeld, Dr. Robert Hinz, and Dr. Girish Rao
(collectively, "Inventors") and are covered by Regents' Patent Rights as defined
below.

          Inventors have assigned their interest in the patent rights in the
Invention to The Regents subject to University of California Patent Policy.

<PAGE>

          The Licensee entered into a Secrecy Agreement (U.C. Control NO.
88-20-0315) with The Regents, effective December 14, 1988, and terminating on
December 14, 1993, for the purpose of evaluating the Invention.

          The Licensee entered into an Option Agreement (U.C. Control No.
90-11-0352) with The Regents, effective August 29, 1990, and terminating on
September 30, 1994, for the purpose of evaluating the Invention.

          The Licensee is a "small business firm" as defined in 15 U.S.C. 632.

          The Licensee is desirous of obtaining certain exclusive rights from
The Regents for the commercial development, manufacture (including the right to
have manufactured), use, and sale of the Invention, and The Regents is willing
to grant such rights.

          Both parties recognize and agree that royalties due hereunder will be
paid on both pending patent applications for a limited time and issued patents
under Regents' Patent Rights.

          The Regents is desirous that the Invention be developed and utilized
to the fullest extent so that the benefits can be enjoyed by the general public.

          The parties agree as follows:

                                 1. DEFINITIONS

          1.1 "Regents' Patent Rights" means all U.S. and foreign patent rights
to any subject matter claimed in or covered by any of the following:

(a) U.S. Patent Application serial no. 150,159, filed 29 Jan 88,(abandoned) by
Dr. Richard Guy, et al., and assigned to The Regents; (b) U.S. Patent
Application serial no. 299,397, filed 24 Jan 89, as a continuation-in-part
application of (a), (abandoned) by Dr. Richard Guy, et al., and assigned to The
Regents;
(c) U.S. Patent Application serial no. 771,483, filed 04 Oct 91, as a
continuation-in-part of (b) (now allowed) by Dr. Richard Guy, et al., and
assigned to The Regents;

                                       2

<PAGE>

(d) U.S. Patent No. 5,279,543, issued 18 Jan 94, which was a file wrapper
continuation application of (b), by Dr. Richard Guy, et al, and assigned to
The Regents;
and continuing applications thereof including divisions and substitutions but
including continuation-in-part applications only to the extent that the claim
was supported in the original disclosure; any patents issuing on said
application or continuing applications including reissues and extensions; and
any corresponding foreign applications or patents.

          1.2 "Licensed Product" [CONFIDENTIAL TREATMENT REQUESTED]

          1.3 "Licensed Method" [CONFIDENTIAL TREATMENT REQUESTED]

          1.4 "Net Sales" means the total of the gross invoice prices of
Licensed Products sold (excluding Licensed Products used, given away or sold at
the Licensee's cost as samples or clinical supplies) LESS: (i) THE SUM of the
following actual and customary deductions where applicable and actually taken,
cash, trade, or quantity discounts; sales, use, tariff, import/export duties, or
other excise taxes imposed upon particular sales; transportation charges
(including insurance) and allowances or credits to customers because of
rejections or returns; and (ii) A PORTION of the resulting revenue equal to the
total revenue from distribution of Licensed Product if used in combination with
or as a component of other products multiplied by the fraction A/(A+B), where A
is the retail price specified in the Licensee's published retail price list as
of the end of the applicable period ("Retail Price") for the amount of the other
product or components used in the combination when distributed separately and B
is the Retail Price for the amount of the Licensed Product used in the
combination when distributed separately.

          1.5 "Sales Year" means the twelve- (12-) month period immediately
following the first bona fide commercial sale of a Licensed Product, and each
twelve- (12-) month period thereafter.

          1.6 "Affiliate" means any corporation or other business entity in
which the Licensee has the actual, present capacity to elect a majority of
directors of such Affiliate or in which the Licensee

                                       3

<PAGE>

shall own or control, directly or indirectly, at least fifty percent (50%) of
the outstanding stock or other voting rights entitled to elect directors
provided, however, that in any country where the local law shall not permit
foreign equity participation of at least fifty percent (50%), then an
"Affiliate" shall include any company in which the Licensee shall own or
control, directly or indirectly, the maximum percentage of such outstanding
stock or voting rights permitted by local law.

          1.7 "Marketing Partner" [CONFIDENTIAL TREATMENT REQUESTED]

          1.8 "Sublicensee" means any third party to whom the Licensee grants
the right to make, have made, use, or sell Licensed Products or to practice
Licensed Method.

                           2. EXCLUSIVE LICENSE GRANT

          2.1 Subject to the limitations set forth in this Agreement, The
Regents hereby grants to the Licensee a worldwide license under Regents' Patent
Rights to make, have made, use, sell, and distribute Licensed Products and to
practice Licensed Method.

          2.2 Except as otherwise provided herein, the license granted in
Section 2.1 shall be exclusive for the life of the Agreement.

          2.3 The Regents expressly reserves the right to use the Invention and
associated technology solely for educational and research purposes.

                                 3. SUBLICENSES

          3.1 The Regents also grants to the Licensee the right to issue
sublicenses to third parties to make, have made, use, sell, and distribute
Licensed Products and to practice the Licensed Method provided the Licensee has
current exclusive rights thereto under this Agreement. Subject to Section 3.2
below, to the extent applicable, such sublicenses shall include all of the
rights of and obligations due to The Regents that are contained in this
Agreement (including, but not limited to, the royalty rates set forth in Article
5, [ROYALTIES] herein).

          3.2 The Licensee shall notify The Regents of each sublicense granted
hereunder and provide The Regents with a summary

                                       4

<PAGE>

of the major terms of each sublicense. The Licensee shall pay and guarantee
payment of all royalties due The Regents received from Sublicensees and deliver
all reports due The Regents received from Sublicensees. Sublicensees shall not
be required to assume the obligations due to The Regents under Paragraph 5.7
(MINIMUM ANNUAL ROYALTIES) and Articles 4 (LICENSE ISSUE FEE), 6 (DUE
DILIGENCE), 15 (PATENT PROSECUTION AND MAINTENANCE), and 25 (FOREIGN GOVERNMENT
APPROVAL OR REGISTRATION). However, under any sublicense, Sublicensee shall at
least be obligated to the Licensee under Paragraphs 6.1, 6.2 (DUE DILIGENCE),
and 18.2 (INDEMNIFICATION), and Articles 15 (PATENT PROSECUTION AND MAINTENANCE)
and 25 (FOREIGN GOVERNMENT APPROVAL OR REGISTRATION).

          3.3 Upon termination of this Agreement for any reason, any and all
sublicenses that are granted by the Licensee pursuant to this Agreement will
remain in effect and shall be assigned to The Regents, except that The Regents
shall not be bound by any duties or obligations set forth in such sublicenses
that extend beyond the duties and obligations of The Regents provided for in
this Agreement, and the Sublicensee must assume all the obligations due to The
Regents under this Agreement.

                              4. LICENSE ISSUE FEE

          4.1 [CONFIDENTIAL TREATMENT REQUESTED]

          4.2 [CONFIDENTIAL TREATMENT REQUESTED]

                                  5. ROYALTIES

          5.1 [CONFIDENTIAL TREATMENT REQUESTED]

          5.2 [CONFIDENTIAL TREATMENT REQUESTED]

          5.3 [CONFIDENTIAL TREATMENT REQUESTED]

          5.4 [CONFIDENTIAL TREATMENT REQUESTED]

          5.5 [CONFIDENTIAL TREATMENT REQUESTED]

          5.6 [CONFIDENTIAL TREATMENT REQUESTED]

                         [CONFIDENTIAL TREATMENT REQUESTED]

                         [CONFIDENTIAL TREATMENT REQUESTED]

                         [CONFIDENTIAL TREATMENT REQUESTED]

                         [CONFIDENTIAL TREATMENT REQUESTED]

                                       5

<PAGE>

[CONFIDENTIAL TREATMENT REQUESTED]

5.7      [CONFIDENTIAL TREATMENT REQUESTED]

          5.8 [CONFIDENTIAL TREATMENT REQUESTED]

          5.9 [CONFIDENTIAL TREATMENT REQUESTED]

          5.10 [CONFIDENTIAL TREATMENT REQUESTED]

          5.11 [CONFIDENTIAL TREATMENT REQUESTED]

          5.12 [CONFIDENTIAL TREATMENT REQUESTED]

          5.13 [CONFIDENTIAL TREATMENT REQUESTED]

                                6. DUE DILIGENCE

          6.1 The Licensee, upon execution of this Agreement, shall diligently
proceed with the development, manufacture, and sale of Licensed Products and
shall earnestly and diligently endeavor to market the same within a reasonable
time after execution of this Agreement and in quantities sufficient to meet the
market demands therefor.

          6.2 The Licensee shall be entitled to exercise prudent and reasonable
business judgment in meeting all of its due diligence obligations hereunder.

          6.3 The Licensee shall endeavor to obtain all necessary governmental
approvals for the manufacture, use and sale of Licensed Products.

          6.4 [CONFIDENTIAL TREATMENT REQUESTED]

          6.4.1 [CONFIDENTIAL TREATMENT REQUESTED]

          6.4.2 [CONFIDENTIAL TREATMENT REQUESTED]

          6.4.3 [CONFIDENTIAL TREATMENT REQUESTED]

          6.4.4 [CONFIDENTIAL TREATMENT REQUESTED]

          6.4.5 [CONFIDENTIAL TREATMENT REQUESTED]

          6.4.6 [CONFIDENTIAL TREATMENT REQUESTED]

6.4.7    [CONFIDENTIAL TREATMENT REQUESTED]

          6.5 It is envisioned that the first Licensed Products will be for the
monitoring of glucose in the bloodstream. However, The Regents may from time to
time identify in writing to the Licensee other [CONFIDENTIAL TREATMENT
REQUESTED]. The Licensee agrees that if Inventors wish to pursue research
funding to support the development

                                       6
<PAGE>

of a monitor/delivery device for the [CONFIDENTIAL TREATMENT REQUESTED], the
Licensee shall have [CONFIDENTIAL TREATMENT REQUESTED]from the date of
notification from The Regents identifying [CONFIDENTIAL TREATMENT REQUESTED]
to commit sufficient research support to The Regents for such development,
and the Licensee agrees to negotiate with The Regents a development and
regulatory timetable similar to that in Section 6.4 above. If the Licensee
declines to commit to support and to diligently develop the Invention for the
identified sampling[CONFIDENTIAL TREATMENT REQUESTED], The Regents shall have
the right to terminate this license with regard to the
[CONFIDENTIAL TREATMENT REQUESTED]. This right, if exercised by The Regents,
supersedes the rights granted in Article 2 (GRANT). If The Regents terminates
this Agreement with respect to such [CONFIDENTIAL TREATMENT REQUESTED]and
does not license such [CONFIDENTIAL TREATMENT REQUESTED]to a third party, The
Licensee's right to commit sufficient reasonable research support to The
Regents for the development of such [CONFIDENTIAL TREATMENT REQUESTED] in
order to maintain such [CONFIDENTIAL TREATMENT REQUESTED] in the license
granted to the Licensee under this Agreement shall automatically be
reinstated.

          6.6 [CONFIDENTIAL TREATMENT REQUESTED]

                         7. PROGRESS AND ROYALTY REPORTS

          7.1 Beginning February 28, 1995, and [CONFIDENTIAL TREATMENT
REQUESTED]thereafter, the Licensee shall submit to The Regents a progress report
covering the Licensee's activities related to the development and testing of all
Licensed Products and the obtaining of the governmental approvals necessary for
marketing. These progress reports shall be made for each Licensed Product until
the first commercial sale of that Licensed Product occurs in the United States.

          7.2 The progress reports submitted under Section 7.1 should include,
but not be limited to, the following topics:

     -    summary of work completed

     -    key scientific discoveries

     -    summary of work in progress

                                       7

<PAGE>

     -    current nonbinding, good- faith schedule of anticipated events or
          milestones

     -    market plans for introduction of Licensed Products, and

     -    a summary of resources (dollar value) spent in connection with the
          Licensed Product during the reporting period.

          7.3 The Licensee shall have a continuing responsibility to keep The
Regents informed of the large/small entity status (as defined by the United
States Patent and Trademark Office) of itself and its Sublicensees.

          7.4 The Licensee also agrees to report to The Regents in its
immediately subsequent progress and royalty report the date of first commercial
sale of a Licensed Product in each country.

          7.5 After the first commercial sale of a Licensed Product anywhere in
the world, the Licensee will provide The Regents with quarterly royalty reports
on or before each February 28, May 31, August 31, and November 30 of each year.
Each such royalty report will cover the Licensee's most recently completed
calendar quarter and will show: (a) the gross sales and Net Sales of Licensed
Products sold by the Licensee during the most recently completed calendar
quarter, (b) the number of each type of Licensed Product sold by the Licensee
during the most recently completed calendar quarter, (c) the royalties, in U.S.
dollars, payable hereunder with respect to such Net Sales of Licensed Products,
(d) the method used to calculate the royalty, and (e) the exchange rates used,
if any.

          7.6 If no sales of Licensed Products have been made during any
reporting period after the first commercial sale of Licensed Products, a
statement to this effect shall be required.

                              8. BOOKS AND RECORDS

          8.1 The Licensee shall keep books and records accurately showing all
Licensed Products manufactured, used, and/or sold under the terms of this
Agreement (for the purposes of showing the amount of royalties payable to The
Regents and the Licensee's compliance with the other provisions under this
Agreement). Such books and records shall be preserved for at least five (5)
years from the date of the royalty payment to which they pertain and shall be
open to

                                       8

<PAGE>

inspection and audit only by an independent certified public accountant retained
by The Regents at reasonable times during normal business hours, upon reasonable
notice. Subject to the California Public Records Act, such independent certified
public accountant shall be bound to hold all information in confidence except as
necessary to communicate the Licensee's non-compliance with this Agreement to
The Regents. The purpose of any inspection and audit pursuant to this Paragraph
8.1 shall be to verify the Licensee's royalty statements or compliance in other
respects with this Agreement.

          8.2 The fees and expenses of The Regents' independent certified public
accountant performing such an examination shall be borne by The Regents.
However, if an error in royalties of more than [CONFIDENTIAL TREATMENT
REQUESTED] of the total royalties due for any year is discovered, then the fees
and expenses of these independent certified public accountant shall be borne by
the Licensee.

                            9. LIFE OF THE AGREEMENT

          9.1 Unless otherwise terminated by operation of law or by acts of the
parties in accordance with the terms of this Agreement, this Agreement shall be
in force from the Effective Date recited on page one and shall remain in effect
for the life of the last-to-expire patent licensed under this Agreement.

          9.2 Any termination of this Agreement shall not affect the rights and
obligations set forth in the following Articles:

               Paragraph 3.2 Sublicenses
               Article 8             Books and Records
               Article 9             Life of the Agreement
               Article 12            Disposition of Licensed Products on
                                     Hand Upon Termination
               Article 13            Use of Names, Trademarks, and
                                     Confidential Information
               Article 18            Indemnification
               Article 23            Failure to Perform
               Article 28            Confidentiality

                                       9

<PAGE>

                         10. TERMINATION BY THE REGENTS

          10.1 If the Licensee should violate or fail to perform any material
term or covenant of this Agreement, then The Regents may give written notice
of such default (Notice of Default) to the Licensee. If the Licensee should
fail to repair such default within [CONFIDENTIAL TREATMENT REQUESTED]of the
effective date of such notice, The Regents shall have the right to terminate
this Agreement and the licenses herein by a second written notice (Notice of
Termination) to the Licensee. If a Notice of Termination is sent to the
Licensee, this Agreement shall automatically terminate on the effective date
of such notice. Such termination shall not relieve the Licensee of its
obligation to pay any royalty or license issue fees owing at the time of such
termination and shall not impair any accrued right of The Regents. These
notices shall be subject to Article 19 (Notices).

                         11. TERMINATION BY THE LICENSEE

          11.1 The Licensee shall have the right at any time to terminate this
Agreement in whole or as to any portion of Regents' Patent Rights by giving
notice in writing to The Regents. Such notice of termination shall be subject to
Article 19 (Notices), and termination of this Agreement shall be effective
[CONFIDENTIAL TREATMENT REQUESTED]from the effective date of such notice. If
such termination is without cause within the [CONFIDENTIAL TREATMENT
REQUESTED]of this Agreement, Licensee shall pay The Regents [CONFIDENTIAL
TREATMENT REQUESTED] ("[CONFIDENTIAL TREATMENT REQUESTED]") with the notice of
termination before such notice is effective, except that if the Licensee can
provide The Regents with written evidence satisfactory to The Regents that there
is good cause for termination of this Agreement by the Licensee, such as, for
example and without limitation, the refusal of the FDA to grant regulatory
approval of a Licensed Product or the inability of the Licensee to overcome
technical obstacles in the commercialization of a Licensed Product, then the
Licensee will not be required to pay the Relicense Fee.

                                       10

<PAGE>

          11.2 Any termination pursuant to the above Paragraph 11.1 shall not
relieve the Licensee of any obligation or liability accrued hereunder prior to
such termination or rescind anything done by the Licensee or any payments made
to The Regents hereunder prior to the time such termination becomes effective,
and such termination shall not affect in any manner any rights of The Regents
arising under this Agreement prior to such termination.

          12. DISPOSITION OF LICENSED PRODUCTS ON HAND UPON TERMINATION

          12.1 Upon termination of this Agreement, the Licensee shall have the
privilege of disposing of all previously made or partially made Licensed
Products, but no more, within a period of one hundred and twenty (120) days
following the effective date of termination, provided, however, that the sale of
such Licensed Products shall be subject to the terms of this Agreement
including, but not limited to, the payment of royalties at the rate and at the
time provided herein and the rendering of reports thereon.

           13. USE OF NAMES, TRADEMARKS, AND CONFIDENTIAL INFORMATION

          13.1 Nothing contained in this Agreement shall be construed as
conferring any right to use in advertising, publicity, or other promotional
activities any name, trade name, trademark, or other designation of either party
hereto (including any contraction, abbreviation, or simulation of any of the
foregoing). Unless required by law or consented to in writing by The Regents,
the use by the Licensee of the name "The Regents of the University of
California" or the use by the Licensee of the name of any campus of the
University of California is expressly prohibited.

          13.2 It is understood that The Regents shall be free to release to the
Inventors and senior administrative officials employed by The Regents the terms
and conditions of this Agreement upon their request. If such release is made,
The Regents shall request that such terms and conditions not be disclosed to
others. It is further understood that should a third party inquire whether a
license to Regents' Patent Rights is available, The Regents may disclose the
existence of this Agreement and the extent of the grant in Article 2 (GRANT) to
such third party, but shall not disclose the name of the

                                       11

<PAGE>

Licensee except where The Regents is required to release such information under
either the California Public Records Act or other applicable law.

                              14. LIMITED WARRANTY

          14.1 The Regents warrants to the Licensee that it has the lawful right
to grant this license.

          14.2 This license and the associated Invention are provided WITHOUT
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER
WARRANTY, EXPRESS OR IMPLIED. THE REGENTS MAKES NO REPRESENTATION OR WARRANTY
THAT THE LICENSED PRODUCTS OR LICENSED METHODS WILL NOT INFRINGE ANY PATENT OR
OTHER PROPRIETARY RIGHT.

          14.3 IN NO EVENT WILL THE REGENTS BE LIABLE FOR ANY INCIDENTAL,
SPECIAL, OR CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS LICENSE OR THE
USE OF THE INVENTION OR LICENSED PRODUCTS.

          14.4 Nothing in this Agreement shall be construed as:

          (14.4.1)  a warranty or representation by The Regents as to the
                    validity or scope of any Regents' Patent Rights; or

          (14.4.2)  a warranty or representation that anything made, used, sold,
                    or otherwise disposed of under any license granted in this
                    Agreement is or will be free from infringement of patents of
                    third parties; or

          (14.4.3)  an obligation to bring or prosecute actions or suits against
                    third parties for patent infringement except as provided in
                    Article 17; or

          (14.4.4)  conferring by implication, estoppel, or otherwise any
                    license or rights under any patents of The Regents other
                    than Regents' Patent Rights as defined herein, regardless of
                    whether such patents are dominant or subordinate to Regent's
                    Patent Rights; or

          (14.4.5)  an obligation to furnish any know-how not provided in
                    Regents' Patent Rights.

                                       12

<PAGE>

                     15. PATENT PROSECUTION AND MAINTENANCE

          15.1 The Regents shall diligently prosecute and maintain the United
States patents comprising Regents' Patent Rights using counsel of its choice. If
both The Regents and the Licensee are not reasonably satisfied with such
counsel, The Regents shall replace such counsel with new counsel reasonably
acceptable to both parties. If the Licensee rejects The Regents' choice of new
counsel three times consecutively (i.e., three different new attorneys) then The
Regents shall be free, in its sole discretion, to appoint an attorney of its
choice. The Regents' counsel will take instructions only from The Regents unless
otherwise expressly authorized in writing by The Regents. The Regents shall
promptly provide the Licensee with copies of all relevant documentation so that
the Licensee may be currently and promptly informed and apprised of the
continuing prosecution. The Licensee may comment upon such documentation,
provided that if the Licensee has not commented upon such documentation prior to
the initial deadline for filing a response with the relevant government patent
office, The Regents shall be free to respond appropriately without consideration
of the Licensee's comments. The Licensee agrees to keep this documentation
confidential in accordance with the provisions of Article 28 (CONFIDENTIALITY).

          15.2 The Regents shall use all reasonable efforts to prepare or amend
any patent application to include claims reasonably requested by the Licensee to
protect the Licensed Products contemplated to be sold or Licensed Methods or
procedures to be practiced under this Agreement.

          15.3 The Regents shall cooperate with the Licensee in applying for an
extension of the term of any patent included within Regents' Patent Rights if
appropriate under the Drug Price Competition and Patent Term Restoration Act of
1984. The Licensee shall prepare all such documents, and The Regents agrees to
execute such documents and to take such additional action as the Licensee may
reasonably request in connection therewith.

          15.4 Subject to Paragraph 15.7 the costs of preparing, filing,
prosecuting, and maintaining all United States patent

                                       13

<PAGE>

applications and/or patents contemplated by this Agreement and not paid for by a
third party shall be borne by Licensee so long as the licenses granted to the
Licensee herein are exclusive. If The Regents reduces the exclusive licenses
granted herein to nonexclusive licenses pursuant to Paragraphs 6.4 or 6.6 and
The Regents grants additional licenses, the costs of filing, prosecuting, and
maintaining the patents and patent applications in Regents Patent Rights shall
be divided equally among the licensed parties from the effective date of each
subsequently granted license agreement. The obligations set forth in this
Paragraph 15.4 includes patent prosecution costs for this Invention incurred by
The Regents prior to the execution of this Agreement. Current and future costs
for patent prosecution and maintenance as provided herein will be billed to the
Licensee by The Regents as incurred, and the Licensee shall reimburse The
Regents for such costs within thirty (30) days of the Licensee's receipt of an
invoice from The Regents.

          15.5 The Regents shall, at the request of the Licensee, file,
prosecute, and maintain patent applications and patents covered by Regents'
Patent Rights in foreign countries if available. The Licensee must notify The
Regents within seven (7) months of the filing of the corresponding United States
patent application of its decision to request The Regents to file foreign
counterpart patent applications. This notice concerning foreign filing shall be
in writing, must identify the countries desired, and shall reaffirm the
Licensee's obligation to underwrite the costs thereof subject to the conditions
set forth in Paragraph 15.4 above. The absence of such a notice from the
Licensee to The Regents within such seven- (7-) month period shall be considered
an election by the Licensee not to secure foreign patent rights.

          15.6 The preparation, filing, and prosecuting of all foreign patent
applications filed at the Licensee's request, as well as the maintenance of all
resulting patents, shall be at the sole expense of the Licensee subject to the
conditions set forth in Paragraph 15.4 above. Such patents shall be held in the
name of The

                                       14

<PAGE>

Regents and shall be obtained using counsel of The Regents' choice in accordance
with Section 15.1 of this Agreement.

          15.7 The Licensee's obligation to underwrite and to pay patent
prosecution and maintenance costs shall continue for so long as this Agreement
remains in effect provided, however, that the Licensee may terminate its
obligations with respect to any given patent application or patent upon one (1)
month's written notice to The Regents provided that any costs incurred by The
Regents prior to such written notice (or necessarily incurred within three (3)
months after such written notice) shall be borne by the Licensee. If The Regents
initiates any action subsequent to the written notice from the Licensee, then
The Regents shall bear all costs associated with that action. The Regents will
use its best efforts to curtail patent costs when such a notice is received from
the Licensee. Those costs which cannot be curtailed will be due and owing. The
Regents may continue prosecution and/or maintenance of such application(s) or
patent(s) at its sole discretion and expense provided, however, that the
Licensee shall have no further right or licenses thereunder unless the Licensee
pays to The Regents an amount equal to the costs the Licensee would otherwise
have been obligated to pay, and further provided that The Regents has not
granted an exclusive license to a third party in such patent and patent
applications subsequent to the Licensee's written notice. Costs of
interferences, oppositions, and appeals shall be considered prosecution costs
for the purposes of this Agreement but the Licensee may credit these costs
against future earned royalties.

          15.8 The Regents shall have the right to file patent applications at
its own expense in any country in which the Licensee has not elected to secure
patent rights, and such applications and resultant patents shall not be subject
to this Agreement unless the Licensee pays to The Regents an amount equal to the
costs the Licensee would otherwise have been obligated to pay, and further
provided that The Regents has not granted an exclusive license to a third party
in such patent and patent applications subsequent to the

                                       15

<PAGE>

Licensee's written notice of its decision not to secure such patent protection.

                               16. PATENT MARKING

          16.1 The Licensee agrees to mark all Licensed Products made, used, or
sold under the terms of this Agreement, or their containers, or packaging, in
accordance with the applicable patent marking laws.

                             17. PATENT INFRINGEMENT

          17.1 In the event that the Licensee shall learn of the substantial
infringement of any patent licensed under this Agreement, the Licensee shall
call The Regents' attention thereto in writing and shall provide The Regents
with reasonable evidence of such infringement. Both parties to this Agreement
agree that during the period and in a jurisdiction where the Licensee has
exclusive rights under this Agreement, neither will notify a third party of the
alleged infringement of any of Regents' Patent Rights without first obtaining
consent of the other party, which consent shall not be unreasonably denied. Both
parties shall use their reasonable efforts in cooperation with each other to
terminate such infringement without litigation. The Licensee shall have no
obligation, and The Regents shall have no right, to grant rights to such
infringing party in derogation of the Licensee's exclusive licenses under this
Agreement.

          17.2 The Licensee may request that The Regents take legal action
against the infringement of Regents' Patent Rights. Such request shall be made
in writing and shall include reasonable evidence of such infringement and
damages to the Licensee. If the infringing activity has not been abated within
ninety (90) days following the effective date of such request, The Regents shall
have the right to:

               a)   commence suit on its own account or

               b)   refuse to participate in such suit,

and The Regents shall give notice of its election in writing to the Licensee by
the end of the [CONFIDENTIAL TREATMENT REQUESTED]after receiving notice of such
request from the Licensee. Absent refusal

                                       16

<PAGE>

under Paragraph 17.2 (b), The Regents shall commence suit promptly thereafter,
in no event later than [CONFIDENTIAL TREATMENT REQUESTED]following such notice.
Election by The Regents to commence such suit shall be without prejudice of the
right of the Licensee to intervention on its own account under Rule 24 of the
Federal Rules of Civil Procedure, provided that before application to the court
therefor, the Licensee shall first meet with The Regents and discuss fully with
them its reasons for such intervention. The Licensee may thereafter bring suit
for patent infringement if and only if The Regents elects not to commence suit
and if the infringement occurred during the period and in a jurisdiction where
the Licensee had exclusive rights under this Agreement. However, in the event
the Licensee elects to bring suit in accordance with this paragraph, The Regents
may thereafter join such suit at its own expense. Failing such joinder: (i) as
between the Licensee and The Regents, the Licensee shall have the sole right to
prosecute such action and recover damages for infringement, including past
infringement; and (ii) The Regents acknowledges that it will be bound by the
results of such action, will refrain from duplicate litigation involving such
infringement by the infringing party and those in privity with it, will
cooperate with the Licensee at the Licensee's expense in responding to discovery
requests by the infringing party relevant to issues of patent validity and
enforceability, and upon request will submit to the court an affidavit to the
foregoing effects.

          17.3 Such legal action as is decided upon shall be at the expense of
the party on account of whom suit is brought and all recoveries recovered
thereby shall belong to such party provided, however, that legal action brought
jointly by The Regents and the Licensee, or by one such party with later
intervention or joinder by the other, and fully participated in by both shall be
at the joint expense of the parties and all recoveries from such joint legal
action shall be allocated in the following order: (i) to each party as
reimbursement of costs and fees of outside attorneys and other related expenses
to the extent each party paid for such costs, fees and expenses in proportion to
the share of expenses paid by each

                                       17

<PAGE>

party and until such costs, fees, and expenses are consumed; and (ii) any
remaining amount to be divided by the parties in the following manner: 1)
[CONFIDENTIAL TREATMENT REQUESTED] and 2) [CONFIDENTIAL TREATMENT REQUESTED]

          17.4 Each party agrees to cooperate with the other in legal
proceedings instituted hereunder but at the expense of the party on account of
whom such proceeding is brought. Such legal proceedings shall be controlled by
the party bringing the action except that The Regents may be represented by
counsel of its choice, at its expense, pursuant to The Regents' determination in
any action brought by the Licensee and the Licensee may be represented by
counsel of its choice at its sole expense in any action brought by The Regents
in which the Licensee intervenes.

                               18. INDEMNIFICATION

          18.1 The Licensee agrees to indemnify, hold harmless, and defend The
Regents, their officers, employees, and agents; the sponsors of the research
that led to the Invention; and the Inventors of any Invention covered by any of
the patents and patent applications under Regents' Patent Rights and their
employers against any and all claims, suits, losses, damage, costs, fees, and
expenses resulting from or arising out of exercise of this license or any
sublicense. This indemnification will include, but will not be limited to, any
product liability.

          18.2 The Licensee, at its sole cost and expense, shall insure its
activities in connection with the work under this Agreement, and obtain, keep in
force, and maintain Comprehensive or Commercial Form General Liability Insurance
(contractual liability included) or an equivalent program of self-insurance with
limits as follows:

     (a)  [CONFIDENTIAL TREATMENT REQUESTED]

     (b)  [CONFIDENTIAL TREATMENT REQUESTED]

     (c)  [CONFIDENTIAL TREATMENT REQUESTED]

     (d)  [CONFIDENTIAL TREATMENT REQUESTED]

     It should be expressly understood, however, that the coverages and limits
referred to under the above shall not in any way limit the liability of the
Licensee. The Licensee shall furnish The Regents

                                       18

<PAGE>

with certificates of insurance evidencing compliance with all requirements. Such
certificates shall.

          (18.2.1)          Provide a thirty (30)-day advance written
                            notice to The Regents of any modification.

          (18.2.2)          Indicate that The Regents has been endorsed
                            as an additional insured under the coverages
                            referred to under the above, but only with
                            respect to the subject matter of this
                            Agreement.

          (18.2.3)          Include a provision that the coverages will
                            be primary and will not participate with nor
                            will be excess over any valid and
                            collectable insurance or program of
                            self-insurance carried or maintained by The
                            Regents.

          18.3 The Regents shall promptly notify Licensee in writing of any
claim or suit, or any perceived written threat thereof, brought against The
Regents in respect of which The Regents intends to invoke the provisions of this
Article 18. The Licensee will keep The Regents informed on a current basis of
its defense of any claims pursuant to this Article 18. No settlement of any
claim or suit, or any perceived written threat thereof, received by The Regents
shall be made without the approval of the Licensee if indemnification is sought
by The Regents hereunder.

                                   19. NOTICES

          19.1 Any notice or payment required to be given to either party shall
be deemed to have been properly given and to be effective (a) on the date of
delivery if delivered in person or (b) five (5)days after mailing if mailed by
first-class certified mail, postage paid, to the respective addresses given
below or to such other address as it shall designate by written notice given to
the other party.

In the case of the Licensee:    CYGNUS THERAPEUTIC SYSTEMS
                                400 Penobscot Drive
                                Redwood City, California 94063
                                ATTENTION: President

                                       19

<PAGE>

In the case of The Regents:     THE REGENTS OF THE UNIVERSITY
                                OF CALIFORNIA
                                1320 Harbor Bay Parkway, Suite 150
                                Alameda, California 94501
                                ATTENTION: Assistant Director, Office
                                of Technology Transfer
                                Referring to: UC Case No. 87-162

                                20. ASSIGNABILITY

          20.1 This Agreement is binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns, provided that
this Agreement shall be personal to the Licensee and shall be assignable by the
Licensee only with the written consent of The Regents, which consent shall not
be unreasonably withheld, except that the Licensee may freely assign this
Agreement to a business entity that acquires all or substantially all of the
common stock, business, or assets of the Licensee and that expressly assumes, in
writing, the performance of all provisions of this Agreement to be performed by
the Licensee.

                                21. LATE PAYMENTS

          21.1 In the event royalty payments or fees or patent cost
reimbursements are not received by The Regents when due, the Licensee shall pay
to The Regents interest charges at a rate of [CONFIDENTIAL TREATMENT REQUESTED]
compounded per annum. Such interest shall be calculated from the date payment
was due until actually received by The Regents.

                                   22. WAIVER

          22.1 It is agreed that no waiver by either party hereto of any breach
or default of any of the covenants or agreements herein set forth shall be
deemed a waiver as to any subsequent and/or similar breach or default.

                             23. FAILURE TO PERFORM

          23.1 In the event of a failure of performance due under the terms of
this Agreement and if it becomes necessary for either party to undertake legal
action against the other on account thereof, then the prevailing party shall be
entitled to reasonable attorney's t fees in addition to costs and necessary
disbursements.

                                       20

<PAGE>

                               24. GOVERNING LAWS

          24.1 THIS AGREEMENT SHALL BE INTERPRETED AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA, but the scope and validity of any
patent or patent application licensed under this Agreement shall be governed by
the applicable laws of the country in which such patent was granted or such
patent application is pending.

                 25. FOREIGN GOVERNMENT APPROVAL OR REGISTRATION

          25.1 If this Agreement or any associated transaction is required by
the law of any nation to be either approved or registered with any governmental
agency, the Licensee shall assume all legal obligations to do so. The Regents
shall fully cooperate with the Licensee, to the extent it is able to do so
within the law and established Regents' policy, to provide documentation and
testimony to obtain such approval or registration.

                             26. EXPORT CONTROL LAWS

          26.1 The Licensee shall observe all applicable United States and
foreign laws with respect to the transfer of Licensed Products and related
technical data to foreign countries, including without limitation, the
International Traffic in Arms Regulations (ITAR) and the Export Administration
Regulations.

                                27. FORCE MAJEURE

          27.1 The parties to this Agreement shall be excused from any
performance required hereunder if such performance is rendered impossible or
unfeasible due to any catastrophes or other major events beyond their reasonable
control, including without limitation, war, riot, and insurrection; laws,
proclamations, edicts, ordinances, or regulations; strikes, lock-outs, or other
serious labor disputes; and floods, fires, explosions, or other natural
disasters. When such events have abated, the parties' respective obligations
hereunder shall resume.

                               28. CONFIDENTIALITY

          28.1 The Regents and the Licensee respectively shall hold the other
party's proprietary business, patent prosecution, engineering, process and
technical information, and other proprietary information in confidence using at
least the same degree of care as

                                       21

<PAGE>

that party uses to protect its own proprietary information of a like nature for
a period from the date of disclosure until five (5) years after the date of
termination of this Agreement. All proprietary information shall be labeled or
marked confidential or as otherwise appropriate by the disclosing party. All
confidential information orally disclosed shall be reduced to writing or some
other physically tangible form, marked and labeled as set forth above by the
disclosing party and delivered to the receiving party within thirty (30) days of
the oral disclosure as a record of the disclosure and the confidential nature
thereof. Nothing contained herein shall in any way restrict or impair the right
of the Licensee or The Regents to use, disclose or otherwise deal with any
information or data that it can document:

          (28.1.1)  that the recipient can demonstrate by written records was
                    previously known to it; or

          (28.1.2)  that is now, or becomes in the future, public knowledge
                    other than through acts or omissions of the recipient; or

          (28.1.3)  that is lawfully obtained without restrictions by the
                    recipient from sources independent of the disclosing party;
                    or

          (28.1.4)  that was independently developed by the recipient by
                    employees without the use of or access to the disclosing
                    party's similar proprietary information as shown by written
                    records; or

          (28.1.5)  that is required to be disclosed to a governmental entity or
                    agency in connection with seeking any governmental or
                    regulatory approval, or pursuant to the lawful requirement
                    or request of a governmental entity or agency; or

          (28.1.6)  that is furnished to a third party by the recipient without
                    similar confidentiality restrictions imposed on such third
                    party, as evidenced in writing, or

                                       22

<PAGE>

          (28.1.7)  that The Regents is required to disclose pursuant to the
                    California Public Records Act or other applicable law.

          28.2 Upon termination of this Agreement, the Licensee and The Regents
agree to destroy or return to the disclosing party proprietary information
received from the other in its possession within fifteen (15) days following the
effective date of termination. However, each party may retain one copy of
proprietary confidential information of the other solely for archival purposes
in nonworking confidential files for the sole purpose of verifying the ownership
of the proprietary information, provided that such proprietary information shall
be subject to the confidentiality provisions set forth above in Paragraph 28.1.
Upon request, the Licensee and The Regents agree to provide each other, within
thirty (30) days following termination, with a written notice that proprietary
information has been returned or destroyed.

                29. INFRINGEMENT UNDER DRUG PRICE COMPETITION ACT

          29.1 In the event either party receives notice pertaining to any
patent included within Regents' Patent Rights pursuant to the DRUG PRICE
COMPETITION AND PATENT TERM RESTORATION ACT OF 1984 (Public Law 98-417) or
foreign equivalent legislation (hereinafter, "the Act"), including but not
necessarily limited to notices pursuant to Sections 101 and 103 of the Act from
persons who have filed an Abbreviated New Drug Application or device equivalent
("ANDA"), or a "paper" New Drug Application or device equivalent ("paper"
"NDA"), or in the case of an infringement of Regents' Patent Rights as defined
in Section 271(e) of Title 35 of the United States Code, such party shall notify
the other party promptly but in no event later than ten (10) days after receipt
of such notice.

          29.2 If the Licensee wishes action to be taken against such
infringement as provided in the Act, the Licensee shall request such action by
written notice to The Regents. Within thirty (30) days of receiving said
request, The Regents will give written notice to the Licensee of its election
to:

          (29.2.1) commence suit on its own account; or

                                       23

<PAGE>

          (29.2.2) refuse to participate in such suit. The Licensee may
thereafter bring suit for patent infringement as provided by the Act if and only
if The Regents elects not to commence suit and if the infringement occurred
during the period that the Licensee had exclusive rights in the United States
under this Agreement. However, in the event the Licensee elects to bring suit in
accordance with this paragraph, The Regents may thereafter join such suit at its
own expense.

          29.3 The provisions of paragraphs 17.3 and 17.4 shall likewise apply
to any legal action brought under this Article 29.

          29.4 The Regents hereby authorizes the Licensee to include in any NDA
for a Licensed Product a list of patents included within Regents' Patent Rights
identifying The Regents as patent owner.

                                30. MISCELLANEOUS

          30.1 The headings of the several sections are inserted for convenience
of reference only and are not intended to be a part of or to affect the meaning
or interpretation of this Agreement.

          30.2 This Agreement will not be binding upon the parties until it has
been signed below on behalf of each party; in which event, it shall be effective
as of the Effective Date recited on page one hereof.

          30.3 No amendment or modification hereof shall be valid or binding
upon the parties unless made in writing and signed on behalf of each party.

          30.4 This Agreement embodies the entire understanding of the parties
with respect to the subject matter hereof and shall supersede all previous
communications, representations, or understandings, either oral or written,
between the parties relating to the subject matter hereof. A Secrecy Agreement
between the parties dated December 14, 1988, has already expired, and the Option
Agreement dated August 29, 1990, will automatically terminate upon both parties'
execution of this Agreement.

          30.5 In case any of the provisions contained in this Agreement shall
be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall

                                       24
<PAGE>

not affect any other provisions hereof, but this Agreement shall be construed as
if such invalid or illegal or unenforceable provisions had never been contained
herein.

          IN WITNESS WHEREOF, both The Regents and the Licensee have executed
this Agreement in duplicate originals by their respective officers hereunto duly
authorized, on the day and year hereinafter written.

CYGNUS THERAPEUTIC SYSTEMS:                     THE REGENTS OF THE
                                                UNIVERSITY OF CALIFORNIA:

By:      /s/ Roger P. Francis                   By:    /s/ Terence A. Feuerborn
   ------------------------------                  ----------------------------
             (signature)

Name:    Roger P. Francis                       Name:  Terence A. Feuerborn
     ----------------------------
         (please print)

Title:   Senior Vice President                  Title: Interim Director
      ---------------------------                      Office of Technology
           Marketing & Business                        Transfer
           Development

Date:             1/30/95                       Date:        2-2-95
     ----------------------------                    --------------------------

                                       25

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