Document:

<PAGE>

                                                                    EXHIBIT 10.6

                         CELTRIX PHARMACEUTICALS, INC.

                             EMPLOYMENT AGREEMENT
                             --------------------

     This Employment Agreement (the "Agreement") is dated as of January 7, 1997
                                     ---------
by and between Dr. Andreas Sommer ("Employee") and Celtrix Pharmaceuticals,
                                    --------
Inc., a Delaware corporation (the "Company").
                                   -------

                                   RECITALS

     Employee has served as the Company's President and Chief Executive Officer
since April 1995 and has served in various officer positions with the Company
since 1992. The Company's Board of Directors believes it is in the best
interests of the Company to retain Employee and incentivize Employee to continue
in the service of the Company. Accordingly, the Board of Directors of the
Company and Employee agree to enter into this Employment Agreement.

     Now therefore, in consideration of the mutual promises, covenants and
agreements contained herein, the parties hereto agree as follows:

     1.   Term of Agreement.  This Agreement shall commence on the date hereof
          -----------------
and shall have a term of two (2) (the "Original Term"). This Agreement may be
                                       -------------
extended for an additional one (1) year beyond the end of the Original Term if
the parties hereto mutually agree in writing to such extension. Subject to the
Company's severance payment obligations set forth in Section 5 below, this
Agreement may be terminated by either party, with or without cause, on thirty
(30) days' written notice to the other party.

     2.   Duties.
          ------

          (a)  Position.  Employee shall be employed as President and Chief
               --------
Executive Officer, and as such will have responsibility for the overall
operation of the Company and will report to the Company's Board of Directors
(the "Board").
      -----

          (b)  Obligations to the Company.  Employee agrees to the best of his
               --------------------------
ability and experience that he will at all times loyally and conscientiously
perform all of the duties and obligations required of and from Employee pursuant
to the express and implicit terms hereof, and to the reasonable satisfaction of
the Company. During the term of Employee's employment relationship with the
Company, Employee further agrees that he will devote all of his business time
and attention to the business of the Company, the Company will be entitled to
all of the benefits and profits arising from or incident to all such work
services and advice, Employee will not render commercial or professional
services of any nature to any person or organization, whether or not for
compensation, without the prior written consent of the Company's Board of
Directors, and Employee will not directly or indirectly engage or participate in
any business that is competitive in any manner with the business of the Company.
Nothing in this Agreement will prevent Employee from accepting speaking or
presentation engagements in exchange for

                                      -1-
<PAGE>

honoraria or from serving on boards of charitable organizations, or from owning
no more than one percent (1%) of the outstanding equity securities of a
corporation whose stock is listed on a national stock exchange. Employee will
comply with and be bound by the Company's operating policies, procedures and
practices from time to time in effect during the term of Employee's employment.

     3.   At-Will Employment.  The Company and Employee acknowledge that
          ------------------
Employee's employment is and shall continue to be at-will, as defined under
applicable law, and that Employee's employment with the Company may be
terminated by either party at any time for any or no reason. If Employee's
employment terminates for any reason, Employee shall not be entitled to any
payments, benefits, damages, award or compensation other than as provided in
this Agreement. The rights and duties created by this Section 3 may not be
modified in any way except by a written agreement executed by the Board.

     4.   Compensation.  For the duties and services to be performed by
          ------------
Employee hereunder, the Company shall pay Employee, and Employee agrees to
accept, the salary, stock options, bonuses and other benefits described below in
this Section 4.

          (a)  Salary.   Employee shall receive an annual salary of $215,000 per
               ------
year. Employee's salary will be payable pursuant to the Company's normal payroll
practices. In the event this Agreement is extended beyond the Original Term, the
then current base salary shall be reviewed at the time of such extension by the
Board or its Compensation Committee, and any increase will be effective as of
the date determined appropriate by the Board or its Compensation Committee.
Employee's salary shall be reviewed on at least an annual basis for possible
adjustment.

          (b)  Stock Options and Other Incentive Programs.  Employee shall be
               ------------------------------------------
eligible to participate in any stock option or other incentive programs
available to officers or employees of the Company.

          (c)  Bonuses.  Employee's entitlement to incentive bonuses from the
               -------
Company is discretionary and shall be determined by the Board or its
Compensation Committee in good faith based upon the extent to which Employee's
individual performance objectives and the Company's profitability objectives and
other financial and nonfinancial objectives are achieved during the applicable
bonus period. In the event of Employee's death or disability during the term of
this Agreement, the Company shall pay to Employee or Employee's estate the bonus
Employee would have earned during the entire year in which death or disability
occurred.

          (d)  Additional Benefits.  Employee will be eligible to participate in
               -------------------
the Company's employee benefit plans of general application, including without
limitation, those plans covering medical, disability and life insurance in
accordance with the rules established for individual participation in any such
plan and under applicable law. Employee will be eligible for vacation and sick
leave in accordance with the policies in effect during the term of this
Agreement and will receive such other benefits as the Company generally provides
to its other employees of comparable position and experience.

                                      -2-
<PAGE>

          (e)  Reimbursement of Expenses.  Employee shall be authorized to incur
               -------------------------
on behalf and for the benefit of, and shall be reimbursed by, the Company for
reasonable expenses, provided that such expenses are substantiated in accordance
with Company policies.

     5.   Termination of Employment and Severance Benefits.
          ------------------------------------------------

          (a)  Termination of Employment.  This Agreement may be terminated
               -------------------------
during its Original Term (or any extension thereof) upon the occurrence of any
of the following events:

               (i)   The Company's determination in good faith that it is
terminating Employee for Cause (as defined in Section 6 below) ("Termination for
                                                                 ---------------
Cause");
-----

               (ii)  The Company's determination that it is terminating Employee
without Cause, which determination may be made by the Company at any time at the
Company's sole discretion, for any or no reason ("Termination Without Cause");
                                                  -------------------------
or

               (iii) The effective date of a written notice sent to the Company
from Employee stating that Employee is electing to terminate his employment with
the Company ("Voluntary Termination").
              ---------------------

          (b)  Severance Benefits.  Employee shall be entitled to receive
               ------------------
severance benefits upon termination of employment only as set forth in this
Section 5(b):

               (i)  Voluntary Termination.  If Employee's employment terminates
                    ---------------------
by Voluntary Termination, then Employee shall not be entitled to receive payment
of any severance benefits. Employee will receive payment(s) for all salary and
unpaid vacation accrued as of the date of Employee's termination of employment
and Employee's benefits will be continued under the Company's then existing
benefit plans and policies in accordance with such plans and policies in effect
on the date of termination and in accordance with applicable law.

               (ii) Voluntary Termination with Cash Shortfall.  If Employee's
                    -----------------------------------------
employment terminates by Voluntary Termination and a Cash Shortfall (as defined
below) exists, Employee (A) will be paid a lump sum payment on the date of
termination equal to twelve (12) months of Employee's then current base salary,
(B) the principal and interest owed to the Company by Employee pursuant to the
loan made to Employee in January 1992 (the "Loan") shall be forgiven and the
                                            ----
promissory note evidencing the Loan shall be canceled and (C) Employee shall be
retained as a consultant by the Company and receive consulting fees equal to
$18,000 per month for services performed for a period of six (6) months (the
"Consulting Period").  During the Consulting Period, Employee shall perform such
------------------
services for the Company as may be reasonably requested from time to time by the
Board or the Chief Executive Officer of the Company.  The terms of the
consulting arrangement shall be more fully described in the Consulting Agreement
between Employee and the Company substantially in the form attached hereto as
Exhibit A.  Such consulting payments shall be made ratably over the Consulting
---------
Period according to the Company's standard payroll schedule and invoices
submitted by Employee for the consulting services.  Employee will also be
entitled to receive payment on the date of

                                      -3-
<PAGE>

termination of any bonus payable under Section 4(c). Employee shall also be
entitled to continue to participate during the Consulting Period in all of the
Company's health insurance benefits (e.g. medical, dental, optical, mental
health, life) in the same manner and with the same coverage provided to Employee
prior to the date of termination and in all other respects significantly
comparable to those in place immediately prior to such termination. Any unvested
stock options held by Employee as of the date of Employee's termination of
employment shall continue to vest through the end of the Consulting Period
according to the vesting schedule set forth in any agreement between Employee
and the Company governing the issuance to Employee of such securities.

          (iii)  Involuntary Termination Post Change of Control.  If Employee's
                 ----------------------------------------------
employment is terminated after a Change of Control (as defined below) has
occurred for any reason (including a Constructive Termination (as defined
below)) other than by reason of Employee's Voluntary Termination and other than
by reason of a Termination for Cause (an "Involuntary Termination"), Employee
                                          -----------------------
(A) will be paid a lump sum payment on the date of termination equal to twelve
(12) months of Employee's then current base salary, (B) the principal and
interest owed to the Company by Employee pursuant to the Loan shall be forgiven
and the promissory note evidencing the Loan shall be canceled and (C) Employee
shall be retained as a consultant by the Company and receive consulting fees
equal to $6,000 per month for services performed for a period of eighteen (18)
months (the "Consulting Period"). During the Consulting Period, Employee shall
             -----------------
perform such services for the Company as may be reasonably requested from time
to time by the Board or the Chief Executive Officer of the Company. The terms
of the consulting arrangement shall be more fully described in the Consulting
Agreement between Employee and the Company substantially in the form attached
hereto as Exhibit A. Such consulting payments shall be made ratably over the
          ---------
Consulting Period according to the Company's standard payroll schedule and
invoices submitted by Employee for the consulting services. Employee will also
be entitled to receive payment on the date of termination of any bonus payable
under Section 4(c). Employee shall also be entitled to continue to participate
during the Consulting Period in all of the Company's health insurance benefits
(e.g. medical, dental, optical, mental health, life) in the same manner and with
the same coverage provided to Employee prior to the date of termination and in
all other respects significantly comparable to those in place immediately prior
to such termination. Any unvested stock options held by Employee as of the date
of Employee's termination of employment shall continue to vest through the end
of the Consulting Period according to the vesting schedule set forth in any
agreement between Employee and the Company governing the issuance to Employee of
such securities.

          (iv)   Involuntary Termination Pre Change of Control.  If Employee's
                 ---------------------------------------------
employment is terminated before a Change of Control has occurred for any reason
(including a Constructive Termination) other than by reason of Employee's
Voluntary Termination and other than by reason of a Termination for Cause,
Employee (A) will be paid a lump sum payment on the date of termination equal to
twelve (12) months of Employee's then current base salary, (B) the principal and
interest owed to the Company by Employee pursuant to the Loan shall be forgiven
and the promissory note evidencing the Loan shall be canceled and (C) Employee
shall be retained as a consultant by the Company and receive consulting fees
equal to $6,000 per month (up to an aggregate of $108,000 (the Aggregate
                                                               ---------
Consulting Payment")) for
------------------

                                      -4-
<PAGE>

services performed for a period of time equal to eighteen (18) months (the
"Consulting Period"); provided, however, that the Aggregate Consulting Payment
 -----------------
shall be reduced on a dollar-for-dollar basis for each dollar Employee receives
during the Consulting Period from other employment and/or consulting sources in
excess of an aggregate of $214,500. To the extent Employee secures other
employment or consulting work during the Consulting Period that pays Employee
cash compensation in excess of an aggregate of $322,500, and as a result,
Employee's consulting fees from the Company are reduced to zero, Employee and
the Company shall either mutually agree to terminate Employee's consulting
relationship or negotiate an alternative consulting arrangement. During the
Consulting Period, Employee shall perform such services for the Company as may
be reasonably requested from time to time by the Board or the Chief Executive
Officer of the Company. The terms of the consulting arrangement shall be more
fully described in the Consulting Agreement between Employee and the Company
substantially in the form attached hereto as Exhibit A. Such consulting payments
                                             ---------
shall be made ratably over the Consulting Period according to the Company's
standard payroll schedule and invoices submitted by Employee for the consulting
services. Employee will also be entitled to receive payment on the date of
termination of any bonus payable under Section 4(c). Employee shall also be
entitled to continue to participate during the Consulting Period in all of the
Company's health insurance benefits (e.g. medical, dental, optical, mental
health, life) in the same manner and with the same coverage provided to Employee
prior to the date of termination and in all other respects significantly
comparable to those in place immediately prior to such termination. Any unvested
stock options held by Employee as of the date of Employee's termination of
employment shall continue to vest through the end of the Consulting Period
according to the vesting schedule set forth in any agreement between Employee
and the Company governing the issuance to Employee of such securities.

               (v)  Termination for Cause.  If Employee's employment is
                    ---------------------
terminated for Cause, then Employee shall not be entitled to receive payment of
any severance benefits. Employee will receive payment(s) for all salary and
unpaid vacation accrued as of the date of Employee's termination of employment
and Employee's benefits will be continued under the Company's then existing
benefit plans and policies in accordance with such plans and policies in effect
on the date of termination and in accordance with applicable law. In addition,
the principal and interest owed to the Company by Employee pursuant to the Loan
shall be forgiven and the promissory note evidencing the Loan shall be canceled.

     6.  Definitions.
         -----------

         (a)   "Cash Shortfall" shall mean a reduction in the Company's cash and
                --------------
cash equivalents to an amount less than that necessary to continue the Company's
operations for a period of three (3) months based on the Company's average
monthly "burn rate" for the six (6) months prior to the date hereof.

         (b)   "Cause" shall mean (i) Employee's dishonest or fraudulent
                -----
conduct, deliberate attempt to do an injury to the Company, or Employee's
conduct that materially discredits the Company or is materially detrimental to
the reputation of the Company, including conviction of a felony; or (ii)
Employee's incurable material breach of any element of the

                                      -5-
<PAGE>

Company's Confidential Information and Invention Assignment Agreement, including
without limitation, Employee's theft or other misappropriation of the Company's
proprietary information.

         (c)   "Change of Control" shall mean the acquisition of the Company by
                -----------------
means of merger, reorganization or other transaction in which the stockholders
of the Company do not own a majority of the outstanding shares of the surviving
corporation or a sale of all or substantially all of the assets of the Company.

          (d)  "Constructive Termination" shall be deemed to occur if (A)(1)
                ------------------------
there is a material adverse change in Employee's position causing such position
to be of less stature or of less responsibility than President and Chief
Executive Officer, (2) a reduction of more than 10% of Employee's base
compensation unless in connection with similar decreases of other similarly
situated employees of the Company, or (3) Employee's refusal to relocate to a
facility or location more than fifty (50) miles from the Company's current
location; and (B) within the ninety (90) day period immediately following such
material change or reduction Employee elects to terminate his employment
voluntarily.

     7.   Confidentiality Agreement.  Employee has signed a Confidential
          -------------------------
Information and Invention Assignment Agreement (the "Confidentiality Agreement")
                                                     -------------------------
substantially in the form attached hereto as Exhibit B.  Employee hereby
                                             ---------
represents and warrants to the Company that he has complied with all obligations
under the Confidentiality Agreement and agrees to continue to abide by the terms
of the Confidentiality Agreement and further agrees that the provisions of the
Confidentiality Agreement shall survive any termination of this Agreement or of
Employee's employment relationship with the Company.

     8.   Nonsolicitation Covenant.  Employee hereby agrees that he shall
          ------------------------
not, during the term of his employment pursuant to this Agreement or the
Consulting Period, without the prior written consent of the Board, solicit or
influence or attempt to influence any person employed by the Company to
terminate or otherwise cease his or her employment with the Company or become an
employee of any competitor of the Company.  This Section 8 is to be read in
conjunction with the Confidential Information and Invention Assignment Agreement
executed by Employee.

     9.   Conflicts.  Employee represents that his performance of all the
          ---------
terms of this Agreement will not breach any other agreement to which Employee is
a party.  Employee has not, and will not during the term of this Agreement,
enter into any oral or written agreement in conflict with any of the provisions
of this Agreement.  Employee further represents that he is entering into or has
entered into an employment relationship with the Company of his own free will
and that he has not been solicited as an employee in any way by the Company.

     10.  Successors.  Any successor to the Company (whether direct or
          ----------
indirect and whether by purchase, lease, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company's business and/or assets
shall assume the obligations under this Agreement and agrees expressly to
perform the obligations under this Agreement and the Consulting Agreement in the
same manner and to the same extent as the Company would be required to

                                      -6-
<PAGE>

perform such obligations in the absence of a succession. The terms of this
Agreement, the Consulting Agreement and all of Employee's rights hereunder and
thereunder shall inure to the benefit of, and be enforceable by, Employee's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.

     11.  Miscellaneous Provisions.
          ------------------------

          (a)  No Duty to Mitigate.  Except as specifically provided in Section
               -------------------
5(b)(iv) of this Agreement, Employee shall not be required to mitigate the
amount of any payment contemplated by this Agreement (whether by seeking new
employment or in any other manner), nor shall any such payment be reduced by any
earnings that Employee may receive from any other source.

          (b)  Amendments and Waivers.  Any term of this Agreement may be
               ----------------------
amended or waived only with the written consent of the parties.

          (c)  Sole Agreement.  This Agreement, including any Exhibits hereto,
               --------------
constitutes the sole agreement of the parties and supersedes all oral
negotiations and prior writings with respect to the subject matter hereof.

          (d)  Notices.  Any notice required or permitted by this Agreement
               -------
shall be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by a nationally-recognized delivery service (such as Federal
Express or UPS), or forty-eight (48) hours after being deposited in the U.S.
mail as certified or registered mail with postage prepaid, if such notice is
addressed to the party to be notified at such party's address as set forth below
or as subsequently modified by written notice.

          (e)  Choice of Law.  The validity, interpretation, construction and
               -------------
performance of this Agreement shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.

          (f)  Severability.  If one or more provisions of this Agreement are
               ------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.

          (g)  Counterparts.  This Agreement may be executed in counterparts,
               ------------
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.

          (h)  Arbitration.  Any dispute or claim arising out of or in
               -----------
connection with this Agreement will be finally settled by binding arbitration in
San Jose, California in accordance with the rules of the American Arbitration
Association by one arbitrator appointed in accordance with said rules. The
arbitrator shall apply California law, without reference to rules of conflicts

                                      -7-
<PAGE>

of law or rules of statutory arbitration, to the resolution of any dispute.
Judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Notwithstanding the foregoing, the parties may
apply to any court of competent jurisdiction for preliminary or interim
equitable relief, or to compel arbitration in accordance with this paragraph,
without breach of this arbitration provision. This Section 11(h) shall not apply
to the Confidentiality Agreement.

          (i)  ADVICE OF COUNSEL.  EACH PARTY TO THIS AGREEMENT ACKNOWLEDGES
               -----------------
THAT, IN EXECUTING THIS AGREEMENT, SUCH PARTY HAS HAD THE OPPORTUNITY TO SEEK
THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTOOD ALL OF THE
TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED
AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF.

                           [Signature Page Follows]

                                      -8-
<PAGE>

    The parties have executed this Agreement the date first written above.

                              CELTRIX PHARMACEUTICALS, INC.

                              By: /s/  James E. Thomas
                                  -----------------------------------
                                  James E. Thomas, Chairman

                              Address:  3055 Patrick Henry Drive
                                        Santa Clara, California 95054

                              DR. ANDREAS SOMMER

                              Signature:  /s/  Andreas Sommer
                                        -----------------------------

                              Address:  100 CIMARRON COURT
                                        -----------------------------

                                        DANVILLE, CA  94506
                                        -----------------------------

                                      -9-
<PAGE>

                                 EXTENSION TO
                             EMPLOYMENT AGREEMENT

     This Extension to Employment Agreement dated December 16, 1998 (this
                                                           --
"Extension") is by and between Dr. Andreas Sommer ("Employee") and Celtrix
----------                                          --------
Pharmaceuticals, Inc. a Delaware corporation (the "Company").  Employee and the
                                                   -------
Company are also referred to herein below as the "Parties".
                                                  -------

     WHEREAS, the Company and Employee entered into that certain Employment
Agreement dated as of January 7, 1997 (the "Agreement") pursuant to which the
                                            ---------
Parties agreed that Employee would serve as President and Chief Executive
Officer of the Company for an Original Term of two years;

     WHEREAS, pursuant to Section 1 of the Agreement, the Parties have the right
to mutually agree to extend the Original Term for an additional year beyond the
end of the Original Term; and

     WHEREAS, the Parties desire to extend the Original Term for one additional
year beyond the end of the Original Term;

     NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged and agreed, the Parties hereto agree as follows:

     1.   Definitions.  Unless specifically designated otherwise, capitalized
          -----------
terms used herein shall have the same meanings given them in the Agreement.

     2.   Extension of Term.  The Parties hereby agree that the Original Term of
          -----------------
the Agreement shall be and hereby is extended for one additional year beyond the
end of the Original Term, which extended term shall end on January 7, 2000 (the
"Extended Term").
 -------------

     3.   Continuing Effect of Agreement.  Except as specifically set forth
          ------------------------------
herein, the terms and conditions contained in the Agreement shall continue in
full force and effect throughout the duration of the Extended Term.

     4.   Miscellaneous.
          -------------

          4.1  Choice of Law.  The validity, interpretation, construction and
               -------------
performance of this Extension shall be governed by the laws of the State of
California, without giving effect to the principles of conflict of laws.

          4.2  Counterparts.  This Extension may be executed in one or more
               ------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

                                      -10-
<PAGE>

          4.3  Severability.  If one or more provisions of this Extension are
               ------------
held to be unenforceable under applicable law, portions of such provisions, or
such provisions in their entirety, to the extent necessary, shall be severed
from this Extension, and the balance of this Extension shall be enforceable in
accordance with its terms.

          4.4  ADVICE OF COUNSEL.  EACH PARTY TO THIS EXTENSION ACKNOWLEDGES
               -----------------
THAT, IN EXECUTING THIS EXTENSION, SUCH PARTY HAS HAD THE OPPORTUNITY TO SEEK
THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND HAS READ AND UNDERSTOOD ALL OF THE
TERMS AND PROVISIONS OF THIS EXTENSION. THIS EXTENSION SHALL NOT BE CONSTRUED
AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF.

                           [Signature Page Follows]

                                      -11-
<PAGE>

          IN WITNESS WHEREOF, the parties have executed this Extension as of the
date first written above.

                              CELTRIX PHARMACEUTICALS, INC.

                              By: /s/  James E. Thomas
                                  -------------------------------------
                                  James E. Thomas, Chairman

                              Address:  3055 Patrick Henry Drive
                                        Santa Clara, California 95054

                              DR. ANDREAS SOMMER

                              Signature:  /s/  Andreas Sommer
                                        -------------------------------

                              Address:  _______________________________

                                        _______________________________

                                      -12-
<PAGE>

                         CELTRIX PHARMACEUTICALS, INC.

                             EMPLOYMENT AGREEMENT
                             --------------------

                            Amendment and Extension

     WHEREAS, Dr. Andreas Sommer ("Employee") and Celtrix Pharmaceuticals, Inc.,
a Delaware corporation (the "Company") entered into an Employment Agreement
dated as of January 7, 1997 (the "Employment Agreement");

     WHEREAS, the Employment Agreement provides, at Section 1, that its term
shall be for two years commencing January 7, 1997 and that the Employment
Agreement may be extended for an additional one year by written agreement of the
parties;

     WHEREAS, by written agreement dated December 16, 1998, Employee and the
Company previously agreed to a one-year extension of the term of the Employment
Agreement, to January 7, 2000; and

     WHEREAS, Employee and the Company now desire to amend the Employment
Agreement to permit additional one-year extensions and to agree to an additional
extension of the term of the Employment Agreement, to January 7, 2001;

     THEREFORE, Employee and the Company agree as follows:

     A.   Section 1 of the Employment Agreement shall be amended in its entirety
to read as follows:

          1.  Term of the Agreement.  This Agreement shall commence on the date
              ---------------------
     hereof and shall have a term of two (2) years (the "Original Term").  This
     Agreement may be extended additional one (1) year periods beyond the end of
     the Original Term if the parties hereto mutually agree in writing to such
     extension.  Subject to the Company's severance payment obligations set
     forth in Section 5 below, this Agreement may be terminated by either party,
     with or without cause, on thirty (30) days' written notice to the other
     party.

     B.   Pursuant to Section 1, as amended hereby, the term of the Employment
Agreement shall be extended to January 7, 2001.

DATED:    11/02/99
        ----------------------

CELTRIX PHARMACEUTICALS, INC.             DR. ANDREAS SOMMER

By: /s/ James E. Thomas                   Signature: /s/  Andreas Sommer
    --------------------------                       --------------------------
         James E. Thomas
         Chairman of the Board
Address: 2033 Gateway Place, Suite 600    Address: 2033 Gateway Place, Suite 600
         San Jose, CA 95110                        San Jose, CA 95110

                                      -13-<PAGE>

                                                                   EXHIBIT 10.7
                                                                   -------------
                               LICENSE AGREEMENT
                               -----------------

     This Agreement is made and entered into this 18th day of December, 1997
(the "EFFECTIVE DATE") by and between Celtrix Pharmaceuticals, Inc. ("CELTRIX"),
a Delaware corporation having offices at 3055 Patrick Henry Drive, Santa Clara,
CA 95054, and Genzyme Corporation, a Massachusetts corporation ("GENZYME")
having its offices at One Kendall Square, Cambridge, MA 02139.

                                   RECITALS
                                   --------

     WHEREAS, CELTRIX is a biopharmaceutical company that is the owner of a
certain patent and patent applications and know how relating to monoclonal
antibodies that bind Transforming Growth Factor B ("TGF-B"), specifically TGF-B1
and TGF-B2, wherein such patents and patent applications have previously been
non-exclusively licensed to Genentech, Inc. in settlement of an interference
with respect to such antibodies between the parties. Further, CELTRIX is the
owner of certain patent applications and know how that relate to methods
employing monoclonal antibodies that bind TGF-B and employing TGF-B receptors,
and fragments thereof. CELTRIX still further has acquired an exclusive worldwide
license with right of sublicense from Massachusetts Institute of Technology with
respect to certain patents and patent applications relating to TGF-B receptors,
including TGF-B type II and TGF-B type III receptors, cDNA of the respective
receptors, and methods of use, which license, dated December 4, 199l, continues
in full force and effect. CELTRIX has also developed know how related to said
TGF-B receptor patents and patent applications;

     WHEREAS, GENZYME is a biopharmaceutical company having experience in TGF-B
related technology, and desires to develop and market products and methods
employing that technology;

     WHEREAS, CELTRIX is willing to grant and GENZYME desires to receive, for
itself and its affiliates, a worldwide exclusive license with right of
sublicense to the non-exclusive
<PAGE>

License Agreement
Page 2

patent rights held by CELTRIX with respect to the TGF-B binding monoclonal
antibodies, and to the related know how, and a worldwide exclusive license with
right of sublicense to the patent rights held by CELTRIX with respect to TGF-B
receptors, fragments thereof, and to the related know how. CELTRIX is further
willing to grant and GENZYME desires to receive, for itself and its affiliates,
a worldwide sublicense with right of further sublicense with respect to the
licensed patents and patent applications obtained by CELTRIX with respect to the
licensed TGF-B receptor technology, together with a worldwide license to related
know how developed by CELTRIX, so that GENZYME may be able to make, have made,
use and sell TGF-B antibodies and receptors in accordance with the terms and
conditions set forth in this Agreement.

     WHEREAS, GENZYME and CELTRIX entered into a License and Development
Agreement as of June 24, 1994 relating to therapeutic uses of TGF-B2, which
agreement has been amended as of the date of execution hereof, and, as amended,
continues in full force and effect. As further grant of license rights with
respect to the TGF-B2 related rights, CELTRIX is willing to grant, and GENZYME
desires to receive, for itself and its affiliates, a worldwide exclusive license
with right of sublicense to the patent rights held by CELTRIX with respect to
the TGF-B2 protein for laboratory research and assay uses.

     NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained and other good and valuable consideration, the receipt of which
is acknowledged, the parties agree as follows:

                            ARTICLE 1 - DEFINITIONS
                            -----------------------

1.1  Affiliates or Subsidiaries of a party shall mean any present or future
     ----------    ------------
companies organized under the laws of the United States with respect to which
(i) at least fifty percent (50%) in value or (ii) at least fifty percent (50%)
of the total combined voting power of all classes of shares entitled to vote is
directly or indirectly under the control of, or under common control with, such
<PAGE>

License Agreement
Page 3

party.  Reference to CELTRIX and GENZYME herein shall be understood to include
any Subsidiaries and Affiliates of CELTRIX and GENZYME, respectively.

1.2  Biological Property shall mean any DNA materials, derivatives of such DNA
     -------------------
materials, cell lines and peptides containing the DNA materials or derivatives
thereof, that are related to the TGF-B Antibody Patent Rights, and to the TGF-B
Receptor Patent Rights, respectively, except for Biological Property received by
CELTRIX under the R&D Systems Agreement.

1.3  Field shall mean uses for any and all purposes with the following
     -----
exceptions: (i) opthamology, (ii) the TGF-B Antibody Rights previously licensed
to Genentech, Inc., and (iii) with respect to the TGF-B Receptor Patent Rights
Licensed from MIT only, those rights previously exclusively sublicensed by
CELTRIX to R&D Systems ("the R&D Systems Agreement").

1.4  First Commercial Sale shall mean the first sale by GENZYME and/or its
     ---------------------
sublicensee(s) in an arms length transaction to a third party (not connected
with GENZYME or CELTRIX, its Affiliates and/or sublicensee(s)) of a Licensed
Product or use of a Licensed Method, and wherein, as applicable, the
manufacture, sale and use of which has been approved by the applicable
regulatory agency in the country in question.

1.5  Know-How shall mean all information, data, specifications, techniques,
     --------
software, procedures, methods of manufacture, technical data and clinical, as
well as diagnostic, information relating to the Patent Rights owned by or
licensed to CELTRIX which is known to CELTRIX (other than from (GENZYME or from
R&D Systems) and which CELTRIX is free to disseminate without accounting to
others.

1.6  Licensed Product(s) shall mean any product or part thereof that embodies an
     -------------------
invention covered by a Valid Claim or which is specifically intended to be used
to practice a method or
<PAGE>

License Agreement
Page 4

process covered by a Valid Claim and which is manufactured by or for, and sold
by or for, GENZYME or its sublicensee(s).

1.7  Licensed Method(s) shall mean a method of use that is covered in whole or
     ------------------
in part by a Valid Claim of the Patent Rights.

1.8  Net Sales shall mean the gross amount billed, invoiced or received on sales
     ---------
of Licensed Products, or TGF-B2 Protein as set forth in Section 1.18 below, to
or the practice of Licensed Methods or any other revenue producing use of Patent
Rights by an independent third party less (a) customary trade, quantity or cash
discounts and rebates actually allowed and taken; (b) amounts repaid or credited
by reason of rejections or returns, contractual allowances, distributor fees
(provided such do not exceed 4% of the gross amount), sales deemed
uncollectable; and (c) freight, insurance, duties, taxes and other governmental
charges directly related to sales. Net Sales shall further include such sales or
any other revenue producing use of Patent Rights by Genzyme and/or its
sublicensee(s).

1.9  Patent Rights shall mean and include any subject matter claimed in or
     -------------
covered by the patents or pending patent applications listed in Appendix A, and
further including any patents that issue on the applications for said patents,
improvements, reissues, reexaminations, renewals, extensions, divisions,
continuations, and continuations-in-part of the foregoing and any foreign
counterparts and any other form of patent coverage directed to the inventions
covered by said patents and applications.

1.10  Territory shall mean all countries of the world.
      ---------

1.11  TGF-B Antibody Patent Rights shall mean the Patent Rights that relate to
      ----------------------------
monoclonal antibodies that bind Transforming Growth Factor ("TGF-B"),
specifically TGF-B1 and TGF-B2.
<PAGE>

License Agreement
Page 5

1.12  TGF-B Antibody Know How shall mean Know How that relates to the TGF-B
      -----------------------
Antibody Patent Rights.

1.13  TGF-B Receptor Know How shall mean the Know How that relates to the TGF-B
      -----------------------
Receptor Patent Rights of CELTRIX or the TGF-B Receptor Patent Rights Licensed
from MIT.

1.14  TGF-B Receptor Patent Rights of CELTRIX shall mean the Patent Rights that
      ---------------------------------------
relate to TGF-B receptors that are owned by CELTRIX.

1.15  TGF-B Receptor Patent Rights Licensed from MIT shall mean the Patent
      ----------------------------------------------
Rights that relate to TGF-B receptors, including TGF-B type II and TGF-B type
III receptors, cDNA of the respective receptors, and methods of use that CELTRIX
licensed from Massachusetts Institute of Technology (MIT).

1.16  Therapeutic Use shall mean any use of a Licensed Product or Licensed
      ---------------
Method in vivo, in humans and animals, for the prevention, cure, amelioration or
modification of any disease, symptom, syndrome, or other medical condition.

1.17  Valid Claim shall mean an issued, unexpired claim included within the
      -----------
Patent Rights, or within in the rights covering the TGF-B2 Protein as set forth
in Section 1.18 below, which has not been held invalid by a decision from a
tribunal having jurisdiction thereover and from which no further appeal has or
can be taken.

1.18  TGF-B2 Protein shall mean the TGF-B2 composition otherwise designated as
      --------------
"CIF-B" that is disclosed and claimed in U.S. Patent No. 4,774,322 (the `322
Patent), together with any improvements, reissues, reexaminations, renewals,
extensions, divisions, continuations, and continuations-in-part of the foregoing
and any foreign counterparts or any other form of patent coverage directed to
the TGF-B2 composition disclosed in the `322 Patent.
<PAGE>

License Agreement
Page 6

                              ARTICLE II - GRANT
                              ------------------

2.1  Subject to the terms and conditions set forth herein, CELTRIX hereby grants
to GENZYME a worldwide exclusive royalty bearing license in the Field to the
non-exclusive rights held by CELTRIX with respect to the TGF-B Antibody Patent
Rights to (i) use the TGF-B Antibody Know How, and (ii) to make, have made, use,
offer to sell, sell or import into the United States Licensed Product(s) or use
Licensed Method(s) in the Territory in which the TGF-B Antibody Patent Rights
are effective until the end of the full term(s) for which these Patent Rights
are issued, unless sooner terminated as hereinafter provided.

2.2  Subject to the terms and conditions set forth herein, CELTRIX hereby grants
to GENZYME a worldwide exclusive royalty bearing license in the Field (i) to use
the TGF-B Receptor Know How (as applicable to the TGF-B Receptor Patent Rights
of CELTRIX), and (ii) to make, have made, use, offer to sell, sell or import
into the United States Licensed Product(s) or use Licensed Method(s) in the
Territory in which the TGF-B Receptor Patent Rights of CELTRIX are effective
until the end of the full term(s) for which these Patent Rights are issued,
unless sooner terminated as hereinafter provided.

2.3  Subject to the terms and conditions set forth herein, CELTRIX hereby grants
to GENZYME a worldwide exclusive royalty bearing sublicense in the Field to (i)
use the TGF-B Receptor Know How, and (ii) to make, have made, use, offer to
sell, sell or import into the United States Licensed Product(s) or use Licensed
Method(s) in the Territory in which the TGF-B Receptor Patent Rights Licensed
from MIT are effective until the end of the full term(s) for which the Patent
Rights are issued, unless sooner terminated as hereinafter provided. Pursuant to
Section 2.3 of the License Agreement between Massachusetts Institute of
Technology and CELTRIX dated December 4, 1991 (the "MIT Agreement"), the period
of exclusivity granted to CELTRIX terminates with the farst to occur of:
<PAGE>

License Agreement
Page 7

     "(a)  the expiration of Twelve (12) years after the first commercial sale
     of a Licensed Product or first commercial use of a Licensed Process; or

     (b)   the expiration of Fifteen (15) years after the Effective Date
     [December 4, 1991 ] of this Agreement; provided, however, that times spent
     by pending applications before the FDA for permission for clinical tests
     and for premarket approval of the first Licensed Product shall be added to
     this fifteen year period."

It is understood and acknowledged that the sublicense rights granted by CELTRIX
to GENZYME under this Section 2.3 may extend after the expiration of the period
of exclusivity, but that the exclusivity to GENZYME expires upon the expiration
of CELTRIX's exclusivity. In compliance with Section 2.8 of the MIT Agreement, a
copy of Articles II, V, VII, VIII, IX, X, XII, XIII, and XV of the MIT Agreement
are appended hereto. It is further agreed that, in exchange for the sublicense
rights granted herein, GENZYME shall assume the obligations, including all
current obligations, of CELTRIX as licensee under the MIT Agreement, including,
without limitation, any and all patent prosecution costs, royalties or license
fees that have been invoiced to Celtfix, copies of such invoices having been
timely provided to Genzyme in advance of the execution date of this Agreement.

2.4  CELTRIX hereby agrees to promptly grant to GENZYME an exclusive sublicense
to any and all rights CELTRIX obtains as a result of termination or modification
of the R&D Systems Agreement, including those rights excluded from the Field as
set forth in Section 1.3 herein by virtue of the R&D Systems Agreement.

2.5  If after the date of this Agreement CELTRIX files patent applications or
otherwise obtains rights to patents, patent applications, or know how that
relate to the TGF-B Antibody Patent Rights and Know How, to the TGF-B Receptor
Patent Rights of CELTRIX and Know How, and to the TGF-B Receptor Patent Rights
Licensed from MIT and Know How, in the Field, such patents, patent applications
or know how shall be included in this Agreement, and
<PAGE>

License Agreement
Page 8

GENZYME shall have an exclusive worldwide license or sublicense, as appropriate,
under the terms and conditions as set forth in this Agreement.

2.6  GENZYME shall have the right to enter into sublicensing agreements with
respect to the rights, privileges and licenses granted hereunder, provided such
sublicenses are within the scope of and under the terms and conditions set forth
herein.  Any sublicenses granted by GENZYME shall expire upon the expiration of
GENZYME's rights granted herein.  GENZYME shall give written notice to CELTRIX
of the granting of sublicense rights, shall forward to CELTRIX a copy of any and
all fully executed sublicense agreement, including any amendments and
modifications thereof, and shall forward annually a copy of any reports received
by GENZYME from any sublicensee during the preceding twelve (12) month period
under the sublicense as shall be pertinent to an accounting of payments under
such sublicense agreement.

2.7  CELTRIX further grants to GENZYME the right and license to use the
Biological Property for all purposes in the Field, subject to the terms of this
Agreement.  CELTRIX shall, within a commercially reasonable period following
execution of this Agreement, and on such occasions as additional Biological
Property becomes available, deliver to GENZYME samples of the Biological
Property in reasonable quantities as requested by GENZYME that are in CELTRIX's
possession as of the execution date of this Agreement.

2.8  Subject to the terms and conditions set forth herein, CELTRIX hereby grants
to GENZYME a worldwide non-exclusive royalty bearing license, with right to
grant sublicenses, (i) to use the TGF-B2 Protein for GENZYME's internal use in
laboratory research and assay uses only, and (ii) to make, have made, offer to
sell or sell TGF-B2 Protein for use in laboratory research and assay uses only.

2.9  If GENZYME determines not to pursue commercialization, whether itself or
through a sublicensee(s), of a Licensed Product or Licensed Method in any
geographic market within the
<PAGE>

License Agreement
Page 9

Territory or any clinical indication, it will negotiate in good faith with
CELTRIX the terms of the license of such rights to CELTRIX.

                     ARTICLE III - ROYALTIES AND PAYMENTS
                     ------------------------------------

3.1  In consideration of the license and Sublicense rights herein granted,
GENZYME shall pay to CELTRIX an earned royalty on Net Sales according to the
following schedule:

     A.   With respect to Licensed Products or Licensed Methods for Therapeutic
Use employing TGF-B Antibody Patent Rights:

          (a)  Four percent (4%) on the first $200,000,000 annual Net Sales;
          then

          (b)  Five percent (5%) on the next $200,000,000 to $400,000,000 annual
          Net Sales; then

          (c)  Six percent (6%) on the annual Net Sales of greater than
          $400,000,000.

     B.   With respect to Licensed Products or Licensed Methods for diagnostic
or research uses employing TGF-B Antibody Patent Rights:

          (a)  Three percent (3%) on annual Net Sales.

     C.   With respect to Licensed Products or Licensed Methods for Therapeutic
Uses employing TGF-B Receptor Patent Rights of CELTRIX or TGF-B Receptor Patent
Rights Licensed from MIT:

          (a)  Two percent (2%) on annual Net Sales.
<PAGE>

License Agreement
Page 10

     D.   With respect to Licensed Products or Licensed Methods for other than
Therapeutic Uses employing TGF-B Receptor Patent Rights of CELTRIX or TGF-B
Receptor Patent Rights Licensed from MIT:

          (a)  One percent (1%) on annual Net Sales.

     E.   With respect to commercial sales in an arm's length transaction to a
third party (not connected with GENZYME or CELTRIX, its Affiliates and/or
sublicensee(s)) of TGF-B2 Protein covered by a Valid Claim for laboratory
research and assay uses:

          (a)  Three percent (3%) on annual Net Sales.

3.2  Royalty payments in accordance with this Article shall be paid for a period
beginning with the First Commercial Sale of the applicable Licensed Product or
Licensed Method or commercial sale of TGF-B2 Protein pursuant to this agreement
and ending upon the later of (i) ten years thereafter, or (ii) expiration of the
last to expire patent within the Patent Rights or patent rights as set forth in
Section 1.18.  Royalty payments shall cease if this Agreement is terminated as
hereinafter specified and provided.

3.3  GENZYME will pay to CELTRIX the same royalties due to sales by sublicensees
of Licensed Products or Licensed Methods or TGF-B2 Protein that GENZYME would
have owed pursuant to Section 3.1 had it engaged in the same licensed conduct as
said sublicensees.

3.4  Only one royalty shall be payable per Licensed Product or use of Licensed
Method or use of TGF-B2 Protein, regardless of the number of patents or patent
applications under which, or the number of countries in which, such Licensed
Product or TGF-B2 Protein has been manufactured, used or sold, or the Licensed
Method has been used.  In those cases where a Licensed Product or TGF-B2 Protein
is sold as a part of an article that includes additional materials or
components, the production of which does not use the inventions, processes or
methods of the licensed Patent
<PAGE>

License Agreement
Page 11

Rights or rights as set forth in Section 1.18, the Net Sales shall be based on
the sales price at which GENZYME or its sublicensee(s) would sell the Licensed
Product or TGF-B2 Protein independently of such other materials or components in
an arm's length transaction.

3.5  GENZYME shall not be entitled to a reduction in royalty owing under this
Article due to royalties paid to any third party that is infringed by the
manufacture, use or sale of a Licensed Product or Licensed Method or TGF-B2
Protein, except that GENZYME shall have the right to deduct from the royalty
rates specified in 3.1 above with respect to sales of such Licensed Product or
use of such Licensed Method in such country, one percent (1%) of the royalty
rate used (after all rate reductions) when a non-infringing TGF-B antibody
product or non-infringing method of use of such antibody with respect to the
TGF-B Antibody Patent Rights is sold in such country in competition with a TGF-B
antibody product or method of use employing the TGF-B Antibody Patent Rights by
GENZYME.

3.6  GENZYME shall notify CELTRIX of the First Commercial Sale of a given
Licensed Product or Licensed Method, in writing, within thirty (30) days
thereafter.  GENZYME agrees that beginning with the date of the First Commercial
Sale of such Licensed Product or Licensed Method, and as relevant to commercial
sales of TGF-B2 Protein, CELTRIX shall receive within thirty (30) days after the
end of each of the first three calendar quarters and within sixty (60) days
after the calendar year end: (a) payment of earned royalties; and (b) a report
showing the information and basis on which the earned royalties have been
calculated.

3.7  GENZYME shall keep (or cause to be kept) and maintain complete and accurate
records of its sales of the Licensed Product(s), TGF-B2 Protein, and/or uses of
Licensed Method(s) in accordance with generally accepted accounting procedures.
Such records shall be accessible to an authorized representative selected and
paid for by CELTRIX and acceptable to GENZYME, not more than once a year at any
reasonable time during business hours within one (1) year after the end of the
royalty period to which such records relate, for the purpose of verifying Net
Sales and any royalty due thereon.  Such representative shall disclose to
CELTRIX only information
<PAGE>

License Agreement
Page 12

relating to the accuracy of the records kept and the payments made, and shall be
under a duty to keep confidential any other information gleaned from such
records. Any adjustment in the amount of royalties due CELTRIX on account of
overpayment or underpayment of royalties shall be made at the next date when
royalty payments are to be made to CELTRIX under Section 3.6 hereinabove. If the
verification on behalf of CELTRIX results in an upward adjustment of greater
than ten percent (10%) of royalties due to CELTRIX for the period of time in
question, GENZYME shall pay the out-of-pocket expenses of CELTRIX relating to
such verification and a five percent (5%) surcharge on amount of royalties
underpaid.

3.8  All moneys to be paid to CELTRIX shall be made and computed in United
States Dollars.

3.9  Earned royalties on Net Sales of Licensed Products employing TGF-B Antibody
Patent Rights, as described in Section 3.1.A herein and on Net Sales of TGF-B2
Protein shall be payable on all sales made after July 16, 1996 for materials
that, as of the effective date of this agreement, had not otherwise been
purchased or obtained from or manufactured on behalf of CELTRIX by GENZYME.

             ARTICLE IV - WARRANTIES, LIMITATIONS, AND REGULATIONS
             -----------------------------------------------------

4.1  CELTRIX represents and warrants that it owns the rights to the TGF-B2
Protein, as described in Section 1.18 (subject to those preexisting rights
granted to R&D Systems), that it owns the TGF-B Antibody Patent Rights, subject
to the preexisting non-exclusive license granted to Genentech, Inc., that it
owns the TGF-B Receptor Patent Rights of CELTRIX, that (i) to the best of its
knowledge, it holds an exclusive license to the TGF-B Receptor Patent Rights
Dcensed from MIT (subject to the preexisting non-exclusive license granted to
R&D Systems and to the outcome of the interference proceeding with Sloan
Kettering Institute for Cancer Research), and (ii) that all the aforementioned
rights and licenses continue in full force and effect.  CELTRIX
<PAGE>

License Agreement
Page 13

further represents and warrants that it has not made any commitments or offers
inconsistent or in derogation of the rights created by this Agreement.

4.2  Nothing herein contained shall be construed as:

     (a)  a warranty or representation by CELTRIX as to the validity or scope of
     any licensed Patent Rights;

     (b)  a warranty or representation that anything sold, used, produced or
     otherwise disposed of under any license granted in this Agreement is or
     will be free from infringement of patents, copyrights, and/or trademarks of
     third parties;

     (c)  an express or implied warranty of merchantability or fitness for a
     particular purpose; or

     (d)  an express or implied license to any of Celtrix' patents, trademarks,
     trade secrets, or other intellectual property not explicitly licensed
     herein.

4.3  CELTRIX shall not be obligated to defend or hold harmless GENZYME or any
other person against any suit, damage, claim, or demand based on actual or
alleged infringement of any patent or other rights owned by a third party, or
any unfair trade practice resulting from the exercise or use of any right or
license granted hereunder.

4.4  CELTRIX MAKES NO REPRESENTATIONS, EXTENDS NO WARRANTIES OF ANY KIND, EITHER
EXPRESSED OR IMPLIED, AND ASSUMES NO RESPONSIBILITIES WHATEVER WITH RESPECT TO
THE USE, SALE OR OTHER DISPOSITION BY GENZYME OF LICENSED PRODUCT(S) or LICENSED
METHOD(S).

4.5  GENZYME shall defend, indemnify and hold harmless CELTRIX, and its
trustees, directors, officers, employees and agents and their respective
successors, heirs and assigns (the
<PAGE>

License Agreement
Page 14

 "Indemnitees"), against any and all liability, damage, loss or expense
(including reasonable attorneys' fees and expenses of litigation)(together,
"losses") that may be incurred by or imposed upon the Indemnitees, or any of
them, in connection with any claim, suit, demand, action or judgment arising out
of the following:

     (a)  the design, production, manufacture, testing, sale, use in commerce,
          lease or promotion by GENZYME or by an Affiliate (other than CELTRIX)
          or sublicensee of GENZYME of any product, process or service that
          employs the licensed Patent Rights pursuant to this Agreement,
          including without limitation the licensing, sale or other distribution
          of Licensed Product(s) and/or use of Licensed Method(s) including,
          without limitation, any actual or alleged bodily injury, death or
          property damage as a result of any of the foregoing; or

     (b)  any other activities of GENZYME or by an Affiliate or sublicensee(s)
          to be carried out employing the Patent Rights pursuant to this
          Agreement.

GENZYME's indemnity under this Section shall not apply to any liability, damage,
loss or expense that is attributable to the gross negligent activities or
willful misconduct of the Indemnitees.  GENZYME agrees to require its
sublicensee(s) to provide identical indemnification protection, as is set forth
in this Section, to CELTRIX, and to the extent such indemnification is not
identical, GENZYME shall provide identical indemnification for any losses
attributable to its licensees.

4.6  GENZYME agrees to comply, and to require its Affiliates and sublicensee(s)
to comply, with all applicable laws, regulations, and safety standards relative
to the manufacture, use or sale of Licensed Product(s) and Licensed Method(s)
and TGF-B2 Protein.

4.7  In the event CELTRIX intends to claim indemnification under this Article
IV, CELTRIX shall promptly notify GENZYME of any claim, in respect of which
CELTRIX intends to claim
<PAGE>

License Agreement
Page 15

such indemnification, and GENZYME shall assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that CELTRIX shall have
the right to retain its own counsel, at GENZYME's expense, provided such expense
is reasonable, if representation of CELTRIX by the counsel retained by GENZYME
would be inappropriate to actual or potential differing interests between
CELTRIX and any other party represented by such counsel in such proceedings. The
indemnity agreement in this Article IV shall not apply to amounts paid in
settlement of any loss, claim, liability or action if such settlement is
effected without the consent of GENZYME, which consent shall not be withheld
unreasonably. The failure to deliver notice to GENZYME within a reasonable time
after the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve GENZYME of any liability to CELTRIX under this
Article IV, but not any liability that it may have to CELTRIX other than under
this Article IV. CELTRIX and its employees and agents shall cooperate fully with
GENZYME and its legal representatives in the investigation of any action, claim
or liability covered by this indemnification.

                     ARTICLE V - PATENT RIGHTS MAINTENANCE
                     -------------------------------------

5.1  CELTRIX will file, prosecute and maintain the Patent Rights, and its
licenses to Patent Rights, as applicable to the Patent Rights as enumerated
herein, and the rights covering the TGF-B2 Protein as described in Section 1.18,
at its sole discretion, and shall bear all costs associated therewith, subject
to Section 2.3.  Celtrix shall furnish Genzyme with copies of any patent
application concerning Patent Rights and such TGF-B2 Protein rights as described
in Section 1.18, sufficiently in advance of the anticipated filing date so as to
give GENZYME a reasonable opportunity to review and comment.  CELTRIX shall also
furnish copies to GENZYME of all substantive communications to and from the
United States and foreign patent offices regarding patents or patent
applications relating to this Agreement within a reasonable time prior to filing
such communication or promptly following the receipt thereof.  CELTRIX shall
reasonably consider any comments GENZYME may have related to such patent
applications or communications.  In the event CELTRIX decides to no longer
maintain all or a portion of its
<PAGE>

License Agreement
Page 16

license rights to the Patent Rights, or to maintain the Patent Rights, or the
TGF-B2 Protein rights as described in Section 1.18, including failure to pay any
annuity, tax or other maintenance fee with respect to a patent or patent
application owned by or licensed to CELTRIX, GENZYME shall be given timely
notice and opportunity to make such payment and to assume ownership or license
rights to such patent or patent application.

                       ARTICLE VI - PATENT INFRINGEMENT
                       --------------------------------

6.1  In the event that any of GENZYME, its Affiliates or sublicensee(s) learns
of the infringement of a third party of any patent licensed under this
Agreement, GENZYME shall promptly advise CELTRIX in writing and shall provide
CELTRIX with reasonable evidence of such infringement.  In such circumstances,
GENZYME shall have at all times the right to immediately cease commercialization
and the right either to:

     (a)  Request that CELTRIX itself (if owner of the patent rights) undertake
     reasonable efforts, or that CELTRIX notify the owner of the Patent Rights
     and request that such owner use reasonable efforts, to end such
     infringement; or

     (b)  Request whether the owner of the Patent Rights will defend such suit
     or action at its expense, or whether CELTRIX will defend such suit or
     action on behalf of the owner of the Patent Rights, if such owner notifies
     CELTRIX of its intent not to or fails to take action against such third
     party within ninety (90) days of receipt of such notice, provided GENZYME
     shall be entitled but not obligated to undertake, at its own expense, and
     control the defense of such suit or action (including control of and
     entitlement to retain any settlement or damage award received) in its own
     name and/or in CELTRIX's name, and CELTRIX shall reasonably cooperate with
     GENZYME in such defense, if neither the owner of the Patent Rights nor
     CELTRIX undertake to defend such suit or action; or
<PAGE>

License Agreement
Page 17

     (c)  Terminate this Agreement, but only after GENZYME has reasonably
     exhausted its remedies under (a) and (b) above.

6.2  CELTRIX is neither obligated to enter into negotiations with a third party
to obtain rights for GENZYME under the third party patent nor obligated to
defend any suit or action.  If CELTRIX, at its sole discretion, elects to enter
into negotiations with such third party to obtain rights for GENZYME under the
third party patent, or if CELTRIX, at its sole discretion, elects to undertake
at its own expense the defense of any such suit or action to the extent that the
alleged infringement is based on such use hereunder of the Patent Rights,
GENZYME shall render CELTRIX all reasonable assistance that may be required by
CELTRIX in the negotiations or in the defense of such suit or action.  CELTRIX
has the primary right to control the defense of any such suit or action by
counsel of its choice, and GENZYME shall have the right, at its own expense, to
be represented in any such suit or action in respect of which GENZYME is a
defendant by counsel of its own choice.  The parties agree to cooperate
reasonably in any such defense.

                      ARTICLE VII - TERM AND TERMINATION
                      ----------------------------------

7.1  The term of this Agreement shall be for a period beginning with the
Effective Date and ending upon the later of (i) ten (10) years after the First
Commercial Sale of the last Licensed Product or Licensed Method to achieve a
first Commercial Sale or (ii) expiration of the last to expire patent within the
Patent Rights or patent rights as set forth in Section 1.18, unless sooner
terminated as herein provided.  It is understood and acknowledged that any of
the license rights granted in each of the Sections of Article II with respect to
the Patent Rights and Know How may be terminated independently of the other
Sections, and that the license rights granted with respect to the remaining non-
terminated Sections shall continue in full force and effect for the term defined
in this Section 7.1 or until earlier terminated in accordance with this Article.

7.2  If GENZYME shall determine that it intends to declare itself insolvent or
file for bankruptcy or reorganization it shall give ten (10) days written notice
to CELTRIX.
<PAGE>

License Agreement
Page 18

Notwithstanding the above, if GENZYME shall become bankrupt or insolvent, if the
business or any assets or property of GENZYME shall be placed in the hands of a
receiver, assignee or trustee, whether by the voluntary act of GENZYME or
otherwise, if GENZYME institutes or suffers to be instituted any procedure in
bankruptcy court for reorganization or rearrangement of its financial affairs;
or if GENZYME makes a general assignment for the benefit of creditors, this
license and sublicense shall immediately terminate unless such bankruptcy,
insolvency, receivership or assignment for the benefit of creditors shall have
been cured within thirty (30) days of such event occurring. Upon occurrence of
any foregoing events, GENZYME shall give immediate written notice thereof to
CELTRIX.

7.3  Upon any breach or default under this Agreement by GENZYME, CELTRIX may
give written notice thereof to GENZYME, and GENZYME shall have sixty (60) days
thereafter to cure such breach or default.  If such breach or default is not so
cured, CELTRIX may then in its sole discretion and option (i) terminate this
Agreement and the licenses granted by it, and/or (ii) seek such other relief as
may be provided by law in such circumstances by giving written notice thereof to
GENZYME.

7.4  Upon termination of this Agreement for any cause, nothing herein shall be
construed to release either party of any obligation matured prior to the
effective date of such termination, including payments of accrued royalties, and
GENZYME and, as applicable, its Affiliates and/or sublicensee(s), may after the
effective date of such termination sell all Licensed Product(s) that it may have
on hand at the date of termination provided that it pays earned royalties
therein as provided in this Agreement.  Upon termination hereof for any reason,
all license rights to Patent Rights shall immediately terminate.  The provisions
of Sections 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 8.1, and Articles X and XI shall
survive any termination of this Agreement.

7.5  Upon ninety (90) days written notice, GENZYME shall have the right to
terminate this Agreement.  Under such termination, GENZYME shall owe to CELTRIX
any third party obligation costs that have become due up to the date of
termination including, without limitation, such third party obligations relating
to the MIT license.
<PAGE>

License Agreement
Page 19

                             ARTICLE VIII - NOTICE
                             ---------------------

8.1  Any notice or communication authorized or required to be given hereunder
shall be in writing and be served by depositing the same in the United States
mail, postage prepaid, addressed to the parties, respectively, at the following
addresses:

To Celtrix Pharmaceuticals, Inc.:

     3055 Patrick Henry Drive
     Santa Clara, CA 95054-1815
     ATTN: President

To Genzyme Corporation:

     One Kendall Square
     Cambridge, MA 02139
     ATTN: General Counsel

                          ARTICLE IX - FORCE MAJEURE
                          --------------------------

9.1  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 obligation hereunder shall resume.

             ARTICLE X - NONDISCLOSURE OF CONFIDENTIAL INFORMATION
             -----------------------------------------------------
<PAGE>

License Agreement
Page 20

10.1  All confidential scientific and technical information communicated by one
party to the other party under this Agreement, including information contained
in patent applications, shall be kept confidential by such other party.  All
obligations of confidentiality hereunder shall be equally applicable to the
Affiliates and any sublicensee(s) of GENZYME.  Notwithstanding the foregoing,
either party shall be relieved of the confidentiality obligations herein and not
be prevented by this Agreement from utilizing any such information if:

     (a)  The information was previously known to such party as may be
          demonstrated by its prior written records;

     (b)  The information is or becomes generally available to the public
          through no fault of the receiving party, including as a result of
          publications and/or laying open to inspection of any patent
          applications that may be filed other than by such receiving party
          corresponding to such U.S. or foreign patent applications;

     (c)  The information is acquired in good faith in the future by such party
          from a third party who is not under an obligation of confidence to the
          disclosing party in respect to such information;

     (d)  The disclosure of such information by GENZYME is essential for the
          commercialization by GENZYME of the Patent Rights under this
          Agreement, provided prior notice is given and consent is obtained from
          CELTRIX to such disclosure, said consent not to be unreasonably
          withheld; and

     (e)  The information (which is not confidential information of GENZYME) is
          outside the Field.

10.2  The obligations of confidentiality under this Article shall survive
termination of this Agreement for a period of five (5) years, regardless of the
reason for its termination.
<PAGE>

License Agreement
Page 21

                           ARTICLE XI- MISCELLANEOUS
                           -------------------------

11.1  This Agreement, in whole or part, shall not be assignable by GENZYME
without the written consent of CELTRIX which consent shall not be unreasonably
withheld; provided, however, that GENZYME, without such consent, may assign or
sell the same in connection with the transfer or sale of all of substantially
all of its business or in the event of its merger, consolidation, or joint
venture with another company.  Each assignee shall assume all obligations of its
assignor under this Agreement.  No assignment shall relieve GENZYME of
responsibility for the performance of any accrued obligations which such party
then has hereunder.  CELTRIX may assign this Agreement at any time upon written
notice to GENZYME prior to such assignment.  Subject to the foregoing, this
Agreement shall inure to the benefit of and be binding upon GENZYME, CELTRIX,
and their respective successors and assigns.

11.2  This Agreement embodies the entire understanding between the parties and
may not be varied except by a document in writing signed by an officer of
GENZYME and an officer of CELTRIX.

11.3  This Agreement shall be construed, governed, interpreted, and applied in
accordance with the laws of the Commonwealth of Massachusetts, without regard to
its conflict of laws provisions, except that questions affecting the validity,
construction, and effect of any patent shall be determined by the laws of the
country in which the patents were granted.

11.4  The provisions of this Agreement are severable, and in the event that any
of the provisions of this Agreement are determined to be invalid or
unenforceable under any controlling body of law, such invalidity or
unenforceability shall not in any way affect the validity or enforceability of
the remaining provisions hereof, provided the remaining provisions conform with
the spirit and purposes of this Agreement.

11.5  GENZYME shall mark, or shall require its Affiliate and/or sublicensee(s)to
mark, the Licensed Product(s) sold in the United States with all applicable
patent numbers, and to indicate
<PAGE>

License Agreement
Page 22

to users, as appropriate, the patent numbers for relevant Licensed Method(s).
All Licensed Product(s) shipped and/or sold in other countries shall be marked
in such a manner as to conform with all of the laws of the country where the
Licensed Product(s) are shipped to and/or sold.

11.6  The captions herein are for convenience only and shall not be deemed to
limit or otherwise affect the construction hereof.

11.7  The failure of either party to enforce at any time the provisions of this
Agreement, or any rights in respect thereto, or to exercise any election herein
provided, shall in no way be considered to be a waiver of such provisions,
rights, or elections, or in any way to affect the validity of this Agreement.
The exercise by either party of any of its rights herein or any of its elections
under the terms or covenants herein shall not preclude either party from
exercising the same or any other rights it may have under this Agreement,
irrespective of any previous action or proceeding taken by either party
hereunder.

11.8  All disputes under this Agreement shall be settled, if possible, through
good faith negotiations between the parties and ultimately presented to the
parties' Chief Executive Officers for resolution.  In the event such good faith
negotiations are unsuccessful, either party may, after thirty (30) days written
notice to the other, submit the matter in dispute to the American Arbitration
Association ("AAA") to be settled by arbitration before a single arbitrator
appointed by the AAA in Boston, Massachusetts, if CELTRIX is the initiating
party, and in Santa Clara, California, if GENZYME is the initiating party, in
accordance with the commercial arbitration rules of the AAA.  The arbitrator
shall have authority to grant specific performance and to allocate between the
parties the costs of arbitration in such equitable manner as the arbitrator may
determine.  Upon reasonable notice and prior to any hearing, the parties will
allow document discovery and will disclose all material relevant to the subject
matter of the dispute within sixty (60) days following appointment of the
arbitrator.  The arbitrator shall make final determinations as to any discovery
disputes.  A hearing on the matter in dispute shall commence within ninety (90)
days following appointment of the arbitrator and the decision of the arbitrator
shall be rendered no later than sixty (60) days after commencement of such
hearing.  The determination
<PAGE>

License Agreement
Page 23

of the arbitrator shall be conclusive and binding upon the parties and judgment
may be entered thereon and enforced by any court of competent jurisdiction, and
each party hereby irrevocably consents to the jurisdiction of such courts for
such purpose.

     IN WITNESS WHEREOF, the parties hereto hereunder set their hands and seals
and duly executed this License Agreement the day and year first written above.

CELTRIX PHARMACEUTICALS, INC.           GENZYME CORPORATION

By:  /s/ Andreas Sommer                 By:  /s/  Richard Douglas
     ------------------------               --------------------------------

Title: President and CEO                Title:  V.P. Corporate Development
       ----------------------                  -----------------------------

Date:  12/31/97                         Date:  12/18/97
       ----------------------                  -----------------------------

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00001-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00001-of-00352.parquet"}]]