Document:

<PAGE>

                                                                   Exhibit 10.60
May 9,2001

Mr. Robert J. Hennessey
4 Lauricella Lane
Waltham, Massachusetts 02452

Dear Robert:

        This letter will confirm our offer to you of employment with Genome
Therapeutics Corp. (the "Company"), under the terms and conditions that follow:

        1.     Position and Duties.  Effective May 1, 2001, you will be employed
by the Company as its Chairman of the Board. You will have all powers and
duties consistent with such position, including working with the Chief
Executive Officer of the Company (the "Chief Executive Officer") and other
employees of the Company on business development projects. You will devote
twenty-five percent (25%) of your business time and best reasonable efforts to
fulfill faithfully, responsibly and to the best of your ability your duties
hereunder.  During your employment with the Company, the Chief Executive
Officer shall semi-annually review with you your time commitment to the Company
to determine whether or not it should be adjusted. Following such review, if
the Chief Executive Officer and you mutually agree that your time commitment
should be changed, then the Chief Executive Officer and you shall jointly make
a recommendation to the Compensation Committee of the Company's Board of
Directors (the "Board") to effect such change. You may devote your business
time, outside of your time commitment to the Company pursuant to this Paragraph
1, to any entity or purpose that you chose, provided, that, you observe your
obligations to the Company regarding confidentiality and non-competition set
forth in Paragraph 3 hereof. You warrant that you are free to enter into and
fully perform this agreement and are not subject to any employment,
confidentiality, non-competition or other agreement which conflicts with this
agreement.

        2.     Compensation and Benefits.  During your employment, as
compensation for all services performed by you for the Company and its
subsidiaries, the Company will provide you the following pay and benefits:

               a.     Base Salary.  The Company will pay you a base salary at
the rate of One Hundred and Forty Thousand Dollars ($140,000) per year, payable
in accordance with the regular payroll practices of the Company (such base
salary as adjusted from time to time in accordance with the provisions of this
paragraph 2(a), the "Base Salary"). The Chief Executive Officer shall
semi-annually review with you your Base Salary to determine whether or not the
same should be increased or decreased in light of your duties and
responsibilities. Following such review, if the Chief Executive Officer and you
mutually agree that your base salary hereunder should be changed, then the Chief

<PAGE>

Executive Officer and you shall jointly make a recommendation to the
Compensation Committee of the Board to effect such change.

               b.     Expenses.  The Company will reimburse you, upon proper
accounting, for reasonable business expenses, including travel expenses, which
you incur in the course of performing your duties under this agreement.

               c.     Prior Option Grants.  The Company acknowledges that on
February 16, 1996 the Board awarded to you stock options covering an aggregate
of 300,000 shares of the Company's common stock at an exercise price of $8.87
per share (the "1996 Options") and that on March 15, 1993 the Board awarded to
you stock options covering an aggregate of 1,600,000 shares of the Company's
common stock, 630,000 of which remain unexercised, at an exercise price of
$1.625 per share (the "1993 Options" and together with the 1996 Options, the
"Options"). All of the unexercised Options are fully vested. In the event that
the Company terminates your employment for Cause (as defined in Paragraph 4
below, which definition shall not include any termination of your employment
related to your pursuit of another opportunity that is not in violation of your
obligations to the Company under Paragraph 3 hereof), you (or your estate or
permitted transferees) shall have three months from the date of termination to
exercise all or any portion of the unexercised Options. In the event that your
employment with the Company terminates for any other reason, then you (or your
estate or permitted transferees) may exercise all or any portion of the
unexercised Options at any time prior to the tenth (10th) anniversary of the
respective grant dates of such Options. At your option, all or any portion of
the exercise price of any Option may be paid by surrendering Options for
cancellation in which event you will receive credit against the exercise price
of Options to be exercised in the amount of the difference between the exercise
price of the Option so surrendered and the per share closing price of the
shares subject to the surrendered Options on the Nasdaq National Market (or
other primary exchange on which such shares are traded).

               d.     Participation in Employee Benefit Plans.  You will be
entitled to participate in all employee benefit plans from time to time in
effect on the same basis as other executive employees of the Company, except to
the extent such plans are duplicative of benefits otherwise provided to you
under this agreement. Your participation will be subject to the terms of the
applicable plan documents and applicable Company policies.

        3.     Confidential Information and Restricted Activities.  In order to
induce the Company to enter into this agreement, you hereby agree as follows:

               a.     Confidentiality.  Except for and on behalf of the Company
with the consent of or as directed by the Board, you shall keep confidential
and shall not divulge to any other person or entity, during the term of
employment or thereafter, any of the business

                                      -2-

<PAGE>

secrets or other confidential information regarding the Company and its
subsidiaries which have not otherwise become public knowledge, provided,
however, that nothing in this agreement shall preclude you from disclosing
information (i) to parties retained to perform services for the Company or its
subsidiaries, (ii) under any other circumstances to the extent such disclosure
is, in your reasonable judgment, appropriate or necessary to further the best
interests of the Company or its subsidiaries, or (iii) as may be required by
law.

               b.     Records.  All papers, books and records of every kind and
description relating to the business and affairs of the Company and its
subsidiaries, whether or not prepared by you, other than personal notes and
files prepared by or at your direction, shall be the sole and exclusive
property of the Company, and you shall, at the expense of the Company,
surrender them to the Company at any time upon request by the Board.

               c.     Non-competition.  You agree that (a) during the term of
your employment hereunder, (b) for a period of twelve (12) months following the
date of your termination in the event that you are discharged other than for
Cause (as defined in Paragraph 4(d)) or you resign with Good Reason (as defined
in Paragraph 4(e)), (c) for a period of three (3) months following the date of
your termination in the event that you are discharged for Cause, and (d) for a
period of twelve (12) months following the date of your termination in the
event that you resign without Good Reason, you will not, directly or
indirectly, (a) own, manage, operate, control or participate in any manner in
the ownership, management, operation or control of, or be connected as an
officer, employee, partner, director, principal, consultant, agent or otherwise
with, or have any financial interest in, or aid or assist anyone else in the
conduct of, any business, venture or activity which competes, directly or
indirectly, with, any business, venture or activity being conducted on the date
of your termination by the Company, or by any group, division or subsidiary of
the Company or (b) recruit or otherwise seek to induce any employees of the
Company or any of its subsidiaries to terminate their employment or violate any
agreement with or duty to the Company or any of its subsidiaries. It is
understood and agreed that, for the purposes of the foregoing provisions of
this Paragraph 3(c), (i) no business, venture or activity shall be deemed to be
a business, venture or activity conducted by the Company or any group, division
or subsidiary of the Company, unless not less than 20% of the Company's
consolidated assets are devoted to, such business, venture or activity; and
(ii) no business, venture or activity conducted by any entity by which you are
employed or in which you are interested or with which you are connected or
associated shall be deemed competitive with any business, venture or activity
conducted by the Company unless it is one to which 20% or more of its
consolidated assets are devoted.  Furthermore, ownership of stock not to exceed
2% of the voting stock of any publicly held corporation shall not, of itself,
constitute a violation of this Paragraph 3(c).

                                      -3-

<PAGE>

        4.     Termination of Employment; Severance. Your employment under this
agreement shall continue until one party delivers to the other party a written
notice of termination setting forth the reason, if any, for the termination. If
you terminate your employment without Good Reason, you will give the Company
two month's written notice.

               a.     In the event of termination of your employment by the
Company other than for Cause or your termination of employment for Good Reason,
the Company will: (i) continue to pay you your Base Salary and provide you with
the benefits set forth in Paragraph 2(d) hereof for the lesser of (x) a period
of twelve (12) months from the date of termination or (y) such period of time
that it takes you to find employment or consulting work that generates
comparable income; (ii) pay you on the date of termination any Base Salary
earned but not paid through the date of termination; and (iii) pay you any
bonus to which you are entitled in accordance with Paragraph 2(b) above,
prorated to the date of termination and payable at the time such bonuses are
payable to Company executives generally. All severance payments will be payable
in accordance with the normal payroll practices of the Company.

               b.     In the event of termination of your employment by the
Company for Cause or termination by you other than for Good Reason, the Company
will have no further obligations to you other than paying you any Base Salary
earned but not paid through the date of termination.

               c.     If within two years of a Change of Control (as defined in
Exhibit A hereto) of the Company, (i) you are terminated other than for Cause,
or (ii) you terminate your employment with the surviving company due to the
fact that the surviving company takes any action that results in a material
diminution in your position, authority or duties as such position, authority or
duties existed immediately prior to the Change of Control (provided, that
failure to maintain your position as chairman of the board or a director of the
surviving company will not constitute such a material diminution), then, in the
case of either (i) or (ii), the Company will continue to pay your Base Salary
(as in effect at the time of your termination) and provide you with the
benefits set forth in Paragraph 2(d) above for a period of eighteen (18) months
from the date of termination. The Company will also pay you on the date of
termination any Base Salary earned but not paid through the date of
termination. All severance payments will be payable in accordance with the
normal payroll practices of the Company. If you are eligible for severance
payments under this Paragraph 4(c) upon termination, then the provisions of
Paragraph 4(a) above shall not apply to such termination.

               d.     For purposes of this agreement, "Cause" shall mean: (i)
your material failure to perform (other than by reason of disability), or
material negligence in the performance of, your duties and responsibilities to
the Company or any of its

                                      -4-

<PAGE>

subsidiaries; (ii) your material breach of this agreement or any other
agreement between you and the Company or any of its subsidiaries; (iii) the
commission of a felony or other crime involving an act of moral turpitude; or
(iv) a material act of dishonesty or breach of trust on your part resulting or
intended to result, directly or indirectly, in a personal gain or enrichment at
the expense of the Company.

               e.     For purposes of this agreement, "Good Reason" shall mean:
(i) any action by the Company that results in a material diminution in your
position, authority or duties with the Company, excluding any isolated,
insubstantial or inadvertent action not taken in bad faith and which is
promptly remedied by the Company; (ii) material failure of the Company to
provide you compensation and benefits in accordance with the terms of Paragraph
2, above, for more than ten business days after notice from you specifying in
reasonable detail the nature of the failure or (iii) a Change of Control.

               f.     This agreement shall automatically terminate in the event
of your death during employment.  In the event you become disabled during
employment and, as a result, are unable, in the reasonable judgment of the
Board, to continue to perform substantially all of your duties and
responsibilities under this agreement, the Company will continue to pay you
your Base Salary and to provide you benefits in accordance with Paragraph 2(d)
above, to the extent permitted by plan terms, for up to twenty-four (24) weeks
of disability during any period of three hundred and sixty-five (365)
consecutive calendar days.  The obligations of the Company to make payments to
you due to disability pursuant to this Paragraph 4(f) shall be reduced by the
amount of any payments you receive pursuant to the Company's disability
insurance policy.  If you are, in the reasonable judgment of the Board, unable
to return to work after twenty-four (24) weeks of disability, the Company may
terminate your employment, upon notice to you.

        5.     Miscellaneous. This agreement sets forth the entire agreement
between you and the Company and replaces all prior and contemporaneous
communications, agreements and understandings, written or oral, with respect to
the terms and conditions of your employment; provided, that the terms and
provisions regarding the grant to you of the Options set forth in Section 6(a)
of your Employment Agreement with the Company dated March 15, 1996, solely to
the extent not inconsistent with the terms of this agreement, shall remain in
full force and effect (other than such provisions regarding registration
rights, which shall cease to be in effect). This agreement may not be modified
or amended, and no breach shall be deemed to be waived, unless agreed to in
writing by you and an expressly authorized representative of the Board. This
agreement may be executed in two or more counterparts, each of which shall be
an original and all of which together shall constitute one and the same
instrument. This is a Massachusetts contract and shall be governed and
construed in accordance with the laws of the Commonwealth of Massachusetts,
without regard to the conflict of laws principles thereof. All payments made
hereunder shall be net of any tax or other amount required to be withheld by the

                                      -5-

<PAGE>

Company by law. Neither you nor the Company may make any assignment of this
agreement or any interest in it, by operation of law or otherwise, without the
prior written consent of the other; provided, however, that the Company may
assign its rights and obligations under this agreement without your consent to
one of its subsidiaries or to any Person that acquires substantially all the
assets of the Company, by means of a merger or otherwise.  Your obligations to
the Company under Paragraph 3 hereof (Confidential Information and Restricted
Activities) shall survive any termination of this agreement.

        6.     Notices. Any notices provided for in this agreement shall be in
writing and shall be effective when delivered in person or deposited in the
United States mail, postage prepaid, and addressed to you at your last known
address on the books of the Company or, in the case of the Company, to it at
its principal place of business, attention of the Chief Executive Officer, or
to such other address as either party may specify by notice to the other
actually received.

        7.     Binding Effect. This agreement shall be binding upon and inure to
the benefit of your heirs and representatives and the successors and assigns of
the Company. The Company shall require any successor (whether direct or
indirect, by purchase, merger, reorganization, consolidation, acquisition of
property or stock, liquidation, or otherwise) to all or a significant portion
of its assets, by agreement in form and substance satisfactory to you,
expressly to assume and agree to perform this agreement in the same manner and
to the same extent that the Company would be required to perform this agreement
if no such succession had taken place. Regardless of whether such agreement is
executed, this agreement shall be binding upon any successor of the Company in
accordance with the operation of law and such successor shall be deemed the
"Company" for purposes of this agreement.

        If the foregoing is acceptable to you, please sign this letter in the
space provided and return it to me no later than May 23, 2001. At the time you
sign and return it this letter will take effect as a binding agreement between
you and the Company on the basis set forth above. The enclosed copy is for your
records.

Sincerely yours,                            Accepted and Agreed:

Steven M. Rauscher                          ______________________________
Chief Executive Officer                     Robert J. Hennessey

                                            Date:_________________________

Norbert Riedel, Ph.D.
Chairman of the Compensation Committee

                                      -6-

<PAGE>

                                                                       EXHIBIT A

        A "Change of Control" shall be deemed to have occurred if and when: (i)
the Company executes an agreement of acquisition, merger, or consolidation
which contemplates that after the effective date provided for in the agreement,
all or substantially all of the business and/or assets of the Company shall be
controlled by another corporation or other entity; PROVIDED, HOWEVER, for
purposes of this clause (i) that (A) if such an agreement requires as a
condition precedent approval by the Company's shareholders of the agreement or
transaction, a Change of Control shall not be deemed to have taken place unless
and until such approval is secured and, (B) if immediately after such effective
date the voting shareholders of such other corporation or entity shall be
substantially the same as the voting shareholders of the Company immediately
prior to such effective date, the execution of such agreement shall not, by
itself, constitute a "Change of Control;" (ii) any "person" (as such term is
used in Sections 13(d) or 14(d)(2) of the Securities Exchange Act of 1934)
becomes the beneficial owner, directly or indirectly, of securities of the
Company that represent 35% or more of the votes that could then be cast in an
election for members of the Company's Board; or (iii) during any period of 24
consecutive months, commencing after the effective date of this agreement,
individuals who at the beginning of such 24-month period were directors of the
Company shall cease to constitute at least a majority of the Company's Board,
unless the election of each director who was not a director at the beginning of
such period has been approved in advance by directors representing at least two
thirds of (A) the directors then in office who were directors at the beginning
of the 24-month period, or (B) the directors specified in clause (A) plus
directors whose election has been so approved by directors specified in clause
(A).<PAGE>

                                                                   EXHIBIT 10.61
                           BIOSEARCH ITALIA, S.P.A.
                                   AND
                      GENOME THERAPEUTICS CORPORATION

                          LICENSE AND SUPPLY AGREEMENT

         THIS LICENSE AND SUPPLY AGREEMENT (the "Agreement") is made effective
as of the __th day of October, 2001 (the "Effective Date") by and between GENOME
THERAPEUTICS CORPORATION a Massachussetts corporation having its principal place
of business at 100 Beaver Street, Waltham, MA 02453, USA ("GENE") and BIOSEARCH
ITALIA, S.p.A. an Italian corporation with its principal place of business at
via R. Lepetit, 34, 21040 Gerenzano, Italy ("Biosearch"). GENE and Biosearch are
sometimes referred to herein individually as a "Party"and collectively as the
"Parties."

                                   RECITALS

         A. Biosearch is a pharmaceutical company interested in the
identification and development of naturally produced compounds for the treatment
of infectious diseases, and the commercialization of products based upon such
compounds.

         B. Biosearch discovered and is developing a proprietary compound,
Ramoplanin, and is currently conducting clinical trials in the U.S. of an oral
formulation of Ramoplanin for the prevention of infectious diseases in patients
carrying Vancomycin-resistant Enterococci ("VRE") and at risk of infection
following chemotherapy or transplantation, with a view to registering a new
pharmaceutical product for worldwide marketing under its trademark(s) and trade
name(s).

         C. On May 8, 1998 Biosearch had entered into an agreement with
IntraBiotics  Pharmaceuticals,  Inc., to permit the latter to develop and
commercialize in the United States and Canada, formulations other than
parenteral formulations of Ramoplanin.

         D. Following a decision by IntraBiotics to discontinue the development
activities of Licensed Products (as defined herein), an amendment to the
agreement mentioned under C. above was entered into, effective June 1, 2001,
whereby Biosearch agreed to reacquire from IntraBiotics all rights in and to
licensed Ramoplanin formulations (other than, for a given period, *****), after
a Transition Period ending August 31, 2001. From this date until the Effective
Date, Biosearch has assumed responsibility for the development of Licensed
Products within the Territory.

         E. IntraBiotics subsequently gave notice of termination of the
agreements it had entered into with Clinical Research Organizations (CROs) and
Vendors engaged in the clinical trial activity and transferred to Biosearch the
IND application for Ramoplanin, effective July 22, 2001.

         F. Pursuant to the above mentioned amendment, all rights in and to the
***** of Ramoplanin shall revert to Biosearch effective April 1, 2002 if
IntraBiotics does not commence clinical development activity with respect to at
least one ***** topical product by March 31, 2002.

         G. GENE is a biotechnology company interested in the development of
products useful for the treatment of infectious diseases or conditions, and is
interested in completing the development activities mentioned above

---------------------------
* Confidential Treatment has been requested for the marked portions.

Page 1

<PAGE>

and commercializing oral formulations of Ramoplanin for the treatment or
prevention of infectious diseases and conditions in the United States and
Canada (including the territories and possessions of each such country).

                                  ARTICLE 1

                                 DEFINITIONS

The following terms shall have the following meanings as used in this Agreement:

         1.1 "Affiliate" means an entity that, directly or indirectly, through
one or more intermediaries, controls, is controlled by or is under common
control with Biosearch or GENE.

         1.2 "Biosearch Know-how" means Information which (i) Biosearch is
required to disclose to GENE under this Agreement and (ii) is within the Control
of Biosearch. Notwithstanding anything herein to the contrary, Biosearch
Know-how shall exclude Biosearch Patents.

         1.3 "Biosearch Patent" means a Patent which covers, or is used or
useful in, the manufacture of Bulk Licensed Compound or the discovery,
evaluation, manufacture, use, sale, offer for sale and/or importation of
Licensed Products within the Field, which Patent is owned or Controlled by
Biosearch, including, without limitation, Biosearch's interest in any Joint
Patents.

         1.4    "Bulk Licensed Compound" means the bulk form of the Licensed
Compound meeting the Specifications and used to manufacture Licensed Products
under this Agreement.

         1.5  "Clinical Materials" shall mean supplies of Licensed Product as
well as supplies of placebo, packaged and labelled and in compliance with
regulatory requirements for purposes of completing clinical trials as part of
Development of the Licensed Product in the Territory.

         1.6  "Commercialization" shall mean *****.

         1.7  "Convertible Note" means a convertible promissory note issued by
GENE in the form attached hereto as Exhibit I.

         1.8  "Control" means possession of the ability to grant a license or
sublicense as provided for herein without violating the terms of any agreement
or other arrangement with any Third Party.

         1.9 "Cost of Goods Sold" means the ***** .

         1.10 "Development" means all activities relating to obtaining
Regulatory Approval of a Licensed Product, Licensed Product delivery systems and
new indications thereof and all activities relating to developing the ability to
manufacture the same.

         1.11 "Drug Approval Application" means an application for Regulatory
Approval required before commercial sale or use of a Licensed Product as a drug
in a regulatory jurisdiction.

         1.12 "Excluded Formulations" means, *****.

         1.13  "Field" means the ***** .

---------------------------
* Confidential Treatment has been requested for the marked portions.

Page 2

<PAGE>

         1.14 "GENE Know-how" means Information which (i) GENE is required to
disclose to Biosearch under this Agreement and (ii) is within the Control of
GENE. Notwithstanding anything herein to the contrary, GENE Know-how shall
exclude GENE Patents.

         1.15 "GENE Patent" means a Patent which covers the manufacture, use,
sale, offer for sale and/or import of Licensed Products within the Field, which
Patent is owned or Controlled by GENE.

         1.16 "IND" (or "InvestigationaI New Drug Application") means an
application as defined in the United States Food, Drug and Cosmetic Act and
applicable regulations promulgated thereunder to the United States Food and Drug
Administration (the "FDA"), or the equivalent application to the equivalent
agency in jurisdictions outside the United States, the filing of which is
necessary to commence clinical testing of Licensed Products in humans.

         1.17 "Information " means (i) techniques and data within the Field
relating to Bulk Licensed Compound or Licensed Products, including inventions,
practices, methods, knowledge, know-how, skill, experience, test data including
pharmacological, toxicological and clinical test data, analytical. and quality
control data or descriptions and (ii) compounds, compositions of matter, assays
and biological materials within the Field.

         1.18   "Joint Patent" shall have the meaning set forth in Section 10.3.

         1.19  "Know-how" means Biosearch Know-how and/or GENE Know-how.

         1.20  "Licensed Compound" means the compound known as Ramoplanin, as
described in IND No. 56341.

         1.21 "Licensed Product" means any product including or incorporating
any formulation of the Licensed Compound, other than Excluded Formulations.

         1.22 "NDA" means an application as defined in the United States Food,
Drug and Cosmetic Act and applicable regulations promulgated thereunder to the
FDA, or the equivalent application to the equivalent agency in jurisdictions
outside the United States, the filing of which is necessary to commence the
commercial sale of Licensed Products.

         1.23 "Net Sales" means the ***** .

         1.24 "Other Licensee" means any Third Party to which Biosearch has
granted a license under the Biosearch Patents and Biosearch Know-how for the
development or commercialization of Licensed Products or other products
containing the Licensed Compound.

         1.25 "Patent" means (i) valid and enforceable patents, re-examinations,
reissues, renewals, extensions, term restorations and foreign counterparts
thereof, and (ii) pending (at any time during the term of this Agreement) patent
applications and foreign counterparts thereof.

         1.26 "Phase III Clinical Trials" means those trials on sufficient
numbers of patients that are designed to establish that a drug is safe and
efficacious for its intended use, and to define warnings, precautions and
adverse reactions that are associated with the drug in the to be prescribed
dosage range, and supporting Regulatory Approval of such drug.

---------------------------
* Confidential Treatment has been requested for the marked portions.

Page 3

<PAGE>

         1.27 "Regulatory Approval" means any approvals (including pricing and
reimbursement approvals, if appropriate), product and/or establishment licenses,
registrations or authorizations of any federal, state or local regulatory
agency, department, bureau or other governmental entity, necessary for the
manufacture, use, storage, import, export or sale of Licensed Products in a
regulatory jurisdiction.

         1.28  "Specifications" shall have the meaning set forth in Section 7.4.

         1.29 "Supply Price" shall have the meaning set forth in Section 8.2.

         1.30 "Territory" means the United States and Canada and the territories
and possessions of each of the foregoing countries.

         1.31 "Third Party" means any entity other than Biosearch or GENE or
their Affiliates.

         1.32  "Transfer Price" shall have the meaning set forth in Section 7.9.

         1.33 "Valid Claim" means a claim of (a) an issued patent, which claim
has not lapsed, been cancelled, or become abandoned and which claim has not been
declared invalid or unenforceable by a court of competent jurisdiction in a
decision from which no appeal has or can be taken, or (b) a patent application,
so long as such application is being prosecuted and the claim in question has
not been abandoned by the owner of the application (with the period of presumed
validity of a pending application not to exceed five years in countries).

                                  ARTICLE 2

                                DEVELOPMENT

         2.1 General. GENE shall be responsible for the completion of the
Development of Licensed Products in the Field and in the Territory, with support
from Biosearch as provided in this Agreement. Development of products including
the Licensed Compound (including without limitation Licensed Products) outside
of the Territory, development of products other than Licensed Products including
the Licensed Compound in the Field and in the Territory, subject to the
provisions of Section 5.6 herein, shall be conducted by Biosearch and/or the
Other Licensees, if any, outside the scope of this Agreement. ***** .However, in
order to avoid the duplication of cost and effort, and to optimize the results
of worldwide Development of Licensed Products, the Parties agree to ***** as
provided in this Agreement. In particular, the Parties intend to *****.

         2.2  Development of Licensed Products by GENE.

                  (a) GENE Commitment. GENE shall have the right to utilize all
relevant non-clinical and clinical data received from Biosearch prior to the
Effective Date and during the term of this Agreement pursuant to Sections 2.3
and 2.4 for the sole purposes of obtaining Regulatory Approval and
Commercialization of Licensed Products in the Field and in the Territory. GENE
hereby agrees, subject to the terms hereof, to conduct or have conducted, at its
sole expense or at the expense of any Affiliate or sublicensee as permitted
under this Agreement, subsequent to the Effectve Date all non-clinical and
clinical Development necessary to obtain Regulatory Approvals for Licensed
Products in the Field and in the Territory. GENE shall not have any obligation
to develop Licensed Products for any *****but may, at its option, develop
Licensed Products for any ***** and shall, at all times during the term of this
Agreement, undertake Development of Licensed Product for at least *****.

                  (b) Diligence and monitoring. GENE shall work *****, to
develop Licensed Products in the Field and in the Territory. *****. The progress
of all Development activities and GENE's ***** shall be *****

---------------------------
* Confidential Treatment has been requested for the marked portions.

Page 4

<PAGE>

by the Joint Management Committee referred to in Section 2.4 below on a
continuing basis, following a regular meeting schedule. Any matter that should
involve an assessment of GENE's ***** in carrying out Development activities
shall be examined by the Chief Executive Officers of Biosearch and GENE, with a
view to finding the most appropriate solution without jeopardizing the progress
of clinical trials in the agreed time frame. If such matter cannot be resolved
within sixty (60) days, it shall be dealt with in accordance with the
proceedures in Section 14.2(b).

                  (c) Delivery of Information. GENE will provide to Biosearch
its Information regarding the Development of Licensed Products in the Field, as
set forth in Section 2.4, for use in development and commercialization of
products by Biosearch and, subject to Section 2.6, any Other Licensees outside
of the Territory. Biosearch and, subject to Section 2.6, any Other Licensees
shall be permitted to use and reference all such Information regarding
Development of Licensed Products in (i) any Drug Approval Application filed
outside the Territory and (ii) any Drug Approval Application filed within the
Territory with respect to products other than Licensed Products that contain the
Licensed Compound within the Field. Notwithstanding the foregoing, Biosearch
agrees that it shall treat, and shall use its ***** to cause the Other Licensees
to treat, all Information provided by GENE pursuant to this Section 2.2(c) as
Confidential Information subject to the terms of Article 9.

                  (d) Regulatory Matters.

                         (i) Compliance with Regulations. GENE shall conduct its
efforts hereunder in compliance with all applicable regulatory requirements.

                         (ii) Drug Approval Applications. GENE shall, at its own
expense, be responsible for preparing and filing Drug Approval Applications and
seeking Regulatory Approvals for Licensed Products in the Field and in the
Territory, including preparing all reports necessary for filing a Drug Approval
Application for Licensed Products in the Territory. GENE shall be responsible
for prosecuting all such Drug Approval Applications, and Biosearch and, subject
to Section 2.6, any Other Licensees shall have the right of cross reference
with respect thereto. In connection with all Drug Approval Applications being
prosecuted by GENE hereunder, GENE agrees to provide Biosearch with a copy of
all filings to regulatory agencies that it makes hereunder. GENE shall provide
to Biosearch reports regarding the status of each pending and proposed Drug
Approval Application in the Territory within thirty (30) days after each June
30th and December 31st during the term of this Agreement, until such times as
no Drug Approval Applications are pending or unless otherwise agreed between
the parties. In the event that any regulatory agency threatens or initiates any
action to remove a Licensed Product from the market in the Territory, GENE
shall promptly notify Biosearch of such communication.

                  (e) ***** GENE shall develop or commercialize Licensed
Products or Licensed Compound in the Territory only for use in the Field.

         2.3       Development Obligations of Biosearch.

                  (a)  Access to Biosearch and Other Licensee Information.

                         (i)  Biosearch  will,  as soon as  possible  after the
Effective Date, provide GENE with copies of all regulatory filings and the
results of all clinical and non-clinical testing of Licensed Products under the
Control of or performed by Biosearch or IntraBiotics prior to the Effective
Date, to the extent that Biosearch is not restricted from providing any such
information that is owned or Controlled by IntraBiotics and to the extent that
such filings or information has not already been provided to GENE and will take
all steps necessary to allow GENE to use such filings or information.

---------------------------
* Confidential Treatment has been requested for the marked portions.

Page 5

<PAGE>

                         (ii) During the term of this  Agreement,  Biosearch
will provide to GENE all Information in its possession regarding Licensed
Compounds in the Field (including Information it receives from any Other
Licensees), as such Information becomes available, for use in GENE's
Development efforts. GENE shall be permitted to use and reference all Biosearch
and any Other Licensee reports provided to GENE pursuant to this Agreement in
any Drug Approval Application for Licensed Products in the Territory.
Notwithstanding the foregoing, GENE agrees that it shall treat all Information
provided by Biosearch or any Other Licensee pursuant to this Section 2.3 as
Confidential Information, subject to the terms of Article 9.

                         (iii) Following the transfer of development
responsibilites from IntraBiotics to Biosearch, but prior to the Effective
Date, Biosearch entered into a number of contractual relationships with
previous employees of IntraBiotics, as well as previous contractors of clinical
development services to IntraBiotics, including, but not limited to Contract
Research Organizations, Third-Party manufacturers, investigative sites,
microbiology and clinical laboratories. These relationships were established in
order to continue the development of Licensed Products within the Territory.
*****.

                   (b) Development and Regulatory Assistance. Biosearch shall
(i) cooperate with GENE and applicable regulatory authorities in obtaining and
maintaining Regulatory Approval for Biosearch's maufacturing process(es) and/or
facilities and any Third Party process(es) and/or facilities established by
Biosearch for the manufacture of Bulk Licensed Compound and (ii) provide
reasonable technical assistance to GENE for Development of Licensed Products

                  (c) Supply of Clinical Materials. Biosearch shall use *****to
supply, or cause to be supplied at its expense, amounts of Bulk Licensed
Compound sufficient for GENE to obtain Regulatory Approval of Licensed Products
in the Field and in the Territory as set forth in Article 7.

                  (d) Manufacturing Process; Scale Up. The Parties acknowledge
that it is ***** It is agreed accordingly that Biosearch shall at all times
manage the manufacturing processes of the Licensed Compound, and manufacture, or
have manufactured ***** for preclinical, clinical and commercial quantities
***** expense.

                  (e) ***** Biosearch and any Other Licensees shall develop or
commercialize Licensed Products or Licensed Compound only for use in the Field.

         2.4 Reports; Joint Management Committee; Project Leaders.

                  (a) Reports. Each Party shall provide to the other Party
reports summarizing such Party's development and commercialization of products
containing the Licensed Compound. Such reports will be provided by each Party
within thirty (30) days after the end of each calendar quarter and shall
summarize such Party's efforts during the previous quarter.

                  (b) Joint Management Committee. Each Party shall, within
thirty (30) days after the Effective Date, appoint ***** members from each Party
to serve on the Joint Management Committee. Each Party may send one or more
additional representatives to each such meeting. The role of the Joint
Management Committee shall include, without limitation, the*****. The Joint
Management Committee shall meet at least*****, alternating between Biosearch's
facilities in Gerenzano Italy and GENE's facilities in Waltham, MA, USA, unless
otherwise agreed between the parties. Each Party shall bear all costs incurred
by its representatives with respect to their attendance of such meetings.

                  (c) Project Leaders. Additionally, each Party shall, within
thirty (30) days after the Effective Date, appoint a project leader to
facilitate transfer of information regarding the Licensed Compound and Licensed
Products to the other Party. The project leaders shall meet on a regular basis,
at least quarterly. Each Party may

---------------------------
* Confidential Treatment has been requested for the marked portions.

Page 6

<PAGE>

send one or more additional representatives to each such meeting. Each Party
shall bear all costs incurred by its project leader and other representative(s)
with respect to their attendance of such meetings. The site of the project
leader meetings shall alternate between Biosearch's facilities in Gerenzano
Italy and GENE's facilities in Waltham, MA, USA, unless otherwise agreed
between the parties.

         2.5 Adverse Event Reporting. Each Party agrees to report to the other,
prior to or coincident to reporting to regulatory authorities, any serious
adverse event which is reported to occur in connection with the use of a
Licensed Product or the Licensed Compound. Each Party agrees to provide to the
other copies of all reports that are made to regulatory authorities concerning
material safety, efficacy or quality matters with respect to any Licensed
Product or the Licensed Compound. Prior to the first Regulatory Approval for a
product containing a Licensed Compound anywhere in the world, the Parties shall
agree on a formal adverse event reporting protocol to conform with the
respective regulatory obligations of GENE, Biosearch, and any Other Licensees
throughout the world.

         2.6 Other Licensees.

                  (a) Biosearch agrees to use its ***** in order to obtain from
any Other Licensees permission for Biosearch to provide to GENE any information
that, if such information were owned or Controlled by Biosearch, would be
Information that Biosearch must provide to GENE pursuant to Section 2.3, and
shall obtain rights to Other Licensee technology relating to Licensed Products
as provided in Section 5.7. Biosearch will require the Other Licensees to
provide to GENE, either directly or through Biosearch, all information owned or
Controlled by such Other Licensee that, if such information were owned or
Controlled by Biosearch, would be Information that Biosearch must provide to
GENE pursuant to Section 2.3. Biosearch may provide any Information it receives
from GENE pursuant to Section 2.5 to the Other Licensees, if any, and may grant
to Other Licensees a sublicense under the license granted to Biosearch in
Section 5.4 with respect to Information Biosearch receives from GENE pursuant to
Section 2.5.

                 (b) Biosearch shall not provide any Information it receives
from GENE pursuant to this Article 2 (other than Information relating to adverse
events provided by GENE pursuant to Section 2.5) to any Other Licensee unless
and until such Other Licensee permits Biosearch to provide to GENE any and all
information owned or Controlled by such Other Licensee that, if such information
were owned or Controlled by Biosearch, would be Information that Biosearch must
provide to GENE pursuant to Section 2.3. Biosearch may not grant to any Other
Licensee a sublicense under the license granted to Biosearch in Section 5.4 with
respect to Information disclosed to it by GENE pursuant to this Article 2 (other
than Information relating to adverse events provided by GENE pursuant to Section
2.5) to any Other Licensee that does not allow Biosearch to provide to GENE
information of such Other Licensee as provided in this Section 2.6, and any such
Other Licensee shall *****.

                                   ARTICLE 3

                                  EXCLUSIVITY

         3.1  Development of Licensed Compounds By Biosearch. The Parties
recognize that the Licensed Compound may be useful for *****. In this regard,
the Parties agree as follows:

                  (a) Biosearch, its Affiliates and other sublicensees shall not
develop or commercialize the Licensed Compound in any ***** in the Territory for
use in the Field during the term of this Agreement.

                  (b) Biosearch, its Affiliates and other sublicensees may
develop and commercialize the Licensed Compound in any formulation for any use
in the Field outside of the Territory, and in any Excluded Formulation

---------------------------
* Confidential Treatment has been requested for the marked portions.

Page 7

<PAGE>

for any use in the Field and in the Territory during the term of this
Agreement, subject to the provisions of Sections 3.2, 3.3 and 3.4.

         3.2*****. It is agreed and understood between the Parties that in the
event *****does not commence clinical development activity with respect to at
least ***** by March 31, 2002, then Biosearch shall notify GENE in writing and
GENE shall *****.

         3.3 *****. In the event that Biosearch develops a *****containing
Licensed Compound, then Biosearch shall notify GENE in writing and GENE shall
have a *****.

         3.4 Follow-up products. In the event that Biosearch discovers,
develops, licenses and/or acquires rights to any products for the same
indications for which the formulations of the Licensed Compound may be developed
(other than Excluded Formulations) ("Follow-up Products"), then Biosearch shall
notify GENE in writing and GENE shall have***** .

                                    ARTICLE 4

                        LICENSING FEE; MILESTONE PAYMENTS

         4.1 Licensing Fee. As partial payment for the patent licenses granted
by Biosearch pursuant to Article 5 of this Agreement, and the Development
Obligations of Biosearch pursuant to Article 2.3, GENE shall pay to Biosearch,
within *****after the Effective Date, two million Dollars (U.S.$2,000,0000),
cash by wire transfer (same value date).

         4.2 Milestone Payments. GENE or its sublicensee shall make the
following milestone payments to Biosearch within ***** after the first
achievement of each of the following milestones with respect to Licensed
Products in the Field and in the Territory:

         (i)      *****cash by wire transfer (same value date) when all of the
                  following conditions are met: *****

         (ii)     Two million Dollars (U.S.$2,000,000) payable by the issuance
                  of a Convertible Note in such original principal amount to
                  Bioseach effective on the same date of the U.S. NDA filing
                  with FDA.

         (iii)    Five million Dollars (U.S.$5,000,000) payable by the issuance
                  of a Convertible Note in such original principal amount to
                  Biosearch on the same date the U.S. NDA is approved by FDA.

         Any grant by GENE of a sublicense to a Third Party as permitted in
Section 5.5 shall not affect Biosearch's right to receive milestone payments as
provided in this Section 4.2. GENE shall remain responsible for the payments due
to Biosearch pursuant to this Section 4.2 in the event it grants any such
sublicense. The payment amounts are *****.

                                   ARTICLE 5

                                   LICENSES

---------------------------
* Confidential Treatment has been requested for the marked portions.

Page 8

<PAGE>

         5.1 Patent Licenses to GENE. Biosearch hereby grants to GENE an
exclusive ***** license under the Biosearch Patents to make, have made, use,
import, offer, sell, offer for sale and have sold Licensed Products in the Field
and in the Territory. Such license shall additionally include the right to make
or have made Bulk Licensed Compound in all instances hereunder, and to the
extent that, GENE acquires the right to make or have made Bulk Licensed Compound
hereunder. Such license shall be subject to the terms and conditions of this
Agreement, including payment of the amounts set forth in Articles 4, 7 and 8
hereof

         5.2 Patent Licenses to Biosearch. GENE hereby grants to Biosearch an
***** license under GENE Patents to make, have made, use, import, offer, sell,
offer for sale and have sold (i) inside the Territory, products containing the
Licensed Compound in any Excluded Formulation for any and all uses within the
Field, and (ii) outside of the Territory, products containing the Licensed
Compound (including without limitation Licensed Products) for any and all uses
within the Field.

         5.3 Know-How License to GENE. Subject to Article 9, Biosearch grants to
GENE a ***** license to use Biosearch Know-how within the Territory for any
purpose consistent with the rights and obligations contained in this Agreement.

         5.4 Know-How License to Biosearch. Subject to Article 9, GENE grants to
Biosearch a ***** license to use GENE Know-how for any purpose consistent with
the rights and obligations contained in this Agreement.

         5.5 Sublicensing. GENE***** grant sublicenses under this Article 5 to
its Affiliates or to Third Party agents and representatives to conduct
development and commercialization of Licensed Products until a first
registration is obtained for a Licensed Product. Thereafter, sublicenses may be
granted for *****: GENE shall in any event give prior written notice to
Biosearch of any intention to grant any such sublicense and shall be responsible
to Biosearch for compliance by the sublicensee of GENE's obligations hereunder.

         5.6 Right of Negotiation for *****

         5.7 Third Party Technology.

           (a) Biosearch represents to GENE that no Third Party technology
is included in the Biosearch Patents or in the Biosearch Know-how as of the
Effective Date.

                  (b) Biosearch will assist GENE in obtaining access to, and
licenses under, technology relating to Licensed Products that is owned or
Controlled by any Other Licensee which is developing or commercializing products
containing the Licensed Compound (including without limitation Licensed
Products) outside of the Territory, or products containing the Licensed Compound
(including without limitation Licensed Products) within the Territory, in each
case solely to the extent such technology is necessary or useful for the
Development or Commercialization of Licensed Products in the Field.

                                   ARTICLE 6

                               COMMERCIALIZATION

         6.1 General. The Commercialization of Licensed Products in the Field
and in the Territory shall be conducted independently by GENE, its Affiliates,
its Sublicensees and its Third Party agents and representatives.

         6.2 GENE Efforts.  GENE will use *****to promote, sell and distribute
the Licensed Products in the Territory after it obtains Regulatory Approval
therefor, *****.

---------------------------
* Confidential Treatment has been requested for the marked portions.

Page 9

<PAGE>

         6.3 Commercial. *****

         6.4 Formulation, Packaging and Labeling. GENE will be responsible for
formulating Bulk Licensed Compound into final dosage form and packaging the
Licensed Product for sale under this Agreement, including, without limitation,
designing and producing all packaging materials and product inserts, all in
forms consistent with the requirements of the regulatory authorities in the
Territory.

         6.5 Expenses. All expenses incurred by GENE in connection with its
obligations under this Article 6 will be borne solely by GENE. GENE will be
responsible for appointing its own employees, agents and representatives, who
will be compensated by GENE.

         6.6 Restrictions on Distributors and Dealers. Subject to mandatory
provisions of applicable laws, Biosearch shall not, and shall also ensure that
its distributors and dealers (including its Affiliates and non-Affiliates) to
whom Biosearch sells for resale products containing the Licensed Compound
(including without limitation Licensed Products) for resale do not, sell the
Licensed Product or any product containing Licensed Compound for any use to any
customer located in the Territory, other than such sales of or for Excluded
Formulations of the Licensed Compound, or products containing the Licensed
Compound, for use in the Field.

         6.7 Pricing. GENE shall determine, in its sole discretion, the pricing,
discounting policy and other commercial terms relating to Licensed Products in
the Field and in the Territory.

                                   ARTICLE 7

             MANUFACTURE AND SUPPLY; TRANSFER PRICE AND SUPPLY PRICE

         7.1 Manufacture and Supply of Bulk Licensed Compound by Biosearch.
Subject to the terms and conditions of this Article 7, Biosearch will
manufacture, or arrange for manufacture of, GENE's requirements of Bulk Licensed
Compounds for Development and Commercialization of Licensed Products in the
Field and in the Territory (unless GENE elects or is permitted also to
manufacture Bulk Licensed Compound as permitted under this Article 7), subject
to the ***** pursuant to Section 7.9 and a ***** as provided in Section 8.2.
GENE, at its sole expense, will be responsible for having the Bulk Licensed
Compound that is manufactured by Biosearch pursuant to this Article 7 processed
into the final form.

         7.2 Biosearch's Inability to Supply. The Parties intend that Biosearch
shall supply to GENE and GENE shall purchase from Biosearch ***** of Bulk
Licensed Compound. Notwithstanding the foregoing, and in addition to the other
provisions of this Agreement, GENE shall have manufacturing rights as follows:

                  (i) Biosearch shall provide prompt notice to GENE if Biosearch
anticipates that it will be unable to meet GENE's forecasted requirements for
Bulk Licensed Compound by ***** for a period exceeding *****. In this event, or
if Biosearch is actually unable to meet GENE's forecasted requirements for Bulk
Licensed Compound by *****, GENE shall have the right to produce or have
produced through a Third Party its requirements of Bulk Licensed Compound for
use in the Field and in the Territory and Biosearch shall license on a
fully-paid basis and provide to GENE or such Third Party all*****.

                  (ii) If Biosearch intends, any time during the initial term of
this agreement or any renewal period, to *****, it shall provide GENE with
*****. In this event GENE shall have the right to produce or have produced

---------------------------
* Confidential Treatment has been requested for the marked portions.

Page 10

<PAGE>

through a Third Party its requirements of Bulk Licensed Compound for use in the
Field and in the Territory and Biosearch shall license on a fully-paid basis and
provide to GENE or such Third Party all *****.

                  (iii) Upon the occurence of the events described under clause
(i) or (ii) above, Biosearch ***** only as provided in this Agreement. In regard
to the foregoing, the Parties agree to cooperate to obtain all necessary
assurances and cooperation from any of Biosearch's Third Party contract
manufacturers to enable GENE to manufacture Bulk Licensed Compound. If GENE
elects to manufacture Bulk Licensed compounds, Biosearch shall promptly provide
to GENE all*****. In addition, Biosearch shall provide a right of reference and
access to appropriate regulatory filings for the manufacture of such Bulk
Licensed Compound to GENE. In all such events, GENE shall*****. In addition to
the foregoing, Biosearch shall, as soon as practicable upon GENE's request,
deliver to GENE, in accordance with Section 7.6 and Section 7.7, the Retained
Amount of Bulk Licensed Compound retained by Biosearch pursuant to Section 7.11.

         7.3 Process Development, Manufacturing Approvals. Biosearch will use
***** to develop a process for the manufacture of Bulk Licensed Compounds
according to the Specifications therefor and to ***** GENE's anticipated
requirements for clinical and commercial supply of Licensed Products. Biosearch
will use ***** to make necessary filings to obtain, or to cause a Third Party
manufacturer of Bulk Licensed Compounds to make necessary filings to obtain,
Regulatory Approval for the manufacture of Bulk Licensed Compounds as part of
the approval of a Drug Approval Application for each Licensed Product in the
Field and in the Territory. Should Biosearch be *****.

         7.4 Specifications. The current specifications for Bulk Licensed
Compound are attached to this Agreement as Exhibit II (as such specifications
may be modified pursuant to this Section, the "Specifications"). Biosearch shall
***** during the term of this Agreement make changes to the Specifications for
Bulk Licensed Compound *****. Biosearch may modify Specifications if regulatory
authorities within the Territory recommend or require changes thereto, or if
GENE submits a proposal for changing such Specifications. Notwithstanding the
previous sentence, both Parties shall use their ***** to implement changes in
the Specifications which are required by the regulatory authorities within the
Territory unless both Parties agree to the contrary in writing. At the request
of GENE, Biosearch shall arrange for GENE's designated representatives to
inspect and visit from time to time the facilities at which Bulk Licensed
Compound is manufactured, stored or tested for the purpose of determining that
the manufacture of Bulk Licensed Compound complies with the requirements of this
Agreement. Such inspections shall occur during regular business hours upon
reasonable notice.

         7.5 Forecasting. *****before the end of ***** following the Effective
Date, GENE will provide Biosearch with a ***** for Bulk Licensed Compound for
the *****together with a rolling forecast covering the ***** following the one
for which the firm order was issued. The order for the first ***** following the
Effective Date will be provided within ***** of the Effective Date, and shall be
subject to Biosearch's acceptance, not to be unreasonably withheld. In no event
shall Biosearch be required to deliver more Bulk Licensed Compound in any given
***** than the firm order that was submitted by GENE for such ***** in the last
applicable forecast. Biosearch shall use commercially reasonable efforts to
supply any additional quantities requested by GENE in excess of the amounts
previously forecasted by GENE, it being recognized that substantial increases in
production levels may require significant advance notice.

         7.6 Shipment of Bulk Licensed Compound. Biosearch shall deliver the
Bulk Licensed Compound it manufactures for GENE pursuant to this Article 7 to
location(s) designated by GENE by such method and carrier as GENE shall request.
Unless otherwise agreed by the Parties, all shipments of Bulk Licensed Compound
by Biosearch shall be ex-works Biosearch. Biosearch shall use best efforts to
deliver Bulk Licensed Compound on the dates specified by GENE. Biosearch will
bear all transportation expenses for the delivery of material to GENE, and shall
bear all risk of loss of any material following shipment from the place of
manufacture until delivered to GENE.

---------------------------
* Confidential Treatment has been requested for the marked portions.

Page 11

<PAGE>

         7.7 Invoices. Biosearch will invoice GENE for each shipment of material
supplied to GENE under this Article 7. GENE shall pay the relevant invoices
within ninety (90) days after its receipt thereof.

         7.8 Acceptance. Prior to shipment of Bulk Licensed Compound, Biosearch
will ship representative samples of each batch to be shipped to GENE. Upon
receipt of such sample and upon receipt of a shipment of Bulk Licensed Compound,
GENE may determine whether the sample and such shipment, respectively, meet the
Specifications. GENE shall notify Biosearch in writing promptly if such sample
or shipment of Bulk Licensed Compound, as applicable, manufactured by Biosearch
fails to meet the Specifications, therefor. If Biosearch has not received such
written notice within thirty (30) days after such material has been received by
GENE, then such shall be deemed to have met the Specifications. Upon receipt of
any such written notice of non-conformance, Biosearch shall either acknowledge
that the subject Bulk Licensed Compound does not meet the Specifications, or
resample the sample, lot or batch in question and have said samples tested by an
independent laboratory of its choice, acceptable to GENE. If such independent
laboratory determines that such samples fail to meet the Specifications or
Biosearch acknowledges that Bulk Licensed Compound is non-conforming, then
Biosearch shall at GENE's option either replace the non-conforming Bulk Licensed
Compound at no additional cost as soon as reasonably possible or refund any
payments made by GENE for such non-conforming materials.

         7.9 Transfer Price for Clinical Supply and Validation Process. Prior to
receipt of Regulatory Approval of the Licensed Product in the Territory, and
subject to Biosearch's obligation under Section 2.3(c) herein, GENE will
purchase clinical supplies of Bulk Licensed Compound at a price (the "Transfer
Price") equal to ***** of Bulk Licensed Compound.

         7.10 Manufacturing Reports. The reports that Biosearch shall provide
pursuant to Section 2.4(a) shall include details of Biosearch's efforts to scale
up the manufacturing process for Bulk Licensed Compound at alternate sites
pursuant to Section 2.3.

         7.11   Retention of Back-up Supply of Bulk Licensed Compound. To help
protect against interruptions in supply of Bulk Licensed Compounds pursuant to
this Article 7, Biosearch shall retain under appropriate conditions a supply of
Bulk Licensed Compound at all times after the parties commence production of
Licensed Products for commercial launch in an amount determined pursuant to this
Section. GENE shall notify Biosearch at least ninety (90) days prior to
commencement of commercial scale manufacture of Licensed Product of the amount
of Bulk Licensed Compound that constitutes a sufficient supply for the purpose
of this Section 7.11 (the "Retained Amount"). GENE may re-establish the Retained
Amount from time to time as necessary or desirable in view of its good faith
estimate of its requirements for Bulk Licensed Compounds during the remainder of
the term of this Agreement.

         7.12 Discussions Regarding Long Term Supply Capacity. The parties
acknowledge that GENE will gain knowledge regarding the potential market for
Licensed Products in the Field and in the Territory as the development of
Licensed Products progresses. Accordingly, it is possible that GENE's full
commercial requirements for Bulk Licensed Compounds either upon commercial
launch of Licensed Products or thereafter may exceed the capacity at Biosearch's
manufacturing facility therefor. If at any time GENE's good faith estimate of
the market for Licensed Products indicates that Biosearch's current
manufacturing facility may not have sufficient capacity for manufacturing GENE's
requirements for Bulk Licensed Compound over the term of this Agreement, then
GENE and Biosearch shall discuss in good faith acceptable mechanisms for any
such actual or potential inability of Biosearch to supply GENE' requirements,
which may include without limitation for the establishment of a second
manufacturing site by Biosearch. If the parties do not agree on such mechanisms
for assuring sufficient supply of Bulk Licensed Compound and appropriate
amendments to this Agreement implementing such mechanisms, then GENE may elect
to establish a second manufacturing site.

---------------------------
* Confidential Treatment has been requested for the marked portions.

Page 12

<PAGE>

                                   ARTICLE 8

           SUPPLY PRICE AND ROYALTY; PAYMENT PROCEDURES AND RECORDS

         8.1 Supply Obligation; Duration. During the term of this Agreement,
GENE shall purchase ***** Bulk Licensed Compound from Biosearch, subject to
Section 7. The price for commercial supply to GENE of all Bulk Licensed Compound
manufactured by Biosearch shall be as provided in Section 8.2. Gene will be
obligated to pay only for batches that meet all commercial and regulatory
specifications and are accepted pursuant to Section 7.8.

         8.2   Supply Price and Royalty.

                  (a) In consideration of the manufacture of Bulk Licensed
Compound and the grant of licenses hereunder, GENE will pay to Biosearch a
supply price (the "Supply Price") and a royalty (the "Royalty") as described in
the table set forth below. The Supply Price will be*****the Royalty on GENE's
Net Sales will be*****.

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

*****

        Notwithstanding the foregoing, the Parties agree to the desirability of
maintaining a competitive price and competitive supply arrangements for Licensed
Products in the face of increased competition. In the event that the adjustments
to the total payments described in the table above are not able or are
inadequate to meet GENE's needs to modify GENE's costs for Licensed Products as
reasonably determined by GENE, the Parties hereby agree to negotiate in good
faith to establish other mechanisms as may be deemed necessary to maintain
competitiveness in the marketplace.

                  (b)   The Royalty payable by GENE hereunder shall be subject
       to adjustment as follows: *****

         8.3  Third Party Royalties.

                  (a) Any royalties due to Third Parties with respect to the
manufacture, use, sale, offer for sale or import of Licensed Product in the
Field and in the Territory shall be borne by Biosearch.

                  (b) Biosearch has agreed to pay IntraBiotics a royalty on Net
Sales pursuant to the transfer of the rights for Ramoplanin. *****

         8.4 Sales by Sublicensees. If GENE grants a sublicense under the rights
granted to it pursuant to Article 5, then such sublicense shall include an
obligation for the sublicensee to account for and report its Net Sales of such
Licensed Products on the same basis as if such sales were Net Sales by GENE, and
GENE shall pay the Supply Price to Biosearch on such sales as if the Net Sales
of the sublicensee were Net Sales of GENE.

         8.5 Promotional and Marketing Contributions; Validation Material.

                  (a) *****.
                  (b) Biosearch has an obligation to produce ***** of Bulk
Licensed Compound for validation of the Biosearch manufacturing process and
facility. GENE has agreed to accept a maximum of ***** described in

---------------------------
* Confidential Treatment has been requested for the marked portions.

Page 13

<PAGE>

Section 8.5(a). GENE will pay for ***** of the material at a price of *****.
Payment will be due ***** a Licensed Product in the U.S. This material will be
stored at Biosearch until Gene needs to "run" the finished product
manufacturing campaign.  GENE shall notify Biosearch when this material must be
manufactured and the material must meet the Specifications. GENE shall use such
material to validate its formulation and finishing process pursuant to 2.2(a).
In the event that all of the material is not required for the validation of
GENE's formulation and finishing process and the remaining shelf life of the
unused material does not allow for its formulation and finishing, then GENE
shall not be obligated to pay for such unused material but shall return it to
Biosearch. The material will be manufactured at the time indicated by GENE. In
the event that the Licensed Product becomes non-exclusive in the territory,
prior to the time at which Biosearch has fulfilled its obligations under this
clause, the price to be paid for this material will be reduced to the TBP if
the TBP is less than *****.

         8.6 Supply Price Payments, Royalty Payments and Sublicense Revenue
             Payments.

                  (a) Biosearch shall deliver Bulk Licensed Product and shall
invoice GENE at the Supply Price. GENE shall notify Biosearch of its receipt
thereof and pay such invoices within ninety (90) days after receipt of such Bulk
Licensed Compound.

                  (b) GENE will deliver to Biosearch a report showing in detail
its calculation of the Net Sales and quantities of any Licensed Products sold
during a given ***** following the end of ***** following the end of each
calendar year for which Royalty or other royalty payments are due from GENE.
GENE shall pay the Royalty or other royalty due on Net Sales or quantity of
Licensed Product sold during the ***** covered by a given report under this
Section 8.6(b) within ***** after GENE provides such report to Biosearch.

                  (c) GENE will deliver a report showing in detail its
calculation of the Net Sales and quantities of any Licensed Products sold by
GENE's sublicensees during a ***** to Biosearch within ***** following the end
of each ***** following the end of each ***** for which payments are due from
GENE to Biosearch thereon. GENE shall pay the amounts due to Biosearch on Net
Sales and quantities of Licensed Product sold by GENE's sublicensees pursuant to
Section 8.2 and 8.3 for a given ***** covered by such reports within ***** after
GENE provides such report to Biosearch.

         8.7 Exchange Rate; Manner and Place of Payment. All amounts paid to
Biosearch hereunder shall be paid in United States currency. Net Sales shall be
accounted for on a ***** in U.S. Dollars for each month on the last banking day
of such*****. All payments due to Biosearch under this Agreement shall be made
by wire transfer at a bank and to an account designated by Biosearch, unless
otherwise specified by Biosearch.

         8.8 Late Payments. In the event that any payment due hereunder is not
made when due, interest shall accrue on the late payment from the due date of
such payment at the ***** as then quoted in the Wall Street Journal. The payment
of such interest shall not limit any Party from exercising any other rights it
may have as a consequence of the lateness of the payment.

         8.9 Record Keeping. During the term of this Agreement, GENE shall keep
full and accurate books and records setting forth, for the Licensed Product on
which payments are due, including gross sales, all deductions allowed in
arriving at Net Sales and any other information necessary and in sufficient
detail to allow the calculation of payments to be paid by GENE. During the term
of this Agreement and for a period of ***** thereafter, GENE shall permit
Biosearch, at Biosearch's expense, by independent certified public accountants
employed by Biosearch and reasonably acceptable to GENE, to examine relevant
books and records at any reasonable time, not more often than once each calendar
year, within ***** of any such payment. If it is determined that there was an
underpayment due Biosearch of ***** or more, without prejudice to any other
rights Biosearch may have, GENE shall promptly pay to Biosearch the balance of
the amounts due and shall also reimburse Biosearch for the cost of such
verification examination.

---------------------------
* Confidential Treatment has been requested for the marked portions.

Page 14

<PAGE>

         8.10 Tax and Withholdings. Any withholding taxes levied by tax
authorities in the Territory on the payments hereunder, to the extent due by
Biosearch and not transferable upon GENE, shall be borne by Biosearch and
deducted by GENE from the sums otherwise payable by it hereunder for payment to
the proper tax authorities on behalf of Biosearch. In such event, GENE shall
deliver to Biosearch evidence of the payment of such taxes. GENE agrees to
cooperate with Biosearch in the event Biosearch claims exemption from such
withholding or seeks deductions under any double taxation or other similar
treaty or agreement from time to time in force.

                                   ARTICLE 9

                                CONFIDENTIALITY

         9.1 Confidentiality; Exceptions. Except to the extent expressly
authorized by this Agreement or otherwise agreed in writing, the Parties agree
that, the receiving Party shall keep confidential and shall not publish or
otherwise disclose or use for any purpose other than as provided for in this
Agreement any Information and other information and materials furnished to it by
the other Party pursuant to this Agreement, or any provisions of this Agreement
that are the subject of an effective order of the Securities Exchange Commission
granting confidential treatment pursuant to the Securities Act of 1934, as
amended (collectively, "Confidential Information"), except to the extent that it
can be established by the receiving Party that such Confidential Information:

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

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

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

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

         9.2 Authorized Disclosure. Each Party may disclose Confidential
Information hereunder to the extent such disclosure is reasonably necessary in
filing or prosecuting patent applications, prosecuting or defending litigation,
complying with applicable governmental regulations or conducting preclinical or
clinical trials, provided that if a Party is required by law or regulation to
make any such disclosure of the other Party's Confidential Information it will,
except where impracticable for necessary disclosures (for example in the event
of medical emergency), give reasonable advance notice to the other Party of such
disclosure requirement and, except to the extent inappropriate in the case of
patent applications, will use its reasonable efforts to secure confidential
treatment of such Confidential Information required to be disclosed. In
addition, each Party shall be entitled to disclose, under a binder of
confidentiality containing provisions as protective as those of this Article 9,
Confidential Information to any Third Party for the purpose of carrying out
activities authorized under this Agreement, including disclosures to authorized
sublicensees, and subject to Sections 2.5 and 2.6 disclosures by Biosearch for
purposes of the development and commercialization of products other than
Licensed Products anywhere in the world outside of the Field, and of Licensed
Products either outside of the Field and within the Territory, or within the
Field and outside of the Territory. Nothing in this Article 9 shall restrict any
Party from using for any purpose any Information developed by it during the
course of the collaboration hereunder. Biosearch acknowledges that if GENE files
a required Securities Exchange Commission filing or registration statement
covering the sale of its securities in the United States, it will be required to
file a copy of this Agreement with its

Page 15

<PAGE>

public disclosure statement. GENE agrees to seek confidential treatment of at
least the economic terms of this Agreement with respect to any such filing.

         9.3 Publications. Except as required by law, each Party agrees that it
shall not publish or present Information relating to the Licensed Compound or to
products containing the Licensed Compound without providing to the other Party
the opportunity for prior review of such publication or presentation. The Party
desiring to publish or present such Information (the "Proposing Party") shall
provide to the other Party the opportunity to review such proposed publication
or presentation (including information to be presented verbally) as early as
reasonably practical, but not later than twenty (20) days prior to the
anticipated date of submission or disclosure to a Third Party. The Party
reviewing such publication or presentation shall respond to the Proposing Party
with comments thereon within ten (10) days of receiving such materials from the
Proposing Party. The Proposing Party agrees, upon written request from the other
Party, not to submit such abstract or manuscript for publication or to make such
presentation until the other Party consents, which agreement shall not be
unreasonably withheld.

        This Article 9 shall survive termination or expiration of this Agreement
for a period of five (5) years thereafter.

                                   ARTICLE 10

              OWNERSHIP OF INTELLECTUAL PROPERTY AND PATENT RIGHTS

         10.1 Ownership. Each Party shall solely own, and it alone shall have
the right to apply for, Patents within and outside of the Territory for any
inventions made solely by that Party's employees or consultants in the course of
performing work under this Agreement. Inventions made jointly by personnel of
Biosearch and GENE shall be jointly owned by the Parties ("Joint Patents"),
subject to the licenses granted to GENE pursuant to Article 5.

         10.2 Disclosure of Patentable Inventions. Each Party shall provide to
the other any patent application disclosing an invention or jointly conceived
invention relating to Licensed Products within the Field arising during the term
of this Agreement reasonably in advance of the intended date for submission of
any patent application to a governmental patent authority.

         10.3 Patent Filings.

                  (a) Biosearch Responsibilities. Biosearch shall prepare, file,
prosecute and maintain Patents to cover inventions relating to the discovery,
evaluation, manufacture, use or sale of Licensed Products that are made solely
by Biosearch personnel (all of which shall be included in the Biosearch Patents)
or that are made jointly by personnel of Biosearch and GENE in the course of the
collaboration ("Joint Patents", all of which shall be included in both the
Biosearch Patents and GENE Patents). Biosearch shall keep GENE informed of the
status of each such Biosearch Patent and Joint Patent and shall give reasonable
consideration to any suggestions or recommendations of GENE concerning the
preparation, filing, prosecution and maintenance thereof. The Parties shall
cooperate reasonably in the prosecution of all Biosearch Patents and Joint
Patents under this Section 10.3(a) and shall share all material Information
relating thereto promptly after receipt of such Information. If, during the term
of this Agreement, Biosearch intends to allow any issued Biosearch Patent or
Joint Patent to which GENE has a license under this Agreement to expire for
failure to make maintenance fee payments, Biosearch shall notify GENE of such
intention at least sixty (60) days prior to the date upon which such issued
Biosearch Patent or Joint Patent shall expire, and GENE shall thereupon have the
right, but not the obligation, to assume responsibility for the maintenance
thereof

Page 16

<PAGE>

                  (b) GENE Responsibilities. GENE shall file, prosecute and
maintain Patents to cover inventions relating to the discovery, evaluation,
manufacture, use or sale of Licensed Products that are made solely by GENE
personnel (all of which shall be included in GENE Patents). GENE shall keep
Biosearch informed of the status of each GENE Patent and shall give reasonable
consideration to any suggestions or recommendations of Biosearch concerning the
preparation, filing, prosecution and maintenance thereof. The Parties shall
cooperate reasonably in the prosecution of all GENE Patents under this Section
10.3(b) and shall share all material Information relating thereto promptly after
receipt of such Information. If, during the term of this Agreement, GENE intends
to allow any issued GENE Patent to which Biosearch has a license under this
Agreement to expire for failure to make maintenance fee payments, GENE shall
notify Biosearch of such intention at least sixty (60) days prior to the date
upon which such GENE Patent shall expire, and Biosearch shall thereupon have the
right, but not the obligation, to assume responsibility for the maintenance
thereof.

         10.4 Third Party Patent Rights. No Party makes any warranty with
respect to the validity, perfection or dominance of any Patent or other
proprietary right or with respect to the absence of rights in Third Parties
which may be infringed by the manufacture or sale of the Licensed Product. Each
Party agrees to bring to the attention of the other Party any patent or patent
application it discovers, or has discovered, and which relates to the subject
matter of this Agreement.

         10.5 Enforcement Rights.

                  (a) Infringement by Third Parties. If any Biosearch Patent or
GENE Patent is infringed by a Third Party in the Territory in connection with
the manufacture, import, use, sale or offer for sale of a product competitive
with a Licensed Product ("Competitive Product Infringement"), the Party to this
Agreement first having knowledge of such infringement shall promptly notify the
other in writing. The notice shall set forth the facts of that infringement in
reasonable detail. GENE shall have the primary right, but not the obligation, to
institute, prosecute or control any action or proceeding with respect to such
infringement of a Biosearch Patent or Joint Patent within the Field and within
the Territory, or of a GENE Patent anywhere in the world both within and outside
of the Field, by counsel of its own choice. Biosearch shall have the right to
participate in such action and to be represented by counsel of its own choice.
Biosearch shall have the primary right, but not the obligation, to institute,
prosecute, and control any action or proceeding with respect to such
infringement of Biosearch Patents or Joint Patent occurring within the Territory
that is outside of the Field, or occurring anywhere else in the world both
within and outside of the Field, by counsel of its own choice. Solely within the
Territory with respect to Biosearch Patents other than Joint Patents and
anywhere in the World with respect to Joint Patents, GENE shall have the right
to participate in such action brought by Biosearch pursuant to the foregoing
sentence and to be represented by counsel of its own choice therein. If the
Party primarily responsible for bringing suit under this Section 10.5(a) (the
"Responsible Party") fails to bring an action or proceeding within a period of
ninety (90) days after having knowledge of that infringement, then, solely with
respect to infringement occurring inside the Field and inside the Territory with
respect to infringement of patents, the other Party shall have the right to
bring and control any such action by counsel of its own choice, and the
Responsible Party shall have the right to participate in such action and be
represented by counsel of its own choice. If a Responsible Party brings any such
action or proceeding hereunder, the other Party agrees to be joined as a party
plaintiff and to give the Responsible Party reasonable assistance and authority
to control, file and prosecute the suit as necessary. The costs and expenses of
the Party bringing suit under this Section (including the internal costs and
expenses specifically attributable to said suit) shall be reimbursed first out
of any damages or other monetary awards recovered in favor of the Parties. Any
remaining damages shall be split in accordance with each Party's interest
therein. No settlement or consent judgment or other voluntary final disposition
of a suit under this Section 10.5(a) may be entered into without the joint
consent of Biosearch and GENE.

                  (b) Defense and SettIement of Third Party Claims against
Licensed Products. If a Third Party asserts that a patent or other right owned
by it is infringed by the manufacture, import, use, sale or offer for

Page 17

<PAGE>

sale of any Licensed Product, the Party first obtaining knowledge of such a
claim shall immediately provide the other Party notice of such claim and the
related facts in reasonable detail. Defense of any such claim in the Field and
in the Territory shall be controlled by GENE; provided that Biosearch shall
have the right to participate in such defense and to be represented in any such
action by counsel of its selection at its sole discretion. GENE shall also have
the right to control settlement of such claim with respect to a Licensed
Product in the Field and in the Territory; provided, however, that no
settlement shall be entered into without the written consent of Biosearch,
which consent shall not be withheld unreasonably.

                  (c)   Allocation of Expenses Incurred Pursuant to Section
10.5(b). The expenses of patent defense, settlement and judgments pursuant to
Section 10.5(b) with respect to the Licensed Products shall be borne solely by
GENE, except as provided in Section 10.5(d).

                  (d) Settlement of Third Party Claims for Infringement; Payment
of Third Party Royalties. If a Third Party asserts that a patent or other right
owned by it is infringed by the manufacture, use, sale, offer for sale or import
of any Licensed Product, and as a result of settlement procedures or litigation
under this Section 10.5, GENE is required to pay the Third Party a royalty or
make any payment of any kind for the right to sell a Licensed Product in a
particular country, such expense shall be borne by Biosearch as set forth in
Section 8.3.

                  (e) Agreement of Primarily Responsible Party. Notwithstanding
the provisions of Section 10.5(a), neither Party shall file and prosecute an
action for infringement of a Patent for which the other Party has the primary
responsibility to file and prosecute such action, and pursuant to which that
other Party having primary responsibility has commenced and is prosecuting at
least one such action for infringement of said Patent, without the agreement of
that other Party, which agreement shall not be unreasonably withheld.

         10.6   Patent Marking. GENE shall mark Licensed Products with
appropriate patent numbers or indicia as necessary to maintain the
enforceability of Biosearch Patents, Joint Patents and GENE Patents.

         10.7   TRADEMARKS AND TRADE NAMES.

                  (a)     Product Trademarks and Trade Names. The Parties agree
to the principle and desirability of identifying and registering with the
appropriate trademark authorities global trademark(s) ("Global Trademarks") and
global trade name(s) ("Global Trade Names") for Licensed Products and Bulk
Licensed Compound. Such Global Trademarks and Global Trade Names for Licensed
Products and Licensed Compound shall at all times be the exclusive property of
Biosearch. Subject to the following paragraph, Biosearch and GENE shall jointly
select, prosecute applications for, register, maintain and enforce the Global
Trademarks and Global Trade Names for Licensed Products in the Territory, at
Biosearch's expense. All uses of trademarks or trade names to identify a
Licensed Product shall comply with all applicable laws and regulations,
including without limitation those laws and regulations particularly applying to
the proper use and designation of trademarks and trade names.

        Should it be determined by GENE that a Global Trademark or Global Trade
Name is unavailable or becomes the subject of an opposition in the Territory, or
should the Parties be unable to reach agreement on such Global Trademark or
Global Trade Name, GENE shall have the right to select, prosecute applications
for, register, maintain and enforce trademarks and trade names for Licensed
Products in the Territory ("Territory Trademarks" and "Territory Trade Names",
respectively) at its own expense. Such Territory Trademarks and Territory Trade
Names shall at all times be the exclusive property of GENE.

        Notwithstanding the foregoing, without limitation all branding, logos,
indicia and trade dress, shall be developed by GENE in its sole discretion for
use in the Territory, whether for use with a Territory Trademark or Territory
Trade Name. Such branding, logos, indicia and trade dress, without limitation,
shall be the exclusive property of GENE and may be licensed to Biosearch, at
Biosearch's request, for the exclusive use with Licensed Products outside the
Territory on a royalty-free basis.

Page 18

<PAGE>

                  (b)  Infringement. Each Party shall notify the other Party
promptly upon learning of any actual, alleged or threatened infringement of the
trademark for Licensed Product in the Field and in the Territory or of any
unfair trade practices, trade dress imitation, passing off of counterfeit goods
or like offenses. The parties shall confer regarding the appropriate steps
necessary or useful to protect, enforce and maintain such trademark. GENE shall
make the final decision of whether and how to defend the trademark.

                  (c)  License. Biosearch hereby grants to GENE a fully paid
license to use all Global Trademarks and Global Trade Names and any other
Trademarks and Trade Names owned or Controlled by Biosearch under which
Biosearch sells and markets products containing the Bulk Licensed Compound
solely in connection with GENE's Development and Commercialization of Licensed
Products in the Field and in the Territory pursuant to this Agreement. GENE may
sublicense any rights under the Biosearch Global Trademarks and/or Global Trade
Names persuant to Section 5.5 of this Agreement. GENE hereby grants to Biosearch
a fully paid license to use any Territory Trademarks and Territory Trade Names
solely in connection with Biosearch's Development and Commercialization of
products containing Bulk Licensed Compound in the Field outside of the
Territory. Biosearch may not sublicense any right under the Territory Trademark
or Territory Trade Name with out the prior written consent of GENE.

         10.8  Trade Secrets. The parties each acknowledge that Biosearch
maintains certain technology useful for the manufacture of the Bulk Licensed
Compound as a trade secret and that accordingly Biosearch has chosen not to seek
patent protection on such technology. Biosearch hereby agrees that it shall use
all commercially reasonable efforts to maintain such technology as a trade
secret (unless and until Biosearch files a patent application claiming such
technology), including without limitation (i) disclosing such technology to
third parties only under an obligation of confidentiality and non-use with
respect thereto comparable in scope to the confidentiality and non-use
obligations set forth in Article 9 with respect to Confidential Information,
(ii) not disclosing any trade secrets in any public presentation or publication
and (iii) employing other mechanisms typically used in the pharmaceutical
industry to protect trade secrets of similar nature.

                                  ARTICLE 11

                             TERM AND TERMINATION

         11.1  Term.  Except as otherwise provided herein, the term of this
Agreement shall commence on the Effective Date and, unless earlier terminated as
provided in this Agreement, shall expire ten (10) years after first commercial
sale of a Licensed Product by GENE in the Field and in the Territory. In the
event that at any time during the term of this Agreement, Biosearch is merged
into or acquired by a Third Party or sells to a Third Party all or substantially
all of the assets to which this Agreement relates, GENE shall have an option,
exercisable at any time prior to the expiration of the term, to extend the
agreement for an additional ***** up to a total of ***** under the same terms
and conditions stated herein, and at no additional economic terms. Except as
provided under Section 8.5, the terms and conditions of this Agreement will
automatically renew for subsequent periods of ***** at the end of the initial
ten year term, subject to either party's right not to renew, to be communicated
in writing to the other party with at least ***** advance notice; provided that
Biosearch's right to not renew the term of this Agreement shall, in any event,
be subject to Biosearch's obligation to provide a minimum ***** notice to GENE
if Biosearch should choose not to supply Bulk Licensed Compound, pursuant to
Section 7.2(ii). In this event, Biosearch will supply GENE the manufacturing
know-how and the most productive seed strain to enable GENE to produce or have
produced the Bulk Licensed Compound. Upon termination of this Agreement pursuant
to this Section 11.1, GENE's license under Article 5 shall continue in full
force and effect and GENE may thereafter continue to sell Licensed Products in
the Field and in the Territory on a royalty free basis.

-----------------------------------
* Confidential Treatment has been requested for the marked portions.

Page 19

<PAGE>

         11.2  Termination for Cause.  Either Party may terminate this Agreement
upon sixty (60) days written notice upon or after the breach of any material
provision of this Agreement by the other Party if the breaching Party has not
cured such breach within the sixty (60) day period following written notice of
termination by the other Party.

         11.3 OTHER TERMINATION.

                  (a) By GENE. GENE shall have the right to terminate this
Agreement upon ninety (90) days prior written notice to Biosearch if the
prospects for achieving Regulatory Approval for a Licensed Product or
commercially feasible Development or Commercialization of a Licensed Product
appear in GENE's reasonable judgment not to justify further support of the
Licensed Product.

                  (b) *****.

         11.4   EFFECT OF TERMINATION.

                  (a) Upon termination of this Agreement by Biosearch for GENE's
material breach pursuant to Sections 11.2, or by GENE pursuant to Section 11.3,
all rights and licenses granted to GENE with respect to the Licensed Product
under Article 5 shall terminate. Furthermore, GENE shall pay all sums accrued
hereunder which are then due (except as expressly otherwise provided in this
Agreement), shall promptly assign to Biosearch all right, title and interest in
and to any regulatory filings in the Territory pertaining to Licensed Products
and shall deliver to Biosearch any GENE Information necessary to obtain the
Regulatory Approval of Licensed Products in the Territory which has not been
obtained as of the date of termination. If this Agreement is terminated by
Biosearch pursuant to Section 11.2 or 11.3(b), or by GENE pursuant to Section
11.3(a), GENE shall return to Biosearch, or at Biosearch's request destroy, all
Biosearch Information and any other Confidential Information relating to the
Licensed Compound or Licensed Products, and any Bulk Licensed Compound supplied
by Biosearch for clinical development or commercial distribution. Additionally,
if Biosearch terminates this Agreement pursuant to Section 11.2 or GENE
terminates this Agreement pursuant to Section 11.3, the license granted in
Section 5.2 shall automatically become, without any further action by GENE, an
exclusive, worldwide, royalty-free license under the GENE Patents to make, have
made, use, import, offer, sell, offer for sale and have sold the Licensed
Compound and pharmaceutical products containing the Licensed Compound (including
without limitation Licensed Products) for any and all uses.

                  (b) Upon termination of this Agreement by GENE for Biosearch's
material breach pursuant to Section 11.2, all licenses granted to GENE shall
survive. If Biosearch is supplying Licensed Bulk Compound at the time of any
termination by GENE of this Agreement for Biosearch's material breach, Biosearch
shall continue to provide for supply of Bulk Licensed Compound to the extent
provided prior to notice of such termination until such time as GENE is able to
secure an equivalent alternative commercial supply source for the Territory, as
requested by GENE; and Biosearch shall take the actions described in and be
obligated under Section 7.2(iii); provided, however, that GENE shall pay to
Biosearch its Cost of Goods Sold for such Bulk Licensed Compound. Any additional
payments for such supply shall be negotiated between the Parties at such time of
termination.

         11.5    Accrued Rights, Surviving Obligations. Termination of this
Agreement shall not affect any accrued rights and remedies of either Party.
Additionally, the terms of Articles 7 (solely to the extent required to effect
the intent of Section 11.4, if applicable), 8 (solely to the extent required to
effect the intent of Section 11.4, if applicable), 9, 12, 13 and 14, as well as
Sections 10.2 through 10.8, 11.4, 11.5, of this Agreement shall survive any
termination or expiration of this Agreement.

-------------------------------------
* Confidential Treatment has been requested for the marked portions.

Page 20

<PAGE>

                                   ARTICLE 12

                        REPRESENTATIONS AND WARRANTIES

         12.1   Mutual Representations and Warranties. Each Party hereby
represents and warrants:

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

                  (b)  Due Authorization. Such Party is duly authorized to
execute and deliver this Agreement and to perform its obligations hereunder.

                  (c)  Binding Agreement. This Agreement is a legal and valid
obligation binding upon it and enforceable in accordance with its terms. The
execution, delivery and performance of this Agreement by such Party does not
conflict with any agreement, instrument or understanding, oral or written, to
which it is a Party or by which it may be bound, nor violate any law or
regulation of any court, governmental body or administrative or other agency
having jurisdiction over it. Such Party has not, and during the term of the
Agreement will not, grant any right to any Third Party with respect to its
Patents or Know-how that would conflict with the rights granted to the other
Party hereunder.

         12.2     Representations by Biosearch Regarding Manufacture of Bulk
Licensed Compounds. Biosearch hereby warrants that the Bulk Licensed Compound
supplied hereunder will:

                  (a)  comply with the Specifications then in effect for Bulk
Licensed Compound;
                  (b)  be manufactured, stored and shipped in compliance with
all applicable regional, federal, state and local laws and governmental
regulations, including without limitation the applicable current Good
Manufacturing Practices regulations;

                  (e)  when shipped, will not be adulterated or misbranded
within the meaning of the Federal Food, Drug & Cosmetic Act and the regulations
promulgated thereunder; and

                  (d)  be manufactured in accordance with all applicable laws
and governmental rules and regulations.

                  (e)  be manufactured in a manner that does not involve any
infringement or unauthorized use of any intellectual property rights of any
Third Party.

         12.3   Other Representations by Biosearch. Biosearch further represents
and warrants to GENE that:

                  (a)  to the best of Biosearch's knowledge on the Effective
Date, there are no interferences or oppositions pending before any court or
administrative office or agency relating the Biosearch Patents;

                  (b)      Biosearch has provided to GENE access to all clinical
records which describe all adverse event reports relating to Licensed Products;
and

                  (c) Biosearch owns all right, title and interest in and to IND
No. 56341 and all subsequent filings thereunder, and Biosearch owns or controls
all rights necessary to grant the rights Biosearch purports to grant to GENE
pursuant to this Agreement; and

                  (d) as of the Effective Date, Biosearch has not received any
notices of infringement or any written communications relating in any way to a
possible infringement with respect to the Licensed Compound or

Page 21

<PAGE>

Licensed Products in the Field, and is not aware that the practice of the
Biosearch Patents and Biosearch Know-how as contemplated by this Agreement will
involve any infringement or unauthorized use of any intellectual property
nights of any Third Party.

                  (e)  Biosearch has concluded an agreement with IntraBiotics
(the IntraBiotics Agreement) under which it is obligated to pay a royalty on
sales of Licensed Products in the Territory.

                  (f)  Biosearch has on-hand or will supply within sixty (60)
days of the Effective Date, such clinical supplies as are necessary to complete
Development of Licensed Product within the Territory.

                  (g)  Biosearch will be responsible in full for all costs of
Development prior to the Effective Date. Biosearch warrants that it has entered
into contractual relationships with previous employees of IntraBiotics, as well
as previous contractors of clinical development services to IntraBiotics,
including, but not limited to Contract Research Organizations, Third-Party
manufacturers, investigative sites, microbiology and clinical laboratories, in
order to continue the development of Licensed Products within the Territory.
Biosearch shall provide copies of all contracts with these consultants and
contractors to GENE, prior to the Effective Date and will make best efforts to
work closely with GENE to transfer or assign these relationships to GENE in an
orderly fashion to permit a smooth transition in accordance with Section
2.3(a)(iii).

         12.4  Disclaimer of Warranties.  The Parties understand that the
activities to be undertaken pursuant to this Agreement will involve technologies
and products that have not been approved by any regulatory authority and that
neither Party guarantees the safety or usefulness of the Licensed Products.
EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY
REPRESENTATION OR WARRANTY TO THE OTHER PARTY OF ANY NATURE, EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION ANY WARRANTY OF NONINFRINGEMENT, MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.

                                  ARTICLE 13

                                INDEMNIFICATION

         13.1  Indemnification by Biosearch.  Biosearch hereby agrees to
indemnify, hold harmless and defend GENE against any and all expenses, costs of
defense (including without limitation attorneys' fees, witness fees, damages,
judgments, fines and amounts paid in settlement) and any amounts GENE becomes
legally obligated to pay because of any Third Party claim or claims against it
to the extent that such claim or claims result from (i) Biosearch's negligence,
(ii) Biosearch's breach or alleged breach of any representation or warranty by
Biosearch or of any other provision of this Agreement; (iii) any claims of
breach of the IntraBiotics Agreement which may be brought against GENE; (iv) any
claims from third parties, consultants, employees and contractors concerning
Development activities prior to the Effective Date, whether conducted on behalf
of Biosearch, IntraBiotics or any other Third Party; or the possession,
manufacture, use, handling, storage, sale or other disposition of Bulk Licensed
Compound or of products containing the Licensed Compound by Biosearch, its
agents or licensees or sublicensees (other than GENE), except to the extent such
claim or claims arise from the negligence, recklessness or willful misconduct of
GENE or any breach of any representation or warranty of GENE made pursuant to
Section 12; provided that GENE provides Biosearch with prompt notice of any such
claim and the exclusive ability to defend (with the reasonable cooperation of
GENE) and settle any such claim. Any liability of Biosearch shall in no event
extend to consequential damages.

         13.2  Indemnification by GENE.  GENE hereby agrees to indemnify, hold
harmless and defend Biosearch against any and all expenses, costs of defense
(including without limitation attorneys' fees, witness fees, damages, judgments,
fines and amounts paid in settlement) and any amounts Biosearch becomes legally
obligated to pay because of any Third Party claim or claims against it to the
extent that such claim or claims arise out of (i)

Page 22

<PAGE>

GENE's negligence, recklessness or willful misconduct, (ii) GENE's breach or
alleged breach of any representation or warranty by GENE or of any other
provision of this Agreement, (iii) the possession, final manufacture, use, sale
or administration of Licensed Products by GENE or GENE's Affiliates, licensees
or sublicensees, except to the extent such claim or claims arise from the
negligence, recklessness or willful misconduct of Biosearch or any breach of
any representation or warranty of Biosearch made pursuant to Section 12;
provided that Biosearch provides GENE with prompt notice of any such claim and
the exclusive ability to defend (with the reasonable cooperation of Biosearch)
or settle any such claim, and provided further that such indemnities shall not
apply to losses resulting from Biosearch matters covered under Section 13.1
above.

         13.3  Mechanics.  In the event that the parties cannot agree as to the
application of Sections 13.1 and 13.2 above to any particular loss or claim, the
parties may conduct separate defenses of such claim. Each Party further reserves
the right to claim indemnity from the other in accordance with Sections 13.1 and
13.2 above upon resolution of the underlying claim, notwithstanding the
provisions of Sections 13.1 and 13.2 above requiring the indemnified Party to
tender to the indemnifying Party the exclusive ability to defend such claim or
suit.

Page 23

<PAGE>

                                  ARTICLE 14

                                 MISCELLANEOUS

         14.1   ASSIGNMENT.

                  (a)   Either Party may assign any of its rights or obligations
under this Agreement to any Affiliates; provided, however, that such assignment
shall not relieve the assigning Party of its responsibilities for performance of
its obligations under this Agreement, and further provided that if a proposed
assignment would have an adverse financial impact upon the other Party (e.g., by
reason of changed tax treatment of payments due under this Agreement), such
assignment shall be subject to the other Party's prior written consent.

                  (b)  This Agreement shall survive any such merger or
reorganization of either Party with or into another party and no consent for
such merger or reorganization shall be required hereunder; provided, that in the
event of such merger or reorganization, no intellectual property rights of the
acquiring corporation shall be included in the technology licensed hereunder.

                  (c)  Except as set forth in subsections (a) and (b), this
agreement may not be assigned by either Party without the prior consent of the
other Party. This Agreement shall be binding upon and inure to the benefit of
the successors and permitted assigns of the Parties. Any assignment not in
accordance with this Agreement shall be void.

         14.2   DISPUTE RESOLUTION.

                  (a)  The Parties recognize that disputes as to certain matters
may from time to time arise during the term of this Agreement which relate to
either Party's rights and/or obligations hereunder or thereunder. It is the
objective of the Parties to establish procedures to facilitate the resolution of
disputes arising under this Agreement in an expedient manner by mutual
cooperation. To accomplish this objective, the Parties agree to follow the
procedures set forth in this Articie 14 if and when a dispute arises under this
Agreement.

        Unless otherwise specifically recited in this Agreement, disputes among
the Parties will be resolved by reference first to their respective executive
officers designated below or their successors, for attempted resolution by good
faith negotiations within fourteen (14) days after such notice is received. Said
designated officers are as follows:

        For GENE:                    Chief Executive Officer

        For Biosearch:               Chairman of the Board / Managing Director

        In the event the designated executive officers are not able to resolve
such dispute, either Party may at anytime after the fourteen (14) day period
seek to resolve the dispute through the means provided in Section 14.2(b).

                  (b) Any claim or controversy arising out of or related to this
Agreement or any breach hereof that is not resolved by the designated officers
as provided in this Agreement shall be resolved solely and exclusively by final
and binding arbitration (i) if started by Biosearch, in Boston, MA, USA by a
panel of three arbitrators appointed and acting according to the then existing
rules of the JAMS/Endispute; and (ii) if started by GENE, in Milan, Italy, by a
panel of three arbitrators appointed and acting according to the International
Rules then in force of the National and International Arbitration Chamber of
Milan. The arbitrator(s) selected shall have significant experience in the
biotechnology or pharmaceutical industry, and shall apply the rules of law. Any
arbitration proceeding conducted pursuant to this Section 14.2(b) shall be
conducted in the English language. Any award made by such arbitrator(s) shall be
final and binding upon the parties and a judgment of a court having jurisdiction

Page 24

<PAGE>

may be entered on such award. Notwithstanding the foregoing, disputes regarding
the validity, scope or enforceability of patents shall be submitted to a court
of competent jurisdiction in the country where such patent has issued.

         14.3     Force Majeure.  Save as provided in Section 4.2 above, neither
Party shall lose any rights hereunder or be liable to the other Party for
damages or losses on account of failure of performance by the defaulting Party
if the fallure is occasioned by government action, war, fire, explosion, flood,
strike, lockout, earthquake, embargo, act of God, or any other similar cause
beyond the control of the defaulting Party, provided that the Party claiming
force majeure has exerted all reasonable efforts to avoid or remedy such Force
Majeure.

         14.4  Compliance with Law. Each Party hereto shall comply with all
applicable laws, rules, ordinances, guidelines, consent decrees and regulations
of any applicable federal, state or other governmental authority.

         14.5  Export Law Compliance.  GENE understands and recognizes that the
Licensed Product and other materials made available to it hereunder may be
subject to the export administration regulations of the United States Department
of Commerce and other United States government regulations related to the export
of chemical compounds and medical devices.

         14.6  Governing Law.   This Agreement shall be governed by and
construed according to the laws of New York, NY, USA.

         14.7   Entire Agreement.  This Agreement, including all Exhibits
attached hereto, and all documents delivered concurrently herewith, set forth
all the covenants, promises, agreements, warranties, representations,
conditions and understandings between the Parties hereto and supersede and
terminate all prior agreements and understanding between the Parties. No
subsequent alteration, amendment, change or addition to this Agreement, shall
be binding upon the Parties hereto unless reduced to writing and signed by the
respective authorized officers of the Parties.

         14.8   Relationship of the Parties.  Nothing hereunder shall be deemed
to authorize either Party to act for, represent or bind the other except as
expressly provided in this Agreement.

         14.9   Notices.     All notices hereunder shall be in writing and shall
be deemed given if delivered personally or by facsimile transmission (receipt
verified), telexed, mailed by registered or certified mail (return receipt
requested), postage prepaid, or sent by express courier service, to the Parties
at the following addresses (or at such other address for a Party as shall be
specified by like notice; provided, that notices of a change of address shall
be effective only upon receipt thereof.

If to Biosearch,
addressed to:        BIOSEARCH ITALIA S.p.A.
                     Via Lepetit, 34
                     21040 Gerenzano, ltaly
                     Attention:                   Chairman of the Board
                     Telephone:                        +39.02.96474.341
                     Telecopy:                         +39.02.96474.400
If to GENE,
addressed to:        GENOME THERAPEUTICS CORPORATION
                     100 Beaver Street
                     Waltham, MA 02453-8443, USA
                     Attention:                   Chief Executive Officer
                     Telephone:                           +1.781.398.2300
                     Telecopy:                            +1.781.398.8277

Page 25

<PAGE>

         14.10  Waiver.  Except as specifically provided for herein, the waiver
from time to time by either of the Parties of any of their rights or their
failure to exercise any remedy shall not operate or be construed as a continuing
waiver of same or of any other of such Party's rights or remedies provided in
this Agreement.

         14.11  Severability.  If any term, covenant or condition of this
Agreement or the application thereof to any Party or circumstance shall, to any
extent, be held to be invalid or unenforceable, then (i) the remainder of this
Agreement, or the application of such term, covenant or condition to Parties or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each term, covenant or condition of this
Agreement shall be valid and be enforced to the fullest extent permitted by law;
and (ii) the Parties hereto covenant and agree to renegotiate any such term,
covenant or application thereof in good faith in order to provide a reasonably
acceptable alternative to the term, covenant or condition of this Agreement or
the application thereof that is invalid or unenforceable, it being the intent of
the Parties that the basic purposes of this Agreement are to be effectuated.

         14.12    Official Language.  The official text of this Agreement and
any appendices, exhibits and schedules hereto, or any notice given or accounts
or statements required by this Agreement shall be in English. In the event of
any dispute concerning the construction or meaning of this Agreement, reference
shall be made only to this Agreement as written in English and not to any other
translation into any other language.

         14.13    Headings. The Section and paragraph headings contained herein
are for the purposes of convenience only and are not intended to define or
limit the contents of said sections or paragraphs.

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

         IN WITNESS WHEREOF, the Parties have executed this Agreement in
duplicate originals by their proper officers as of the Effective Date.

GENOME THERAPEUTICS CORPORATION                    BIOSEARCH ITALIA, S.P.A.

By: ________________________                     By: ___________________________

Title: _____________________                     Title: ________________________

Page 26

<PAGE>

                                   EXHIBIT I

                               CONVERTIBLE NOTE

<PAGE>

      THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
      AS AMENDED (THE "ACT") OR UNDER THE SECURITIES LAWS OF ANY STATE,
        AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
        SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE ACT AND
                        ANY SUCH APPLICABLE STATE LAWS.

                            GENOME THERAPEUTICS CORP.

        CONVERTIBLE NOTE DUE [INSERT DATE 60 MONTHS AFTER DATE OF ISSUE]

$[Amount]                                                       [Date of Issue]

     FOR VALUE RECEIVED, the undersigned Genome Therapeutics Corp., a
Massachusetts corporation (the "Company"), hereby promises to pay to
Biosearch Italia, S.p.A., or registered assigns, at the address specified in
Section 14.9 of the License and Supply Agreement (as defined below), or at such
other place as the Holder of this Note shall from time to time have designated
to the Company in writing, on [insert date 60 months after Date of Issue] (the
"Stated Maturity Date"), [AMOUNT IN WORDS ($[Amount in numbers]) (the
"Principal Amount"), with interest as provided in Section 1 hereof.

1.   INTEREST. This Note shall accrue daily interest from the date hereof,
computed on the basis of a year of 365 or 366 (as applicable) days and actual
days elapsed, on the principal amount from time to time unpaid at a rate per
annum equal to five percent (5%) (the "Applicable Rate"), said interest being
payable in arrears on the last business day of the calendar month in which this
Note was issued in each year (each such day, and the day that is the Stated
Maturity Date, being a "Payment Date"), commencing on [insert date that is
the last business day of the month in which the Note is issued, one year
following the date of issue], and at the stated or any accelerated maturity
hereof. All interest shall be payable in cash in the lawful money of the United
States.

2.   PAYMENT PROVISIONS. The Company covenants that so long as this Note is
outstanding:

     2.1.   Payment at Maturity of Note. On the Stated Maturity Date, and on any
accelerated maturity of the Notes, the Company will pay the entire principal
amount of this Note then outstanding, together with all accrued and unpaid
interest thereon.

     2.2.   Prepayments. Except as provided in Section 4.2 hereof, the Company
may not prepay all or any part of the principal amount of the Notes.

3.   CONVERSION OF NOTE.

     3.1.   Conversion by Holder. Subject to Section 3.4, the Holder of this
Note may at any time convert the principal amount of this Note then outstanding
into a number of shares of Common Stock equal to (x) the aggregate amount of
principal of this Note divided by (y) the

<PAGE>

Conversion Price (as hereinafter defined). As used herein, the "Conversion
Price" shall initially be $15.00, shall be adjusted and readjusted from time
to time as provided in this Section 3 and, as so adjusted or readjusted, shall
remain in effect until a further adjustment or readjustment thereof is required
by Section 3 of this Note. Such conversion shall be effected by surrender of
this Note to the Company at its office specified in Section 14.9 of the License
and Supply Agreement, accompanied by a Conversion Notice in substantially the
form attached to this Note (or a reasonable facsimile thereof) executed by such
Holder, and such Holder shall thereupon be entitled to receive the number of
shares of Common Stock specified in the first sentence of this Section 3.1 or
the shares or other interests specified in Section 3.4 below. The conversion of
this Note shall be deemed to have been effected immediately prior to the close
of business on the business day on which this Note shall have been surrendered
to the Company as provided in the immediately preceding sentence, and at such
time the Holder shall be deemed to have become the holder of record of such
shares of Common Stock. As soon as practicable after conversion of the Note,
and in any event within five business days thereafter, the Company at its
expense will cause to be issued in the name of and delivered to the Holder of
this Note a certificate for the number of duly authorized, validly issued,
fully paid and nonassessable shares of Common Stock to which such Holder shall
be entitled upon such conversion.

     3.2.   Automatic Conversion. In the event that the Common Stock trades at
or in excess of a price per share of $30.00 for a period of not less than twenty
consecutive Trading Days, this Note shall automatically be converted, without
any action on the part of the Holder or the Company, into a number of shares of
Common Stock equal to (x) the aggregate amount of principal of this Note then
outstanding divided by (y) the Conversion Price then in effect. If, pursuant to
Section 3.4 below, this Note becomes convertible into other shares or other
interests, this Note shall automatically be converted into such shares or other
interests if the quotient obtained by dividing the aggregate fair market value
of such shares or other interests (as determined in good faith by the Company
(or its successor)), by the number of shares of Common Stock into which this
Note was convertible immediately before the Subsequent Event (as defined below)
equals or exceeds $30.00 for a period of not less than twenty consecutive
Trading Days.

     3.3.   Adjustments of Conversion Price for Subdivisions, Stock Dividends,
Combinations or Consolidation of Common Stock. In the event the outstanding
shares of Common Stock shall be increased by way of stock issued as a dividend
for no consideration or subdivided (by stock split or otherwise) into a greater
number of shares of Common Stock, the Conversion Price then in effect shall,
concurrently with the effectiveness of such increase or subdivision, be
proportionately decreased. In the event the outstanding shares of Common Stock
shall be combined or consolidated, by reclassification or otherwise, into a
lesser number of shares of Common Stock, the Conversion Price then in effect
shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.

     3.4.   Subsequent Events. In the event of any recapitalization,
consolidation, merger or bankruptcy or declaration of insolvency of the Company
or its successor (each, a "Subsequent Event"), this Note shall thereafter be
convertible into the right to receive such shares or other interests
(including, without limitation, cash) as the Holder would have been entitled if
this Note had been converted immediately prior to such Subsequent Event.

                                      -2-

<PAGE>

     3.5.   No Impairment. The Company will not, by amendment of its charter or
through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the Company, but will at
all times in good faith assist in carrying out all such action as may be
necessary or appropriate in order to protect the conversion rights of the
Holder of this Note.

     3.6.   Reservation of Shares. So long as any portion of this Note shall
remain outstanding, the Company shall at all times reserve and keep available,
free from preemptive rights, out of its authorized capital stock, for the
purpose of issuance upon conversion of this Note, the full number of shares of
Common Stock then issuable upon conversion of this Note. If the Company's
Common Stock shall be listed on any national stock exchange, the Company at its
expense shall include in its listing application all of the shares of Common
Stock reserved for issuance upon conversion of this Note (subject to issuance
or notice of issuance to the exchange) and will similarly procure the listing
of any further Common Stock reserved for issuance upon conversion of this Note
at any subsequent time as a result of adjustments in outstanding Common Stock
or otherwise.

     3.7.   Validity of Shares. The Company will from time to time take all such
action as may be reasonably required to assure that all shares of Common Stock
which may be issued upon conversion of this Note will, upon issuance, be legally
and validly issued, fully paid and non-assessable and free from all taxes, liens
and charges with respect to the issuance thereof; and, without limiting the
generality of the foregoing, the Company agrees that it will from time to time
take all such action as may be reasonably required to assure that the par value
per share, if any, of the Common Stock is at all times equal to or less than
the lowest quotient obtained by dividing the then current principal amount of
this Note by the number of shares of Common Stock into which this Note can, from
time to time, be converted.

     3.8.   Representations of the Holder. The Holder represents and warrants to
the Company that the Holder is acquiring this Note and the shares of Common
Stock issuable upon conversion of this Note for the Holder's own account for
investment only and not with a view to distribution or resale of the Note or
shares of Common Stock issuable upon conversion of this Note. The Holder
represents that it is an "accredited investor" as such term is defined in Rule
501 under the Securities Act of 1933, as amended (the "Act"). The Holder
understands that this Note and the shares of Common Stock issuable upon
conversion of this Note are being issued to the Holder pursuant to an exemption
from the registration requirements of the Act and, accordingly, must be held
indefinitely by the Holder unless later transferred in transactions that are
either registered under the Act or exempt from registration. The Holder also
understands that the shares of Common Stock issuable upon conversion of this
Note will bear a legend similar to the legend set forth at the top of this Note.

4.   EVENTS OF DEFAULT.

     4.1.   Events of Default. Each of the following events is herein referred
to as an "Event of Default":

                                      -3-

<PAGE>

     4.1.1.   Breach of Covenant. The Company shall fail to perform or observe
any other covenant, agreement or provision to be performed or observed by it
under this Note and such failure shall not be rectified or cured within 30 days
after actual knowledge of such failure by an executive officer of the Company.

     4.1.2.   Bankruptcy, etc. The Company shall:

     (a)    commence a voluntary case under Title 11 of the United States Code
as from time to time in effect, or authorize, by appropriate proceedings of its
board of directors or other governing body, the commencement of such a
voluntary case;

     (b)    have filed against it a petition commencing an involuntary case
under such Title 11, which petition is not dismissed within 30 days after such
filing;

     (c)    seek relief as a debtor under any applicable law, other than such
Title 11, of any jurisdiction relating to the liquidation or reorganization of
debtors or to the modification or alteration of the rights of creditors, or
consent to or acquiesce in such relief;

     (d)    have entered against it any order by a court of competent
jurisdiction (i) finding it to be bankrupt or insolvent, (ii) ordering or
approving its liquidation, reorganization or any modification or alteration of
the rights of its creditors, or (iii) assuming custody of, or appointing a
receiver or other custodian for, all or a substantial part of its property; or

     (e)    make an assignment for the benefit of, or enter into a composition
with, its creditors, or appoint or consent to the appointment of a receiver or
other custodian for all or a substantial part of its property.

     4.2.   Remedies. Upon the occurrence and during the continuance of any
Event of Default, the Holder may accelerate the maturity of this Note upon
notice to the Company (and upon the occurrence of an Event of Default under
Section 4.1.3 above, such maturity shall be automatically accelerated) and may
exercise any remedies at law or in equity.

     4.3.   Annulment of Defaults. An Event of Default shall not be deemed to be
in existence or to have occurred for any purpose of this Note until the
expiration of all grace periods under this note or if the Holder shall have
waived such event in writing or stated in writing that the same has been cured
to its reasonable satisfaction. No waiver or statement of satisfactory cure
pursuant to this Section 4.3 shall extend to or affect any subsequent or other
Event of Default not specifically identified in such waiver or statement of
satisfactory cure or impair any of the Holder's rights upon the occurrence
thereof.

     4.4.  Waivers. The Company hereby waives to the extent not prohibited by
applicable law which cannot be waived (a) all presentments, demands for
performance, notice of nonperformance (except to the extent specifically
required by the provisions hereof), (b) any requirement
of diligence or promptness on the part of the Holder in the
enforcement of its rights under this Note, (c) except to the extent required
by other provisions of this Note, any and all notices of every kind and
description which may be required to be given by any statute or rule of

                                      -4-

<PAGE>

law, and (d) any defense of any kind (other than indefeasible payment) which it
may now or hereafter have with respect to its liability under this Note.

     4.5.   Course of Dealing. No course of dealing between the Company and its
affiliates on the one hand, and the Holder, on the other hand, shall operate as
a waiver of any of the Holder's rights under this Note. No delay or omission
in exercising any right under this Note shall operate as a waiver of such right
or any other right. A waiver on any one occasion shall not be construed as a
bar to or waiver of any right or remedy on any other occasion. No waiver or
statement of satisfactory cure or consent shall be binding upon the Holder
unless it is in writing and signed by the Holder.

5.   DEFINITIONS. As used in this Note, the following terms have the meanings
set forth below:

     5.1    "Common Stock" means the Company's Common Stock, $.10 par value per
share, any stock into which such Common Stock shall have been changed or any
stock resulting from any reclassification of such Common Stock.

     5.2.   "Company" has the meaning set forth in the first paragraph of this
Note, such term to include any entity which shall succeed to or assume the
obligations of the Company hereunder.

     5.3    "Holder" means each holder from time to time of this Note.

     5.4.   "License and Supply Agreement" means the License and Supply
Agreement dated as of September, 2001 by and between the Company and Biosearch
Italia, S.p.A., as the same may be amended, restated, extended, renewed or
otherwise modified from time to time.

     5.5    "Trading Day" means a day on which trades may be effected through
the Nasdaq National Market or any successor thereto.

6.    MISCELLANEOUS. This Note shall be governed by and construed in accordance
with the domestic substantive laws of The Commonwealth of Massachusetts without
giving effect to any choice or conflict of laws provision or rule that would
cause the application of the domestic substantive laws of any other
jurisdiction. This Note shall be binding on the Company and its successors and
assigns. The parties hereto, including the undersigned maker and all guarantors
and endorsers, hereby waive presentment, demand, notice, protest and all other
demands and notices in connection with the delivery, acceptance, performance
and enforcement of this Note, except as specifically otherwise provided herein,
and assent to extensions of the time of payment, or forbearance or other
indulgence, without notice.

                                  GENOME THERAPEUTICS CORP.

                                  By:_____________________________
                                   Title:

                                      -5-

<PAGE>

                            FORM OF CONVERSION NOTICE

To Genome Therapeutics Corp.,

     The undersigned registered holder of the within Note hereby irrevocably
converts the unpaid principal- amount of this Note, and requests that the
certificates for such shares be issued in the name of, and delivered to, whose
address is

Dated:
                                   ____________________________________
                                   (Signature must conform in all
                                    respects to name of holder as
                                    specified on the face of Note)

                                   ____________________________________
                                   (Street Address)

                                   ____________________________________
                                   (City) (State) (Zip Code)

                                      -6-

<PAGE>

                                   EXHIBIT II

         Bulk Licensed Compound Specifications (forse sono da rivedere)

*****

__________________________
* Confidential Treatment has been requested for the marked portions.

                                                          Initials:_____  _____

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00036-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00036-of-00352.parquet"}]]