Document:

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                                                                    EXHIBIT 10.1

                                    SUBLEASE

                    (3400 West Bayshore Road, Palo Alto, CA.)

        This sublease ("Sublease") is executed this 20 day of June, 2002, by and
between Connetics Corporation, a Delaware corporation (the "Sublessor"), and
Tolerion, Inc., a Delaware corporation (the "Sublessee").

                                    RECITALS

        A. Renault & Handley Employee's Investment Co., as lessor ("Lessor"),
and Sublessor, as lessee, executed a lease dated June 28, 1999 (the "Master
Lease");

        B. By the terms of the Master Lease, approximately 23,500 rentable
square feet of the building located at 3400 West Bayshore Road, Palo Alto,
California, as such premises are more fully described in the Master Lease
("Master Premises") attached as Exhibit A hereto and a made a part hereof, was
leased to Sublessor for a term of forty two (42) months, commencing on August 1,
1999, and ending on January 31, 2003, subject to earlier termination as provided
in the Master Lease;

        C. Lessor has agreed to extend the term of the Master Lease for a twenty
six (26) month period commencing on February 1, 2003 and ending on March 31,
2005, a copy of which is attached as Exhibit D hereto.

        D. Sublessor desires to sublease to Sublessee a portion of the Master
Premises, and Sublessee desires to lease a portion of the Master Premises from
Sublessor; and,

        E. Capitalized terms used but not defined herein shall have the meaning
ascribed to them in the Master Lease.

        THEREFORE, Sublessor and Sublessee agree as follows:

                       LEASING AND DESCRIPTION OF PROPERTY

        1. (a) Subject to the terms, conditions, and covenants set forth in this
Sublease, Sublessor hereby subleases to Sublessee, and Sublessee hereby
subleases from Sublessor, the area within the Master Premises as shown on
Exhibit C attached hereto and made a part hereof (the "Subleased Premises"). For
purposes of calculating base rent, the area of the Subleased Premises shall be
deemed to be 10,188 square feet.

           (b) As part of its sublease of the Subleased Premises to Sublessee,
Sublessor, for no additional consideration, hereby grants Sublessee the right to
use the equipment described on Exhibit B attached hereto and made a part hereof
(the "Equipment"), for the

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Sublease term. Sublessee's use of the Equipment shall be exclusive use, or
shared use with Sublessor, as indicated on Exhibit B.

           (c) As part of this Sublease, Sublessee shall have the right to
access and use the Shipping and Receiving Doors located in the Master Premises
and shown on Exhibit C.

           (d) Sublessor and Sublessee shall each have the right to use the
areas within the Subleased Premises shown as cross-hatched on Exhibit C (the
"Shared Areas"). To the extent appropriate or necessary, Sublessor and Sublessee
shall cooperate to establish mutually agreed rules and regulations for the use
of the Shared Areas (e.g., sign-up schedule sheets for the use of the patio or
conference rooms, or for the use of specific equipment).

                                      TERM

        2. The term of this Sublease shall commence on June 24, 2002
("Commencement Date"), and shall end on January 31, 2004.

                                      RENT

        3. For the period measured from the Commencement Date to January 31,
2003 Sublessee shall pay to Sublessor as base rent for the Subleased Premises a
rental of Two Dollars and Forty Cents ($2.40) per square foot per month net of
all operating costs (as set forth below) payable in advance on the first day of
each calendar month during the term, commencing on the Commencement Date. For
the period February 1, 2003 to January 31, 2004, Sublessee shall pay to
Sublessor as base rent for the Subleased Premises a rental of Two Dollars and
Ten Cents ($2.10) per square foot per month net of all operating costs (as set
forth below) payable in advance on the first day of each calendar month during
the term, commencing on February 1, 2003. Rent shall be paid to Sublessor at
3290 West Bayshore, Palo Alto, CA, or at any other place designated in writing
by Sublessor. The base rent payable for any portion of a calendar month shall be
a pro rata portion of the base rent payable for a full calendar month. Sublessee
shall also pay together with the base rent One Dollar ($1.00) per square foot
per month as operating expenses ("Operating Expenses") which shall be
Sublessee's only obligation with respect to operating expenses for the Master
Premises and Subleased Premises, including without limitation real property
taxes and assessments (general and special), insurance, common area maintenance,
HVAC maintenance, property management fee, utilities and janitorial services and
such other costs and fees which are the responsibility of the Sublessor as set
forth in the Master Lease.

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                                SECURITY DEPOSIT

        4. Upon execution of this Sublease by Sublessee and Sublessor and
receipt of Lessor's Consent (as hereinafter defined), Sublessee will deposit
with Sublessor the total sum of two (2) months base rent plus two (2) months
Operating Expenses as a security deposit for the full and faithful performance
of each and every term, provision, covenant and condition of the Sublease
("Security Deposit"). During the Sublease term, if Sublessee defaults with
respect to any provision of this Sublease, including, but not limited to, the
provisions relating to rent, Sublessor may (but shall not be required to) use or
apply all or any part of the Security Deposit for the payment of rent or any
other sum in default. If any portion of the Security Deposit is so used or
applied, Sublessee shall, within five (5) days after written demand therefore,
deposit cash with Sublessor in an amount sufficient to restore the Security
Deposit to its original amount. Upon the expiration or earlier termination of
this Sublease, or the expiration or earlier termination of any extension of the
Sublease, the Security Deposit, or so much thereof as has not theretofore been
applied by Sublessor, shall be returned to Sublessee promptly, and, in any
event, not to exceed ten (10) days after such expiration or termination.

                                 USE OF PREMISES

        5. (a) Sublessee shall use the Subleased Premises for the purposes set
forth in the Master Lease and for no other purpose.

           (b) Sublessee hereby agrees that it shall indemnify, defend, protect
and hold harmless Sublessor and Lessor from and against any and all claims or
liability for any injury or damage to any person or property, including any
reasonable attorneys' fees, occurring in, on or about the Master Premises to the
extent such injury or damages are caused by its, or its employees', agents' or
contractors' negligence or willful misconduct or Sublessee's breach of its
obligations under this Sublease. Sublessor hereby agrees that it shall
indemnify, defend, protect and hold harmless Sublessee from and against any and
all claims or liability for any injury or damage to any person or property,
including any reasonable attorneys' fees, occurring in, on or about the Master
Premises to the extent such injury or damages are caused by its, or its
employees', agents' or contractors' negligence or willful misconduct or
Sublessor's breach of its obligations under this Sublease.

           (c) For purposes of this Section 5, the terms "Disclosing Party" and
"Receiving Party" shall mean either Sublessor or Sublessee, as applicable. All
information disclosed by the Disclosing Party to the Receiving Party during the
term of this Sublease shall be deemed to be "Proprietary Information." In
particular, Proprietary Information shall be deemed to include any trade secret,
information, prices, technique, algorithm, computer program (source and object
codes), scientific material (including but not limited to DNA, RNA, vectors,
proteins or peptides), design, drawing, formula or test data,

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relating to any research project, work in process, future development,
engineering, manufacturing, marketing, servicing, financing or personnel matter
relating to the Disclosing Party, its present or future products, sales,
suppliers, clients, customers, employees, investors or business, whether in
oral, written, graphic or electronic form. The term "Proprietary Information" as
used in this Section 5 shall not be deemed to include information which the
Receiving Party can demonstrate by competent written proof: (a) is now, or
hereafter becomes, through no act or failure to act on the part of the Receiving
Party, generally known or available; (b) is known by the Receiving Party at the
time of receiving such information, as evidenced by its written records; (c) is
hereafter furnished to the Receiving Party by a third party, as a matter of
right and without restriction on disclosure; or (d) is the subject of a written
permission to disclose provided by the Disclosing Party. The Receiving Party
shall maintain all Proprietary Information in trust and confidence and shall not
disclose any Proprietary Information to any third party or use any Proprietary
Information for any unauthorized purpose. The Receiving Party shall not use
Proprietary Information for any purpose or in any manner which would constitute
a violation of any laws or regulations, including without limitation the export
control laws of the United States. No rights or licenses to trademarks,
inventions, copyrights or patents are implied or granted hereunder. The
Receiving Party shall advise its employees who might have access to Proprietary
Information of the confidential nature thereof and agrees that its employees
shall be bound by the terms of this Section 5. The Receiving Party agrees to
indemnify the Disclosing Party for any loss or damage suffered as a result of
any breach by the Receiving Party of the terms of this Section 5, including any
reasonable fees incurred by the Disclosing Party in the collection of such
indemnity.

                                 QUIET ENJOYMENT

        6. Sublessor covenants that Sublessee shall be entitled to quiet
enjoyment of the Subleased Premises, provided that Sublessee complies with the
terms of this Sublease.

                       CONDITION OF PREMISES AND EQUIPMENT

        7. (a) Sublessor represents and warrant to Sublessee that on the
Commencement Date all of the building systems located in the Master
Premises(and, to Sublessor's knowledge, all of the structural components of the
Master Premises) are in good condition and repair. Sublessee acknowledges and
agrees that the foregoing warranty and representation shall not apply to the
water purification system located in the Vivarium on the Master Premises.
Sublessor represents and warrants that it will use its best endeavors to have
the Vivarium water purification system serviced and operational within two (2)
weeks of the Commencement Date. Sublessor covenants that until such time the
Vivarium water purification system is operational, Sublessor will provide to
Sublessee purified water for Sublessee's use in

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replacement of the Vivarium water purification system. In the event the Vivarium
water purification system is deemed by Sublessor within two (2) weeks of the
Commencement Date to be inoperable and unrepairable, then Sublessor shall at
Sublessor's sole cost and expense install a replacement system to the Vivarium
water purification system of such type as will be mutually agreed by Sublessor
and Sublessee.

           (b) Sublessee shall maintain the interior of the Subleased Premises
in good order, condition and repair. Sublessee shall have the right to surrender
the Subleased Premises in the current "as is" condition upon the expiration or
earlier termination of this Sublease, and shall have no obligation to remove any
portion of the tenant improvements, alterations or other additions made to the
Subleased Premises by any party other than Sublessee. Sublessor shall remain
liable to Lessor for removal of any and all improvements or additions to the
Master Premises in terms of the Master Lease.

           (c) Sublessor shall use its best efforts to place all of the
Equipment in good operating condition and repair on or prior to the Commencement
Date; provided, however, that to the extent Sublessor is not able to do so,
Sublessor, upon request by Sublessee delivered to Sublessor within sixty (60)
days following the Commencement Date, shall repair any item of Equipment found
by Sublessee to be in need of repair during that time. After the Equipment is
placed in good operating condition and repair, either Sublessor or Sublessee
shall maintain the Equipment, as specified in Exhibit B.

                          APPLICABILITY OF MASTER LEASE

        8. Except as otherwise provided in this Sublease, all of the terms and
provisions of the Master Lease are incorporated into and made a part of this
Sublease, and the rights and obligations under the Master Lease are hereby
imposed upon the parties hereto with respect to the Subleased Premises, the
Sublessor being substituted for the Lessor in the Master Lease and the Sublessee
being substituted for the Lessee in the Master Lease and the Subleased Premises
being substituted for the Premises in the Master Lease; provided, however, that
the term "Lessor" in the following sections of the Master Lease shall mean (i)
Lessor, not Sublessor: 9, 10, 11.1, 11.3, 11.5, 28, 29 and 31; and (ii) both
Lessor and Sublessor: 14, 15, 16, 24, 25, 27 and 30. Notwithstanding the
foregoing, the following sections of the Master Lease are not incorporated
herein: 1, 3, 4, 5, the first and second sentences of section 7, 10, 11.4, the
indemnity provision in section 15, 17 and 26.

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               SUBLESSEE'S RIGHTS REGARDING CONTINUING POSSESSION

        9. Sublessee shall have the right at any time, at Sublessor's expense,
to take any action required to be taken, but not timely taken, by Sublessor,
that may be necessary to prevent a default under the terms of the Master Lease.
In addition, if Lessor shall fail or refuse to comply with any of the terms of
the Master Lease, Sublessee shall have the right, upon notice to and consent of
Sublessor, to exercise in its own name, and/or that of Sublessor, as required,
all rights available to Sublessor under the Master Lease to enforce performance
on the part of Sublessor.

                            OBLIGATIONS OF SUBLESSOR

        10. Sublessor shall maintain the Master Lease during the entire term of
this Sublease, subject, however, to any earlier termination of the Master Lease
without the fault of Sublessor (i.e., voluntary termination on account of
casualty or condemnation). Sublessor also agrees to pay all rentals, taxes and
costs as provided for in the Master Lease in accordance with its terms, and to
comply with or perform all obligations under the Master Lease that Sublessee has
not assumed under this Sublease, including without limitation all maintenance
activities under Section 10 of the Master Lease not assumed by Sublessee herein.
Further, Sublessor agrees not to modify the Master Lease without the prior
written consent of Sublessee, which Sublessee may not unreasonably withhold. Any
modification made without that consent shall be null and void and shall have no
effect on the rights of Sublessee under this Sublease. Except as otherwise set
forth herein, Sublessor does not assume the obligations required to be kept or
performed by the Lessor under the Master Lease.

                        OBLIGATIONS OF SUBLESSEE

        11. Sublessee shall maintain during the Sublease term hereof such
licenses and permits as may be required for Sublessee to comply with all
applicable laws and regulations relating to hazardous waste handling, storage,
materials used and disposal by Sublessee at the Subleased Premises. At the
Commencement Date and throughout the term of the Sublease, Sublessee shall post
in a conspicuous place on the Subleased Premises such permits and other notices
as required by Federal and State law as applicable to the operations of the
Sublessee on the Subleased Premises. Sublessee will cooperate with Sublessor to
obtain either an amendment to or new licenses or permits as may be required for
the Master Premises as a result of either the operations of or materials used by
Sublessee on the Master Premises.

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                                    INSURANCE

        12. Sublessee shall maintain during the sublease term hereof commercial
general liability insurance in the amount of not less than $1,000,000 per
occurrence and $2,000,000 in the annual aggregate. Sublessee shall provide
Sublessor with a certificate of insurance prior to the Commencement Date. If any
such insurance is significantly reduced or terminated prior to the term hereof,
Sublessee shall immediately notify Sublessor of the same. Such insurance shall
name Sublessor and Lessor as an additional insured. Any policy carried by either
party hereto affecting the Master Premises, Subleased Premises the contents of
the same or the operations therein, shall include a clause or endorsement
denying the insurer any rights of subrogation against the other party to the
extent rights have been waived by the insured before the occurrence of injury or
loss, if the same are obtainable without unreasonable cost.

                                 ATTORNEY'S FEES

        13. If any action or other proceeding arising out of this Sublease is
commenced by either party to this Sublease concerning the Subleased Premises,
then as between Sublessor and Sublessee, the prevailing party shall be entitled
to receive from the other party, in addition to any other relief that may be
granted, the reasonable attorney's fees, costs, and expenses incurred in the
action or other proceeding by the prevailing party.

                                 CONFIDENTIALITY

        14. The parties hereto acknowledge that the terms of this Sublease are
confidential and the parties hereby agree that the terms hereof as well as any
and all discussions and negotiations related to the occupation of the Subleased
Premises by Sublessee shall remain confidential and shall not be disclosed
without the prior written consent of Sublessor.

                             RIGHT OF FIRST REFUSAL

        15. Sublessor hereby grants to Sublessee a right of first refusal to any
space in the Master Premises that Sublessor occupies as of the commencement date
of the Sublease term in the event Sublessor intends to sublet such space either
in whole or in part. Sublessor shall notify Sublessee in writing of its desire
to sublet either the whole or the part of the Master Premises not occupied by
Sublessee and the terms of such offer to sublet and the Sublessee shall have ten
(10) business days from the date of such offer to either accept or reject the
offer. Any such offer shall be subject to the terms of the Master Lease.

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                                  COUNTERPARTS

        16. This Sublease may be signed in two or more counterparts, by
facsimile and followed by hardcopy of each counter part each of which shall be
deemed an original and all of which shall constitute one agreement.

                                     BROKERS

        17. Cresa Partners represents the Sublessee and Cresa Partners and
Cornish & Carey represent the Sublessor. Sublessor shall pay both of such
brokers pursuant to a separate agreement. Each of Sublessor and Sublessee shall
protect, defend, indemnify and hold harmless the other from and against any
claim, loss, damage, liability or expense arising out of any alleged broker
commission, fee or other payment resulting from such party's actions.

                                   CONTINGENCY

        18. This Sublease shall not be effective until it has been approved by
Sublessee's Board of Directors and Sublessor's Chief Executive Officer and Chief
Financial Officer, and Sublessor and Sublessee have received the written consent
of Master Lessor in the form of Exhibit E ("Lessor's Consent").

                               PARKING AND SIGNAGE

        19. Sublessor shall provide Sublessee a minimum of twenty nine (29)
nonexclusive parking spaces on the Master Premises. Sublessee shall have the
right to place sign in front of the building in which the Subleased Premises are
located, subject to the reasonable approval of Lessor, Sublessor and the City of
Palo Alto. The location, placement and appearance of any such signage shall be
subject to Sublessor's reasonable consent.

                            ASSIGNMENT AND SUBLETTING

        20. Sublessee shall have the right to assign this Sublease or to
sublease all of any portion of the Subleased Premises to any entity resulting
from a merger or consolidation with Sublessee or to any subsidiary or affiliate
of Sublessee, without the consent of Lessor or Sublessor. Sublessee shall have
the right to sublease all or any portion of the Subleased Premises to any party
not described in the previous sentence, with the prior written consent of Lessor
and Sublessor, which consents shall not be unreasonably withheld or delayed.

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        IN WITNESS WHEREOF, the parties have executed this Sublease as of the
date first specified above.

                                            SUBLESSOR:

                                            Connetics Corporation,
                                            a Delaware corporation

                                            By: /s/ JOHN L. HIGGINS
                                               ---------------------------------

                                            Name: John L. Higgins
                                                -------------------------------
                                            Its: CFO
                                                --------------------------------

                                            SUBLESSEE:

                                            Tolerion,Inc.,
                                            a Delaware corporation

                                            By: /s/ LAWRENCE STEINMAN
                                               ---------------------------------

                                            Name: Lawrence Steinman
                                                --------------------------------
                                            Its: President
                                                --------------------------------

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        IN WITNESS WHEREOF, the parties have executed this Sublease as of the
date first specified above.

                                            SUBLESSOR:

                                            Connetics Corporation,
                                            a Delaware corporation

                                            By: /s/ JOHN L. HIGGINS
                                               ---------------------------------

                                            Name: John L. Higgins
                                                -------------------------------
                                            Its: CFO
                                                --------------------------------

                                            SUBLESSEE:

                                            Tolerion,Inc.,
                                            a Delaware corporation

                                            By: /s/ LAWRENCE STEINMAN
                                               ---------------------------------

                                            Name: Lawrence Steinman
                                                --------------------------------
                                            Its: President
                                                --------------------------------

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                                    EXHIBIT A

                                  MASTER LEASE

                                [TO BE ATTACHED]

                                       11
<PAGE>

                                    EXHIBIT B

                         INCLUDED IN SUBLEASED PREMISES

1.  EXCLUSIVE USE OF SUBLESSOR'S EQUIPMENT IN VIVARIUM AREA (4,568+/-SF),
INCLUDING 10 RACKS FOR MOUSE CAGES, 2 RACKS FOR RAT CAGES, 200-300 MOUSE CAGES
(INCLUDING WIRE TOPS AND WATER BOTTLES FOR EACH), 6 LAB CHAIRS, AND ONE 6-FOOT
TISSUE CULTURE HOOD.

2.  EXCLUSIVE USE OF SUBLESSOR'S AUTOCLAVE AND CAGEWASHER IN VIVARIUM AREA.

3.  SHARED USE OF SUBLESSOR'S DEIONIZED WATER SYSTEM.

4.  SHARED USE OF SUBLESSOR'S AUTOCLAVE IN LAB AREA.

5.  SHARED USE OF SUBLESSOR'S GLASS WASH IN LAB AREA.

6.  SHARED USE OF SUBLESSOR'S PHOTOCOPIER LOCATED IN THE MAILROOM NEAR THE
LOBBY.

7.  SHARED USE OF DARK ROOM.

8.  SHARED USE OF SUBLESSOR'S FILM DEVELOPER.

9.  EXCLUSIVE USE OF WARM ROOM

10. EXCLUSIVE USE OF COLD ROOM.

11. EXCLUSIVE USE OF SUBLESSOR'S MILLIPORE WATER PURIFIER IN CELL BIOLOGY LAB.

12. EXCLUSIVE USE OF SUBLESSOR'S CUBICLES AND ATTACHED FURNITURE IN OFFICE AREA.

13. SHARED USE OF LOBBY ENTRANCE.

14. SHARED USE OF SUBLESSOR'S SORVALL CENTRIFUGE AND ICE MACHINE IN LAB AREA.

NOTE: ALL "SHARED USE" ITEMS SHALL BE MAINTAINED BY SUBLESSOR. ALL "EXCLUSIVE
USE" ITEMS SHALL BE MAINTAINED BY SUBLESSEE.

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<PAGE>

                                    EXHIBIT C

                        FLOOR PLAN OF SUBLEASED PREMISES

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                                    EXHIBIT C

                                  [FLOOR PLAN]

                                       14
<PAGE>

                                    EXHIBIT D

                          MASTER LEASE TERM EXTENSION

                                       15
<PAGE>

June 3, 2002

                                 LEASE EXTENSION

Re: That certain Lease dated June 28, 1999 by and between Renault & Handley
Employees Investment Co., Lessor and Connetics Corporation f/k/a Connective
Therapeutics, Inc., Lessee for an approximately 23,500 square foot building
commonly known as 3400 W. Bayshore, Palo Alto, California.

The above Lease is hereby extended for a 26 month period commencing on February
1, 2003 and terminating on March 31, 2005. All the terms and conditions of the
above noted Lease shall be in full force and effect excepting the following:

(a) The monthly rent commencing February 1, 2003 and payable on the 1st day of
each and every month through March 1, 2005 shall be $49,350.00.

(b) Lessor extends to Lessee an option to extend the Lease for an additional 1
year period commencing on the termination date of the lease extension period.
The monthly rental amount for the option period shall be the fair market value
for similarly improved properties in the approximate area.

             LESSOR                            LESSEE

Renault & Handley Employees Investment Co.     Connetics Corporation fka
                                               Connective Therapeutics, Inc.

By: /s/ G.O. McKEE                             By: /s/ John L. Higgins
   --------------------------                     ---------------------------

Date: 6/21/02                                  Date: 6/3/02
     ------------------------                       -------------------------

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<PAGE>

                                    EXHIBIT E

                                CONSENT OF LESSOR

        The undersigned is the Lessor under the Master Lease described in the
foregoing Sublease and hereby consents to the Sublease. In granting this
consent, Lessor does not waive any of the Lessor's rights under the Master
Lease; provided, however, that the undersigned acknowledges and agrees that so
long as the base rent payable under the Sublease is not increased, Lessor is not
entitled to any "bonus rent" pursuant to Section 26 of the Master Lease.

        Lessor hereby agrees that if the leasehold estate of the "Lessee" under
the Master Lease is terminated for any reason (whether by Lessor's exercise of
its remedies under the Master Lease, by operation of law or by voluntary
transfer of any kind, such as in connection with Lessee's vacation of the
entire Master Premises), then so long as Sublessee shall be willing to commit to
perform the obligations of the "Lessee" for the Master Premises under the Master
Lease, Sublessee shall have the right and option, to be exercised by written
notice to Lessor, to elect to become the "Lessee" of the Master Premises under
the Master Lease, in which event the Sublease shall terminate and the Master
Lease shall continue, Lessor will recognize Sublessee as the new direct "Lessee"
under the Master Lease, and Sublessee will attorn to and recognize Lessor as
Sublessee's direct landlord under the Master Lease; Except that the term of the
Master Lease shall terminate on March 31, 2005 and that the Sublessee is not
entitled to exercise any option to extend the term of the Master Lease as
provided by the Lessor to the Sublessor under the extension to the term of the
Mater Lease (Exhibit D).

                                   LESSOR:

                                   Renault & Handley Employee's Investment Co.

                                   By: /s/  GEORGE O. McKEE
                                      -----------------------------------------

                                   Name: George O. McKee
                                        ---------------------------------------

                                   Its:  Secy.
                                       ----------------------------------------

                                       17<PAGE>

[LOGO] Yamanouchi                                         Yamanouchi Europe B.V.

                                                                       2002-0267

                                                                    EXHIBIT 10.2

                        LICENSE AND DEVELOPMENT AGREEMENT

This License and Development Agreement (the "Agreement") is made and entered
into by and between:

YAMANOUCHI EUROPE B.V., a company organized and existing under the laws of the
Kingdom of the Netherlands, having its registered office at Elisabethhof 19,
2353 EW Leiderdorp, The Netherlands ("YAMANOUCHI");

and

CONNETICS CORPORATION, a company organized and existing under the laws of the
State of Delaware, having its principal place of business at 3290 West Bayshore
Road, Palo Alto, California 94303, United States of America ("CONNETICS").

YAMANOUCHI and CONNETICS are sometimes referred to individually as a "PARTY" and
collectively as the "PARTIES."

                                    RECITALS

A.    YAMANOUCHI has developed the PRODUCT (as defined below) and wishes to have
      the PRODUCT developed, manufactured, promoted, sold and distributed in the
      TERRITORY (as defined below);

B.    YAMANOUCHI has the right to grant rights under the PATENTS (as defined
      below), and YAMANOUCHI KNOW-HOW (as defined below) and TRADEMARKS (as
      defined below) to other parties and is willing to grant such rights to
      CONNETICS on the conditions contained in this Agreement;

C.    CONNETICS has at its disposal facilities to develop, manufacture, promote,
      market, sell and distribute the PRODUCT in the TERRITORY and has
      experience and knowledge in the market for the PRODUCT;

D.    CONNETICS and YAMANOUCHI are parties to a Letter of Intent dated April 5,
      2002, pursuant to which CONNETICS paid YAMANOUCHI an "Exclusive
      Negotiation Fee" in the amount of USD 100,000 (One Hundred Thousand U.S.
      Dollars);

E.    CONNETICS desires to obtain a license from YAMANOUCHI to develop,
      manufacture, promote, market, distribute, and sell the PRODUCT in the
      TERRITORY on the terms and conditions contained in this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and obligations set
forth in this Agreement, the PARTIES do hereby agree as follows:

<PAGE>

[LOGO] Yamanouchi                                         Yamanouchi Europe B.V.

                                                                       2002-0267

                                    AGREEMENT

1     - DEFINITIONS

In this Agreement the following expressions will have the meanings stated,
whether used in the singular or the plural:

AFFILIATE                         -     a legal entity directly or indirectly
                                        controlling, controlled by or under
                                        common control with either PARTY, or
                                        owning at least fifty percent (50%) of
                                        the voting rights of such legal entity.

CONNETICS KNOW-HOW                -     all information and materials,
                                        including, without limitation,
                                        pharmaceutical, pharmacological and
                                        medical data and information, as well as
                                        developing, manufacturing, technical,
                                        commercial, promotional and marketing
                                        information and experience, knowledge,
                                        ideas, and other intellectual property,
                                        patentable or otherwise, tangible or
                                        intangible, owned or developed by
                                        CONNETICS or its AFFILIATES as of the
                                        date of this Agreement or thereafter,
                                        relating to the PRODUCT.

LICENSE                           -     the license granted by YAMANOUCHI to
                                        CONNETICS in Section 2 of this
                                        Agreement.

NET SALES                         -     determined using the accrual basis of
                                        accounting in accordance with generally
                                        accepted accounting principles (GAAP) in
                                        the United States and as reported by
                                        CONNETICS to the U.S. Securities and
                                        Exchange Commission, applied in a manner
                                        consistent with practices consistent
                                        with those in the pharmaceutical
                                        industry in the TERRITORY, but in any
                                        event NET SALES shall not be less than
                                        [*] below the actual gross invoice sales
                                        of PRODUCT by CONNETICS or its
                                        AFFILIATES, sublicenses, distributors,
                                        or other agents to third parties. If at
                                        any point in the future CONNETICS
                                        determines that the limitation on
                                        deductions is adversely impacting its
                                        ability to compete effectively in the
                                        marketplace, it shall have the right to
                                        request YAMANOUCHI to enter into good
                                        faith discussions to renegotiate the [*]
                                        limitation in line with then-prevailing
                                        commercial practice.

PATENTS                           -     the patents and/or patent applications
                                        as specified in Annex III to this
                                        Agreement and all patents issued on any
                                        such patent applications, and all
                                        counterparts, additions, divisions,
                                        continuations, continuations-in-part,
                                        substitutions, extensions,

*     Certain information on this page has been omitted and filed separately
      with the Commission. Confidential treatment has been requested with
      respect to the omitted portions.

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                                                                       2002-0267

                                        reissues, patent term extensions and
                                        renewals thereof in any country of the
                                        TERRITORY.

PRODUCT                           -     the pharmaceutical specialty for human
                                        administration as listed in Annex I to
                                        this Agreement and any improvements
                                        developed from time to time.

TERRITORY                         -     as to the PATENTS and the YAMANOUCHI
                                        KNOW-HOW, exclusively the United States
                                        of America (including its territories
                                        and possessions) and Canada, and
                                        non-exclusively Mexico; as to the
                                        TRADEMARKS, exclusively in the United
                                        States of America (including its
                                        territories and possessions), Canada,
                                        and Mexico.

TRADEMARKS                        -     the trademarks set forth in Annex II,
                                        or, if the U.S. Food and Drug
                                        Administration rejects the use of those
                                        trademarks for the PRODUCT, any other
                                        trademark mutually acceptable to
                                        CONNETICS and YAMANOUCHI and owned by
                                        YAMANOUCHI.

TRADEMARK TERM                    -     With respect to the right to use the
                                        TRADEMARKS, this Agreement shall remain
                                        in effect and shall not expire for as
                                        long as YAMANOUCHI continues to maintain
                                        the registration of the TRADEMARKS in
                                        the TERRITORY, provided that CONNETICS
                                        continues to sell PRODUCT pursuant to
                                        this Agreement and the Agreement is not
                                        otherwise expressly terminated by
                                        YAMANOUCHI or CONNETICS.

YAMANOUCHI KNOW-HOW               -     all information and materials,
                                        including, without limitation,
                                        pharmaceutical, pharmacological and
                                        medical data and information, as well as
                                        developing, manufacturing, technical,
                                        commercial, promotional and marketing
                                        information and experience, knowledge,
                                        ideas, improvements, and other
                                        intellectual property, patentable or
                                        otherwise, tangible or intangible, owned
                                        or developed by YAMANOUCHI or its
                                        AFFILIATES as of the date of this
                                        Agreement or thereafter, relating to the
                                        PRODUCT or the PATENTS, whether or not
                                        covered by the PATENTS, or relating to
                                        topical products containing a retinoid
                                        and an antibiotic, and, in each case,
                                        which is necessary or useful to the use,
                                        development, manufacture, marketing,
                                        promotion, distribution, sale and/or
                                        commercialization of the PRODUCT in the
                                        TERRITORY.

                                                                          Page 3
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2     - GRANT

2.1   Subject to the terms and conditions of this Agreement, YAMANOUCHI grants
      to CONNETICS during the term of this Agreement and CONNETICS accepts (a)
      the LICENSE under the PATENTS and the YAMANOUCHI KNOW-HOW to develop,
      manufacture, promote, market, sell and distribute the PRODUCT exclusively
      in the United States of America (including its territories and
      possessions), and Canada, and non-exclusively in Mexico; and (b) the
      rights under the TRADEMARKS to develop, manufacture, promote, market, sell
      and distribute the PRODUCT exclusively in the United States of America
      (including its territories and possessions), Canada, and Mexico.
      YAMANOUCHI further grants to CONNETICS the right to sublicense the rights
      granted in this Section as permitted under Section 19.1.

2.2   CONNETICS shall during the term of this Agreement refrain from seeking
      customers for the PRODUCT outside the TERRITORY.

2.3   YAMANOUCHI and CONNETICS are independent contractors. CONNETICS has no
      power or authority to legally represent YAMANOUCHI, or to make and/or
      enter into agreements with buyers of the PRODUCT on behalf of or in the
      name of YAMANOUCHI without YAMANOUCHI's prior express written approval.
      YAMANOUCHI has no power or authority to legally represent CONNETICS, or to
      make and/or enter into agreements with buyers of the PRODUCT on behalf of
      or in the name of CONNETICS without CONNETICS' prior express written
      approval.

2.4   CONNETICS is allowed to perform or have performed any studies of whatever
      nature in order to develop sales of the PRODUCT without the prior written
      approval of YAMANOUCHI. CONNETICS shall have the right to present in any
      form, including but not limited to lectures, slides, abstracts, posters,
      and the like or submit for publication the results of any such studies.
      CONNETICS agrees to submit all such materials or a synopsis thereof to
      YAMANOUCHI at least thirty (30) days prior to the date on which such
      presentation or submission is proposed to be made. If YAMANOUCHI
      reasonably determines and notifies CONNETICS within the initial thirty
      (30) day period that the presentation or submission contains patentable
      material, YAMANOUCHI may request an additional thirty (30) days to allow
      it to prepare and file any patent application(s) as YAMANOUCHI believes
      are reasonably necessary to protect its interests prior to publication. If
      YAMANOUCHI reasonably believes that such publication will harm the sales
      potential of the PRODUCT or the validity or prosecution of the patents
      relating to the PRODUCT , YAMANOUCHI may withhold its approval for
      publication, provided, however, that YAMANOUCHI acknowledges that certain
      university-based physicians who participate in U.S. clinical trials for
      the PRODUCT may require the absolute right to publish results of their
      experience with the PRODUCT. Any clinical study agreement that CONNETICS
      enters into in connection with the PRODUCT must contain language that
      provides sufficient time (at least 60 days) for YAMANOUCHI to evaluate the

                                                                          Page 4
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                                                                       2002-0267

      proposed publication and to take the necessary steps, including a patent
      application to protect its interest prior to publication.

3     - INFORMATION & CONFIDENTIALITY

3.1   During the term of this Agreement YAMANOUCHI shall within reason and at
      YAMANOUCHI'S expense provide CONNETICS with YAMANOUCHI KNOW-HOW in the
      possession of YAMANOUCHI that may be useful for developing, manufacturing,
      promoting, marketing, distributing or selling the PRODUCT in the
      TERRITORY. CONNETICS shall not be considered in default of its obligations
      under this AGREEMENT for any delay in development that is attributable
      directly and solely to the failure by YAMANOUCHI to furnish requested
      information within a reasonable period as agreed to by the PARTIES.

3.2   The PARTIES expressly agree that all YAMANOUCHI KNOW-HOW received and
      acquired by CONNETICS as a consequence of this Agreement shall be held
      strictly confidential by CONNETICS and shall remain YAMANOUCHI's property.
      During the term of this Agreement, CONNETICS may disclose YAMANOUCHI
      KNOW-HOW to its AFFILIATES, employees, agents, consultants, other
      representatives, regulatory authorities and others to accomplish the
      purposes of this Agreement, provided that they have agreed in writing (or
      in the case of regulatory authorities, are bound by law) to observe the
      confidentiality of the information. Notwithstanding the above, nothing in
      this Section 3.2 shall apply to YAMANOUCHI KNOW-HOW which CONNETICS can
      establish by competent evidence:

      a)    was known to CONNETICS at the time it received the information;

      b)    is at the time of receipt, or subsequently becomes, known to the
            public or generally available to the public through no act or
            omission by CONNETICS;

      c)    is furnished to CONNETICS at any time by a third party who has no
            obligation to keep the information confidential;

      d)    is required to be disclosed by CONNETICS by law or to the relevant
            authorities for the performance of its obligations under this
            Agreement;

      e)    is the subject of a written permission to disclose provided by
            YAMANOUCHI.

3.3   The PARTIES expressly agree that all CONNETICS KNOW-HOW received and
      acquired by YAMANOUCHI as a consequence of this Agreement shall be held
      strictly confidential by YAMANOUCHI and shall remain CONNETICS' property.
      During the term of this Agreement, YAMANOUCHI may disclose CONNETICS
      KNOW-HOW to its AFFILIATES, employees, agents, consultants, other
      representatives, regulatory authorities and others to accomplish the
      purposes of this Agreement, provided that they have agreed in writing (or
      in the case of regulatory authorities, are bound by law) to observe the
      confidentiality of the information. Notwithstanding the above, nothing in
      this Section shall apply to CONNETICS KNOW-HOW which YAMANOUCHI can
      establish by competent evidence:

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                                                                       2002-0267

      a)    was known to YAMANOUCHI at the time it received the information;

      b)    is at the time of receipt, or subsequently becomes, known to the
            public or generally available to the public through no act or
            omission by YAMANOUCHI;

      c)    is furnished to YAMANOUCHI at any time by a third party who has no
            obligation to keep the information confidential;

      d)    is required to be disclosed by YAMANOUCHI by law or to the relevant
            authorities for the performance of its obligations under this
            Agreement;

      e)    is the subject of a written permission to disclose provided by
            CONNETICS.

4     - PAYMENTS

4.1   CONNETICS shall develop and manufacture the PRODUCT at its own expense and
      risk.

4.2.1 In consideration of the licenses and rights granted by YAMANOUCHI to
      CONNETICS in this Agreement, CONNETICS shall pay to YAMANOUCHI the sum of
      USD 2,000,000 (Two Million U.S. Dollars) upfront, and [*] when it
      successfully reaches specific milestones, as follows:

Upfront payments:

<TABLE>
<CAPTION>
                  AMOUNT                                          EVENT

<S>                              <C>
              USD   100,000      Upfront fee (previously paid at the time of the Letter of Intent
                                 and which is creditable towards the Upfront payment)

              USD   900,000      Upfront fee payable upon execution by both PARTIES of this
                                 Agreement

              USD 1,000,000      Upfront fee payable on 1 July 2002
</TABLE>

*     Certain information on this page has been omitted and filed separately
      with the Commission. Confidential treatment has been requested with
      respect to the omitted portions.

                                                                          Page 6
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[LOGO] Yamanouchi                                         Yamanouchi Europe B.V.

                                                                       2002-0267

Milestone payments:

      [*]

4.2.2 Payments pursuant to Section 4.2.1 shall be made in USD and are due within
      fourteen (14) days of the event or date indicated. For any delay in
      payment beyond the 14th day, CONNETICS shall pay a pro rata interest
      amount of one and a half percent (1.5%) per month over the amount due.
      Payments shall be made by bank transfer to an account as designated by
      YAMANOUCHI.

4.3.1 In further consideration of the licenses and rights granted by YAMANOUCHI
      to CONNETICS, during the term of this Agreement (except as it relates to
      the TRADEMARKS) CONNETICS shall pay to YAMANOUCHI for the use of the
      PATENTS and/or the YAMANOUCHI KNOW-HOW a royalty on CONNETICS' NET SALES
      of the PRODUCT for each calendar year as follows:

      [*]

*     Certain information on this page has been omitted and filed separately
      with the Commission. Confidential treatment has been requested with
      respect to the omitted portions.

                                                                          Page 7
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                                                                       2002-0267

4.3.2 Payments pursuant to Section 4.3.1 shall be made in USD and are due within
      forty-five (45) days after the end of each calendar quarter. For any delay
      in payment beyond the 45th day, CONNETICS shall pay a pro rata interest
      amount of one and a half percent (1.5%) per month over the amount due.
      Payments shall be made by bank transfer to an account as designated by
      YAMANOUCHI.

4.4.1 In further consideration of the licenses and rights granted by YAMANOUCHI
      to CONNETICS, and subject to Section 16.5, CONNETICS shall pay to
      YAMANOUCHI a royalty equal to [*] on CONNETICS' NET SALES of the PRODUCT
      for the use of the TRADEMARKS during the TRADEMARK TERM. This royalty is
      in addition to the royalties for the use of the YAMANOUCHI KNOW-HOW.

4.4.2 Payments pursuant to Section 4.4.1 shall be made in USD and are due within
      forty-five (45) days after the end of each calendar month. For any delay
      in payment beyond the 45th day, CONNETICS shall pay a pro rata interest
      amount of one and a half percent (1.5%) per month over the amount due.
      Payments shall be made by bank transfer to an account as designated by
      YAMANOUCHI.

4.5   Without YAMANOUCHI's prior written approval, CONNETICS shall not be
      entitled to set off any counterclaims against any kind of payments due.

4.6   To the extent there is a statutory tax withholding obligation on a payment
      (or other remittance) due YAMANOUCHI, CONNETICS shall be entitled to
      withhold from such payment the amount, if any, of any withholding tax
      assessable to YAMANOUCHI. CONNETICS shall advise YAMANOUCHI and provide it
      with copies of the tax receipts for all taxes deducted from the payment
      due YAMANOUCHI.

5     - MINIMUM ROYALTY

5.1   Beginning at the time of the launch of the PRODUCT in the TERRITORY,
      CONNETICS shall pay YAMANOUCHI a minimum annual royalty equal to the
      applicable royalty percentage in Section 4.3.1 above multiplied by [*] of
      the projected NET SALES based on the annual sales forecast provided by
      CONNETICS pursuant to Section 5.2. The minimum annual royalty for a given
      calendar year will be considered overdue if it has not been paid by
      January 31 of the following year. The amount of any minimum annual royalty
      paid in respect of a given calendar year shall be applied against
      royalties due and owing under Article 4 in that calendar year.

5.2   Each year following the launch of the PRODUCT, in the last quarter of each
      calendar year CONNETICS shall provide YAMANOUCHI with a sales forecast
      with respect to the

*     Certain information on this page has been omitted and filed separately
      with the Commission. Confidential treatment has been requested with
      respect to the omitted portions.

                                                                          Page 8
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                                                                       2002-0267

      following year, which forecast shall be realistic and consistent with the
      prevailing market and regulatory environment at the time the forecast is
      given. If YAMANOUCHI believes that the sales forecast provided by
      CONNETICS is not realistic or consistent with the prevailing market and
      regulatory environment at the time, the PARTIES shall discuss the matter
      in good faith and agree upon a forecast that is acceptable to both
      PARTIES.

5.3   If CONNETICS fails to pay the minimum royalty as per Section 5.1 (and
      furthermore fails to pay that amount in the subsequent three (3) month
      period), the exclusive rights granted under Article 2 of this Agreement
      will become non-exclusive at the end of the subsequent three (3) month
      period.

5.4   If the exclusive license to CONNETICS becomes non-exclusive by operation
      of Section 5.3, the PARTIES agree to negotiate in good faith how CONNETICS
      may cooperate with YAMANOUCHI to obtain market authorization in the
      non-exclusive part of the TERRITORY.

6     - BOOKS AND RECORDS

6.1   CONNETICS shall furnish YAMANOUCHI with reports within thirty-five (35)
      days after the end of each calendar quarter stating the quantity of the
      PRODUCT sold and the NET SALES during the preceding quarter.

6.2   CONNETICS shall keep complete and accurate records pertaining to the
      manufacture and commercialization of the PRODUCT in sufficient detail to
      permit YAMANOUCHI to confirm development and commercialization efforts,
      sale of PRODUCT, accuracy of calculations of NET SALES and royalties and
      all other payments required to be made under this Agreement. All records
      and information required under this Agreement shall be maintained for the
      longer of (a) five (5) years following the year in which any such efforts
      or payments were made under this Agreement; or (b) such longer period as
      may be required by law.

6.3   YAMANOUCHI shall have the right to audit CONNETICS' records using a
      mutually acceptable, nationally recognized firm of independent certified
      accountants. Such accountants will have access, on reasonable notice, to
      CONNETICS, its AFFILIATES' or its sublicensees' records, as the case may
      be, during reasonable business hours for the purpose of verifying any
      royalty payable under this Agreement for the two (2) preceding years.
      Notwithstanding the foregoing, the right to audit CONNETICS' records
      pursuant to this Section may not be exercised more than once in any
      calendar year. The accountant shall provide both YAMANOUCHI and CONNETICS
      with a copy of any report prepared as a result of the audit. YAMANOUCHI
      shall bear the full cost of such audit unless such audit discloses an
      underpayment by more than [*] of the amount due during such period. In
      such case, CONNETICS shall bear the full cost of such audit.

*     Certain information on this page has been omitted and filed separately
      with the Commission. Confidential treatment has been requested with
      respect to the omitted portions.

                                                                          Page 9
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                                                                       2002-0267

7     - MARKETING AUTHORISATIONS

7.1   CONNETICS shall, with YAMANOUCHI's reasonable assistance if requested,
      conscientiously pursue the obtaining and maintaining of the necessary
      approvals and authorizations for the PRODUCT in the U.S.A. and Canada,
      provided that CONNETICS shall have sole discretion in determining whether
      and what type of product registration is required in each country. The
      PARTIES agree to negotiate in good faith the best process and respective
      responsibilities for obtaining approval to sell PRODUCT in Mexico.

7.2   CONNETICS shall bear all costs in connection with obtaining and
      maintaining registrations (except registrations relating to the PATENTS
      and the TRADEMARKS), marketing approvals, clearances, or authorizations
      necessary for CONNETICS to be able to develop, manufacture, promote, sell
      and distribute the PRODUCT in the TERRITORY.

7.3   If YAMANOUCHI terminates this AGREEMENT pursuant to Section 16.3,
      CONNETICS shall, if applicable, fully cooperate in arranging for the
      transfer of all approvals and authorizations granted in the TERRITORY in
      respect of the PRODUCT to YAMANOUCHI, or another party designated by
      YAMANOUCHI, at YAMANOUCHI's cost and expense.

8     - TRADEMARKS

8.1   The PRODUCT shall be sold by CONNETICS only and exclusively under the
      TRADEMARKS. The TRADEMARKS are and shall remain under all circumstances
      the property of YAMANOUCHI. CONNETICS is only entitled to use the
      TRADEMARKS for the developing, manufacturing, distribution, marketing,
      promotion and sale of the PRODUCT during the TRADEMARK TERM.

8.2   Neither CONNETICS, YAMANOUCHI nor any YAMANOUCHI AFFILIATE or sublicensee
      of YAMANOUCHI shall use in the TERRITORY any trademark which might be
      conflicting or cause confusion with the TRADEMARKS.

8.3   YAMANOUCHI shall maintain and reasonably defend the TRADEMARKS at its cost
      and expense. Failure to maintain the TRADEMARKS shall relieve CONNETICS of
      the obligation to pay royalties pursuant to Section 4.4.1 for the period
      that the TRADEMARKS used by CONNETICS are not valid.

8.4   CONNETICS shall report as soon as this information becomes available of
      any infringement or potential infringement of the TRADEMARKS in the
      TERRITORY and CONNETICS shall offer any reasonable assistance required by
      YAMANOUCHI to address the infringement or potential infringement.
      YAMANOUCHI and CONNETICS

                                                                         Page 10
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                                                                       2002-0267

      shall confer about the appropriate action to be taken in connection with
      the reported infringement.

8.5   After the TRADEMARK TERM or any earlier termination of this Agreement by
      YAMANOUCHI under Section 16.3, CONNETICS shall immediately cease any and
      all use of the TRADEMARKS. The registration of CONNETICS as licensee of
      the TRADEMARKS with the recordal office in the TERRITORY, if appropriate,
      shall be stricken upon the termination of the TRADEMARK TERM or the
      termination of this Agreement by YAMANOUCHI pursuant to Section 16.3.

9     - QUALITY OF THE PRODUCT

9.1   The PRODUCT manufactured by CONNETICS shall be manufactured in conformity
      with the specifications of the relevant regulatory authorities in the
      TERRITORY and all other applicable laws and regulations in the TERRITORY.

10    - SALES PROMOTION

10.1  During the term of this Agreement CONNETICS shall use commercially
      reasonable best efforts in the promotion and sale of the PRODUCT in the
      TERRITORY in a manner which is equal to that in which it would promote and
      sell its own products. CONNETICS makes no warranty, express or implied,
      concerning the success of the development plan, the success of the
      marketing and commercialization of the PRODUCT, or the commercial utility
      of the PRODUCT. In order to safeguard a consistent image for the PRODUCT,
      YAMANOUCHI and CONNETICS shall meet at least once per calendar year in
      order to discuss the promotion of the PRODUCT in the TERRITORY and in
      particular the presentation of the PRODUCT profile and its
      characteristics.

10.2  CONNETICS shall yearly furnish YAMANOUCHI with reports on its sales
      promotion activities as well as with specimens of sales promotion material
      used for the PRODUCT. Similarly, YAMANOUCHI shall provide CONNETICS with
      specimens of sales promotional materials used for the PRODUCT outside of
      the TERRITORY. The PARTIES agree to negotiate in good faith how such
      materials might be used by the other PARTY.

10.3  CONNETICS shall be responsible for labeling and packaging the PRODUCT
      consistent with the labelling and packaging approved by any applicable
      regulatory authorities in the TERRITORY. The inner and outer packaging of
      the PRODUCT shall include language similar to: Under License From
      Yamanouchi Europe B.V., The Netherlands. In addition, prior to launch of
      the PRODUCT in the TERRITORY, the PARTIES shall determine by mutual
      agreement whether it is prudent to include the numbers of the PATENTS on
      the label for the PRODUCT.

                                                                         Page 11
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                                                                       2002-0267

10.4  CONNETICS shall bear all expenses for the sales promotion of the PRODUCT
      in the TERRITORY.

11    - COMPLIANCE WITH LAWS

      CONNETICS shall in the performance of its activities under this Agreement
      comply with all laws, regulations and other requirements which are
      applicable in the TERRITORY with respect to such activities and more
      specifically to develop, manufacture, purchase, market, promote and sell
      the PRODUCT.

12    - LIABILITY

12.1  CONNETICS shall indemnify and hold YAMANOUCHI harmless from and against
      any and all third party claims for damage or injury to persons and
      property or for loss of life resulting from the use, development,
      manufacture, marketing, sale or distribution of the PRODUCT in the
      TERRITORY by CONNETICS pursuant to this Agreement, unless such damage or
      injury is caused by the negligent or intentional acts or omissions of
      YAMANOUCHI or its agents.

12.2  YAMANOUCHI shall indemnify and hold CONNETICS harmless from and against
      any and all third party claims for damage or injury to persons and
      property or for loss of life resulting from the pharmacological effects of
      the PRODUCT, currently available and currently listed in Annex I, inside
      of the TERRITORY, and for the use, development, manufacture, marketing,
      sale or distribution of the PRODUCT in Mexico by YAMANOUCHI, its
      AFFILIATES, or other sublicenses or representatives, in each case unless
      such damage or injury is caused by the negligent or intentional acts or
      omissions of CONNETICS or its agents.

12.3  CONNETICS shall promptly inform YAMANOUCHI of any significant liability
      claims or threat of liability claims in connection with the PRODUCT and in
      case of adverse events CONNETICS shall act in accordance with the Data
      Exchange Agreement attached as Annex IV. YAMANOUCHI shall inform CONNETICS
      of any significant liability claim or threat of liability in connection
      with the PRODUCT, whether or not the threat or claim stems from activity
      within the TERRITORY.

13    - PATENTS

13.1  YAMANOUCHI hereby declares that it has the right to grant CONNETICS the
      rights and licenses granted under this Agreement. YAMANOUCHI declares
      furthermore that it does not, however, warrant the validity of the
      PATENTS. However, YAMANOUCHI

                                                                         Page 12
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                                                                       2002-0267

      declares that at the date of this Agreement YAMANOUCHI is not aware that
      any third party is infringing the PATENTS in the TERRITORY and YAMANOUCHI
      has received no notices that the PRODUCT infringes any third party's
      rights. The PARTIES agree that if, at any time during the term of this
      Agreement, any of the PATENTS is declared or found to be invalid, or if
      the PRODUCT is found to infringe a patent owned by a third party, the
      PARTIES will negotiate in good faith a reduction in the royalties to be
      paid pursuant to Section 4.3.1. CONNETICS may not file any nullity or
      revocation suit or take any action which is intended to destroy, partially
      or totally, the validity of the patents relating to the PRODUCT , inside
      or outside of the TERRITORY, whether such action is filed directly or
      through another party.

13.2  YAMANOUCHI shall maintain and reasonably defend the PATENTS at its cost
      and expense. Each PARTY shall promptly give notice in writing to the other
      PARTY in the event that it becomes aware of: (a) any infringement or
      suspected infringement of any PATENTS relating to the PRODUCT; or (b) any
      claim that the PRODUCT's use, manufacture, sale or other disposal
      infringes the rights of any third party. The PARTIES shall consult within
      two (2) weeks to decide what steps shall be taken to prevent or terminate
      such infringement. If YAMANOUCHI fails to take action to protect or defend
      the PATENTS within thirty (30) days from the consultation between the
      PARTIES, CONNETICS shall be entitled to take all such action as it
      considers to be necessary or appropriate at its own expense to defend such
      claim and shall be entitled and subject to all damages and other sums
      which may be recovered or awarded against it as a result of the action.

13.3  Each PARTY shall render any reasonable assistance required by the other
      PARTY with respect to this Article 13.

13.4  CONNETICS shall have the right, with YAMANOUCHI's prior written approval,
      which will not be unreasonably withheld, to file on behalf of and as agent
      for YAMANOUCHI, all applications and to take all actions necessary (a) to
      obtain the benefits of the U.S. Drug Price Competition and Patent Term
      Restoration Act of 1984 and any amendments thereto to the extent such
      benefits relate to PRODUCT, and (b) to extend the lives of the PATENTS
      relating to the PRODUCT, to the extent permitted by any other law or
      regulation by, among other things, applying for supplemental protection
      certificates.

14    - COMPETING PRODUCTS

      During the term of this AGREEMENT, neither YAMANOUCHI nor any YAMANOUCHI
      AFFILIATE or sublicensee of YAMANOUCHI that has rights to the PRODUCT
      outside the U.S.A. and Canada, will, directly or indirectly, license,
      sell, market, promote or distribute other products incorporating the
      combination of a retinoid

                                                                         Page 13
<PAGE>

[LOGO] Yamanouchi                                         Yamanouchi Europe B.V.

                                                                       2002-0267

      and an antibiotic in the U.S.A. or Canada. Also during the term of this
      AGREEMENT neither YAMANOUCHI nor any YAMANOUCHI AFFILIATE or sublicensee
      of YAMANOUCHI will license, sell, market, promote or distribute a product
      based upon tretinoin and/or clindamycin in the VELAC gel formulation in
      the U.S.A. or Canada. During the term of this AGREEMENT, CONNETICS will
      not license, sell, market, promote or distribute any other products
      incorporating the combination of a retinoid and an antibiotic in the
      TERRITORY without first obtaining YAMANOUCHI's written approval, which
      approval shall not be unreasonably withheld.

15    - ADVERSE EVENTS AND REACTIONS

15.1  CONNETICS and YAMANOUCHI shall notify each other in writing of any
      information or announcements coming to their attention, as well as the
      origin of such information or announcements, with regard to:

      a)    adverse events which are observed in relation to the PRODUCT;

      b)    characteristics which could impair the safety or efficacy of the
            PRODUCT;

      c)    complaints concerning the pharmaceutical quality or packaging of the
            PRODUCT.

15.2  CONNETICS and YAMANOUCHI shall cause the adverse drug reaction data
      exchange agreement, which is attached to this Agreement as Annex IV, to be
      entered into by their respective medical safety departments
      contemporaneously with the signing of this Agreement. The data exchange
      agreement, as it may be amended from time to time, shall have the same
      effect as an agreement between the PARTIES.

16    - DURATION

16.1  This Agreement shall be effective as of the date of the last signature
      below, after it has been signed by both PARTIES, and will remain in force
      on a country-by-country basis in the TERRITORY for a period of [*] from
      the date of first commercial sale in each respective country of the
      TERRITORY or until the expiration or abandonment of the last of the
      PATENTS (including any extensions in any country of the TERRITORY), which
      ever date is the later. After expiration of this Agreement, CONNETICS
      shall have a non-exclusive fully paid license to the YAMANOUCHI KNOW-HOW.

16.2  Notwithstanding the provisions in Section 16.1 the LICENSE with respect to
      the TRADEMARKS shall continue during the TRADEMARK TERM. CONNETICS shall
      continue to pay the TRADEMARK royalties in accordance with Articles 4.4.1,
      4.4.2 and 4.5 unless this Agreement is terminated by either PARTY pursuant
      to Section 16.3 or 16.4, or until the TRADEMARK TERM expires.

*     Certain information on this page has been omitted and filed separately
      with the Commission. Confidential treatment has been requested with
      respect to the omitted portions.

                                                                         Page 14
<PAGE>

[LOGO] Yamanouchi                                         Yamanouchi Europe B.V.

                                                                       2002-0267

16.3  Either PARTY may terminate this Agreement early and without judicial
      intervention as follows:

      a)    by either PARTY in case of a breach of one or more of the provisions
            of this Agreement by the other PARTY, in which case the
            non-breaching PARTY shall be entitled to terminate this Agreement by
            letter with thirty (30) days' notice (or with immediate effect, if
            the breach is not capable of being cured). If the breach can be
            cured, the breaching PARTY shall have the right during the 30-day
            notice period to cure the breach, or to produce a plan for curing
            the breach that is acceptable to the non-breaching PARTY. This
            Agreement shall then automatically terminate at the end of the term
            of notice, unless meanwhile the breach of contract in question has
            been remedied or a mutually agreeable plan to cure is put into
            effect;

      b)    immediately upon written notice by either PARTY in case of a
            petition for bankruptcy, suspension of payment, voluntary
            liquidation or otherwise of the other PARTY;

      c)    in case of termination of this Agreement by a PARTY on (one of) the
            grounds as mentioned in this Section 16.3 the breaching PARTY is not
            entitled to any compensation.

16.4  CONNETICS may terminate this Agreement early and without judicial
      intervention as follows:

      a)    if clinical efficacy is not sufficiently proven at the end of Phase
            II clinical trials;

      b)    if clinical efficacy is not sufficiently proven at the end of Phase
            III clinical trials;

      c)    failure to obtain authorization to market the PRODUCT in the U.S.,
            sufficiently proven to YAMANOUCHI;

      d)    if CONNETICS can prove to YAMANOUCHI that the commercial conditions
            of the topical acne market have changed dramatically since the
            launch of the PRODUCT; by giving YAMANOUCHI no less than six (6)
            months advance written notice; or

      e)    in the event of a substantial number of adverse experiences with the
            PRODUCT, sufficiently proven to YAMANOUCHI such that they could
            reasonably be expected to substantially diminish the commercial
            value of the PRODUCT.

      For termination under this Section 16.4, CONNETICS will not be entitled to
      any refund of any amounts paid prior to the date of termination. Moreover,
      CONNETICS shall give YAMANOUCHI or its designee full cooperation in
      arranging for the transfer of all

                                                                         Page 15
<PAGE>

[LOGO] Yamanouchi                                         Yamanouchi Europe B.V.

                                                                       2002-0267

      approvals and authorizations granted in the TERRITORY in respect of the
      PRODUCT to YAMANOUCHI or its designee. Such transfer shall be at
      YAMANOUCHI's cost and expense.

16.5  The rights and obligations of the PARTIES set forth in Article 8 shall
      survive until the end of the TRADEMARK TERM. In addition, the rights and
      obligations of the PARTIES set forth in Art. 3, Sections 6.2, 6.3, 7.3,
      and 8.5, and Articles 12, 13, 15 and 18 shall survive any termination of
      this Agreement.

16.6  After termination of this Agreement by YAMANOUCHI pursuant to Section
      16.3, CONNETICS shall cease the use of the PATENTS, the YAMANOUCHI
      KNOW-HOW and the TRADEMARKS and the use, development, manufacture,
      marketing, sale and distribution of the PRODUCT.

16.7  Upon early termination of this Agreement pursuant to Section 16.3,
      CONNETICS shall have the right to sell all remaining PRODUCT in its
      inventory within twelve (12) months after the date of termination, subject
      to the payment to YAMANOUCHI of the royalties set forth in Articles 4 and
      5. Thereafter, CONNETICS agrees to destroy any remaining supply of PRODUCT
      at YAMANOUCHI'S request and direction.

17    - FORCE MAJEURE

      The PARTIES shall not be liable for failure or delay in performance of the
      obligations under this Agreement if such failure is caused by war, riot,
      rebellion, invasion, earthquake, storm, fire, flood, acts of God,
      interruption of transportation, embargo, explosion, inability to procure
      or shortage of supply of materials, governmental orders and restrictions,
      strike, lockout, labour disputes, or any other cause beyond the control of
      the PARTIES. Either PARTY invoking Force Majeure shall notify the other
      PARTY as soon as possible and provide appropriate information on the
      presumed cause and duration of the Force Majeure situation. The PARTIES
      shall co operate to minimize the adverse events of Force Majeure on the
      performance of this Agreement.

18    - APPLICABLE LAW AND COURT OF LAW; DISPUTE RESOLUTION

18.1  This Agreement shall be construed in accordance with the laws of England
      and Wales.

18.2  The PARTIES agree to submit all disputes arising out of in connection with
      this Agreement to the International Chamber of Commerce in The Hague, The
      Netherlands.

18.3  It is the objective of the PARTIES to facilitate the resolution of
      disputes under this AGREEMENT in an expedient manner by mutual cooperation
      and without resort to litigation. Accordingly, the PARTIES agree to take
      all commercially reasonable efforts to

                                                                         Page 16
<PAGE>

[LOGO] Yamanouchi                                         Yamanouchi Europe B.V.

                                                                       2002-0267

      resolve in an amicable manner any dispute between them concerning
      diligence obligations and/or questions of breach and default in connection
      with this AGREEMENT.

19    - ASSIGNMENT

19.1  CONNETICS shall have the right to grant sublicenses of its rights under
      this Agreement (i) to any of its AFFILIATES, without the consent of, but
      with written notice to, YAMANOUCHI, and (ii) to any non-affiliated third
      party upon YAMANOUCHI'S prior written consent, which consent shall not be
      unreasonably withheld, conditioned, or delayed. CONNETICS shall remain
      liable for the obligations to YAMANOUCHI under this Agreement unless
      YAMANOUCHI expressly releases CONNETICS in writing.

19.2  Either PARTY may transfer or assign this Agreement (a) to an AFFILIATE of
      such PARTY which agrees in writing to undertake the obligations under this
      Agreement provided the assigning PARTY remains primarily liable, (b) in
      connection with the sale of all or substantially all of the assigning
      PARTY'S related business, and (c) to a non-affiliated third party with the
      prior written consent of the other PARTY, which consent shall not be
      unreasonably withheld.

19.3  If CONNETICS merges with a third party and is not the surviving entity, or
      if CONNETICS assigns its rights and obligations under this AGREEMENT to a
      third party as outlined in Section 19.2, CONNETICS must prove to
      YAMANOUCHI that it has informed the third party of the obligations it has
      to YAMANOUCHI and that the third party has acknowledged and agreed to
      those obligations. If YAMANOUCHI merges with a third party and is not the
      surviving entity, or is taken over by a third party, CONNETICS will remain
      obligated to the third party in accordance with the conditions set forth
      in this AGREEMENT.

20    - NOTIFICATION OF PARTIES

20.1  Except as otherwise specifically provided in this Agreement, any notice or
      other documents to be given under this Agreement shall be in writing and
      shall be deemed to have been duly given if sent by registered or certified
      mail, or by internationally recognized air courier, or by facsimile
      transmission to a PARTY, or delivered in person to a PARTY at the address
      or facsimile number set out below for such PARTY or such other address as
      the PARTY may from time to time designate by written notice to the other:

      If to YAMANOUCHI, to:

            Yamanouchi Europe B.V.
            Elizabethof 19

                                                                         Page 17
<PAGE>

[LOGO] Yamanouchi                                         Yamanouchi Europe B.V.

                                                                       2002-0267

            2353 EW Leiderdorp
            The Netherlands
            Attn:  Director Legal Affairs Europe
            Facsimile:  +31 71 5455820

      If to CONNETICS, to:

            Connetics Corporation
            3290 West Bayshore Road
            Palo Alto, CA 94303
            Attn: Chief Executive Officer
            Facsimile: 650-494-0172

      Any such notice or other document shall be deemed to have been received by
      the addressee three (3) business days following the date of confirmed
      receipt of the notice or other document by post, or simultaneously with
      the transmission or delivery, where the notice or other document is sent
      by overnight courier, by hand or if given by facsimile.

21    - INTERPRETATION OF AGREEMENT

21.1  This Agreement, including Annexes, constitutes the entire agreement of the
      PARTIES with respect to the subject matter, and supersedes all prior or
      contemporaneous understandings or agreements, whether written or oral,
      between CONNETICS and YAMANOUCHI with respect to the subject matter in
      this Agreement. There are no promises, terms, conditions or obligations,
      oral or written, expressed or implied, other than those contained in this
      Agreement with respect to the subject matter in this Agreement. The terms
      of this Agreement shall supersede all previous oral or written agreements
      that may exist or have existed between the PARTIES. Specifically, this
      Agreement supersedes in their entirety the Letter of Intent dated April 5,
      2002, the Confidentiality Agreement dated December 14, 2001 and the
      Confidentiality Agreement dated March 1, 2002 relating to the subject
      matter of this Agreement.

21.2  English shall be the controlling language of this Agreement, and in case
      of any translation of this Agreement in whatever language, the English
      text shall prevail.

21.3  If any provision of this Agreement is or becomes or is deemed to be
      invalid, illegal, or unenforceable in any jurisdiction: (a) such provision
      will be deemed amended to conform to applicable laws of such jurisdiction
      so as to be valid and enforceable, or, if it cannot be so amended without
      materially altering the intention of the PARTIES, it will be stricken; (b)
      the validity, legality and enforceability of such provision will not in
      any way be affected or impaired thereby in any other jurisdiction; (c) a
      suitable and equitable provision shall be substituted in order to carry
      out, so far as may be valid and enforceable, the intent and purpose of
      such invalid and unenforceable provision; and (d) the remaining

                                                                         Page 18
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[LOGO] Yamanouchi                                         Yamanouchi Europe B.V.

                                                                       2002-0267

      provisions of this Agreement will remain in full force and effect. The
      PARTIES agree to renegotiate in good faith any term held invalid and to be
      bound by the mutually agreed substitute provision in order to give the
      most approximate effect intended by the PARTIES.

21.4  In case either PARTY in the course of its business makes use of general
      terms and conditions concerning sales, purchases and/or licenses, such
      general terms and conditions will have no effect on the interpretation or
      validity of this Agreement.

21.5  This Agreement can only be revised, amended or extended by means of a
      written document duly signed on behalf of all PARTIES.

21.6  No failure or delay on the part of a PARTY to require the strict
      performance of any term, covenant or condition of this Agreement or to
      exercise any right or remedy available on a breach thereof will operate as
      a waiver of any such breach or of any such right or remedy, unless a
      waiver is made in writing signed by the waiving PARTY. No waiver of any
      such right will be deemed a waiver of any other right under this
      Agreement.

21.7  This Agreement shall not be deemed to create any partnership, joint
      venture, or agency relationship between the PARTIES. Each PARTY shall act
      under this Agreement as an independent contractor.

IN WITNESS WHEREOF, the PARTIES have caused this Agreement to be executed by
their respective authorised officers.

Leiderdorp, The Netherlands               California, United States of America
13th May 2002                             13th May 2002

YAMANOUCHI EUROPE B.V.                    CONNETICS CORPORATION

Signature: /s/ Prof. P. van Brummelen     Signature: /s/ Tom Wiggans
           ---------------------------               ---------------------------
Name: Prof. P. van Brummelen              Name: Tom Wiggans
      --------------------------------          --------------------------------
Position: EXECUTIVE VICE PRESIDENT R&D    Position: CEO
          ----------------------------              ----------------------------

Signature: /s/ Mr. I. S. C. Talmage       Signature: /s/ John Higgins
           ---------------------------               ---------------------------
Name: Mr. I. S. C. Talmage                Name: John Higgins
      --------------------------------          --------------------------------
Position: VICE PRESIDENT BUSINESS         Position: CFO
          DEVELOPMENT                               ----------------------------
          ----------------------------

                                                                         Page 19
<PAGE>

[LOGO] Yamanouchi                                         Yamanouchi Europe B.V.

                                                                       2002-0267

                                     ANNEX I

                                     PRODUCT

Any pharmaceutical formulation or composition of tretinoin optionally combined
with clindamycin that uses or incorporates the YAMANOUCHI KNOW-HOW, including
specifically VELAC gel.

<PAGE>

[LOGO] Yamanouchi                                         Yamanouchi Europe B.V.

                                                                       2002-0267

                                    ANNEX II

                                   TRADEMARKS

[*]

*     Certain information on this page has been omitted and filed separately
      with the Commission. Confidential treatment has been requested with
      respect to the omitted portions.

<PAGE>

[LOGO] Yamanouchi                                         Yamanouchi Europe B.V.

                                                                       2002-0267

                                    ANNEX III

                                     PATENTS

[*]

*     Certain information on this page has been omitted and filed separately
      with the Commission. Confidential treatment has been requested with
      respect to the omitted portions.
<PAGE>

[LOGO] Yamanouchi                                         Yamanouchi Europe B.V.

                                                                       2002-0267

                                    ANNEX IV

     ADVERSE DRUG REACTION DATA EXCHANGE AGREEMENT and ADVERSE EVENT REPORT
<PAGE>

[LOGO] Yamanouchi                                         Yamanouchi Europe B.V.

                                                                       2002-0267

                              ADVERSE DRUG REACTION

                                  DATA EXCHANGE

                                   AGREEMENT

              THE PRODUCT AS MENTIONED IN ARTICLE 1 OF THE LICENSE

                  AND DEVELOPMENT AGREEMENT BETWEEN CONNETICS

                     CORPORATION AND YAMANOUCHI EUROPE B.V.

                                     BETWEEN

                         Pharmacoepidemiology Department
                              YAMANOUCHI EUROPE BV

                                       AND

                              SAFETY DEPARTMENT OF
                                    CONNETICS
<PAGE>

[LOGO] Yamanouchi                                         Yamanouchi Europe B.V.

    PROCEDURES FOR THE EXCHANGE OF ADVERSE DRUG REACTION DATA WITH RESPECT TO
      THE PRODUCT AS MENTIONED IN ARTICLE 1 OF THE LICENSE AND DEVELOPMENT
       AGREEMENT BETWEEN CONNETICS CORPORATION AND YAMANOUCHI EUROPE B.V.

1. SCOPE

This agreement describes the procedures and defines the responsibilities of the
pharmacovigilance unit of Yamanouchi Europe Pharmacoepidemiology Department
("Yamanouchi"), and CONNETICS CORPORATION ("CONNETICS"), to ensure adequate
Adverse Drug Reaction (ADR) data exchange and compliance with the regulatory
requirements of ADR data reporting. This agreement replaces any previous Adverse
Drug Reaction Data Exchange Agreements. Updates of this agreement are expected.

2. DEFINITIONS

Definitions used will conform to the current ICH guidelines E2 A-C, and
regulations of the U.S. Food and Drug Administration. Terms set forth in all
capital letters shall have the meaning set forth in the License and Development
Agreement between Connetics Corporation and Yamanouchi Europe B.V.

3. PRODUCT CONCERNED

The PRODUCT as defined in Article 1 of the License and Development Agreement
between Connetics Corporation and Yamanouchi Europe B.V.

4. REGULATORY DOCUMENTS

CONNETICS will be responsible for making and maintaining a Summary of Product
Characteristics (SPC) for the PRODUCT for the TERRITORY.

5. DATABASE

CONNETICS will be responsible for maintaining a complete ADR database.

6. ADR DATA EXCHANGE

Exchange will be between the pharmacoepidemiology department of YAMANOUCHI and
the safety department of CONNETICS. Both parties will collect and distribute the
data in their own safety networks. The language of all exchange will be English.
Abbreviations must be spelled out.

DATA EXCHANGE AGREEMENT                                                   PAGE 1
<PAGE>

[LOGO] Yamanouchi                                         Yamanouchi Europe B.V.

The format of data exchange will be hard copy (fax) or electronic (*.pdf files,
preferably password protected). Although YAMANOUCHI will not market the PRODUCT,
it will be necessary under applicable laws and regulations for CONNETICS to
collect all available information regarding the safety of the PRODUCT. The
following language shall apply to the extent that such information comes to the
attention of YAMANOUCHI as the licensor of the PRODUCT or otherwise. CONNETICS
acknowledges that YAMANOUCHI has no affirmative obligation to seek out such
information.

6.1 SPONTANEOUS REPORTS

SERIOUS ADRS

YAMANOUCHI will forward by fax all reports of serious ADRs in CIOMS I format to
CONNETICS within the same day for all fatal and life-threatening ADRs. All other
serious ADRs should be forwarded no later than five (5) calendar days after
receipt by YAMANOUCHI. The type of report (spontaneous), clock date, seriousness
and case assessment (causality / expectedness) and company medical evaluation
are printed on the CIOMS form. Where possible copies of the original reporter's
report should be forwarded too, together with a translation into English if the
original report is written in another language. The type of report
(spontaneous), clock date, seriousness, case assessment (causality/expectedness)
and company medical evaluation will be printed on the CIOMS form or on the
covering letter.

NON-SERIOUS ADRS

YAMANOUCHI will provide CONNETICS with all reports of non-serious spontaneous
ADRs in CIOMS I format on at least a monthly basis. CONNETICS will incorporate
all such data in the Periodic Safety Update Reports.

6.2 REPORTS FROM CLINICAL STUDIES

Data of serious ADRs from clinical studies will be exchanged as described in 6.1
for spontaneous reports.

Non-serious ADR data from clinical trials will be exchanged with the final study
report if it has an impact on the current SPC. CONNETICS will incorporate such
data in the PSURs.

6.3 FOLLOW-UP INFORMATION

CONNETICS is responsible for obtaining follow-up information required for proper
assessment of the case, except that there is no obligation to follow up on
non-serious ADRs that occur in clinical trials.

6.4 REPORTS FROM LITERATURE

CONNETICS will have the primary responsibility for reviewing the literature,
including unpublished scientific papers to the extent it is made aware of them.

DATA EXCHANGE AGREEMENT                                                   PAGE 2
<PAGE>

[LOGO] Yamanouchi                                         Yamanouchi Europe B.V.

7. PERIODIC SAFETY UPDATE REPORTS (PSURS)

CONNETICS will be responsible for preparing PSURs according to the current ICH
and U.S. FDA guidelines and regulatory requirements.

8. SUBMISSION TO REGULATORY AUTHORITIES

CONNETICS will submit the appropriate reports of individual case reports to the
regulatory authorities of the countries in their territories within the time
frames required by the current regulations in each country.

9. REGULATORY AUTHORITY REQUESTS FOR ADDITIONAL INFORMATION

A) ADDITIONAL INFORMATION ON A SPECIFIC CASE:

If the regulatory authority requests follow-up information, CONNETICS will
submit the response to the requesting regulatory authority. If necessary,
CONNETICS will obtain the requested information from the reporter.

B) ADDITIONAL INFORMATION OF A MORE GENERAL NATURE (E.G., SUMMARY OF CERTAIN
TYPES OF CASES)

Regulatory authority requests for safety information of a more general nature
will be answered by CONNETICS. If YAMANOUCHI receives the request for additional
information on a specific case, it will send a copy to CONNETICS at the earliest
moment possible.

10. SIGNALLING

CONNETICS will be responsible for identifying new risks of the products
concerned and informing YAMANOUCHI immediately.

11. SERIOUS SAFETY ISSUE

In the event of a serious safety issue first brought to the attention of
CONNETICS, even if YAMANOUCHI Europe has not marketed the PRODUCT, the
YAMANOUCHI nominated safety contact should be informed of this as soon as it is
practically possible, and vice versa.

DATA EXCHANGE AGREEMENT                                                   PAGE 3
<PAGE>

[LOGO] Yamanouchi                                         Yamanouchi Europe B.V.

12. NOMINATED SAFETY CONTACT PERSONS

Yamanouchi:       P.H. Gerritsen-van Schieveen, MD, MFPM
                  Manager PharmacoEpidemiology
                  Yamanouchi Europe BV
                  P/o Box 108
                  2350 AC Leiderdorp
                  The Netherlands
                  Tel: +31 (0) 71 545 5877
                  Fax: +31 (0) 71 545 5881

CONNETICS:

                  Elias Kachakji, M.D.
                  Manager, Safety
                  Connetics Corporation
                  3290 West Bayshore Road
                  Palo Alto, California  94303
                  U.S.A.
                  Tel.:    + 650-843-2843
                  Fax.:    + 650-843-2898

Leiderdorp, The Netherlands              California, United States of America
13th May 2002                            13th May 2002

YAMANOUCHI EUROPE B.V.                   CONNETICS CORPORATION

Signature: /s/ Prof. P. van Brummelen    Signature: /s/
           ---------------------------              ---------------------------
Name: Prof. P. van Brummelen             Name:
      --------------------------------         --------------------------------
Position: EXECUTIVE VICE PRESIDENT R&D   Position:
          ----------------------------             ----------------------------

/s/ Mr. I.S.C. Talmage
Mr. I.S.C. Talmage
VICE PRESIDENT BUSINESS DEVELOPMENT

DATA EXCHANGE AGREEMENT                                                   PAGE 4

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