Document:

<PAGE>
                                                                   EXHIBIT 10.54

                        SETTLEMENT AND RELEASE AGREEMENT

This Agreement is entered into between Boehringer Ingelheim Austria GmbH ("BI
Austria") and Connetics Corporation ("Connetics"), effective as of December 13,
2001 (the "Effective Date"). BI Austria and Connetics are sometimes referred to
individually in this Amendment as a "Party" and collectively as the "Parties."

                                   BACKGROUND

A.      BI Austria (under its former name Bender + Co Ges mbH) and Connetics are
        parties to the Relaxin Scale-up and Bulk Supply Agreement dated December
        1, 1998, as amended May 10, 1999, and December 22, 2000 (the "Original
        Agreement"), pursuant to which Connetics contracted with BI Austria to
        manufacture Relaxin (the "Relaxin Project").

B.      Following the failure of a Phase III clinical trial in October 2000,
        Connetics has significantly scaled back the Relaxin Project, and the
        Parties have had numerous discussions and meetings since that time to
        discuss the impact of that decision on the Original Agreement.

C.      The Parties desire to reach a final and complete settlement of all
        claims and disputes between them, and exchange general releases, all in
        accordance with the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the payments, releases, covenants and
undertakings set forth in this Agreement, BI Austria and Connetics agree as
follows:

                               A G R E E M E N T:

        SECTION 1. AFFILIATES. For purposes of this Agreement, the term
"Affiliate" means any corporation or business entity controlled by, controlling,
or under common control with BIA or Connetics, as the case may be. For this
purpose "control" shall mean the direct or indirect beneficial ownership of at
least fifty percent (50%) of the voting stock of, or at least fifty percent
(50%) interest in the income of, such corporation or other business entity, or
such other relationship as, in fact, constitutes actual control.

        SECTION 2. PAYMENT.

               2.1. In consideration for the full and final settlement of
        outstanding disputes and for the releases described in Sections 6 and 7,
        below, Connetics agrees to pay an aggregate amount of E1,103,000 (One
        Million One Hundred Three Thousand Euros) to BIA. For purposes of this
        Agreement, it is agreed that the payment represents the following:

               (a)  E400,000 for the labor required to complete the reports
                    required by Section 3, below;

<PAGE>

               (b)  E70,000 representing the second and final installment due
                    upon completion of the report on the scale up of the Relaxin
                    Project to 100-200 kg;

               (c)  E73,000 representing payment for the raw materials and
                    components listed on ATTACHMENT A to this Agreement; and

               (d)  E560,000 as compensation to BIA.

               2.2. The payments to BIA pursuant to this Section 2 shall be made
        in four installments, payable as follows:
<TABLE>
<CAPTION>
                    ------------------------------------------------------------
                    AMOUNT             DATE DUE
                    ------------------------------------------------------------
                    <S>               <C>

                    E250,000           15 December 2001
                    ------------------------------------------------------------
                    E250,000           15 February 2002
                    ------------------------------------------------------------
                    E250,000           15 April 2002
                    ------------------------------------------------------------
                    E353,000           Upon receipt of the final report due
                                       pursuant to Section 3 of this Agreement
                    ------------------------------------------------------------
</TABLE>

               2.2. [*]

        SECTION 3. BIA'S DUTIES. BIA will ship to Connetics the relaxin Master
Cell Bank, and the relaxin Working Cell Bank, according to instructions from
Connetics. BIA will finalize the testing described on ATTACHMENT B to this
Agreement, and shall, as soon as practicable but in no event later than 30 June
2002, provide all the reports set forth specifically on ATTACHMENT C to this
Agreement. The Parties agree that the labor involved in completing the testing
and the reports represents approximately one "person-year," or the time it would
take one person to complete the task, and that for purposes of this Agreement
the rate for one person-year is set at E400,000 (Four Hundred Thousand Euros).
All material and documents shipped by BIA pursuant to this provision shall be
shipped ex works BI Austria facility.

        SECTION 4. TERMINATION OF ORIGINAL AGREEMENT. Effective upon complete
fulfillment of the obligations of both Parties of this Agreement, the Original
Agreement is terminated and all rights and obligations under the Original
Agreement shall revert back to BIA or Connetics, as the case may be, without the
need for further action, and neither BIA nor Connetics shall have any further
obligations under the Original Agreement.

        SECTION 5. NO LITIGATION. BIA and Connetics affirm that neither party
has commenced arbitration or litigation proceedings under the Original
Agreement.

        SECTION 6. RELEASE BY CONNETICS. Except for Claims (as defined in this
Section 6) for breach of this Agreement, Connetics, on behalf of itself and its
officers, directors, employees, representatives, predecessors, successors,
agents, assigns and attorneys (together, the "Connetics Releasors"), do hereby
forever release and discharge BIA, and its officers, directors, employees,
representatives, predecessors, successors, agents, assigns and attorneys
(together, the "BIA

[*] 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 2
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Releasees"), from any and all actions, causes of actions, suits, debts, sums of
money, accounts, reckonings, bonds, bills, contracts, controversies, agreements,
promises, damages, judgments, awards, executions, claims and demands whatsoever,
including without limitation costs and attorneys' fees, in law, admiralty or
equity, or as a result of any arbitration, whether known or unknown to any of
the Connetics Releasors (collectively, "Claims"), which the Connetics Releasors,
or any of them, ever had, now have or hereafter can, shall, or may have, whether
in their own right or by assignment, transfer or grant from any other person,
upon or by reason of any fact, event, agreement, matter, cause or thing
whatsoever occurring prior to or existing as of the Effective Date, including,
but not limited to, any Claims relating directly, indirectly, or in any way to
the Original Agreement.

        SECTION 7. RELEASE BY BIA. Except for Claims (as defined in this Section
7) for breach of this Agreement, BIA, on behalf of itself and its officers,
directors, employees, representatives, predecessors, successors, agents, assigns
and attorneys (together, the "BIA Releasors"), do hereby forever release and
discharge Connetics, and its officers, directors, employees, representatives,
predecessors, successors, agents, assigns and attorneys (together, the
"Connetics Releasees"), from any and all actions, causes of actions, suits,
debts, sums of money, accounts, reckonings, bonds, bills, contracts,
controversies, agreements, promises, damages, judgments, awards, executions,
claims and demands whatsoever, including without limitation costs and attorneys'
fees, in law, admiralty or equity, or as a result of any arbitration, whether
known or unknown to any of the BIA Releasors (collectively, "Claims"), which the
BIA Releasors, or any of them, ever had, now have or hereafter can, shall, or
may have, whether in their own right or by assignment, transfer or grant from
any other person, , upon or by reason of any fact, event, agreement, matter,
cause or thing whatsoever occurring prior to or existing as of the Effective
Date, including, but not limited to, any Claims relating directly, indirectly,
or in any way to the Original Agreement.

        SECTION 8. ADMISSIBILITY. Nothing in this Agreement shall be construed
as an admission by any Party of any liability of any kind to the other Party.
This Agreement shall not be admissible as evidence against either Party or its
Affiliates in any proceeding other than in a proceeding to enforce an obligation
of a Party under this Agreement or as proof of the termination of the Original
Agreement.

        SECTION 9. NOTICES. Any notice given pursuant to this Agreement shall be
in writing and, except as otherwise expressly provided in this Agreement, shall
be deemed to have been duly delivered if delivered in person or by certified or
registered or overnight express mail, postage and mailing expense prepaid, or by
facsimile transmission with hard copy to follow by regular mail and, if given or
rendered to BIA or its Affiliates addressed to:

        Dr. Kurt Konopitzky
        Head, Division Biopharmaceuticals/Operations
        Boehringer Ingelheim Austria GmbH
        Dr. Boehringer-Gasse 5-11
        A-1121 Vienna
        Austria

                                     PAGE 3
<PAGE>

or if given or rendered to Connetics or its Affiliates addressed to:

        Connetics Corporation
        3290 West Bayshore Road
        Palo Alto, California 94303
        U.S.A.
        Attention: Chief Executive Officer

Either party may specify a different address by notifying the other in writing
of such different address.

        SECTION 10. SEVERABILITY. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held to be
invalid or unenforceable, the remainder of this Agreement, or the application of
such provision to such persons or circumstances other than those to which it is
held invalid or unenforceable, shall not be affected thereby, provided that such
invalid or unenforceable provisions shall be replaced by valid and enforceable
provisions which will achieve as far as possible the economic and business
intentions of the parties to this Agreement.

        SECTION 11. BIA ACKNOWLEDGMENT. BIA hereby warrants and represents that
(a) it has read and understood the terms of this Agreement; (b) it has the full
right and authority (i) to enter into this Agreement, (ii) to grant the
releases, covenants and undertakings recited in this Agreement on its own behalf
and on behalf of each BIA Affiliate, and (iii) to enter into the agreements
received in this Agreement on its own behalf and on behalf of each BIA
Affiliate; and (c) there are no outstanding agreements, assignments, or
encumbrances inconsistent with the provisions set forth in this Agreement.

        SECTION 12. CONNETICS ACKNOWLEDGMENT. Connetics hereby warrants and
represents that (a) it has read and understood the terms of this Agreement; (b)
it has the full right and authority (i) to enter into this Agreement, (ii) to
grant the releases, covenants and undertakings recited in this Agreement on its
own behalf and on behalf of each Connetics Affiliate, and (iii) to enter into
the agreements received in this Agreement on its own behalf and on behalf of
each Connetics Affiliate; and (c) there are no outstanding agreements,
assignments, or encumbrances inconsistent with the provisions set forth in this
Agreement.

        SECTION 13. INTEGRATION. Except as otherwise specifically set forth in
this Agreement, this Agreement, together with its Exhibits, represents the
entire agreement and understanding between and among the Parties with respect to
the subject matter of this Agreement and supersedes any and all prior or
contemporaneous discussions, agreements and understandings relating thereto.
Specifically, except as otherwise expressly provided in this Agreement, the
Original Agreement is expressly terminated and superseded as of the Effective
Date by operation of this Agreement.

        SECTION 14. STRICT PERFORMANCE. The failure by any Party to insist upon
the strict performance of any covenant, duty, agreement or condition of this
Agreement or to exercise any

                                     PAGE 4
<PAGE>

right or remedy consequent upon a breach thereof shall not constitute waiver of
any such breach or any other covenant, duty, agreement or condition.

        SECTION 15. NO AGENCY. Nothing in this Agreement shall be deemed to
appoint or authorize any party to act as an agent of the other party or to
assume or incur any liability or obligation in the name or on behalf of the
other party.

        SECTION 16. GOVERNING LAW. This Agreement shall be governed by the laws
of the United States of America and of the State of New York. The terms of this
Agreement may be enforced in any court of competent jurisdiction. Both Parties
hereby acknowledge and submit to the jurisdiction of the Federal District Court
for the District of New York to hear and resolve any dispute over terms of this
Agreement, to protect and enforce the Parties' rights under this Agreement, to
rectify the contract if necessary, and to order specific performance, injunction
or similar equitable relief.

        SECTION 17. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which shall be considered an original but all of which
shall constitute one agreement.

WHEREFORE, the Parties, having been duly authorized to do so, have caused this
Agreement to be executed as of the Effective Date.

<TABLE>
<S>                                              <C>
Boehringer Ingelheim Austria GmbH                 Connetics Corporation

By: /s/ KURT KONOPITZKY                           By:  /s/ THOMAS G. WIGGANS
   ----------------------------------                 -----------------------------------------
        Dr. Kurt Konopitzky                               Thomas G. Wiggans
        Head, Division                                    President and Chief Executive Officer
        Biopharmaceuticals/Operations

By: /s/ ELISABETH TOMASCHKO                       By:  /s/ JOHN L. HIGGINS
   ----------------------------------                 -----------------------------------------
        Dr. Elisabeth Tomaschko                           John L. Higgins
        Legal Counsel                                     Executive Vice President and Chief
                                                            Financial Officer

</TABLE>

LIST OF ATTACHMENTS:

ATTACHMENT A          RAW MATERIALS AND COMPONENTS TO BE PAID FOR BY CONNETICS
ATTACHMENT B          STABILITY STUDIES TO BE COMPLETED BY BIA
ATTACHMENT C          REPORTS TO BE FURNISHED BY BIA

                                     PAGE 5
<PAGE>

                                  ATTACHMENT A
            RAW MATERIALS AND COMPONENTS TO BE PAID FOR BY CONNETICS

Promptly following the Effective Date, Connetics shall instruct BIA how to
dispose of the materials and components listed on this Attachment.

<TABLE>
<CAPTION>
========================================================================================
                    RAW MATERIAL OR                                        EST. PRICE
  ARTICLE #      COMPONENT DESIGNATION                   AMOUNT    UNIT         E
========================================================================================
<S>          <C>                                        <C>        <C>     <C>
[*]
</TABLE>

                                   ATTACHMENT

[*]

[*] 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>

                                  ATTACHMENT B
                    STABILITY STUDIES TO BE COMPLETED BY BIA

BIA will complete the following relaxin stability studies and provide a
certificate of analysis upon completion of each study:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
STUDY                 TEMPERATURE        BATCH NO.     TIMELINE              BIA ACTION
-------------------------------------------------------------------------------------------------
<S>                    <C>               <C>           <C>                  <C>

[*]

</TABLE>

                                   ATTACHMENT

[*] 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>

                                  ATTACHMENT C
                         REPORTS TO BE FURNISHED BY BIA

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
   REPORT      REVISION
   NUMBER       NUMBER        DOCUMENT NAME                TITLE                        AUTHOR
------------------------------------------------------------------------------------------------------
<S>            <C>      <C>                        <C>                                 <C>

                                                        [*]

</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>

                                                                   EXHIBIT 10.55

                        FACILITIES CONTRIBUTION AGREEMENT

        This Facilities Contribution Agreement (the "Agreement") is made with
retroactive effect to November 1st, 2001 by and between Connetics Corporation, a
Delaware corporation, with its principal place of business at 3290 West Bayshore
Road, Palo Alto, California 94303 ("Connetics") and DPT Laboratories, Ltd., a
Texas Limited Partnership with a place of business at 307 East Josephine Street,
San Antonio, Texas 78215 ("DPT"). Connetics and DPT are sometimes referred to in
this Agreement individually as a "Party" and collectively as the "Parties."

                                   BACKGROUND

A.      DPT leases certain Premises currently partially improved with a facility
        being constructed thereon, legally described on EXHIBIT A to this
        Agreement (the "PREMISES"). DPT also owns certain contract rights,
        plans, drawings, specifications and reports used in connection with the
        pharmaceutical qualification and validation, and improvement of the
        Premises and construction of the Project (defined below).

B.      Pursuant to this Agreement, DPT has agreed to permit Connetics to
        construct certain improvements on the Premises and install certain
        equipment on the Premises, as more specifically described herein.

C.      Pursuant to this Agreement, Connetics shall contribute the costs for the
        construction of the improvements and purchase of the equipment, as more
        specifically described herein.

D.      Pursuant to this Agreement and the plans, specifications, and other
        documents required hereby, DPT has agreed to assist Connetics as an
        advisor in connection with the Project on the Premises.

The Parties agree as follows:

                                    ARTICLE 1
                                   DEFINITIONS

As used in this Agreement, the following capitalized terms have the following
meanings:

"APPROVED PLANS" means the Premises Improvement Plans (Plans and specifications
prepared by the Architect and DPT), as approved by DPT and Connetics.

"ARCHITECT" means Middleman + de la Garza + Neugebauer Architects or such other
person or firm as Connetics and DPT may mutually agree.

"ASSETS" shall have the meaning set forth in SECTION 5.1.

                                     Page 1
<PAGE>

"cGMP" means the current Good Manufacturing Practices of the FDA, as set forth
in Title 21 of the U.S. Code of Federal Regulations.

"CHANGE ORDER" shall have the meaning set forth in SECTION 3.3 of this
Agreement.

"CONNETICS CONTRIBUTION" shall have the meaning set forth in SECTION 2.1 of this
Agreement.

"CONNETICS DELAY" means any of the following types of delay in the completion of
construction of the Project:

        (1) Any delay resulting from Connetics' failure to furnish, in a timely
        manner, information recommended by DPT or by the Architect or General
        Contractor for the Project in connection with the design or construction
        of the Project, or from Connetics' failure to approve in a timely manner
        any matters requiring approval by Connetics;

        (2) Any delay resulting from Change Orders requested by Connetics,
        including any delay resulting from the need to revise any drawings or
        obtain further governmental approvals as a result of any Change Order;
        or

        (3) Any material delay of any other kind or nature caused by Connetics
        (or Connetics' contractors, agents or employees).

"DPT DELAY" means any of the following types of delay in the completion of
construction of the Improvements:

        (1) Any delay resulting from DPT's failure to furnish, in a timely
        manner, information requested by the Architect or General Contractor for
        the Work in connection with the design or construction of the
        Improvements; or

        (2) Any material delay of any other kind or nature caused by DPT (or
        DPT's contractors, agents or employees).

"EQUIPMENT" means the production scale equipment and laboratory scale equipment
purchased by Connetics and utilized in the Project.

"GENERAL CONTRACTOR" means Capstone Corporation, or any other general contractor
recommended by DPT and selected by Connetics.

"IMPROVEMENTS" means the Project and other improvements shown on the Approved
Plans from time to time and to be constructed on the Premises pursuant to this
Agreement.

"OPERATING EXPENSES" shall have the meaning set forth in SECTION 5.4.

"PROJECT" means the design, construction and management of a cGMP qualified
aerosol filling facility on the Premises in accordance with the Approved Plans,
including (a) any necessary site improvements; and (b) other improvements
necessitated by the construction of the facility.

                                     Page 2
<PAGE>

"PUNCH LIST WORK" means minor corrections of construction or decoration details,
and minor mechanical adjustments, that are required in order to cause any
applicable portion of the Improvements as constructed to conform to the Approved
Plans in all material respects and that do not materially interfere with the use
or occupancy of the Premises.

"SUBSTANTIAL COMPLETION OF THE PROJECT" means the completion of the Project
(except for Punch List Work), in good and workmanlike condition, in compliance
with all applicable requirements, and in conformance with the Approved Plans.

"UNAVOIDABLE DELAYS" means delays due to acts of God, acts of public agencies,
labor disputes, strikes, fires, freight embargoes, rainy or stormy weather,
inability to obtain supplies, materials, fuels or permits, delays of contractors
or subcontractors, or other causes or contingencies beyond the reasonable
control of DPT or Connetics, as applicable.

                                    ARTICLE 2
                                  CONTRIBUTION

        SECTION 2.1. CONNETICS CONTRIBUTION. Connetics agrees to pay the costs
associated with construction of the Project and the purchase of production scale
equipment (currently estimated at [*] and to contribute an additional [*] for
the purchase of laboratory scale equipment for use in the Project, subject to
all of the terms, covenants and conditions set forth in this Agreement.
Connetics' cash contribution and the Equipment are collectively referred to as
"Connetics' Contribution." In the event additional capital requirements are
required, DPT's obligations herein shall be conditioned upon Connetics agreement
to fund the additional capital. .

        SECTION 2.2. PREMISES. The Premises are located at 5303 Distribution
Drive and the laboratory scale equipment is located at 307 E. Josephine St., San
Antonio, Texas 78218.

        SECTION 2.3. ACCOUNTING. No less often than monthly, DPT shall provide
Connetics with a written accounting of all amounts spent on the Project to that
date, in a level of detail reasonably satisfactory to Connetics.

                                    ARTICLE 3
                              PROJECT CONSTRUCTION

DPT and Connetics shall comply with the procedures set forth in this ARTICLE 3
in preparing, delivering and approving matters relating to the Project.

        SECTION 3.1. APPROVED PLANS. DPT and Connetics shall cooperate with
Architect in the development of the Premises Improvement Plans and
specifications for the Project (once such plans and specifications are approved
by DPT and Connetics, the "Approved Plans").

* 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 3
<PAGE>

        SECTION 3.2. CONSTRUCTION OF PROJECT. The Project will be constructed on
the Premises. Except as otherwise expressly provided in this Agreement or by
mutual written agreement of DPT and Connetics, the cost of construction of the
Project shall be borne by Connetics at its sole cost and expense, including any
costs or cost increases incurred as a result of Unavoidable Delays, governmental
requirements or unanticipated conditions. Upon receipt of necessary permits and
approvals, DPT shall (except as otherwise provided in this Agreement),
diligently manage and oversee the construction and completion of the Project
substantially in accordance with the Approved Work Plans, subject to Unavoidable
Delays and Connetics Delays (if any). It is understood that DPT shall provide
construction and engineering supervision of the Project, but will not act as the
General Contractor for the Project. Such construction shall conform, in all
material respects, to all applicable governmental codes, laws and regulations in
force at the time such work is completed. DPT shall provide formal progress
updates on the Project to Connetics as appropriate during the construction,
validation, and commissioning process.

        SECTION 3.3. CHANGES.

               (a) By DPT. If DPT recommends at any time that changes in the
        Approved Plans relating to any item of the Project are required as a
        result of applicable law or governmental requirements, or at the
        insistence of any other third party whose approval may be required with
        respect to the Project, or as a result of unanticipated conditions
        encountered in the course of construction, then DPT shall promptly
        advise Connetics of such circumstances in the form of a detailed written
        request specifying such changes, alterations or additions. Upon receipt
        of any such request, Connetics shall notify DPT as soon as is reasonably
        possible whether the recommendations are agreeable (which approval shall
        not be unreasonably withheld, delayed or conditioned). Upon Connetics'
        approval, Connetics shall enter into a Change Order with the General
        Contractor, and DPT shall cause revised Approved Plans reflecting such
        changes to be prepared by Architect, and Connetics shall be responsible
        for all costs or cost increases, resulting from or attributable to the
        Change Order.

               (b) By Connetics. If Connetics at any time desires any changes,
        alterations or additions to the Approved Plans with respect to any of
        the Project, Connetics shall submit a Change Order to DPT. Upon receipt
        of any such request, DPT shall notify Connetics as soon as is reasonably
        possible as to:

                      (i) whether the matters proposed in the Change Order are
               approved by DPT (which approval shall not be unreasonably
               withheld, delayed or conditioned,

                      (ii) DPT's estimate of the number of days of delay, if
               any, which shall be caused by such Change Order if implemented
               (including, without limitation, delays due to the need to obtain
               any revised plans or drawings and any governmental approvals),
               and

                      (iii) DPT's estimate of the increase or decrease, if any,
               which shall occur

                                     Page 4
<PAGE>

               for the items or components affected by such Change Order if such
               Change Order is implemented (including, but not limited to, any
               costs of compliance with laws or governmental regulations that
               become applicable because of the requested Change Order).

        If Connetics notifies DPT in writing, within five (5) business days
        after receiving DPT's estimate of the impact of the Change Order, that
        Connetics approves the Change Order (including the estimated delays and
        cost increases or decreases, if any, described in the notice), then
        Connetics shall enter into such Change Order with the General Contractor
        and Connetics shall be responsible for all costs or cost increases,
        resulting from or attributable to the Change Order. If Connetics fails
        to notify DPT in writing that it approves such Change Order within five
        (5) business days after receiving DPT's estimate of the impact of the
        Change Order, then such Change Order shall be deemed to be withdrawn and
        shall be of no further effect.

        SECTION 3.4. COMPLETION.

               (a) When DPT believes the Project is complete subject only to
        completion of Punch List Work, it shall notify Connetics of the
        Substantial Completion of the Project.

               (b) At any time within thirty (30) days after notice of
        Substantial Completion, Connetics shall be entitled to submit one or
        more lists to the General Contractor specifying Punch List Work to be
        performed on the Project, which shall be completed at the expense of
        either Connetics or the General Contractor, as specified pursuant to the
        Construction Contract.

        SECTION 3.5. TIMING OF COMPLETION. Connetics shall use its commercially
reasonable efforts to complete such construction promptly, diligently and within
the applicable time periods set forth in the Estimated Construction Schedule
attached as EXHIBIT B and incorporated into this Agreement by this reference, as
such schedule may be modified from time to time, subject to the effects of any
delays beyond the parties' reasonable control.

        SECTION 3.6. CONSENT OF OWNER. DPT shall be solely responsible for
securing the consent and approval of the owner of the Premises for the
construction of the Project.

        SECTION 3.7. DESIGNATED REPRESENTATIVES.

               (a) Connetics' Representative. Connetics designates [*]
        (collectively and individually, Connetics' Authorized Representative) as
        the persons authorized to approve all plans, drawings, change orders and
        approvals pursuant to this Agreement.

               (b) DPT's Representative. DPT designates [*] (collectively and
        individually, DPT's Authorized Representative) as the persons authorized
        to approve all plans, drawings, change orders and approvals pursuant to
        this Agreement.

* 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 5
<PAGE>

                                    ARTICLE 4
                    COVENANTS, WARRANTIES AND REPRESENTATIONS

        SECTION 4.1. DPT'S WARRANTIES AND REPRESENTATIONS. DPT hereby makes the
following representations and warranties to Connetics as of the date of this
Agreement:

               (a) DPT has full power and lawful authority to enter into and
        carry out the terms and provisions of this Agreement and to execute and
        deliver all documents which are contemplated by this Agreement, and all
        actions of DPT necessary to confer such power and authority upon the
        persons executing this Agreement (and all documents which are
        contemplated by this Agreement) on behalf of DPT have been taken;

               (b) The Project shall not violate any applicable law, building
        code, regulation or ordinance in effect at the time such improvements
        are placed in service.

               (c) To DPT's knowledge, DPT has received, no written notice from
        any governmental authorities that eminent domain proceedings for the
        condemnation of the Premises are pending;

               (d) To DPT's knowledge, DPT has received no written notice of any
        threatened or pending litigation, arbitration, unsatisfied orders or
        judgments, governmental investigations or proceedings against DPT or
        affecting the Premises which would materially affect the Premises or
        DPT's capacity to perform under its Agreement;

               (e) To DPT's knowledge, DPT has received no written notice from
        any governmental authority that the Premises or any of the improvements
        located on the Premises are presently in violation of any applicable
        building codes, zoning or land use laws, or other law, order, ordinance,
        rule or regulation affecting the Premises.

               (f) To DPT's knowledge (i) there has not been any release of any
        Hazardous Substance on or beneath the Premises in violation of any
        applicable law, and (ii) DPT has received no written notice of any
        violation of claimed violation of any law, rule, or regulation relating
        to Hazardous Substances;

               (g) To DPT's knowledge, there are no conditions which would
        materially and adversely affect the Premises or any part thereof or the
        intended use and development thereof.

               (h) DPT has received all necessary consents and approvals from
        the owner of the Premises.

        SECTION 4.2. DPT'S COVENANTS. DPT hereby covenants and agrees as
follows:

        (a) During the time the Project is under construction, DPT shall comply
with its obligations under any applicable contracts or permits, and shall
maintain reasonable

                                     Page 6
<PAGE>

        levels and coverages of insurance in accordance with customary business
        practice and SECTION 6.1 of this Agreement. DPT shall not create or
        acquiesce in the creation of liens or exceptions to title or voluntarily
        take any action to render any of the representations or warranties of
        DPT set forth in SECTION 4.1 materially incorrect.

               (b) DPT shall promptly notify Connetics of any event or
        circumstance of which DPT becomes aware subsequent to the date of this
        Agreement which (a) materially and adversely affects the Premises or the
        use or operation of the Premises, or (b) makes any representation or
        warranty of DPT to Connetics under this Agreement untrue or misleading.

        SECTION 4.3. CONNETICS' WARRANTIES AND REPRESENTATIONS. Connetics hereby
represents and warrants to DPT that (a) Connetics has full power and lawful
authority to enter into and carry out the terms and conditions of this Agreement
and to execute and deliver all documents which are contemplated by this
Agreement, (b) Connetics shall comply with its obligations under any applicable
contracts or permits and (c) all actions necessary to confer such power and
authority upon the persons executing this Agreement and all documents which are
contemplated by this Agreement to be executed on behalf of Connetics or its
assignee have been taken.

        SECTION 4.4. DPT INDEMNIFICATION. DPT shall indemnify and defend
Connetics against and hold Connetics harmless from any and all third party
claims, liabilities, losses, damages, costs and expenses, including, without
limitation, all reasonable attorneys' fees, asserted against or suffered by
Connetics resulting from (a) any breach by DPT of this Agreement, and (b) any
liability or obligation arising in connection with DPT's use of the Premises on
or before the date of this Agreement.

        SECTION 4.5. CONNETICS INDEMNIFICATION. Connetics shall indemnify and
defend DPT against and hold DPT harmless from any and all third party claims,
liabilities, losses, damages, costs and expenses, including, without limitation,
all reasonable attorneys' fees, asserted against or suffered by DPT resulting
from (a) any breach by Connetics of this Agreement, or (b) any liability or
obligation arising in connection with Connetics' ownership or use of the Assets.

                                    ARTICLE 5
                               ONGOING OBLIGATIONS

        SECTION 5.1. OWNERSHIP. It is understood and agreed that Connetics shall
be the owner of the Equipment and the aerosol filling facility built on the
Premises (collectively, the "Assets"), to the extent the Assets can be removed
upon expiration of the Lease Agreement. Connetics acknowledges that its
ownership may be subject to certain rights of the landlord of the Premises to
fixtures installed on the Premises. Connetics shall be responsible for removal
and disposal of the Assets upon expiration of the Manufacturing and Supply
Agreement and restoration of the Leased Premises to the same condition as in
existence prior to the effective date hereof. DPT shall cooperate with Connetics
in filing any UCC-1 or equivalent financing statement to secure Connetics'
investment in the Assets. Connetics shall have the full right to depreciate the
Assets, and to control the use and disposition of the Assets.

                                     Page 7
<PAGE>

        SECTION 5.2. USE OF THE PREMISES.

               (a) It is the intent of both Parties to use the Assets as a
        source of income for both Parties. The Parties therefore contemplate
        that DPT will not use the facilities or the Equipment comprising the
        Project in connection with other customers' products without
        compensating Connetics for such use. Unless otherwise stated below, the
        specific terms of any such sharing of income shall be mutually agreed by
        the Parties, in the course of good faith negotiations conducted at a
        later time.

               (b) DPT shall be entitled to use the Assets for its affiliates or
        third parties for cosmetic and over-the-counter drug products without
        obtaining the prior written consent of Connetics, provided that the use
        does not interfere with Connetics's capacity requirements and DPT pays
        to Connetics [*]

               (c) DPT shall be required to secure Connetics' prior written
        consent to use the Assets for any prescription dermatological product,
        which consent shall not be unreasonably withheld.

               (d) In all events, in case of a shortage of capacity, Connetics
        shall have first priority regarding use of the facilities and Equipment
        comprising the Project, and will not be deemed to be acting in bad faith
        if it withholds consent in order to secure such priority rights.

               (e) If in the future the need for increased capacity arises,
        Connetics shall be responsible for all capital expenditures needed to
        increase the capacity unless the Parties otherwise agree.

        SECTION 5.3. RENTAL FEE. During the term of this Agreement or for as
long as Connetics owns the Assets, whichever is longer, Connetics shall pay DPT
rental for Connetics' pro rata portion of the Premises, to offset expenses of
operating the facility. Rent is currently [*] and is subject to adjustment in
the event DPT's rent is increased in the future. The total square footage
allocable to Connetics for purposes of calculating the rental fee under this
SECTION 5.3 is set forth in EXHIBIT C.

        SECTION 5.4. PERSONAL PROPERTY TAX. Connetics shall be responsible for
and shall pay prior to delinquency all taxes and assessments levied against or
by reason of

               (a) any and all alterations, additions and items installed or
        placed on or in the Premises and taxed as personal property rather than
        as Premises, and/or

               (b) all personal property, trade fixtures and other property
        owned by Connetics and utilized on or about the Premises, including the
        Equipment. Connetics shall submit an annual rendition for personal
        property taxes associated with the Assets in accordance with local laws
        and regulations.

* 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
<PAGE>

        SECTION 5.5. REAL PROPERTY TAX. DPT shall be responsible for the payment
of all Premises taxes levied and assessed for any calendar or tax year upon the
Premises, provided that any increase due to the improvements added pursuant to
this Agreement shall be the responsibility of Connetics.

        SECTION 5.6. PAYMENT OF OPERATING EXPENSES.

               (a) DPT shall be responsible for the payment of the following
        described Operating Expenses in connection with the Facility.

               (b) Definition of Operating Expenses. Subject to the exclusions
        and provisions contained in this Section, the term "Operating Expenses"
        shall mean the following costs and expenses incurred by DPT for
        operation and maintenance of the Premises:

                      (i) insurance premiums for insurance carried by DPT
               pursuant to SECTION 6.1 (which may include, at DPT's option,
               flood, earthquake or environmental remediation insurance),
               insurance deductibles;

                      (ii) the routine operation, repair and maintenance (but
               excluding major breakdowns and material capital expenditures
               relating to the Assets) of the Premises, including the aerosol
               filling facility, in a cGMP compliant condition including but not
               limited to lighting standards, landscaping, sewers, water, gas
               and electrical distribution systems and facilities, drainage
               facilities, and all signs, both illuminated and non-illuminated,
               that are on the Premises;

                      (iii) commissioning and general facility and equipment
               qualification costs;

                      (iv) except as set forth in Sections 5.4 and 5.5 above,
               real and personal property taxes and assessments levied or
               assessed against the Premises or any part of the Premises,
               including (but not limited to) any possessory interest, use,
               business, license or other taxes or fees, any taxes imposed
               directly on rents or services, any assessments or charges for
               police or fire protection, housing, transit, open space, street
               or sidewalk construction or maintenance or other similar services
               from time to time by any governmental or quasi-governmental
               entity, and any other new taxes on DPT in addition to taxes now
               in effect;

                      (v) supplies, equipment, utilities and tools used in the
               operation and maintenance of the Premises;

                      (vi) property management fees;

                                     Page 9
<PAGE>

        SECTION 5.7. UTILITIES/PERMITS. DPT shall be responsible for the payment
to the supplier of all charges for water, trash collection, hazardous waste
disposal, gas, heat, light, electricity, power, sewer, telephone, alarm system,
janitorial and other services or utilities supplied to or consumed in or with
respect to the Premises, including any taxes on such services and utilities.
Connetics shall be responsible for the payment of any necessary Building Permits
or Fees associated with the Project.

        SECTION 5.8. MAINTENANCE AND REPAIRS.

               (a) Except as set forth in Section 5.6(b)(ii) above, DPT shall,
        at its sole cost and expense, keep and maintain the Premises (and every
        part of the Premises) and the Equipment in good working order.

               (b) DPT shall not use the Premises or the Equipment, or permit
        the Premises or the Equipment to be used, in whole or in part for any
        purpose or use that violates any applicable laws, ordinances,
        regulations or rules of any governmental agency or public authority now
        in force or which may hereafter be in force pertaining to the use of the
        Premises, including, without limitation, regulations applicable because
        of the construction of improvements in or other particular use of the
        Premises.

        SECTION 5.9. FDA CERTIFICATION. It shall be DPT's obligation to ensure
that the Project, when completed, complies with all laws and regulations
promulgated by the FDA relating to the manufacture of pharmaceuticals, including
cGMP regulations.

        SECTION 5.10. TRANSFER OF ASSETS. DPT shall not permit any change of
control or assignment of the Assets without Connetics prior written consent,
such consent not to be unreasonably withheld.

                                    ARTICLE 6
                             INSURANCE AND INDEMNITY

        SECTION 6.1. INSURANCE AND INDEMNITY.

               (a) DPT's Insurance. DPT shall keep and maintain, or cause to be
        kept and maintained a policy or policies of insurance on the Premises
        insuring the same against loss or damage by the following risks: fire
        and extended coverage, vandalism, malicious mischief, and sprinkler
        damage, in amounts not less than ninety percent (90%) of full
        replacement value of the Premises. The term "full replacement value"
        shall mean actual replacement cost, including changes required by new
        building codes or ordinances (exclusive of the cost of excavation,
        foundations and footings). Such insurance shall show, as a loss payee in
        respect of the Premises, DPT, Connetics, and the owner of the Premises.
        DPT shall provide proof of insurance to Connetics annually.

               (b) Connetics' Risk. Connetics at its cost may carry such
        insurance as Connetics desires for Connetics' protection with respect to
        the Equipment and the

                                    Page 10
<PAGE>

        construction of the Project, and with respect to the Assets following
        completion of the Project.

               (c) Other Insurance. During the period of construction of the
        Premises, Builder's All Risk Insurance with Completed Operations
        Coverage, in such amounts and with such deductibles and other terms as
        DPT may reasonably require; and

        SECTION 6.2. ADJUSTMENT IN THE EVENT OF LOSS. Except as otherwise
provided in this Agreement, all insurance proceeds payable with respect to any
damage or destruction to the Premises (but not with respect to the Equipment, it
being understood that insurance proceeds allocable to the Equipment shall be
payable directly to Connetics) shall be payable to DPT. Each Party agrees to
execute and deliver to the other Party such releases, endorsements and other
instruments as the other Party reasonably may require in order to compromise,
adjust or settle any insurance claim which such other Party shall be entitled to
compromise, adjust or settle pursuant to this paragraph and to enable the other
Party or its designee to collect such insurance proceeds as are payable in
respect of such claim.

                                    ARTICLE 7
                                   LIMITATIONS

        SECTION 7.1 NO IMPLIED REPRESENTATIONS; WARRANTIES OR CONDITIONS. EXCEPT
AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, NEITHER DPT NOR Connetics
MAKES ANY REPRESENTATIONS OR WARRANTIES AND THERE ARE NO CONDITIONS, EXPRESS OR
IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO PRODUCT SUPPLIED UNDER THIS
AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATIONS, WARRANTIES OR
CONDITIONS WITH RESPECT TO MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OF SUCH PRODUCT, OR ARISING FROM A COURSE OF DEALING OR USAGE OF TRADE PRACTICE.

        SECTION 7.2 LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY HAVE
ANY LIABILITY TO THE OTHER PARTY OR ANY OTHER THIRD PARTY FOR ANY LOST
OPPORTUNITY, COSTS OF PROCUREMENT OF SUBSTITUTE GOODS OR SERVICES, OR FOR ANY
SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL, OR PUNITIVE DAMAGES ARISING OUT OF
THIS AGREEMENT, UNDER ANY CAUSE OF ACTION OR THEORY OF LIABILITY (INCLUDING
NEGLIGENCE), AND WHETHER OR NOT SUCH PARTY TO THIS AGREEMENT HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES. THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING
ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.

                                    ARTICLE 8
                                  MISCELLANEOUS

        SECTION 8.1. NOTICES. Any notices permitted or required by this
Agreement shall be sent by certified or registered mail with a copy by fax and
shall be effective the earlier of the date

                                    Page 11
<PAGE>

received or three (3) days after deposit in the U.S. mail, if sent and addressed
as follows or to such other address as either Party may designate in writing:

        If to DPT:             DPT Laboratories, Ltd.
                               Attention: President
                               P.O. Box 1659
                               San Antonio, Texas 78296
                               Fax: (210) 227-6132
                               with a copy to the General Counsel's Office

        If to Connetics:       Connetics Corporation
                               Attention: President
                               3290 West Bayshore Road
                               Palo Alto, California 94303

        SECTION 8.2. NO AGENCY. Nothing contained in this Agreement shall make
or constitute either DPT or Connetics as the agent of the other.

        SECTION 8.3. MERGER. All understanding and agreements, oral and written,
previously made between the Parties and relating to the matters covered in this
Agreement are merged in this Agreement. This Agreement, along with its exhibits
and the documents referenced in and contemplated by the exhibits, and the
Manufacturing and Supply Agreement of even date herewith, fully and completely
expresses the agreement between DPT and Connetics with regard to the matters set
forth in this Agreement. No modification of any of the terms of this Agreement,
or any amendments to this Agreement, shall be deemed to be valid unless in
writing and signed by the Party against which enforcement is sought. No course
of dealing or usage of trade shall be used to modify the terms and conditions in
this Agreement. Nothing in this Agreement is intended to alter the status of any
of (a) the Research & Development Services Agreement, or (b) the Confidentiality
and Material Transfer Agreement already in effect between the Parties, or (c)
the Supply and Manufacturing Agreement to be entered into by the Parties in
connection with commercial manufacture of Connetics' products.

        SECTION 8.4.  GOVERNING LAW AND DISPUTE RESOLUTION

        (a)    Governing Law

               The validity, interpretation and effect of this Agreement shall
               be governed by and construed under the laws of the State of
               Texas, U.S.A.

        (b)    Mediation

               The Parties agree to attempt to settle any disputes that arise in
               connection with this Agreement through good faith non-binding
               mediation efforts. The Parties agree that any dispute that arises
               in connection with this Agreement which is not settled through
               good faith mediation efforts and which does not involve a claim
               for equitable relief shall be settled by arbitration according to
               the provisions of SECTION 8.4(c) below.

                                    Page 12
<PAGE>

        (c)           Arbitration

               (i)    Any dispute, claim or controversy arising from or related
                      in any way to this Agreement or the interpretation,
                      application, breach, termination or validity of this
                      Agreement, including any claim of inducement of this
                      Agreement by fraud or otherwise, which is not resolved by
                      good faith mediation efforts, will be submitted for
                      resolution to arbitration pursuant to the commercial
                      arbitration rules then pertaining of the Center for Public
                      Resources ("CPR"), except where those rules conflict with
                      these provisions, in which case these provisions control.
                      Such arbitration shall be held in (A) Santa Clara County,
                      California, if the demand for arbitration is initiated by
                      DPT or (B) Bexar County, Texas, if the demand for
                      arbitration is initiated by Connetics.

               (ii)   A single arbitrator shall be chosen from the CPR Panels of
                      Distinguished Neutrals and shall be a lawyer specializing
                      in business litigation with at least 15 years experience
                      with a law firm of over 25 lawyers or who was a judge of a
                      court of general jurisdiction.

               (iii)  The parties agree to cooperate (A) to obtain selection of
                      the arbitrator within 30 days of initiation of the
                      arbitration, (B) to meet with the arbitrator within 30
                      days of selection and (C) to agree at that meeting or
                      before upon procedures for discovery and as to the conduct
                      of the hearing which will result in the hearing being
                      concluded within no more than 9 months after selection of
                      the arbitrator and in the award being rendered within 60
                      days of the conclusion of the hearings, or of any
                      post-hearing briefing, which briefing will be completed by
                      both sides within 20 days after the conclusion of the
                      hearings. In the event no such agreement is reached, the
                      CPR will select the arbitrator, allowing appropriate
                      strikes for reasons of conflict or other cause and three
                      peremptory challenges for each side. The arbitrator shall
                      set a date for the hearing, commit to the rendering of the
                      award within 60 days of the conclusion of the evidence at
                      the hearing, or of any post-hearing briefing (which
                      briefing will be completed by both sides in no more than
                      20 days after the conclusion of the hearings), and provide
                      for discovery according to these time limits, giving
                      recognition to the understanding of the Parties that they
                      contemplate reasonable discovery, including document
                      demands and depositions, but that such discovery be
                      limited so that the time limits specified in this
                      Agreement may be met without undue difficulty. In no event
                      will the arbitrator allow either side to obtain more than
                      a total of 40 hours of deposition testimony from all
                      witnesses, including both fact and expert witnesses. In
                      the event multiple hearing days are required, they will be
                      scheduled consecutively to the greatest extent possible.

                                    Page 13
<PAGE>

               (iv)   The arbitrator shall render an opinion setting forth
                      findings of fact and conclusions of law with the reasons
                      therefor stated. A transcript of the evidence adduced at
                      the hearing shall be made and shall, upon request, be made
                      available to either Party.

               (v)    To the extent possible, the arbitration hearings and award
                      will be maintained in confidence.

               (vi)   Any court of competent jurisdiction may enter judgment
                      upon any award.

               (vii)  Each party has the right before or during the arbitration
                      to seek and obtain from the appropriate court provisional
                      remedies such as attachment, preliminary injunction,
                      replevin, etc. to avoid irreparable harm, maintain the
                      status quo, or preserve the subject matter of the
                      arbitration.

               (viii) EACH PARTY TO THIS AGREEMENT WAIVES ITS RIGHT TO TRIAL OF
                      ANY ISSUE BY JURY.

               (ix)   The decision of the arbitrator shall be final and binding
                      upon all Parties and their respective successors and
                      assigns.

        (d)    Costs

               The costs of mediation and/or arbitration, including reasonable
               attorneys' fees, shall be borne by the losing Party, as allocated
               by the arbitration award.

        SECTION 8.5. NO WAIVER. No waiver by either Party of any default on its
obligations under this Agreement shall be effective unless in writing, nor shall
any such waiver operate as a waiver of any other default or of the same default
on a future occasion.

        SECTION 8.6. HEADINGS. The headings used in this Agreement are for
convenience only and are not a part of this Agreement.

        SECTION 8.7. DAYS. All references in this Agreement to a number of days
shall be construed to refer to calendar days, unless otherwise specified in this
Agreement.

        SECTION 8.8. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same original.

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

                                    Page 14
<PAGE>

--------------------------------------------------------------------------------
  CONNETICS CORPORATION                       DPT LABORATORIES, LTD.
  A Delaware Corporation

                                              By:  DFB PHARMACEUTICALS, INC.
                                                   Sole General Partner

  By:   /s/
        ----------------------------
  Name:                                       By:   /s/
         ---------------------------               -----------------------------
  Title:                                      Name:
        ----------------------------                 ---------------------------

--------------------------------------------------------------------------------

                                    Page 15
<PAGE>

                                    EXHIBIT A

[*]

* 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>

                                    EXHIBIT B
                           DEFINITION OF IMPROVEMENTS

The Project referred to in the Agreement to which this Exhibit is attached shall
consist of work described in the following plans:

                                      [*]

* 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>

                                    EXHIBIT C
                            EQUIPMENT AND FACILITIES

                                      [*]

                                [TO BE COMPLETED]

* 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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