Document:

<PAGE>

                                                                   Exhibit 10.4

                           INDEMNIFICATION AGREEMENT
                           -------------------------

     This Indemnification Agreement (the "Agreement") is made as of ((Date)), by
                                          ---------
and between Celtrix Pharmaceuticals, Inc., a Delaware corporation (the
"Company"), and ((IndemniteeName)) (the "Indemnitee").
 -------                                 ----------

                                   RECITALS
                                   --------

     The Company and Indemnitee recognize the increasing difficulty in obtaining
liability insurance for directors, officers and key employees, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance. The Company and Indemnitee further recognize the
substantial increase in corporate litigation in general, subjecting directors,
officers and key employees to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
Indemnitee does not regard the current protection available as adequate under
the present circumstances, and Indemnitee and agents of the Company may not be
willing to continue to serve as agents of the Company without additional
protection. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, and to indemnify its directors,
officers and key employees so as to provide them with the maximum protection
permitted by law.

                                   AGREEMENT
                                   ---------

     In consideration of the mutual promises made in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Company and Indemnitee hereby agree as follows:

     1.   Indemnification.
          ---------------

          (a)  Third Party Proceedings.  The Company shall indemnify Indemnitee
               -----------------------
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while an
officer or director or by reason of the fact that Indemnitee is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) actually and reasonably incurred by
Indemnitee in connection with such action, suit or proceeding if Indemnitee
acted in good faith and in a manner Indemnitee reasonably believed to be in or
not opposed to the best interests of the Company, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that Indemnitee did
not act in good faith and in a manner which Indemnitee reasonably believed to be
in or not opposed to the best interests of the Company, or, with respect
<PAGE>

to any criminal action or proceeding, that Indemnitee had reasonable cause to
believe that Indemnitee's conduct was unlawful.

          (b)  Proceedings By or in the Right of the Company.  The Company shall
               ---------------------------------------------
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or proceeding by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and, to the fullest extent permitted by
law, amounts paid in settlement (if such settlement is approved in advance by
the Company, which approval shall not be unreasonably withheld), in each case to
the extent actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of such action or suit if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company and its stockholders, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been finally adjudicated by court order or judgment
to be liable to the Company in the performance of Indemnitee's duty to the
Company and its stockholders unless and only to the extent that the court in
which such action or proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, Indemnitee is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.

          (c)  Mandatory Payment of Expenses.  To the extent that Indemnitee has
               -----------------------------
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 1(a) or Section 1(b) or the defense of any
claim, issue or matter therein, Indemnitee shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by Indemnitee in
connection therewith.

     2.   No Employment Rights.  Nothing contained in this Agreement is intended
          --------------------
to create in Indemnitee any right to continued employment.

     3.   Expenses; Indemnification Procedure.
          -----------------------------------

          (a)  Advancement of Expenses.  The Company shall advance all expenses
               -----------------------
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding referred to in
Section l(a) or Section 1(b) hereof (including amounts actually paid in
settlement of any such action, suit or proceeding). Indemnitee hereby undertakes
to repay such amounts advanced only if, and to the extent that, it shall
ultimately be determined that Indemnitee is not entitled to be indemnified by
the Company as authorized hereby.

          (b)  Notice/Cooperation by Indemnitee. Indemnitee shall, as a
               --------------------------------
condition precedent to his or her right to be indemnified under this Agreement,
give the Company notice in writing as soon as practicable of any claim made
against Indemnitee for which indemnification will or could be sought under this
Agreement.  Notice to the Company shall be directed to the

                                      -2-
<PAGE>

Chief Executive Officer of the Company and shall be given in accordance with the
provisions of Section 12(d) below. In addition, Indemnitee shall give the
Company such information and cooperation as it may reasonably require and as
shall be within Indemnitee's power.

          (c)  Procedure.  Any indemnification and advances provided for in
               ---------
Section 1 and this Section 3 shall be made no later than twenty (20) days after
receipt of the written request of Indemnitee. If a claim under this Agreement,
under any statute, or under any provision of the Company's Certificate of
Incorporation or Bylaws providing for indemnification, is not paid in full by
the Company within twenty (20) days after a written request for payment thereof
has first been received by the Company, Indemnitee may, but need not, at any
time thereafter bring an action against the Company to recover the unpaid amount
of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also
be entitled to be paid for the expenses (including attorneys' fees) of bringing
such action. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in connection with any action,
suit or proceeding in advance of its final disposition) that Indemnitee has not
met the standards of conduct which make it permissible under applicable law for
the Company to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on the Company and Indemnitee shall be entitled to
receive interim payments of expenses pursuant to Section 3(a) unless and until
such defense may be finally adjudicated by court order or judgment from which no
further right of appeal exists. It is the parties' intention that if the Company
contests Indemnitee's right to indemnification, the question of Indemnitee's
right to indemnification shall be for the court to decide, and neither the
failure of the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
stockholders) to have made a determination that indemnification of Indemnitee is
proper in the circumstances because Indemnitee has met the applicable standard
of conduct required by applicable law, nor an actual determination by the
Company (including its Board of Directors, any committee or subgroup of the
Board of Directors, independent legal counsel, or its stockholders) that
Indemnitee has not met such applicable standard of conduct, shall create a
presumption that Indemnitee has or has not met the applicable standard of
conduct.

          (d)  Notice to Insurers. If, at the time of the receipt of a notice of
               ------------------
a claim pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies.  The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.

          (e)  Selection of Counsel. In the event the Company shall be obligated
               --------------------
under Section 3(a) hereof to pay the expenses of any proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel approved by Indemnitee, upon the delivery to
Indemnitee of written notice of its election so to do.  After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same proceeding, provided that (i) Indemnitee shall have the
right to employ counsel in any such proceeding at Indemnitee's expense; and (ii)
if (A) the employment of counsel by Indemnitee has been

                                      -3-
<PAGE>

previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense or (C) the Company shall not, in
fact, have employed counsel to assume the defense of such proceeding, then the
fees and expenses of Indemnitee's counsel shall be at the expense of the
Company.

     4.   Additional Indemnification Rights; Nonexclusivity.
          -------------------------------------------------

          (a)  Scope. Notwithstanding any other provision of this Agreement, the
               -----
Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Certificate
of Incorporation, the Company's Bylaws or by statute. In the event of any
change, after the date of this Agreement, in any applicable law, statute, or
rule which expands the right of a Delaware corporation to indemnify a member of
its board of directors or an officer, such changes shall be deemed to be within
the purview of Indemnitee's rights and the Company's obligations under this
Agreement. In the event of any change in any applicable law, statute or rule
which narrows the right of a Delaware corporation to indemnify a member of its
board of directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.

          (b)  Nonexclusivity.  The indemnification provided by this Agreement
               --------------
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested members of the Company's Board of
Directors, the General Corporation Law of the State of Delaware, or otherwise,
both as to action in Indemnitee's official capacity and as to action in another
capacity while holding such office.  The indemnification provided under this
Agreement shall continue as to Indemnitee for any action taken or not taken
while serving in an indemnified capacity even though he or she may have ceased
to serve in any such capacity at the time of any action, suit or other covered
proceeding.

     5.   Partial Indemnification. If Indemnitee is entitled under any provision
          -----------------------
of this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines or penalties actually or reasonably incurred in the
investigation, defense, appeal or settlement of any civil or criminal action,
suit or proceeding, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion of such expenses,
judgments, fines or penalties to which Indemnitee is entitled.

     6.   Mutual Acknowledgment.  Both the Company and Indemnitee acknowledge
          ---------------------
that in certain instances, Federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise.  For example, the Company and Indemnitee
acknowledge that the Securities and Exchange Commission (the "SEC") has taken
                                                              ---
the position that indemnification is not permissible for liabilities arising
under certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the SEC to submit

                                      -4-
<PAGE>

the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.

     7.   Officer and Director Liability Insurance. The Company shall, from time
          ----------------------------------------
to time, make the good faith determination whether or not it is practicable for
the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
director and officer liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director; or of the Company's officers, if Indemnitee is not a
director of the Company but is an officer; or of the Company's key employees, if
Indemnitee is not an officer or director but is a key employee. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a parent
or subsidiary of the Company.

     8.   Severability.  Nothing in this Agreement is intended to require or
          ------------
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law.  The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.

     9.   Exceptions.  Any other provision herein to the contrary
          ----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:

          (a)  Claims Initiated by Indemnitee.  To indemnify or advance expenses
               ------------------------------
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;

          (b)  Lack of Good Faith.  To indemnify Indemnitee for any expenses
               ------------------
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous;

                                      -5-
<PAGE>

          (c)  Insured Claims.  To indemnify Indemnitee for expenses or
               --------------
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the
extent such expenses or liabilities have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability insurance
maintained by the Company; or

          (d)  Claims under Section 16(b).  To indemnify Indemnitee for expenses
               --------------------------
or the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.

     10.  Construction of Certain Phrases.
          -------------------------------

          (a)  For purposes of this Agreement, references to the "Company" shall
                                                                  -------
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
if Indemnitee is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.

          (b)  For purposes of this Agreement, references to "other enterprises"
                                                              -----------------
shall include employee benefit plans; references to "fines" shall include any
                                                     -----
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
                   -------------------------------------
service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants, or beneficiaries;
and if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not
                                                                             ---
opposed to the best interests of the Company" as referred to in this Agreement.
--------------------------------------------

     11.  Attorneys' Fees.  In the event that any action is instituted by
          ---------------
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.

                                      -6-
<PAGE>

     12.  Miscellaneous.
          -------------

          (a)  Governing Law.  This Agreement and all acts and transactions
               -------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
Delaware, without giving effect to principles of conflict of law.

          (b)  Entire Agreement; Enforcement of Rights.  This Agreement sets
               ---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them.  No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement.  The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.

          (c)  Construction.  This Agreement is the result of negotiations
               ------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any;  accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.

          (d)  Notices.  Any notice, demand or request required or permitted to
               -------
be given under this Agreement shall be in writing and shall be deemed sufficient
when delivered personally or sent by telegram or fax, or forty-eight (48) hours
after being deposited in the U.S. mail, as certified or registered mail, with
postage prepaid, and addressed to the party to be notified at such party's
address as set forth below or as subsequently modified by written notice.

          (e)  Counterparts.  This Agreement may be executed in two or more
               ------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.

          (f)  Successors and Assigns.  This Agreement shall be binding upon the
               ----------------------
Company and its successors and assigns, and inure to the benefit of Indemnitee
and Indemnitee's heirs, legal representatives and assigns.

          (g)  Subrogation.  In the event of payment under this Agreement, the
               -----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
to effectively bring suit to enforce such rights.

                           [Signature Page Follows]

                                      -7-
<PAGE>

     The parties hereto have executed this Agreement as of the day and year set
forth on the first page of this Agreement.

                              CELTRIX PHARMACEUTICALS, INC.

                              By:     _________________________________________

                              Title:  _________________________________________

                              Address: 2033 Gateway Place, Suite 600
                                       San Jose, CA 95110

AGREED TO AND ACCEPTED:

((IndemniteeName))

_____________________________
(Signature)

Address:  ((IndemniteeAddress1))
          ((IndemniteeAddress2))

                                      -8-<PAGE>

                                                                    EXHIBIT 10.5

                       LICENSE AND DEVELOPMENT AGREEMENT

                                    BETWEEN

                         CELTRIX PHARMACEUTICALS, INC.

                                      AND

                              GENZYME CORPORATION
<PAGE>

                               Table of Contents
                               -----------------

<TABLE>
<S>                                                                         <C>
1    DEFINITIONS..........................................................    1
     1.1.   "Additional Indications"......................................    1
     1.2.   "Affiliate"...................................................    1
     1.3.   "Business Representative".....................................    1
     1.4.   "Competing Product"...........................................    2
     1.5.   "Confidential Information"....................................    2
     1.6.   "Development Costs"...........................................    2
     1.7.   "Development Program".........................................    2
     1.8.   "FDA".........................................................    2
     1.9.   "First Commercial Sale".......................................    2
     1.10.  "Field".......................................................    2
     1.11.  "Initial Indications".........................................    2
     1.12.  "IND".........................................................    2
     1.13.  "Improvements"................................................    2
     1.14.  "Licensed Technology".........................................    2
     1.15.  "Major Market"................................................    2
     1.16.  "Manufacturing Costs".........................................    3
     1.17.  "NDA".........................................................    3
     1.18.  "Net Sales"...................................................    3
     1.19.  "Patents".....................................................    3
     1.20.  "Phase II Clinical Trials.....................................    3
     1.21.  "Pivotal Clinical Trials".....................................    3
     1.22.  "Product".....................................................    3
     1.23.  "Project Representative"......................................    3
     1.24.  "Royalty Bearing Sales".......................................    3
     1.25.  "Technology"..................................................    4
     1.26.  "Territory"...................................................    4
     1.27.  "TGF-B".......................................................    4
     1.28.  "TGF-B2"......................................................    4
     1.29.  "Third Party".................................................    4
     1.30.  "Third Party Royalties".......................................    4
     1.31.  "Valid Claim".................................................    4
     1.32.  "Work Plan"...................................................    4
2    LICENSE TO GENZYME...................................................    4
     2.1.   Exclusive License.............................................    4
     2.2.   Acquisition of Third Party Rights.............................    5
3    DEVELOPMENT PROGRAM..................................................    5
     3.1.   Goals.........................................................    5
     3.2.   Program Administration........................................    5
     3.3.   Performance of Services.......................................    6
     3.4.   Records and Data..............................................    7
     3.5.   Visit of Facilities...........................................    7
     3.6.   Exclusivity...................................................    7
</TABLE>

                                       i
<PAGE>

<TABLE>
<S>                                                                         <C>
     3.7.   Subcontracts..................................................    7
4    PAYMENTS AND REPORTS.................................................    7
     4.1.   Milestone Payments............................................    7
     4.2.   Development Funding...........................................    8
     4.3.   Royalty Payments..............................................    9
     4.4.   Audit Rights..................................................   10
     4.5.   Payment Currency..............................................   10
     4.6.   Payment Mechanics.............................................   10
5    MANUFACTURING AND MARKETING..........................................   10
     5.1.   Pre-Clinical and Clinical Manufacture by Celtrix..............   10
     5.2.   Commercial Manufacture by Genzyme.............................   10
     5.3.   Genzyme to Sell...............................................   11
6    CELTRIX REPRESENTATIONS AND WARRANTIES...............................   11
     6.1.   Third-Party Agreements........................................   11
     6.2.   No Third Party Rights.........................................   11
7    PROPRIETARY RIGHTS...................................................   11
     7.1.   Improvements..................................................   11
     7.2.   Patent Prosecution and Maintenance............................   12
     7.3.   Third Party Claim of Infringement.............................   12
     7.4.   Infringement by Third Parties.................................   12
8    CONFIDENTIALITY......................................................   13
     8.1.   General.......................................................   13
     8.2.   Disclosure of Agreement.......................................   13
9    INDEMNIFICATION......................................................   13
     9.1.   Mutual Right to Indemnification...............................   13
     9.2.   Celtrix Right to Indemnification..............................   13
     9.3.   Procedure.....................................................   14
     9.4.   Product Liability Insurance...................................   14
10   TERM AND TERMINATION.................................................   14
     10.1.  License Term..................................................   14
     10.2.  Termination for Breach........................................   14
     10.3.  Survival of Obligations.......................................   15
11   OTHER ARRANGEMENTS BETWEEN THE PARTIES...............................   15
     11.1.  Genzyme Right to Negotiate....................................   15
12   MISCELLANEOUS........................................................   15
     12.1.  Force Majeure.................................................   15
     12.2.  No Warranty of Success........................................   15
     12.3.  Relationship of the Parties...................................   15
     12.4.  Notices.......................................................   16
     12.5.  Successors and Assigns........................................   16
     12.6.  Amendments and Waivers........................................   16
     12.7.  Governing Law.................................................   16
     12.8.  Dispute Resolution............................................   17
     12.9.  Severability..................................................   17
     12.10. Headings......................................................   17
</TABLE>

                                      ii
<PAGE>

<TABLE>
<S>                                                                         <C>
     12.11. Execution in Counterparts.....................................   17
     12.12. Entire Agreement..............................................   17
SCHEDULE 1

     Patents/Patent Applications Owned/Licensed by Celtrix................   19
</TABLE>

                                      iii
<PAGE>

                       LICENSE AND DEVELOPMENT AGREEMENT

     This Agreement dated as of June 24, 1994 is between Celtrix
Pharmaceuticals, Inc., a Delaware corporation ("Celtrix"), and Genzyme
Corporation, a Massachusetts corporation ("Genzyme").

                                    RECITALS

     A.  Celtrix and Genzyme desire to engage in a joint program to develop and
commercialize Transforming Growth Factor Beta, in particular TGF-B2, for use in
tissue repair (for both hard and soft tissues) and clinical systemic indications
excluding mucositis and ophthalmic indications and certain soft tissue
augmentation indications previously licensed to Collagen Corp.; initially
focusing on wound repair and multiple sclerosis.  TGF-B2 is a cytokine developed
by Celtrix.

     B.  Genzyme is willing to (i) undertake certain development activities
assigned to it hereunder, (ii) provide funding for the development of TGF-B2,
(iii) undertake commercially reasonable efforts, based upon the progress of
development work on the product and the size of the potential markets, to obtain
at its expense regulatory approvals of TGF-B2, and (iv) make certain milestone
payments and royalty payments to Celtrix in exchange for commercialization
rights with respect to TGF-B2.

     C.  Celtrix is willing to (i) undertake certain development activities
assigned to it hereunder, and (ii) grant commercialization rights to Genzyme in
exchange for the right to receive certain milestone payments and royalty
payments on future sales of TGF-B2.

     D.  Genzyme has agreed to purchase shares of Common Stock of Celtrix as set
forth in the Common Stock Purchase Agreement dated as of the date hereof by and
between Celtrix and Genzyme (the "Investment Agreement").

     In consideration of the foregoing and the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:

1    DEFINITIONS.  The following capitalized terms used herein shall have the
     -----------
respective meanings set forth below.  Certain other capitalized terms are
defined elsewhere in this Agreement.

     1.1.  "Additional Indications" means indications for the use of TGF-B in
            ----------------------
applications other than wound care management, multiple sclerosis, mucositis,
ophthalmic indications, soft tissue augmentation and includes for example (and
without limitation) cancer, hard tissue repair and other auto-immune
applications; "Additional Products" shall mean Products for Additional
               -------------------
Indications.

     1.2.  "Affiliate" means a person or entity that directly or indirectly
            ---------
controls, is controlled by or is under common control with, a party to this
Agreement.  "Control" (and, with correlative meanings, the terms "controlled by"
and "under common control with") means, in the
<PAGE>

case of a corporation, the ownership of more than 50% of the outstanding voting
securities thereof or the right to acquire such securities within 60 days and,
in the case of any other type of entity, an interest that results in the ability
to direct or cause the direction of the management and policies of such entity
or the power to appoint 50% or more of the members of the governing body of the
entity or the right to financially consolidate for reporting and/or tax purposes
the financial performance of such entity.

     1.3.  "Business Representative" means a senior level business executive
            -----------------------
designated by a party for purposes of identifying and planning the strategy of
selecting, financing and developing Additional Indications.

     1.4.  "Competing Product" means any product containing TGF-B sold by a
            -----------------
party other than Genzyme or its Affiliates or sublicensees that provides
essentially the same clinical functions as the Product in the same clinical
situations in which the Product is used.

     1.5.  "Confidential Information" means all proprietary information
            ------------------------
communicated to, learned of, developed or otherwise acquired by either party
under this Agreement.

     1.6.  "Development Costs" means (a) the direct costs, fees and out-of-
            -----------------
pocket or other expenses incurred in the course of performing the work under the
Development Program (excluding capital expenditures) plus (b) an allocation of
overhead costs on internal research and development but excluding (x) Celtrix's
overhead on external costs and (y) actual capital investment but including
depreciation expenses.  Development Costs incurred by a party shall be
determined on a reasonable basis consistent with such party's internal cost
accounting system.

     1.7.  "Development Program" means the research and development and other
            -------------------
work on the Products to be conducted by the parties hereunder, including
clinical testing, regulatory submissions and ongoing Product research and
development performed in accordance with the Work Plan following receipt of
marketing approval of the Products for any indication and feasibility research
in pursuit of Additional Indications.

     1.8.  "FDA" means the United States Food and Drug Administration.
            ---

     1.9.  "First Commercial Sale" means the first arms-length sale pursuant to
            ---------------------
this Agreement to one or more Third Parties of any Product following receipt of
approval to commence manufacturing and selling such Product from the applicable
regulatory agency in the applicable country, including any compassionate use
outside the United States following regulatory approval from the FDA.

     1.10.  "Field" means any therapeutic uses of TGF-B for any clinical
             -----
indication excluding soft tissue augmentation previously licensed to Collagen
Corporation, vascular prostheses including stents and grafts previously licensed
to Prograft Medical Inc. and all ophthalmic and mucositis indications and uses.

     1.11.  "Initial Indications" means the indications for wound repair and
             -------------------
multiple sclerosis; "Initial Products" shall mean Products for the Initial
                     ----------------
Indications.

                                       2
<PAGE>

     1.12.  "IND" means an investigational new drug application filed with the
             ---
FDA prior to beginning clinical trials in humans.

     1.13.  "Improvements" means any Technology that is discovered, developed or
             ------------
otherwise acquired in the course of the Development Program hereunder that may
be useful in the manufacture or use of Product.

     1.14.  "Licensed Technology" means all Technology owned or controlled by
             -------------------
Celtrix as of the date hereof or owned or controlled by Celtrix hereafter during
the term of this Agreement, but only to the extent that such Technology relates
to the use, delivery, including but not limited to the collagen/heparin sponge,
manufacture or sale of the Product in the Field.  Technology "owned or
controlled" includes Technology as to which Celtrix has the right to grant or
cause to be granted sublicenses and/or immunity from suit.

     1.15.  "Major Market" means any one of the United States, the E.C., United
             ------------
Kingdom, France, Germany or Italy.

     1.16.  "Manufacturing Costs" means (a) the direct material and labor costs
             -------------------
associated with manufacturing the Product, (b) overhead allocable to manufacture
of the Product and (c) the amount paid to Third Parties to acquire manufactured
Products, whether or not such Product is in final form.  Direct material costs
include the costs of purchasing raw materials and packaging components.  Direct
labor includes the cost of employees directly employed in Product manufacturing,
quality control or packaging.  Overhead allocated to manufacture of the Product
shall be limited to (i) a reasonable allocation of the cost of employees who
have a direct relationship with Product manufacturing, quality control or
packaging, but who are not classified as direct labor, which allocation shall be
based on each such employee's time spent in Product manufacturing, quality
control or packaging as compared to time spent on all such employee's work, (ii)
non-labor indirect costs normally associated with manufacturing, (iii) a
reasonable allocation of facilities' costs allocable to Product manufacturing,
quality control and packaging and (iv) a reasonable allocation of general and
administrative costs.  Manufacturing Costs shall be determined on a reasonable
basis consistent with the manufacturing party's internal cost accounting system.

     1.17.  "NDA" or "PLA" means a new drug application or product license
             ---      ---
application, respectively filed with the FDA to obtain marketing approval for a
Product.  An "ELA" means an Establishment License Application.
              ---

     1.18.  "Net Sales" means Royalty Bearing Sales less Third Party Royalties
             ---------
except those payable to Genentech, Inc. and Hercules, Inc.

     1.19.  "Patents" means (a) the patents and patent applications listed on
             -------
Schedule 1 hereto and all patent applications hereafter filed that are owned by
or licensed to Celtrix in the Territory and which have one or more claims
covering Licensed Technology or Improvements, (b) any patent application
constituting an equivalent, reissue, extension, continuation-in-part or a
division of any of the foregoing, including foreign counterparts, and (c) any
patents issued upon any of the foregoing applications.

                                       3
<PAGE>

     1.20.  "Phase II Clinical Trials" means the second phase of human clinical
             ------------------------
trials of a drug or biologic product required by the FDA in which the product is
tested in patients afflicted with a particular disease in order to gain
preliminary evidence of effectiveness, determine optimal dosage and obtain
expanded evidence of safety.

     1.21.  "Pivotal Clinical Trials" means the final or pivotal phase of human
             -----------------------
clinical trials of a drug or biologic product required by the FDA and intended
to serve as the basis for an NDA or PLA filing.

     1.22.  "Product" means any pharmaceutical composition in the Field
             -------
incorporating TGF-B and further including appropriate delivery vehicles
including without limitation heparin and collagen.

     1.23.  "Project Representative" means an individual designated by a party
             ----------------------
pursuant to Section 3.2(a).  The Project Representative of a party may be
changed at any time by written notice to the other party.

     1.24.  "Royalty Bearing Sales" means the gross amount billed for Product
             ---------------------
sold by Genzyme, its Affiliates and sublicensees pursuant to this Agreement to a
Third Party, less discounts, rebates, returns, credits, contractual allowances,
distributor fees (provided such do not exceed 4% of the gross amount), sales
deemed uncollectible, shipping and insurance charges, sales taxes, duties, and
other governmental charges.

     In the event a Product is sold in a combination product with other
pharmacologically active components, Net Sales, for purposes of royalty payments
on the combination product, shall be calculated by multiplying the Net Sales of
that combination product by the fraction A/B, where A is the gross selling price
of the Product sold separately and B is the gross selling price of the
combination product.  In the event that no such separate sales are made by
Genzyme or its Affiliates or sublicensees, the parties shall negotiate in good
faith the meaning of Net Sales for purposes of royalty payments on the
combination product.  It is to be understood that compounds included for the
purpose of effecting drug delivery (such as for example, collagen) shall not be
deemed a pharmacologically active component.

     1.25.  "Technology" means all (a) ideas, methods, inventions, techniques,
             ----------
processes, know-how, trade secrets and other information and all (b) compounds,
formulations, and other natural and man-made materials.

     1.26.  "Territory" means worldwide except Japan, China, Korea and Taiwan
             ---------
(the "excluded countries") which are currently under negotiation with a Third
Party.  If that negotiation should not lead to an agreement, Celtrix agrees to
discuss in good faith with Genzyme the terms for adding such excluded countries
to the Territory.

     1.27.  "TGF-B" means any and all transforming growth factor Betas (1,2,3,
             -----
etc) and any fragments, analogs, derivatives or modifications thereof which
provides essentially the same biological function as transforming growth factor
Betas, including all uses of the foregoing owned, licensed and/or developed by
Celtrix.

                                       4
<PAGE>

     1.28.  "TGF-B2" means transforming growth factor Beta 2 as described in
             ------
U.S. Patent # 4,774,322.

     1.29.  "Third Party" means any entity other than Celtrix, Genzyme or their
             -----------
Affiliates.

     1.30.  "Third Party Royalties" means royalties calculated on Royalty
             ---------------------
Bearing Sales and payable to Third Parties.

     1.31.  "Valid Claim" means a claim of an issued patent included within the
             -----------
Patents that has not expired or been withdrawn, canceled, disclaimed or held
invalid by a court or governmental agency of competent jurisdiction in an
unappealed or unappealable decision.

     1.32.  "Work Plan" means a written summary of the tasks to be undertaken by
             ---------
each party during a particular calendar year in connection with the development
of Product, together with a budget of the anticipated Development Costs
associated therewith, adopted by the parties in accordance with Section 3.2(c).
Each Work Plan will include reasonably detailed descriptions of the tasks and
work to be performed, the resources required to accomplish the work, the costs
associated with the planned work and whether Celtrix or Genzyme will be
responsible for accomplishing each task.

2    LICENSE TO GENZYME.
     ------------------

     2.1.  Exclusive License.  Subject to the terms and conditions of this
           -----------------
Agreement, Celtrix hereby grants to Genzyme an exclusive (against Celtrix and
all others) right and license (including the right to grant sublicenses) in the
Territory to make, have made (including by Celtrix hereunder), use and sell any
Product in the Field (a) the use, manufacture or sale of which is covered by one
or more claims of the Patents or (b) incorporating or manufactured using
Licensed Technology.  Any Celtrix rights not specifically licensed hereunder
shall continue to be vested exclusively in Celtrix, and Celtrix shall have the
sole authority and discretion to exercise or refrain from exercising such
rights.

     2.2.  Acquisition of Third Party Rights.  Genzyme shall use all
           ---------------------------------
commercially reasonable efforts to obtain any rights (excluding those from
Genentech), at its cost, from any Third Party that are necessary for the
manufacture, use or sale of the Product in accordance with this Agreement.
Celtrix shall bear all costs associated with any reduction pursuant to Section
3.2(b) of the License Agreement effective as of April 1, 1993 between Celtrix
and Genentech, Inc. (the "Genentech Agreement") of the royalty rate governing
the payments due Genentech whereupon the royalty rate due Celtrix under Section
4.3 shall be increased by forty percent (40%) of the amount of the reduction of
the Genentech royalty rate.

3    DEVELOPMENT PROGRAM.
     -------------------

     3.1.  Goals.  Commencing upon completion of the initial Work Plan as set
           -----
forth in Section 3.2(c), Celtrix and Genzyme agree to continue the research and
development begun by Celtrix on the Products according to the Work Plans, with
the goal of developing commercially marketable Products in the shortest feasible
period of time consistent with the level of funding

                                       5
<PAGE>

hereunder. Specifically, the initial goals of the Development Program will be to
develop the Products for (i) wound repair and (ii) multiple sclerosis and
thereafter, (iii) Additional Indications.

     3.2. Program Administration.
          ----------------------

          (a) Project Representatives.  The parties shall each designate a
              -----------------------
Project Representative to facilitate liaison between it and the other party,
oversee and review the progress of the Development Program, determine the
allocation of responsibilities between the parties for conducting the
Development Program, develop clinical trial protocols, manage the
clinical/regulatory process and discuss potential competition and other relevant
matters to assure rapid development and commercialization of the Products.

          (b) Disagreements.  All material decisions made hereunder relating to
              -------------
the Development Program during 1994, 1995 and 1996 shall require the approval of
both Project Representatives, not to be unreasonably withheld or delayed.  The
Project Representatives shall attempt in good faith to reach consensus on all
matters.  Disagreements shall be resolved as follows.  The Project
Representatives shall promptly present the disagreement to the Business
Representatives of the parties or their designees, who shall attempt resolution
of the matter.  If such Business Representatives cannot resolve such
disagreement after forty-five (45) days, then the dispute shall be promptly
presented to the chief executive officers of the Parties.  If such executives
cannot promptly resolve such disagreement, then the dispute shall be resolved
under the arbitration provisions of Section 12.8.

          (c) Work Plans.  Promptly after the date hereof, the Project
              ----------
Representatives shall prepare and recommend an initial Work Plan for the
remainder of 1994.  Prior to October 1, 1994 and October 1, 1995, the Project
Representatives shall prepare and recommend a proposed Work Plan for 1995 and
1996, respectively.  Each Work Plan adopted shall be signed by both parties.
The Project Representatives shall actively consult with one another during 1994,
1995 and 1996 so as to adjust the specific work performed under the Work Plan to
conform to evolving developments in technology, clinical testing and the results
of the development work performed.  Thereafter and throughout the term of the
Development Program, the Genzyme Project Representative shall actively inform
the Celtrix Project Representative of the results of the development work
performed by Genzyme.  Work Plans for subsequent years shall involve at least
similar levels of activity by Genzyme as undertaken during 1994, 1995 and 1996
and shall be provided to Celtrix at the beginning of each calendar year during
the Development Program.  While not subject to clear projection at this early
stage, the parties expect that Genzyme will commit approximately two to five
million dollars per year per Initial Indication over the next several years and
such expenditures shall be satisfactory evidence of the parties' expectations of
commercially reasonable due diligent efforts required under this Agreement.
Celtrix shall provide to Genzyme or its Affiliates without charge (i) during
1994, two million dollars worth of services and (ii) during 1995, one-half
million dollars worth of services.  If Celtrix exercises its call option
pursuant to the Investment Agreement of even date herewith and Genzyme makes a
requisite equity investment, Celtrix shall provide to Genzyme or its Affiliates
without charge (i) during 1996, one million dollars worth of services and (ii)
during

                                       6
<PAGE>

1997, one-half million dollars worth of services. Services to be provided shall
be determined at Celtrix's cost and set forth in applicable Work Plans and may
comprise Manufacturing Costs incurred pursuant to Section 5.1 or Development
Costs incurred pursuant to Section 3.0 as applicable. If services are not
provided in the specified calender years, they will carry over to the subsequent
years.

          (d) Progress Reports.  Within 45 days following the end of each
              ----------------
calendar quarter during 1994, 1995 and 1996, each Project Representative shall
deliver to the other a reasonably detailed written report which shall (1)
describe the work performed by the representative's party during the quarter on
the Development Program and (2) if appropriate, recommend any revisions to the
Work Plan that would improve the progress of the Development Program.
Thereafter or upon such time as Genzyme undertakes substantially all development
activity, the Genzyme Project Representative shall deliver to the Celtrix
Project Representative at mid year and with the annual Work Plan a written
report summarizing the work performed and the progress made in the intervening
period from the last such report.

          (e) Meetings.  The Genzyme Project Representatives and other employees
              --------
or consultants of Genzyme responsible for management of the Development Program
shall meet at least once during each calendar quarter during the term of the
Development Program for the purpose of reviewing the status of the Development
Program including (i) relevant data, (ii) technical issues that have arisen,
(iii) issues of priority and (iv) the design and conduct of clinical trials and
anticipated regulatory filings, (v) budgets and expenditures, (vi) competition
and (vii) any other matters relevant to the development of the Products.  The
Celtrix Project Representative shall have a standing invitation to the Genzyme
quarterly project review meetings.  Such meetings shall be held at Genzyme
facilities, unless otherwise agreed by the parties.  Each party shall be
responsible for its own costs incurred in connection with such meetings.  The
Project Representatives shall jointly prepare minutes summarizing the matters
reviewed and any actions taken at such meetings and shall distribute such
minutes to the parties within 14 days following each meeting.

          (f) Celtrix Development Opportunities.  If Celtrix should identify an
              ---------------------------------
Additional Indication for which it would like to develop a Product, it may
approach Genzyme regarding its plans with respect to such indication.  If
Genzyme determines that it is not interested in pursuing that indication at that
time, at its option not to be unreasonably withheld, it may give Celtrix the
right to develop such indication on its own.  If Celtrix should subsequently
decide that it wishes to get a partner to assist Celtrix in such development, it
shall first provide Genzyme with an opportunity to become involved.  If Genzyme
again determines within a reasonable time that it is not interested, then
Celtrix shall have the right to go to a Third Party provided however, that any
Product developed by Celtrix by itself or with such Third Party shall be subject
to the payment of royalties to Genzyme pursuant to the royalty provisions of
this Agreement, mutatis mutandis.  In addition, if Genzyme determines not to
pursue commercialization of a Product in any geographic market in the Territory
or any clinical indication, it will negotiate in good faith with Celtrix the
terms for the license of such rights to Celtrix.

                                       7
<PAGE>

     3.3.  Performance of Services.  Each party shall use all commercially
           -----------------------
reasonable efforts to perform the development work assigned to it in a prudent
and skillful manner in accordance, in all material respects, with the Work Plan
then in effect and applicable laws.  Each party shall furnish all labor,
supervision, facilities, supplies and materials necessary to perform the
development work assigned to it in accordance with the Work Plan then in effect.
The party assigned responsibility for any regulatory filings or portions thereof
with the FDA or any comparable foreign regulatory body shall make available to
the other party any materials it proposes to file for such party's review and
approval, which approval may not be unreasonably withheld or delayed.  Such
materials shall be made available to the other party sufficiently in advance of
the anticipated filing date so as to give such party a reasonable opportunity to
review and comment.  All responses by regulatory bodies shall also be promptly
disclosed to the other party.

     3.4.  Records and Data.  Each party shall maintain records in sufficient
           ----------------
detail and in good scientific manner appropriate for patent and FDA purposes and
so as to properly reflect all work done and results achieved in the performance
of the Development Program.  Such records shall include books, records, reports,
research notes, charts, graphs, comments, computations, analyses, recordings,
photographs, computer programs and documentation thereof, computer information
storage means, samples of materials and other graphic or written data generated
in connection with the Development Program, including any data required to be
maintained pursuant to applicable governmental regulations.  Each party shall
provide the other the right to inspect records, and shall provide copies of all
requested records, to the extent reasonably related to the performance of the
other's obligations under this Agreement.

     3.5.  Visit of Facilities.  Representatives of each party may, upon
           -------------------
reasonable notice and at times reasonably acceptable to the other party, (a)
visit the facilities where the Development Program is being conducted and/or the
facilities where the other party manufactures any Product or active compound
contained therein (or has a Product or such a compound manufactured by a Third
Party), (b) consult informally, during such visits and by telephone, with
personnel of the other party performing work on the Development Program and (c)
with the other party's prior approval, which approval shall not be unreasonably
withheld, visit the sites of any clinical trials or other experiments being
conducted by such other party in connection with the Development Program, but
only to the extent in each case as such trials or other experiments relate to
the Development Program.  If requested by the other party, Celtrix and Genzyme
shall cause appropriate individuals working on the Development Program to be
available for meetings at the location of the facilities where such individuals
are employed at times reasonably convenient to the party responding to such
request.

     3.6.  Exclusivity.  During the term of this Agreement, each party agrees
           -----------
that it will not engage in research and development within the Field and the
Territory relating to, or manufacture, use or sell, the Product, a Competing
Product or any other TGF-B formulation on its own behalf, with the exception of
product rights returned to Celtrix pursuant to Section 3.2(f).  Except as set
forth herein, this Agreement is not intended and should not be construed to
prevent or limit Celtrix's right to use its technology and patent rights in
areas outside the Field.

                                       8
<PAGE>

     3.7.  Subcontracts.  Prior to December 31, 1996, neither party may
           ------------
subcontract any portion of the development work to be performed by it hereunder
unless such subcontract is contemplated by the Work Plan or otherwise approved
in writing by the other party, which approval shall not be unreasonably withheld
or delayed.  In the case of any such approved subcontract, the payments to such
subcontractor shall be included in the calculation of Development Costs
hereunder.

4    PAYMENTS AND REPORTS.
     --------------------

     4.1.  Milestone Payments.
           ------------------

          (a) Milestones.  Genzyme shall make the following payments to Celtrix
              ----------
within 30 days following achievement of the applicable milestone:

          For the first Product for a wound repair indication:
               (i)    $250,000 upon initiation of the Pivotal Clinical Trial;

               (ii)   $750,000 upon the first filing of a PLA (or equivalent) in
                      a Major Market; and

               (iii)  $1,500,000 upon receipt of final marketing approval from
                      the FDA (or equivalent) in a Major Market to manufacture
                      and sell.

          For the first Product for multiple sclerosis indication:
               (i)    $750,000 upon initiation of the Pivotal Clinical Trial;

               (ii)   $1,000,000 upon the first filing of a PLA (or equivalent)
                      in a Major Market; and

               (iii)  $2,000,000 upon receipt of final marketing approval from
                      the FDA (or equivalent) in a Major Market to manufacture
                      and sell.

          For any and all other Products: no milestone payments will be due.

          (b) Credit.  One-half of the milestones paid under Section 4.1(a)
              ------
shall be fully creditable against the royalty payments payable by Genzyme to
Celtrix under Section 4.3 provided that no more than fifty percent (50%) of such
royalty payments may be credited in any given year.

     4.2.  Development Funding.  All Development Costs shall be borne by the
           -------------------
Genzyme as follows.

          (a) Initial Indications.  Genzyme shall be responsible for funding all
              -------------------
commercially reasonable Development Costs for the Initial Products pursuant to
Section 3.2(c).

                                       9
<PAGE>

          (b) Additional Indications.  For a period of five years beginning
              ----------------------
January 1, 1995, Genzyme agrees that it shall spend at least Five Hundred
Thousand Dollars ($500,000) per year in feasibility, evaluation testing and
development of Additional Products.

          (c) International Approval.  Genzyme shall use commercially reasonable
              ----------------------
efforts, based upon the progress of the Development Program and the size of the
potential foreign markets, to obtain approval to market the Products for wound
healing and multiple sclerosis outside the United States and shall be
responsible for all costs associated therewith.  Notwithstanding the foregoing,
Genzyme is not obligated to pursue simultaneous filings for regulatory approval
in more than one country at a time.  The parties agree that the first filings
that Genzyme shall consider making in foreign countries shall be with the
Committee for Proprietary Medicinal Products or other European agency
responsible for approval of drug products sold in the European Economic
Community.

          (d) Reports and Payment.  Genzyme shall pay Celtrix quarterly in
              -------------------
arrears, the estimated Development Costs to be incurred by Celtrix pursuant to
the Work Plan during such quarter.  Within 60 days after the end of each two
quarters, Celtrix shall provide Genzyme with a reasonably detailed itemized
invoice of the Development Costs actually incurred by Celtrix during the
previous two quarters.  These actual Development Costs shall be reconciled
against the estimated payments made for such two quarters and any overpayment or
underpayment shall be appropriately reflected in the next quarter's estimated
Development Cost payment provided however, that Genzyme shall not be required to
pay more Development Costs during the year than that set forth in the applicable
Work Plan.

     4.3. Royalty Payments.
          ----------------

          (a) Royalty Rates.  On a per Product (e.g. all wound repair Products
              -------------
regardless of dosage or formulation comprise a Product) and annual basis and
subject to increase pursuant to Section 2.2 and decrease pursuant to Section
4.3(b), Genzyme shall pay Celtrix royalties based on one of the following
percentages of Net Sales of Products sold by Genzyme and its Affiliates in a
country where the respective Product is covered by any Valid Claim, beginning
with the First Commercial Sale in such country and continuing until all such
Valid Claims have expired:

          For Initial Products:
               (x)  Five percent (5%) on the first $200,000,000 of Net Sales,
                    then

               (y)  Seven percent (7%) on the next $200,000,000 of Net Sales;
                    and then

               (z)  Nine percent (9%) on Net Sales in excess of $400,000,000.

          For Additional Products:
               The royalty structure above shall apply except that the royalty
               rate in each case shall be four, six and eight percent (4%, 6%,
               and 8%), respectively.

                                       10
<PAGE>

          (b) Absence of Valid Claims.  In the event that the sale of a
              -----------------------
particular Product is not covered by a Valid Claim, then the applicable Royalty
Rates set forth in Section 4.3(a) shall be reduced by fifty percent (50%) and
shall be payable for a period beginning with the First Commercial Sale and
ending ten (10) years thereafter.  If a Valid Claim should issue after the First
Commercial Sale in the country in question, then from that point on, the royalty
rates and time periods set forth in Section 4.3(a) shall apply.

          (c) Single Royalty and Rights Following Termination of Royalty
              ----------------------------------------------------------
Obligations.  Only one royalty shall be payable per sale of Product regardless
-----------
of the number of Valid Claims or Patents that cover the Product.  Following
termination of Genzyme's royalty obligation with respect to Product sales in any
country, Genzyme's license granted pursuant to Article 2 shall be a fully paid
up license in such country.

          (d) Sublicense Royalties.  In the event that Genzyme grants any
              --------------------
sublicense hereunder to any Third Party and in connection therewith receives
royalties from such sublicensee based on such sublicensee's sales of Product,
Genzyme shall pay Celtrix royalties on such sublicensee's sales at the rate
specified in Section 4.3 unless Genzyme receives approval from Celtrix to pay at
a lower rate.

          (e) Third Party Royalties.  If any Third Party is entitled to receive
              ---------------------
royalties based on Product sales by Genzyme or its Affiliates or sublicensees,
such royalty obligations shall be allocated to Genzyme and paid directly by
Genzyme except with respect to royalties payable to Genentech and to Hercules.
In those events, Celtrix shall be responsible for paying all royalties due
Genentech and Hercules.  Genzyme shall provide Celtrix with the information
concerning the calculation of Genentech's royalties and payment therefor to
enable Celtrix to pay Genentech.  Genzyme shall also provide Celtrix with the
information concerning the calculation of Hercules' royalties to enable Celtrix
to pay Hercules from its royalties.

          (f) Reports and Payment.  Genzyme shall keep, and shall require all
              -------------------
Affiliates and sublicensees to keep, accurate records in sufficient detail to
enable the amounts due to Celtrix to be determined.  Genzyme shall deliver to
Celtrix within 45 days after the end of each calendar quarter a written
accounting, including quantities and monetary amounts of sales of each Product
by Genzyme and its Affiliates and sublicensees, on a country-by-country basis,
and the amount of the royalty payments, if any, due to Celtrix for such quarter.
Genzyme, simultaneously with the delivery of each such accounting, shall tender
payment of all royalties shown to be due thereon.

     4.4.  Audit Rights.  Each party shall permit the other party or its
           ------------
representatives to have access, at its own expense, no more than once in each
calendar year during the term of this Agreement and twice-during the three (3)
calendar years following the termination hereof, during regular business hours
and upon reasonable notice, to its records and books for the sole purpose of
determining the appropriateness of Development Costs charged by such party
hereunder or verifying the royalties payable hereunder.  If such examination
reveals that such Development Costs have been overstated or such royalties have
been understated for any calendar year, such overpayment shall be promptly
refunded or added to the remaining funding obligation of such

                                       11
<PAGE>

party hereunder or in the case of an underpayment of royalties, Genzyme shall
promptly pay to Celtrix the amount of any underpayment; provided that if such
                                                        --------
examination was not conducted by an independent accountant, the party whose
records were examined shall have the right to engage an independent accountant
reasonably acceptable to the examining party to verify the results of such
examination. The fees and expenses of such accountant shall be paid by the party
alleging that the amounts charged or paid were incorrect, unless the error is
more than 10% of the actual amount due, in which case the party who made the
error shall pay all reasonable costs and expenses incurred by the investigating
party in the course of making such determination. Any sublicense granted by
Genzyme hereunder shall contain audit provisions as set forth in this Section
4.4, mutatis mutandis.

     4.5.  Payment Currency.  All payments to be made under this Agreement shall
           ----------------
be made in United States dollars.  In the case of sales in foreign currencies,
the rate of exchange to be used in computing the amount of currency equivalent
in United States dollars due Celtrix shall be made at the rate of exchange
prevailing on the last day of the calendar quarter published by a New York money
center bank designated by Genzyme which Genzyme uses for currency conversion in
the preparation of Genzyme's public financial reports.

     4.6.  Payment Mechanics.  All payments under this Agreement shall be made
           -----------------
by wire transfer of immediately available funds to such account as the receiving
party shall specify or by other payment method acceptable to the parties.

5    MANUFACTURING AND MARKETING.
     ---------------------------

     5.1.  Pre-Clinical and Clinical Manufacture by Celtrix.  Subject to
           ------------------------------------------------
Genzyme's rights under Section 5.3, Celtrix shall be responsible for
manufacturing all of Genzyme's requirements for Product for the conduct of pre-
clinical and Phase I/II clinical testing of the Initial Products provided that
Celtrix possesses the capability to perform such manufacturing under applicable
regulatory standards and that it shall have adequate capacity to provide the
necessary quality and quantity of Product in the time frames required by
Genzyme.  The parties shall agree to and implement customary forecast and order
procedures with respect to such Product to be manufactured by Celtrix.
Celtrix's responsibilities shall include all aspects of the manufacturing
process, including maintenance of manufacturing inventory, quality control and
shipment of Product in accordance with orders placed by Genzyme.  As
compensation for such manufacturing services, Celtrix shall be entitled to
receive payment of its Manufacturing Costs, subject to reduction pursuant to
Section 3.2(c).

     5.2.  Commercial Manufacture by Genzyme.  At any time after it has
           ---------------------------------
established the capability to do so, Genzyme shall have the right to manufacture
Product under the relevant manufacturing Technology included in the Licensed
Technology.  In the event that Genzyme exercises its manufacturing right,
Celtrix shall cooperate with Genzyme to effect the transfer of enabling
manufacturing Technology to Genzyme; provided that Genzyme shall have no right
to use such Technology outside the Field unless it receives a license from
Celtrix to do so.  Following any such transfer of manufacturing responsibility,
Genzyme shall be responsible for maintenance of inventory, quality control and
shipment of Product.

                                       12
<PAGE>

     5.3.  Genzyme to Sell.  Following full regulatory approval in any given
           ---------------
country, Genzyme shall use commercially reasonable efforts to market and sell
the Product in such country.  All terms of sale, including pricing policies,
credit terms, cash discounts and returns and allowances, shall be set by
Genzyme.  Genzyme shall be responsible for invoicing the customers for Product
and collecting payment therefor.  The Product shall be sold under a trademark
selected and owned by Genzyme.  Genzyme shall retain management responsibility
for sales and marketing of the Product.  All marketing decisions will be made by
Genzyme, including but not limited to pricing and other terms of sale,
distribution channels, sales personnel, advertising, promotion and marketing
programs.  All customer orders will be received, executed and invoiced by
Genzyme.  If Celtrix receives any orders, it will refer the customer to Genzyme
or appropriate drug wholesalers as designated by Genzyme.

6    CELTRIX REPRESENTATIONS AND WARRANTIES.  Celtrix represents and warrants to
     --------------------------------------
Genzyme as follows:

     6.1.  Third Party Agreements.  Celtrix has delivered to Genzyme true and
           ----------------------
complete copies of all agreements with Third Parties relating to the Product.
Celtrix shall use all commercially reasonable efforts to maintain such
agreements in full force and effect and to comply in all material respects with
its obligations thereunder, including any obligations to pay royalties, and will
not modify or amend the same without Genzyme's prior written consent, which
shall not be unreasonably withheld or delayed.  Promptly after discovery or
notice of any event of default under any such agreement, or any condition that
would, upon notice, lapse of time or both become an event of default, Celtrix
shall provide notice thereof to Genzyme.

     6.2.  No Third Party Rights.  Except as otherwise set forth in the
           ---------------------
Statement of Existing Third Party Rights delivered by Celtrix to Genzyme on the
effective date hereof, Celtrix owns or possesses adequate licenses or other
rights to use all patents, patent rights, inventions and know-how necessary for
the manufacture, use and sale of TGF-B2 separately and with a collagen vehicle
and to grant the licenses granted herein.  To the best knowledge of Celtrix, the
manufacture, use or sale of Product pursuant to this Agreement will not infringe
or conflict with any Third Party right or patent and Celtrix is not aware of any
pending patent application that if issued would be infringed by the manufacture,
use or sale of Product pursuant to this Agreement.

7    PROPRIETARY RIGHTS.
     ------------------

     7.1.  Improvements.  Improvements conceived or made solely by the employees
           ------------
of either party during the term of this Agreement shall be the sole property of
such party.  Improvements made jointly by employees of both parties during the
term of this Agreement shall be jointly owned whenever legally possible, or held
according to the mutual agreement of the parties.  In the case of any
Improvements owned by Celtrix or jointly owned ("Joint Improvements") by the
parties, such Improvements shall be subject to the license granted to Genzyme
under Section 2.  Celtrix shall have the right without any accounting to Genzyme
to use Joint Improvements outside the Field.  However, Celtrix shall not have
the right, without entering into a mutually agreeable license agreement with
Genzyme to use such Joint Improvements in the Field outside the Territory.
Celtrix shall promptly disclose to Genzyme any

                                       13
<PAGE>

Improvements developed by Celtrix employees or others acting on its behalf.
Celtrix agrees that all employees and other persons acting on its behalf under
this Agreement shall be obligated under a binding written agreement to assign
(or exclusively license in the case of academics) to Celtrix all Improvements
made or conceived by such employee or other person. Genzyme shall promptly
disclose to Celtrix any Improvements developed by Genzyme employees or others
acting on its behalf and Genzyme shall be willing to discuss with Celtrix the
right to use outside the Field such Improvements.

     7.2.  Patent Prosecution and Maintenance.  Celtrix shall be responsible for
           ----------------------------------
filing, prosecuting and maintaining the Patents in the United States and foreign
countries on all inventions licensed to Genzyme as of the date of this Agreement
and on Improvements made solely by Celtrix under the Development Program and
shall bear all costs associated therewith.  Celtrix shall furnish Genzyme with
copies of any patent application concerning Licensed Technology or Improvements
sufficiently in advance of the anticipated filing date so as to give Genzyme a
reasonable opportunity to review and comment.  Celtrix shall also furnish copies
to Genzyme of all substantive communications to and from United States and
foreign patent offices regarding patents or patent applications relating to this
Agreement within a reasonable time prior to filing such communication or
promptly following the receipt thereof.  Celtrix shall reasonably consider any
comments Genzyme may have related to such patent applications or communications.
Genzyme shall have the right at its expense to file, prosecute and maintain
patents in the United States and all foreign countries on Improvements owned
solely by it or jointly with Celtrix.  In the case of any such filing by Genzyme
relating to Joint Improvements, Celtrix shall have the right to review and
comment on such filings and all patent office communications related thereto to
the same extent as Genzyme is permitted by this Section 7.2 with respect to
Celtrix filings.  If Genzyme choses not to file on Joint Improvements, Celtrix
shall have the right, at its expense, to file thereon provided that Genzyme has
no reasonable objection thereto such as an alternative method of intellectual
property protection.  Notwithstanding the foregoing, beyond reasonable efforts,
neither party assumes liability to the other for the successful prosecution of
any patent application.  However, neither party shall fail to pay any annuity,
tax or other maintenance fee with respect to a patent or patent application
without giving the other party timely notice and opportunity to make such
payment and assume at least joint (if not already the case) ownership rights to
such patent or patent application.

     7.3.  Third Party Claim of Infringement.  Each party shall give the other
           ---------------------------------
prompt notice of each claim or allegation that the exercise of rights hereunder
constitutes an infringement of one or more patents or other rights of a Third
Party.  Genzyme shall use all reasonable efforts to defend the parties against
any such claim or allegation with counsel of its own choice reasonably
acceptable to Celtrix.  The costs of such defense and any costs of settling or
otherwise satisfying such claim shall be shared 75% Genzyme, 25% Celtrix.  Each
party agrees to cooperate with the other in the defense of any such claim or
allegation, including, to the extent able, furnishing testimony by its employees
and providing technical support and information as requested.  Neither party
shall settle or discontinue defense of any such case without the other's prior
written consent, which shall not be unreasonably withheld.  In the case of any
proposed settlement involving a cross-license with a Third Party, neither party
may unreasonably refuse to enter into

                                       14
<PAGE>

such a cross-license. The provisions of this Section 7.3 shall also apply to
actions for declaratory relief which raise or are in response to an issue of
infringement of a Third Party patent.

     7.4.  Infringement by Third Parties.  Each party shall give the other party
           -----------------------------
prompt notice of any incident of infringement of Patents that comes to its
attention.  The parties shall thereupon confer as to what steps are to be taken
to stop or prevent such infringement.  Celtrix agrees to use reasonable efforts
to stop any such infringement, but shall not be obligated to commence
proceedings against the infringer.  If Celtrix decides to commence proceedings,
however, Celtrix shall be responsible for any legal costs incurred and will be
entitled to retain any settlement or damage award received, and Genzyme agrees
to cooperate with Celtrix in such proceeding.  Genzyme shall have the right at
its expense to engage its own counsel in connection with such proceedings.
Should Celtrix decide not to commence proceedings, Genzyme shall be entitled
(but not obligated) to do so in its own name and/or in Celtrix's name against
the infringer, in which event Genzyme shall be responsible for all legal costs
incurred, and will be entitled to retain any settlement or damage award
received, and Celtrix agrees to cooperate with Genzyme in such proceedings and
Celtrix shall have the right at its expense to engage its own counsel in
connection with such proceedings.

8    CONFIDENTIALITY.
     ---------------

     8.1.  General.  Any party receiving Confidential Information pursuant to
           -------
this Agreement shall maintain the confidential and proprietary status of such
Confidential Information, keep such Confidential Information and each part
thereof within its possession or under its control sufficient to prevent any
activity with respect to the Confidential Information that is not specifically
authorized by this Agreement and prevent the disclosure of any Confidential
Information to any Third Party using the same degree of care it would use with
respect to its own information of like importance; provided, however, that such
                                                   --------  -------
restrictions shall not apply to any Confidential Information that is (a)
independently developed outside the scope of this Agreement by employees of the
receiving party having no access to or knowledge of the Confidential Information
disclosed hereunder, (b) in the public domain at the time of its receipt or
thereafter becomes part of the public domain through no fault of the receiving
party, (c) lawfully received without an obligation of confidentiality from a
Third Party having the right to disclose such information without an obligation
to disclosing party, (d) released from the restrictions of this Section 8 by the
express written consent of the disclosing party, (e) disclosed to any permitted
assignee, sublicensee or subcontractor or customer of Genzyme or Celtrix,
provided that such assignee, sublicensee, subcontractor or customer is subject
to the provisions of this Section 8 or substantially similar provisions, (f)
required to he disclosed as part of activities to secure financing for the
development of Products hereunder, or (g) required by law, statute, rule or
court order to be disclosed, including requirements of the Securities and
Exchange Commission, the FDA and other regulatory authorities, provided that the
disclosing party uses commercially reasonable efforts to obtain confidential
treatment of any such disclosure.  Without limiting the generality of the
foregoing, Genzyme and Celtrix each shall use all commercially reasonable
efforts to obtain, if not already in place, confidentiality agreements from its
respective relevant employees and agents, to protect the Confidential
Information as herein provided.

                                       15
<PAGE>

     8.2.  Disclosure of Agreement.  Neither party shall disclose the terms of
           -----------------------
this Agreement to any Third Party without the prior written consent of the other
except that the parties may without such consent disclose (a) the existence of
this Agreement, (b) the identity of the other party and (c) the general subject
matter of this Agreement.  Each party shall also be permitted to make such
disclosure of the terms of this Agreement as its counsel reasonably determines
is necessary to comply with law, provided that such party shall use commercially
reasonable efforts to obtain confidential treatment of any such disclosure.

9    INDEMNIFICATION.
     ---------------

     9.1.  Mutual Right to Indemnification.  Each party shall defend, indemnify
           -------------------------------
and hold harmless the other and its directors, officers, employees and agents
from and against any and all claims, liabilities, losses and expenses, including
attorneys' fees, incurred by or asserted against it or any of the foregoing
arising out of (i) the failure of any Product manufactured by such party to
conform to Product specifications, including without limitation any actual or
alleged bodily injury, death or property damage resulting from such failure,
(ii) any actual or alleged violation of law applicable to the manufacture,
handling or storage of the Product by such party, (iii) any product recall of
Product manufactured by such party that is ordered by a governmental agency or
required by a confirmed Product failure as reasonably determined by the parties
and (iv) negligent, reckless or intentional acts or omissions of such party or
its directors, officers, employees and agents in the course of performing work
in accordance with the Work Plans.

     9.2.  Celtrix Right to Indemnification.  Genzyme shall defend, indemnify
           --------------------------------
and hold harmless Celtrix and its directors, officers, employees and agents from
and against any and all claims, liabilities, losses and expenses, including
attorneys' fees, incurred by or asserted against Celtrix or any of the foregoing
arising out of a misrepresentation regarding any Product by Genzyme, its
Affiliates or sublicensees which is not in accordance with approved Product
claims or prior Celtrix approval.

     9.3.  Procedure.  Any person that intends to claim indemnification under
           ---------
this Section 9 (an "Indemnitee") shall promptly notify the other party (the
"Indemnitor") of any claim, in respect of which the Indemnitee intends to claim
such indemnification, and the Indemnitor shall assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
Indemnitee shall have the right to retain its own counsel, with the fees and
expenses to be paid by the Indemnitor, if representation of such Indemnitee by
the counsel retained by the Indemnitor would be inappropriate due to actual or
potential differing interests between such Indemnitee and any other party
represented by such counsel in such proceedings.  The indemnity agreement in
this Section 9 shall not apply to amounts paid in settlement of any loss, claim,
liability or action if such settlement is effected without the consent of the
Indemnitor, which consent shall not be withheld unreasonably.  The failure to
deliver notice to the Indemnitor within a reasonable time after the commencement
of any such action, if prejudicial to its ability to defend such action, shall
relieve such Indemnitor of any liability to the Indemnitee under this Section 9,
but not any liability that it may have to any Indemnitee otherwise than under
this Section 9.  The Indemnitee and its employees and agents shall cooperate
fully with the Indemnitor and its legal representatives in the investigation of
any action, claim or liability

                                       16
<PAGE>

covered by this indemnification. In the event that each party claims indemnity
from the other and one party is finally held liable to indemnify the other, the
Indemnitor shall additionally be liable to pay the reasonable legal costs and
attorneys' fees incurred by the Indemnitee in establishing its claim for
indemnity.

     9.4.  Product Liability Insurance.  Each party shall use all commercially
           ---------------------------
reasonable efforts to maintain product liability insurance with respect to its
manufacture of the Product hereunder.  In the case of Celtrix, such insurance
shall be in such amounts and subject to such deductibles as the parties may
agree based upon standards prevailing in the industry at the time such
manufacturing occurs.  In the case of Genzyme, such insurance shall be in such
amounts and subject to such deductibles as Genzyme maintains with respect to
sales of its other products.  Alternatively, Genzyme may satisfy its obligations
under this Section 9.4 through self-insurance to the same extent as it self-
insures with respect to sales of its other Products.  At such time as the
Product is being manufactured by a party for commercial sale, each party shall
name the other party as an additional insured on any such policies.  Celtrix
shall maintain such insurance for so long as Genzyme continues to sell any
Product manufactured by Celtrix, and thereafter for so long as Celtrix maintains
insurance for itself covering such manufacture or sales.  Genzyme shall maintain
such insurance for as long as Genzyme continues to sell any Product pursuant to
this agreement manufactured by it, and thereafter for so long as Genzyme
maintains insurance for itself covering such manufacture or sales.

10   TERM AND TERMINATION.
     --------------------

     10.1.  License Term.  The license granted in Article 2 shall remain in
            ------------
effect on a country-by-country basis until the later of (i) expiration of the
last patent included in the Patents in such country or (ii) the date 10 years
after the First Commercial Sale in such country.  Thereafter, Genzyme shall have
a fully paid up royalty free license to such Patents and Licensed Technology in
such country.

     10.2.  Termination for Breach.  Either party may terminate this Agreement
            ----------------------
by written notice to the other in the event that (i) the other party fails to
perform any material obligation hereunder and such failure is not cured within
60 days following prompt notice thereof from the non-defaulting party, or (ii)
any bankruptcy, receivership, insolvency or reorganization proceedings are
instituted by the other party or any such proceedings are instituted against the
other party and not dismissed within 60 days; provided, however, that if Genzyme
                                              --------  -------
is the terminating party, the license granted in Article 2 shall continue for
the term set forth in Section 10.1 subject to payment of the amounts due under
Section 4.1 (Milestones) and Section 4.3 (Royalties).  If Celtrix is the
terminating party all rights granted hereunder to Genzyme shall revert to
Celtrix effective upon the date of termination of this Agreement.  The
bankruptcy of a party shall not give rise to the right of the bankrupt party to
terminate any license granted herein.  In the event a claim of infringement by a
Third Party of its patent or other rights is made against Celtrix and/or Genzyme
by virtue of the manufacture, use or sale of Product, Genzyme shall have the
immediate option to terminate this Agreement as to such Product; provided that,
                                                                 --------
notwithstanding such termination, the license granted in Article 2 shall
continue for the term set forth in Section 10.1, subject to payment of the
amounts due under Section 4.3 (Royalties).

                                       17
<PAGE>

     10.3.  Survival of Obligations.  No termination of this Agreement shall
            -----------------------
eliminate any rights and obligations accrued prior to such termination.
Promptly following any termination of this Agreement, each party shall return
all written materials containing Confidential Information, except one copy that
may be retained by counsel for each of the parties for record keeping purposes
only.  The provisions of Sections 8, 9, 10.3, 12.4, 12.7 and 12.8 shall survive
any termination of this Agreement.

11   OTHER ARRANGEMENTS BETWEEN THE PARTIES.
     --------------------------------------

     11.1.  Genzyme Right to Negotiate.  Celtrix agrees that Genzyme may
            --------------------------
negotiate in its stead or in addition to any efforts made by Celtrix to reduce
any royalty payments which may be owed to Genentech under the Genentech
Agreement.  Genzyme shall have the right to enjoy fully the results of any such
reduction which it independently obtains without any requirement to share same
with Celtrix.

12   MISCELLANEOUS.
     -------------

     12.1.  Force Majeure.  Each party shall be excused for any failure or delay
            -------------
in performing any of its obligations under this Agreement, if such failure or
delay is caused by Force Majeure.  For purposes of this Agreement, "Force
Majeure" shall mean any act of God, accident, explosion, fire, storm,
earthquake, flood, drought, riot, embargo, civil commotion, war, act of war or
any other circumstances or event beyond the reasonable control of the party
relying upon such circumstance or event.  In addition, each party's obligations
hereunder with respect to the development or marketing of the Product are
expressly conditioned upon the continuing absence of any material adverse
conditions relating to the safety or efficacy of the Product, the absence of a
reasonable likelihood of the infringement of unlicensed patent or other
proprietary rights of third parties and the absence of any other condition or
event beyond such party's control that would reasonably justify such party,
after consulting with the other, concluding that the development or marketing of
the Product should be delayed, suspended or stopped, and the parties'
obligations to develop or market any such Product shall be delayed or suspended
for so long as any such condition or event exists.

     12.2.  No Warranty of Success.  While the parties agree to use reasonable
            ----------------------
efforts to achieve the goals of the Development Program and this Agreement,
neither Celtrix nor Genzyme warrants or guarantees that the goals specified in
any Work Plan will be achieved within the time and financial parameters set
forth therein, that their efforts will result in an approvable Product or that
if approved, that any Product developed hereunder will be successful in the
marketplace.

     12.3.  Relationship of the Parties.  The parties agree that each is acting
            ---------------------------
as an independent contractor with respect to the other and nothing contained in
this Agreement is intended, or is to be construed, to constitute Genzyme and
Celtrix as partners or joint venturers or Celtrix as an agent of Genzyme.
Neither party hereto shall have any express or implied right or authority to
assume or create any obligations on behalf of or in the name of the other party
or to bind the other party to any contract, agreement or undertaking.

                                       18
<PAGE>

     12.4.  Notices.  Any notice or other communication hereunder shall be in
            -------
writing and shall be deemed given when so delivered in person, by overnight
courier (with receipt confirmed) or by facsimile transmission (with receipt
confirmed by telephone or by automatic transmission report) or on the third
business day after being sent by registered or certified mail (postage prepaid,
return receipt requested), as follows (or to such other persons address as may
be specified in writing to the other party hereto):

               Celtrix Pharmaceuticals, Inc.
               3055 Patrick Henry Drive
               Santa Clara, California 93054
                     Attention:  R. Ray Cummings (for general notices)
                     Attention:  Debera Brown (for Development Program notices)
                     Attention:  Sandra McNamara (for financial notices)
               Telephone:  (408) 988-2500
               Facsimile:  (408) 450-5440

               Genzyme Corporation
               One Kendall Square
               Cambridge, MA 02139
                     Attention:  General Counsel (for general notices)
                     Attention:  Jean George (for Development Program notices)
                     Attention: Chief Financial Officer (for financial notices)
               Telephone:  (617) 252-7500
               Facsimile:  (617) 252-7600

     12.5.  Successors and Assigns.  The terms and provisions of this Agreement
            ----------------------
shall inure to the benefit of, and be binding upon, Genzyme, Celtrix, and their
respective successors and assigns; provided, however, that neither Genzyme nor
                                   --------  -------
Celtrix may transfer or assign any of its rights and obligations hereunder
without the prior written consent of the other, except that either party may,
upon 30 days prior written notice to the other party, transfer or assign any of
its rights and obligations hereunder (i) to an Affiliate provided the party
remains liable for the performance of the Affiliate hereunder or (ii) pursuant
to a sale or transfer of all or substantially all of its assets and technology
to which this Agreement pertains, provided that the assignee or transferee first
furnishes to the other party a written undertaking to be bound by all of the
obligations of the assignor or transferor hereunder.

     12.6.  Amendments and Waivers.  No amendment, modification, waiver,
            ----------------------
termination or discharge of any provision of this Agreement, nor consent to any
departure by Genzyme or Celtrix therefrom, shall in any event be effective
unless the same shall be in writing specifically identifying this Agreement and
the provision intended to be amended, modified, waived, terminated or discharged
and signed by the party against whom enforcement of such amendment is sought,
and each amendment, modification, waiver, termination or discharge shall be
effective only in the specific instance and for the specific purpose for which
given.  No provision of this Agreement shall be varied, contradicted or
explained by any oral agreement, course of dealing or

                                       19
<PAGE>

performance or any other matter not set forth in an agreement in writing and
signed by the party against whom enforcement of such variance, contradiction or
explanation is sought.

     12.7.  Governing Law.  This Agreement shall be governed by and construed in
            -------------
accordance with the laws of the Commonwealth of Massachusetts.

     12.8.  Dispute Resolution.  All disputes under this Agreement shall be
            ------------------
settled, if possible, through good faith negotiations between the parties and
ultimately presented to the parties' CEOs for resolution.  In the event such
good faith negotiations are unsuccessful, either party may, after 30 days
written notice to the other, submit the matter in dispute to the American
Arbitration Association ("AAA") to be settled by arbitration by a panel of three
arbitrators in Boston, Massachusetts if Celtrix is the initiating party and in
Santa Clara, California if Genzyme is the initiating party in accordance with
the commercial arbitration rules of the AAA.  Each party shall appoint one
arbitrator and the two arbitrators so named will select the third, who shall act
as chair of the arbitration panel.  If one party fails to appoint its arbitrator
or if the parties' arbitrators cannot agree on the selection of the third, the
AAA shall make the necessary appointments.  The arbitrators shall have the
authority to grant specific performance and to allocate between the parties the
costs of arbitration in such equitable manner as they may determine.  Upon
reasonable notice and prior to any hearing, the parties will allow document
discovery and will disclose all materials relevant to the subject matter of the
dispute within 60 days following selection of the arbitrators.  The arbitrators
shall make final determinations as to any discovery disputes.  A hearing on the
matter in dispute shall commence within 90 days following selection of the
arbitrators and the decision of the arbitrators shall be rendered no later than
60 days after commencement of such hearing.  The determination of the
arbitrators shall be conclusive and binding upon the parties and judgment may be
entered thereon and enforced by any court of competent jurisdiction, including
the courts of the Commonwealth of Massachusetts or the United States District
Court for the District of Massachusetts and the courts of the State of
California or the United States District Court for the Northern District of
California, and each party hereby irrevocably consents to the jurisdiction of
such courts for such purpose.

     12.9.  Severability.  If any provision hereof should be held invalid,
            ------------
illegal or unenforceable in any respect in any jurisdiction, then, to the
fullest extent permitted by law, (a) all other provisions hereof shall remain in
full force and effect in such jurisdiction and shall be liberally construed in
order to carry out the intentions of the parties hereto as nearly as may be
possible and (b) such invalidity, illegality or unenforceability shall not
affect the validity, legality or enforceability of such provision in any other
jurisdiction.

     12.10. Headings.  Headings used herein are for convenience only and shall
            --------
not in any way affect the construction of, or be taken into consideration in
interpreting, this Agreement.

     12.11. Execution in Counterparts.  This Agreement may be executed in any
            -------------------------
number of counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original, and all of which counterparts,
taken together, shall constitute one and the same instrument.

                                       20
<PAGE>

     12.12.  Entire Agreement.  This Agreement contains the entire agreement and
             ----------------
understanding of the parties hereto, and supersedes any prior agreements or
understandings between the parties with respect to the subject matter hereof.

                                       21
<PAGE>

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date first above written.

                              CELTRIX PHARMACEUTICALS, INC.

                               /s/ Dale A. Stringfellow
                              --------------------------------
                              By:  Dale A. Stringfellow, Ph.D.
                              Title:  President and CEO

                              GENZYME CORPORATION

                               /s/ Gregory D. Phelps
                              --------------------------------
                              By:  Gregory D. Phelps
                              Title:  Senior Vice President

                                       22
<PAGE>

                                AMENDMENT No. 1
                      TO LICENSE AND DEVELOPMENT AGREEMENT
                     BETWEEN CELTRIX PHARMACEUTICALS, INC.
                            AND GENZYME CORPORATION

          As of June 24, 1994, Celtrix Pharmaceuticals, Inc. (hereinafter
"Celtrix") and Genzyme Corporation (hereinafter "Genzyme") entered into a
License and Development Agreement (hereinafter "the Agreement").  Subject to the
modifications contained in this Amendment No. 1, the Agreement shall continue in
full force and effect.

          In order to resolve any issues outstanding between Celtrix and Genzyme
with respect to the Agreement and its subject matter, with the exception of
transfer of any rights in Licensed Technology as defined in the Agreement, and
in accordance with Section 12.6, Celtrix and Genzyme now wish to amend the
Agreement as follows.  The effective date of this amendment shall be the latest
date of execution hereof by the parties, with all other terms of the Agreement
continuing in full force and effect.

I.  Revision of Article 1, Section 1.26.
    ------------------------------------

          Section 1.26 shall be deleted and replaced with the following:

          1.26.  "Territory" means worldwide including Japan, China, Korea and
                  ---------
Taiwan (the "Asian countries").

II. Revision of Article 2, Sections 2.1 and 2.2.
    --------------------------------------------

          Section 2.1 shall be deleted and replaced with the following:

          2.1  Exclusive License.  Subject to the terms and conditions of this
               -----------------
Agreement and rights granted to Genentech, Inc., pursuant to the License
Agreement dated April 1, 1993 between Celtrix and Genentech, Inc., Celtrix
hereby grants to Genzyme an exclusive (against Celtrix and all others) right and
license (including the right to grant sublicenses) to Celtrix's rights in the
Territory to make, have made, (including by Celtrix hereunder), use and sell any
Product in the Field (a) the use, manufacture or sale of which is covered by one
or more claims of the Patents or (b) incorporating or manufactured using
Licensed Technology.  Any Celtrix rights not specifically licensed hereunder
shall continue to be vested exclusively in Celtrix, and

                                       23
<PAGE>

Amendment No. 1
Page 2

Celtrix shall have the sole authority and discretion to exercise or refrain from
exercising such rights.

          Section 2.2 shall be deleted and replaced with the following:

          2.2.  Acquisition of Third Party Rights.  Genzyme shall use all
                ---------------------------------
commercially reasonable efforts to obtain any rights, at its cost, from any
Third Party that are necessary for the manufacture, use or sale of the Product
in accordance with this Agreement.  Genzyme shall bear and pay all costs and
royalties due by Celtrix under Sections 3.2, 3.3, 3.4, and 3.5 of the License
Agreement effective as of April 1, 1993 between Celtrix and Genentech, Inc.
(the "Genentech Agreement"), in accordance with the provisions contained in
Section 7.0 of the Genentech Agreement, and Genzyme shall further have the right
to seek and obtain reduction of such royalty provisions, to its sole benefit.

III.  Addition to Article 3, Section 3.2.(c)
      --------------------------------------

          Section 3.2(c) shall be amended to add the following at the end of
that Section 3.2:

          Genzyme hereby waives and releases Celtrix from any obligation to
provide, or pay the dollar equivalent of, any services required to be provided
pursuant to this Section 3.2(c), including without limitation, all services
required to be provided by Celtrix for the years 1994 through 1997 that are
undelivered as of the effective date of this Amendment No. 1.

IV.   Revision of Article 4, Section 4.3(a)
      -------------------------------------

          Section 4.3(a) shall be deleted and replaced with the following:

          (a)   Royalty Rates.  On a per Product (e.g., all wound repair
                -------------
Products regardless of dosage or formulation comprise a Product) and annual
basis and subject to decrease pursuant to Section 4.3(b), Genzyme shall pay
Celtrix royalties based on one of the following percentages of Net Sales of
Products sold by Genzyme and its Affiliates in a country where the respective
Product is covered by any Valid Claim, beginning with the First Commercial Sale
in such country and continuing until all such Valid Claims have expired:

          For Initial and Additional Products:

          (x)   Two percent (2%) on Net Sales in the Asian countries; and

                                       24
<PAGE>

Amendment No. 1
Page 3

          (y) One percent (1%) on Net Sales in worldwide countries other than
          the Asian countries.

V.   Revision of Article 4, Section 4.3(e):
     -------------------------------------

          Section 4.3(e) shall be deleted and replaced with the following:

          (e) Third Party Royalties.  If any Third Party is entitled to receive
              ---------------------
royalties based on Product sales by Genzyme or its Affiliates or sublicensees,
such royalty obligations shall be allocated to Genzyme and shall be paid
directly by Genzyme.

VI.  Revision of Article 5, Section 5.1:
     ----------------------------------

          Section 5.1 shall be deleted and replaced with the following:

          5.1 Pre-Clinical and Clinical Manufacture.  Subject to Genzyme's
              -------------------------------------
rights under Section 5.3, Celtrix shall be responsible for the manufacturing of
all of Genzyme's requirements for Product for the conduct of pre-clinical and
Phase I/II clinical testing of Initial Products prior to June 1, 1997, provided
that Celtrix possesses the capability to perform such manufacturing under
applicable regulatory standards and that it shall have adequate capacity to
provide the necessary quality and quantity of Product in the time frames
required by Genzyme.  The parties shall agree to and implement customary
forecast and order procedures with respect to such Product to be manufactured by
Celtrix.  With regard to such Product manufacture, Celtrix's responsibilities
shall include all aspects of the manufacturing process, including maintenance of
manufactured inventory, quality control and shipment of Product in accordance
with orders placed by Genzyme.  As compensation for such manufacturing services,
Celtrix shall be entitled to receive payments of its manufacturing costs,
subject to reduction pursuant to Section 3.2(c).  Genzyme acknowledges that
Celtrix has fulfilled all of its manufacturing requirements for Product under
this Section 5.1.

ACCEPTED AND AGREED,

Celtrix Pharmaceuticals, Inc.            Genzyme Corporation

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

Title: President & CEO                   Title: VP Corporate Development
       --------------------------               ------------------------------

Date:  12/31/1997                        Date:  12/18/97
       --------------------------               ------------------------------

                                       25

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