Document:

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                                                                   Exhibit 10.6

KOSAN Biosciences Inc.
211 Belgrave Avenue
San Francisco, CA 94117
Tel: 415-665-4980
Fax: 415-665-3377

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

December 14, 1995

Dr. Chris Walsh
Harvard Medical School
Dept. of Biochemistry & Molecular Biology
Boston, MA 02115

Dear Chris,

     KOSAN Biosciences Inc. (the "Company") desires to appoint you as a
Scientific Associate effective as of January 1, 1996 under the following terms
and conditions.

I.   EXPECTATIONS

     The Company is engaged in the business of, among other things, the
discovery, design and development of pharmaceuticals, with the current focus
in the area of Biosynthesis of Natural Products (the "Field"). As a
Scientific Associate, it is anticipated that you will devote your time,
intellect, and best efforts towards achieving the goals of the Company.
During the term of the Agreement you may be involved in the following
activities, among others, to further the goals of the Company: (a)
consultation with representatives of the Company; (b) assessment or oversight
of specific projects in which you have interest and expertise; (c)
introduction of projects to be developed at or outside the Company; (d)
assistance and advice to the Company in obtaining funding; (e) collaboration
with the Company in projects of mutual interest; and (f) advice and
assistance in the recruitment of personnel.

     Scientific Associates are more than consultants; they are partners in
achieving the goal of establishing a premier and profitable Company. We expect
that you will advise the Company in the areas of your professional expertise
which relate or may relate to the Company. During the term of this agreement,
you agree not to serve outside of KOSAN in a similar capacity as an employee,
consultant, advisor, or otherwise to any other person or entity in the "Field",
or with another small firm competive with business or scientific objectives of
the Company (except for those relationships described in Exhibit A). You verify
that your responsibilities and activities on behalf of your Employer (University
or other not-for-profit institution by which you are employed on a substantially
full time basis) are not circumscribed by this agreement.

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December 14, 1995
Dr. Chris Walsh

     As a participating Scientific Associate, we expect that you will devote the
equivalent of six to ten working days per year of service to the Company.

II.  COMPENSATION

     As full consideration for the services performed by you under this
agreement, the Company agrees, subject to approval by the Board of Directors, to
the following:

1.   The Company will pay you a fee of $125 (one-hundred-twenty five-dollars)
per hour but not to exceed $1,000 (one thousand dollars) per day for
consultation at the Company's facility or at a location approved by the
Company. You will not receive cash compensation for periodic telephone or
other consultations not involving a significant amount of time which do not
interfere with your other commitments, except as otherwise agreed upon in
specific circumstances.

2.   You and the Company will enter a Restricted Stock Purchase Agreement (the
"Stock Agreement") providing for the purchase by you of 15,000 shares of the
Company's Common Stock at a purchase price of $0.002 per share. The Stock
Agreement, which includes vesting and a right of first refusal as defined in the
Stock Agreement, shall govern the rights and obligations of you and the Company
with respect to such stock.

     Of the 15,000 shares, 10,000 shares will vest monthly over a five year
period so long as you remain a Scientific Associate of the Company. The
remaining 5,000 shares will vest separately on a monthly basis so long as you
do not serve as an employee, consultant, advisor, or otherwise to any other
person or entity in the Field, or with another small firm competitive with
business or scientific objectives of the Company (except for those
relationships described in Exhibit A). Should you cease to be a Scientific
Associate, or should you cease to be an exclusive consultant, the Company
will have the right to repurchase the applicable unvested shares at your
original purchase price.

3.   You will be reimbursed for out-of-pocket expenses approved by the Company
which you incur under the terms of this Agreement. These allowed expenses will
be reimbursed in accordance with the Company's policy.

4.   You agree that you are an independent contractor, not an employee of the
Company.

5.   The Company encourages additional participation. In addition to the 15,000
shares described above, the Company is prepared to offer you one or more options
to purchase up to a total of 5,000 shares of the Company's Common Stock, as
determined by the Company, in return for (a) time spent as a consultant which is
substantially beyond the standard commitment of a Scientific Associate, (b)
substantial involvement in the Company's efforts in areas of mutual interest,
(c) the giving of substantial aid to the Company instrumental in obtaining
financing. These additional areas are, of course, difficult to define and will
be evaluated individually

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December 14, 1995
Dr. Chris Walsh

by the Company. However, the Company encourages your participation and seeks to
acknowledge your participation with this incentive stock mechanism. Each option
will vest monthly over a five year period beginning on the date the option is
granted, and the exercise price will be the fair market value of the Company's
Common Stock on the date of grant as determined by the board of directors.

III. TERM AND TERMINATION

     The term of this agreement shall begin on the date first written above and
shall terminate on December 31, 2000. Either party may terminate the Agreement
by giving thirty (30) days written notice. This may occur, for example, if your
pre-existing or future commitments prevent you from abiding with the terms of
the Agreement. The Agreement can also be terminated "for cause", i.e., for
misconduct or material breach of contract by you. Upon termination for any
reason, you relinquish all rights to further vesting of stock and options in the
Company.

IV.  CONFLICTS WITH PRESENT EMPLOYMENT

     The Company acknowledges that you are currently employed by and are a
member of the faculty of a University or a non-profit research institution
("Employer"). Notwithstanding anything in this Agreement to the contrary, during
the period of this Agreement, your being a member of the faculty of a University
or non-profit research institution shall not be deemed a breach of your
obligations under this Agreement if you do not engage in any commercial research
or commercial project prohibited by the terms of this Agreement.

     The Company recognizes that in connection with your employment by your
Employer, your primary responsibility is to the Employer. You warrant that you
are permitted to enter into this agreement and that the terms are not
inconsistent with your present employment or other contractual agreements.

V.   OTHER CONSULTING AGREEMENTS

     You agree that during the period in which you are retained as Scientific
Associate to the Company you will not, without the Company's express written
consent, except as permitted by this Section and Section IV, engage in any
employment or activity (whether as an employee, consultant, adviser or
otherwise) in any business competitive with the Company. The Company recognizes
that you may currently have certain agreements to perform consulting services
for others. You warrant that you have discussed with the Company all such
obligations to third parties prior to signing this Agreement. Copies of any such
agreements and/or the terms of such consulting services are attached hereto as
Exhibit A. During the sixty (60) days following execution of this Agreement, the
Company will review such agreements and services to determine whether they
conflict wtih the terms of this Agreement. If the Board of Directors of the
Company, in its sole discretion, determines that any such agreement or activity
conflicts with this Agreement, you will be asked to terminate such agreement or
activity to the extent you may lawfully

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December 14, 1995
Dr. Chris Walsh

do so. If you are unable to terminate or choose not to terminate such agreement
or activity, the Company reserves the right to terminate this Agreement by
giving you thirty (30) days written notice.

     The Company believes that you are most valuable to the Company as an
exclusive consultant. If during the period of this Agreement you wish to enter
into any additional agreement or activity which might conflict with the
exclusive nature of the relationship between you and the Company or other terms
of this Agreement, you agree that prior to entering into any additional
agreement, you will submit the proposed terms of such additional agreement or
activity to the Company for review. Within sixty (60) days of such submission,
the Company will advise you whether the Board or Directors of the Company, in
its sole discretion, determines that a conflict exists. If the Board of
Directors so determines, you agree not to enter into such proposed agreement or
activity.

     If you have a conflict of interest, or a potential conflict of interest,
with respect to any matter presented at a meeting of the Scientific Advisory
Board or in other interactions with the Company, you will state such, and excuse
yourself from the discussion of such matter.

VI.  PATENTS AND CONFIDENTIALITY

(1)  You agree that any inventions, innovations, suggestions, methods,
processes, improvements, ideas, and discoveries (called "Items") made or
conceived, or reduced to practice, solely or jointly with others, in the course
of providing services to the Company shall be promptly disclosed to the Company
and shall become the sole property of the Company without obligation of the
Company to pay any royalty or other consideration. You further agree that any
such Items which relate to the Company's objectives made or conceived by you in
other capacities, will be brought to the attention of the Company, and that you
will support in good faith the Company's attempts to enter into agreements so
the Company may use and obtain the rights to use such Items. The Company
recognizes and will honor pre-existing agreements you may have made with your
Employer or research funding agency regarding confidential information,
providing such pre-existing agreements are disclosed in full to the Company
prior to the signing of this Agreement.

(2)  You agree that during the term of this Agreement and any subsequent
extensions, and for a period of five years thereafter, you will not disclose
without prior written consent of the Company, any information confidential to
it or its affiliate companies. "Confidential information" in this context
means all data, information, or trade secrets (including all cell cultures,
chemical or biological materials) relating to the Company's technical
programs or business plans, which you know or have reason to know is regarded
as confidential by the Company. This agreement does not apply to confidential
information (i) that has become part of the public domain except by breach of
the Agreement, (ii) that the Company patented or otherwise publicly
disclosed, (iii) that was known by you prior to the date of its disclosure to
you by the Company as shown by your written records, or (iv) that you

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December 14, 1995
Dr. Chris Walsh

received from a source having no duty of confidentiality to the Company,
(v) that was a direct result of work performed in your laboratory on behalf of
the Company, and regarding which you have given the Company written notice as
provided in Section VII before publication or disclosure.

(3)  You further agree that during the term of this agreement you will not
disclose to the Company any proprietary information, such as trade secrets,
which is confidential to any third party.

(4)  At the Company's request, you will promptly return to the Company all
confidential technical or business information or materials relating to the
Company's business. Upon the Company's request, you will provide in writing
detailed summaries of research or evaluation performed by you for the Company.

(5)  The Company acknowledges that you may have signed a Patent Agreement with
your Employer and under that agreement you have agreed to report any inventions
conceived or made by you during the term of your employment and to assign such
inventions to your Employer in accordance with the terms of your Employer's
policy. Nothing in this Agreement shall be construed to interfere with these
obligations to your employer. A copy of your Employer's Patent Policy is
attached hereto as Exhibit B and made a part of hereof by reference.

VII. PUBLICATION.

     The Company and you anticipate that information and data resulting from any
research you may perform in collaboration with the Company or on behalf of the
Company will be published or otherwise disclosed when appropriate to do so. You
agree to submit to the Company at least thirty (30) days prior to submission for
publication or ninety (90) days before written or oral public disclosure of any
and all such proposed publications or other disclosure. In a manner consistent
with your Employer's policy, you further agree to delay publication of such
information and data for a period not to exceed six (6) months, if the Company
determines for business or proprietary reasons that such a delay is necessary.
If the Company determines that such information and data contains information
and data owned by the Company, you agree to remove such Company information and
data from the proposed publication or disclosure upon the Company's request,
whether or not such Company information and data is patentable.

VIII. MODIFICATION OF THE AGREEMENT

      No modification of the Agreement shall be valid unless made in writing and
signed by the parties hereto.

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December 14, 1995
Dr. Chris Walsh

IX.  SEVERABLE PROVISIONS

     The provisions of this Agreement are severable, and if any one or more of
the provisions of this Agreement are determined to be illegal, or otherwise
unenforceable, in whole or in part, the remaining provisions and any partially
enforceable provisions shall be binding and enforced.

X.   CAPTIONS

     The captions are used only for convenience and reference, and do not
define, limit or describe the scopes or intent of the provisions hereof.

XI.  GOVERNING LAW

     This Agreement shall be governed and construed in accordance with laws of
the State of California according to its meaning, and not in favor of or against
any party.

XII. ACCEPTANCE

     If you are in agreement with the foregoing terms and conditions, please
sign and date both copies of this letter and appropriate appendixes and return
one copy to KOSAN Biosciences, Inc.

KOSAN BIOSCIENCES, INC.
BY: /s/ DANIEL V. SANTI
  -----------------------------
Daniel V. Santi
Chairman

AGREED AND ACCEPTED

Signature /s/ CHRISTOPHER WALSH
         -----------------------------------

Name:         Christopher Walsh
         -----------------------------------
         (Please Print)

DATE:         19 Dec 1995
         -----------------------------------

SOCIAL SECURITY NO.:
                    ------------------------

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December 14, 1995
Dr. Chris Walsh

KOSAN BIOSCIENCES INCORPORATED
APPENDIX A
SCIENTIFIC ASSOCIATE AGREEMENT

Described below are my current employment, consulting and advisory commitments
in the areas of my professional expertise. (Describe each person or entity to
which a commitment has been made in the area of your professional expertise.
Include name, subject matter, duration and approximate time commitment per
month.)

EMPLOYER(S):  Harvard Medical School, Boston MA 02115

CONSULTING AND ADVISORY COMMITMENTS:

     1.   Hoffmann La Roche. Consulting in US & Europe on pharmaceutical
          research, since 1981.; 6 days/yr (0.5 days/month)

     2.   Idun (La Jolla, Ca). SAB member. Field: Programmed Cell Death since
          1995; anticipate 6 days/yr (0.5 days/month).

          Discussions are underway with Venrock and Health Care Ventures for a
          possible advisory role to either organization for future health care
          investments and/or a directorship in one or more of their companies. I
          will advise Kosan in writing if I undertake such a commitment.

/s/ CHRISTOPHER WALSH                                         12/19/95
---------------------------------                       ---------------------
Signature of Scientific Associate                              Date

Christopher Walsh
---------------------------------
Print Name

                                       7<PAGE>

                                                                 Exhibit 10.7
                                                                 26 July 2000

                                HEADS OF AGREEMENT
                    EPOTHILONE RESEARCH COLLABORATION AND LICENSE
         SLOAN-KETTERING INSTITUTE FOR CANCER RESEARCH & KOSAN BIOSCIENCES

Whereas Kosan Biosciences ("Kosan") and Sloan-Kettering Institute for Cancer
Research ("SKI") each have know-how, patents and technology relating to
epothilone compounds; and

Whereas Kosan and SKI desire to collaborate in the development of epothilone
compounds for the treatment of cancer;

Therefore, Kosan and SKI have set forth below in this Heads of Agreement the
significant terms and conditions of a definitive license and collaboration
agreement (the "Definitive Agreement") to be executed by them within one
month of the effective date hereof.

I.     RESEARCH COLLABORATION

Prior to signing the Definitive Agreement, the parties will agree on a
written plan (the "Research Plan") describing the activities to be conducted
by each party (the "Research") and the objectives thereof and budget
therefor. The Research Plan shall provide that the parties will collaborate
in the development of epothilone D ("EpoD") and one or more epothilone
analogs proprietary to SKI (EpoD and SKI proprietary epothilone analogs are
collectively referred to herein as "Collaboration Compounds") as anti-cancer
agents. Neither party shall engage in research with third parties relating to
Collaboration Compounds without the other party's approval. SKI will use its
best efforts to continue its research efforts on Collaboration Compounds and
conduct Phase I clinical trials with EpoD material produced with the support
of the RAID award from NCI. Kosan shall pay all other costs for the Phase I
clinical trials. Kosan will use its best efforts to develop a process for
making EpoD and epothilone intermediates with the aim of establishing a
process by which Collaboration Compounds can be made in quantities sufficient
and at a reasonable cost for the completion of clinical trials and
commercialization. Concurrently, Kosan will use its best efforts to produce
EpoD or EpoD intermediates [**] to make EpoD at commercial levels. Kosan will
prepare GMP-produced EpoD for Phase II clinical trials. In addition, the
parties will collaborate to identify and conduct pre-clinical testing on one
or more Collaboration Compounds as potential back-up development candidates
for EpoD and as second-generation anti-cancer agents. Kosan may also provide
its proprietary epothilone compounds to SKI for testing and clinical trials
as mutually agreed by the parties.

II.    MANAGEMENT OF RESEARCH COLLABORATION

General oversight and direction of the Research will be provided by a Joint
Research Committee ("JRC") with 3 SKI members and 3 Kosan members, each of
whom shall be actively engaged in managing the Research. The JRC shall meet
quarterly over at least [**] of Research and at least bi-annually thereafter
or as otherwise agreed by the parties. The JRC may meet by telephone
conference, in person in New York at SKI or in California at Kosan or as
otherwise agreed upon by the JRC. The JRC shall endeavor to make decisions on
a consensus

                                      1

[**]CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.

<PAGE>

basis. The JRC shall be responsible for making changes to the Research Plan
based on the results of the Research and other factors.

The JRC shall monitor the progress of the Research and shall be responsible
for determining, at each quarterly meeting, whether each party is making
satisfactory progress in achieving the objectives of the Research Plan.
Should the JRC determine that satisfactory progress is not being made, it
shall provide direction regarding the actions to be taken by either party in
the following quarter to address any problems identified that impede such
progress. Should the JRC determine, prior to the initiation of Phase II
clinical trials using Kosan supplied materials, that such action has not been
taken or that satisfactory progress cannot be made after such action has been
taken, then the Definitive Agreement shall terminate. In the event of a
dispute at the JRC, the matter in dispute shall be referred to the respective
heads of each party, or their designee, for resolution.

III.   CONTRIBUTION OF THE PARTIES TO RESEARCH

Kosan shall fund the Research to the extent the parties are unable to obtain
grant or other funding for such activities. SKI and Kosan use best efforts to
obtain funding from the NIH and other government agencies with which to
support such Research and shall continue to apply any such existing funding
supporting current activities that will continue as part of such Research.

The Research Plan shall direct SKI to continue its efforts in the chemical
synthesis of existing and new Collaboration Compounds and in the IN VITRO and
IN VIVO testing of Collaboration Compounds in animals and humans. The
Research Plan shall further direct the initiation and completion of a
physician-sponsored Phase I clinical trial of EpoD at SKI in 2001.

The Research Plan shall direct Kosan to contribute personnel, laboratory
facilities, equipment, and supplies to conduct biological synthesis of
Collaboration Compounds or related intermediates in amounts sufficient to
conduct IN VITRO testing and IN VIVO testing in animals and humans and to
manufacture any such approved epothilone product. The Research Plan shall
further direct Kosan to provide EpoD in amounts sufficient to initiate
Phase II clinical trials within three months of completion of the Phase I
clinical trial. The parties anticipate that the Phase II clinical trials will
begin [**].

IV.    MANAGEMENT AND FUNDING OF DEVELOPMENT OF BACK-UP AND SECOND GENERATION
COLLABORATION COMPOUNDS

The parties acknowledge that EpoD may not, whether as a result of clinical
trials or patent developments, be suitable for development. Kosan shall have
the right to select one or more Collaboration Compounds for development as
replacement or back-up candidates for EpoD and as second generation
anti-cancer products.

                                      2

[**]CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.

<PAGE>

V.     COMMERCIALIZATION

Kosan shall be responsible for commercialization activities relating to EpoD
and any other Collaboration Compound approved for therapeutic use. Before
filing an NDA, Kosan shall provide a Pre-Marketing Plan to SKI that describes
its proposed commercialization activities for such compounds. Thereafter,
Kosan shall provide annual reports summarizing its commercialization
activities for each approved compound. Kosan shall have the right to
sublicense one or more third parties to conduct marketing, sales and/or
distribution activities for any such compound; provided, however, that SKI
shall have the right to notify Kosan of third parties to which Kosan shall not
grant sublicenses, because the activities of such third parties are
incompatible with SKI's mission or inimical to its interests.

VI.    LICENSES

Each party shall grant the other such licenses as are required for each party
to conduct the Research. SKI shall grant Kosan an exclusive license, with the
right to sublicense, under its patents, patent applications, and other
intellectual property rights for making, using, and selling Collaboration
Compounds for any use by Kosan and Kosan's sublicenses. The license granted
to Kosan shall include due diligence requirements in developing a
Collaboration Compound as a commercial product. In addition, if Kosan is not
able to produce or otherwise provide EpoD in amounts sufficient to support
clinical development pursuant to the Research Plan, then SKI will have the
option to terminate the license.

VII.   THIRD PARTY AGREEMENTS

Until the earlier of [**], SKI and Kosan shall make joint decisions regarding
all third party agreements relating to EpoD or other Collaboration Compounds.
After that time, Kosan has the right and sole discretion to sublicense SKI's
patent and intellectual property rights to third parties; provided, however,
that SKI shall have the right to notify Kosan of third parties to which Kosan
shall not grants sublicenses, because the activities of such third parties
are incompatible with SKI's mission or inimical to its interests.

Kosan and SKI agree to negotiate in good faith with [**], to enter into a
sublicense of SKI intellectual property rights under which [**] will be
licensed to make, use, and sell [**] for the treatment of cancer. In such
negotiations, [**] shall be required to provide to the JRC a development plan
specifying the research to be conducted and a timeline for clinical trials,
as well as the amounts of [**] required and the source(s) from which it will
be obtained. If the JRC determines that sufficient [**] is available to
conduct the [**] development plan, and that the [**] development plan does
not jeopardize or pose a risk of serious delay to the Research, then the JRC
shall approve the development plan. Kosan and SKI shall agree upon the
business terms of a sublicense to [**] and negotiate diligently with [**] to
conclude a sublicense to [**] of the date the JRC approves the [**]
development plan. Such [**] sublicense shall include a timeline for the

                                      3

[**]CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.

<PAGE>

development of the compound, with the right for Kosan to terminate such
sublicense if development milestones are not met in accordance with the
timeline, and such other terms and conditions as are commercially reasonable
and agreed upon by SKI and Kosan.

VIII.  PAYMENTS

In addition to funding research, development, and commercialization
activities. Kosan shall make the following payments to SKI:

Initial License Fee:                   $[**]
Annual Maintenance Fees:               $[**] prior to 1st commercial sale
Minimum Annual Royalties:              $[**] after 1st commercial sale;
                                       royalty payments, both minimum annual
                                       and on product sales, hereunder are to
                                       be paid, on a country-by-country basis,
                                       until the later of the expiration
                                       date of the last to expire SKI owned,
                                       solely or jointly with Kosan, patent
                                       claiming a Licensed Product (EpoD or
                                       any other Collaboration Compound
                                       marketed by Kosan) or its manufacture
                                       or use, or [**] years from the first
                                       commercial sale of a Licensed Product.
                                       Minimum annual royalties shall be fully
                                       creditable against royalties on product
                                       sales for the same fiscal year.
Milestones:
                [**]

Royalties:      [**] of Net Sales if the Licensed Product is claimed in an
                     issued and not expired patent owned by SKI, either solely
                     or jointly with Kosan;

                                      4

[**]CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.

<PAGE>

                                                                   26 July 2000

                             [**]of Net Sales if the approved use for which
                                 the Licensed Product is marketed is claimed
                                 in an issued and not expired patent owned by
                                 SKI and the Licensed Product is not patented
                                 by a third party;
                             [**]of Net Sales of any Licensed Product for
                                 which SKI holds an issued and not expired
                                 patent claiming the manufacture of such
                                 Licensed Product, which royalty rate shall
                                 apply in any country where the Licensed
                                 Product is sold provided the Licensed Product
                                 sold in that country was made using the
                                 patented method in the country where the
                                 patent issued;
                             [**]of Net Sales of any Licensed Product in any
                                 country for which SKI has no patents claiming
                                 the Licensed Product or its manufacture or
                                 use, provided that the Licensed Product or
                                 its manufacture or use is patented by SKI in
                                 the US, EPO, or Japan.

Sublicense                   For any sublicense of only SKI technology
                             entered into prior to the earlier of [**],
                             SKI shall receive [**] of all sublicensing
                             proceeds, and Kosan shall receive the
                             remainder. For any other sublicense, Kosan
                             shall pay SKI [**] of the sublicensing proceeds,
                             provided, however, that SKI's [**] share of any
                             royalties shall not exceed the royalty that Kosan
                             would have paid to SKI if Kosan marketed the
                             Licensed Product. Sublicensing proceeds include
                             both royalty and non-royalty income received by
                             Kosan, including anything of value in lieu of
                             cash payments, but excluding reimbursement for
                             research and development, including clinical
                             trial, expenses, equity (but not any premium
                             thereon), and manufacturing costs (but not any
                             profits therefrom) SKI shall have the right to
                             audit Kosan's business records to verify that
                             such expenses, premium, or costs reported by
                             Kosan are accurate. In the event Kosan
                             sublicenses SKI or Kosan technology as part of
                             an agreement to license third party technology
                             required to make, use, or sell a Licensed
                             Product, then such agreement shall not be
                             subject to the sharing of sublicensing proceeds
                             specified hereunder.

3rd party royalties:         Kosan may credit [**] royalty payments to 3rd
                             parties for patents required to make, use, or
                             sell a Licensed Product, provided, however, that
                             SKI royalty or other payments shall not be
                             reduced by [**].

Patents:                     Kosan shall reimburse SKI for all past and
                             future patent expenses. Kosan shall assume primary
                             responsibility for enforcing the patent rights.
                             All costs of any action to enforce the patent
                             rights shall be borne by Kosan, and Kosan shall
                             keep any recovery of damages

                                      5

[**]CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.

<PAGE>

                                                                   26 July 2000

                             derived therefrom; the excess of such recovery
                             over such costs shall be included in Net Sales.
                             No settlement, consent judgment, or other
                             voluntary final disposition of the suit may be
                             entered into without the prior written consent
                             of SKI, which consent shall not unreasonably be
                             withheld.

IX.    COMMERCIALIZATION OF KOSAN EPOTHILONE TECHNOLOGY

In the event that Kosan, by itself or its licensee, commercializes an
epothilone product or commercializes technology for producing epothilones
without utilization of SKI proprietary rights licensed hereunder ("Kosan
Epothilone Technology"), then Kosan agrees to pay SKI a royalty on the sales
by Kosan or its licensee of such product or any epothilone product made using
such technology. If SKI performs pre-clinical and Phase I clinical testing of
such epothilone product, then the royalty rate shall be [**] of such sales,
regardless of whether Kosan or its licensee markets the product. If SKI does
not perform such pre-clinical and Phase I clinical testing, then the royalty
shall be [**] of such sales, regardless of whether Kosan or its licensee
markets the product. In either event, such royalty shall be subject to the
third party royalty credit set forth in Section VIII. No other payments of
any type or kind shall be due SKI for the commercialization of Kosan
Epothilone Technology by Kosan or its licensee.

X.     Use of Name

Kosan and SKI agree that this Agreement and the contents therein shall be
maintained in confidence by the parties and shall not be shared with any third
party who is not interested in receiving a sublicense without the express
written permission of both SKI and Kosan. Kosan shall not use the names of
the SKI, or Memorial Sloan Kettering Cancer Center, nor any of its employees,
nor any adaptation thereof in any fund-raising, advertising, promotional or
sales literature without prior written consent obtained from SKI in each case.

XI.    FINAL AGREEMENT

The foregoing terms and provisions of this Heads of Agreement shall be
included in the Definitive Agreement to be negotiated and signed by the
parties hereto within [**], the effective date hereof.

                                      6

[**]CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT
TO THE OMITTED PORTIONS.

<PAGE>

                                                                   26 July 2000

Each party agrees to negotiate diligently to complete such Definitive
Agreement within such time.

Sloan-Kettering Institute for Cancer        Kosan Biosciences, Inc.
Research

By:   /s/ James S. Quirk                    By:
   ---------------------------------           ------------------------------

James S. Quirk                              Daniel V. Santi, Ph.D.
Sr. Vice President, Research Resources       C.E.O.
Management

Date:      7/26               , 2000        Date:                      , 2000
     -------------------------                   ----------------------

                                      7

<PAGE>

                                                                   26 July 2000

Each party agrees to negotiate diligently to complete such Definitive
Agreement within such time.

Sloan-Kettering Institute for Cancer        Kosan Biosciences, Inc.
Research

By:   /s/ James S. Quirk                    By:  /s/ Daniel V. Santi
   ---------------------------------           ------------------------------

James S. Quirk                              Daniel V. Santi, Ph.D.
Sr. Vice President, Research Resources       C.E.O.
Management

Date:      7/26               , 2000        Date:         7/31         , 2000
     -------------------------                   ----------------------

                                      7

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