Document:

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                                                                   EXHIBIT 10.40

                          STRATEGIC ALLIANCE AGREEMENT

                                     BETWEEN

                    RHONE-POULENC RORER PHARMACEUTICALS INC.

                                       AND

                                      IRORI

                            DATED AS OF JUNE 15, 1998

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                                TABLE OF CONTENTS

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<S>      <C>                                                                                                 <C>
1.       DEFINITIONS.........................................................................................  1
         1.1      "Acceptance Date"..........................................................................  1
         1.2      "Affiliate"................................................................................  2
         1.3      "RPR Resins"...............................................................................  2
         1.4      "Development Committee"....................................................................  2
         1.5      "Development Milestone"....................................................................  2
         1.6      "Effective Date"...........................................................................  2
         1.7      "Enhancement"..............................................................................  2
         1.8      "Enhancement Specifications"...............................................................  2
         1.9      "Facility".................................................................................  2
         1.10     "Initial Delivery Deadline"................................................................  2
         1.11     "NanoKan"..................................................................................  2
         1.12     "NanoKan Specifications"...................................................................  2
         1.13     "Party"....................................................................................  3
         1.14     "Purchase Price"...........................................................................  3
         1.15     "RPR"......................................................................................  3
         1.16     "Right and License"........................................................................  3
         1.17     "Software".................................................................................  3
         1.18     "System"...................................................................................  3
         1.19     "System Specifications"....................................................................  3
         1.20     "Third Party"..............................................................................  3
         1.21     "Update"...................................................................................  3

2.       MANUFACTURE; DELIVERY; OPTION.......................................................................  3
         2.1      Generally..................................................................................  3
         2.2      Satisfaction of Development Milestones, etc.; Acceptance; Rejection........................  4
         2.3      Delivery; Installation.....................................................................  5
         2.4      Identification; Passage of Title...........................................................  6
         2.5      Option to Purchase Additional System.......................................................  6

3.       DEVELOPMENT COMMITTEE...............................................................................  9
         3.1      Members....................................................................................  9
         3.2      Responsibilities...........................................................................  9
         3.3      Meetings...................................................................................  9
         3.4      Decisions.................................................................................. 10
         3.5      Term....................................................................................... 10
         3.6      Expenses................................................................................... 10

4.       INITIAL SYSTEM PURCHASE PRICE; PAYMENT.............................................................. 10
         4.1      Initial System Purchase Price.............................................................. 10
         4.2      Payment Schedule........................................................................... 11
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<S>      <C>                                                                                                 <C>
         4.3      Mode of Payment; Taxes..................................................................... 11

5.       INTELLECTUAL PROPERTY; UPDATES...................................................................... 11
         5.1      Invention Ownership........................................................................ 11
         5.2      Title Does Not Pass; Right and License..................................................... 11
         5.3      Updates.................................................................................... 11
         5.4      Enhancements............................................................................... 12
         5.5      Installation............................................................................... 13
         5.6      Source Code................................................................................ 13

6.       SUPPORT; TRAINING................................................................................... 14
         6.1      Support and Maintenance.................................................................... 14
         6.2      Training................................................................................... 14

7.       SUPPLY AND PURCHASE................................................................................. 15
         7.1      Initial Obligations........................................................................ 15
         7.2      Requirements............................................................................... 15
         7.3      Orders..................................................................................... 15
         7.4      Delivery................................................................................... 15
         7.5      Quality Control............................................................................ 16
         7.6      Acceptance; Rejection...................................................................... 16
         7.7      Interim Replacement........................................................................ 16
         7.8      Invoicing; Payment......................................................................... 17
         7.9      Allocation................................................................................. 17
         7.10     Right to Manufacture....................................................................... 17
         7.11     RPR's Right to Manufacture................................................................. 18

8.       REPRESENTATIONS AND WARRANTIES; COVENANTS........................................................... 18
         8.1      Representations and Warranties of Both Parties............................................. 18
         8.2      Representations and Warranties of IRORI.................................................... 18
         8.3      Limited Right of Repair.................................................................... 19
         8.4      Disclaimer of Warranty..................................................................... 19
         8.5      Covenants of RPR........................................................................... 20

9.       THIRD PARTIES....................................................................................... 20
         9.1      Semi-Exclusivity........................................................................... 20
         9.2      Most Favored Nation........................................................................ 20
         9.3      Audit Request.............................................................................. 21

10.      INDEMNIFICATION..................................................................................... 21
         10.1     Obligation to Indemnify.................................................................... 21
         10.2     Notice..................................................................................... 21
         10.3     Complete Indemnification................................................................... 22
         10.4     Insurance.................................................................................. 22
         10.5     Partial Limitation on IRORI Indemnity...................................................... 22
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<S>      <C>                                                                                                 <C>
11.      CONFIDENTIALITY..................................................................................... 22
         11.1     Confidential Information................................................................... 22
         11.2     Permitted Disclosures...................................................................... 23
         11.3     Remedies................................................................................... 23

12.      TERM; TERMINATION................................................................................... 23
         12.1     Term....................................................................................... 23
         12.2     Termination by RPR......................................................................... 23
         12.3     Breach..................................................................................... 24
         12.4     Effect of Termination...................................................................... 25
         12.5     Accrued Rights, Surviving Obligations...................................................... 26

13.      FORCE MAJEURE....................................................................................... 26
         13.1     Events of Force Majeure.................................................................... 26

14.      MISCELLANEOUS....................................................................................... 26
         14.1     Non-Solicitation........................................................................... 26
         14.2     Relationship of Parties.................................................................... 27
         14.3     Assignment................................................................................. 27
         14.4     Binding Effect............................................................................. 27
         14.5     Further Actions............................................................................ 27
         14.6     Costs and Expenses......................................................................... 27
         14.7     Inconsistency.............................................................................. 28
         14.8     Notice..................................................................................... 28
         14.9     Use of Name................................................................................ 28
         14.10    Public Announcements....................................................................... 28
         14.11    Waiver..................................................................................... 29
         14.12    Severability............................................................................... 29
         14.13    Amendment.................................................................................. 29
         14.14    Governing Law.............................................................................. 29
         14.15    Arbitration and Choice of Venue............................................................ 29
         14.16    Limitation on Liability.................................................................... 30
         14.17    Entire Agreement........................................................................... 30
         14.18    Counterparts............................................................................... 30
         14.19    Descriptive Headings....................................................................... 30

15.      SECURITY INTEREST................................................................................... 30
         15.1     Security Interest.......................................................................... 30
         15.2     Further Assurances......................................................................... 31
         15.3     Remedies................................................................................... 31
         15.4     Right and License in the Event of Breach................................................... 31
         15.5     Termination of Security Interest and Rights................................................ 32
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EXHIBITS

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        EXHIBIT A              SYSTEM AND NANOKAN SPECIFICATIONS AND MILESTONES

        EXHIBIT B              PROGRESS PAYMENT SCHEDULE

        EXHIBIT C              DESCRIPTION OF INSURANCE COVERAGE
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                          STRATEGIC ALLIANCE AGREEMENT

        THIS STRATEGIC ALLIANCE AGREEMENT (this "Agreement") dated as of June
15, 1998 by and between Rhone-Poulenc Rorer Pharmaceuticals Inc., a corporation
duly organized and existing under the laws of Pennsylvania, having offices at
500 Arcola Road, Collegeville, Pennsylvania 19426, for and on behalf of itself
and its Affiliates ("RPR"), and IRORI, a corporation duly organized and existing
under the laws of the State of California, having offices at 11149 North Torrey
Pines Road, La Jolla, California 92037-1030 ("IRORI" or the "Company").

                             PRELIMINARY STATEMENTS

        A. RPR is a pharmaceutical company that engages in the discovery and
development of new drug products.

        B. IRORI has developed directed sorting combinatorial chemistry systems
that use microreactors and miniature electronic tags.

        C. RPR wishes to purchase from IRORI and secure a license from IRORI
with respect to, and IRORI wishes to manufacture and sell to RPR and grant a
license to RPR with respect to, a System, upon the terms and conditions set
forth in this Agreement.

        D. In addition, RPR wishes to purchase from IRORI, and IRORI wishes to
sell to RPR, a quantity of NanoKans, also upon the terms and conditions set
forth in this Agreement.

        E. In conjunction with the execution of this Agreement, the Parties are
entering into that certain Series D Preferred Stock Purchase Agreement, dated as
of the Effective Date (the "Stock Purchase Agreement"), and such other
agreements as are contemplated thereby.

        NOW, THEREFORE, in consideration of the foregoing Preliminary Statements
and the mutual covenants and agreements of the Parties contained in this
Agreement, the Parties agree as follows:

1. DEFINITIONS.

        As used in this Agreement, the following terms will have those meanings
set forth in this Section 1 unless the context dictates otherwise.

        1.1 "Acceptance Date" shall mean, with respect to a System or an
Enhancement, the date on which RPR accepts such System or Enhancement in
accordance with Section 2.3, 2.5(e) or 5.4, as the case may be; provided that if
before such date IRORI has notified RPR that the System or Enhancement has been
installed at the Facility and that it conforms to the System/Enhancement
Specifications, and the System/Enhancement is later determined to (or deemed to)
conform to those Specifications as of the date of such notice, then the
Acceptance Date shall be the date of such notice even if the date of actual
acceptance is later.

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        1.2 "Affiliate", with respect to any Party, shall mean any entity
controlling, controlled by, or under common control with, such Party (but only
so long as such control relationship exists). For these purposes, "control"
shall refer to (i) the possession, directly or indirectly, of the power to
direct the management or policies of an entity, whether through the ownership of
voting securities, by contract or otherwise or (ii) the ownership, directly or
indirectly, of at least 50% of the voting securities or other ownership interest
of an entity.

        1.3 "RPR Resins" shall mean the resins used by RPR in the NanoKans.

        1.4 "Development Committee" shall have the meaning assigned thereto in
Section 3.1.

        1.5 "Development Milestone" shall mean each of the milestones set forth
on Exhibit A attached.

        1.6 "Effective Date" shall mean the date first written above.

        1.7 "Enhancement" shall mean any upgrade or improvement to the System
that materially improves its utility, efficiency or efficacy and that is not
primarily intended to correct or avoid errors, malfunctions or defects in the
System.

        1.8 "Enhancement Specifications" shall mean, with respect to any
Enhancement, written specifications that set forth with specificity the quality
and degree of improvement to the System that such Enhancement provides.

        1.9 "Facility" shall mean a facility in the continental United States
with respect to the Initial System or any facility with respect to the Second
System, selected by RPR at its sole discretion pursuant to Section 2.3.

        1.10 "Initial Delivery Deadline" shall mean *** .

        1.11 "NanoKan" shall mean IRORI's proprietary microreactor for solid
phase synthesis that conforms to the NanoKan Specifications.

        1.12 "NanoKan Specifications" shall mean the specifications set forth on
Exhibit A attached which relate to NanoKans, as may be amended by the
Development Committee from time to time.

        1.13 "Party" shall mean RPR or IRORI and, when used in the plural, shall
mean RPR and IRORI.

        1.14 "Purchase Price" shall mean the Initial System Purchase Price (as
such term is defined in Section 4.1), the Second System Purchase Price (as such
term is defined in Section 2.5) and the Enhancement Purchase Price(s) (as such
term is defined in Section 5.4), either individually or collectively, as context
dictates.

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        1.15 "RPR" shall mean Rhone-Poulenc Rorer Pharmaceuticals Inc. together
with its Affiliates.

        1.16 "Right and License" shall have the meaning assigned thereto in
Section 5.2.

        1.17 "Software" shall mean all of the software adapted or incorporated
into the System from time to time.

        1.18 "System" shall mean IRORI's proprietary NanoKan Reactor System,
including all hardware, equipment, Software and other components and any Updates
or Enhancements provided to RPR pursuant to Section 5.3 or 5.4. Except to the
extent context dictates otherwise, "System" shall include both the Initial
System (as defined in Section 2.1) and the Second System (as defined in Section
2.5).

        1.19 "System Specifications" shall mean the specifications set forth on
Exhibit A attached relating to the System, as may be amended by the Development
Committee from time to time.

        1.20 "Third Party" shall mean any Person who or which is neither a Party
nor an Affiliate of a Party.

        1.21 "Update" shall mean with any update, upgrade or improvement to the
System other than Enhancements.

2. MANUFACTURE; DELIVERY; OPTION.

        2.1 Generally. On or before the Initial Delivery Deadline, IRORI shall
manufacture, and promptly thereafter in accordance with the terms of this
Agreement shall deliver and install at the Facility, in accordance with the
System Specifications and the terms of this Agreement, one System (the "Initial
System"). During the period between the Effective Date and the date on which the
Initial System is delivered to the Facility, IRORI shall use its best commercial
efforts to diligently fulfill its obligations under this Agreement and to
satisfy each Development Milestone in a timely and expeditious manner and by the
target completion date set forth on Exhibit A with respect to such Development
Milestone.

        2.2 Satisfaction of Development Milestones, etc.; Acceptance; Rejection.

                (a) (i) IRORI shall give RPR notice promptly after IRORI
believes that it has satisfied each Development Milestone with respect to the
Initial System. For a period of *** (a "Testing Period") after the date of each
such notice, RPR shall have the right to test the Initial System, as it then
exists, at IRORI's site to verify that such Development Milestone has been
satisfied (using the Development Milestone Criteria). RPR shall use reasonable
efforts to expedite the performance of such testing.

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                        (ii) If, upon the expiration of any Testing Period, RPR
has failed to notify IRORI that such Development Milestone has not been
satisfied, then such Development Milestone shall be deemed to have been
satisfied.

                        (iii) If such testing indicates that such Development
Milestone has not been satisfied, then prior to the expiration of the Testing
Period, RPR shall notify IRORI of such non-satisfaction in sufficient detail to
allow IRORI to attempt to remedy it. During the *** period following receipt of
any such notice, IRORI shall use its best commercial efforts to satisfy such
Development Milestone. If RPR reasonably determines, within *** after such ***
period, that such Development Milestone still has not been satisfied, then RPR
shall be excused temporarily from its obligation to make the payment of the
Initial System Purchase Price that pertains to such Development Milestone under
Section 4.2, until such Development Milestone has been achieved. If RPR has
failed to notify IRORI that such Development Milestone has not been satisfied
prior to the expiration of such *** period, then such Development Milestone
shall be deemed to have been satisfied.

                (b) (i) On or before the Initial Delivery Deadline, IRORI shall
manufacture the Initial System and have it ready at IRORI's factory for testing
pursuant to this Section 2.2(b). IRORI shall give RPR notice (a "Readiness
Notice") promptly after IRORI believes that the Initial System has been
completed and is ready for delivery. RPR shall have the right, as promptly as
possible after the date of each Readiness Notice, and in any event not more than
*** after the date of such notice, to test the Initial System to verify that the
Initial System conforms to the System Specifications (using testing protocols
developed by the Development Committee).

                        (ii) If, prior to the expiration of such *** period, RPR
has failed to notify IRORI that the Initial System does not conform to the
System Specifications, then the Initial System shall be prepared for delivery
pursuant to Section 2.3.

                        (iii) If such testing indicates that the Initial System
does not conform to the System Specifications, then prior to the expiration of
such *** period, RPR shall notify IRORI of such non-conformity in sufficient
detail to allow IRORI to attempt to remedy it. During the *** period following
receipt of any such notice, IRORI shall use its best commercial efforts to bring
the Initial System into conformity with the System Specifications. If RPR
reasonably determines, within *** after such *** period, that the Initial System
still does not conform to the System Specifications, then RPR shall be entitled
to reject the Initial System by notice to IRORI, in addition to any other rights
RPR may have under this Agreement, at law or in equity. If RPR has failed to
notify IRORI that the Initial System does not conform to the System
Specifications upon the expiration of such *** period, then the Initial System
shall be prepared for delivery pursuant to Section 2.3.

                (c) Notwithstanding Section 14.15, any dispute arising between
the Parties as to whether a Development Milestone has been satisfied or the
Initial System or the Second System (as defined below) conforms to the System
Specifications shall be determined in accordance with Section 3.4.

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        2.3 Delivery; Installation.

                (a) Before *** , RPR shall notify IRORI of the location of the
Facility and of any special delivery instructions. The Parties shall cooperate
in coordinating the delivery and installation of the Initial System at the
Facility. IRORI shall install the Initial System at the Facility in accordance
with RPR's reasonable instructions and the System Specifications.

                (b) (i) RPR shall have the right, as promptly as possible after
installation of the Initial System but in any event not more than *** after
IRORI's installation of the Initial System at the Facility, to verify that the
Initial System continues to conform to the System Specifications. To the extent
it does not, IRORI shall promptly bring the Initial System into such conformity.

                        (ii) If, upon the expiration of such *** period, RPR has
failed to notify IRORI that the Initial System does not continue to conform to
the System Specifications, then the Initial System shall be deemed to continue
to conform to the System Specifications, and RPR shall be deemed to have
accepted the Initial System.

                        (iii) If such testing indicates that the Initial System
does not conform to the System Specifications, then prior to the expiration of
such *** period, RPR shall notify IRORI of such non-conformity in sufficient
detail to allow IRORI to attempt to remedy it. During the *** period following
receipt of any such notice, IRORI shall use its best commercial efforts to bring
the Initial System into conformity with the System Specifications. If RPR
reasonably determines, within *** after such *** period, that the Initial System
still does not conform to the System Specifications, then RPR shall be entitled
to reject the Initial System by notice to IRORI, in addition to any other rights
RPR may have under this Agreement, at law or in equity. If RPR has failed to
notify IRORI that the Initial System does not conform to the System
Specifications upon the expiration of such *** period, then the Initial System
shall be deemed to conform to the System Specifications, and RPR shall be deemed
to have accepted the Initial System.

        2.4 Identification; Passage of Title. The Initial System shall be
identified to this Agreement as of the Effective Date. IRORI shall bear the risk
of any loss, deterioration or damage until the Initial System has been delivered
and installed at the Facility in accordance with the terms of this Agreement.
Except as provided in Section 5.2, title to the Initial System shall pass to RPR
on the date of actual or deemed acceptance thereof pursuant to Section 2.3.

        2.5 Option to Purchase Additional System.

                (a) At any time prior to ***  *** , RPR shall have an option to
purchase a second System (the "Second System"). The total purchase price (the
"Second System Purchase Price") payable by RPR in consideration of IRORI's
manufacture, delivery and installation of the Second System by IRORI, and the
Right and License with respect to the Second System that will be effective upon
the Acceptance Date with respect thereto, shall be *** ; provided, however,

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that if the Acceptance Date with respect to the Second System is delayed more
than *** (such period, as may be extended as provided below, the "Grace Period")
after the Second Delivery Deadline (as defined herein), the Second System
Purchase Price shall be reduced by *** (calculated without regard to any
previous reductions) for each *** period (or portion thereof) that such
Acceptance Date is delayed beyond the Grace Period, except to the extent that
RPR causes any such delay. The Parties acknowledge and agree that RPR's testing
of the Second System in accordance with Section 2.5(c) and (e) shall not
constitute delay. If the Grace Period has not expired at the time IRORI sends a
Readiness Notice with respect to the Second System, then the Grace Period shall
be extended (or, as the case may be, any period of delay of the Acceptance Date
with respect to the Second System beyond the expiration of the Grace Period
shall be tolled), day-for-day, for each day that elapses between RPR's receipt
of any Readiness Notice and completion of RPR's inspection of the Second System
pursuant to Section 2.5(c), and then for each day of a reasonable period for
delivery and installation of the Second System at the applicable Facility, and
then for each day that elapses between IRORI's notice to RPR that the Second
System has been installed at the Facility and that it conforms to the System
Specifications and completion of RPR's inspection of the Second System pursuant
to Section 2.5(e). RPR shall notify IRORI promptly of the completion of any such
inspections.

                (b) RPR may exercise such option by delivering a notice (the
"Option Exercise Notice") to IRORI. The Option Exercise Notice shall set forth
the date on which RPR expects IRORI to deliver the Second System (the "Second
Delivery Deadline"), which shall not be sooner than ***
                                                    ***

        Following receipt of an Option Exercise Notice, IRORI shall use its best
commercial efforts to diligently manufacture, deliver and install the Second
System in a timely and expeditious manner.

                (c) (i) IRORI shall manufacture the Second System and, before
the Second Delivery Deadline, have it ready at IRORI's factory for testing
pursuant to this Section 2.5(c). IRORI shall give RPR a Readiness Notice
promptly after IRORI believes that the Second System has been completed and is
ready for delivery. RPR shall have the right, as promptly as possible after the
date of each Readiness Notice, and in any event not more than *** after the date
of such notice, to test the Second System to verify that the Second System
conforms to the System Specifications (using testing protocols developed by the
Development Committee).

                        (ii) If, upon the expiration of such *** period, RPR has
failed to notify IRORI that the Second System does not conform to the System
Specifications, then the Second System shall be prepared for delivery pursuant
to Section 2.5(d).

                        (iii) If such testing indicates that the Second System
does not conform to the System Specifications, then prior to the expiration of
such *** period, RPR shall notify IRORI of such non-conformity in sufficient
detail to allow IRORI to attempt to remedy it. During the *** period following
receipt of any such notice, IRORI shall use its best commercial efforts to bring
the Second System into conformity with the System Specifications. If RPR
reasonably determines, within *** after such *** period, that the Second System
still does not conform to the System Specifications, then RPR shall be entitled
to reject

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the Second System by notice to IRORI, in addition to any other rights RPR may
have under this Agreement, at law or in equity. If RPR has failed to notify
IRORI that the Second System does not conform to the System Specifications upon
the expiration of such *** period, then the Second System shall be prepared for
delivery pursuant to Section 2.5(d).

                (d) Simultaneous with delivery of the Option Exercise Notice,
RPR shall notify IRORI of the location of the Facility and of any special
delivery instructions for the Second System. The Parties shall cooperate in
coordinating the delivery and installation of the Second System at the Facility.
IRORI shall install the Second System at the Facility in accordance with RPR's
reasonable instructions and the System Specifications.

                (e) (i) RPR shall have the right, as promptly as possible after
installation of the Second System but in any event not more than *** after
IRORI's installation of the Second System at the Facility, to verify that the
Second System continues to conform to the System Specifications. To the extent
it does not, IRORI shall promptly bring the Second System into such conformity.

                        (ii) If, upon the expiration of such *** period, RPR has
failed to notify IRORI that the Second System does not continue to conform to
the System Specifications, then the Second System shall be deemed to continue to
conform to the System Specifications, and RPR shall be deemed to have accepted
the Second System.

                        (iii) If such testing indicates that the Second System
does not continue to conform to the System Specifications, then prior to the
expiration of such *** period, RPR shall notify IRORI of such non-conformity in
sufficient detail to allow IRORI to attempt to remedy it. During the *** period
following receipt of any such notice, IRORI shall use its best commercial
efforts to bring the Second System into conformity with the System
Specifications. If RPR reasonably determines, within *** after such *** period,
that the Second System still does not conform to the System Specifications, then
RPR shall be entitled to reject the Second System by notice to IRORI, in
addition to any other rights RPR may have under this Agreement, at law or in
equity. If RPR has failed to notify IRORI that the Second System does not
conform to the System Specifications upon the expiration of such *** period,
then the Second System shall be deemed to conform to the System Specifications,
and RPR shall be deemed to have accepted the Second System.

                (f) The Second System shall be identified to this Agreement as
of the date of the Option Exercise Notice. IRORI shall bear the risk of any
loss, deterioration or damage until the Second System has been delivered and
installed at the Facility in accordance with the terms of this Agreement. Except
as provided in Section 5.2, title to the Second System shall pass to RPR upon
the date of actual or deemed acceptance thereof pursuant to Section 2.5(e).

                (g) RPR shall pay the Second System Purchase Price according to
the following schedule:

                        (i) *** shall be paid in conjunction with delivery of
the Option Exercise Notice;

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                        (ii) *** shall be paid within 45 days after the Second
System is prepared for delivery pursuant to Section 2.5(c)(ii) or (iii); and

                        (iii) *** shall be paid within 45 days after the
Acceptance Date of the Second System.

In the event that RPR rejects the Second System pursuant to Section 2.5(c) or
(e), RPR shall be excused from making any further payment of the Second System
Purchase Price. Such rejection shall not be exclusive of any right to terminate
this Agreement.

3. DEVELOPMENT COMMITTEE.

        3.1 Members. The Parties shall establish the Development Committee (the
"Development Committee"), which shall be comprised of six members, three
representatives designated by each Party. Members of the Development Committee
may be represented at any meeting by a designee appointed by such member for
such meeting. The chairperson of the Development Committee shall be designated
annually on an alternating basis between the Parties. The initial chairperson
shall be selected by RPR. The Party not designating the chairperson shall
designate one of its representative members as secretary to the Development
Committee for such year. Each Party shall be free to change its representative
members, on notice to the other Party.

        3.2 Responsibilities. The Development Committee shall be responsible
for:

                (a) developing, reviewing and modifying, from time to time,
testing protocols for all Systems and Enhancements;

                (b) reviewing and modifying, from time to time, the System
Specifications, Enhancement Specifications and NanoKan Specifications;

                (c) developing, reviewing and modifying, from time to time,
criteria (the "Development Milestone Criteria") for determining whether each of
the Development Milestones has been satisfied; and

                (d) overseeing the testing of all Systems prior to the delivery
thereof.

The Development Committee shall use its best efforts to develop the testing
protocols for the Initial System and the Development Milestone Criteria not
later than 90 days after the Effective Date.

        3.3 Meetings. The Development Committee shall meet at such times and in
such places as the Parties shall agree. Meetings may also be called by either
Party, on 10 days' written notice to the other unless such notice is waived by
the Parties. The meetings shall alternate between the offices of the Parties
unless the Parties otherwise agree. The chairperson shall be responsible for
sending notices of meetings to all members. The Development Committee may also
convene or be polled or consulted from time to time by means of
telecommunications, video conferences or

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correspondence, as deemed necessary or appropriate, so long as any decisions are
reduced to writing and signed by two representatives of each Party.

        3.4 Decisions.

                (a) All decisions of the Development Committee shall be made by
unanimous agreement of the members (or their designees) present in person or by
telephone at any meeting, provided that at least one representative of each
Party is present at such meeting.

                (b) In the event that unanimity cannot be reached by the
Development Committee with respect to a matter that is subject to its
decision-making authority, then the matter shall be referred for further review
and resolution to the Senior Vice President-Research of RPR, or such other
similar position designated by RPR from time to time, and the Vice President,
Business Development, at IRORI, or such other similar position designated by
IRORI from time to time. Such designated officers of each Party shall use
reasonable efforts to resolve the matter within 30 days after the matter is
referred to them. If they cannot resolve the matter within 30 days, then the
matter shall be decided by the Senior Vice President-Research of RPR, or such
other similar position designated by RPR from time to time, in good faith,
giving appropriate consideration to the reasonable business, scientific and
technical feasibility concerns of IRORI.

                (c) All decisions of the Development Committee or the designated
officer(s) of the Party(ies) made in accordance with the procedures set forth in
this Section 3.4 shall be final and binding upon the Parties and shall only be
appealable by either of the Parties if not made in good faith or, to the extent
applicable, with appropriate consideration of reasonable business, scientific
and technical feasibility concerns.

        3.5 Term. The Development Committee shall exist for such period as
necessary to perform the responsibilities assigned to it under this Agreement.

        3.6 Expenses. Each Party shall be responsible for all travel and related
costs for its representatives to attend meetings of, and otherwise participate
on, the Development Committee.

4. INITIAL SYSTEM PURCHASE PRICE; PAYMENT.

        4.1 Initial System Purchase Price. The total purchase price (the
"Initial System Purchase Price") payable by RPR in consideration of IRORI's
manufacture, delivery and installation of the Initial System by IRORI, and the
Right and License with respect thereto that will be effective upon the
Acceptance Date with respect to the Initial System, shall be *** .
Notwithstanding any other provision of this Agreement, IRORI shall not be
entitled to receive any consideration beyond the amount of the Initial System
Purchase Price in connection with such manufacture, delivery and installation,
except pursuant to Section 5.4.

        4.2 Payment Schedule. RPR shall pay the Initial System Purchase Price
upon the occurrence of the events set forth on Exhibit A (each such event, a
"Development Milestone") and in accordance with the progress payment schedule
set forth on Exhibit B attached. Each progress

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<PAGE>   15

payment shall be made within 30 days after the satisfaction of the relevant
Development Milestone as provided in Section 2.2, upon IRORI's submission of an
invoice therefor to RPR.

        4.3 Mode of Payment; Taxes. RPR shall make all payments required under
this Agreement as directed by IRORI from time to time in U.S. Dollars. RPR shall
pay all federal, state and local sales, use, property, excise or other taxes
imposed on or with respect to the manufacture, delivery and installation of the
Systems, except taxes levied on IRORI's net income.

5. INTELLECTUAL PROPERTY; UPDATES.

        5.1 Invention Ownership. IRORI shall own all inventions, processes,
improvements, works of authorship, technology, ideas, data and know-how, whether
or not entitled to patent or copyright protection, that arise from IRORI's
performance of its obligation to manufacture the System (collectively,
"Inventions"). The Parties agree that any Inventions shall not constitute "works
made for hire" under U.S. copyright law.

        5.2 Title Does Not Pass; Right and License. Notwithstanding any other
provision of this Agreement, title to any Software, Inventions and other
proprietary intellectual property of IRORI adapted or incorporated into the
System, Updates (as such term is defined herein) or Enhancements (collectively,
the "IRORI Intellectual Property") shall not pass to RPR. Instead, to the extent
necessary, IRORI hereby grants RPR (effective upon the Acceptance Date with
respect to each System) a non-exclusive, paid-up worldwide right and license
during the term of this Agreement under the IRORI Intellectual Property to
operate each respective System purchased pursuant to this Agreement and exercise
its rights under this Agreement (collectively, the "Right and License"). RPR
shall not have the right to sublicense the Right and License without the prior
written consent of IRORI. RPR shall not have the right to assign the Right and
License except in connection with an assignment of all of RPR's rights and
obligations under this Agreement pursuant to, and in compliance with, Section
14.3.

        5.3 Updates. For a period of *** following the Acceptance Date with
respect to each System and at no cost to RPR, IRORI shall provide and
incorporate into such System, or grant RPR a Right and License to use, as the
case may be, all Updates to such System that are developed during such period.
Following such *** period, RPR shall have the right to purchase, or to be
granted a Right and License to use, as the case may be, such Updates at IRORI's
standard commercial rates therefor. Title to all Updates that are not IRORI
Intellectual Property shall pass to RPR upon their incorporation into the
System.

        5.4 Enhancements.

                (a) During the term of this Agreement, IRORI shall notify RPR
promptly after the development of any Enhancement not developed for RPR pursuant
to Section 5.4(b). Any such notice shall include a copy of the applicable
Enhancement Specifications. RPR shall have the right to purchase, or to obtain a
Right and License to use, as the case may be, any or all such Enhancements. In
the event that RPR wishes to purchase any such Enhancement or such Right and
License, RPR shall notify IRORI, and IRORI shall quote RPR a price therefor (the
"Enhancement Purchase Price"). ***

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<PAGE>   16

                                        ***
                *** . RPR may purchase such Enhancement or a Right and License
to use same, as the case may be, by submitting a purchase order which is in a
form mutually acceptable to the parties, to the extent that such form is not
inconsistent with the terms of this Agreement, within *** .

                (b) In addition, RPR shall have the right to request, from time
to time, that IRORI develop Enhancements to meet Enhancement Specifications
proposed by RPR. IRORI shall not unreasonably refuse to develop any such
Enhancements. Promptly after any such request by RPR, the Development Committee
shall develop the Enhancement Specifications for the Enhancement. Promptly after
the Enhancement Specifications have been finalized, IRORI shall quote RPR the
Enhancement Purchase Price for the development and incorporation of such
Enhancement into the System (and, to the extent necessary a Right and License to
use same), *** , and shall provide a good faith estimate of the time IRORI will
require to develop such Enhancement. RPR may purchase such Enhancement or a
Right and License to use same, as the case may be, by submitting a purchase
order which is in a form mutually acceptable to the parties, to the extent that
such form is not inconsistent with the terms of this Agreement, within *** .
Following receipt of any such purchase order, IRORI shall use its best
commercial efforts to deliver and incorporate into the System such Enhancement
within the estimated development period.

                (c) For a period of *** after IRORI's incorporation of any
Enhancement into the System, RPR shall have the right to test the System to
verify that the Enhancement conforms to the applicable Enhancement
Specifications (using the testing protocol developed by the Development
Committee). If RPR has failed to notify IRORI that the Enhancement does not
conform to the applicable Enhancement Specifications prior to the end of such
*** period, then the Enhancement shall be deemed so to conform, and RPR shall be
deemed to have accepted it.

                (d) If such testing indicates that the Enhancement does not
conform to the Enhancement Specifications, then prior to the expiration of such
*** period referred to in Section 5.4(c), RPR shall notify IRORI of such
non-conformity in sufficient detail to allow IRORI to attempt to bring the
Enhancement into conformity with the applicable Enhancement Specifications.
During the 30-day period following receipt of any such notice, IRORI shall use
its best commercial efforts to bring the Enhancement into conformity with the
applicable Enhancement Specifications, and RPR shall allow IRORI's
representatives reasonable access to the System(s), during normal business
hours, for such purpose. If RPR reasonably determines, within 15 days after such
30-day period, that the Enhancement does not conform to the applicable
Enhancement Specifications, then RPR shall be entitled to reject the Enhancement
by notice to IRORI. In the event of any such rejection, IRORI shall promptly
un-install the Enhancement and refund to RPR the entire amount of price
previously paid by RPR with respect thereto. If RPR has failed to notify IRORI
that the Enhancement does not conform to the applicable Enhancement
Specifications prior to the end of such 15-day period, then the Enhancement
shall be deemed so to conform, and RPR shall be deemed to have accepted it.

                (e) Title to all Enhancements (i.e., to RPR's physical copies
thereof) that are not IRORI Intellectual Property shall pass to RPR upon RPR's
acceptance thereof.

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<PAGE>   17

                (f) IRORI shall submit an invoice for the Enhancement Purchase
Price to RPR upon delivery and installation of an Enhancement into the System.
All invoices shall be sent to the address specified on the RPR purchase order.
Payment of such invoices shall made within 45 days after receipt of an invoice
for such payment.

        5.5 Installation. The Parties shall cooperate in coordinating the
delivery and installation of any Updates or Enhancements.

        5.6 Source Code.

                (a) Within 180 days after the Effective Date and within 10 days
after the first day of each calendar quarter thereafter until the Source Code
Release Date (as herein defined), IRORI shall deposit with Data Securities
International (the "Escrow Agent") a copy of the most current source code and
any documentation (including drawings, blueprints and other technical
information) of and for the Software or otherwise necessary or useful for the
development, manufacture or operation of the System, all pursuant to an escrow
agreement (the "Escrow Agreement") the terms and conditions of which are
acceptable to RPR. The Escrow Agreement shall provide, among other things, that
RPR shall have access to such source code and other materials, subject to the
Right and License and the other terms and conditions of this Agreement
(including Sections 11 and 15), if RPR delivers to the Escrow Agent a Collateral
Acquisition Notice (as defined below) or if IRORI or any of its Affiliates
becomes the subject of any voluntary or involuntary proceeding, under state or
federal law, in the nature of bankruptcy, receivership or assignment for the
benefit of creditors which is not dismissed within 60 days after the
institution, initiation or filing of such proceeding.

                                       ***
                                       ***
                                       ***
                                       ***
                                       ***

                                       ***
                                       ***

                Notwithstanding any other provision of this Agreement, RPR's
rights under this Section 5.6(b) shall terminate upon any assignment of its
rights and obligations under this Agreement to a Third Party.

6. SUPPORT; TRAINING.

        6.1 Support and Maintenance. During the *** period following the
Acceptance Date with respect to each System, IRORI shall provide RPR with
customer and technical support in connection with RPR's use of such System, and
maintenance of such System, at no additional cost to RPR. After such *** period
and during the remainder of the term of this Agreement, IRORI shall provide RPR
with customer and technical support in connection with RPR's use of such

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<PAGE>   18

System, and maintenance of such System, at IRORI's published commercial rates
therefor. Such support and maintenance shall include critical bug fixes,
reasonable assistance via telephone and fax, dial in via modem assistance,
receipt of any newsletter or other customer publications put out by IRORI and
on-site support.

        6.2 Training. For a period of *** after the Acceptance Date with respect
to each System, and for a period of *** following the installation of any major
Update or RPR's acceptance of any Enhancement, IRORI shall provide training in
the operation and maintenance thereof to RPR's employees at the Facility, at no
additional cost to RPR. RPR shall be responsible for all per diem expenses
incurred by its employees in connection with any such training. The Parties
shall cooperate in the scheduling of all such training.

7. SUPPLY AND PURCHASE.

        7.1 Initial Obligations.

                (a) On the Acceptance Date with respect to the Initial System,
RPR automatically shall be deemed to have ordered from IRORI an aggregate of ***
NanoKans, at a price of *** each, and IRORI shall be entitled to submit to RPR
an invoice therefor, in accordance with Section 7.8(a).

                (b) Between the Acceptance Date with respect to the Initial
System and the second Anniversary of such Acceptance Date, RPR shall order from
IRORI an aggregate of *** additional NanoKans, at a price of *** each. This is a
take-or-pay.

        7.2 Requirements.

                (a) After RPR has ordered an aggregate of *** NanoKans pursuant
to Section 7.1, RPR shall purchase from IRORI, and IRORI shall supply to RPR,
NanoKans representing 100% of RPR's requirements for microreactors for solid
phase synthesis for use with the Systems. ***

                                          ***
                                          ***

***. If IRORI has not supplied NanoKans to any Third Party within such 12-month
period, then such price shall be $1.00 per NanoKan, subject to adjustment
commencing on January 1, 2001 (and on each January 1 thereafter) to reflect the
aggregate change, if any, in the Consumer Price Index (All Consumers, All Urban
Areas), published by the U.S. Department of Labor, during the period commencing
on the immediately preceding January 1.

                (b) At any time following the seventh anniversary of the
Acceptance Date with respect to the Initial System, RPR shall have the right to
terminate its obligations under Section 7.2(a), or from time to time to reduce
the percentage of RPR's requirements for NanoKans that it is obligated to
purchase thereunder, by giving 180 days' prior notice to IRORI.

        7.3 Orders. Except as set forth in Section 7.1(a), RPR shall place
orders for NanoKans with IRORI, setting forth trade units, delivery dates and
shipping instructions with respect to each

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<PAGE>   19

shipment, from time to time. IRORI shall accept such orders from RPR. RPR's
orders shall be made pursuant to a purchase order which is in a form mutually
acceptable to the parties, to the extent that such form is not inconsistent with
the terms of this Agreement.

        7.4 Delivery. IRORI shall deliver all NanoKans ordered by RPR pursuant
to Section 7.1(b), 7.3 or 7.7 within *** of IRORI's receipt of RPR's purchase
order. All NanoKans delivered pursuant to this Agreement shall be suitably
packed for shipment by IRORI and marked for shipment to the destination point
indicated in RPR's purchase order. All NanoKans will be delivered F.O.B. the
shipping point designated by IRORI. The shipping packaging shall be in
accordance with good commercial practice with respect to protection of the
NanoKans during transportation. All shipping and insurance costs, as well as any
special packaging expenses, shall be paid by RPR.

        7.5 Quality Control. IRORI shall conduct quality control testing of the
NanoKans prior to shipment in accordance with its customary quality control
procedures. IRORI shall retain records pertaining to such testing.

        7.6 Acceptance; Rejection.

                (a) RPR may test or cause to be tested the NanoKans supplied by
IRORI, using a random sampling methodology and otherwise in accordance with
RPR's customary procedures, within *** of receipt thereof by RPR or its
designee. RPR or its designee shall have the right to reject any shipment of
NanoKans made to it under this Agreement which does not meet the NanoKan
Specifications when received by RPR. All claims by RPR of non-conforming
NanoKans shall be deemed waived unless made by RPR in writing and received by
IRORI within such *** period. At IRORI's request and expense, RPR shall return
to IRORI or destroy, in accordance with IRORI's instructions, any rejected
shipment of NanoKans.

                (b) In the event that the parties are unable to agree as to
whether a shipment of NanoKans supplied by IRORI hereunder meet the NanoKan
Specifications, such question shall be submitted to an independent quality
control laboratory as the Parties may mutually agree upon. The findings of such
independent laboratory shall be binding upon the Parties, absent manifest error.
The cost of the independent quality control laboratory shall be borne by the
Party whose results are shown by such laboratory to have been incorrect.

                (c) In the event that IRORI concedes or the independent quality
control laboratory finds that a shipment of NanoKans does not comply with the
NanoKan Specifications, IRORI will promptly, to the extent such shipment has not
been replaced pursuant to Section 7.7, re-manufacture and deliver to RPR the
same quantity of NanoKans as contained in the shipment in question.

        7.7 Interim Replacement. During the pendency of any dispute concerning
the conformity of a shipment of NanoKans to the NanoKan Specifications, IRORI
shall promptly replace the shipment under dispute, at the request of RPR. Such
replacement NanoKans shall be ordered in accordance with Section 7.3 and shall
be invoiced by IRORI and paid for by RPR at the same price as the rejected
shipment of NanoKans was invoiced.

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<PAGE>   20

        7.8 Invoicing; Payment.

                (a) IRORI shall submit an invoice to RPR upon shipment of
NanoKans ordered by RPR hereunder, whether pursuant to Section 7.1, 7.3 or 7.7.
All invoices shall be sent to the address specified on the RPR purchase order,
and each such invoice shall include any insurance, taxes or other costs incident
to the purchase or shipment initially paid by IRORI but to be borne by RPR
hereunder.

                (b) Payment of such invoices shall made within 45 days after
receipt of an invoice for such payment; provided, however, that RPR shall not be
required to pay any invoice with respect to any shipment of NanoKans that fails
to meet the NanoKan Specifications, but RPR shall be obligated to pay in full
for any rejected shipment of NanoKans that is subsequently determined to meet
the NanoKan Specifications; and provided, further, that the running of such
45-day period shall be tolled during the pendency of any dispute concerning the
conformity of a shipment of NanoKans to the NanoKan Specifications. In the event
that RPR pays for a shipment of NanoKans and subsequently rejects such shipment
in accordance with the terms of this Agreement, RPR shall be entitled to a
refund or credit equal to the amount paid with respect to such rejected
shipment.

        7.9 Allocation.

                (a) Subject to Section 7.9(b), in the event that IRORI is unable
to supply all of RPR's requirements for NanoKans in accordance with Section 7.4,
due to force majeure or otherwise, IRORI shall allocate *** of its available
NanoKans to RPR until IRORI has supplied all such NanoKans.

                (b) The Parties acknowledge and agree that IRORI has entered
into a relationship with another strategic partner (the "Other Partner"). If, at
any time when IRORI is unable to supply all of RPR's requirements for NanoKans,
IRORI's relationship with the Other Partner is in effect, then IRORI shall
allocate *** of its available NanoKans between RPR and the Other Partner, in
proportion to the quantity of NanoKans for which each of them has orders pending
at such time. IRORI shall promptly disclose to RPR the identity of the Other
Partner, if RPR so requests, but in that case IRORI shall have the right to
disclose to the Other Partner the existence (but not the specific financial
terms) of RPR's relationship with IRORI under this Agreement. In any event, in
connection with any allocation under this Section 7.9(b), IRORI shall notify RPR
promptly of the identity of the Other Partner, if IRORI has not already done so.

        7.10 Right to Manufacture.

                (a) In the event of an Inability to Supply, RPR may elect
either: (i) to manufacture (or have manufactured) pursuant to Section 7.11 such
quantity of NanoKans that IRORI fails so to supply; or (ii) to assume full
responsibility for the supply of all of RPR's requirements for NanoKans under
this Agreement. For purposes of this Section 7, an "Inability to Supply" shall
mean: (X) with respect to any 60-day period, more than *** of the NanoKans to be
delivered during such period were delivered more than 30 days after the
respective delivery dates

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<PAGE>   21

therefor; or (Y) with respect to any six-month period, more than *** of the
NanoKans to be delivered during such period were delivered after the respective
delivery dates therefor, provided, in each case, that not more than *** nor
fewer than *** NanoKans were to be delivered during any 30-day period.

                (b) The remedy provided in this Section 7.10 shall be in
addition to any other remedies available to RPR under this Agreement, at law or
in equity. RPR's rights under this Section 7.10 shall not be affected in any way
by its waiver or failure to take action with respect to any previous event
giving rise to such right.

        7.11 RPR's Right to Manufacture. IRORI hereby grants to RPR, and RPR
hereby accepts, a license (the "Manufacturing License") under all necessary
IRORI patents and know-how to make or have made NanoKans for such of RPR's
requirements as RPR has elected pursuant to Section 7.10(a)(i) or (ii). Such
Manufacturing License shall be subject to all other terms and conditions of this
Agreement. In addition, RPR agrees not to exercise any of its rights under the
Manufacturing License except to the extent expressly permitted in Section
7.10(a). In such event: (i) IRORI shall provide to RPR (or its designee) copies
of all documentation within IRORI's control that is reasonably necessary for RPR
to manufacture (or have manufactured) NanoKans; (ii) IRORI shall provide such
technical assistance to RPR (or its designee) as is reasonably necessary to
enable RPR (or such of its Affiliates, Third Parties or designees as it may
designate) to manufacture NanoKans pursuant to the NanoKan Specifications; (iii)
RPR shall be relieved of its obligation to purchase such quantities of NanoKans
from IRORI, to the extent that RPR has the right to exercise the Manufacturing
License; and (iv) IRORI shall reasonably cooperate with RPR to establish an
alternative supply, including sources of materials. In the event that RPR has
NanoKans manufactured by a Third Party, such Third Party shall enter into a
confidentiality agreement with IRORI to protect against the unauthorized use and
disclosure of IRORI's Confidential Information.

8. REPRESENTATIONS AND WARRANTIES; COVENANTS.

        8.1 Representations and Warranties of Both Parties. Each Party
represents and warrants to the other Party that: (i) it is free to enter into
this Agreement; (ii) in so doing, it will not violate any other agreement to
which it is a party; and (iii) it has taken all corporate action necessary to
authorize the execution and delivery of this Agreement and the performance of
its obligations under this Agreement.

        8.2 Representations and Warranties of IRORI. IRORI represents and
warrants to RPR that:

                (a) IRORI shall adhere to all governmental laws and regulations
applicable to the performance of its obligations under this Agreement.

                (b) IRORI shall have secured in a timely manner all permits or
licenses required in connection with the performance of its obligations under
this Agreement.

                (c) Neither IRORI's manufacture, delivery, installation and sale
of the System, nor its manufacture and sale of NanoKans, nor RPR's use of the
System or NanoKans for any legal

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<PAGE>   22

purpose, shall infringe upon any U.S. or foreign patent of any Third Party and
shall not violate, conflict with or infringe upon any other rights of any Third
Party.

                (d) No action, suit or claim has been initiated, or threatened
in writing, against IRORI with respect to the intellectual property necessary
for it to perform its obligations under this Agreement (including, without
limitation, the IRORI Intellectual Property in existence as of the Effective
Date), or its right to enter into and perform its obligations under this
Agreement.

                (e) Each System and Enhancement shall be free from defects in
material and workmanship under normal use and service and, if operated and
maintained in accordance with IRORI's reasonable written instructions, shall
perform in accordance with the System Specifications or applicable Enhancement
Specifications, as the case may be, for a period of ***
  *** .

                (f) IRORI has not previously entered into or agreed to enter
into any agreements with any Third Parties, except for the Other Partner, with
respect to the manufacture, delivery and installation of any Systems or the
manufacture and supply of NanoKans.

        8.3 Limited Right of Repair. In connection with any breach of the
representations and warranties of IRORI set forth in Section 8.2(e) arising
after RPR's acceptance of a System or an Enhancement, as the case may be, IRORI
shall be entitled, at its sole cost and expense, to attempt to rectify, via
repair, replacement or Update, any such breach during a reasonable period of
time (but in no event greater than 60 days) after RPR provides IRORI notice of
such breach. During any such period when IRORI is diligently attempting to
rectify any such breach (or, if IRORI succeeds in so rectifying, thereafter),
RPR shall not pursue any remedy under this Agreement or otherwise at law or in
equity with respect to such breach. The Parties acknowledge and agree that any
forbearance by RPR pursuant to the preceding sentence shall not constitute a
waiver of any of RPR's rights in connection with such breach.

        8.4 Disclaimer of Warranty. EXCEPT AS SPECIFICALLY SET FORTH IN SECTIONS
8.1 AND 8.2, IRORI DOES NOT MAKE, AND HEREBY DISCLAIMS, ANY EXPRESS OR IMPLIED
WARRANTIES, INCLUDING BUT NOT LIMITED TO WARRANTIES OF DESIGN, MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE, OR ARISING FROM A COURSE OF DEALING OR
USAGE OF TRADE PRACTICE, WITH RESPECT TO ANY SYSTEM OR NANOKANS PURCHASED BY RPR
UNDER THIS AGREEMENT.

        8.5 Covenants of RPR. Except as expressly permitted by Sections 7.10 and
7.11, RPR covenants to IRORI that RPR shall not create, or attempt to create, by
decompilation, reverse engineering or otherwise, the System or any of its
components, including without limitation the Software, or NanoKans.

9. THIRD PARTIES.

        9.1 Semi-Exclusivity. During the period commencing on the Effective Date
and ending on the first anniversary of the Acceptance Date with respect to the
Initial System, IRORI shall not

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<PAGE>   23
sell, license, lease or otherwise transfer any interest in a System (or any
functionally equivalent system) to or for, or operate a System (or any
functionally equivalent system) for the benefit of, any Third Party other than
the Other Party.

        9.2 Most Favored Nation.

                (a) If, during the period commencing on the Effective Date and
ending on the ***  with respect to the Initial System (the "Protected Period"),
IRORI sells, or otherwise conveys full or substantially full title to, a System
(or any functionally equivalent system) to any Third Party at a price less than
the Initial System Purchase Price (a "Below-Price Sale"), then the Initial
System Purchase Price shall be adjusted, whether prospectively or retroactively,
to such lower price. IRORI shall promptly notify RPR of any Below-Price Sale. If
a Below-Price Sale occurs prior to RPR's payment in full of the Initial System
Purchase Price, then RPR's remaining payments against the Initial System
Purchase Price shall be adjusted accordingly. To the extent that the amount of
such remaining payments is insufficient to realize the full adjustment to be
made pursuant to this Section 9.2, or if a Below-Price Sale occurs after RPR's
payment in full of the Initial System Purchase Price, IRORI shall refund the
difference or the amount of such adjustment, as the case may be, to RPR within
30 days after the date of IRORI's notice of such Below-Price Sale.

                (b) During the Protected Period, following any adjustment of the
Initial System Purchase Price pursuant to Section 9.2(a), if and as often as
IRORI sells, or otherwise conveys full or substantially full title to, a System
(or any functionally equivalent system) to any Third Party at a price less than
the price to which the Initial System Purchase Price previously has been
adjusted, then the Initial System Purchase Price shall be further adjusted to
such lower price, in accordance with Section 9.2(a).

                (c) Notwithstanding the other provisions of this Section 9.2,
the Parties acknowledge and agree that if any Third Party purchases a System for
not less than *** and subsequently purchases a second System for not less than
*** the purchase and sale of such second System shall not constitute a
Below-Price Sale.

        9.3 Audit Request.

                (a) Commencing on the Effective Date and until the sixth
anniversary of the Acceptance Date with respect to the Initial System, at the
request of RPR, IRORI and its Affiliates shall permit an independent certified
public accountant appointed by RPR, at reasonable times and upon reasonable
notice, to examine all relevant records and all other documents in the
possession or control of IRORI or its Affiliates as may be necessary: (i) to
verify IRORI's satisfaction of its obligations under Sections 9.1 and 9.2; or
(ii) to verify that IRORI is not in breach of its representation and warranty
under Section 8.2(f).

                (b) During the term of this Agreement and for a period of three
years thereafter, at the request of RPR, IRORI and its Affiliates shall permit
an independent certified public accountant appointed by RPR, at reasonable times
and upon reasonable notice, to examine all relevant records and all other
documents in the possession or control of IRORI or its Affiliates as may be
necessary: (i) to verify IRORI's satisfaction of its obligations under Section
7.9; or (ii) in

*** Portions of this page have been omitted pursuant to a request for
    Confidential Treatment and filed separately with the Commission.

<PAGE>   24

connection with any assignment pursuant to Section 14.3(b), to verify the
correctness of any Assignment Fee charged by IRORI.

                (c) Said accountant shall not disclose to RPR the identity of
any Third Party with which IRORI has a relationship. The results of any such
examination shall be made available to both Parties. RPR shall bear the full
cost of the performance of any such audit unless the results of such audit
indicate that IRORI is in default with respect to its obligations identified in
Section 9.3(a) or (b), in which event IRORI shall bear such cost.

10. INDEMNIFICATION.

        10.1 Obligation to Indemnify. Subject to Section 8.3, IRORI shall
defend, indemnify and hold RPR and its Affiliates, and each of their respective
directors, officers and employees (each, an "Indemnitee"), harmless from and
against any and all claims, suits or demands for liability, damages, losses,
costs and expenses (including the costs and expenses of attorneys and other
professionals) arising out of Third Party claims or suits resulting from a
breach of IRORI's representations and warranties set forth in Section 8.2
(including those relating to intellectual property), or from any tort claims of
personal injury (including death) or property damage relating to or arising out
of RPR's use of the System and/or NanoKans in accordance with the System
Specifications and/or the NanoKan Specifications, as the case may be, and
IRORI's written instructions.

        10.2 Notice. In the event that any Indemnitee is seeking indemnification
under Section 10.1, such Indemnitee shall inform IRORI of a claim as soon as
reasonably practicable after it receives notice of the claim, shall permit IRORI
to assume direction and control of the defense of the claim (including the sole
right to settle the claim at IRORI's sole discretion, provided that such
settlement does not materially adversely affect any rights of, or impose any
obligation on, the Indemnitee) with legal counsel selected by IRORI and
reasonably acceptable to RPR, and shall cooperate as requested (at the expense
of the IRORI) in the defense of the claim.

        10.3 Complete Indemnification. All costs and expenses incurred by an
Indemnitee in connection with enforcement of this Section 10 shall also be
reimbursed by IRORI.

        10.4 Insurance. During the term of this Agreement and for a period of 10
years thereafter, IRORI shall maintain basic comprehensive general liability and
products liability insurance (including contractual liability coverage on
IRORI's indemnification obligations under this Agreement) with respect to the
work it performs and the products it manufactures and sells under this Agreement
substantially consistent with the insurance coverage described on Exhibit C,
which insurance shall designate RPR as an additional insured and shall pay the
premiums due thereunder. The terms and conditions of such insurance policy and
any and all amendments thereto, as well as the amount insured, shall be
submitted for reasonable approval to RPR, and RPR shall receive a copy of any
such policy and amendments thereto.

        10.5 Partial Limitation on IRORI Indemnity. In no event shall IRORI's
liability under this Section 10 with respect to Third Party claims or suits
resulting from a breach of IRORI's representations and warranties set forth in
Section 8.2 exceed the total Purchase Price paid by RPR under this Agreement.

<PAGE>   25

11. CONFIDENTIALITY.

        11.1 Confidential Information. Except as expressly provided herein, the
Parties agree that, during the term of this Agreement and for eight years
thereafter, the receiving Party shall not publish or otherwise disclose and
shall not use for any purpose any information furnished to it by the other Party
pursuant to this Agreement which, if disclosed in tangible form, is marked
"Confidential" or with other similar designation to indicate its confidential or
proprietary nature or, if disclosed orally, is indicated as confidential or
proprietary in writing by the disclosing Party within a reasonable time after
such disclosure (collectively, "Confidential Information"). Notwithstanding the
foregoing, Confidential Information shall not include information that, in each
case as demonstrated by written documentation:

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

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

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

                (d) was subsequently lawfully disclosed to the receiving Party
by a Third Party or developed by the receiving Party without reference to any
information or materials disclosed by the disclosing Party.

        11.2 Permitted Disclosures. Notwithstanding the provisions of Section
11.1, each Party may disclose the other Party's Confidential Information to the
extent such disclosure is reasonably necessary to exercise the rights granted to
it under this Agreement or to comply with applicable laws and regulations,
provided that if a Party is required to make any such disclosure of the other
Party's Confidential Information, to the extent it may legally do so, it will
give reasonable advance notice to the latter Party of such disclosure and will
use its reasonable efforts to limit the scope of such disclosure to only that
information which it is necessary to disclose and to secure confidential
treatment of such information prior to its disclosure. If the Party whose
Confidential Information is to be disclosed has not filed a patent application
with respect to such Confidential Information, it may require the other Party to
delay the proposed disclosure (to the extent the disclosing Party may legally do
so) for up to 90 days, to allow for the filing of such an application.

        11.3 Remedies. Each Party shall be entitled, in addition to any other
right or remedy it may have, at law or in equity, to temporary, preliminary and
permanent injunctions, without the posting of any bond or other security,
enjoining or restraining the other Party and its Affiliates from any violation
or threatened violation of this Section 11.

12. TERM; TERMINATION.

<PAGE>   26

        12.1 Term. The term of this Agreement shall commence as of the Effective
Date and shall expire upon the termination, pursuant to Section 7.2(b), of RPR's
obligation to purchase NanoKans from IRORI, unless sooner terminated in
accordance with this Section 12.

        12.2 Termination by RPR. RPR shall have the right to terminate this
Agreement at any time prior to the Acceptance Date with respect to the Initial
System, upon notice to IRORI, without further obligation to IRORI except as
provided in this Section 12.2 and in Section 12.4(b). In conjunction with RPR's
giving of any such notice, RPR shall pay the next payment of the Initial System
Purchase Price that would have accrued under Section 4.2 if RPR had not
terminated this Agreement. In addition, following any such termination, IRORI
shall be entitled to retain all payments of the Initial System Purchase Price
that RPR shall have made prior to the date of any such notice, and RPR shall
remain liable to IRORI for all payments of the Initial System Purchase Price
that shall have accrued but shall not have been paid prior to the date of any
such notice.

        12.3 Breach.

                (a) Subject to Section 12.3(b), failure by either Party to
comply with any of the material obligations contained in this Agreement shall
entitle the other Party to give to the Party in default notice specifying the
nature of the default and requiring it to cure such default. If such default is
not cured within 30 days after the receipt of such notice (or, if such default
reasonably cannot be cured within such 30-day period, if the Party in default
does not commence and diligently continue actions to cure such default), the
notifying Party shall be entitled, without prejudice to any of its other rights
conferred on it by this Agreement and in addition to any other remedies
available to it at law or in equity, to terminate this Agreement by giving
further written notice, to take effect immediately upon delivery thereof. The
right of either Party to terminate this Agreement, as provided in this Section
12.3(a), shall not be affected in any way by its waiver or failure to take
action with respect to any previous default.

                (b) Notwithstanding Section 12.3(a), RPR shall not have the
right to terminate this Agreement with respect to:

                        (i) Any failure of IRORI to satisfy a Development
Milestone or any failure of a System to conform to the System Specifications
until IRORI has been given an opportunity to rectify such failure, as
specifically provided in Section 2.2, 2.3 or 2.5, as the case may be, and has
failed to rectify it within the period as specifically provided in Section 2.2,
2.3 or 2.5, as the case may be -- but thereafter this Section 12.3(b)(i) shall
not prevent termination under Section 12.3(a) or other remedies under Section
12.3(c);

                        (ii) Any failure of an Enhancement to conform to the
applicable Enhancement Specifications;

                        (iii) Any alleged failure of NanoKans supplied hereunder
to conform to the NanoKan Specifications;

                        (iv) Any Inability to Supply;

<PAGE>   27

                        (v) Any breach of the representations and warranties of
IRORI set forth in Section 8.2(e) arising after RPR's acceptance of a System
unless IRORI has been given an opportunity to rectify such breach, as
specifically provided in Section 8.3, and has failed to rectify it within the
period as specifically provided in Section 8.3 -- but thereafter this Section
12.3(b)(v) shall not prevent termination under Section 12.3(a) or other remedies
under Section 12.3(c); or

                        (vi) Any breach of the representations and warranties of
IRORI set forth in Section 8.2(e) with respect to any Enhancement.

                (c) Section 12.3(b) shall not limit any remedy available to RPR
at law or in equity, other than termination, for the occurrence (if not cured
during the relevant cure periods) of the matters described in Section 12.3(b).

        12.4 Effect of Termination.

                (a) Following the expiration of the term of this Agreement
pursuant to Section 12.1 due to the termination, pursuant to Section 7.2(b), of
RPR's obligation to purchase NanoKans from IRORI, the Right and License shall
become perpetual.

                (b) Following the termination of this Agreement by RPR pursuant
to Section 12.2, RPR shall return to IRORI the Initial System, or any components
thereof, to the extent that same shall have been delivered to RPR prior to the
effective date of such termination, at RPR's sole cost and expense. Neither
Party thereafter shall have any obligation to the other, except under Section 11
and RPR's obligation to make payment of any portion of the Initial System
Purchase Price that shall have accrued as of the date of such termination, and
each Party shall return to the other all Confidential Information disclosed to
such Party by the other Party (and all copies, analyses, derivatives,
reflections and physical manifestations thereof); provided that each Party shall
have the right to retain one copy for archival purposes only.

                (c) Following the termination of this Agreement by IRORI
pursuant to Section 12.3: (i) RPR shall return to IRORI all Systems and
Enhancements which it has not accepted prior to the effective date of any such
termination, at RPR's sole cost and expense; (ii) RPR shall be entitled to
retain all Systems and Enhancements which it has accepted and paid the Purchase
Price for prior to the effective date of any such termination; (iii) the Right
and License with respect to the Systems and Enhancements referred to in clause
(ii) shall become perpetual; and (iv) IRORI shall be entitled to retain all
payments of Purchase Price made by RPR prior to the effective date of such
termination.

                (d) Following the termination of this Agreement by RPR pursuant
to Section 12.3: (i) RPR shall be entitled to retain all Systems and
Enhancements which have been delivered to it prior to the effective date of any
such termination, to the extent that RPR subsequently accepts and pays for same
(including by offsetting any such payment obligations against RPR's claims
against IRORI for damages); (ii) RPR shall be entitled to return to IRORI all
Systems and Enhancements which have been delivered to RPR prior to the effective
date of any such termination that RPR subsequently rejects, and IRORI shall
refund in full all payments made by RPR in respect thereof; (iii) the Right and
License with respect to the Systems and Enhancements referred to in clause (i)
shall become perpetual; and (iv) the Manufacturing License shall become
perpetual.

<PAGE>   28

        12.5 Accrued Rights, Surviving Obligations.

                (a) Termination, relinquishment or expiration of this Agreement
for any reason shall be without prejudice to any rights which shall have accrued
to the benefit of either Party prior to such termination, relinquishment or
expiration. Such termination, relinquishment or expiration shall not relieve
either Party from obligations which are expressly indicated to survive
termination or expiration of this Agreement.

                (b) Except as provided in Section 12.4(b), all of the Parties'
rights and obligations under Sections 2.4, 2.5(f), 4.3, 5.1, 5.2, 5.4(e), the
last sentence of Section 7.1(b), 7.6, 7.7, 8, 9.3, 10, 11, 12.4, 14.1, 14.3,
14.9, 14.14, 14.15, 14.16 and 15 shall survive expiration, termination or
relinquishment of this Agreement.

13. FORCE MAJEURE.

        13.1 Events of Force Majeure. Neither Party shall be held liable or
responsible to the other Party or be deemed to be in default under or in breach
of any provision of this Agreement (other than any obligation to pay money) for
failure or delay in fulfilling or performing any obligation of this Agreement
when such failure or delay is due to force majeure, and without the fault or
negligence of the Party so failing or delaying. For purposes of this Agreement,
force majeure shall be defined as causes beyond the control of the Party,
including, without limitation, acts of God; acts, regulations, or laws of any
government; war; civil commotion; destruction of production facilities or
materials by fire, flood, earthquake, explosion or storm; labor disturbances;
epidemic; and failure of public utilities or common carriers. In such event RPR
or IRORI, as the case may be, shall immediately notify the other Party of such
inability and of the period for which such inability is expected to continue.
The Party giving such notice shall thereupon be excused from such of its
obligations under this Agreement (other than any obligation to pay money) as it
is thereby disabled from performing for so long as it is so disabled and the 30
days thereafter. However, the Party giving such notice shall use all reasonable
efforts to remedy such inability as soon as reasonably possible or seek an
alternative arrangement during the period of such inability.

14. MISCELLANEOUS.

        14.1 Non-Solicitation. During the period commencing on the Effective
Date and ending on the 18-month anniversary of the Acceptance Date with respect
to the Initial System (or, if RPR has ordered a Second System by such Acceptance
Date and subsequently accepts the Second System, the 18-month anniversary of the
Acceptance Date with respect to the Second System), neither Party shall solicit,
induce, encourage or attempt to induce or encourage any employee of the other
Party to terminate his or her employment with such other Party or to breach any
other obligation to such other Party.

        14.2 Relationship of Parties. Nothing in this Agreement is intended or
shall be deemed to constitute a partnership, agency, employer-employee or joint
venture relationship between the Parties. No Party shall incur any debts or make
any commitments for the other, except to the extent, if at all, specifically
provided herein.

<PAGE>   29

        14.3 Assignment.

                (a) This Agreement may not be assigned, in whole or in part, by
IRORI without the prior written consent of RPR.

                (b) RPR may assign its rights and obligations under this
Agreement to a Third Party provided that: (i) such assignment is of all of such
rights and obligations; (ii) such Third Party agrees in writing to be bound by
the terms of this Agreement as if it were a party hereto; and (iii) IRORI is
paid the applicable Assignment Fee in connection with such assignment. For
purposes of this Section 14.3(b), "Assignment Fee" shall mean: (X) *** if, on
the effective date of such assignment, IRORI has sold, licensed, leased or
otherwise disposed of any interest in a System (or any functionally equivalent
system) to or for, or operated a System (or any functionally equivalent system)
for the benefit of, *** or fewer Third Parties, and (Y) *** if, on such date,
IRORI has sold, licensed, leased or otherwise disposed of any interest in a
System (or any functionally equivalent system) to or for, or operated a System
(or any functionally equivalent system) for the benefit of, more than *** Third
Parties.

                (c) Notwithstanding Sections 14.3(a) and (b), either Party may
assign its respective rights and transfer its respective duties hereunder,
without the consent of the other Party, to any assignee of all or substantially
all of its respective business or in the event of its respective merger,
consolidation or similar transaction.

                (d) Any assignment not in accordance with this Section 14.3
shall be void.

        14.4 Binding Effect. This Agreement shall be binding upon the successors
and permitted assigns of the Parties, and the name of a Party appearing herein
shall be deemed to include the names of such Party's successors and permitted
assigns to the extent necessary to carry out the intent of this Agreement.

        14.5 Further Actions. Each Party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, as may be
necessary or appropriate in order to carry out the purposes and intent of this
Agreement.

        14.6 Costs and Expenses. Except as otherwise expressly provided in this
Agreement, each Party shall bear all costs and expenses associated with the
performance of such Party's obligations under this Agreement.

        14.7 Inconsistency. If there is any inconsistency between the provisions
of this Agreement and any other document passing between the Parties, the
provisions of this Agreement shall control and be determinative.

        14.8 Notice. Any notice, request or other communication required or
permitted to be given under or in connection with this Agreement shall be deemed
to have been sufficiently given if in writing and personally delivered or sent
by registered or certified mail, postage prepaid (return receipt requested),
facsimile transmission (receipt verified) or express courier service (signature

*** Portions of this page have been omitted pursuant to a request for
    Confidential Treatment and filed separately with the Commission.

<PAGE>   30

required), to the Party for which such notice is intended, at the address set
forth for such Party below:

        (a) In the case of RPR, to:

            500 Arcola Road
            Collegeville, PA  19426
            Attention: General Counsel
            Facsimile No.:  (610) 454-3808

        (b) In the case of IRORI, to:

            IRORI
            11149 North Torrey Pines Road
            La Jolla, CA  92037-1030
            Attention: President
            Facsimile No.:  (619) 546-3083

or to such other address for such Party as it shall have specified by like
notice to the other Party, provided that notices of a change of address shall be
effective only upon receipt thereof. If sent by facsimile transmission or
express courier service, the date of mailing or transmission shall be deemed to
be the date on which such notice or request was given. If sent by registered or
certified mail, the third business day after the date of mailing shall be deemed
to be the date on which such notice or request was given.

        14.9 Use of Name. Except as otherwise provided herein, neither Party
shall have any right, express or implied, to use in any manner the name or other
designation of the other Party or any other trade name or trademark of the other
Party for any purpose.

        14.10 Public Announcements. Neither Party shall make any public
announcement concerning this Agreement or the subject matter hereof without the
prior written consent of the other, which shall not be unreasonably withheld. In
the event of a required public announcement, the Party making such announcement
shall provide the other Party with a copy of the proposed text prior to such
announcement sufficiently in advance of the scheduled release of such
announcement to afford such other Party a reasonable opportunity to review and
comment upon the proposed text.

        14.11 Waiver. A waiver by either Party of any of the terms and
conditions of this Agreement in any instance shall not be deemed or construed to
be a waiver of such term or condition for the future, or of any subsequent
breach hereof. All rights, remedies, undertakings, obligations and agreements
contained in this Agreement shall be cumulative and none of them shall be in
limitation of any other remedy, right, undertaking, obligation or agreement of
either Party.

        14.12 Severability. When possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be

<PAGE>   31

ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement. In such event, the Parties agree
to substitute a valid and enforceable provision therefor which, as nearly as
possible, achieves the desired economic effect and mutual understanding of the
Parties under this Agreement.

        14.13 Amendment. No amendment, modification or supplement of any
provisions of this Agreement shall be valid or effective unless made in writing
and signed by a duly authorized officer of each Party.

        14.14 Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of California, without regard to its
choice of law principles.

        14.15 Arbitration and Choice of Venue.

                (a) Section 14.15(b) below shall apply only in the situation
where a similar dispute between IRORI and the Other Partner is being so
arbitrated and the two arbitrations can be joined to help ensure a consistent
result.

                (b) Except as otherwise provided in this Agreement, any dispute
arising out of or relating to any provisions of this Agreement shall be finally
settled by arbitration to be held in San Diego, California, under the auspices
and then current commercial arbitration rules of the American Arbitration
Association. Such arbitration shall be conducted by three arbitrators appointed
according to said rules. The Parties shall instruct such arbitrators to render a
determination of any such dispute within 30 days after their appointment.
Judgment upon any award rendered may be entered in any court having
jurisdiction, or application may be made to such court for a judicial acceptance
of the award and an order of enforcement, as the case may be.

                (c) Section 14.15(b) shall not prohibit a Party from seeking
injunctive relief from a court of competent jurisdiction in the event of a
breach or prospective breach of this Agreement by the other Party which would
cause irreparable harm to the first Party or under Section 11.

                (d) For all disputes not described by Section 14.15(a), the
Parties agree that such dispute shall be subject to the exclusive jurisdiction
of the California State Courts in and for San Diego County, California or, in
the event of federal jurisdiction, the United States District Court for the
Southern District of California sitting in San Diego County, California; and
each Party hereby agrees to submit to the personal and exclusive jurisdiction
and venue of such courts and not to seek the transfer of any case or proceeding
out of such courts.

        14.16 Limitation on Liability. NOTWITHSTANDING ANY OTHER PROVISION OF
THIS AGREEMENT, UNDER NO CIRCUMSTANCES SHALL IRORI BE LIABLE UNDER THIS
AGREEMENT FOR ANY INDIRECT, CONSEQUENTIAL, SPECIAL OR EXCEPTIONAL DAMAGES
(INCLUDING, WITHOUT LIMITATION, LOSS OF PROFITS OR REVENUES).

        14.17 Entire Agreement. This Agreement sets forth the entire agreement
and understanding between the Parties as to the subject matter hereof and merges
all prior discussions

<PAGE>   32

and negotiations between them, and neither of the Parties shall be bound by any
conditions, definitions, warranties, understandings or representations with
respect to such subject matter other than as expressly provided herein or as
duly set forth on or subsequent to the date hereof in writing and signed by a
proper and duly authorized officer or representative of the Party to be bound
thereby.

        14.18 Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, any one of which need not contain the signature of more
than one Party but all such counterparts taken together shall constitute one and
the same agreement.

        14.19 Descriptive Headings. The descriptive headings of this Agreement
are for convenience only, and shall be of no force or effect in construing or
interpreting any of the provisions of this Agreement.

15. SECURITY INTEREST.

        15.1 Security Interest. As collateral security for the prompt and
complete payment and performance when due of all the obligations of IRORI to RPR
under this Agreement, including but not limited to the obligations contained in
Section 2 hereof, and in order to induce RPR to enter into this Agreement, IRORI
hereby assigns, conveys, mortgages, pledges, hypothecates and transfers to RPR,
and hereby grants to RPR, a security interest in all of IRORI's right, title and
interest in, to and under the following collateral:

        (a) the Initial System (as a work in process), and any raw materials and
            inventory held by IRORI which are or which were acquired for the
            purpose of or which are necessary for the completion of the Initial
            System, all subject to Section 5.2 hereof;

        (b) from and after RPR's delivery of the Option Exercise Notice, the
            Second System (as a work in process), and any raw materials and
            inventory held by IRORI which are or which were acquired for the
            purpose of or which are necessary for the completion of the Second
            System, all subject to Section 5.2 hereof; and

        (c) all proceeds of each of the foregoing and all accessions to,
            substitutions and replacements for, and rents, profits, and products
            of each of the foregoing.

        15.2 Further Assurances. At any time and from time to time, upon the
written request of RPR; and at the sole expense of IRORI, IRORI shall promptly
and duly execute and deliver any and all such further instruments and documents
and take such further action as RPR may reasonably deem necessary or desirable
to more perfectly evidence or perfect this security interest, including, without
limitation, facilitating the filing of UCC-1 financing statements in all
applicable jurisdictions.

        15.3 Remedies. Beginning on the date on which and for the duration of
the period within which RPR is entitled to terminate this Agreement pursuant to
Section 12.3, RPR may exercise, in addition to all other rights and remedies
granted to it under this Agreement, all rights and remedies of a secured party
under the California Uniform Commercial Code. Except during any such period, RPR
may not exercise any rights or remedies of a secured party under the California
Uniform

<PAGE>   33

Commercial Code. IRORI agrees to pay all fees, costs and expenses of RPR,
including, without limitation, reasonable attorneys' fees, incurred in
connection with the enforcement of any of its rights and remedies pertaining to
this security interest.

        15.4 Right and License in the Event of Breach. Notwithstanding anything
in this Agreement to the contrary, IRORI hereby grants RPR, effective solely
upon delivery to IRORI by RPR of a notice that RPR has obtained fee title to the
Collateral in accordance with the California Uniform Commercial Code (a
"Collateral Acquisition Notice"), a non-exclusive, paid-up worldwide right and
license during the term of this Agreement and following termination of this
Agreement by RPR pursuant to Section 12.4, to make, have made, develop, and use
the Initial System and exercise its rights under this Agreement under the IRORI
Intellectual Property for the purpose of allowing RPR to have the Initial System
manufactured, installed and used by RPR. RPR shall have the right to sublicense
the rights granted in the preceding sentence only for the purpose of having a
Third Party manufacture, develop and install the Initial System for RPR.
Notwithstanding anything in this Agreement to the contrary, IRORI hereby grants
RPR, effective solely upon delivery to IRORI by RPR of a Collateral Acquisition
Notice, a non-exclusive, paid-up worldwide right and license during the term of
this Agreement and following termination of this Agreement by RPR pursuant to
Section 12.4, to make, have made, develop, and use the Second System and
exercise its rights under this Agreement under the IRORI Intellectual Property
for the purpose of allowing RPR to have the Second System manufactured,
installed and used by RPR. RPR shall have the right to sublicense the rights
granted in the preceding sentence only for the purpose of having a Third Party
manufacture, develop and install the Second System for RPR. However, the rights
granted in this Section 15.4 shall apply to the Second System if, and only if,
prior to the breach of this Agreement by IRORI which led to the Collateral
Acquisition Notice, RPR shall have delivered the Option Exercise Notice pursuant
to Section 2.5(b) and RPR shall have paid the portion of the Second System
Purchase Price set forth in Section 2.5(g)(i). RPR shall not have the right to
assign the Right and License except in connection with an assignment of all of
RPR's rights and obligations under this Agreement pursuant to, and in compliance
with, Section 14.3.

        15.5 Termination of Security Interest and Rights. The security interest
and rights granted in this Section 15 (collectively, the "Post-Breach Rights")
shall terminate upon the occurrence of (i) if the Initial System is accepted (or
deemed accepted) by RPR prior to RPR's delivery of the Option Exercise Notice,
the acceptance (or deemed acceptance) of the Initial System or (ii) if the
Option Exercise Notice is delivered before the acceptance (or deemed acceptance)
of the Initial System, the acceptance (or deemed acceptance) of the Second
System. In either event, the Post-Breach Rights solely with respect to the
Initial System shall terminate upon the Acceptance Date of the Initial System.

<PAGE>   34

        IN WITNESS WHEREOF, each of the Parties has caused this Strategic
Alliance Agreement to be executed by its duly authorized officer as of the day
and year first above written.

                                        RHONE-POULENC RORER PHARMACEUTICALS INC.

                                        By: /s/ John R. Leone
                                           -------------------------------------

                                        Name: John R. Leone
                                             -----------------------------------

                                        Title: Senior Vice President & G.M.
                                              ----------------------------------

                                        IRORI

                                        By: /s/ Riccardo Pigliucci
                                           -------------------------------------

                                        Name: Riccardo Pigliucci
                                             -----------------------------------

                                        Title: Chief Executive Officer
                                              ----------------------------------

<PAGE>   35

                                    EXHIBIT A

                                       ***

*** Portions of this page have been omitted pursuant to a request for
    Confidential Treatment and filed separately with the Commission.

<PAGE>   36

                                      ***

*** Portions of this page have been omitted pursuant to a request for
    Confidential Treatment and filed separately with the Commission.

<PAGE>   37

                                      ***

*** Portions of this page have been omitted pursuant to a request for
    Confidential Treatment and filed separately with the Commission.

<PAGE>   38

                                    EXHIBIT B

                            PROGRESS PAYMENT SCHEDULE

                                      ***

*** Portions of this page have been omitted pursuant to a request for
    Confidential Treatment and filed separately with the Commission.

<PAGE>   39

                                    EXHIBIT C

                        DESCRIPTION OF INSURANCE COVERAGE

<TABLE>
<CAPTION>
                     Type of Coverage                                Primary Coverage              Umbrella
                     ----------------                                ----------------              --------
<S>                                                                  <C>                      <C>
Comprehensive General Liability (including Contractual                  $2,000,000*              $9,000,000
Liability)
Personal & Advertising Injury                                           $1,000,000             (incl. in above)
Products and Completed Operations                                       $2,000,000*              $9,000,000
</TABLE>

     * $1,000,000 per occurrence and $2,000,000 in the aggregate.<PAGE>   1
                                                                   EXHIBIT 10.41

                        COMBINATORIAL CHEMISTRY AGREEMENT

                                     BETWEEN

                           AXYS PHARMACEUTICALS, INC.

                                       AND

                             WARNER-LAMBERT COMPANY

                                  MAY 15, 1998

<PAGE>   2

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                          PAGE
<S>     <C>                                                                               <C>
1.      DEFINITIONS..........................................................................1

        1.1    "Affiliate"...................................................................1

        1.2    "Axys Compound"...............................................................1

        1.3    "Axys Know-How"...............................................................1

        1.4    "Axys Patents"................................................................2

        1.5    "Axys Restricted Information".................................................2

        1.6    "Compound"....................................................................2

        1.7    "Compound Patent".............................................................2

        1.8    "Confidential Information"....................................................2

        1.9    "Controlled"..................................................................2

        1.10   "General Screening"...........................................................2

        1.11   "Information".................................................................2

        1.12   "Library".....................................................................3

        1.13   "Licensed Product"............................................................3

        1.14   "Protocol"....................................................................3

        1.15   "Scaffold"....................................................................3

        1.16   "Selected Protocol"...........................................................3

        1.17   "Software"....................................................................3

        1.18   "Technology Committee"........................................................3

        1.19   "Warner-Lambert Compound".....................................................3

2.      DEVELOPMENT AND TRANSFER OF LIBRARY..................................................3

        2.1    Library Synthesis.............................................................3

        2.2    Selection of Protocols........................................................3

        2.3    Delivery of Compounds.........................................................4

        2.4    Technology Committee..........................................................4

        2.5    Right to Use Compounds - Warner-Lambert.......................................5

        2.6    Right to Use Compounds - Axys.................................................5
</TABLE>

                                       i
<PAGE>   3

                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                                          PAGE
<S>     <C>                                                                               <C>
        2.7    Limited Right to Select Compounds to Commercialize............................6

        2.8    Most Favored Nation Regarding Protocols.......................................6

        2.9    Software Modifications........................................................7

3.      TECHNOLOGY TRANSFER AND LICENSE......................................................7

        3.1    Transfer of Chemistry Technology..............................................7

        3.2    Technology and Library License Rights.........................................7

        3.3    Limited Commercial Licenses...................................................8

        3.4    License Limitations...........................................................8

4.      PAYMENTS.............................................................................8

        4.1    Compound Purchase Prices......................................................8

        4.2    Royalty on Compounds..........................................................9

5.      INTELLECTUAL PROPERTY MATTERS........................................................9

        5.1    Ownership.....................................................................9

        5.2    Limitation on Patent Applications............................................10

        5.3    Additional Licenses..........................................................10

        5.4    Enforcement of Patents.......................................................11

        5.5    Third Party Patent Rights....................................................11

6.      CONFIDENTIALITY.....................................................................11

        6.1    Confidentiality Obligations..................................................11

        6.2    Press Releases...............................................................12

        6.3    Publications.................................................................12

7.      INDEMNIFICATION.....................................................................12

        7.1    Indemnification by Warner-Lambert............................................13

        7.2    Indemnification by Axys......................................................13

8.      TERMINATION AND EXPIRATION..........................................................14

        8.1    Term and Termination.........................................................14

        8.2    Termination by Warner-Lambert for Failure to Deliver.........................14
</TABLE>

                                       ii
<PAGE>   4
                                TABLE OF CONTENTS
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                                          PAGE
<S>     <C>                                                                               <C>
        8.3    Termination Upon Material Breach.............................................14

        8.4    Consequences of Termination..................................................14

        8.5    Accrued Rights; Surviving Obligations........................................14

        8.6    Rights in Bankruptcy.........................................................14

9.      MISCELLANEOUS PROVISIONS............................................................16

        9.1    Relationship of the Parties..................................................16

        9.2    Assignments..................................................................16

        9.3    Disclaimer of Warranties.....................................................16

        9.4    Representations and Warranties...............................................16

        9.5    Further Actions..............................................................18

        9.6    Force Majeure................................................................20

        9.7    No Trademark Rights..........................................................18

        9.8    Entire Agreement of the Parties; Amendments..................................18

        9.9    Captions.....................................................................18

        9.10   Applicable Law...............................................................18

        9.11   Disputes.....................................................................18

        9.12   Notices and Deliveries.......................................................19

        9.13   No Consequential Damages.....................................................19

        9.14   Waiver.......................................................................20

        9.15   Compliance with Law..........................................................20

        9.16   Severability.................................................................20

        9.17   Counterparts.................................................................20
</TABLE>

                                      iii
<PAGE>   5

                        COMBINATORIAL CHEMISTRY AGREEMENT

        THIS COMBINATORIAL CHEMISTRY AGREEMENT (the "Agreement") is made and
entered into effective as of May 15, 1998 (the "Effective Date"), by and between
AXYS PHARMACEUTICALS, INC., a Delaware corporation having a place of business at
180 Kimball Way, South San Francisco, CA 94080 ("Axys"), and WARNER-LAMBERT
COMPANY, a Delaware corporation having a place of business at 2800 Plymouth
Road, Ann Arbor, Michigan 48105 ("Warner-Lambert"). Axys and Warner-Lambert may
be referred to herein as a "Party" or, collectively, as "Parties."

                                    RECITALS

        A.     Axys has developed and owns certain technology and intellectual
property rights relating to combinatorial chemistry and the synthesis of diverse
chemistry libraries using combinatorial techniques.

        B.     Warner-Lambert desires to obtain from Axys a co-exclusive library
of  ***  compounds to be synthesized pursuant to protocols developed by Axys and
a license to use the Axys combinatorial chemistry technology and intellectual
property rights for Warner-Lambert' own internal drug discovery and development
programs.

        C.     Axys is willing to grant such rights to Warner-Lambert and to
synthesize and deliver to Warner-Lambert such compound library pursuant to the
following terms and conditions.

        NOW, THEREFORE, the Parties agree as follows:

1.      DEFINITIONS

        1.1    "AFFILIATE" means, with respect to a Party, any individual or
entity that controls, is controlled by, or is under common control with, such
Party. For this definition, the term "control" shall refer to (a) the ownership,
directly or indirectly, of at least 50% of the voting securities or other
ownership interest of an entity, or (b) the possession, directly or indirectly,
of the power to direct the management or policies of an entity, whether through
the ownership of voting securities, by contract or otherwise.

        1.2    "AXYS COMPOUND" means a Compound that has been selected by Axys
for clinical development (either by Axys or its Affiliate or licensee) and
commercialization as provided in Section 2.7, but only for so long as such
Compound is itself the subject of ongoing, diligent clinical development efforts
or, if subject to a regulatory approval, is being commercially sold, in any form
or formulation, by Axys or its Affiliate or sublicensee.

*** Portions of this page have been omitted pursuant to a request for
    Confidential Treatment and filed separately with the Commission.

                                       1
<PAGE>   6

        1.3    "AXYS KNOW-HOW" means Information Controlled by Axys during the
Agreement that comprises (a) the Selected Protocols, or (b) the general
combinatorial chemistry techniques proprietary to Axys relating to use of such
Selected Protocols that is necessary to enable Warner-Lambert to replenish the
Compounds in the Library and to conduct accelerated medicinal chemistry based on
the Compounds, including without limitation computational methods and
instrumentation know-how.

        1.4    "AXYS PATENTS" means all patents and patent applications
Controlled by Axys during the Agreement that claim inventions which constitute
the Axys Know-How.

        1.5    "AXYS RESTRICTED INFORMATION" means all confidential Information
of Axys, other than Axys Know-How and Axys Patents, that is learned by the
employees of Warner-Lambert who work at Axys as permitted under Section 3.1 at
any time they are at an Axys facility.

        1.6    "COMPOUND" means any individual chemical compound within the
Library, a sample of which is provided and the structure of which is disclosed
to Warner-Lambert by Axys.

        1.7    "COMPOUND PATENT" means any patent application filed by or on
behalf of Warner-Lambert and/or Axys under Section 5.2(b) that claims an Axys
Compound or a Warner-Lambert Compound and all patents issuing from such
applications, and including any reissues, reexaminations, or extensions of such
patents.

        1.8    "CONFIDENTIAL INFORMATION" means the Information of a Party that
it considers proprietary and/or confidential, and that, if disclosed under this
Agreement in written, graphic or electronic form, is marked or otherwise
designated as "confidential" or "proprietary" or the equivalent and, if
disclosed orally, is characterized as "confidential" or "proprietary" by the
disclosing Party at the time of such disclosure. In addition, the Axys
Restricted Information shall be deemed to be the Confidential Information of
Axys.

        1.9    "CONTROLLED" means, with respect to an item of information or
intellectual property right, possession of the ability to grant access and a
license as provided for herein under such item or right without violating the
terms of any agreement or other arrangements with or rights of any Third Party.

        1.10   "GENERAL SCREENING" means use of the Library or any Compounds in
the Library in assays to screen for activity against targets in the pursuit of
the identification of lead compounds or structures in drug discovery and
development programs, where the party conducting such screening is permitted to
screen the Library or any Compounds against more than  ***  different targets
within a particular therapeutic area or disease or against more than a total of
  ***  different therapeutic areas or diseases, unless otherwise agree to in
writing by Axys and Warner-Lambert.

*** Portions of this page have been omitted pursuant to a request for
    Confidential Treatment and filed separately with the Commission.

                                       2
<PAGE>   7

        1.11   "INFORMATION" means information and data of any type and in any
tangible or intangible form, including without limitation inventions, practices,
methods, techniques, specifications, formulations, formulae, knowledge,
know-how, skill, experience, test data, analytical and quality control data,
stability data, results of studies and patent and other legal information or
descriptions.

        1.12   "LIBRARY" means the collection of approximately  ***  different
chemical compounds to be synthesized by Axys and provided to Warner-Lambert
under the terms of Article 2 of this Agreement.

        1.13   "LICENSED PRODUCT" means any product (including any formulation
thereof without regards to method of delivery or administration) that contains a
Warner-Lambert Compound.

        1.14   "PROTOCOL" means a detailed set of combinatorial chemistry
synthetic methods and standard operating procedures designed to be used for
synthesizing a set of related compounds using combinatorial chemistry
techniques.

        1.15   "SCAFFOLD" means the substructure common to a set of compounds
related by the use of a particular Protocol to synthesize such compounds.

        1.16   "SELECTED PROTOCOL" means a Protocol that has been selected by
the Technology Committee pursuant to Section 2.2, which Protocol shall contain
at a minimum the enabling information outlined in Exhibit A attached hereto.

        1.17   "SOFTWARE" means the proprietary software of Axys known as
IcePick(TM), in object and source code form, including improvements thereto made
during the Agreement.

        1.18   "TECHNOLOGY COMMITTEE" means the committee formed by the Parties
under Section 2.4 of the Agreement.

        1.19   "WARNER-LAMBERT COMPOUND" means a Compound that has been selected
by Warner-Lambert for clinical development and commercialization as provided in
Section 2.7, but only for so long as such Compound is itself the subject of
ongoing, diligent clinical development efforts or, if subject to a regulatory
approval, is being commercially sold, in any form or formulation, by
Warner-Lambert or its Affiliate or sublicensee.

2.      DEVELOPMENT AND TRANSFER OF LIBRARY

        2.1    LIBRARY SYNTHESIS. Commencing promptly after the Effective Date,
Axys will use commercially reasonable efforts to synthesize Compounds to be
provided to Warner-Lambert as part of the Library. Such Compounds shall be
synthesized using the Selected Protocols. The Library will contain Compounds
based on between  ***  different Selected Protocols. Axys will use commercially
reasonable efforts to come as close as possible to using

*** Portions of this page have been omitted pursuant to a request for
    Confidential Treatment and filed separately with the Commission.

                                       3
<PAGE>   8

***  different Selected Protocols. Axys will ensure that the Library will
contain no more than  ***  Compounds which are synthesized by using a
particular Selected Protocol represented in the Library (as such number may be
adjusted as provided in Section 2.8).

        2.2    SELECTION OF PROTOCOLS. During the term of the Agreement,
Warner-Lambert, through the Technology Committee, shall first choose and accept
as Selected Protocols at least  ***  Protocols out of a total of  ***  Protocols
proposed by Axys. Such selection shall be made based upon review by
Warner-Lambert of the basic Scaffolds that result from the proposed Protocols.
It is understood that  ***  Protocols exist at Axys as of the Effective Date.
Second, the Technology Committee shall have the responsibility for choosing the
additional Selected Protocols needed to complete the Library, as follows: The
Technology Committee shall diligently review and evaluate in good faith new
proposals and ideas or plans for Scaffolds to be used to create new Protocols
that either Party proposes to be selected for development into Selected
Protocols by Axys. The Technology Committee shall attempt to reach agreement on
whether to select or reject a proposed Scaffold as soon as possible. All such
proposals for Scaffolds that are selected by the Technology Committee shall then
be investigated by Axys to determine if Axys can develop and validate a Protocol
for creating a library of compounds around such Scaffold. If Axys is able to
create and validate a Protocol based on such selected Scaffold, such Protocol
shall be deemed a "Selected Protocol" under the Agreement. If the Technology
Committee cannot reach agreement to select a proposed Scaffold promptly after it
has been proposed, or if after such selection Axys is not able after reasonable
efforts to create and validate a Protocol based on such Scaffold, then such
Scaffolds (and its related Protocol, if any) shall be deemed rejected, and each
Party then will use diligent, good faith efforts to propose to the Technology
Committee different proposals for Scaffolds for review in order for Axys to
prepare and select the additional needed Selected Protocols. The Parties agree
to work cooperatively together to select the additional needed Scaffolds for
Selected Protocols in a timely fashion to allow Axys sufficient time to complete
delivery of the Library within the schedule set forth in Section 2.3.

        2.3    DELIVERY OF COMPOUNDS. Axys shall use commercially reasonable
efforts to deliver the Compounds in the Library to Warner-Lambert according to
the following schedule:  ***  Compounds to be delivered by the end of 1998, and
the remainder to be delivered by Axys quarterly thereafter at an annual rate of
approximately  ***  Compounds per year. If Axys is able to produce and deliver
the Compounds at a faster rate than contemplated above, then, if mutually agreed
with Warner-Lambert, Axys may deliver such Compounds as they become available
for delivery. The Compounds shall be delivered in 96 well plates with an 88 well
array format with approximately  ***  of each Compound present in the shipment,
or in such other reasonable format as is reasonably requested by Warner-Lambert,
provided that any additional cost to Axys required to prepare or ship such other
format shall be paid by Warner-Lambert. Each shipment shall be accompanied by a
confidential description of the identity and structure of each Compound in such
shipment. Accompanying each shipment will be the results of the analysis of each
Compound, performed by Axys according to the method of analysis set forth in
Exhibit B attached hereto.

*** Portions of this page have been omitted pursuant to a request for
    Confidential Treatment and filed separately with the Commission.

                                       4
<PAGE>   9

        2.4    TECHNOLOGY COMMITTEE. Within thirty (30) days of the Effective
Date, Axys and Warner-Lambert will form a committee consisting of two (2)
representatives of each Party (the "Technology Committee") and shall conduct the
first meeting of such committee. The Technology Committee shall meet on a
regular basis as agreed upon by the members of the Technology Committee (but no
more than once per quarter), (a) to discuss and implement the means for an
orderly and reasonable transfer of the Axys Know-How, (b) to discuss proposals
for Scaffolds proposed by either Party for selection and to select additional
Selected Protocols for use by Axys in completing the Library, (c) to assess and
approve the diversity of the Compounds to be made under each Selected Protocol
in order to maximize the chemical diversity in the Library, and (d) to discuss
and resolve any other non-business aspects of the relationship of the Parties
under the Agreement that require attention. The Technology Committee shall act
by unanimous consent, and may meet by telephone, videoconference or in
face-to-face meetings, as agreed upon by the members of the committee. A
Chairperson shall be appointed for each meeting of the Technology Committee by
the members of the committee and shall be responsible for issuing an agenda for
the meeting, conducting and chairing the meeting and preparing the minutes for
the meeting, and such other tasks as assigned by the committee. Each Party may
change its representatives on the Technology Committee as it deems appropriate,
and may send non-voting representatives to attend committee meetings as
observers.

        2.5    RIGHT TO USE COMPOUNDS - WARNER-LAMBERT. All intellectual
property rights existing as of the Effective Date and relating to the Library
and the Compounds, and any Information of Axys relating thereto, shall be and
remain the intellectual property of Axys. Subject to the terms of this
Agreement, Warner-Lambert and its Affiliates shall have the right to use the
Library and the Compounds therein solely in Warner-Lambert's and its Affiliates'
internal drug discovery, medicinal chemistry, development and commercialization
programs, and for use in research, development and commercialization programs
pursuant to collaborative research agreements with third parties, provided that,
such third party corporate partners are not permitted to use the Library or
Compounds for General Screening. Warner-Lambert shall be permitted to transfer
the Library or individual Compounds only (a) to Affiliates solely to use in such
Affiliate's internal drug discovery, development and commercialization programs,
or (b) to third party contractors or outside researchers who perform screening
in assays on behalf of Warner-Lambert or its Affiliates solely as part of
Warner-Lambert's or its Affiliates' internal or collaborative drug discovery,
development and commercialization programs as provided above in this Section and
provided that such third party contractors or outside researchers are subject to
written confidentiality agreements at least as restrictive as the provisions of
Article 6. Except as expressly permitted in the foregoing or as permitted in
Section 6.3, Warner-Lambert covenants that it and its Affiliates shall not
transfer or disclose the Library or Compounds to any third party for any
purpose. Warner-Lambert and its Affiliates may use the Information generated by
the uses of the Library or Compounds permitted above for any purpose subject to
and in compliance with the limitations in this Agreement.

        2.6    RIGHT TO USE COMPOUNDS - AXYS. Axys covenants that during the
term of the Agreement, it shall not (a) provide the Library or any significant
portion thereof to any third party pharmaceutical company for use in General
Screening, or (b) provide a library of compounds synthesized using-the Selected
Protocols (but not including any Compounds) to

                                       5
<PAGE>   10

more than a total of  ***  third party pharmaceutical companies for use in
General Screening. Axys and its Affiliates shall retain full rights to use the
Library and the Compounds for all internal purposes, including without
limitation General Screening, combinatorial chemistry and medicinal chemistry,
and drug discovery, development and commercialization activities of Axys and its
Affiliates. For clarity, it is understood that Axys also retains the right to
use the Library and the Compounds in screening for activity in assays for
specific targets covered by research, development or commercialization programs
pursuant to collaborative research agreements with third parties, and to provide
the Library or Compounds, or a library of compounds made using the Selected
Protocols, to third party corporate partners of Axys or its Affiliates for use
by such partner in screening for activity in specific assays for targets covered
by the research, development or commercialization program between such corporate
partner and Axys (or its Affiliate, as applicable), provided that, such third
party corporate partner is not permitted to use the Library or Compounds for
General Screening. Axys covenants that during the term of the Agreement it shall
not provide the structures for the Compounds to any third party other than a
third party to whom Axys has provided Compounds as permitted above.

        2.7    LIMITED RIGHT TO SELECT COMPOUNDS TO COMMERCIALIZE. If
Warner-Lambert (or its Affiliate) determines that a particular Compound (but
excluding the Axys Compounds) has potential therapeutic or prophylactic utility
sufficient to select such Compound as a "Lead Candidate" for which
Warner-Lambert will initiate GLP toxicology studies and other significant
preclinical testing that is required to develop the data needed to submit an IND
for initiating human clinical trials on the Compound as a drug candidate, with
the intention of commercializing such Compound as a drug product, then
Warner-Lambert may give Axys notice to that effect, and such Compound shall,
unless such Compound is at the time of such notice an Axys Compound, thereafter
be deemed a "Warner-Lambert Compound" for so long as Warner-Lambert or its
Affiliate or sublicensee or assignee continues ongoing, diligent development
efforts on or, if subject to a regulatory approval, continues commercial sales
of such Compound. If such diligent efforts or such sales cease to continue with
respect to a particular Warner-Lambert Compound, then such Compound shall cease
to be a Warner-Lambert Compound and shall revert to being solely a Compound. If
Axys (or its Affiliate or licensee) determines that a particular Compound (but
excluding the Warner-Lambert Compounds) has potential therapeutic or
prophylactic utility sufficient to select such Compound for GLP toxicology
studies and other significant preclinical testing that is required to develop
the data needed to submit an IND for initiating into human clinical trials on
the Compound as a drug candidate, with the intention of commercializing such
Compound as a drug product, then Axys may give Warner-Lambert notice to that
effect, and such Compound shall, unless such Compound is at the time of such
notice a Warner-Lambert Compound, thereafter be deemed an "Axys Compound" for so
long as Axys or its Affiliate or licensee or assignee continues ongoing,
diligent development efforts on or, if subject to a regulatory approval,
continues commercial sales of such Compound. If such diligent efforts or such
sales cease to continue with respect to a particular Axys Compound, then such
Compound shall cease to be an Axys Compound and shall revert to being solely a
Compound.

*** Portions of this page have been omitted pursuant to a request for
    Confidential Treatment and filed separately with the Commission.

                                       6
<PAGE>   11

        2.8    MOST FAVORED NATION REGARDING PROTOCOLS. Axys covenants that if,
during the term of this Agreement, Axys agrees to provide to a third party,
pursuant to a combinatorial chemistry library agreement similar to this
Agreement, at least  ***  compounds based on Protocols, and such agreement
stipulates that the maximum number of such compounds per Protocol that Axys may
deliver to such third party is a number less than the maximum number of
Compounds per Selected Protocol that Axys is permitted to provide to
Warner-Lambert in the Library under Section 2. 1, then if requested by
Warner-Lambert, Axys will agree to reduce such maximum number of Compounds per
Selected Protocol (as set forth in Section 2.1) for the remaining term of the
Agreement to the same maximum number of compounds per Protocol as Axys committed
in such other agreement, provided that the total number of Compounds to be
purchased by Warner-Lambert shall remain approximately *** unless Axys and
Warner-Lambert otherwise agree in writing. This Section 2.8 shall terminate and
be of no further force or effect immediately upon completion of delivery of the
Library by Axys.

        2.9    SOFTWARE MODIFICATIONS. The Technology Committee shall, on a
reasonable and acceptable time frame, review and discuss the Software to
determine if there are mutually agreeable modifications to the Software that
would serve to enhance the functionality of the Software to both Parties. The
Parties may agree to conduct such modifications cooperatively, under terms to be
agreed upon at that time.

3.      TECHNOLOGY TRANSFER AND LICENSE

        3.1    TRANSFER OF CHEMISTRY TECHNOLOGY. Commencing promptly after the
Effective Date, Axys will commence the transfer to Warner-Lambert on an orderly
basis, of the Axys Know-How, copies of the issued Axys Patents, and the
Software. Such transfer will be managed and coordinated by the Technology
Committee, formed as provided in Section 3.4 below. The schedule for such
transfer will be reasonable, provided that Axys will complete transfer of the
Axys Know-How relating directly to a particular Selected Protocol within  ***
of the date of selection of such Selected Protocol under Section 2.2. In
addition, Warner-Lambert may provide, at its cost and expense, up to  ***
Warner-Lambert scientists to work at Axys during the period of technology
transfer to assist and direct the transfer to Warner-Lambert of the Axys
Know-How; provided that access or exposure to Axys Restricted Information by the
Warner-Lambert scientists shall be subject to the provisions of Article 6, and
that such number of scientists may not exceed an average of  ***  per month
during such transfer period. Any such Warner-Lambert scientists that work at
Axys under the terms of this Section 3.1 shall be restricted from access to any
Axys facilities or locations other than those necessary for completing the
transfer of Axys Know-How as provided above. Further, Axys shall use reasonable
efforts to limit and restrict such Warner-Lambert scientists from access or
exposure to any Axys confidential information that is not Axys Know-How. If Axys
makes improvements to the Software during the Agreement, such improved Software
shall be provided to Warner-Lambert promptly thereafter.

        3.2    TECHNOLOGY AND LIBRARY LICENSE RIGHTS.

*** Portions of this page have been omitted pursuant to a request for
    Confidential Treatment and filed separately with the Commission.

                                       7
<PAGE>   12

               (a)    Subject to the terms of this Agreement, Axys hereby grants
Warner-Lambert the non-exclusive, worldwide, fully paid-up, perpetual (subject
to termination under Article 12) license to use and practice the Axys Know-How
and Axys Patents solely for Warner-Lambert's permitted use of the Library and
Compounds under Section 2.3, and including the right of Warner-Lambert to
synthesize the Compounds for use as permitted in Section 2.3.

               (b)    Subject to the terms of this Agreement, Axys hereby grants
Warner-Lambert the non-exclusive, worldwide, fully paid-up, perpetual (subject
to termination under Article 12) license to use the Software solely in
conjunction with Warner-Lambert' or its Affiliates' permitted use of the Library
under Section 2.3, and to copy the Software to the extent necessary for
conducting the foregoing permitted use of such Software.

The foregoing license rights may be sublicensed to a third party without the
prior written consent of Axys in conjunction with and in compliance with
Warner-Lambert's permitted use of the Library and Compounds under Section 2.3
and only to the extent needed to accomplish such permitted purposes, and
Warner-Lambert and its Affiliates covenant that they will not transfer or
disclose any such Axys Know-How or Software to any third party except as part of
such permitted sublicenses and only subject to limitations consistent with the
above restrictions.

        3.3    LIMITED COMMERCIAL LICENSES.

               (a)    Subject to the terms of this Agreement, Axys hereby grants
Warner-Lambert the exclusive, worldwide, perpetual (subject to termination under
Article 12), royalty-bearing license, with the right to sublicense, under Axys'
interest in the Compound Patents solely for Warner-Lambert, its Affiliates and
sublicensees to make, have made, import, use, offer for sale and sell Licensed
Products.

               (b)    Subject to the terms of this Agreement, Warner-Lambert
hereby grants Axys the exclusive, worldwide, perpetual (subject to termination
under Article 12), royalty-free license, with the right to sublicense, under
Warner-Lambert' interest in the Compound Patents solely for Axys, its Affiliates
and licensees to make, have made, import, use, offer for sale and sell products
containing the Axys Compounds.

        3.4    LICENSE LIMITATIONS. Warner-Lambert understands and agrees that
its rights granted in Section 3.2 under the Axys Know-How, Axys Patents, and the
Software are non-exclusive, and that Axys retains all its rights to use all such
technology, Information and intellectual property rights for its own purposes
and to license or disclose such technology, Information and intellectual
property rights to third parties without restriction, subject only to the
restrictions, and to the licenses and other rights granted Warner-Lambert, under
this Agreement. Warner-Lambert covenants that it and its Affiliates shall not
use or practice the Axys Know-How, Axys Patents and Software for any use or
purpose except as expressly permitted in Section 3.2 and 3.3(a), that it will
not grant any sublicenses to any third party under such Information or
intellectual property rights except as expressly permitted under Section 3.2 or
3.3(a), and that it will not sell or otherwise commercialize any Compound unless
it has been selected as a Warner-Lambert Compound and is sold as a Licensed
Product, but excluding from the foregoing limitation any Compound that is
discovered or synthesized by Warner-Lambert or its Affiliates

                                       8
<PAGE>   13

completely independent of any activity permitted under this Agreement and
without reliance on any Axys Know-How, Axys Patents or other Axys Confidential
Information disclosed to Warner-Lambert. Warner-Lambert acknowledges that the
source code for the Software contains the valuable trade secrets of Axys, and
Warner-Lambert covenants that it and its Affiliates shall not distribute the
Software to any third party except to the extent permitted by Axys in writing.

4.      PAYMENTS

        4.1    COMPOUND PURCHASE PRICES. Warner-Lambert shall pay Axys a
purchase price for each Compound delivered hereunder as provided below:

               (a)    Warner-Lambert shall pay Axys             ***
for each of the       ***         Compounds delivered to Warner-Lamber  by Axys
under the terms of Article 2;

               (b)    Warner-Lambert shall pay Axys          ***           for
each of the next       ***             Compounds delivered to Warner-Lambert by
Axys under the terms of Article 2; and

               (c)    Warner-Lambert shall pay Axys                ***
 for each of the remaining                ***            Compounds delivered to
Warner-Lambert by Axys.

Such payments shall be made within thirty (30) days of delivery of an invoice
from Axys regarding such delivered Compounds, which invoice shall be submitted
promptly upon delivery of the Compounds by Axys under the terms of Section 2.2.
Warner-Lambert shall be responsible for payment of any sales, transfer or other
tax accessible on the sale or transfer of the Compounds, Axys Know-How, Software
or Axys Patents under the terms of this Agreement, other than taxes based upon
net income of Axys.

        4.2    ROYALTY ON COMPOUNDS. Warner-Lambert shall pay Axys a royalty on
sales of Licensed Products equal to     ***    of the Net Sales of the Licensed
Products by Warner-Lambert, its Affiliates and sublicensees in countries where
the manufacture, use or sale of such Licensed Product (or the Warner-Lambert
Compound therein) is covered by a claim in an issued patent that claims the
composition of matter of the Compound that is an active ingredient in such
Licensed Product and for which Axys or an Axys employee or contractor is an
inventor, provided that the Compound in the Licensed Product was made using one
of the at least   ***   Selected Protocols proposed by Axys and selected by the
Technology Committee as provided in Section 2.2. As used herein, "Net Sales"
shall mean the gross amount received from non-affiliated customers for all
Licensed Products sold after deduction for the following items (i) trade,
quantity and cash discounts or rebates; (ii) credits, rebates, charge-back
rebates, reimbursements or similar payments granted or given to wholesalers and
other distributors, buying groups, health care insurance carriers, governmental
agencies and other institutions; (iii) credits or allowances for rejection or
return of such Licensed Product previously

*** Portions of this page have been omitted pursuant to a request for
    Confidential Treatment and filed separately with the Commission.

                                       9
<PAGE>   14

sold; (iv) any tax, tariff, duty or other governmental charge (other than an
income tax) levied on the sale, transportation or delivery of Licensed Product
and borne by the seller thereof; (v) payments or rebates paid in connection with
state or federal Medicare, Medicaid or similar programs; (vi) any charge for
freight or insurance; and (vii) bad debt expense.

5.      INTELLECTUAL PROPERTY MATTERS

        5.1    OWNERSHIP. All intellectual property rights in and to the
Library, Compounds, Selected Protocols, Axys Know-How, Axys Patents, and the
Software owned or Controlled by Axys as of the Effective Date shall remain
exclusively with Axys, subject only to the license rights granted to
Warner-Lambert under Sections 2.3 and 3.2. Axys shall own the entire right,
title and interest in and to any inventions and Information, and all
intellectual property rights therein, developed solely by employees or agents of
Axys in the course of this Agreement. Warner-Lambert shall own the entire right,
title and interest in and to any inventions and Information, and all
intellectual property rights therein, developed solely by employees or agents of
Warner-Lambert in the course of this Agreement. The Parties shall own jointly
the entire right, title and interest in and to any inventions and Information,
and all intellectual property rights therein, developed jointly by employees or
agents of Axys and employees or agents of Warner-Lambert in the course of this
Agreement. Notwithstanding the foregoing, Warner-Lambert hereby grants to Axys
the right, under any rights Warner-Lambert may have or obtain in the Selected
Protocols and the Scaffolds on which they are based, if any, to use the Selected
Protocols to make, use and sell compounds for all purposes, subject to the
limitations in Section 2.6. Further, it is understood that Warner-Lambert will
own the physical samples of the Compounds provided by Axys hereunder.

        5.2    LIMITATION ON PATENT APPLICATIONS.

               (a)    The Parties agree that each Party and its Affiliates shall
not file or prosecute any patent applications that specifically claim or
otherwise describe any Compound(s); provided that the foregoing shall not apply
with respect to any Compound(s) that is or are discovered or synthesized by
Warner-Lambert or its Affiliates completely independent of any activity
permitted under this Agreement and without reliance on any Axys Know-How, Axys
Patents or other Axys Confidential Information disclosed to Warner-Lambert. Axys
will not provide the Library to any third party without obtaining the third
party's promise, in writing, not to file or prosecute any patent applications
that specifically claim or otherwise describe any Compound(s) (except for
Compounds independently discovered or synthesized by such party), and to grant
Axys a license under any patent owned by such party that claim (either
specifically or generically) a Compound for Axys and its Affiliates and
sublicensees (including Warner-Lambert) to make, have made, import, use, offer
for sale and sell such Compound (other than patents claiming such independently
discovered Compounds).

               (b)    Notwithstanding subsection (a) above, a Party may file and
prosecute patent applications that specifically claim or otherwise describe a
Compound or Compounds, but only if (i) the Party has defined a preliminary
structural activity relationship around such Compound(s); (ii) the Party has
prepared and evaluated related compounds outside the Library in support of the
structural activity relationship; and (iii) the claims to or descriptions of the

                                       10
<PAGE>   15

Compound(s) are essential in order to meet best mode requirements or to protect
preferred embodiments or otherwise to support claims in such patent application.

        5.3    ADDITIONAL LICENSES. Axys hereby grants to Warner-Lambert a
non-exclusive, world-wide, perpetual (subject to termination under Article 12),
fully paid-up license under any issued patents owned by Axys or its Affiliate
that claim (either specifically or generically) a Compound solely for
Warner-Lambert and its Affiliates and permitted sublicensees to make, have made,
import, and use such Compound solely for the purposes permitted in Section 2.5.
Warner-Lambert hereby grants to Axys a non-exclusive, world-wide perpetual
(subject to termination under Article 12), fully paid-up license, with right to
sublicense, under issued patents owned by Warner-Lambert or its Affiliate that
claim (either specifically or generically) a Compound solely for Axys and its
Affiliates and sublicensees to make, have made, import, use, offer for sale and
sell such Compound as permitted in Section 2.6, but excluding from the foregoing
license any Warner-Lambert patent claiming a Compound that is discovered or
synthesized by Warner-Lambert or its Affiliates completely independent of any
activity permitted under this Agreement and without reliance on any Axys
Know-How, Axys Patents or other Axys Confidential Information disclosed to
Warner-Lambert.

        5.4    ENFORCEMENT OF PATENTS. If Warner-Lambert becomes aware of any
actions of a third party that it considers infringing upon any Axys Patent, it
shall notify Axys and provide all evidence of such infringement that is
reasonably available. Axys shall have the sole and exclusive right, at its own
expense, to attempt to terminate such infringement by commercially appropriate
steps, including suit. Warner-Lambert shall provide reasonable assistance to
Axys in enforcing the Axys Patents, at Axys's request and expense, including
providing access to relevant documents and other evidence and making its
employees available. Any amounts recovered by Axys, whether by settlement or
judgment, shall be retained by Axys.

        5.5    THIRD PARTY PATENT RIGHTS. If any warning letter or other notice
of infringement is received by a Party, or action, suit or proceeding is brought
against a Party alleging infringement of a patent right of any third party in
the manufacture, use or sale of a Compound or use of the Axys Know-How or Axys
Patents or Software as permitted herein, the Parties shall promptly discuss and
decide the best way to respond.

6.      CONFIDENTIALITY

        6.1    CONFIDENTIALITY OBLIGATIONS. Each Party agrees that, for the term
of this Agreement and for five (5) years thereafter, such Party shall keep, and
shall ensure that its officers, directors, employees and agents keep, completely
confidential and shall not publish or otherwise disclose and shall not use for
any purpose except as expressly permitted hereunder any Confidential Information
furnished to it by the other Party pursuant to this Agreement; except that the
foregoing obligations shall not apply to any Information to the extent that it
can be established by such receiving Party that such Information:

               (a)    was already known to the receiving Party or any of its
Affiliates, other than pursuant to an obligation of confidentiality owed to the
disclosing Party, at the time of disclosure;

                                       11
<PAGE>   16

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

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

               (d)    was subsequently lawfully disclosed to the receiving Party
or its Affiliates by a Third Party other than in contravention of a
confidentiality obligation of such Third Party to the disclosing Party; or

               (e)    was developed or discovered by employees of the receiving
Party or its Affiliates who had no access to the Confidential Information of the
disclosing Party.

        Notwithstanding the foregoing, Warner-Lambert shall not use for any
purpose the Axys Restricted Information. Further, each Party may disclose the
other's Confidential Information only to the extent such disclosure is necessary
in prosecuting or defending litigation or complying with applicable governmental
laws or regulations, provided that if a Party is required to make any such
disclosure of the other Party's Confidential Information, it will, whenever
reasonably possible, give advance notice to the latter Party of such disclosure
requirement, will cooperate with the other Party in its efforts to secure
confidential treatment of such Information prior to its disclosure (whether
through protective orders or confidentiality agreements or otherwise), and will
use reasonable efforts to limit the extent of such disclosure and, if requested
by the other Party because of an inability of such other Party to seek
confidential treatment, to secure confidential treatment of such Information
prior to its disclosure (whether through protective orders or confidentiality
agreements or otherwise).

        6.2    PRESS RELEASES. Except as required by law or in accordance with
Section 6.3, neither Party shall have the right to make any public announcements
concerning this Agreement or the subject matter hereof without the prior written
consent of the other, which shall not be unreasonably withheld. Notwithstanding
the foregoing, the Parties agree that (a) each Party may make public disclosures
regarding Compounds in clinical development or commercialization; and (b) each
Party may desire or be required to issue press releases relating to the
Agreement or activities thereunder, and the Parties agree to consult with each
reasonably and in good faith with respect to the text of such press releases
(under this subsection (b)) prior to the issuance thereof, provided that a Party
may not unreasonably withhold consent to such releases. All such public
disclosures with respect to this Agreement must be accurate and comply with
applicable law and regulations. Except as set forth in Section 6.2(a) hereof, in
the event of a required or desired public announcement, such Party shall provide
the other Party with a reasonable opportunity and the right to approve the
content of such announcement prior to its being made, which approval shall not
be delayed or unreasonably withheld. Each Party agrees that any filings it makes
with the SEC describing the terms of this Agreement shall be consistent with the
prior press releases and other public disclosures of such terms.

                                       12
<PAGE>   17

        6.3    PUBLICATIONS. Notwithstanding the terms of Section 6.2, either
Party may publish Information that such Party discovered or developed in its
research, development or commercialization activities derived from use of the
Library or any Compound without the consent of or notice to the other Party,
provided, however, that no such publication may contain the structure of a
Compound or Information that reasonably may be interpreted to disclose the
structure of a Compound unless:

               (a)    the publishing Party has filed a patent application, in
compliance with the requirements of Section 5.1, that discloses or specifically
claims such Compound;

               (b)    such structure is in the public domain at the time of such
publication;

               (c)    such structure was independently discovered by employees
of the publishing Party who had no access to the Libraries, the Compounds or any
Confidential Information of the other Party; or

               (d)    the other Party has consented in writing to such
disclosure.

7.      INDEMNIFICATION

        7.1    INDEMNIFICATION BY WARNER-LAMBERT. Warner-Lambert shall
indemnify, defend and hold Axys and its agents, employees, officers and
directors (the "Axys Indemnitees") harmless from and against any and all
liability, damage, loss, cost or expense (including reasonable attorneys' fees)
arising out of Third Party claims or suits related to (a) Warner-Lambert's or
its Affiliate's negligence, willful misconduct or breach of this Agreement; or
(b) the manufacture, use or sale of Compounds or products containing Compounds
or any compound based upon or derived therefrom by Warner-Lambert and its
Affiliates, sublicensees, distributors and agents, except to the extent such
claims or suits result from the active negligence or willful misconduct of or
breach of the Agreement by any of the Axys Indemnitees or the manufacture, use
or sale to third parties of Compounds or products containing Compounds or any
compound based upon or derived therefrom by Axys and its Affiliates, other
licensees (i.e., excluding Warner-Lambert) distributors or agents. Upon the
assertion of any such claim or suit, the Axys Indemnitees shall promptly notify
Warner-Lambert thereof, and Warner-Lambert shall appoint counsel reasonably
acceptable to the Axys Indemnitees to represent the Axys Indemnitees with
respect to any claim or suit for which indemnification is sought, provided that
Warner-Lambert shall have sole control over the defense and settlement of such
claim or suit. As a condition to obtaining indemnification hereunder, the Axys
Indemnitees shall not settle or attempt to settle or defend or attempt to defend
any such claim or suit without the prior written consent of Warner-Lambert,
unless they shall have first waived their rights to indemnification hereunder;
provided that the foregoing shall in no way limit Axys' right to challenge or
defend against a claim (whether by Warner-Lambert or any third party) that the
claim or suit that is the subject of a claim for indemnification by Axys
hereunder results from the active negligence or willful misconduct of or breach
of the Agreement by any of the Axys Indemnitees.

        7.2    INDEMNIFICATION BY AXYS. Axys shall indemnify, defend and hold
Warner-Lambert and its agents, employees, officers and directors (the
"Warner-Lambert Indemnitees")

                                       13
<PAGE>   18

harmless from and against any and all liability, damage, loss, cost or expense
(including reasonable attorney's fees) arising out of Third Party claims or
suits related to (a) Axys's negligence, willful misconduct or breach of this
Agreement, except to the extent that such claims or suits result from (i) the
manufacture, use, or sale or Compound or products containing Compounds or any
compound based upon or derived therefrom by Warner-Lambert and its Affiliates,
sublicensees, distributors and agents, or (ii) the active negligence or willful
misconduct of or breach of this Agreement by any of the Warner-Lambert
Indemnitees; or (b) the manufacture, use or sale to third parties by Axys, its
Affiliates, third party licensees, distributors or agents of Compounds or
products containing Compounds or any compound based upon or derived therefrom
(but excluding from the foregoing exception any claims or suits that relate to
use or sale of the physical samples of Compounds provided to Warner-Lambert
hereunder); or (c) personal or property damage arising during the course of
manufacture of the Compounds by Axys. Upon the assertion of any such claim or
suit, the Warner-Lambert Indemnitees shall promptly notify Axys thereof, and
Axys shall appoint counsel reasonably acceptable to the Warner-Lambert
Indemnitees to represent the Warner-Lambert Indemnitees with respect to any
claim or suit for which indemnification is sought, provided that Axys shall have
sole control over the defense and settlement of such claim or suit. As a
condition to obtaining indemnification hereunder, the Warner-Lambert Indemnitees
shall not settle or attempt to settle or defend or attempt to defend any such
claim or suit without the prior written consent of Axys, unless they shall have
first waived their rights to indemnification hereunder; provided that the
foregoing shall in no way limit Warner-Lambert's right to challenge or defend
against a claim (whether by Axys or any third party) that the claim or suit that
is the subject of a claim for indemnification by Warner-Lambert hereunder
results from the active negligence or willful misconduct of or breach of the
Agreement by any of the Warner-Lambert Indemnitees.

8.      TERMINATION AND EXPIRATION

        8.1    TERM AND TERMINATION. This Agreement shall commence upon the
Effective Date and, unless earlier terminated as provided herein, shall expire
on the third anniversary of the Effective Date or, if later, upon the completion
of delivery of the Library. The license and other rights granted to
Warner-Lambert under Sections 2.5, 2.7, 3.2, 3.3(a), 3.4 and 5.3 shall survive
such expiration, subject to compliance by Warner-Lambert and its Affiliates with
all limitations on the practice of such license rights set forth in such
Sections. The license rights granted to Axys under Section 3.3(b) shall survive
such expiration.

        8.2    TERMINATION BY WARNER-LAMBERT FOR FAILURE TO DELIVER.
Warner-Lambert shall have the right, subject to the provisions of Section 9.11,
to terminate the Agreement upon sixty (60) days written notice if Axys has
materially failed to comply with the delivery schedule for delivering Compounds
under Section 2.3, provided that such termination shall not be effective if Axys
cures such failure prior to the end of such sixty (60) day period. The license
and other rights granted to Warner-Lambert under Sections 2.5, 2.7, 3.2, 3.3(a),
3.4 and 5.3 shall survive such termination with respect to the Compounds already
delivered and paid for by Warner-Lambert, subject to compliance by
Warner-Lambert and its Affiliates with all limitations on the practice of such
license rights set forth in such Sections. The license rights granted to Axys
under Section 3.3(b) shall survive such termination.

                                       14
<PAGE>   19

        8.3    TERMINATION UPON MATERIAL BREACH.

               (a)    Failure by a Party to comply with any of its material
obligations contained herein shall entitle the Party not in default to give to
the Party in default notice specifying the nature of the default, requiring it
to make good or otherwise cure such default, and stating its intention to
terminate if such default is not cured. If such default is not cured within
sixty (60) days after the date of such notice (or, if such default cannot be
cured within such sixty (60) day period, if the Party in default does not
commence and diligently continue actions to cure such default), the Party not in
default shall be entitled, without prejudice to any of its other rights
conferred on it by this Agreement, and in addition to any other remedies
available to it by law or in equity, to terminate this Agreement; provided,
however, that such right to terminate shall be stayed in the event that, during
such sixty (60) day period, the Party alleged to have been in default shall have
initiated dispute resolution proceedings in accordance with Section 9.11 with
respect to the alleged default, which stay shall last so long as the initiating
Party diligently and in good faith pursues the prompt resolution of such
proceedings, and provided further that if such default is by Warner-Lambert and
is limited to a default with respect to obligations as to particular Compounds,
then Axys may not terminate the entire Agreement but may terminate the
Agreement, and all the rights of Warner-Lambert, only with respect to such
Compounds.

               (b)    The right of a Party to terminate this Agreement, as
provided above, shall not be affected in any way by its waiver or failure to
take action with respect to any prior default. A Party may waive its right to
terminate this Agreement with respect to a particular default, provided that any
such waiver shall not constitute a waiver of, and such Party shall retain all
rights to pursue, any and all other remedies it may have at law or in equity of
such default by the other Party.

        8.4    CONSEQUENCES OF TERMINATION.

               (a)    Upon termination of this Agreement by Warner-Lambert
pursuant to Section 8.3 for the uncured material breach of Axys, then: (i) the
license and other rights granted under Sections 2.5, 3.2, 3.3(a) and 5.3 shall
survive termination subject to compliance with all limitations in such Sections
and in Section 3.4; (ii) Axys shall promptly return all Confidential Information
of Warner-Lambert in its possession; (iii) all obligations and rights of Axys to
provide additional Compounds shall terminate; (iv) Warner-Lambert shall retain
the right to use the Compounds already delivered and paid for as permitted under
the Agreement; and (v) Warner-Lambert may retain exclusive rights to up to ***
Warner-Lambert Compounds selected under Section 2.7, regardless of whether
Warner-Lambert or its Affiliate or sublicensee complies with the obligations of
diligence or continued sales under Section 2.7 to maintain such Compounds as
Warner-Lambert Compounds.

               (b)    Upon termination of this Agreement by Axys pursuant to
Section 8.3, in its entirety or only as to particular Compounds, as applicable,
for the uncured material breach of Warner-Lambert, then: (i) all licenses and
other rights granted by Axys to Warner-Lambert under the Agreement, or, if
applicable, under the Agreement as to the particular Compounds so

                                       15

*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission
<PAGE>   20

terminated, shall terminate; (ii) Warner-Lambert shall return all existing
samples of the Compounds that are subject to the termination and all rights to
use such Compounds shall terminate and revert to Axys; (iii) if the entire
Agreement is terminated, all obligations of Axys to provide additional Compounds
shall terminate, and (iv) the license rights granted to Axys by Warner-Lambert
in Section 5.3 shall survive termination any such termination.

        8.5    ACCRUED RIGHTS; SURVIVING OBLIGATIONS.

               (a)    Termination, relinquishment or expiration of this
Agreement for any reason shall be without prejudice to any rights which shall
have accrued to the benefit of a Party prior to such termination, or expiration.
Such termination, relinquishment or expiration shall not relieve a Party from
obligations which are expressly indicated to survive termination or expiration
of this Agreement.

               (b)    Without limiting the foregoing, Sections 5.1, 5.2 and 5.4
and Articles 1, 6, 7 and 8 of this Agreement shall survive the expiration or
termination of this Agreement.

        8.6    RIGHTS IN BANKRUPTCY. All rights and licenses granted under or
pursuant to this Agreement by Warner-Lambert or Axys are, and shall otherwise be
deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code,
licenses of right to "intellectual property" as defined under Section 101 of the
U.S. Bankruptcy Code. The Parties agree that the Parties, as licensees of such
rights under this Agreement, shall retain and may fully exercise all of their
rights and elections under the U.S. Bankruptcy Code. The Parties further agree
that, in the event of the commencement of a bankruptcy proceeding by or against
either Party under the U.S. Bankruptcy Code, the Party hereto which is not a
party to such proceeding shall be entitled to a complete duplicate of (or
complete access to, as appropriate) any such intellectual property and all
embodiments of such intellectual property, and same, if not already in their
possession, shall be promptly delivered to them (i) upon any such commencement
of a bankruptcy proceeding upon their written request therefor, unless the Party
subject to such proceeding elects to continue to perform all of its obligations
under this Agreement or (ii) if not delivered under (i) above, following the
rejection of this Agreement by or on behalf of the Party subject to such
proceeding upon written request therefor by an non-subject Party.

9.      MISCELLANEOUS PROVISIONS

        9.1    RELATIONSHIP OF THE PARTIES. Nothing in this Agreement is
intended or shall be deemed to constitute a partnership, agency or
employer-employee relationship between the Parties. Neither Party shall incur
any debts or make any commitments for the other.

        9.2    ASSIGNMENTS. Except as expressly provided herein, neither this
Agreement nor any interest hereunder shall be assignable, nor any other
obligation delegable, by a Party without the prior written consent of the other;
provided, however, that a Party may assign this Agreement to any Affiliate or to
any successor in interest by way of merger or sale of all or substantially all
of its assets in a manner such that the assignee shall be liable and responsible
for the performance and observance of all such Party's duties and obligations
hereunder, but provided that if such assignee is an Affiliate of the assigning
Party, such Party shall guarantee the

                                       16
<PAGE>   21

performance by such Affiliate of all its obligations under the Agreement. This
Agreement shall be binding upon the successors and permitted assigns of the
Parties; provided, however, that in-the event that Axys is acquired, the Axys
Know-How and the Axys Patents shall not include any information or intellectual
property rights owned by the acquiring company as of the date of such
acquisition, unless previously licensed to Axys. Any assignment not in
accordance with this Section 9.2 shall be void.

        9.3    DISCLAIMER OF WARRANTIES. THE PARTIES EXPRESSLY DISCLAIM ALL
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT OF THIRD
PARTY RIGHTS, UNLESS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT.

        9.4    REPRESENTATIONS AND WARRANTIES.

               (a)    Each Party represents and warrants to the other Party
that, as of the date of this Agreement:

                      (i)    such Party is duly organized and validly existing
under the laws of the state of its incorporation and has full corporate power
and authority to enter into this Agreement and to carry out the provisions
hereof;

                      (ii)   such Party has taken all corporate action necessary
to authorize the execution and delivery of this Agreement and the performance of
its obligations under this Agreement; and

                      (iii)  this Agreement is a legal and valid obligation of
such Party, binding upon such Party and enforceable against such Party in
accordance with the terms of this Agreement, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, arrangement,
moratorium or other similar laws affecting creditors' rights, and subject to
general equity principles and to limitations on availability of equitable
relief, including specific performance. All consents, approvals and
authorizations from all governmental authorities or other Third Parties required
to be obtained by such Party in connection with this Agreement have been
obtained.

                      (iv)   such Party has obtained written confidentiality
agreements from each of its employees and consultants who have access to the
Confidential Information of the other Party hereunder, whether in the form of
general confidentiality agreements from the employees obtained at the time of
commencement of such employees' employment by such Party or otherwise, which
agreements obligate such persons to maintain as confidential all confidential
information obtained by such Party in confidence from a third party.

               (b)    Axys represents and warrants to Warner-Lambert that as of
the date of this Agreement:

                                       17
<PAGE>   22

                      (i)    to Axys' knowledge, the Axys Patents, Axys Know-How
and the Software existing as of the Effective Date are subsisting and are not
invalid or unenforceable, in whole or in part;

                      (ii)   it has the full right, power and authority to enter
into this Agreement and to grant the licenses granted under Article 3 hereof;

                      (iii)  to Axys' knowledge, the Axys Patents, Axys Know-How
and the Software existing as of the Effective Date practiced as permitted herein
do not infringe on any intellectual property rights owned or controlled by any
Third Party;

                      (iv)   the execution, delivery and performance of this
Agreement by Axys does not constitute a material breach under, and is not
precluded by the terms of, any agreement to which Axys is a party or by which
Axys is bound; and

                      (v)    there are no claims, judgments or settlements
against or owed by Axys or pending or threatened claims or litigation relating
to the Axys Patents, Axys Know-How or the Software.

               (c)    Warner-Lambert represents and warrants to Axys that as of
the date of this Agreement:

                      (i)    it has the full right, power and authority to enter
into this Agreement and to grant the licenses granted under Article 3 hereof;

                      (ii)   the execution, delivery and performance of this
Agreement by Warner-Lambert does not constitute a material breach under, and is
not precluded by the terms of, any agreement to which Warner-Lambert is a party
or by which Warner-Lambert is bound.

        9.5    FURTHER ACTIONS. Each Party agrees to execute, acknowledge and
deliver such further instruments and to do all such other acts as may be
necessary or appropriate in order to carry out the purposes and intent of this
Agreement.

        9.6    FORCE MAJEURE. The failure of a Party to perform any obligation
under this Agreement by reason of acts of God, acts of governments, riots, wars,
strikes, accidents or deficiencies in materials or transportation or other
causes of any nature (whether similar or dissimilar) beyond its control for the
duration thereof and for thirty (30) days thereafter shall not be deemed to be a
breach of this Agreement.

        9.7    NO TRADEMARK RIGHTS. No right, express or implied, is granted by
this Agreement to a Party to use in any manner the name or any other trade name
or trademark of a Party in connection with the performance of this Agreement.

        9.8    ENTIRE AGREEMENT OF THE PARTIES; AMENDMENTS. This Agreement
constitutes and contains the entire understanding and agreement of the Parties
respecting the subject matter hereof and cancels and supersedes any and all
prior negotiations, correspondence,

                                       18
<PAGE>   23

understandings and agreements between the Parties, whether oral or written,
regarding such subject matter. No waiver, modification or amendment of any
provision of this Agreement shall be valid or effective unless made in writing
and signed by a duly authorized officer of each Party.

        9.9    CAPTIONS. The captions to this Agreement are for convenience
only, and are to be of no force or effect in construing or interpreting any of
the provisions of this Agreement.

        9.10   APPLICABLE LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of California, USA,
applicable to contracts entered into and to be performed wholly within the State
of California, excluding conflict of laws principles.

        9.11   DISPUTES. In the event of any controversy or claim arising out
of, relating to or in connection with any provision of this Agreement, or the
rights or obligations of the Parties hereunder, the Parties shall try to settle
their differences amicably between themselves by referring the disputed matter
to the Chief Executive Officer of Axys and the President of Warner-Lambert
Company's Pharmaceutical Research Division for discussion and resolution. Either
Party may initiate such informal dispute resolution by sending written notice of
the dispute to the other Party, and within twenty (20) days after such notice
such representatives of the Parties shall meet for attempted resolution by good
faith negotiations. If such personnel are unable to resolve such dispute within
thirty (30) days of their first meeting of such negotiations, either Party may
seek to have such dispute resolved in any federal or state court in the United
States having jurisdiction over the dispute and the Parties.

        9.12   NOTICES AND DELIVERIES. Any notice, request, delivery, approval
or consent required or permitted to be given under this Agreement shall be in
writing and shall be deemed to have been sufficiently given if delivered in
person, transmitted by telecopier (receipt verified) or by express courier
service (signature required) or five (5) days after it was sent by registered
letter, return receipt requested (or its equivalent), to the Party to which it
is directed at its address shown below or such other address as such party shall
have last given by notice to the other Parties.

        If to Warner-Lambert, addressed to:

               Warner-Lambert Company
               2800 Plymouth Road
               Ann Arbor, Michigan 48105
               Attn: Vice President and Chairman
                     Pharmaceutical Research Division
               Telecopier: (_____)

        With a copy to:

               Warner-Lambert Company
               201 Tabor Road
               Morris Plains, New Jersey 07950

                                       19
<PAGE>   24

               Attn: Vice President and General Counsel
               Telecopier: (_____)

        If to Axys, addressed to:

               Axys Pharmaceuticals, Inc.
               180 Kimball Way
               South San Francisco, CA USA 94080
               Telecopier: (415) 829-1067
               Attn: CEO

               with a copy to:

               Cooley Godward LLP
               5 Palo Alto Square, 4th Floor
               3000 El Camino Real
               Palo Alto, CA 94306-2155
               Attention: Barclay James Kamb, Esq.

        9.13   NO CONSEQUENTIAL DAMAGES. IN NO EVENT SHALL EITHER PARTY OR ANY
OF ITS RESPECTIVE AFFILIATES BE LIABLE TO THE OTHER PARTY OR ANY OF ITS
AFFILIATES FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER
IN CONTRACT, WARRANTY, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE,
including, but not limited to, loss of profits or revenue, or claims of
customers of any of them or other Third Parties for such other damages.

        9.14   WAIVER. A waiver by either Party of any of the terms and
conditions of this Agreement in any instance shall not be deemed or construed to
be a waiver of such term or condition for the future, or of any subsequent
breach hereof. All rights, remedies, undertakings, obligations and agreements
contained in this Agreement shall be cumulative and none of them shall be in
limitation of any other remedy, right, undertaking, obligation or agreement of
either party.

        9.15   COMPLIANCE WITH LAW. Nothing in this Agreement shall be deemed to
permit a Party to export, reexport or otherwise transfer any Compound provided
under this Agreement without compliance with applicable laws.

        9.16   SEVERABILITY. When possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.

        9.17   COUNTERPARTS. This Agreement may be executed simultaneously in
any number of counterparts, any one of which need not contain the signature of
more than one Party but all such counterparts taken together shall constitute
one and the same agreement.

                                       20
<PAGE>   25

        IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their respective duly authorized officers as of the day and year
first above written, each copy of which shall for all purposes be deemed to be
an original.

                          WARNER-LAMBERT COMPANY

                          By: /s/ Ronald M. Crasswell
                              --------------------------------------------------
                          Title: Prof. Ronald M. Crasswell Ph.D., Hon D.Sc. FRSE
                                 Vice President and Chairman
                                 Parke-Davis Pharmaceutical Research
                                 Warner-Lambert Company

                          AXYS PHARMACEUTICALS, INC.

                          By: /s/ illegible
                              --------------------------------------------------
                          Title: Chairman/CEO

                                       21
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                                    EXHIBIT A

                                PROTOCOL CRITERIA

                                       22
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                                                                               1

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    Confidential Treatment and filed separately with the Commission.

<PAGE>   28

                                                                               2

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    Confidential Treatment and filed separately with the Commission.

<PAGE>   29

                                                                               3

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    Confidential Treatment and filed separately with the Commission.

<PAGE>   30

                                                                               4

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    Confidential Treatment and filed separately with the Commission.

<PAGE>   31

                                                                               5

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    Confidential Treatment and filed separately with the Commission.

<PAGE>   32

                                                                               6

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    Confidential Treatment and filed separately with the Commission.

<PAGE>   33

                                                                               7

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    Confidential Treatment and filed separately with the Commission.

<PAGE>   34

                                                                               8

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    Confidential Treatment and filed separately with the Commission.

<PAGE>   35

                                                                               9

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    Confidential Treatment and filed separately with the Commission.

<PAGE>   36

                                                                              10

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    Confidential Treatment and filed separately with the Commission.

<PAGE>   37

                                    EXHIBIT B

                               METHODS OF ANALYSIS

                                       23
<PAGE>   38

                                      ***

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    Confidential Treatment and filed separately with the Commission.

<PAGE>   39

                                      ***

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    Confidential Treatment and filed separately with the Commission.

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