Document:

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                                                                  Exhibit 10.11

                         INTERMUNE PHARMACEUTICALS, INC.

                             SECURED LOAN AGREEMENT

     This SECURED LOAN AGREEMENT is made as of July 1. 1999 by and between
INTERMUNE PHARMACEUTICALS, INC., a California corporation (the "Company") and
W. SCOTT HARKONEN ("Borrower").

                                    RECITALS

     Borrower desires to borrow, and the Company desires to lend to Borrower
up to an aggregate of $100,000 (the "Borrowed Amount"). The parties desire
that such loan shall be secured pursuant to a Security Agreement of even date
herewith (the "Security Agreement") by an aggregate of 100,000 shares of the
Company's Common Stock (as adjusted for subsequent stock splits, reverse
stock splits and recapitalization) (the "Shares") issuable upon the exercise
of vested options to purchase Common Stock held by Borrower (the "Options")
while any Borrowed Amount is outstanding on the terms and conditions
contained herein and in the Security Agreement.

                                    AGREEMENT

     In consideration of the foregoing, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties agree as
follows:

     1. AGREEMENT TO LEND. Subject to the terms and conditions contained in
this Agreement and upon execution of this Agreement, the Company agrees to
issue to Borrower a check or other readily available funds in the Borrowed
Amount upon the date of this Agreement.

     2. PROMISSORY NOTE. In consideration of the Company's delivery of the
Borrowed Amount, Borrower will execute a secured promissory note in the form
attached hereto as Exhibit A (the "Note"), in the principal amount of such
Borrowed Amount and bearing interest at a rate of 7.5% per annum, compounded
annually.

     3. SECURITY AGREEMENT. Borrower will additionally execute the Security
Agreement in the form attached hereto as Exhibit B as security for Borrower's
obligation to repay the Borrowed Amount, and, upon any exercise of the
Options, will deliver, or cause to be delivered, all certificates
representing Shares to the Company or its designee as pledgeholder of the
Shares, together with such other documents of assignment and other documents
as may be reasonably requested by the Company. The Shares will be held by the
Company or its designee as pledgeholder and shall be released in accordance
with the terms of the Security Agreement.

     4. NO EMPLOYMENT RIGHTS. Nothing in this Agreement or the Note is
intended or shall be construed to confer upon Borrower any right to
employment or continued employment with the Company, or shall alter in any
way the nature of Borrower's employment with the Company.

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     5. MISCELLANEOUS.

     (a) SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors
and assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.

     (b) GOVERNING LAW. This Agreement and all acts and transactions pursuant
hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State
of California, without giving effect to principles of conflicts of law.

     (c) NOTICES. Any notice required or permitted by this Agreement shall be
in writing and shall be deemed sufficient upon receipt, when delivered
personally or by a nationally-recognized delivery service (such as Federal
Express or UPS) or confirmed facsimile, or forty-eight (48) hours after being
deposited in the U.S. mail as certified or registered mail with postage
prepaid, if such notice is addressed to the party to be notified at such
party's address or facsimile number as set forth below, or as subsequently
modified by written notice.

     (d) SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i)
such provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and
(iii) the balance of the Agreement shall be enforceable in accordance with
its terms.

     (e) ADVICE OF LEGAL COUNSEL. Each party acknowledges and represents
that, in executing this Agreement, it has had the opportunity to seek advice
as to its legal rights from legal counsel and that the person signing on its
behalf has read and understood all of the terms and provisions of this
Agreement. This Agreement shall not be construed against any party by reason
of the drafting or preparation thereof.

                            [Signature Page Follows]

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     The parties hereto have executed this Secured Loan Agreement as of the
day and year first above written.

     By: /s/ W. Scott Harkonen
        ------------------------------------
             W. SCOTT HARKONEN

     Address:    70 Mendosa Avenue
                 San Francisco, California 94116

     INTERMUNE PHARMACEUTICALS, INC.

     By: /s/ James I. Healy
        ------------------------------------
          James I. Healy
          Director

     Address:    2483 West Bayshore Road, Suite 103
                 Palo Alto, CA 94303

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                                    EXHIBIT A

                             SECURED PROMISSORY NOTE

$100,000        Palo Alto, California
                July 1, 1999

     FOR VALUE RECEIVED, W. SCOTT HARKONEN ("Borrower") promises to pay to
INTERMUNE PHARMACEUTICALS, INC., a California corporation (the "Company"), the
principal sum of One Hundred Thousand Dollars ($100,000), together with
interest on the unpaid principal hereof from the date hereof at the rate of
7.5% per annum, compounded annually.

     All principal and accrued interest shall be due and payable in full on
the earliest of (a) October 30, 2000 or (b) the termination of Borrower's
employment or consulting relationship with the Company for any reason (or for
no reason). Payments of principal and interest shall be made in lawful money
of the United States of America and shall be credited first to the accrued
interest, with the remainder applied to principal.

     Borrower may at any time prepay all or any portion of the principal or
interest owing hereunder.

     This Note is subject to the terms of a Secured Loan Agreement, dated as
of July 1, 1999, by and between the Company and Borrower, and is secured by a
pledge of Common Stock of the Company issuable upon exercise of vested
options held by Borrower under the terms of a Security Agreement July 1, 1999
and is subject to all the provisions thereof.

     Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by
Borrower.

     The holder of this Note shall have full recourse against Borrower, and
shall not be required to proceed against the collateral securing this Note in
the event of default.

By: /s/ W. Scott Harkonen
   -----------------------------------
        W. SCOTT HARKONEN

                                       1
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                                    EXHIBIT B

                               SECURITY AGREEMENT

     This SECURITY AGREEMENT is made as of July 1, 1999 by and between
INTERMUNE PHARMACEUTICALS, INC., a California corporation ("Pledgee"), and W.
SCOTT HARKONEN ("Pledgor").

                                    RECITALS

     Pledgee has loaned to Pledgor, and Pledgor has borrowed from Pledgee, an
aggregate of $100,000, which loan is or shall be evidenced by a promissory
note (the "Note") and is to be secured by up to an aggregate of 100,000
shares of Pledgee's Common Stock (the "Shares") (as adjusted for subsequent
stock splits, reverse stock splits and recapitalization) issuable upon
exercise of vested options held or hereafter acquired by Pledgee (the
"Options").

                                    AGREEMENT

     In consideration of the foregoing, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties to
this Agreement agree as follows:

     1. CREATION AND DESCRIPTION OF SECURITY INTEREST; TRANSFERABILITY; ESCROW.

     (a) In consideration of the loan to Pledgor, Pledgor, pursuant to the
Commercial Code of the State of California, hereby pledges the Shares
(sometimes referred to in this Agreement as the "Collateral"). If any of the
Options are exercised, the certificates representing the Shares shall be
delivered immediately, duly endorsed in blank or with executed stock powers,
to the Secretary of Pledgee (the "Pledgeholder"), who shall hold said
certificates subject to the terms and conditions of this Security Agreement.

     (b) The pledged stock (together with an executed blank stock assignment
for use in transferring all or a portion of the Shares to Pledgee if, as and
when required pursuant to this Security Agreement) shall be held by the
Pledgeholder as security for the repayment of the Note, and any extensions or
renewals thereof, to be executed by Pledgor pursuant to the terms of the
Secured Loan Agreement.

     (c) Except as required to enable Pledgee to exercise its rights as a
secured party, neither the Shares pledged under this Section 1 nor the
Options may be sold, transferred, pledged, hypothecated or otherwise disposed
of by Pledgor.

     (d) To ensure the ability of Pledgee to exercise its rights as a secured
party hereunder, Pledgor shall, upon any exercise of the Options, deliver and
deposit with the Secretary of Pledgee, or such other person designated by
Pledgee, the share certificates representing the

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Shares. together with a stock power, duly endorsed in blank, in the form
attached hereto as Exhibit B-1. The Shares and stock power(s) shall be held
by Pledgee in escrow, until such time as the Note shall have been paid in
full.

     2. PLEDGOR'S REPRESENTATIONS AND COVENANTS. To induce Pledgee to enter
into this Security Agreement, Pledgor represents and covenants to Pledgee,
its successors and assigns, as follows:

     (a) PAYMENT OF INDEBTEDNESS. Pledgor will pay the principal sum of the Note
secured hereby, together with interest thereon, at the time and in the manner
provided in the Note.

     (b) ENCUMBRANCES. All Shares now or hereafter pledged under this Agreement
are and shall be free of all other encumbrances, defenses and liens, and
Pledgor will not further encumber the Shares without the prior written
consent of Pledgee.

     3. VOTING RIGHTS. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the
terms of the Note, Pledgor shall have the right to vote all of the Shares
pledged hereunder.

     4. STOCK ADJUSTMENTS. In the event that during the term of the pledge
any stock dividend, reclassification, readjustment or other changes declared
or made in the capital structure of Pledgee, all new, substituted and
additional shares or other securities issued by reason of any such change
shall be delivered to and held by the Pledgeholder under the terms of this
Security Agreement in the same manner as the Shares originally pledged
hereunder. In the event of substitution of such securities, Pledgor, Pledgee
and Pledgeholder shall cooperate and execute such documents as are reasonable
so as to provide for the substitution of such Collateral and, upon such
substitution, references to "Shares" in this Security Agreement shall include
the substituted shares of capital stock of Pledgee held by Pledgor as a
result thereof.

     5. WARRANTS AND RIGHTS. In the event that, during the term of this
pledge, subscription warrants or other rights or options shall be issued in
connection with the pledged Shares, such rights, warrants and options shall
be the property of Pledgor and, if exercised by Pledgor, all new stock or
other securities so acquired by Pledgor as it relates to the pledged Shares
then held by Pledgeholder shall be immediately delivered to Pledgeholder, to
be held under the terms of this Security Agreement in the same manner as the
Shares pledged.

     6. DEFAULT. Pledgor shall be deemed to be in default of the Note and of
this Security Agreement in the event:

     (a) Payment of principal or interest on the Note shall be delinquent for
a period of ten (10) days or more; or

     (b) Pledgor fails to perform any of the covenants contained in this
Security Agreement for a period of ten (10) days after written notice thereof
from Pledgee.

     7. REMEDIES IN THE EVENT OF DEFAULT. In the case of an event of default,
as set forth above, Pledgee shall have the right to accelerate payment of the
Note upon notice to Pledgor,

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and shall thereafter be entitled to pursue any or all of its remedies under
applicable law, including, without limitation, (a) offsetting from Pledgor's
salary, bonuses, vacation pay or other amounts due to Pledgor from the Pledgee,
any amount due and payable by Pledgor under the Note, and/or (b) proceeding
against the Collateral in accordance with the California Commercial Code.

     8. WITHDRAWAL OR SUBSTITUTION OF COLLATERAL. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.

     9. TERM. The pledge of Shares shall continue until the payment of all
indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor.

     10. INSOLVENCY. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against Pledgor, or if a receiver is appointed
for the property of Pledgor, or if Pledgor makes an assignment for the
benefit of creditors, the entire amount unpaid on the Note shall become
immediately due and payable, and Pledgee may proceed as provided in the case
of default.

     11. PLEDGEHOLDER LIABILITY. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his
acts, or omissions to act, as Pledgeholder.

     12. MISCELLANEOUS.

     (a) SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors
and assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement.

     (b) GOVERNING LAW. This Agreement and all acts and transactions pursuant
hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State
of California, without giving effect to principles of conflicts of law.

     (c) NOTICES. Any notice required or permitted by this Agreement shall be
in writing and shall be deemed sufficient upon receipt, when delivered
personally or by a nationally-recognized delivery service (such as Federal
Express or UPS) or confirmed facsimile, or forty-eight (48) hours after being
deposited in the U.S. mail as certified or registered mail with postage
prepaid, if such notice is addressed to the party to be notified at such
party's address or facsimile number as set forth below, or as subsequently
modified by written notice.

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     (d) SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i)
such provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and
(iii) the balance of the Agreement shall be enforceable in accordance with
its terms.

     (e) ADVICE OF LEGAL COUNSEL. Each party acknowledges and represents
that, in executing this Agreement, it has had the opportunity to seek advice
as to its legal rights from legal counsel and that the person signing on its
behalf has read and understood all of the terms and provisions of this
Agreement. This Agreement shall not be construed against any party by reason
of the drafting or preparation thereof.

     The parties hereto have executed this SECURITY AGREEMENT as of the day and
year first above written.

By: /s/ W. Scott Harkonen
   -------------------------------------
        W. SCOTT HARKONEN

        Address:    70 Mendosa Avenue
                    San Francisco, California 94116

INTERMUNE PHARMACEUTICALS, INC.

By: /s/ James I. Healy
   -------------------------------------
        James I. Healy
        Director

        Address:    2483 W. Bayshore Road, Suite 103
                    Palo Alto, CA 94303

                                       4
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                                   EXHIBIT B-1

                      ASSIGNMENT SEPARATE FROM CERTIFICATE

     FOR VALUE RECEIVED I hereby sell, assign and transfer unto INTERMUNE
PHARMACEUTICALS, INC., a California Corporation, (the "Company") One Hundred
Thousand (100,000) shares of the Company's Common Stock standing in my name
on the books of said corporation and represented by Certificate No(s)
___________________________, herewith and do hereby irrevocably constitute and
appoint the Stock Administrator or the Secretary of the Company to transfer
said stock on the books of the within-named corporation with full power of
substitution in the premises.

Dated: July 1, 1999

By: /s/ W. Scott Harkonen
   -------------------------------------
        W. SCOTT HARKONEN

This Assignment Separate from Certificate was executed in conjunction with
the terms of a Security Agreement between the above assignor and the Company
dated July 1, 1999.

                                       1<PAGE>

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                                                 EXHIBIT 10.12

               AMENDED AND RESTATED EXCLUSIVE SUBLICENSE AGREEMENT

                                 BY AND BETWEEN

                         INTERMUNE PHARMACEUTICALS, INC.

                                       AND

                              CONNETICS CORPORATION

                                 APRIL 27, 1999

<PAGE>

               AMENDED AND RESTATED EXCLUSIVE SUBLICENSE AGREEMENT

         THIS AMENDED AND RESTATED EXCLUSIVE SUBLICENSE AGREEMENT (the
"Agreement") is made and entered into as of April 27, 1999 (the "Effective
Date") by and between CONNETICS CORPORATION, a Delaware corporation with a
principal place of business at 3400 West Bayshore Road, Palo Alto, CA 94303
("Connetics"), and INTERMUNE PHARMACEUTICALS, INC., a California corporation
with a principal place of business at 3294 West Bayshore Road, Palo Alto, CA
94303 ("InterMune"). InterMune and Connetics may be referred to herein as a
"Party" or, collectively, as the "Parties."

                               RECITALS

A. WHEREAS, InterMune is a corporation formed for the purpose of research and
development of biopharmaceutical products for the treatment of infectious and
autoimmune diseases; and

B. WHEREAS, Connetics has licensed the rights to certain immunology-based
products and to the technology relating thereto from Genentech, Inc.
("Genentech") pursuant to that certain License Agreement for Interferon Gamma
by and between Connetics and Genentech dated May 5, 1998 (the "Genentech
License"); and

C. WHEREAS, InterMune and Connetics have entered into that certain Exclusive
Sublicense Agreement dated August 21, 1998 (the "Original Agreement")
pursuant to which (a) Connetics granted an exclusive sublicense to InterMune
under the Genentech License to develop, make, have made, import, offer for
sale and sell therapeutic products containing or derived from such
immunology-based products and technology for use for certain specific
indications, and (b) InterMune granted to Connetics the exclusive option to
practice such sublicensed rights in the dermatology field;

D. WHEREAS, Connetics and Genentech have amended the Genentech License
through Amendment No. 1 to License Agreement effective December 28, 1998,
Amendment No. 2 to License Agreement effective January 15, 1999 and Amendment
No. 3 to the License Agreement effective April 27, 1999, pursuant to which
Connetics acquired from Genentech certain additional rights to the
aforementioned immunology-based products and technology, with the intent of
sublicensing such additional rights to InterMune;

E. WHEREAS, Connetics is participating in that certain financing transaction
for InterMune Series A Preferred Shares (the "Series A Transaction") and, as
partial consideration to Connetics for its participation in the Series A
Transaction, InterMune has agreed to pay to Connetics, (i) pursuant to that
certain Collaboration Agreement between the Parties effective as of even date
herewith (the "Collaboration Agreement"), five hundred thousand dollars
($500,000) on the effective date of the Collaboration Agreement and five
hundred thousand dollars ($500,000) on March 31, 2001, and (ii) pursuant to
this Agreement, a milestone payment of one million five hundred thousand
dollars ($1,500,000) as further described herein;

F. WHEREAS, as further consideration to Connetics for its participation in
the Series A Transaction, InterMune has agreed to issue to Connetics pursuant
to the Collaboration

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      1.
<PAGE>

Agreement, (i) nine hundred sixty thousand (960,000) shares of Series A-1
Preferred Stock, (ii) shares of Series B Preferred Stock of an aggregate
value of five hundred thousand dollars ($500,000), and (iii) shares of Series
C Preferred Stock of an aggregate value of one million dollars ($1,000,000);
and

G. WHEREAS, InterMune and Connetics now desire to replace and supersede the
Original Agreement with this Agreement;

     NOW, THEREFORE, the Parties agree as follows:

1.   DEFINITIONS

     1.1 "AFFILIATE" means any company or entity controlled by, controlling
or under common control with a Party. As used in this Section, "control"
means (a) that an entity or company owns, directly or indirectly, fifty
percent (50%) or more of the voting stock of another entity, or (b) that an
entity, person or group has the actual ability to control and direct the
management of the entity, whether by contract or otherwise, but excluding,
for all purposes of this Agreement, Connetics, as to InterMune, and
InterMune, as to Connetics.

     1.2 "AMENDMENT NO. 3" means that certain Amendment No. Three to License
Agreement entered into between Connetics and Genentech effective April 27,
1999. For clarity, the phrase "as amended by Amendment No. 3" as used herein
is intended only for ease of reference and not as a limitation.

     1.3 "BEST EFFORTS" means every necessary and prudent effort of a Party
applied in a prompt, commercially reasonable manner, to the maximum extent
reasonably allowed by such Party's available financial resources, taking into
account all of such Party's business commitments for such financial resources.

     1.4 "BLA" means a Biologics License Application.

     1.5 "CONNETICS KNOW-HOW" means all Know-How in the areas of quality
assurance/quality control (QA/QC), pharmaceutical science, process
development or regulatory affairs that (a) is Controlled by Connetics during
the term of this Agreement, and (b) is necessary or useful to the discovery,
development, use or manufacture of Products, but excluding all Know-How that
is part of the Genentech License Rights.

     1.6 "CONTROLLED" means with respect to any material, Know-How or
intellectual property right, that the Party owns or has a license to such
material, Know-How or intellectual property right and has the ability to
grant access, a license, or a sublicense to such material, Know-How or
intellectual property right to the other Party as provided for herein without
violating an agreement with a Third Party as of the time the Party would be
first required hereunder to grant the other Party such access, license or
sublicense.

     1.7 "DERMATOLOGY FIELD" means the administration to humans of
therapeutic products for the treatment, prevention or diagnosis of any
dermatological disease or condition, including, without limitation, atopic
dermatitis, keloids/hypertrophic scars, pustular psoriasis and

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      2.
<PAGE>

scleroderma, but excluding (i) any cancer disease or condition, (ii) any
infectious disease or condition, and (iii) any indication outside of the IG
Field.

     1.8 "DERMATOLOGY SUBLICENSEE" means a Third Party to which Connetics has
granted a sublicense under the sublicense rights granted by InterMune to
Connetics pursuant to Section 4.1.

     1.9 "FDA" means the U.S. Food and Drug Administration, or any successor
agency.

     1.10 "GENE THERAPY" means the therapeutic or prophylactic treatment of a
human being with: (a) one or more oligonucleotides or nucleotide sequences,
in native form or chemically modified, which are introduced into the body in
free form, bound to a carrier molecule, contained in any molecular vesicle
(e.g. a liposome), incorporated into or attached to a vector of any type,
contained in any cellular construct and/or contained in any mechanical device
or (b) cells which have been manipulated EX VIVO using one or more
oligonucleotides or nucleotide sequences.

     1.11 "GENE THERAPY FIELD" means the administration to humans of Licensed
Gene Product for Gene Therapy for the treatment or prevention of any human
disease or condition, provided however, that "Gene Therapy Field" shall not
include any treatment or prevention of any type of cardiac or cardiovascular
disease or condition.

     1.12 "GENENTECH" means Genentech, Inc., a Delaware corporation with its
principal office at 1 DNA Way, South San Francisco, CA 94080.

     1.13 "GENENTECH LICENSE" means the License Agreement for Interferon
Gamma between Genentech and Connetics dated May 4, 1998, as amended by
Amendment No. 1 to License Agreement effective December 28, 1998, Amendment
No. 2 to License Agreement effective January 15, 1999, and Amendment No. 3,
all of which are attached hereto as Exhibit 1.13.

     1.14 "GENENTECH LICENSE RIGHTS" means all rights under Patents, Know-How
and trademarks granted to Connetics by Genentech under the Genentech License,
but only to the extent the Genentech License permits the practice of such
rights for the uses set forth in Article 3 herein. "Genentech License Rights"
shall not include any Third Party Product Rights.

     1.15 "GENENTECH PATENTS" means all the Patent rights which are granted
to Connetics under the Genentech License.

     1.16 "GENENTECH SUPPLY AGREEMENT" means the Supply Agreement entered
into between Genentech and Connetics dated May 4, 1998, a copy of which is
attached hereto as Exhibit 1.16.

     1.17 "IG FIELD" means the administration to humans of Licensed Protein
Product for the treatment or prevention of any human disease or condition,
provided however, that "IG Field" shall not include: (i) the administration
to humans of Licensed Protein Product for the treatment or prevention of any
type of arthritis or cardiac or cardiovascular disease or condition or (ii)
use of Licensed Protein Product for Gene Therapy.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      3.
<PAGE>

     1.18 "INTERFERON GAMMA" OR "IG" means the polypeptide described as
"Interferon Gamma" in Section 1.20 of the Genentech License.

     1.19 "INTERMUNE NET SALES" means "Net Sales" of Licensed Protein
Products in the Territory for use in the IG Field by InterMune and its
sublicensees hereunder other than Connetics and its Affiliates and
Dermatology Sublicensees.

     1.20 "KNOW-HOW" means all information, data, know-how, trade secrets,
inventions, developments, results, techniques and materials, whether or not
patentable.

     1.21 "LICENSED PRODUCT," "LICENSED GENE PRODUCT" AND "LICENSED PROTEIN
PRODUCT" shall each have the same meaning as defined in Section 1.22 of the
Genentech License (as amended by Amendment No. 3).

     1.22 "LICENSED TECHNOLOGY" means the Genentech License Rights and the
Connetics Know-How.

     1.23 "NET SALES" means "Net Sales" (as defined in Section 1.25 of the
Genentech License) of Licensed Protein Products in the Territory for use in
the IG Field by InterMune and any of its sublicensees hereunder.

     1.24 "PATENTS" means any and all issued or pending patents and patent
applications, both foreign and domestic, and including without limitation (a)
all divisionals, continuations and continuations-in-part of any such
applications, (b) any patents that issue from any of the foregoing, and (c)
all substitutions, extensions, reissues, renewals, supplementary protection
certificates and inventors' certificates with respect to any of the foregoing
issued patents.

     1.25 "TERRITORY" means the United States and Japan.

     1.26 "THIRD PARTY" means any party besides the Parties and their
respective Affiliates.

     1.27 "THIRD PARTY PRODUCT RIGHTS" shall have the meaning set forth in
Section 1.37 of the Genentech License (as amended by Amendment No. 3).

     1.28 "UNITED STATES" means the United States and its territories and
possessions.

2. ORIGINAL AGREEMENT SUPERSEDED

     The Parties agree that the Original Agreement is hereby replaced and
superseded in all respects by this Agreement as of the Effective Date.

3. LICENSES AND COVENANTS

     3.1 GENENTECH LICENSE RIGHTS.

          (a) Connetics hereby grants to InterMune the exclusive sublicense,
even as to Connetics, under the Genentech License Rights to develop, use,
sell, offer for sale, import, make and have made:

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      4.
<PAGE>

               (i) Licensed Protein Products in the IG Field in the
Territory, subject to any rights Connetics obtains under Section 4.1 below,
and

               (ii) Licensed Gene Products in the Gene Therapy Field in the
United States.

          (b) InterMune may sublicense any or all the foregoing rights to the
extent that Connetics is permitted to do so under the Genentech License.

     3.2 THIRD PARTY PRODUCT RIGHTS.

          (a) Connetics hereby grants to InterMune the exclusive sublicense,
even as to Connetics, under any Third Party Product Rights Connetics acquires
in Japan pursuant to Section 2.1(g)(iii) of the Genentech License (as amended
by Amendment No. 3), which sublicense may be further sublicensed by InterMune
to the extent that Connetics is permitted to do so under the Genentech
License.

                  (b) Connetics hereby assigns to InterMune its entire right,
title and interest to Connetics' rights of negotiation to Third Party Product
Rights pursuant to Section 2.1(h) of the Genentech License (as amended by
Amendment No. 3). In the event that Genentech notifies Connetics of the
availability of any such Third Party Product Rights, Connetics shall promptly
notify InterMune thereof.

         3.3 CONNETICS KNOW-HOW. Connetics hereby grants to InterMune a
non-exclusive license under the Connetics Know-How to develop, use, make,
have made, import, offer for sale and sell (a) Licensed Products in the
Territory, and (b) any products covered by Third Party Patent Rights to which
Connetics or InterMune acquires rights under the Genentech License in the
applicable territory.

         3.4 GENENTECH SUPPLY AGREEMENT. Connetics hereby assigns to
InterMune its entire right, title and interest under the Genentech Supply
Agreement and agrees to notify Genentech of such assignment in accordance
with Section 5.4 thereof. As of the Effective Date, InterMune shall be deemed
to be the successor in interest of Connetics under the Genentech Supply
Agreement and shall assume all obligations and be entitled to all rights of
Connetics under such agreement. InterMune hereby covenants that it shall
maintain the Genentech Supply Agreement effective and in good standing. To
the extent Connetics exercises its option pursuant to Section 4.1 below,
InterMune shall procure for and supply to Connetics (and its Dermatology
Sublicensees, if any) its requirements for Bulk Product and Finished Product
(as such terms are defined in the Genentech Supply Agreement) for use in the
Dermatology Field from Genentech pursuant to the Genentech Supply Agreement
or from any Third Party manufacturer(s) contracted by InterMune to
manufacture Finished Product and Bulk Product, provided that Connetics shall
pay to InterMune InterMune's cost, without markup, for procuring and
supplying such Finished Product and Bulk Product to Connetics.

         3.5 TRANSFER OF DATA AND MATERIALS. Promptly following the Effective
Date, Connetics and InterMune shall work cooperatively together to transfer
to InterMune all documents or materials in Connetics' possession comprising
or containing the Licensed Technology, including without limitation,
biological and chemical materials, regulatory filings,

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      5.
<PAGE>

and data, and Connetics shall transfer any and all additions or improvements
to the Licensed Technology to InterMune as soon as is reasonably practicable
after the creation, development or acquisition of such addition or
improvements.

         3.6 CONNETICS COVENANT. Connetics hereby covenants that it shall
maintain the Genentech License effective and in good standing subject to
InterMune's performance under Section 3.7 below.

         3.7 INTERMUNE PERFORMANCE UNDER GENENTECH LICENSE.

                  (a) InterMune shall perform in lieu and instead of
Connetics in carrying out the rights and obligations of Connetics under the
Genentech License to the extent permitted in Section 2.3(c) of the Genentech
License (including without limitation the insurance obligations set forth in
Section 10.4 of the License Agreement (as amended by Amendment No. 3)), and
except as set forth in Article 4 below. Connetics agrees to use commercially
reasonable diligent efforts to cooperate with InterMune to enable it to
exercise such rights and to perform such obligations thereunder.

                  (b) In the event that InterMune reasonably anticipates that
it is likely to materially default under any obligation under the Genentech
License that it is obligated to perform pursuant to subsection (a) above,
InterMune shall notify Connetics as promptly as reasonably practicable of
such default. At Connetics' request, InterMune shall cooperate fully with
Connetics in order to prevent, mitigate or cure such default.

4. OPTION TO DERMATOLOGY RIGHTS

         4.1 OPTION GRANT. InterMune hereby grants to Connetics the exclusive
option to obtain the exclusive sublicense under the Genentech License Rights
to develop, use, make, have made, import, offer for sale and sell Licensed
Protein Products for use solely in the Dermatology Field in the United
States, subject to Genentech's rights under the Genentech License. Connetics
may exercise such option at any time prior to the [ * ] anniversary of the
Effective Date by providing InterMune written notice of its desire to
exercise such option. Upon InterMune's receipt of such notice, InterMune
shall be deemed to have granted to Connetics the exclusive, royalty-free
(with respect to InterMune only), sublicense under the Genentech License
Rights to use, make, have made, import, offer for sale and sell Licensed
Protein Products in the Dermatology Field in the United States for the term
of this Agreement, subject to the terms of the Genentech License, and
Connetics shall undertake all obligations under the Genentech License
relating to its development and commercialization of Licensed Protein
Products in the Dermatology Field in the United States, including without
limitation those obligations described in Sections 4.2 and 4.4 below. Such
sublicense shall be further sublicenseable by Connetics to the extent
permitted by the Genentech License. If not exercised by the [ * ] anniversary
of the Effective Date, the option granted in this Section 4.1 shall expire.

         4.2 PAYMENTS AND OTHER OBLIGATIONS UNDER GENENTECH LICENSE. If
Connetics exercises such option as set forth in Section 4.1 above:

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      6.
<PAGE>

                         (i) In the event that Connetics or a Dermatology
Sublicensee achieves one of the milestones set forth in Sections 8.2(a) or
(b) of the Genentech License with respect to its Licensed Protein Product,
Connetics or such Dermatology Sublicensee shall inform InterMune thereof and
provide such milestone payment due under the Genentech License to InterMune,
and InterMune agrees to render such payment to Genentech on behalf of
Connetics.

                         (ii) In the event that milestone payments to
Genentech as set forth in Sections 8.1 (c) and (d) of the Genentech License
are triggered by the sale of Licensed Protein Product by both Connetics and
InterMune (and/or their sublicensees) in the Territory, the Parties shall
promptly meet and in good faith determine a fair apportionment between the
Parties of the payment to be made to Genentech for such milestone based upon
the relative Net Sales of each Party for such calendar year or other agreed
upon method of apportionment. Connetics shall then submit to InterMune its
portion of such milestone payment in accordance with the terms of the
Genentech License, and InterMune agrees to render such payment to Genentech
on behalf of Connetics.

                  (b) ROYALTIES. Connetics shall be responsible for making
all payments due (i) to Genentech under Section 8.3 of the Genentech License,
and (ii) to Genentech or any other Third Party under Section 8.4 of the
Genentech License, in each case on Net Sales of Licensed Protein Products by
Connetics, its Affiliates and its Dermatology Sublicensees, in accordance
with the Genentech License.

                  (c) DEFAULT. In the event that Connetics reasonably
anticipates that it is likely to materially default under any obligation
under the Genentech License that it is obligated to perform under Section
4.1, including without limitation the obligations described in subsections
(a) and (b) above, Connetics shall notify InterMune as promptly as reasonably
practicable of the nature of such default. At InterMune's request, Connetics
shall cooperate fully with InterMune in order to prevent, mitigate or cure
such default.

         4.3 OFF-LABEL SALES.  If Connetics exercises the option set forth in
Section 4.1 then:

                  (a) Each Party agrees and shall require its sublicensees,
if any, to use commercially reasonable efforts to formulate all Licensed
Protein Products developed by such Party or sublicensee thereof in a manner
to reduce, to the extent reasonably practicable, the possibility that such
Licensed Protein Product can be used in the other Party's field of use as
provided hereunder. If a Party cannot so formulate a particular Licensed
Protein Product, then such Party agrees to use its Best Efforts to prevent
sales of such Licensed Protein Product for use in the other Party's field of
use, including without limitation instructing its sales forces, and requiring
all sublicensees to instruct their sales forces, that such Licensed Protein
Product is not to be promoted, marketed or sold for use in the other Party's
field of use.

                  (b) In the event that either Party determines that a
Licensed Protein Product is being used in a field of use other than for which
it was intended, such Party shall immediately inform the other Party. The
Parties shall then promptly meet and diligently and in good faith determine a
fair and reasonable mechanism for equitable allocation of the sales of such
Licensed Protein Product that are used outside the field of use for which
they are intended.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      7.
<PAGE>

         4.4 PATENT COSTS. If Connetics exercises the option set forth in
Section 4.1, then Connetics agrees to reimburse InterMune all costs paid by
InterMune to Genentech under Section 5.2 of the Genentech License which
relate to any patent or patent application the claims of which: (a) are
specifically directed to a Licensed Protein Product for use in the
Dermatology Field and (b) do not relate to a Licensed Protein Product for use
in any area of the IG Field other than the Dermatology Field.

         4.5 MILESTONE PAYMENTS. If Connetics exercises its options under
Section 4.1, then Connetics shall make the following cash milestone payments
to InterMune:

                  (a) [ * ] within thirty (30) days following the date on
which the first NDA or BLA for a Licensed Protein Product is filed with the
FDA by Connetics for an indication in the Dermatology Field.

                  (b) [ * ] within thirty (30) days following the date
Connetics receives FDA clearance for each new indication in the Dermatology
Field of a Licensed Protein Product for commercial sale in the United States.

         4.6 DERMATOLOGICAL INDICATIONS OUTSIDE OF THE DERMATOLOGY FIELD.

                  (a) It is the intention of the Parties that Connetics shall
be InterMune's preferred marketing partner for sales of Licensed Protein
Product to dermatologists in the United States during the term of this
Agreement. Therefore, during the term of this Agreement, if either Party
desires to sell Licensed Protein Product to dermatologists in the United
States for use for indications that are outside of the Dermatology Field but
within the IG Field (an "Outside Indication"), the provisions of this Section
4.6 shall apply.

                  (b) In the event that either Party desires to sell a
Licensed Protein Product for an Outside Indication to dermatologists in the
United States during the term of this Agreement, such Party shall give the
other Party written notice of such interest, which notice shall specify the
indication of interest. If InterMune notifies Connetics that InterMune itself
desires to sell such Licensed Protein Product for an Outside Indication
directly to dermatologists in the United States, then the procedures of
subsection (d) shall apply. Otherwise, for ninety (90) days following receipt
of such notice, the Parties shall exclusively negotiate in good faith for the
reasonable commercial terms under which Connetics shall exclusively sell such
Licensed Protein Product for such Outside Indication to dermatologists in the
United States. In the event that, at the end of such ninety (90) day period,
the Parties have failed to enter into a written agreement on such
commercially reasonable terms, Connetics' rights with respect to the sale of
such Licensed Protein Product for such Outside Indication shall terminate and
InterMune shall have no further obligations to Connetics under this Section
4.6 with respect to such Licensed Protein Product for such Outside Indication
except as set forth is subsections (c) and (d) below.

                  (c) If the Parties have failed to enter into an agreement
by the end of such ninety (90) day period, as described in subsection (b)
above, InterMune shall then have the right during the following one hundred
eighty (180) day period to enter into an agreement with a Third Party for the
sale to dermatologists of such Licensed Protein Product for such Outside
Indication on economic terms that, taken as a whole, are substantially the
same as, or more favorable to

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      8.
<PAGE>

InterMune than, those last offered in writing by Connetics for such rights
pursuant to subsection (b) above. If at the end of such one hundred eighty
(180) day period InterMune has not entered into an agreement with a Third
Party to sell such Licensed Protein Product for such Outside Indication to
dermatologists in the United States, then the procedures set forth in
subsection (b) above shall again apply, provided that InterMune may proceed
alternatively under subsection (d) below.

                  (d) If InterMune itself desires to sell such Licensed
Protein Product to dermatologists in the United States for Outside
Indications, then upon written notice from InterMune, Connetics and InterMune
shall enter into good faith negotiations, for a period of ninety (90) days
from Connetics' receipt of such notice, for the reasonable commercial terms
upon which InterMune shall grant to Connetics the rights to co-promote such
Licensed Protein Product for such Outside Indication to dermatologists in the
United States. InterMune agrees that it shall not unreasonably withhold its
agreement to such commercially reasonable terms. In the event that, at the
end of such ninety (90) day period, the Parties have failed to enter into a
written agreement for such co-promotion rights, InterMune shall have no
further obligations to Connetics under this Section 4.6 with respect to such
Licensed Protein Product for such Outside Indication, PROVIDED THAT InterMune
may not enter into an agreement with a Third Party for the rights to
co-promote Licensed Protein Product for such Outside Indication to
dermatologists in the United States on economic terms that, taken as a whole,
are less favorable to InterMune than those last offered in writing by
Connetics for such rights. In the event that InterMune does not enter into
such a co-promotion agreement with a third party and instead solely promotes
and sells such Licensed Protein Product for such Outside Indication to
dermatologists in the United States itself, if at any time following such
sole promotion and sale InterMune determines in its sole discretion that it
desires to grant a license to the rights to promote and sell the rights to
co-promote such Licensed Protein Product for such Outside Indication to
dermatologists in the United States to another party (other than an
Affiliate), then the procedures set forth in subsection (b) above shall apply.

5. CONSIDERATION

         5.1 ROYALTIES.

                  (a) Beginning on January 1, 2002, InterMune shall pay to
Connetics a royalty of [ * ] of InterMune Net Sales in the United States.
InterMune shall continue to pay such royalties to Connetics until such time
as the cumulative InterMune Net Sales in United States, beginning on January
1, 2000, are equal to [ * ]. Thereafter, InterMune shall pay to Connetics a
royalty of [ * ] of InterMune Net Sales in the United States for the
remainder of the term of the Agreement.

                  (b) All royalties due under this Section 5.1 shall be due
and payable quarterly within thirty (30) days following the last day of each
quarter in which royalties are incurred beginning with first calendar quarter
of 2002.

         5.2 MILESTONE PAYMENT. InterMune shall pay to Connetics a milestone
payment of one million five hundred thousand dollars ($1,500,000), as follows
(the "Milestone Payment"), payable in a lump sum or in installments based on
the level of InterMune Net Sales as follows:

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      9.

<PAGE>

                  (a) If annualized InterMune Net Sales in the United States
for 2001, based on InterMune Net Sales in the United States for the third and
fourth calendar quarters of 2001, ("2001 Net Sales") are equal to or greater
than [ * ], then on March 31, 2002, InterMune shall, at its election, either
(i) pay the full Milestone Payment to Connetics, or (ii) pay to Connetics
[ * ] of the Milestone Payment and furnish to Connetics a promissory note for
the balance of the Milestone Payment, which promissory note shall provide for
three (3) principal payments to Connetics of [ * ] each due upon June 30,
2002, September 30, 2002 and December 31, 2002, respectively.

                  (b) If 2001 Net Sales are equal to or greater than [ * ]
but less than [ * ], then on March 31, 2002, InterMune shall pay to Connetics
[ * ] of the Milestone Payment, and furnish to Connetics a promissory note for
the balance of the Milestone Payment (the "Remaining Payment"), which
promissory note shall provide for full payment of the balance of such note to
Connetics on the earlier to occur of (i) March 31, 2004, or (ii) the last day
of the month following the consecutive twelve (12) month period that
InterMune Net Sales in the United States are equal to or greater than [ * ],
subject to subsection (d) below.

                  (c) If 2001 Net Sales are less than [ * ], then on March
31, 2002, InterMune shall pay to Connetics a portion of the Milestone Payment
equal to [ * ] multiplied by a fraction, the numerator of which is 2001 Net
Sales and the denominator of which is [ * ]. InterMune shall furnish to
Connetics a promissory note for the balance of the Milestone Payment (the
"Remaining Payment"), which promissory note shall provide for full payment of
the balance of such note to Connetics on the earlier to occur of (i) March
31, 2004, or (ii) the last day of the month following the consecutive twelve
(12) month period that InterMune Net Sales in the United States are equal to
or greater than [ * ], subject to subsection (d) below.

                  (d) With respect to the promissory note for the Remaining
Payment described in subsection (b) or (c) above, if InterMune is to pay the
balance of such note on March 31, 2004, and InterMune Net Sales in the United
States for the twelve (12) month period preceding March 31, 2004 are equal to
or greater than [ * ] but less than [ * ], then:

                         (i) InterMune may, at its election, pay [ * ] of the
Remaining Payment either in cash or in Preferred Shares of InterMune stock at
the fair market value of such shares, determined as the average closing price
of such shares over the previous thirty (30) day period; and

                         (ii) With respect to the other [ * ] of the
Remaining Payment, Connetics may, at its election, receive such fifty percent
either in cash or in Preferred Shares of InterMune stock at the fair market
value of such shares, determined as the average closing price of such shares
over the previous thirty (30) day period, provided that Connetics shall
notify InterMune of its election in writing at least thirty (30) days prior
to the date that such payment is due; and

                  (e) With respect to the Remaining Payment described in
subsection (b) or (c) above, if InterMune is to pay the balance of such note
on March 31, 2004, and InterMune Net Sales in the United States for the
twelve (12) month period preceding March 31, 2004 are less than [ * ], then
InterMune may, at its election, either:

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                     10.
<PAGE>

                         (1) Pay such Remaining Payment in cash or in
Preferred Shares of InterMune stock at the fair market value of such shares,
determined as the average closing price of such shares over the previous
thirty (30) day period; or

                         (2) Grant to Connetics the license to the Accounting
and Revenue Rights to CGD Units (as defined below), on commercially
reasonable terms to be agreed upon by the Parties, in which event InterMune
shall thereafter have no further obligation to Connetics with respect to such
Remaining Payment. Such license shall be [ * ] with respect to InterMune but
not with respect to Genentech or any other Third Party, and shall expire upon
the date of expiration of the last to expire Genentech Patent covering the
manufacture, use or sale of Licensed Products for the treatment of CGD in the
United States and its territories and possessions. As used herein,
"Accounting and Revenue Rights to CGD Units" means the right to book net
revenues, expenses and net profits for the sales of Licensed Product for the
treatment of chronic granulomatous disease by InterMune and its sublicensees
in the United States.

               (f) All promissory notes referred to in this Section 5.2 shall
bear interest at the rate of the prime rate plus [ * ].

         5.3 REPORTS; AUDIT RIGHTS. InterMune shall provide to Connetics a
copy of all reports submitted to Genentech by InterMune pursuant to Section
8.8 of the Genentech License when InterMune submits such report to Genentech.
Connetics shall furthermore have the same audit rights as Genentech pursuant
to Section 8.8.

         5.4 PAYMENTS UNDER GENENTECH LICENSE. InterMune shall make, on
behalf of Connetics, all payments owed by Connetics to Genentech under
Sections 8.2 and 8.3 of the Genentech License with respect to InterMune's
activities hereunder, except as set forth in Section 4.2 above. Each Party
shall be responsible for paying all royalties due to Third Parties other than
Genentech under Section 8.4 of the Genentech License with respect to such
Party's and/or sublicensee thereof activities hereunder.

6. INTELLECTUAL PROPERTY

         6.1 OWNERSHIP OF INVENTIONS. Each Party shall remain the sole owner
of its respective technology and other intellectual property that it owned as
of the Effective Date. A Party shall not have or acquire any rights in any
inventions, Know-How or intellectual property rights of the other Party,
except as specifically granted herein.

         6.2 PATENT PROSECUTION. InterMune shall have all the rights of
Connetics under the Genentech License to participate in the prosecution of
the Genentech Patents, and shall pay all patent costs due under the Genentech
License, except as set forth in Section 4.4 above.

         6.3 INFRINGEMENT OF THIRD PARTY PATENTS. In the event that a Third
Party files an action against a Party alleging that such Party's activities
under this Agreement infringe such Third Party's patent rights, such Party
shall give written notice to the other Party, and the Parties will consult
and cooperate on the best course of action. The Party that was sued shall
have the right to defend itself against such action, and the other Party
shall provide all reasonable assistance in such defense.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                     11.
<PAGE>

         6.4 INFRINGEMENT OF LICENSED PATENTS. In the event that either Party
becomes aware that a Third Party is infringing any rights in the Genentech
Patents, such Party shall promptly notify the other. InterMune shall have the
right, in Connetics' stead, to enforce the Genentech Patents to the full
extent Connetics has such rights under the Genentech License, and Connetics
will reasonably cooperate with InterMune in such enforcement actions and take
all reasonably necessary steps to facilitate InterMune's enforcement of the
Genentech Patents.

         6.5 COOPERATION. Each Party agrees to cooperate with the other and
take all reasonable additional actions as may be reasonably required to
achieve the intent of this Article 5, including, without limitation, the
execution of all necessary and appropriate instruments and documents.

7. REPRESENTATIONS AND WARRANTIES

         7.1 MUTUAL REPRESENTATIONS AND WARRANTIES. Each Party hereby
represents and warrants to the other Party as follows:

                  (a) Such Party (i) is duly organized, validly existing and
in good standing under the laws of the state in which it is organized; (ii)
has the power and authority and the legal right to own and operate its
property and assets, to lease the property and assets it operates under
lease, and to carry on its business as it is now being conducted; and (iii)
is in compliance with all requirements of applicable law, except to the
extent that any noncompliance would not materially adversely affect such
Party's ability to perform its obligations under the Agreement.

                  (b) Such Party (i) has the power and authority and the
legal right to enter into the Agreement and to perform its obligations
hereunder, and (ii) has taken all necessary action on its part to authorize
the execution and delivery of the Agreement and the performance of its
obligations hereunder. The Agreement has been duly executed and delivered on
behalf of such Party, and constitutes a legal, valid, binding obligation,
enforceable against such Party in accordance with its terms.

                  (c) All necessary consents, approvals and authorizations of
all governmental authorities and other persons required to be obtained by
such Party in connection with the Agreement have been obtained.

                  (d) The execution and delivery of the Agreement and the
performance of such Party's obligations hereunder (i) do not conflict with or
violate any requirement of applicable laws or regulations or any material
contractual obligation of such Party, and (ii) do not materially conflict
with, or constitute a material default or require any consent under any
material contractual obligation of such Party.

         7.2 CONNETICS REPRESENTATIONS AND WARRANTIES. Connetics hereby
represents and warrants that:

                  (a) To Connetics' knowledge as of the Effective Date, the
Licensed Technology practiced as permitted herein does not infringe on any
intellectual property rights owned by any Third Party.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                     12.
<PAGE>

                  (b) Connetics possesses the necessary interest, title and
right to the Licensed Technology to grant the licenses and to make the
assignments to InterMune hereunder.

8. INDEMNIFICATION

         8.1 INDEMNIFICATION BY CONNETICS. Connetics agrees to indemnify,
hold harmless and defend InterMune and InterMune's directors, officers,
employees and agents, and the directors, officers, employees and agents of
any InterMune Affiliate from and against any and all claims, suits, losses,
damages, costs, fees and expenses resulting from or arising out of any
negligent or wrongful act or omission by Connetics or its Affiliates, or any
breach by Connetics of its obligations under this Agreement or under the
Genentech License, except to the extent that such claims, suits, losses,
damages, costs, fees or expenses arises or results from any negligent or
wrongful act or omission of InterMune or its Affiliates.

         8.2 INDEMNIFICATION BY INTERMUNE. InterMune agrees to indemnify,
hold harmless and defend Connetics and its directors, officers, employees and
agents, and the directors, officers, employees and agents of any Connetics
Affiliates from and against any and all claims, suits, losses, damages,
costs, fees and expenses resulting from or arising out of damage or injury
caused by a negligent or wrongful act or omission of InterMune or its
Affiliates, or any breach by InterMune of its obligations under this
Agreement, except to the extent that such claims, suits, losses, damages,
costs, fees or expenses arises or results from any negligent or wrongful act
or omission of Connetics or its Affiliates.

         8.3 INDEMNIFICATION PROCEDURE. In all cases where one Party seeks
indemnification by the other under this Article 8, the Party seeking
indemnification shall promptly notify the indemnifying Party of receipt of
any claim or lawsuit covered by such indemnification obligation and shall
cooperate fully with the indemnifying Party in connection with the
investigation and defense of such claim or lawsuit. The indemnifying Party
shall have the right to control the defense, with counsel of its choice,
provided that the non-indemnifying Party shall have the right to be
represented by advisory counsel at its own expense. The indemnifying Party
shall not settle or dispose of the matter in any manner which could
negatively and materially affect the rights or liability of the
non-indemnifying Party without the non-indemnifying Party's prior written
consent, which shall not be unreasonably withheld.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                     13.
<PAGE>

9. CONFIDENTIALITY

         9.1 CONFIDENTIAL INFORMATION OBLIGATIONS. As used herein,
"Confidential Information" means all information that a Party discloses to
the other Party under this Agreement or had disclosed to the other Party
under the Original Agreement, provided that Confidential Information shall
not include such information excluded under Section 9.2. Except to the extent
expressly authorized by this Agreement or otherwise agreed in writing by the
Parties, each Party agrees that, during the term of this Agreement and for
five (5) years after the expiration or termination of this Agreement, it
shall keep confidential and shall not publish or otherwise disclose and shall
not use for any purpose other than as provided for in this Agreement any
Confidential Information furnished to it by the other Party pursuant to this
Agreement.

         9.2 EXCEPTIONS. The obligations set forth in Section 9.1 shall not
apply to any Information that the receiving Party can demonstrate by
competent evidence:

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

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

                  (d) was disclosed to the receiving Party, other than under
an obligation of confidentiality to a third Party, by a third Party who had
no obligation to the disclosing Party not to disclose such information to
others; or

                  (e) is independently developed by the receiving Party
without using any of the other Party's Confidential Information.

         9.3 TERMS OF THE AGREEMENT. The Parties agree that the terms of the
Agreement will be considered Confidential Information of both Parties.
Notwithstanding the foregoing, a Party shall have the right to disclose the
material financial terms of the Agreement to any bona fide potential
investor, investment banker, acquiror, merger partner or other potential
financial partner, subject to such Party obtaining the agreement of such
party receiving such Confidential Information to keep such information
confidential.

         9.4 PERMITTED DISCLOSURE. Notwithstanding the limitations in this
Article 9, each Party may disclose Confidential Information belonging to the
other Party (or otherwise subject to this Article 9), to the extent such
disclosure is reasonably necessary in the following instances, but solely for
the limited purpose of such necessity:

                  (a) filing or prosecuting Patents;

                  (b) regulatory and tax filings;

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                     14.
<PAGE>

                  (c) prosecuting or defending litigation;

                  (d) complying with applicable governmental laws or
regulations or valid court orders;

                  (e) conducting preclinical or clinical trials of Licensed
Products; and

                  (f) disclosure to Affiliates, licensees, sublicensees,
employees, consultants or agents who agree to be bound by similar terms of
confidentiality and non-use at least equivalent in scope to those set forth
in this Article 9.

         Notwithstanding the foregoing, in the event a Party is required to
make a disclosure of the other Party's Confidential Information pursuant to
Section 9.4, it will give reasonable advance notice to the other Party of
such disclosure and endeavor in good faith to secure confidential treatment
of such information. In any event, the Parties agree to take all reasonable
action to avoid disclosure of Confidential Information hereunder. Further,
the Parties agree to consult with one another on the provisions of this
Agreement to be redacted in any filings made by a Party with the United
States Securities and Exchange Commission or as otherwise required by law.

10. TERMINATION

         10.1 TERM OF AGREEMENT. The term of this Agreement shall expire,
unless earlier terminated as provided by Section 10.2 below, upon expiration
or termination of the Genentech License.

         10.2 TERMINATION FOR MATERIAL BREACH. If either Party shall default
in a material manner with respect to any material provision of this Agreement
and the other Party shall have given the defaulting Party written notice of
such default, the defaulting Party shall have thirty (30) days to cure such
default. If such default is not cured within such thirty (30) day period, the
non-defaulting Party shall have the right, upon notice to the defaulting
Party and without prejudice to any other rights the non-defaulting Party may
have, to terminate this Agreement unless the defaulting Party is in the
process of attempting in good faith to remedy such default, in which case,
the thirty (30) day cure period shall be extended by an additional thirty
(30) days. Any material default by InterMune in the performance of any
material obligation under the Genentech License assumed by InterMune pursuant
to Section 3.7 of this Agreement shall be deemed a material default of this
Agreement and shall entitle Connetics to terminate this Agreement in
accordance with this Section 10.2.

         10.3 EFFECT OF TERMINATION. Upon termination or expiration of the
Agreement, (a) all licenses granted by Connetics to InterMune under Article 2
will terminate; (b) any and all claims and payment obligations that accrued
prior to the date of such termination or expiration shall survive such
termination; (c) each Party shall return all of the other Party's
Confidential Information; and (d) all right, title and interest of InterMune
under the Genentech Supply Agreement shall revert to Connetics, and Connetics
shall be deemed to be the successor in interest of InterMune under the
Genentech Supply Agreement and shall assume all obligations and be entitled
to all rights of InterMune under such agreement.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                     15.
<PAGE>

         10.4 SURVIVING RIGHTS. The obligations and rights of the Parties
under Section 5.3, 6.1, and Articles 8, 9, 10 and 11 shall survive
termination or expiration of the Agreement.

         10.5 ACCRUED RIGHTS AND SURVIVING OBLIGATIONS. The termination or
expiration of the 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 or expiration, including any damages arising from any breach
hereunder. Such termination or expiration shall not relieve either Party from
obligations which are expressly indicated to survive termination or
expiration of the Agreement.

         10.6 BANKRUPTCY RIGHTS. In the event that this Agreement is
terminated or rejected by a Party or its receiver or trustee under applicable
bankruptcy laws due to such Party's bankruptcy, then all rights and licenses
granted under or pursuant to this Agreement by such Party to the other Party
are, and shall otherwise be deemed to be, for purposes of Section 365(n) of
the Bankruptcy Code and any similar law or regulation in any other country,
licenses of rights to "intellectual property" as defined under Section
101(52) of the Bankruptcy Code. The Parties agree that all intellectual
property rights licensed hereunder, including without limitation any patents
or patent applications in any country of a Party covered by the license
grants under this Agreement, are part of the "intellectual property" as
defined under Section 101(52) of the Bankruptcy Code subject to the
protections afforded the non-terminating Party under Section 365(n) of the
Bankruptcy Code, and any similar law or regulation in any other country.

11. MISCELLANEOUS

         11.1 WAIVER. No waiver by either Party hereto of any breach or
default of any of the covenants or agreements herein set forth shall be
deemed a waiver as to any subsequent or similar breach or default.

         11.2 ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of the Parties hereto and their permitted successors and assigns;
provided, however, that neither Party shall assign any of its rights and
obligations hereunder without the prior written consent of the other Party,
except as incident to the merger, consolidation, reorganization or
acquisition of stock or assets affecting substantially all of the assets or
actual voting control of the assigning Party. Any assignment or attempted
assignment by either Party in violation of the terms of this Section 10.2
shall be null and void and of no legal effect.

         11.3 NOTICES. Any notice or other communication required or
permitted to be given to either Party hereto shall be in writing and shall be
deemed to have been properly given and to be effective on the date of
delivery if delivered in person or by facsimile or five (5) days after
mailing by registered or certified mail, postage paid, to the other Party at
the following address:

         In the case of InterMune:        InterMune, Inc.
                                          3294 West Bayshore Road
                                          Palo Alto, CA 94303
                                          Fax: (650) 858-2937
                                          Attention:  President

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                     16.
<PAGE>

         with a copy to:                  Cooley Godward LLP
                                          Five Palo Alto Square
                                          Palo Alto, CA 94306
                                          Fax: (650) 857-0663
                                          Attention:  Barclay James Kamb, Esq.

         In the case of Connetics:        Connetics Corporation
                                          3400 West Bayshore Road
                                          Palo Alto, CA 94303
                                          Fax: (650) 843-2899
                                          Attention:  Chief Executive Officer

Either Party may change its address for communications by a notice to the
other Party in accordance with this Section.

         11.4 HEADINGS. The headings of the several sections are inserted for
convenience of reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.

         11.5 AMENDMENT. No amendment or modification hereof shall be valid
or binding upon the Parties unless made in writing and signed by both Parties.

         11.6 GOVERNING LAW. This Agreement shall be governed exclusively by
the laws of the State of California, U.S.A., as such law applies to contracts
entered into between and to be performed by California residents entirely in
the State of California.

         11.7 DISPUTE RESOLUTION.

                  (a) 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 President of InterMune and the Chief Executive Officer
of Connetics 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 ten (10) 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 initiating such negotiations, either Party may seek to
have such dispute resolved by binding arbitration under this Section 11.7.
The arbitration shall be held in Palo Alto, California according to the
Commercial Arbitration Rules of the American Arbitration Association (the
"Rules"). The arbitration will be conducted by a panel of three (3)
arbitrators who are knowledgeable in the subject matter that is at issue in
the dispute, are not affiliated directly or indirectly with either Party, and
are selected by mutual agreement of the Parties. Failing such agreement, the
arbitrators shall be selected appointed as provided in the Rules. During the
arbitration, the Parties shall have such discovery rights as the arbitrators
may allow, consistent with the discovery permitted by the Federal Code of
Civil Procedure. In conducting the arbitration, the arbitrators shall apply
the rules of evidence applicable in California, and shall be

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                     17.
<PAGE>

able to decree any and all relief of an equitable nature, including but not
limited to such relief as a temporary restraining order, a preliminary
injunction, a permanent injunction, or replevin of property, as well as
specific performance. The arbitrators shall also be able to award direct and
indirect damages, but shall not award any other form of damage (e.g.,
punitive or exemplary damages). The reasonable fees and expenses, of the
arbitrators, along with the reasonable legal fees and expenses of the
prevailing Party (including all expert witness fees and expenses), the fees
and expenses of a court reporter, and any expenses for a hearing room, shall
be paid as follows: If the arbitrators rule in favor of one Party on all
disputed issues in the arbitration, the losing Party shall pay one hundred
percent (100%) of such fees and expenses; if the arbitrators rule in favor of
one Party on some issues and the other Party on other issues, the arbitrators
shall issue with the rulings a written determination as to how such fees and
expenses shall be allocated between the Parties. The arbitrators shall
allocate fees and expenses in a way that bears a reasonable relationship to
the outcome of the arbitration, with the Party prevailing on more issues, or
on issues of greater value or gravity, recovering a relatively larger share
of its legal fees and expenses. The decision of the arbitrators shall be
final and may be entered, sued on or enforced by the Party in whose favor it
runs in any court of competent jurisdiction at the option of such Party.
Whether a claim, dispute or other matter in question would be barred by the
applicable statute of limitations, which statute of limitations also shall
apply to any claim or disputes subject to arbitration under this Section,
shall be determined by binding arbitration pursuant to this Section.

                  (b) Notwithstanding anything to the contrary in this
Agreement, either Party may seek immediate injunctive or other interim relief
without resort to arbitration from any court of competent jurisdiction with
respect to any breach of Article 9 hereof, or as necessary to enforce and
prevent infringement of the patent rights, copyright rights, trademarks,
trade secrets, or other intellectual property rights owned or controlled by a
Party or its Affiliates.

         11.8 FORCE MAJEURE. Any delays in performance by any Party under
this Agreement shall not be considered a breach of this Agreement if and to
the extent caused by occurrences beyond the reasonable control of the Party
affected, including but not limited to acts of God, embargoes, governmental
restrictions, fire, flood, explosion, riots, wars, civil disorder, rebellion
or sabotage. The Party suffering such occurrence shall immediately notify the
other Party as soon as practicable, and any time for performance hereunder
shall be extended by the actual time of delay caused by the occurrence.

         11.9 INDEPENDENT CONTRACTORS. In making and performing this
Agreement, InterMune and Connetics act and shall act at all times as
independent contractors and nothing contained in this Agreement shall be
construed or implied to create an agency, partnership or employer and
employee relationship between InterMune and Connetics. At no time shall one
Party make commitments or incur any charges or expenses for or in the name of
the other Party.

         11.10 SEVERABILITY. If any part of this Agreement is declared
invalid by any legally governing authority having jurisdiction over either
Party, then such declaration shall not affect the remainder of the Agreement
and the Parties shall revise the invalidated part in a manner that will
render such provision valid without impairing the Parties' original interest.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                     18.
<PAGE>

         11.11 CUMULATIVE RIGHTS. The rights, powers and remedies hereunder
shall be in addition to, and not in limitation of, all rights, powers and
remedies provided at law or in equity, or under any other agreement between
the Parties. All of such rights, powers and remedies shall be cumulative, and
may be exercised successively or cumulatively.

         11.12 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original and all of which shall
constitute together the same document.

         11.13 ENTIRE AGREEMENT. This Agreement and any and all Exhibits
referred to herein, in conjunction with the other "Intercompany Agreements"
(as that term is described in the Collaboration Agreement), embodies the
entire understanding of the Parties with respect to the subject matter of the
Intercompany Agreements, and supersedes and terminates all previous
communications, representations or understandings, either oral or written,
between the Parties relating to the subject matter of the Intercompany
Agreements.

                       THIS SPACE INTENTIONALLY LEFT BLANK

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                     19.
<PAGE>

         IN WITNESS WHEREOF, both InterMune and Connetics have executed this
Agreement, as of the day and year first written above.

INTERMUNE PHARMACEUTICALS, INC.        CONNETICS CORPORATION

By:  /s/ W. Scott Harkonen             By:  /s/ T. Wiggans
    -------------------------------        ----------------------------------

Name:  W. Scott Harkonen               Name:  Thomas Wiggans
      -----------------------------          --------------------------------

Title:  President                      Title:  President
       ----------------------------           -------------------------------

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                     20.
<PAGE>

                                 EXHIBIT 1.13

                         GENENTECH LICENSE (AS AMENDED)

         The Genentech License (as amended) was filed with the SEC by
Connetics Corporation as Exhibits 10.3 (Second Amendment) and 10.4 (Third
Amendment) to its Quarterly Report on Form 10-Q for the Period Ended March
31, 1999, as filed May 13, 1999; Exhibit 10.63 (First Amendment) to its
Quarterly Report on Form 10K-405 for the Period Ended December 31, 1998 as
filed March 30, 1999; and Exhibit 10.2 (the original License) to its
Quarterly Report on Form 10-Q for the Period Ended June 30, 1998 as filed
August 13, 1998, and is hereby incorporated by reference.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      1.
<PAGE>

                                 EXHIBIT 1.16

                          GENENTECH SUPPLY AGREEMENT

The Genentech Supply Agreement was filed with the SEC by Connetics
Corporation as Exhibit 10.3 to its Quarterly Report on Form 10-Q for the
Period Ended June 30, 1998, as filed August 13, 1998, and is hereby
incorporated by reference.

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      1.
<PAGE>

<TABLE>

<S>      <C>      <C>                                                                                            <C>
1.       DEFINITIONS..............................................................................................2

         1.1      "Affiliate".....................................................................................2

         1.2      "Amendment No. 3"...............................................................................2

         1.3      "Best Efforts"..................................................................................2

         1.4      "BLA"...........................................................................................2

         1.5      "Connetics Know-How"............................................................................2

         1.6      "Controlled"....................................................................................2

         1.7      "Dermatology Field".............................................................................2

         1.9      "FDA"...........................................................................................3

         1.10     "Gene Therapy"..................................................................................3

         1.11     "Gene Therapy Field"............................................................................3

         1.12     "Genentech".....................................................................................3

         1.13     "Genentech License".............................................................................3

         1.14     "Genentech License Rights"......................................................................3

         1.15     "Genentech Patents".............................................................................3

         1.16     "Genentech Supply Agreement"....................................................................3

         1.17     "IG Field"......................................................................................3

         1.18     "Interferon Gamma" or "IG"......................................................................3

         1.19     "InterMune Net Sales"...........................................................................4

         1.20     "Know-How"......................................................................................4

         1.21     "Licensed Product," "Licensed Gene Product" and "Licensed Protein Product"......................4

         1.22     "Licensed Technology"...........................................................................4

         1.23     "Net Sales".....................................................................................4

         1.24     "Patents".......................................................................................4

         1.25     "Territory".....................................................................................4

         1.26     "Third Party"...................................................................................4

         1.27     "Third Party Product Rights"....................................................................4

         1.28     "United States".................................................................................4

2.       ORIGINAL AGREEMENT SUPERSEDED............................................................................4

3.       LICENSES AND COVENANTS...................................................................................4

         3.1      Genentech License Rights........................................................................4

         3.2      Third Party Product Rights......................................................................5
</TABLE>

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      1.
<PAGE>

<TABLE>

<S>      <C>      <C>                                                                                            <C>
         3.3      Connetics Know-How..............................................................................5

         3.4      Genentech Supply Agreement......................................................................5

         3.5      Transfer of Data and Materials..................................................................5

         3.6      Connetics Covenant..............................................................................6

         3.7      InterMune Performance under Genentech License...................................................6

4.       OPTION TO DERMATOLOGY RIGHTS.............................................................................6

         4.1      Option Grant....................................................................................6

         4.2      Payments and Other Obligations under Genentech License..........................................6

         4.3      Off-Label Sales.................................................................................7

         4.4      Patent Costs....................................................................................7

         4.5      Milestone Payments..............................................................................8

         4.6      Dermatological Indications Outside of the Dermatology Field.....................................8

5.       CONSIDERATION............................................................................................9

         5.1      Royalties.......................................................................................9

         5.2      Milestone Payment...............................................................................9

         5.3      Reports; Audit Rights..........................................................................11

         5.4      Payments under Genentech License...............................................................11

6.       INTELLECTUAL PROPERTY...................................................................................11

         6.1      Ownership of Inventions........................................................................11

         6.2      Patent Prosecution.............................................................................12

         6.3      Infringement of Third Party Patents............................................................12

         6.4      Infringement of Licensed Patents...............................................................12

         6.5      Cooperation....................................................................................12

7.       REPRESENTATIONS AND WARRANTIES..........................................................................12

         7.1      Mutual Representations and Warranties..........................................................12

         7.2      Connetics Representations and Warranties.......................................................13

8.       INDEMNIFICATION.........................................................................................13

         8.1      Indemnification by Connetics...................................................................13

         8.2      Indemnification by InterMune...................................................................13

         8.3      Indemnification Procedure......................................................................13

9.       CONFIDENTIALITY.........................................................................................14

         9.1      Confidential Information Obligations...........................................................14

         9.2      Exceptions.....................................................................................14
</TABLE>

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      2.
<PAGE>

<TABLE>

<S>      <C>      <C>                                                                                            <C>
         9.3      Terms of the Agreement.........................................................................14

         9.4      Permitted Disclosure...........................................................................14

10.      TERMINATION.............................................................................................15

         10.1     Term of Agreement..............................................................................15

         10.2     Termination for Material Breach................................................................15

         10.3     Effect of Termination..........................................................................15

         10.4     Surviving Rights...............................................................................16

         10.5     Accrued Rights and Surviving Obligations.......................................................16

         10.6     Bankruptcy Rights..............................................................................16

11.      MISCELLANEOUS...........................................................................................16

         11.1     Waiver.........................................................................................16

         11.2     Assignment.....................................................................................16

         11.3     Notices........................................................................................16

         11.4     Headings.......................................................................................17

         11.5     Amendment......................................................................................17

         11.6     Governing Law..................................................................................17

         11.7     Dispute Resolution.............................................................................17

         11.8     Force Majeure..................................................................................18

         11.9     Independent Contractors........................................................................18

         11.10    Severability...................................................................................18

         11.11    Cumulative Rights..............................................................................19

         11.12    Counterparts...................................................................................19

         11.13    Entire Agreement...............................................................................19

</TABLE>

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED
BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS
AMENDED.

                                      3.

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