Document:

exv10w1

 

Exhibit 10.1

Memorandum of Amendment

	 	 	 
	To:

	 	Sam K. Reed
	 

	 	David B. Vermylen
	 

	 	E. Nichol McCully
	 

	 	Thomas E. O’Neill
	 

	 	Harry J. Walsh
	 
	 	 
	From:

	 	Edward Fugger, Vice President — Dean Foods Company
	 
	 	 
	Date:

	 	June 17, 2005
	 
	 	 
	Re:

	 	Amendments to Your Employment Agreement and the Stockholders Agreement

This memorandum is intended to amend that certain Employment Agreement dated as of January 27, 2005
(the “Employment Agreement”) by and between TreeHouse Foods, Inc., f/k/a Dean Specialty Foods
Holdings, Inc. (the “Company”), and you pursuant to Section 10(k) of the Employment Agreement.
This memorandum is further intended to amend that certain Stockholders Agreement dated as of
January 27, 2005 (the “Stockholders Agreement”) among the Company, Dean Foods Company, all of you
and certain other individuals who may become a party thereto, pursuant to Section 12 of the
Stockholders Agreement.

Employment Agreement

Section 6(b) of the Employment Agreement shall be deemed amended by this memorandum such that for
purposes of the Employment Agreement, the term “Initial Fair Market Value” shall mean the
closing price on the first day of regular way trading of the Common Stock (the “Pricing
Date”), as reported on the New York Stock Exchange. Further, all references in the Employment
Agreement and Exhibit A thereto to the “fourth trading day following the Registration Date” shall
be amended to refer instead to the Pricing Date such that the Basic Restricted Shares, the
Supplemental Restricted Share Units and the Option shall be granted to you on the Pricing Date.

Stockholder Agreement

Dean acknowledges that the taxes to be reimbursed by the Company pursuant to Section 4.2(a) of the
Stockholder Agreement will be limited to taxes incurred as a result of (a) the distribution by DIPS
LP as part of the Restructuring Transactions of a 99.99 percent limited partnership interest in LPS
I to Pickle, (b) the distribution by DIPS LP as part of the Restructuring Transactions of a 0.01
percent general partner interest in LPS I to Pickle and (c) the taking into account of
“intercompany items” resulting from the transactions described in clauses (a), and (b) pursuant to
Section 1.1502-13 of the Treasury Regulations because of and in connection with the Distribution;
provided, that the Company’s liability for such taxes shall be limited to $20 million. (Capitalized
terms in the preceding sentence shall have the meaning ascribed to them under the Tax Sharing
Agreement between Dean and the Company.)

 

 

     The Company and Dean agree (x) to cooperate using their good faith efforts to determine the
appropriate value of the intellectual property used to calculate such taxes and the resulting Tax
Reimbursement Amount to be paid by the Company to Dean pursuant to Section 4.3(b) of the
Stockholders Agreement, and (y) that in all events the Tax Reimbursement Amount shall be determined
no later than September 30, 2005. The number of additional shares which will be issued to the
TreeHouse Investors pursuant to Section 4.3(b) of the Stockholders Agreement in connection with the
payment of any Tax Reimbursement Amount by the Company shall be calculated, and such shares shall
be issued to the TreeHouse Investors, promptly after determination of the Tax Reimbursement Amount,
but in no event later than October 14, 2005. Lastly, Section 4.3(b) of the Stockholders Agreement
shall be deemed amended by this memorandum such that “Dean
Owned Shares” and “Current
Common Stock Outstanding” shall mean 118,000 and 120,000 shares, respectively, which numbers of
shares shall be subject to adjustment as contemplated by Section 14 to reflect the stock split to
effectuate the spin-off.

The Employment Agreement and Stockholders Agreement remain in full force and effect, except as
expressly amended above.

I have signed this memorandum on behalf of both the Company and Dean Foods Company. If the
foregoing meets with your approval, please countersign this memorandum and return a copy to my
attention.

	 	 	 	 	 	 	 	 	 	 	 
	Dean Foods Company	 	 	 	TreeHouse Foods Inc., f/k/a	 	 
	 	 	 	 	 	 	Dean Specialty Foods Holdings, Inc.	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Edward Fugger
	 	 	 	By:
	 	/s/ Edward Fugger	 	 
	 

	 	 
	 	 	 	 	 	 	 	 
	 

	 	Name: Edward Fugger
	 	 	 	 	 	Name: Edward Fugger	 	 
	 

	 	Title: Vice President
	 	 	 	 	 	Title: Vice President — Dean Foods Company	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	ACCEPTED AND AGREED as of this 17th day of June, 2005:
	 
	 	 	 	 	 	 	 	 	 	 
	/s/ Sam K. Reed	 	 	 	/s/ David B. Vermylen  	 	 
	 	 	 	 	 	 	 
	Sam K. Reed, individually and	 	 	 	David B. Vermylen	 	 
	as the TreeHouse Representative	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	/s/ E. Nichol McCully	 	 	 	/s/ Thomas E. O’Neill	 	 
	 	 	 	 	 	 	 
	E. Nichol McCully	 	 	 	Thomas E. O’Neill	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	/s/ Harry J. Walsh	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	Harry J. Walsh<PAGE>
                                                                   Exhibit 10.42
                       COLLABORATION AND LICENSE AGREEMENT

     THIS COLLABORATION AND LICENSE AGREEMENT (this "AGREEMENT") dated as of
June 17, 2005, (the "EFFECTIVE DATE") is by and between Avalon Pharmaceuticals,
Inc. ("AVALON"), a Delaware Corporation, having a place of business at 20358
Seneca Meadows Parkway, Germantown, MD 20876 and MedImmune, Inc. ("MEDIMMUNE"),
a Delaware corporation, having a place of business at One MedImmune Way,
Gaithersburg, MD 20878. Avalon and MedImmune may each be referred to herein
individually as a "PARTY" and collectively as the "PARTIES."

     WHEREAS, Avalon has developed and controls certain chemical genomics
technology related to facilitating drug discovery and development;

     WHEREAS, MedImmune wishes to obtain the benefit of Avalon's chemical
genomics technology for use in identifying compounds useful for treating
inflammatory and autoimmune disorders; and

     WHEREAS, Avalon and MedImmune have agreed to collaborate, on the terms and
conditions set forth herein, on the discovery and development of compounds for
treating inflammatory and autoimmune disorders of humans.

     NOW THEREFORE, in consideration of the mutual promises and covenants set
forth below and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties hereby agree as
follows:

1.       DEFINITIONS.

1.1      "AFFILIATE(S)" means any Person that, directly or indirectly, owns, is
         owned by, or is under common ownership with a Party to this Agreement
         or any Person actually controlled by, controlling, or under common
         control with a Party to this Agreement. For the purposes of this
         definition, "ownership" or "control" means a Person owns or controls at
         least (a) fifty percent (50%) of the voting stock of a corporation, or
         (b) in the absence of the ownership of at least fifty percent (50%) of
         the voting stock of a corporation or in the case of non-corporate
         entity, has the power to direct or cause the direction of the
         management and polices of such corporation or non-corporate entity, as
         applicable.

1.2      "ANALOG" of a given Compound means a chemical compound derived by
         addition to or manipulation of the structure of such Compound.

1.3      "AVALON CHEMICAL LIBRARY" means the set of Compounds that Avalon owns
         or controls that are employed during Stage II of the Research Program
         and from which a Compound Hit is selected.

                                      - 1 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

1.4      "AVALON COMPOUND KNOW-HOW" means any Avalon Know-How covering the Lead
         Compounds, Optimized Lead Compounds and Compound Families.

1.5      "AVALON COMPOUND PATENT RIGHTS" means any Avalon Patent Rights covering
         the Lead Compounds, Optimized Lead Compounds and Compound Families.

1.6      "AVALON CORE TECHNOLOGY" means all proprietary apparatuses, materials,
         methods, processes, information, data, databases and analyses
         Controlled by either Avalon or its Affiliates as of the Effective Date
         or coming into the Control of Avalon or its Affiliates during the Term
         relating to the use of HITS, METS, RACETraCK and/or TSAR and all
         related screening methods and processes, including methods and
         processes useful or helpful to induce a desired profile across a gene
         signature set and its correlation with the inhibition or activation of
         a target.

1.7      "AVALON INDEMNIFIED PARTY" shall have the meaning set forth in SECTION
         11.1.

1.8      "AVALON TARGET KNOW-HOW" means   *

1.9      "AVALON KNOW-HOW" means all apparatuses, materials (including the
         Avalon Chemical Library), processes, information, data, databases and
         analyses controlled by either Avalon or its Affiliates as of the
         Effective Date or coming into the control of Avalon or its Affiliates
         during the Term relating to the Research Program, including Joint
         Inventions that are also Avalon Core Technology and including
         information, analyses and material (including RNA) derived from HITS,
         METS, RACETraCK and TSAR or relating to any Compound, Compound Families
         and/or Compound Hits, Avalon Target Know-How, or information relating
         to cell signaling pathways involving a Target, that is at any time
         identified or developed under the Research Program, or to any Analogs
         of any such Compounds.

                                      - 2 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

1.10     "AVALON PATENT RIGHTS" means Patent Rights that Avalon owns or Controls
         as of the Effective Date or that come into the Control of Avalon during
         the Term relating to the Research Program, including Avalon's interest
         in the Joint Inventions that are also Avalon Core Technology and
         including information, analyses and material (including RNA) derived
         from HITS, METS, RACETraCK and TSAR or relating to any Compound,
         Compound Families and/or Compound Hits, Avalon Target Know-How, or
         information relating to cell signaling pathways involving a Target,
         that is at any time identified or developed under the Research Program,
         or to any Analogs of any such Compounds including those patents and/or
         patent applications set forth on Exhibit C attached hereto and
         incorporated by reference.

1.11     "AVALON TECHNOLOGY" means the Avalon Patent Rights, Avalon Know-How,
         the Avalon Target Know-How and any and all intellectual property rights
         in data, information, materials and inventions created and/or invented
         solely by employees of Avalon or persons obligated to assign such data,
         information, materials and inventions to Avalon.

1.12     "BREACHING PARTY" has the meaning defined in SECTION 10.3.1(a).

1.13     "CALENDAR QUARTER" means the respective periods of three consecutive
         calendar months ending on March 31, June 30, September 30 or December
         31, for so long as this Agreement is in effect.

1.14     "CHANGE OF CONTROL" means any of the following: (a) the sale or
         disposition of all or substantially all of the assets of a Party to a
         Third Party, (b) the acquisition by a Third Party, other than an
         employee benefit plan (or related trust) sponsored or maintained by a
         Party or any of its Affiliates, of more than 50% of such Party's
         outstanding shares of voting capital stock, or (c) the merger or
         consolidation of a Party with or into another corporation, other than a
         merger or consolidation of a Party in which holders of shares of such
         Party's voting capital stock immediately prior to the merger or
         consolidation will have at least 50% of the ownership of voting capital
         stock of the surviving corporation immediately after the merger or
         consolidation.

1.15     "CLINICAL CANDIDATE" means   *

1.16     "COLLABORATION TECHNOLOGY" has the meaning defined in SECTION 7.2.1(c).

1.17     "COMMERCIALLY REASONABLE EFFORTS" means   *

                                      - 3 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

1.18     "COMPOUND" means   *

1.19     "COMPOUND FAMILY" means a   *

1.20     "COMPOUND HIT" means a    *

1.21     "CONFIDENTIAL INFORMATION" means with respect to each Party, non-public
         proprietary data or information that belongs, in whole or in part, to
         such Party or its Affiliates and/or information designated as
         Confidential Information of such Party hereunder, including, but not
         limited to, information relating to a Party's research programs,
         development, marketing and other business practices and finances.

1.22     "CONTRACT YEAR" means, during the Term, the twelve-month time period
         from the Effective Date to the anniversary of the Effective Date.

1.23     "CONTROL" or "CONTROLLED" means, with respect to any (a) material,
         technology, item of information, method, data or other know-how, or (b)
         intellectual property right, either ownership thereof or possession
         (other than by ownership) of the ability by Avalon or MedImmune, as the
         case may be, to grant the other party access and/or a license as
         provided herein without breaching the terms of an agreement or other
         arrangement with a Third Party.

                                      - 4 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

1.24     "DEVELOPMENT AND COMMERCIALIZATION PROGRAM" means all activities
         performed by MedImmune to develop a Clinical Candidate into a Product,
         obtain Regulatory Approval of such Product and commercialize such
         Product, including marketing and selling.

1.25     "DISCLOSING PARTY" has the meaning defined in SECTION 8.1.

1.26     "EFFECTIVE DATE" has the meaning set forth in the preamble.

1.27     "FDA" means the United States Food and Drug Administration, and any
         successor agency(ies) thereto.

1.28     "FIELD" means   *

1.29     "FIRST COMMERCIAL SALE" means, with respect to any Product and any
         country of the world, the first sale of such Product under this
         Agreement to a Third Party in such country, after such Product has been
         granted Regulatory Approval by the competent Regulatory Authorities in
         such country.

1.30     "FTE" or "FULL TIME EQUIVALENT" means a full time equivalent scientific
         person year consisting *

1.31     "FTE RATE" means   *

1.32     "HIGH THROUGHPUT INTEGRATED TRANSCRIPTIONAL SCREENING" or "HITS" means
         that portion of the Avalon Patent Rights and/or Avalon Know-How that
         encompasses a highly modified quantitative polymerase chain reaction
         platform used to screen large numbers of compounds by determining the
         compounds' effect on the expression of a given set of genes.

1.33     "INDEMNIFYING PARTY" has the meaning defined in SECTION 11.3.

                                      - 5 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

1.34     "IND" means an Investigational New Drug Application, as defined in the
         United States Food Drug & Cosmetics Act, that is required to be filed
         with the FDA before beginning clinical testing of a Product in human
         subjects, or an equivalent foreign filing.

1.35     "JOINT INVENTIONS" has the meaning set forth in SECTION 7.1.3.

1.36     "KNOW-HOW" means information and data, including, but not limited to,
         materials, formulae, procedures, processes, protocols, techniques and
         results of experimentation and testing.

1.37     "LEAD COMPOUND" means a Compound Hit that has been selected for Lead
         Compound Optimization, based upon data obtained through secondary
         screening in various assays performed by the Parties as outlined in the
         Research Program.

1.38     "LEAD COMPOUND OPTIMIZATION" means the chemical modification of a Lead
         Compound, undertaken by or on behalf of either Party, in order to
         enhance the Lead Compound's properties, including potency, in vivo
         efficacy, pharmacokinetic profile, solubility and other physical
         chemical characteristics, and/or decreased toxicity.

1.39     "MANAGEMENT COMMITTEE" or "MC" shall have the meaning set forth in
         SECTION 3.1.

1.40     "MEDIMMUNE ANTIBODIES" means   *

1.41     "MEDIMMUNE CELLS"   *

1.42     "MEDIMMUNE INDEMNIFIED PARTY" shall have the meaning set forth in
         SECTION 11.2.

1.43     "MEDIMMUNE KNOW-HOW" means all materials, processes, information, data,
         databases and analyses controlled by either MedImmune or its Affiliates
         as of the Effective Date, or coming into the control of MedImmune or
         its Affiliates during the Term, relating to the MedImmune Antibodies,
         and MedImmune Cells, including any information relating to cell
         signaling pathways involving a Target, and, in all instances, not
         encompassing any Avalon Patent Rights and/or Avalon Know-How.

1.44     "MEDIMMUNE PATENT RIGHTS" means Patent Rights that MedImmune owns or
         controls as of the Effective Date or that come into the control of
         MedImmune during the term of

                                      - 6 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>
         this Agreement, which Patent Rights claim
         any MedImmune Invention relating to the MedImmune Antibodies and
         MedImmune Cells and not encompassing any Avalon Patent Rights and/or
         Avalon Know-How.

1.45     "MEDIMMUNE TECHNOLOGY" means the MedImmune Antibodies, MedImmune Cells,
         MedImmune Patent Rights, MedImmune Know-How and any and all
         intellectual property rights in data, information, materials and
         inventions created and/or invented solely by employees of MedImmune or
         any Third Party obligated to assign such data, information, materials
         and inventions to MedImmune.

1.46     "MEDIMMUNE TERMINATION NOTICE" shall have the meaning set forth in
         SECTION 10.3.2.

1.47     "MICROARRAY-BASED EXPANDED TRANSCRIPTIONAL SCREENING" or "METS" means
         that portion of the Avalon Patent Rights and/or Avalon Know-How
         encompassing the production and use of gene microarray platforms used
         for the in-depth characterization of cell treatments.

1.48     "NDA" means a New Drug Application, as defined in the Food Drug &
         Cosmetic Act, that is required to be approved by the FDA before
         marketing a Product, or an equivalent foreign filing.

1.49     "NET SALES" means   *

         All of the foregoing deductions from the gross invoiced sales prices of
         Licensed Products shall be determined in accordance with GAAP. In the
         event that MedImmune, its

                                      - 7 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

         Affiliates or Sublicensees make any adjustments to such deductions
         after the associated Net Sales have been reported pursuant to this
         Agreement, the adjustments shall be reported and reconciled in the next
         report and payment of any royalties due.

           *

         No royalties shall accrue on the disposition of Product in reasonable
         quantities by MedImmune, its Affiliates or sublicensees as samples
         (promotion or otherwise) or as donations (for example, to non-profit
         institutions or government agencies for a non-commercial or
         humanitarian purpose).

         Proceeds from any Product used in a clinical trial will only be
         included in Net Sales to the extent MedImmune receives cash
         compensation for such Product.

1.50     "NOTIFYING PARTY" has the meaning set forth in SECTION 7.2.4.

1.51     "OPTIMIZED LEAD COMPOUND" means a Lead Compound that has undergone Lead
         Compound Optimization.

1.52     "OPTIONS" has the meaning set forth in SECTION 5.3.

1.53     "OPTION AGREEMENT(s)" has the meaning set forth in SECTION 5.3.

1.54     "PATENT RIGHTS" means any and all (a) patents, (b) pending patent
         applications, including, without limitation, all provisional
         applications, substitutions, continuations, continuations-in-part,
         divisions, renewals, and all patents granted thereon, and (c) all
         patents-of-addition, reissues, reexaminations and extensions or
         restorations by existing or future extension or restoration mechanisms,
         including, without limitation, supplementary protection certificates or
         the equivalent thereof.

1.55     "PHASE I CLINICAL TRIAL" means a human clinical trial in the United
         States that would satisfy the requirements of US 21 CFR 312.21(a), or
         in any other country that would satisfy the analogous, relevant
         standards in such country.

1.56     "PHASE II CLINICAL TRIAL" means a human clinical trial in the United
         States that would satisfy the requirements of US 21 CFR 312.21(b), or
         in any other country that would satisfy the analogous, relevant
         standards in such country.

1.57     "PHASE III CLINICAL TRIAL" means a human clinical trial in the United
         States that would satisfy the requirements of US 21 CFR 312.21(c), or
         in any other country that would satisfy the analogous, relevant
         standards in such country.

1.58     "PIVOTAL REGISTRATION CLINICAL TRIAL" means a human clinical trial the
         results of which are intended to generate safety and efficacy data
         necessary to support Regulatory

                                      - 8 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

         Approval in the proposed therapeutic indication, as more fully defined
         in 21 CFR Section 312.21(c) in the United States and equivalent
         submissions with similar requirements in other countries.

1.59     "PRODUCT" means   *

1.60     "PROGRAM BUDGET" has the meaning defined in SECTION 5.1.1 and as more
         fully set forth in Exhibit B attached hereto.

1.61     "PROJECT TEAM" has the meaning defined in SECTION 3.1(c)(ii).

1.62     "PROPOSED DISCLOSURE" has the meaning defined in SECTION 8.5.

1.63     "RAPID ASSESSMENT OF COMPOUND EFFICACY, TRANSCRIPTIONAL CHANGE AND
         KINETICS" or "RACETraCK" means those Avalon Patent Rights and/or Avalon
         Know-How which are directed to and/or encompasses the use of HITS or
         METS in conjunction with animal disease models to evaluate in vivo
         Compound activity.

1.64     "RECEIVING PARTY" has the meaning defined in SECTION 8.1.

1.65     "REFERENCE ANTIBODIES" means any non-proprietary (to either Party) *
         including, but not limited to, variants, chimeric antibodies, human
         antibodies, humanized antibodies, recombinant antibodies, grafted
         antibodies and single chain antibodies, whether provided by MedImmune
         or otherwise.

1.66     "REFERENCE CELLS" means any non-proprietary (to either Party) * whether
         provided by MedImmune or otherwise.

1.67     "REFERENCE COMPOUND" means any non-proprietary (to either Party)
         compound that has a known chemical structure and known activity.

1.68     "REGULATORY APPROVAL" means the technical, medical and scientific
         licenses, registrations, authorizations and approvals (including,
         without limitation, approvals of New Drug Applications (NDAs),
         supplements and amendments, pre- and post- approvals,

                                      - 9 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

         pricing and Third Party reimbursement approvals, and labeling
         approvals) of any national, supra-national, regional, state or local
         regulatory agency, department, bureau, commission, council or other
         governmental entity, necessary for the commercial manufacture,
         distribution, marketing, promotion, offer for sale, use, import, export
         and sale of a Product in a regulatory jurisdiction.

1.69     "REGULATORY AUTHORITY" means any national (e.g., the United States Food
         and Drug Administration), supra-national (e.g., the European
         Commission, the Council of the European Union, or the European Agency
         for the Evaluation of Medicinal Products), regional, state or local
         regulatory agency, department, bureau, commission, council or other
         governmental entity in each country of the world involved in the
         granting of Regulatory Approval for the Product.

1.70     "RESEARCH PROGRAM" means the Research Program as approved by the MC and
         to be attached hereto as Exhibit A, which may be amended from time to
         time by the MC.

1.71     "SEC" has the meaning defined in SECTION 8.3.

1.72     "SELECTED COMPOUND HIT" has the meaning set forth in SECTION 1.20.

1.73     "SIGNATURE SET" means a set of genes explicitly identified by METS
         during the Research Program, which provides a unique profile indicative
         of the inhibition or activation of a Target.

1.74     "STAGE I", "STAGE II" and "STAGE III" shall have the respective
         meanings set forth in Exhibit A.

1.75     "TARGET" means genes and/or proteins in the * . Should MedImmune
         exercise the First Option and/or the Second Option under Section 5.3,
         "Target" will be amended in such Option Agreement(s) to refer to the
         particular target for which the First Option and/or Second Option is
         being exercised throughout the Option Agreement, including, but not
         limited to, the definition of Avalon Target Know-How.

1.76     "TARGET BIOMARKERS" means a set of genes identified by METS during the
         Research Program which may be used to identify a therapeutic or
         prophylactic response in a patient, or predict patient sensitivity to
         Reference Antibodies or MedImmune Antibodies, Compound Hits, Lead
         Compounds, Lead Compound Analogs, Optimized Lead Compounds, Clinical
         Candidates and/or Products.

1.77     "TECHNOLOGY ACCESS FEE" shall have the meaning set forth in SECTION
         5.2.1.

1.78     "TERM" shall have the meaning set forth in SECTION 10.1.

                                     - 10 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

1.79     "TERRITORY" means the world.

1.80     "THIRD PARTY" means any person or entity other than Avalon, MedImmune
         or their respective Affiliates.

1.81     "T-SAR" means transcriptional structure activity relationship.

1.82        *

1.83        *

1.84     "VALID CLAIM" means a claim (i) of any issued, unexpired United States
         or foreign patent that shall not have been donated to the public,
         disclaimed, abandoned nor held invalid or unenforceable by a court or
         government agency of competent jurisdiction in an unappealed or
         unappealable decision, or (ii) in the case of any United States or
         foreign patent application, that shall not have been canceled,
         withdrawn, or abandoned or pending for more than seven years from the
         earliest priority date of such application.

2.       LICENSES.

2.1      LICENSES TO MEDIMMUNE.

                  (a) Subject to the terms and conditions of this Agreement, and
         for the Term, Avalon grants to MedImmune an exclusive (except to the
         extent necessary and/or useful for Avalon to perform its obligations
         under this Agreement), nontransferable license under the Avalon
         Compound Patent Rights, Avalon Compound Know-How and/or Avalon Target
         Know-How in the Territory relating to Clinical Candidates(s), with the
         right to sublicense, to make, have made, use, have used, sell, have
         sold, offer to sell, have offered to sell, or import or have imported,
         Products and Target Biomarkers.

                  (b) Subject to the terms and conditions of this Agreement,
         Avalon hereby grants to MedImmune a nonexclusive, nontransferable and
         non-sublicensable license in the Territory under the Avalon Patent
         Rights and Avalon Know-How and/or Avalon Target Know-How to perform its
         obligations under the Research Program. The license granted to
         MedImmune in this SECTION 2.1(b), except for MedImmune's license to the
         Avalon Target Know-How, which shall be governed by Section 10.4(d),
         shall expire upon cessation of all MedImmune's obligations under the
         Research Program or upon termination of the Agreement, whichever is
         earlier.

                                     - 11 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

                  (c) Subject to the terms and conditions of this Agreement, and
         for the Term, Avalon grants to MedImmune an exclusive, irrevocable,
         non-transferable license under the Avalon Patent Rights, Avalon
         Know-How and/or Avalon Target Know-How in the Territory for Novel Gene
         Target(s), with the right to sublicense, to make, have made, use, have
         used, sell, have sold, offer to sell, have offered to sell, or import
         or have imported any pharmaceutical product; provided, however, *

                  (d) MedImmune shall have no ownership, use or other rights in
         or to Avalon Patent Rights and/or Avalon Know-How or Avalon Compound
         Patent Rights, Avalon Compound Know-How and/or Avalon Target Know-How,
         including METS profiling data, Signature Sets, databases and other
         information, and any analyses thereof and all Avalon Core Technology
         obtained from the activities conducted in any portion or Stage of the
         Research Program, except as explicitly set forth in this Agreement,
         including, but not limited to, Section 10.4(d). Without limiting the
         generality of the foregoing, MedImmune shall not use Signature Sets in
         any transcription based screen to identify compounds and/or compound
         activity or function.

                  (e) Notwithstanding anything to the contrary in this
         Agreement, but subject to SECTION 2.1(f), the Parties acknowledge and
         agree that *

         For the purposes hereof, a KNOWN GENE is any gene within a Signature
         Set for which at least a partial genomic sequence has been publicly
         disclosed and for which the expression thereof has been publicly
         disclosed as it relates to the Target signaling pathway; and a *

                  (f) *

                                     - 12 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

2.2      LICENSES TO AVALON.

                  (a) Subject to the terms and conditions of this Agreement,
         MedImmune hereby grants to Avalon a nonexclusive, nontransferable and
         non-sublicensable license in the Territory under the MedImmune
         Technology solely to perform its obligations under the Research
         Program. Except as expressly set forth in this Agreement, Avalon shall
         not use the MedImmune Technology for any other purpose. The license
         granted to Avalon in this SECTION 2.2: (a) shall expire upon cessation
         of all Research Program activities or (b) upon termination of the
         Agreement, whichever is earlier

                  (b) MedImmune hereby grants to Avalon an exclusive, worldwide,
         perpetual, irrevocable, royalty free and fully paid up license to use,
         for any purpose, MedImmune's interest in Joint Inventions that
         constitute Avalon Core Technology. This license shall survive the
         termination or expiration of this Agreement.

2.3      SUBLICENSING TO THIRD PARTY CONTRACTORS. Notwithstanding any provision
         to the contrary in this Agreement, if pursuant to SECTION 3.1(c)(iii),
         the MC approves the use of one or more Third Parties to perform certain
         tasks for either Party under the Research Program, the Party entering
         into a contract with such Third Party for the performance of such
         services, may, as part of such contract, grant to such Third Party a
         nonexclusive, nontransferable, nonsublicensable license or sublicense,
         as applicable, under the Avalon Patent Rights and/or Avalon Know-How or
         the MedImmune Technology, as applicable, only to the extent and only
         for so long as such license or sublicense is necessary for such Third
         Party to perform such tasks under the Research Program. A Party
         entering into any Third Party licenses or sublicenses, as applicable,
         must require the Third Party to execute a confidential disclosure
         agreement with terms and covenants relating to the protection of
         confidential information and intellectual property reasonably
         acceptable to the other Party. Notwithstanding anything to the
         contrary, no rights in or to the Avalon Core Technology may be licensed
         or sublicensed without the express prior written consent of Avalon.
         Notwithstanding anything to the contrary, no rights in or to the
         MedImmune Technology may be licensed or sublicensed without the express
         prior written consent of MedImmune.

2.4      NO OTHER LICENSES. The Parties expressly understand and agree that the
         only licenses granted under this Agreement are the licenses expressly
         granted under this Agreement and that there is no implied license or
         license by estoppel.

                                     - 13 -

<PAGE>

3.       MANAGEMENT OF COLLABORATION.

3.1      MANAGEMENT COMMITTEE

                  (a) Formation and Composition of the Management Committee. The
         MC shall have general supervision over the strategic direction and
         management of the Research Program. The MC shall conduct its first
         meeting no later than forty-five (45) days after the Effective Date.
         The MC shall comprise two representatives each from Avalon and
         MedImmune. Each Party shall appoint its representatives to the MC from
         time to time, and may substitute one or more of its representatives to
         the MC, in its sole discretion, effective upon written notice to the
         other Party of such change. The two MC members appointed by each Party
         shall have a combined, single vote on all actions before the MC, and
         unanimous agreement of both Parties is required for approval of any
         actions, subject to SECTION 3.2 below. The initial members of the MC
         for MedImmune are *

                  (b) Meetings. MedImmune shall be responsible for organizing
         and chairing the MC meetings. The MC shall meet not less than once each
         Calendar Quarter during the duration of the Research Program, on such
         dates and at such times as agreed to by the Parties. In-person meetings
         shall take place in Avalon's offices or such other locations on which
         the Parties mutually agree. Upon the mutual agreement of the Parties,
         any MC meeting may be conducted by telephone or videoconference. At
         such meetings, the MC shall discuss the activities conducted under the
         Research Program and the results thereof. Each Party shall be
         responsible for its own costs in connection with the meetings of the
         MC. In addition to the MC members, each Party may invite other
         employees and/or consultants to attend and participate in such meetings
         upon notice to and approval by the MC, such approval not to be
         unreasonably withheld or delayed. Any consultant shall be bound to
         terms of confidentiality at least as restrictive as those contained
         herein.

                  (c) Purpose and Powers of Management Committee. The MC shall
         have responsibility for the following identified matters, which may be
         amended, subtracted from or added to or from time to time upon the
         mutual written agreement of the Parties:

                     (i) Preparing and providing the minutes of each MC meeting
         to the Parties pursuant to SECTION 3.1(e).

                     (ii) Forming and supervising a team of members from each
         Party, who have been nominated by their respective Party (the "PROJECT
         TEAM"), which will monitor, and coordinate the performance of the
         Research Program. The MC may periodically make amendments or
         supplements to the Research Program, as it deems necessary to
         accomplish the purposes of the Research Program, subject to the
         provisions of SECTION 3.2 and ARTICLE 5.

                                     - 14 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.
<PAGE>

                     (iii)   Approving the utilization of one or more Third
         Parties to perform certain tasks for either Party under the Research
         Program.

                     (iv)    Identifying  *  to be used in Stage I of the
         Research Program.

                     (v)     Deciding on further Compound screening based on
         pilot screen.

                     (v)     Selecting Lead Compounds for Lead Optimization,
         based on criteria developed and approved by the MC in writing prior to
         the end of Stage III of the Research Program and making recommendations
         of such Lead Compounds to MedImmune's Executive Committee.  Such
         selection criteria will include, but will not be limited to,
         intellectual property analysis.

                     (vi)    Reporting on the progress of the Research Program
         to Avalon and MedImmune.

                     (vii)   Review and approval of the Program Budget and
         proposed changes to the Program Budget.

                     (viii)  Defining, in writing, the criteria for achievement
         of the milestone event "Proof of Concept of a Compound Hit or Lead
         Compound" in an animal model" set forth in SECTION 5.2.2 no later
         than  *  from the Effective Date  or such other time unanimously agreed
         to by the members of the MC.

                     (ix)    Defining, in writing, the criteria for selection of
         a Clinical Candidate no later than  *  from the Effective Date or such
         other time as unanimously agreed upon by the members of the MC.

                  (d) Minutes. Within * following each MC meeting, a
         representative of each Party to the MC, on an alternating basis, shall
         prepare and provide to each Party a copy of the minutes of such meeting
         which shall set forth, in reasonably specific detail, the state of the
         Research Program and any approval, determination or other action agreed
         to by all of the members of the MC, provided that such minutes are
         reasonably acceptable to both Parties. The minutes shall be approved at
         the next meeting of the MC, if not sooner.

                  (e) Notwithstanding anything to the contrary, the decisions or
         actions of the MC shall not in any way change the terms of this
         Agreement or constitute an amendment this Agreement, unless in
         compliance with SECTION 14.5 of this Agreement.

                                     - 15 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

3.2      MANAGEMENT COMMITTEE DISPUTES. Any disputes or disagreements arising
         from the planning or performance of the Research Program that cannot be
         resolved by the members of the MC shall be resolved in accordance with
         this SECTION 3.2. *

3.3      MEDIMMUNE EXECUTIVE COMMITTEE. The MedImmune Executive Committee shall
         review and approve recommendations from the MC of Lead Compounds
         selected for Lead Optimization prior to the initiation of Stage III.

4.       RESEARCH AND DEVELOPMENT.

4.1      GENERAL. Under the terms and conditions set forth herein, Avalon shall
         perform, with collaboration from MedImmune, a research program for the
         discovery, identification, screening, characterization and optimization
         of Compounds and Products active against Targets (collectively, the
         "RESEARCH PROGRAM"). The Research Program is set forth in Exhibit A
         attached hereto.

4.2      TERM OF THE RESEARCH PROGRAM. Unless this Agreement is earlier
         terminated, the Research Program shall terminate when the optimization
         of the final Lead Compound selected for Lead Compound Optimization has
         been completed. It is expected that the Research Program will take
         approximately * to complete, which can be extended upon the mutual
         written agreement of the Parties or terminated by MedImmune in
         accordance with SECTION 10.3.2.

                                     - 16 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

4.3      CONDUCT OF THE RESEARCH PROGRAM. Avalon and MedImmune shall each use
         its respective Commercially Reasonable Efforts to perform its
         obligations under the Research Program. All activities to be undertaken
         in the performance of the Research Program shall be carried out by
         employees of the Parties and/or their respective Affiliates, provided,
         however, that if either Party is able to reasonably demonstrate, and
         the MC agrees, that it would be in the best interests of both Parties
         to contract with one or more Third Parties to perform certain tasks
         under the Research Program, the Party responsible for such task may
         enter into a contract with a Third Party to perform such task, which
         contract shall be subject to the prior written approval of the MC and
         to obligations of confidentiality at least as stringent as those
         contained in this Agreement; provided that entering into an agreement
         with a Third Party shall not relieve a Party from the performance of
         its obligations under this Agreement. In determining whether to utilize
         the services of any Third Party in conducting activities under the
         Research Program, the Parties shall consider what would be the most
         efficient and cost-effective means for accomplishing the proposed
         activity, any relevant intellectual property issues that may impede a
         Third Party's ability to perform the proposed activity or that may
         warrant limiting the performance of the proposed activity to one of the
         Parties, and other relevant factors.

4.4      NO LIABILITY OF AVALON. Notwithstanding the foregoing or any other
         provision of this Agreement, MedImmune acknowledges and agrees that the
         Research Program is experimental in nature and that Avalon does not
         make any representations or warranties regarding the success of the
         Research Program, and Avalon shall have no liability to MedImmune as a
         result of any failure to achieve or delay in achieving any results
         under the Research Program or any Development and Commercialization
         Program provided that Avalon has used Commercially Reasonable Efforts.

5.       RESEARCH PROGRAM FUNDING, PAYMENTS AND ROYALTIES.

5.1      RESEARCH PROGRAM FUNDING. MedImmune shall be solely responsible for
         funding the Research Program in accordance with the Program Budget (as
         defined herein).

         5.1.1 Budget. The budget detailing the expected costs per Contract Year
         for performing the Research Program (the "PROGRAM BUDGET") is attached
         hereto as Exhibit B. The Parties understand and agree that MedImmune
         shall not be obligated to make any payments to Avalon under this
         SECTION 5.1 beyond those amounts set forth in the Program Budget or
         otherwise approved in advance by the MC in writing, if such expenditure
         is greater than * of the agreed upon expenditure level. At the end of
         each Contract Year and/or the termination or expiration of the Research
         Program, if applicable, the Parties shall reconcile the amounts paid by
         MedImmune to Avalon. Any overpayment due to MedImmune shall be refunded
         to MedImmune within * after such reconciliation.

                                     - 17 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

         5.1.2        Payment. MedImmune agrees to provide funding to Avalon  *

         5.1.3 Reporting and Records. Avalon shall provide MedImmune with a
         quarterly update of results obtained by MedImmune under the Research
         Program. During the Research Program, each Party shall maintain, and
         shall require its Affiliates, sublicensees and any Third Party
         permitted to perform work under the Research Program in accordance with
         SECTION 4.3 to maintain, records in sufficient detail and in good
         scientific manner appropriate for regulatory purposes and the purpose
         of establishing and perfecting intellectual property (including patent
         rights), which shall fully and properly reflect all work done and
         results achieved in the conduct of the Research Program. All agreements
         entered into with a Third Party will have provisions that provide that
         any intellectual property rights will either be owned by or assigned to
         MedImmune or Avalon, as the case may be.

         5.1.4 Visitation. Upon not less than one week prior written notice,
         during the Research Program, MedImmune shall have the right to visit
         the premises where research is being performed under the Research
         Program. In such case, Avalon agrees to make scientists performing
         research under the Research Program reasonably available to discuss the
         research and progress thereof under the Research Program with
         MedImmune.

5.2      MEDIMMUNE PAYMENTS AND ROYALTIES; OPTION.

         5.2.1 Technology Access Fee. After the Effective Date and receipt of an
         invoice from Avalon, MedImmune shall pay to Avalon a technology access
         fee of $1,500,000 (the "TECHNOLOGY ACCESS FEE") no later than June 24,
         2005.

         5.2.2 Milestone Payments. MedImmune shall pay to Avalon the following
         milestone payments upon the each occurrence of the applicable milestone
         event described below on a Product-by-Product basis, subject to SECTION
         3.1(c) (viii). Milestone payments shall be payable by MedImmune to
         Avalon within * after achievement of the relevant Milestone and receipt
         of an invoice for such amounts. Each such milestone payment is paid
         only once upon the first achievement of the corresponding milestone
         event on a Product-by-Product basis.
<TABLE>
<CAPTION>

             Milestone Payment            Milestone Event
             -----------------            ---------------
                  <S>         <C>
                   *           Selection of Compound Famil(y/ies) for Lead Compound Optimization

                   *           Proof of concept of a Compound Hit or Lead Compound in an animal model
</TABLE>

                                     - 18 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

<TABLE>
                  <S>         <C>
                   *           Selection of a Clinical Candidate

                   *           First dosing in a human being in a Phase I Clinical Trial

                   *           First dosing in a human being in a  Pivotal Registration Clinical Trial or the date of
                               agreement by the FDA that a trial not originally designated as a Pivotal Registration
                               Clinical Trial could be used for registration

                   *           Filing of an NDA for a Product

                   *           Approval of an NDA for a Product

                   *           First Commercial Sale in Europe

                   *           First Commercial Sale in Japan

                   *           Clinical validation of the first Target Biomarker (this milestone payment will not be
                               due if achievement of this milestone event is part of a Development Program for a Product)
</TABLE>

         5.2.3 Royalty. In consideration for the license by Avalon to MedImmune
         hereunder, MedImmune shall pay to Avalon within * of the close of each
         Calendar Quarter a royalty in an amount equal to the following
         percentages of the specified portions of the annual aggregate Net Sales
         of Products sold by MedImmune, its Affiliates, and its sublicensees
         throughout the Territory as reported in a Calendar Quarter as provided
         below:

             Net Sales                                                  Royalty
             ---------                                                  -------
             Amounts from   *   up to and including   *                    *

             Amounts in excess of   *                                      *

                  (a) The obligation of MedImmune to pay royalties using the
         rates set forth in this SECTION 5.2.3 on Net Sales of Product in any
         country of the Territory will continue, on a country-by-country and
         Product-by-Product basis, until the later of (i) the expiration of the
         period during which the manufacture, use, sale offer for sale or import
         of a Product sold in such country would infringe a Valid Claim under
         Avalon Compound Patent Rights in such country, or (ii) the date which
         is * from the date of First

                                     - 19 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

         Commercial Sale of such Product in such country (such time period, the
         "ROYALTY PERIOD").

                  (b) For the avoidance of doubt: (i) no royalty is due for any
         Product in any country after the end of the Royalty Period for such
         country and in calculating Net Sales for determining the applicable
         royalty rate under SECTION 5.2, Net Sales of a Product do not include
         net sales in a country after the end of the Royalty Period for such
         country; and (ii) during the term of any applicable Royalty Period in
         any country, MedImmune shall have no right to sell or market any
         Product, directly or indirectly, without paying to Avalon the royalties
         set forth in this section.

                  (c) *

                  (d) *

         5.2.4 Method of Payment. All payments under this Agreement shall be
         made payable to "Avalon Pharmaceuticals" and sent to the address
         identified in SECTION 14.4, or by wire transfer to an account
         designated in writing by Avalon. Each payment shall reference this
         Agreement and identify the obligation under this Agreement that the
         payment satisfies.

         5.2.5 Payments in U.S. Dollars. All payments due under this Agreement
         shall be drawn on a United States bank and shall be payable in United
         States dollars. Such payments shall be without deduction of exchange,
         collection, or other charges, and, specifically, without deduction of
         withholding or similar taxes or other government imposed fees or taxes.

         5.2.6 Conversions. For any given Calendar Quarter, if any portion of
         Net Sales would be otherwise determined in currency other than U.S.
         Dollars then, for the purposes of calculating such Net Sales, such
         currency will be converted to U.S. Dollars in the following manner:

                                     - 20 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

                  (a) Net Sales will be determined in the original currency for
         each country for each of the three (3) months during the Calendar
         Quarter; then

                  (b) the Net Sales values for each month as calculated under
         SECTION 5.2.6(a) for each country will be separately converted into
         U.S. Dollars based on the average rate of exchange for that month
         (based on daily noon buying rates for cable transfers in New York City
         certified by the Federal Reserve Bank of New York, available on the
         website for the Board of Governors of the Federal Reserve System (or
         any successor entity)) ; and then

                  (c) the portion of Net Sales attributable to that currency for
         that Calendar Quarter will be the sum of the three (3) monthly values
         calculated under SECTION 5.2.6(b).

         5.2.7 Late Payments. Any payments by MedImmune that are not paid on or
         before the date such payments are due under this Agreement shall bear
         interest at the lesser of the greatest amount permitted by law or *
         prorated from the date when such payment was due.

         5.2.8 Fully Earned, Non-Refundable and Non-Creditable. All payments
         made by MedImmune under this Agreement due and owing to Avalon shall be
         deemed to be fully earned, non-refundable and non-creditable at the
         time payment is made, subject to Section 6.2.

5.3      OPTION. MedImmune and Avalon may be interested in pursuing additional
         collaborations. Avalon grants to MedImmune options (the "FIRST OPTION"
         and the "SECOND OPTION," and together, the "OPTIONS") to enter into up
         to two additional collaboration and license agreements (the "OPTION
         AGREEMENT(S)") concerning targets other than the Target; provided that:
         (a) MedImmune may exercise either or both of the Options by delivery of
         written notice to Avalon accompanied by (i) the payment of * for each
         Option Agreement, which amount shall constitute the Technology Access
         Fee for each of the Option Agreements, and (ii) a description of the
         proposed subject matter of the Option Agreement. Each of the Option
         Agreements shall be identical to this Agreement in form and substance,
         except concerning the Technology Access Fee, the subject matter of each
         Option Agreement and conforming definitional changes, the lack of this
         Option provision, and except as mutually agreed to by the Parties. The
         subject matter of each Option Agreement shall be left to the discretion
         of MedImmune, unless Avalon has already entered into or is in the
         process of entering into an agreement with a Third Party or unless
         Avalon is pursuing a research or development program that may preclude
         Avalon from entering into an Option Agreement with MedImmune concerning
         the proposed subject matter. In the event that Avalon notifies
         MedImmune of such determination, then such Option exercise shall not
         count against the two exercises permitted hereunder, and Avalon shall
         have no liability for failing to enter into an Option Agreement
         pursuant to such Option exercise or for failing to disclose any of the
         facts to MedImmune underlying

                                     - 21 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

         Avalon's determination. In the event that the Parties do not enter into
         an Option Agreement, any payments provided by MedImmune to Avalon shall
         be refunded to MedImmune within * . MedImmune shall have the right to
         exercise the First Option by delivery of written notice to Avalon under
         this SECTION 5.3 until * and shall have the right to exercise the
         Second Option by delivery of written notice to Avalon under this
         SECTION 5.3 *

6.       ACCOUNTING AND RECORDS.

         6.1 ROYALTY REPORTS; RECORDS. During the Term and following the first
         Commercial Sale by MedImmune or its Affiliates or sublicensees, as the
         case may be, of a Product in the Territory, MedImmune shall furnish to
         Avalon, within * after the close of each Calendar Quarter, a written
         report or reports covering each Calendar Quarter, which report will set
         forth separately for each Product, in reasonable detail, the
         calculation of the royalties and/or other payments due from MedImmune,
         its Affiliates and sublicensees, including, for example, in the case of
         royalty payments, the gross amount billed or invoiced for the sale or
         distribution of the Product, itemized deductions against such gross
         amount, and Net Sales on a country-by-country and Product-by-Product
         basis. Such report shall contain reference to Net Sales by country in
         United States Dollars. MedImmune shall have the right to make
         corrections to the reports for each Calendar Quarter for any errors in
         calculation of any royalty or other payment due under this Agreement.
         Upon the expiration of * following the end of any Calendar Quarter, the
         calculation of royalties and/or other payments due from MedImmune with
         respect to such Calendar Quarter shall be binding and conclusive upon
         Avalon, and MedImmune, its Affiliates or sublicensees, as the case may
         be, shall be released from any liability or accountability with respect
         to such royalties and/or other payments for such Calendar Quarter. *

         If no payment is due for any such Calendar Quarter, MedImmune shall so
         report. MedImmune agrees to discuss any report and the information
         contained therein in good faith with Avalon, should questions regarding
         such reports arise. MedImmune shall keep, and shall require its
         Affiliates and sublicensees to keep, accurate records in sufficient
         detail to enable royalties payable hereunder (and all related
         calculations) to be determined. Such records will be maintained until
         Avalon's right to audit under Section 6.2 has expired.

6.2      RIGHT TO AUDIT. Upon the written request of Avalon and with at least *
         prior written notice, but not more than * , and at Avalon's expense,
         MedImmune shall permit an independent certified public accounting firm
         of internationally recognized standing, selected by Avalon and
         acceptable to MedImmune, which acceptance will not

                                     - 22 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

         be unreasonably refused, to have access during normal business hours to
         those records of MedImmune as may be reasonably necessary to verify the
         accuracy of the milestone payments or the royalty reports furnished by
         MedImmune pursuant to SECTION 6.1 of this Agreement in respect of any
         year ending not more than * prior to the date of such request. The
         report prepared by such independent certified public accounting firm
         will disclose only the conclusions of the accounting firm regarding the
         audit and specify the amount of any underpayment or overpayment, and
         will not include copies of any books or records reviewed. A copy of
         such report will be sent or otherwise provided to MedImmune by such
         accounting firm at the same time it is sent or otherwise provided to
         Avalon. No other information obtained by the accounting firm will be
         shared with Avalon. If the accounting firm's report shows underpayment
         of royalties, within * after MedImmune 's receipt of such report,
         MedImmune shall remit to Avalon the amount of such underpayment. If the
         underpayment is in excess of * , then MedImmune shall also remit to
         Avalon an amount equal to Avalon's substantiated out-of-pocket costs of
         the audit. Any overpayment of royalties shall be refunded to MedImmune
         by Avalon within * of the date Avalon receives the written report of
         the accounting firm. Avalon shall treat all financial information
         subject to review under this SECTION 6.2 as Confidential Information of
         MedImmune and shall cause its accounting firm to retain all such
         financial information in confidence under terms at least as restrictive
         as those set forth in ARTICLE 8.

7.       PATENT PROSECUTION; ENFORCEMENT; INFRINGEMENT, OWNERSHIP OF INVENTIONS.

7.1      OWNERSHIP.

         7.1.1 Avalon shall solely own all right, title and interest in and to
         the Avalon Technology, subject to the licenses granted to MedImmune in
         this Agreement and SECTION 10.4.

         7.1.2 MedImmune shall solely own all right, title and interest in and
         to the MedImmune Technology, subject to the license granted to Avalon
         in SECTION 2.2 of this Agreement.

         7.1.3 Subject to SECTION 7.1.4, all right, title and interest in and to
         any inventions made by one or more employees or contractors of
         MedImmune together with one or more employees or contractors of Avalon
         during the Research Program ("JOINT INVENTIONS"), including Third
         Parties performing work under the Research Program, shall belong
         jointly to MedImmune and to Avalon, such that each party shall have an
         undivided interest therein. Subject to the licenses granted under this
         Agreement, and the payment obligations under this Agreement, each party
         shall have the right to exploit and grant rights to Joint Inventions
         without the consent or approval of the other Party and without
         accounting to the other Party. For the avoidance of doubt, MedImmune
         shall have no

                                     - 23 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

         rights regarding Joint Inventions that are Avalon Core Technology
         except to the extent necessary to enable MedImmune to perform its
         obligations under SECTION 2.2(b). Additionally, for the avoidance of
         doubt, Avalon shall have no right to use Joint Inventions to the extent
         such Joint Inventions consist of, in whole or in part, Avalon Target
         Know-How, Target Biomarker(s) and/or Novel Gene Target(s).

         7.1.4 Each Party agrees promptly to disclose to the other party any
         Joint Invention and to execute such documents and perform such other
         acts as may reasonably request to obtain, perfect and enforce such
         rights to such inventions and the assignment thereof. MedImmune and
         Avalon will obtain appropriate assignments from its employees,
         contractors and Affiliates to effect the intent of this SECTION 7.1.4.

         7.1.5 Inventorship shall be determined in accordance with United States
         patent law.

7.2      PATENT RIGHTS.

         7.2.1    Prosecution and Maintenance of Patent Rights.

                  (a) Avalon Core Technology. Avalon shall have the sole right,
         but not the obligation, to prepare, file, prosecute and maintain,
         throughout the world, all patent applications relating to the Avalon
         Core Technology.

                  (b) MedImmune Patent Rights. MedImmune, at its own discretion
         and expense through patent counsel selected by MedImmune, shall have
         the sole right, but not the obligation, to prepare, file, prosecute and
         maintain, throughout the world, all MedImmune Patent Rights, including
         any interference, opposition or related proceedings for such Patent
         Rights.

                  (c) Collaboration Technology. MedImmune shall have the first
         right, but not the obligation, to prepare, file, prosecute and
         maintain, throughout the world, all patents directed to (i) Avalon
         Target Know-How, (ii) Avalon Compound Know-How, (iii) Avalon Compound
         Patent Rights, and (iv) Patent Rights in all Joint Inventions, in each
         case excluding all patents directed to Avalon Core Technology
         (collectively, "COLLABORATION PATENT RIGHTS"). MedImmune shall give
         Avalon an opportunity to review and comment upon the text of these
         applications before filing, shall consult with Avalon with respect to
         such applications, and shall supply Avalon with a copy of the
         applications as filed, together with notice of its filing date and
         serial number. MedImmune shall keep Avalon advised of the status of the
         actual and prospective patent filings (including, without limitation,
         the grant of any Collaboration Patent Rights), and shall provide
         advance copies of any official correspondence related to the filing,
         prosecution and maintenance of such patent filings. MedImmune shall use
         commercially reasonable efforts to prepare, file, prosecute and
         maintain Collaboration Patent Rights in a diligent manner. If MedImmune
         elects not to file a patent application or to cease the prosecution
         and/or maintenance of any Collaboration Patent Right (excluding Avalon

                                     - 24 -

<PAGE>

         Target Know-How), MedImmune shall provide Avalon with written notice
         immediately upon the decision to not file or continue the prosecution
         of such patent application or maintenance of such patent and at least *
         before ceasing prosecution and/or maintenance of a particular
         Collaboration Patent Right and, in such case, shall permit Avalon, at
         Avalon's sole discretion, to file and/or continue prosecution and/or
         maintenance of such Collaboration Patent Right at Avalon's own expense.
         If Avalon so elects to file and/or continue prosecution or maintenance,
         MedImmune shall execute such documents and perform such acts, at
         Avalon's expense, as may be reasonably necessary to permit Avalon to
         file, prosecute and/or maintain such Collaboration Patent Rights.
         Notwithstanding the forgoing, Avalon shall not file or prosecute any
         patent applications that disclose Avalon Target Know-How without the
         prior express written permission of MedImmune, in MedImmune's sole
         discretion.

         7.2.2    Enforcement of Intellectual Property.

                  (a) Enforcement of Patent Rights and Know-How. Each Party
         shall give prompt notice to the other Party of knowledge of either (i)
         any infringement of the Avalon Patent Rights directed to the Avalon
         Core Technology or the Collaboration Patent Rights, or (ii) any
         misappropriation or misuse of Avalon Know-How or MedImmune Know-How
         that comes to such Party's attention.

                  (b) With respect to Avalon Patent Rights, Patent Rights in
         Joint Inventions directed to the Avalon Core Technology and/or Avalon
         Know-How directed to the Avalon Core Technology, Avalon shall have the
         sole right, but not the obligation, to take action to obtain a
         discontinuance of such infringement or bring suit against the Third
         Party infringer.

                  (c) With respect to all other Patent Rights and Know-How,
         MedImmune shall have the first right, but not the obligation, to take
         action to obtain a discontinuance of such infringement or bring suit
         against the Third Party infringer within * from the date of said
         notice. MedImmune shall provide Avalon with prompt written notice
         within the * period as to whether MedImmune will take action against
         the Third Party infringer. MedImmune shall bear all the expenses of any
         suit brought by it claiming infringement of any such Patent Rights
         and/or Know-How. If, after the expiration of the * period, MedImmune
         has not obtained a discontinuance of infringement, filed suit against
         any Third Party infringer, or provided Avalon with information and
         arguments demonstrating to Avalon's reasonable satisfaction that there
         is insufficient basis for the allegation of infringement, then Avalon
         shall have the right, but not the obligation, to bring suit against
         such infringer under such Patent Rights and/or Know-How and to join
         MedImmune as a party plaintiff, provided that Avalon shall bear all the
         expenses of such suit. MedImmune shall cooperate with Avalon in any
         suit for infringement of such Patent Rights and/or Know-How brought by
         Avalon against a Third Party,

                                     - 25 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.
<PAGE>

         and shall have the right to consult with Avalon and to participate in
         and be represented by independent counsel in such litigation at its own
         expense.

         7.2.3 Disbursement of Damages Award and Settlement. The Party
         prosecuting or participating in any such lawsuit under SECTION 7.2.2
         hereof shall be entitled to deduct its costs and expenses from any
         damages that are awarded. The balance remaining from any such recovery
         shall be divided between the Parties as follows *

         The Parties shall cooperate fully in any such lawsuit and each Party
         shall not take or omit any action that would interfere with prosecution
         of such a lawsuit. Before any action is taken that will affect the
         validity of any rights (including the Avalon Patent Rights) or before
         such lawsuit is settled or compromised, the Parties shall promptly
         consult and reasonably cooperate in good faith with one another to
         minimize the extent to which the rights granted by this Agreement
         (including the Avalon Patent Rights) are materially adversely affected
         by any such act, settlement or compromise.

         7.2.4 Infringement of Intellectual Property Rights of Third Parties. If
         either Party becomes aware of an allegation by a Third Party of
         infringement resulting from the practice of the Avalon Patent Rights or
         MedImmune Patent Rights, or in the event of the initiation of any legal
         action by or against MedImmune or Avalon with regard to any alleged
         infringement of the Avalon Patent Rights or MedImmune Patent Rights,
         such Party (the "NOTIFYING PARTY") shall promptly notify the other
         Party of all relevant facts and circumstances known by the Notifying
         Party in connection therewith. The Parties shall meet to discuss in
         good faith whether or not both Parties agree that such Third Party
         rights are necessary to conduct the Research Program or to make, have
         made, use, offer for sale, sell, supply or import a Product, and which
         Party if any shall institute an action against said Third Party or
         secure such Third Party rights. If either MedImmune or Avalon institute
         an action pursuant hereto, such instituting Party shall in a timely
         manner keep the other Party informed and provide copies to such other
         Party of all pleadings and other documents as such other Party may
         reasonably request regarding all such proceedings or actions instituted
         by said instituting party. Each Party shall control the defense of any
         infringement action brought against such a Party by a Third Party, and
         if such an action is brought against both Parties, the Parties shall
         cooperate with each other in the defense thereof.

                                     - 26 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

8.       CONFIDENTIALITY.

8.1      CONFIDENTIALITY. Except to the extent expressly authorized by this
         Agreement or otherwise agreed in writing, the Parties agree that, for
         the term of this Agreement and for ten (10) years thereafter, each
         Party (the "RECEIVING PARTY"), receiving hereunder any Confidential
         Information of the other Party (the "DISCLOSING PARTY") shall keep such
         Confidential Information confidential and shall not publish or
         otherwise disclose or use such Confidential Information for any purpose
         other than as provided for in this Agreement except for Confidential
         Information that the Receiving Party can establish:

                  (a) was already known to the Receiving Party (other than under
         an obligation of confidentiality), at the time of disclosure by the
         Disclosing Party and such Receiving Party has documentary evidence to
         that effect;

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

                  (c) became generally available to the public or otherwise part
         of the public domain after its disclosure or development, as the case
         may be, and other than through any act or omission of a Party in breach
         of this confidentiality obligation;

                  (d) was disclosed to that Party, other than under an
         obligation of confidentiality, by a Third Party who had no obligation
         to the Disclosing Party not to disclose such information to others;

                  (e) was independently discovered or developed by or on behalf
         of the Receiving Party without the use of the Confidential Information
         belonging to the other Party and the Receiving Party has documentary
         evidence to that effect.

8.2      AUTHORIZED DISCLOSURE AND USE.

         8.2.1 Disclosure. Notwithstanding the foregoing SECTION 8.1, each Party
         may disclose Confidential Information belonging to the other Party to
         the extent such disclosure is reasonably necessary to:

                  (a) file or prosecute patent applications claiming Avalon or
         MedImmune Inventions;

                  (b) prosecute or defend litigation arising under this
         Agreement;

                  (c) exercise rights hereunder provided such disclosure is
         covered by terms of confidentiality similar to those set forth herein;

                                     - 27 -

<PAGE>

                  (d) comply with applicable governmental laws and regulations;

                  (e) permit disclosure by MedImmune to governmental or other
         regulatory agencies in order to gain or maintain approval to conduct
         clinical trials or to market Product, but such disclosure may be made
         only to the extent necessary to obtain such authorizations; and

                  (f) permit Avalon to share terms of this agreement under
         appropriate Confidentiality Agreement with bona fide potential
         investors and related parties or in connection with a disposition or
         proposed disposition of Avalon's assets or stock.

                  (g) is deemed necessary by MedImmune to be disclosed to
         sublicensees, Affiliates, agents, consultants, or other Third Parties
         for the research, development, manufacture, use or commercialization of
         Product, or in connection with a licensing transaction related to
         Product or loan, financing or investment or acquisition, merger,
         consolidation or similar transaction (or for such entities to determine
         their interest in performing such activities), in each case on the
         condition that any Third Parties to whom such disclosures are made
         agree to be bound by confidentiality and non-use obligations
         substantially similar to those contained in this Agreement.

         Notwithstanding the disclosures permitted under subsections (d), (e),
         (f) and (g), if the information, documents or materials covered by such
         subsection are otherwise protected by obligations of confidentiality,
         then the confidentiality obligations of SECTION 8.1 shall still apply,
         consistent with such disclosures. In the event a Party shall deem it
         necessary to disclose pursuant to this SECTION 8.2.1, Confidential
         Information belonging to the other Party, the Disclosing Party shall to
         the extent possible give reasonable advance notice of such disclosure
         to the other Party and take reasonable measures to ensure confidential
         treatment of such information.

         8.2.2 Use. Each Party shall have the right to refuse to accept the
         other Party's Confidential Information. Each Party shall use at least
         the same standard of care with regard to the Confidential Information
         of the other Party as it uses to protect its own confidential
         information. Each Party shall have the right to use the other Party's
         Confidential Information in carrying out its respective
         responsibilities under this Agreement in the conduct of the Research
         Program or a Development Program, or for any purpose under this
         Agreement.

8.3      SEC FILINGS. Either Party may disclose the terms of this Agreement to
         the extent required, in the reasonable opinion of such Party's legal
         counsel, to comply with applicable laws, including without limitation
         the rules and regulations promulgated by the United States Securities
         and Exchange Commission (the "SEC"). Notwithstanding the foregoing,
         before disclosing this Agreement or any of the terms hereof pursuant to
         this SECTION 8.3, the Parties will consult with one another on the
         terms of this Agreement to be redacted in making any such disclosure.
         If a Party discloses this Agreement or any of

                                     - 28 -

<PAGE>

         the terms hereof in accordance with this SECTION 8.3, such Party
         agrees, at its own expense, to seek confidential treatment of portions
         of this Agreement or such terms, as may be reasonably requested by the
         other Party.

8.4      PUBLICATIONS. During the term of the Research Program, each Party will
         submit to the other Party for review and approval all proposed
         academic, scientific and medical publications and public presentations
         relating to the Research Program, Lead Compounds, Clinical Candidates,
         or Products for review in connection with preservation of Patent Rights
         and/or to determine whether Confidential Information should be modified
         or deleted. Written copies of such proposed publications and
         presentations shall be submitted to the non-publishing Party no later
         than * before submission for publication or presentation and the
         non-publishing Party shall provide its comments with respect to such
         publications and presentations within * of its receipt of such written
         copy. The review period may be extended for an additional * in the
         event the non-publishing Party can demonstrate a reasonable need for
         such extension including, but not limited to, the preparation and
         filing of patent applications. By mutual agreement, this period may be
         further extended. Avalon and MedImmune shall each comply with standard
         academic practice regarding authorship of scientific publications and
         recognition of contribution of other parties in any publications
         relating to the Research Program, Lead Compounds, Clinical Candidates,
         or Products. In no event, however, will Avalon publish or release any
         information regarding the MedImmune Antibodies, MedImmune Cells and/or
         Avalon Target Know-How without the prior, express written consent of
         MedImmune.

8.5      PUBLIC ANNOUNCEMENTS. On the Effective Date, the Parties shall issue a
         press release relating to this Agreement or activities conducted
         hereunder in the form attached hereto as Exhibit D. A Party may issue
         any subsequent press releases or other written public disclosures
         relating to this Agreement or activities conducted hereunder (each a
         "PROPOSED DISCLOSURE") upon prior written approval of the other Party,
         such approval not to be unreasonably withheld; provided, however, that
         each Party will use commercially reasonably efforts to submit to the
         other Party a draft of such Proposed Disclosure for review and comment
         by the other Party at least * prior to the date on which such Party
         would like to release such Proposed Disclosure. No approval of the
         other Party shall be required if a subsequent press release solely
         discloses information that has previously been approved. Neither Party
         shall use the name, trademark, trade name or logo of the other Party or
         its employees in any publicity or news release relating to this
         Agreement or its subject matter, without the prior express written
         permission of the other Party. Neither Party shall disclose the
         existence or terms of this Agreement except as provided in SECTIONS 8.2
         AND 8.3.

8.6      NO IMPLIED RIGHTS. Except as otherwise set forth in this Agreement,
         nothing herein shall be construed as giving either Party any right,
         title, interest in or ownership of the Confidential Information of the
         other Party. For the purposes of this Agreement, specific

                                     - 29 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.
<PAGE>

         information disclosed as part of Confidential Information shall not be
         deemed to be in the public domain or in the prior possession of the
         Receiving Party merely because it is embraced by more general
         information in the public domain or by more general information in the
         prior possession of the Receiving Party.

9.       REPRESENTATIONS AND WARRANTIES.

9.1      REPRESENTATIONS AND WARRANTIES OF AVALON. Avalon, subject to this
         ARTICLE 9, hereby represents, warrants, and covenants to MedImmune
         that, as of the Effective Date:

                  (a) it is a corporation or entity duly organized and validly
         existing under the laws of the state or other jurisdiction of its
         incorporation or formation;

                  (b) the execution, delivery and performance of this Agreement
         by has been duly authorized by all requisite corporate action and does
         not require any shareholder action or approval;

                  (c) it has the power, authority and right to execute and
         deliver this Agreement and to execute the licenses and otherwise
         perform its obligations hereunder;

                  (d) it shall at all times comply with all applicable material
         laws and regulations relating to its activities under this Agreement;

                  (e) it has no knowledge of any rights of any Third Parties
         that would be infringed by the practice of the Avalon Patent Rights
         and/or Avalon Know-How in connection with activities to be conducted
         hereunder;

                  (f) it has the right to use the Avalon Chemical Library as
         contemplated in this Agreement;

                  (g) there are no claims, judgments or settlements against
         Avalon pending or to its knowledge, threatened, seeking to invalidate
         the Avalon Patent Rights and/or Avalon Know-How; and

                  (h) there are no royalty payments owed by Avalon to Third
         Parties for the Avalon Compound Patent Rights, Avalon Compound
         Know-How, Avalon Patent Rights and/or Avalon Know-How.

                                     - 30 -

<PAGE>

9.2      REPRESENTATIONS AND WARRANTIES OF MEDIMMUNE. MedImmune, subject to this
         ARTICLE 9, hereby represents, warrants, and covenants to Avalon that,
         as of the Effective Date:

                  (a) it is a corporation or entity duly organized and validly
         existing under the laws of the state or other jurisdiction of its
         incorporation or formation;

                  (b) the execution, delivery and performance of this Agreement
         by has been duly authorized by all requisite corporate action and does
         not require any shareholder action or approval;

                  (c) it has the power and authority to execute and deliver this
         Agreement and to execute the licenses and otherwise perform its
         obligations hereunder;

                  (d) it shall at all times comply with all applicable material
         laws and regulations relating to its activities under this Agreement;

                  (e) senior management of MedImmune has no knowledge of any
         rights of any Third Parties that would be infringed or are being
         infringed by the use of the MedImmune Patent Rights, the MedImmune
         Know-How and/or the MedImmune Antibodies in connection with the
         activities contemplated to be conducted under this Agreement; and

                  (f) it has no notice of any claims, judgments or settlements
         against MedImmune pending, or to its knowledge, threatened, seeking to
         invalidate the MedImmune Technology.

9.3      NO INCONSISTENT AGREEMENTS. Neither Party has in effect and after the
         Effective Date neither Party shall enter into any oral or written
         agreement or arrangement that would be inconsistent with its
         obligations under this Agreement or violate any law or regulation of
         any court, governmental body or administrative or other agency having
         jurisdiction over it.

9.4      DISCLAIMER. THE FOREGOING WARRANTIES OF EACH PARTY ARE IN LIEU OF ANY
         OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION,
         ANY IMPLIED WARRANTIES OF NONINFRINGEMENT, ANY IMPLIED WARRANTIES OF
         MERCHANTABILITY OR ANY IMPLIED WARRANTIES OF FITNESS FOR A PARTICULAR
         PURPOSE ALL OF WHICH ARE HEREBY SPECIFICALLY EXCLUDED AND DISCLAIMED.

9.5      LIMITATION OF DAMAGES. IN NO EVENT SHALL EITHER PARTY OR THEIR
         AFFILIATES BE LIABLE FOR SPECIAL, INDIRECT, INCIDENTAL, PUNITIVE,
         CONSEQUENTIAL OR TREBLE DAMAGES, WHETHER BASED

                                     - 31 -

<PAGE>

         ON CONTRACT, TORT, OR ANY OTHER LEGAL THEORY; PROVIDED, HOWEVER, THAT
         THIS LIMITATION SHALL NOT LIMIT THE INDEMNIFICATION OBLIGATION OF SUCH
         PARTY UNDER THE PROVISIONS OF ARTICLE 11 FOR SUCH DAMAGES CLAIMED BY A
         THIRD PARTY.

10.      TERM AND TERMINATION.

10.1     TERM. The term of this Agreement will commence on the Effective Date
         and extend, unless this Agreement is terminated earlier in accordance
         with this ARTICLE 10 or until the earlier of (i) fifty (50) years or
         (ii) such time as MedImmune's obligation to pay royalties with respect
         to the sale of such Product in all countries expires in accordance with
         SECTION 5.2.3 (the "TERM"). For the avoidance of doubt, the Parties
         acknowledge and agree that certain licenses may survive the termination
         or expiration of this Agreement in accordance with the provisions of
         Sections 10.4 and 10.5.

10.2     EXPIRATION. If, at any time after the expiration of Stage III of the
         Research Program, MedImmune has determined not to select a Clinical
         Candidate, this Agreement shall expire effective as of the date that
         MedImmune provides written notice that no Clinical Candidate will be
         selected; provided, however, that if one or more Options have been
         exercised in accordance with SECTION 5.3, then the applicable
         provisions of this Agreement shall survive to the extent necessary to
         give effect thereto. Subject to SECTION 10.4(d), in the event of
         expiration of this Agreement pursuant to this SECTION 10.2, all
         licenses granted hereunder will automatically expire, and expiration of
         this Agreement shall not relieve the Parties of any obligation accruing
         prior to such expiration.

10.3     TERMINATION.

         10.3.1   Material Breach.

                  (a) If either Party believes that the other Party (the
         "BREACHING PARTY") is in material breach of this Agreement (including
         without limitation any material breach of the representations or
         warranties made in SECTION 9.1 and SECTION 9.2 of this Agreement), then
         the non-breaching Party may deliver notice to the Breaching Party
         specifying the material breach. For all breaches other than a failure
         to make a payment, the allegedly Breaching Party shall have * to either
         cure such breach or, if cure cannot be reasonably effected within
         such * period, to deliver to the other Party within that period a plan
         for curing such breach, which may or may not be accepted by such other
         Party in such other Party's sole discretion. Such a plan shall set
         forth a program for achieving cure as rapidly as practicable. Following
         delivery of such plan, the Breaching Party shall use diligent efforts
         to carry out the plan and cure the breach as promptly as practicable.
         For any breach arising from a failure to make a payment, the

                                     - 32 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

         allegedly Breaching Party shall have * to cure such breach.
         Notwithstanding the foregoing, if MedImmune reasonably and in good
         faith disputes whether a payment is due or the amount of such payment,
         MedImmune shall have the right to pay to Avalon only the undisputed
         amount, and either Party shall have the right to initiate dispute
         resolution under ARTICLE 13 to determine whether the amount in dispute
         is payable. In such event, the disputed payment or amount thereof shall
         not be due until there is a final determination as to the amount that
         is payable by MedImmune, and interest shall be due on any amounts
         determined to have been payable to Avalon in accordance with the
         provisions of SECTION 5.2.7.

                  (b) An election of remedy by a Party for a material breach of
         this Agreement under this SECTION 10.3 on one occasion shall not
         constitute a waiver as to any other remedy that may be available to
         such Party under this SECTION 10.3 as to any material breach on another
         occasion.

         10.3.2  Termination by MedImmune.

         MedImmune shall have the right to terminate this Agreement in the
         entirety or with respect to one or more countries in which MedImmune
         and/or its Affiliates is not then and shall not thereafter,
         manufacture, have manufactured, market, have marketed, sell, have sold,
         import or have imported any Product (provided that if MedImmune and/or
         its Affiliates are then marketing or selling Product in such country,
         it shall have the right to sell off left over inventory in accordance
         with its then-current practices and subject to the payment of royalties
         to Avalon under Section 5.2.3, at the option of MedImmune and/or its
         Affiliates, as the case may be), for any reason other than material
         breach by Avalon, upon * prior written notice to Avalon, if such
         termination notice is provided to Avalon during the Research Program,
         or (ii) upon * prior written notice to Avalon, if such termination
         notice is provided to Avalon after the Research Program terminates
         (such notice, the "MEDIMMUNE TERMINATION NOTICE"). Upon any termination
         of this Agreement with respect to one or more countries (and not in its
         entirety), the Territory shall thereafter exclude the countries to
         which the MedImmune Termination Notice applies.

         10.3.3   Termination for Insolvency.

                  (a) If voluntary or involuntary proceedings by or against a
         Party are instituted in bankruptcy under any insolvency law, or a
         receiver or custodian is appointed for such Party, or proceedings are
         instituted by or against such Party, in each of the foregoing cases
         only if it is for dissolution of such Party, which proceedings, if
         involuntary, shall not have been dismissed within * after the date of
         filing, then this Agreement may be terminated by the other Party.

                  (b) All rights and licenses granted under this Agreement are,
         and shall be deemed to be, for purposes of Section 365(n) of the United
         States Bankruptcy Code,

                                     - 33 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

         licenses of rights to "intellectual property" as defined under Section
         101(56) of the United States Bankruptcy Code. The Parties agree that in
         the event of the commencement of a bankruptcy proceeding by or against
         one Party hereunder under the United States Bankruptcy Code, the other
         Party shall be entitled to complete access to any such intellectual
         property, and all embodiments of such intellectual property, pertaining
         to the rights granted in the licenses hereunder of the Party by or
         against whom a bankruptcy proceeding has been commenced, subject,
         however, to payment of the fees, milestone payments and royalties set
         forth in this Agreement through the effective date of any termination
         hereunder.

10.4     EFFECT OF TERMINATION OR EXPIRATION.

                  (a) Product. In the event of termination of this Agreement
         other than under SECTION 10.3.1 for Avalon's uncured material breach,
         MedImmune shall have * to complete the manufacture of any Product and *
         to sell or otherwise dispose of any Products in stock or in the course
         of manufacture at the time of termination, all subject, however, to
         payments of royalty and accounting as provided herein, even if such
         royalty obligations arise from transactions subsequent to the effective
         date of termination, and termination of this Agreement shall not
         relieve the Parties of any obligation accruing prior to such
         termination.

                  (b) If MedImmune terminates this Agreement under SECTION
         10.3.1(a) for Avalon's uncured material breach, at MedImmune's option
         and upon written notice to Avalon, MedImmune's license pursuant to
         SECTION 2.1 shall become a perpetual license; provided, however,
         MedImmune shall continue to fulfill all of MedImmune's financial
         obligations hereunder, excluding milestone but including royalty
         obligations as specified herein. MedImmune may reduce such payment
         and/or royalty obligations by the amount of monetary damage suffered by
         MedImmune as a direct result of Avalon's breach of this Agreement.
         Avalon shall, as soon as practicable after such termination, return or
         cause to be returned to MedImmune all Information in tangible form, and
         all substances or compositions delivered or provided by MedImmune, as
         well as any other material provided by MedImmune in any medium.

                  (c) If Avalon terminates this Agreement under SECTION
         10.3.1(a) for MedImmune's uncured material breach, at Avalon's option
         and upon written notice to MedImmune, all rights and licenses granted
         in this Agreement to MedImmune shall automatically expire and
         expiration of this Agreement shall not relieve the Parties of any
         obligations accruing prior to such expiration.

                  (d) If MedImmune or Avalon terminates this Agreement in its
         entirety for any reason (other than MedImmune's uncured material breach
         under SECTION 10.3.1(a)) or upon the expiration of this Agreement, *

                                     - 34 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

                  (e) Sublicenses. In the event that this Agreement is
         terminated by Avalon under SECTION 10.3.1(a), Avalon agrees to grant to
         existing sublicensees designated by MedImmune (other than an Affiliate
         of MedImmune) direct licenses with Avalon, which license shall be of
         the same scope sublicensed to such sublicensee, substituting the name
         of such sublicensee for MedImmune, provided that such sublicensee (i)
         agrees to be bound to Avalon under the terms and conditions of this
         Agreement and (ii) the sublicensee is not in breach of its sublicense
         agreement with MedImmune.

                  (f) Accrued Rights and Obligations. Except for termination for
         breach of diligence obligations under ARTICLE 12 for which a sole
         remedy is provided therein and any dispute subject to dispute
         resolution under ARTICLE 13, termination or expiration of this
         Agreement shall not (i) release either Party from any liability which,
         at the time of such termination or expiration, has already accrued or
         which is attributable to a period prior to such termination or
         expiration or (ii) preclude either Party from pursuing any rights and
         remedies it may have hereunder or at law or in equity with respect to
         any breach of, or default under, this Agreement. Without limiting the
         generality of the foregoing, if MedImmune terminates this Agreement
         during the Research Program other than for Avalon's uncured material
         breach under SECTION 10.3.1, MedImmune shall be liable to Avalon for
         all reasonable, non-cancellable costs and expenses directly related to
         the Research Program. In addition, the Parties understand and agree
         that monetary damages may not be a sufficient remedy for any breach of
         this Agreement and that the non-breaching Party may be entitled to
         injunctive relief as a partial remedy for any such breach, except for
         termination for breach of diligence obligations under ARTICLE 12 for
         which a sole remedy is provided therein and any dispute subject to
         dispute resolution under ARTICLE 13.

10.5     SURVIVAL. Except as expressly provided herein, the following provisions
         shall survive expiration or termination of this Agreement: *

..

                                     - 35 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

11.      INDEMNIFICATION AND INSURANCE.

11.1     INDEMNIFICATION BY MEDIMMUNE. MedImmune shall defend, indemnify and
         hold harmless Avalon and its Affiliates and their respective directors,
         officers, employees, shareholders and agents (each, an "AVALON
         INDEMNIFIED PARTY") from and against any and all Third Party claims,
         suits or demands for liabilities, damages, losses, costs and expenses
         (including the reasonable fees of attorneys and other professionals)
         arising out of or resulting from (i) the development, manufacture, use,
         distribution or sale of any Product by MedImmune, its Affiliates,
         distributors, co-marketers or sublicensees, their agents or any person
         or entity that prepares or manufactures Product for or on behalf of any
         of the foregoing or any person or entity who receives or obtains
         Product from any source; (ii) Development and Commercialization Program
         work performed by or on behalf of MedImmune other than by Avalon or a
         Third Party mutually agreed upon by Avalon and MedImmune; (iii) the
         performance by MedImmune of any of MedImmune's obligations under the
         Research Program and/or (iv) any MedImmune representation or warranty
         set forth herein being untrue in any material respect when made, or the
         failure of MedImmune to perform any covenant hereunder, except in each
         case of (i) - (iii) above, to the extent caused by the negligence or
         willful misconduct of Avalon or any Avalon Indemnified Party.

11.2     INDEMNIFICATION BY AVALON. Avalon shall defend, indemnify and hold
         harmless MedImmune, and its Affiliates and their respective directors,
         officers, employees, shareholders, sublicensees and agents (each, a
         "MEDIMMUNE INDEMNIFIED PARTY") from and against any and all Third Party
         claims, suits or demands for liabilities, damages, losses, costs and
         expenses (including the reasonable fees of attorneys and other
         professionals) arising out of or resulting from (i) the performance of
         Avalon's obligations under the Research Program, or (ii) any Avalon
         representation or warranty set forth herein being untrue in any
         material respect when made, including, but not limited to, Third Party
         claims of infringement, or the failure of Avalon to perform any
         covenant hereunder, except in the case of (i) above, to the extent
         caused by the negligence or willful misconduct of MedImmune or any
         MedImmune Indemnified Party.

11.3     PROCEDURE. Each Party will promptly notify the other in the event it
         becomes aware of a claim for which indemnification may be sought
         hereunder. In case any proceeding (including any governmental
         investigation) shall be instituted involving any Party in respect of
         which indemnity may be sought pursuant to this ARTICLE 11, such Party
         (the "INDEMNIFIED PARTY") shall promptly notify the other Party (the
         "INDEMNIFYING PARTY") in writing and the Indemnifying Party and
         Indemnified Party shall meet to discuss how to respond to any claims
         that are the subject matter of such proceeding. The Indemnifying Party
         shall retain counsel reasonably satisfactory to the Indemnified Party
         and shall pay the fees and expenses of such counsel related to such
         proceeding. The Indemnifying Party shall have the sole right to control
         the defense of any such claim or action. In any such proceeding, the
         Indemnified Party shall have the right to retain its own counsel, but

                                     - 36 -

<PAGE>

         the fees and expenses of such counsel shall be at the expense of the
         Indemnified Party unless the Indemnifying Party and the Indemnified
         Party shall have mutually agree in writing to the retention of such
         counsel. The Indemnifying Party shall not be liable for any settlement
         of any proceeding effected by the Indemnified Party without its written
         consent, but if settled with such consent or if there be a final
         judgment for the plaintiff, the Indemnifying Party agrees to indemnify
         the Indemnified Party from and against any loss or liability by reason
         of such settlement or judgment. The Indemnifying Party may settle any
         such claim, demand, action or other proceeding or otherwise consent to
         an adverse judgment (a) with prior written notice to the Indemnified
         Party but without the consent of the Indemnified Party where the only
         liability is the payment of money and the Indemnifying Party makes such
         payment or (b) with the prior written consent of the Indemnified Party,
         which will not be unreasonably withheld or delayed.

11.4     INSURANCE. Prior to the first sale or use in humans, whichever is
         earlier, of a Product, MedImmune shall maintain and carry in full force
         and effect product liability insurance (including contractual liability
         coverage on MedImmune's indemnification obligations under this
         Agreement), which shall provide coverage with *

..

                                     - 37 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

12.      DILIGENCE OBLIGATIONS.

12.1     ANNUAL DEVELOPMENT AND COMMERCIALIZATION PROGRAM PLAN. Upon initiation
         of a Development and Commercialization Program, MedImmune shall submit
         to Avalon a Development and Commercialization Program plan setting
         forth in reasonable detail the activities to be pursued in that
         Development and Commercialization Program during the first twelve (12)
         months. Thereafter, annual updates of the Development and
         Commercialization Program plan for each Contract Year in which there is
         expected to be Development and Commercialization Program activity shall
         be submitted to Avalon by no later than three months prior to the end
         of the previous Contract Year. MedImmune shall have sole discretion for
         making all decisions relating to the Development and Commercialization
         of Products, provided that actions or omissions undertaken by MedImmune
         in its sole discretion shall not relieve it of its obligations under
         this Agreement, including its obligations to use Commercially
         Reasonable Efforts in connection with the Development and
         Commercialization Program as set forth in SECTION 12.3.

12.2.    DEVELOPMENT AND COMMERCIALIZATION PROGRAM REPORTS. During performance
         of any Development and Commercialization Program, MedImmune shall
         submit to Avalon semi-annual reports setting forth in reasonable detail
         the past half calendar year's activities, and the prospective
         activities for the next half calendar year.

12.3     MEDIMMUNE'S COMMERCIALLY REASONABLE EFFORTS.

         12.3.1 During the Term, subject to Avalon's performance of its
         diligence obligations set forth in SECTION 12.4 and provided that
         MedImmune has not exercised its right to terminate this Agreement under
         ARTICLE 10, MedImmune shall use Commercially Reasonable Efforts to
         select one or more Clinical Candidates, initiate, conduct and monitor
         Development and Commercialization Programs for such Clinical
         Candidates, and commercialize Products developed from such Development
         and Commercialization Programs.

         12.3.2 If in any Contract Year, MedImmune or its Affiliate and/or a
         Sublicensee and/or a collaborator of MedImmune (including work of
         Avalon under the Research Program), alone or together, has achieved any
         one of the following with respect to Product, and MedImmune in such
         Contract Year has not discontinued Product development, then MedImmune
         shall be deemed to have complied with MedImmune's obligations under
         SECTION 12.3.1 for such Contract Year:

                  (A) * ;

                  (B) * ;

                  (C) * ;

                                     - 38 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

                  (D) * ;

                  (E) * ;

                  (F) * ;

                  (G) * ;

                  (H) * ;

                  (I) * ;

                  (j) *

                  ; or

                  (K) * .

         12.3.3 Subject to SECTION 12.3.4, in the event that MedImmune fails to
         comply with the obligations of SECTION 12.3.1 with respect to any
         Contract Year and, in addition, has not achieved any of the milestones
         set forth in SECTIONS 12.3.2(a) through 12.3.2(k) during such Contract
         Year, Avalon shall have the right, as the sole and exclusive remedy for
         MedImmune's failure to comply therewith, to terminate this Agreement
         pursuant to SECTION 10.3.1(a) by written notice to MedImmune
         within  *  after the end of the applicable Contract Year, unless
         MedImmune cures such failure prior to the expiration of  *  after such
         notice. If MedImmune provides to Avalon a notice that MedImmune has
         decided to discontinue Product development, then MedImmune shall be
         deemed to have terminated this Agreement pursuant to SECTION 10.3.2.

         12.3.4 If MedImmune receives a notice under SECTION 12.3.3, MedImmune
         shall have the right to contest such notice by requesting arbitration
         under SECTION 13.2, and if MedImmune requests such arbitration, this
         Agreement shall be terminated pursuant to SECTION 12.3.3 only if in
         such arbitration there is a final determination that MedImmune has not
         met MedImmune's obligation under SECTION 12.3.1 in the applicable
         Contract Year and, in addition, in such Contract Year none of the
         events of SECTION 12.3.2(a) through 12.3.2(k) has occurred.

         12.3.5 It is expressly understood that MedImmune will not be
         obligated *

                                     - 39 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

         . In the event that MedImmune fails to meet its obligations under
         SECTION 12.3 in Europe or Japan, then Avalon shall have the right to
         terminate MedImmune's licenses with respect to such Product in Europe
         or Japan as the case may be by written notice to MedImmune in
         accordance with SECTION 10.3.

12.4     AVALON'S COMMERCIALLY REASONABLE EFFORTS. During the Term, Avalon
         agrees to use Commercially Reasonable Efforts to perform research in
         accordance with the Research Program.

13.      DISPUTE RESOLUTION.

13.1     GOOD FAITH NEGOTIATIONS. In the event of any dispute, disagreement or
         claim between the Parties as to the interpretation of any provision of
         this Agreement or the performance of obligations hereunder other than
         Management Committee disputes under SECTION 3.2, the matter, upon
         written request of either Party, shall first be referred to the Chief
         Executive Officer of Avalon, or such other person holding a similar
         position designated by Avalon from time to time, and the Chief
         Executive Officer of MedImmune, or such other person holding a similar
         position designated by MedImmune from time to time, for resolution.
         These individuals shall, within  *  of when the matter is referred to
         them, attempt in good faith to resolve the dispute. These individuals
         may obtain the advice of other employees as they deem necessary or
         advisable in order to make the decision.

13.2     ARBITRATION. Any dispute, disagreement or claim (other than a dispute
         that involves the validity, scope or enforceability of patents that
         arise under the patent laws of a country or a dispute under ARTICLE 3)
         that cannot be resolved by the respective officers of the Parties under
         SECTION 13.1 above within  *  after its submission, shall be settled by
         binding arbitration held in Washington, DC in accordance with the
         Commercial Arbitration Rules of the American Arbitration Association,
         except that (a) there shall be three U.S.-licensed attorneys acting as
         arbitrators, (b) the arbitration proceedings shall be subject to the
         confidentiality provisions of ARTICLE 8 of this Agreement and (c) the
         Parties will bear their own costs in preparing for the arbitration.
         Whenever a Party decides to institute arbitration proceedings, it shall
         give written notice to that effect to the other. The demand for
         arbitration may be filed by either Party within a reasonable time after
         the controversy or claim has arisen; provided, however, in no event
         shall a demand for arbitration be made after the date when institution
         of a legal or equitable proceeding based upon such claim, dispute or
         other matter in question would be barred by the applicable statute of
         limitations or the provisions of this Agreement. Each Party shall
         select one arbitrator. The Party initiating recourse to arbitration
         shall include in its notice of arbitration its appointment of an
         arbitrator, and the other Party shall select the second arbitrator
         within  *  of the date it receives such notice. The two arbitrators
         selected by the Parties shall select the third arbitrator. At least one
         of the arbitrators shall be a

                                     - 40 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

         licensed attorney who has represented pharmaceutical companies for at
         least ten (10) years and is knowledgeable concerning the type of
         subject matter at issue in the dispute. Discovery in any arbitration
         proceeding under this SECTION 13.2 shall be permitted with respect to
         the performance by the Parties of their obligations under this
         Agreement and such other matters as the arbitrators may determine (it
         being the intent of the Parties that full discovery occur with respect
         to the salient facts). The arbitrators shall render a decision within
          *  of the completion of the arbitration. The arbitrators shall award
         costs and expenses, including reasonable attorneys' fees, to the Party
         in whose favor the arbitral award has been granted. The award of the
         arbitrators shall be in writing and shall be binding on the Parties,
         and judgment upon the award rendered by the arbitrators may be entered
         in any federal court having jurisdiction. Any decision or award made by
         the arbitrators shall be in accordance with the terms and conditions of
         this Agreement and shall not be inconsistent with the rights and
         obligations of the Parties as set forth in this Agreement. Nothing in
         this Agreement bars the right of either Party to obtain preliminary or
         permanent injunctive relief against threatened conduct that will cause
         it loss or damage, in accordance with the rules for obtaining
         injunctive relief in any jurisdiction, including the applicable rules
         for obtaining restraining orders and preliminary injunctions. The
         Parties hereby waive their right to a jury trial in connection with any
         matter submitted for resolution by arbitration hereunder, except as
         provided in the last sentence hereof. Notwithstanding the foregoing,
         disputes regarding the validity, inventorship, scope or enforceability
         of patents shall be submitted to a court of competent jurisdiction in
         the country where such patent has issued or such patent application is
         filed.

14.      MISCELLANEOUS.

14.1     ASSIGNMENT. Neither this Agreement nor any interest hereunder shall be
         assignable by either Party without the prior written consent of the
         other Party, except for assignment in connection with a Change of
         Control of a Party or in connection with a transfer by MedImmune of all
         or substantially all of the assets to which this Agreement is related.
         This Agreement shall be binding upon the successors and permitted
         assigns of the Parties and the name of a Party appearing herein shall
         be deemed to include the names of such Party's successors and permitted
         assigns to the extent necessary to carry out the intent of this
         Agreement. Any assignment not in accordance with this SECTION 14.1
         shall be void.

14.2     FURTHER ACTIONS. Each Party agrees to execute, acknowledge and deliver
         such further instruments, and to do all such other acts, as may be
         necessary or reasonably appropriate in order to carry out the purposes
         and intent of the Agreement or to better assure and confirm unto such
         other Party its rights and remedies under this Agreement.

14.3     FORCE MAJEURE. Neither Party shall be liable to the other for delay or
         failure in the performance of the obligations on its part contained in
         this Agreement if and to the extent that such failure or delay is due
         to circumstances beyond its control which it could not have avoided by
         the exercise of reasonable diligence. It shall notify the other Party

                                     - 41 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

         promptly should such circumstances arise, giving an indication of the
         likely extent and duration thereof, and shall use all commercially
         reasonable efforts to resume performance of its obligations as soon as
         practicable, provided, however, that neither Party shall be required to
         settle any labor dispute or disturbance. Actions taken by a Party to
         resume performance of its obligations with respect to the Research
         Program shall be taken in consultation with the MC.

14.4     CORRESPONDENCE AND NOTICES. Correspondence, reports, documentation,
         notices and any other communication in writing between the Parties
         pursuant to this Agreement shall be delivered by hand, sent by
         registered mail, return receipt requested, postage prepaid or sent by
         facsimile transmission (receipt verified) to the employee or
         representative of the other Party who is designated by such other Party
         to receive such written communication. Notices shall be deemed
         effective given and received upon personal delivery, the fifth day
         following mailing sent by registered or certified mail, or upon
         transmission of facsimile (with telephonic notice).

         All correspondence to Avalon shall be addressed as follows:

                  Avalon Pharmaceuticals
                  20358 Seneca Meadows Parkway
                  Germantown, MD 20876
                  Attn: Chief Executive Officer
                  Telephone: (301) 556-9810
                  Fax: (301) 556-9910

                  With a copy to:

                  Avalon Pharmaceuticals
                  20358 Seneca Meadows Parkway
                  Germantown, MD 20876
                  Attn: General Counsel
                  Telephone: (301) 556-9812
                  Fax: (301) 556-9910

         All correspondence to MedImmune shall be addressed as follows:

                  MedImmune, Inc.
                  One MedImmune Way
                  Gaithersburg, MD 20878
                  Attn: Senior Vice President, Corporate Development
                  Telephone: (301) 398-4698
                  Fax: (301) 398-9698

                                     - 42 -

<PAGE>

                  With a copy to the same address: Legal Affairs
                  Attn: General Counsel
                  Telephone: (301) 398-4625
                  Fax: (301) 398-9625

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

14.6     WAIVER. No provision of the Agreement shall be waived by any act,
         omission or knowledge of a Party or its agents or employees except by
         an instrument in writing expressly waiving such provision and signed by
         a duly authorized officer of the waiving Party. Such waiver shall not
         be deemed a waiver of any other right hereunder or of any other breach
         or failure by a Party whether of similar nature or otherwise.

14.7     SEVERABILITY. Any provision of this Agreement that is prohibited or
         unenforceable in any jurisdiction shall be, as to such jurisdiction and
         to the extent practicable, modified so as to make it valid, legal and
         enforceable and to maintain as nearly as practicable the intent of the
         Parties without invalidating the remaining provisions hereof or
         affecting the validity or enforceability of such provision in any other
         jurisdiction.

14.8     DESCRIPTIVE HEADINGS; INTERPRETATION. The section headings contained in
         this Agreement are for convenience of reference only, do not form a
         part of this Agreement and shall not affect in any way the meaning or
         interpretation of this Agreement. Whenever the context may require, any
         pronoun shall include the corresponding masculine, feminine and neuter
         forms. The words "include," "includes" and "including" shall be deemed
         to be followed by the phrase "but not limited to." All references
         herein to Articles, Sections and Exhibits shall be deemed references to
         Articles and Sections of, and Exhibits to, this Agreement unless the
         context shall otherwise require. All Exhibits attached to this
         Agreement shall be deemed incorporated herein by reference as if fully
         set forth herein. Words such as "herein," "hereof," "hereto," "hereby"
         and "hereunder" refer to this Agreement and to the Exhibits, taken as a
         whole. Except as otherwise expressly provided herein: any reference in
         this Agreement to any law shall include corresponding provisions of any
         successor law and any regulations and rules promulgated pursuant to
         such law or such successor law.

14.9     GOVERNING LAW. This Agreement shall be governed by and interpreted in
         accordance with the substantive laws of the State of New York, without
         regard to conflict of law principles thereof.

14.10    ENTIRE AGREEMENT. This Agreement and the Exhibits thereto, constitute
         the full and entire understanding and agreement among the Parties with
         regard to the subject matter hereof and no Party shall be liable or
         bound to any other Party in any manner by any

                                     - 43 -

<PAGE>

         representations, warranties, covenants, or agreements except as
         specifically set forth herein or therein. Nothing in this Agreement,
         express or implied, is intended to confer upon any Party, other than
         the Parties hereto and their respective successors and assigns, any
         rights, remedies, obligations, or liabilities under or by reason of
         this Agreement, except as expressly provided herein.

14.11    INDEPENDENT CONTRACTORS. It is expressly agreed that the Parties are
         independent contractors under this Agreement. Nothing herein contained
         shall be deemed to create an employment, agency, joint venture or
         partnership relationship between the Parties hereto or any of their
         agents or employees, or any other legal arrangement that would impose
         liability upon one Party for the act or failure to act of the other
         Party. Neither Party shall have any express or implied power to enter
         into any contracts or commitments or to incur any liabilities in the
         name of, or on behalf of, the other Party, or to bind the other Party
         in any respect whatsoever.

14.12    DEBARMENT. Each Party agrees that it will not use, in any capacity, in
         connection with any of its obligations to be performed under this
         Agreement any individual who has been debarred under the FD&C Act or
         the Generic Drug Enforcement Act.

14.13    COUNTERPARTS. This Agreement may be executed in any number of
         counterparts, by facsimile or otherwise, each of which need not contain
         the signature of more than one Party but all such counterparts taken
         together shall constitute one and the same agreement and shall be
         deemed an original.

14.14    CUMULATIVE REMEDIES. Except as set forth in Section 12.3.3, no remedy
         referred to in this Agreement is intended to be exclusive, but each
         shall be cumulative and in addition to any other remedy referred to in
         this Agreement or otherwise available under law.

14.15    WAIVER OF RULE OF CONSTRUCTION. Each Party has had the opportunity to
         consult with counsel in connection with the review, drafting and
         negotiation of this Agreement. Accordingly, the rule of construction
         that any ambiguity in this Agreement shall be construed against the
         drafting Party shall not apply.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                     - 44 -

<PAGE>

     IN WITNESS WHEREOF, duly authorized representatives of the Parties have
     duly executed this Agreement to be effective as of the Effective Date.

   AVALON PHARMACEUTICALS, INC.               MEDIMMUNE, INC.

   By /s/ Kenneth C. Carter Ph.D.             By /s/ Edward T. Mathers
      ---------------------------------          ------------------------------
   Name:  Kenneth C. Carter                   Name:  Edward T. Mathers
   Title: President and CEO                   Title: SVP, Corporate Development

                                     - 45 -

<PAGE>

                          EXHIBIT A - RESEARCH PROGRAM

A.1.     GENERAL. The purpose of the Research Program is to apply Avalon
         Technology to the goal of discovering and optimizing Small Molecules
         that can block the activity of the  *  . In addition, the Research
         Program will apply Avalon Technology to the goal of defining Target
         Biomarkers that can characterize the activity of MedImmune Antibodies
         or other pharmaceutical agents, which block  *  .

         The Research Program shall consist of three stages that are
         characterized by specific research activities. During Stage I, Avalon
         will conduct METS profiling *

                                      During Stage II, Avalon will conduct HITS
         screening of the Avalon Chemical Library on  *  in order to identify
         Compound Hits that produce the desired response profile across the gene
         Signature Set. Such Compound Hits will be organized into Compound
         Families. Avalon and MedImmune shall further characterize Compound Hits
         and/or Compound Families in relevant secondary assays, and Avalon and
         MedImmune shall select Lead Compounds and/or Compound Families to be
         advanced into Stage III. During Stage III, Avalon and MedImmune will
         perform Lead Compound Optimization on Lead Compounds with the goal of
         defining and selecting Clinical Candidates.

A.2      STAGE I

         A.2.1 Collaborative Duties. Within  *  execution of this Agreement, the
         Project Team shall meet and identify the  *  ,  *  , and  *  for
         initiation of Stage I of the Research Program. The Project Team may
         identify further  *  , and  *  to be used during Stage I while Stage I
         is being conducted.  *  .

         At this time, we anticipate profiling treatments of at least one target
         cell line with the following kinds of reagents in Stage I: *

                                     - 46 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

         Initially, target cells will be treated individually with each of these
         reagents and profiled by METS analysis. This will establish baseline
         expression profiles for each of these reagents treated in isolation
          *  .

         A.2.2 MedImmune Duties. Within * after the first meeting of the Project
         Team, MedImmune shall provide any *, *  and * to Avalon, along with any
         MedImmune Know-How necessary for Avalon to perform the Stage I
         research. MedImmune shall also provide to Avalon samples of any
         Reference Compounds that are in its possession, if a decision is made
         by the Project Team to pursue profiling of such agents.

         A.2.3 Avalon Duties. Upon receipt of the *  , *, MedImmune Know-How
         and Reference Compounds (if any), Avalon will treat the Reference and
         MedImmune Cells with the * and perform METS profiling of said
         treatments. *

                                      Avalon will conduct all relevant
         data analyses (including the use of bioinformatics and other analytical
         tools) required to establish  *  gene Signature Sets associated with
         blocking the activity of  *  .

A.3      STAGE II

         A.3.1. Collaborative Duties. The MC will review the data and
         recommendations from Avalon concerning the pilot screen of
         approximately * compounds selected from the Avalon Chemical Library
         (see below). At its discretion, based upon the analysis of screening
         data from the pilot screen, the MC may recommend further refinement of
         a gene Signature Set prior to the screening of the remaining compounds
          *  in the Avalon Chemical Library. If the data from the pilot screen
         appear satisfactory to the MC, then the MC will recommend the screening
         of the remaining compounds in the Avalon Chemical Library.

                                     - 47 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

         A.3.2    Avalon Duties.

         (a) Avalon will transfer and validate the relevant gene Signature Sets
         obtained from Stage I onto the HITS quantitative polymerase chain
         reaction platform. Avalon will then perform a pilot screen against a
         target cell used in Stage I. In the pilot screen, Avalon will test
         approximately  *  compounds selected from the Avalon Chemical Library.
         Data from the pilot screen will be analyzed by Avalon to evaluate the
         performance of the screen and the suitability of the selected gene
         Signature Sets. Following the pilot screen and upon approval by the MC,
         the remaining compounds in the Avalon Chemical Library (approximately *
         compounds) will be screened and Compound Hits will be identified by
         Avalon. Although Avalon estimates that approximately  *  Compounds from
         the Avalon Chemical Library may induce a gene signature similar enough
         to the Signature Sets obtained from Stage I to warrant further
         analysis, Avalon makes no warranty or representation as to how many, if
         any, Compounds will be identified pursuant to this SECTION A.3.2(a).

         (b) Avalon will re-screen any Compound Hits identified in SECTION
         A.3.2(a) at least once using the same HITS assay employed in SECTION
         A.3.2(a), in order to confirm the activity originally identified in the
         primary HITS screen. Avalon estimates, but does not warrant or
         represent, that approximately *.

         (c) Avalon will group any Compound Hits identified by the HITS assays
         of SECTIONS A.3.2(a) and A.3.2(b) into Compound Families based on
         similarities in function and chemical scaffold.

         (d)      Avalon will   *

         (e) Avalon shall choose representative, confirmed Compound Hits from
         each Compound Family and subject such Compound Hits to METS profiling,
         to generate global gene expression profiles for each confirmed Compound
         Hit Family. The criteria used to select these Compounds from the
         Compound Families shall be determined by

                                     - 48 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

         Avalon and shall include considerations of expected toxicity, expected
         pharmacokinetics, solubility and ability to easily modify the chemical
         structure.

         A.3.3 MedImmune Duties: MedImmune will recommend relevant secondary
         assays (non-METS assay) for the characterization of hits identified
         from screening during Stage II. MedImmune will conduct testing of
         compound hits in relevant (non-METS) secondary assays. When MedImmune
         conducts such testing, Avalon will transfer compound to MedImmune
         without any information on chemical structure and MedImmune will not
         determine or have any Third Party determine the structures of the
         compounds provided. Alternately, MedImmune will transfer MedImmune
         Know-How for the performance of such assays to Avalon, provided that
         resources and FTE's to conduct such assays are available at Avalon. In
         such cases, MedImmune will pay for the performance of such assays at
         Avalon. MedImmune shall participate in the selection of Lead Compounds
         for Lead Optimization and recommend such Lead Compounds to the
         MedImmune Executive Committee for approval. The MedImmune Executive
         Committee shall review such recommendations and approve the initiation
         of Stage III, in its sole discretion.

  A.4    STAGE III

         A.4.1 Collaborative Duties. For each Compound Family selected by
         MedImmune under SECTION A.3.3, some or all of the Compound Hits within
         that Compound Family shall be designated Lead Compounds and subjected
         to Lead Compound Optimization. The MC shall review progress of Lead
         Compound Optimization and shall ultimately make the decision on
         selection of Clinical Candidates.

         A.4.2    Avalon Duties.

         Avalon shall use standard medicinal and combinatorial chemistry to
         synthesize compound Analogs during Lead Compound Optimization.
         Throughout the optimization process, Avalon shall employ T-SAR and METS
         profiling of Lead Compounds and Lead Compound Analogs to monitor and
         maintain activity that mimics the Signature Set generated in Stage I.
         The METS profiling will also be used to monitor global gene activity
         and identify subgroups of Analogs based upon changes in gene
         expression. Throughout the optimization process, Avalon shall also use
         RACETraCK to rapidly address in vivo activity of Lead Compounds or
         Compound Analogs, and identify those Lead Compounds or Lead Compound
         Analogs with the best activity profile. It is anticipated that
         MedImmune will conduct animal studies and will provide the necessary
         cells and/or tissues from such studies to Avalon for the isolation of
         RNA for use in a RACETraCK assessment; however, only Avalon shall
         perform the actual RACETraCK assessment of that RNA.

                                     - 49 -

<PAGE>

         Any Compound within a Compound Family undergoing optimization under
         this SECTION A.4, which is discovered to not inhibit the Target or have
         a modulating activity in the Target pathway shall no longer be
         considered part of the Avalon Technology, and shall no longer be
         exclusively licensed to MedImmune pursuant to SECTION 2.1(a).

         A.4.3 MedImmune Duties. MedImmune shall be responsible for * of
         Compounds and Analogs generated from screening or during Lead Compound
         Optimization. RACETraCK profiling and analysis of any cells or tissues
         isolated from such animal models will be performed by Avalon. MedImmune
         shall designate at least * , or present good reasons to the MC why no
         Clinical Candidate has been selected. If MedImmune selects a Clinical
         Candidate, then it must use Commercially Reasonable Efforts to initiate
         a Development and Commercialization Program and commercialize a
         Product.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                     - 50 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

                                   EXHIBIT B

                                 PROGRAM BUDGET

<Table>
<CAPTION>
        *               *              *                    *              *                    *
--------------- -------------- ---------------------- -------------- -------------- ----------------------------------
<S>            <C>            <C>                    <C>            <C>            <C>
*               *                                  *              *              *                                  *
--------------- -------------- ---------------------- -------------- -------------- ----------------------------------
*               *                                  *              *              *                                  *
--------------- -------------- ---------------------- -------------- -------------- ----------------------------------
*               *                                  *              *              *                                  *
--------------- -------------- ---------------------- -------------- -------------- ----------------------------------
*               *                                  *              *              *                                  *
--------------- -------------- ---------------------- -------------- -------------- ----------------------------------
*               *                                  *              *              *                                  *
--------------- -------------- ---------------------- -------------- -------------- ----------------------------------
*               *                                  *              *              *                                  *
--------------- -------------- ---------------------- -------------- -------------- ----------------------------------
*               *                                  *              *              *                                  *
--------------- -------------- ---------------------- -------------- -------------- ----------------------------------
*               *                                  *              *              *                                  *
--------------- -------------- ---------------------- -------------- -------------- ----------------------------------
*               *                                  *              *              *                                  *
--------------- -------------- ---------------------- -------------- -------------- ----------------------------------
*               *                                  *              *              *                                  *
--------------- -------------- ---------------------- -------------- -------------- ----------------------------------
*               *                                  *              *              *                                  *
--------------- -------------- ---------------------- -------------- -------------- ----------------------------------
*               *                                  *              *              *                                  *
--------------- -------------- ---------------------- -------------- -------------- ----------------------------------
*               *                                  *              *              *                                  *
--------------- -------------- ---------------------- -------------- -------------- ----------------------------------
*               *                                  *              *              *                                  *
--------------- -------------- ---------------------- -------------- -------------- ----------------------------------
*               *                                  *              *              *                                  *
--------------- -------------- ---------------------- -------------- -------------- ----------------------------------
</Table>

                                     - 51 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

                                    EXHIBIT C

                          CERTAIN AVALON PATENT RIGHTS

1.       CERTAIN AVALON PATENT RIGHTS

 <Table>
 <Caption>
             TITLE                       DESCRIPTION                  INVENTOR          APPLN. NO.      ATTORNEY
                                                                                                       DOCKET NO.
 -------------------------------------------------------------------------------------------------------------------
<S>                            <C>                              <C>                   <C>             <C>
 *                              *                                *                     *               *
 -------------------------------------------------------------------------------------------------------------------
 *                              *                                *                     *               *
 -------------------------------------------------------------------------------------------------------------------
 </Table>

INTERNAL USE NOTES:

  *

                                     - 52 -

* Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as * . A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.

<PAGE>

                                    EXHIBIT D

                              FORM OF PRESS RELEASE

                  MEDIMMUNE AND AVALON PHARMACEUTICALS ANNOUNCE
           COLLABORATION TO DISCOVER SMALL MOLECULE THERAPEUTIC DRUGS
                           FOR INFLAMMATORY DISEASES

GAITHERSBURG, MD AND GERMANTOWN, MD, JUNE XX, 2005 - MedImmune, Inc. (Nasdaq:
MEDI) and Avalon Pharmaceuticals, Inc. today announced a collaboration to
discover and develop small molecule therapeutic compounds in the area of
inflammatory disease. Avalon will use its AvalonRxTM drug discovery engine to
identify lead compounds. MedImmune will be responsible for preclinical and
clinical testing of any resulting product candidates, as well as all future
development and sales and marketing activities.

Under the terms of the agreement, Avalon will receive an upfront payment,
research and development support, milestone payments and royalties on any future
marketed products. MedImmune also has the option to initiate two additional
small molecule drug discovery collaborations with Avalon under similar terms.

"This collaboration with Avalon expands the breadth of our research to include
small molecules as potential therapies for various inflammatory diseases,"
stated Edward T. Mathers, MedImmune's senior vice president of corporate
development. "We look forward to investigating Avalon's proprietary drug
discovery technology with the hope that our combined efforts will lead to
developing new treatment options for patients suffering from debilitating
disease."

"We are excited to be MedImmune's first partner in the discovery and
optimization of small molecule therapeutic compounds," stated Ken Carter,
Avalon's chief executive officer. "It is also significant that this is our first
major program with our AvalonRx drug discovery platform in a therapeutic area
beyond our internal cancer focus."

ABOUT MEDIMMUNE
MedImmune strives to provide better medicines to patients, new medical options
for physicians, rewarding careers to employees, and increased value to
shareholders. Dedicated to advancing science and medicine to help people live
better lives, the company is focused on the areas of infectious diseases, cancer
and inflammatory diseases. With approximately 2,000 employees worldwide,
MedImmune is headquartered in Maryland. For more information, visit the
company's website at http://www.medimmune.com.

ABOUT AVALON

                                     - 53 -

<PAGE>

Avalon Pharmaceuticals is a biopharmaceutical company focused on the discovery
and development of small molecule therapeutics for the treatment of cancer.
Avalon seeks to discover and develop novel therapeutics through the use of a
comprehensive, innovative and proprietary suite of technologies based upon
large-scale gene expression analysis which it calls AvalonRx(TM). Avalon
Pharmaceuticals was established in 1999 and is headquartered in Germantown,
Maryland.

This announcement contains, in addition to historical information, certain
forward-looking statements that involve risks and uncertainties, in particular,
related to the research and development of future small molecule products. Such
statements reflect the current views of MedImmune and/or Avalon management and
are based on certain assumptions. Actual results could differ materially from
those currently anticipated as a result of a number of factors, including risks
and uncertainties discussed in MedImmune's filings with the U.S. Securities and
Exchange Commission. There can be no assurance that such development efforts
will succeed, that the products will receive required regulatory clearance or,
even if such regulatory clearance is received, that the subsequent products will
ultimately achieve commercial success.

                                       ###

                                     - 54 -

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