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Exhibit 10.5    
    

 
 

THERAVANCE, INC.
  CHANGE IN CONTROL SEVERANCE PLAN
  AND
  SUMMARY PLAN DESCRIPTION    
    

        The Theravance, Inc. Change in Control Severance Plan (the "Plan") is primarily designed to provide separation pay and other benefits to
Theravance, Inc. (the "Corporation") executives who meet the eligibility requirements as set forth below (an "Eligible Executive") and whose employment is involuntarily terminated in connection
with a change in control occurring after an initial public offering ("IPO"). 

        This
Plan is designed to be an "employee welfare benefit plan," as defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). This Plan
is governed by ERISA and, to the extent applicable, the laws of the State of California. This document constitutes both the official plan document and the required summary plan description under
ERISA. 

 
 

I. ELIGIBILITY    
    

        You will be an Eligible Executive for severance benefits under the Plan if: 

	•
	you
are an officer of the Corporation;

	•
	your
active employment is Involuntarily Terminated other than for Misconduct within the designated period following a Change in Control;

	•
	you
execute a general release of all claims in a form provided by and acceptable to the Corporation as provided for in the section entitled "Release and Waiver of Claims,"
within the prescribed number of days following your date of termination, as set forth in such release; and

	•
	you
are not in one of the excluded categories listed below. 

        You
will not be an Eligible Executive for severance benefits under this Plan if: 

	•
	you
are an independent contractor, a temporary employee, part-time employee working fewer than 32 hours per week, probationary employee or student
employee;

	•
	you
are employed with a successor employer following a Change in Control. However, you would be eligible for severance benefits pursuant to the terms of the Plan upon a
subsequent Involuntary Termination other than for Misconduct within the designated period following a Change in Control; or

	•
	you
are dismissed for Misconduct. 

 
 

II. HOW THE PLAN WORKS    
    

1.    Severance Guidelines  

If you are an Eligible Executive and your employment is Involuntarily Terminated within three (3) months before or twenty-four (24) months after a
Change in Control, you will be paid a Severance Payment calculated as follows:

        If
you were an officer of the Corporation immediately before the Change in Control: 

	•
	100%
of your combined Annual Base Pay and Target Bonus, plus

	•
	A
pro-rata portion of your current target bonus based on the number of full months of employment completed in the applicable period on the date of termination in
such year of termination. 

 

        If
you were senior vice president of the Corporation immediately before the Change in Control: 

	•
	150%
of your combined Annual Base Pay and Target Bonus, plus

	•
	A
pro-rata portion of your current target bonus based on the number of full months of employment completed in the applicable period on the date of termination in
such year of termination. 

        If
you were the chief executive officer or an executive vice president of the Corporation immediately before the Change in Control: 

	•
	200%
of your combined Annual Base Pay and Target Bonus, plus

	•
	A
pro-rata portion of your current target bonus based on the number of full months of employment completed in the applicable period on the date of termination in
such year of termination. 

        Payments
made under this Plan shall not be treated as "compensation" for purposes of the Advanced Medicine, Inc. 401(k) Profit Sharing Plan. An Eligible Executive will also
receive his unpaid salary through his termination date and a lump sum payment for all accrued and unused vacation (through the termination date) in a final paycheck provided on his last day of work. 

        The
full amount of any balance and accrued interest remaining on any outstanding loans owed by the Eligible Executive to the Corporation as of the date of termination shall be forgiven
in full immediately upon the Eligible Executive's Involuntary Termination. 

2.    Group Insurance Coverage  

        If an Eligible Executive becomes entitled to a Severance Payment under this Plan, then the Corporation shall continue to provide all welfare benefits provided on
the date of termination to the Eligible Executive and, if applicable, to the Eligible Executive's dependents for the following periods: 

	•
	12 months
if you were an officer of the Corporation immediately before the Change in Control

	•
	18 months
if you were a senior vice president of the Corporation immediately before the Change in Control

	•
	24 months
if you were the chief executive officer or an executive vice president of the Corporation immediately before the Change in Control 

The
Corporation's obligation to pay premiums or make contributions shall cease when the Eligible Executive obtains new employment offering comparable welfare benefits. 

3.    Equity  

        If an Eligible Executive becomes entitled to a Severance Payment under this Plan, then the Corporation shall fully vest the officer in all of his unvested shares
and options, and such options shall become fully exercisable, as of the date of termination. To the extent that the foregoing results in acceleration of exercisability on or before September 1,
2007 as to options which otherwise would not have been exercisable on that date, then such accelerated options shall be treated as vested and exercisable as of September 1, 2007. To the extent
necessary to effectuate the intent of the foregoing, each such option shall have an extended period of time to exercise following a cessation of service which shall not expire earlier than
October 1, 2007. 

4.    Definitions  

        Annual Base Pay shall mean the Eligible Executive's base salary at the highest rate in effect at any regularly
scheduled payroll period preceding the occurrence of the Change in Control and does not 

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include,
for example, bonuses, overtime compensation, incentive pay, sales commissions or expense allowances. 

        Target Bonus shall mean the normal bonus amount that would be paid for achieving 100% of goals or MBOs as used in the applicable annual
bonus plan. 

        Involuntary Termination shall mean the termination of the service of any individual which occurs by reason of: 

        A.    such
individual's involuntary dismissal or discharge by the Corporation for reasons other than Misconduct, or 

        B.    such
individual's voluntary resignation following (i) a change in his or her position with the Corporation which materially reduces his or her level of
responsibility, (ii) a material reduction in his or her level of compensation (including base salary, fringe benefits and participation in bonus or incentive programs) or (iii) a
relocation of such individual's place of employment by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected by the Corporation without the
individual's consent. 

        Misconduct shall mean the commission of any material act of fraud, embezzlement or dishonesty by an individual, any material unauthorized
use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional material misconduct by such person adversely
affecting the business or affairs of the Corporation (or any Parent or Subsidiary). 

        Change in Control shall mean: 

        A.    The
consummation of a merger or consolidation of the Corporation with or into another entity or any other corporate reorganization, if persons who were not stockholders
of the Corporation immediately prior to such merger, consolidation or other reorganization own immediately after such merger, consolidation or other reorganization 50% or more of the voting power of
the outstanding securities of each of (i) the continuing or surviving entity and (ii) any direct or indirect parent corporation of such continuing or surviving entity; 

        B.    The
sale, transfer or other disposition of all or substantially all of the Corporation's assets; 

        C.    A
change in the composition of the Board, as a result of which fewer than 50% of the incumbent directors are directors who either: 

	(i)
	had
been directors of the Corporation on the date 24 months prior to the date of such change in the composition of the Board (the "Original Directors") or

	(ii)
	were
appointed to the Board, or nominated for election to the Board, with the affirmative votes of at least a majority of the aggregate of (A) the Original
Directors who were in office at the time of their appointment or nomination and (B) the directors whose appointment or nomination was previously approved in a manner consistent with this
clause (ii); or 

        D.    Any
transaction as a result of which any person is the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Corporation representing at least 35% of the total voting power represented by the Corporation's then outstanding voting securities. For purposes of this Paragraph (d), the
term "person" shall have the same meaning as when used in sections 13(d) and 14(d) of the Exchange Act but shall exclude (i) a trustee or other fiduciary holding securities under an employee
benefit plan of the Corporation or of a Parent or Subsidiary and (ii) a corporation owned directly or indirectly by the stockholders of the Corporation in substantially the same proportions as
their ownership of the common stock of the Corporation. 

        Notwithstanding
anything to the contrary herein, any stock purchase by SmithKline Beecham Corporation, a Pennsylvania corporation ("GSK"), pursuant to the Class A Common Stock
Purchase 

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Agreement
dated as of March 30, 2004 or (ii) the exercise by GSK of any of its rights under the Governance Agreement dated as of
May 11, 2004 to representation on the Board (and its committees) or (iii) any acquisition by GSK of securities of the Company (whether by
merger, tender offer, private or market purchases or otherwise) shall not constitute a Change in Control. A transaction shall not constitute a Change in Control if its sole purpose is to change the
state of the Corporation's incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Corporation's securities immediately before
such transaction. 

5.    Golden Parachute Tax Limitation  

        The Internal Revenue Code imposes a 20% excise tax on certain payments and other benefits received by certain officers and shareholders in connection with a
change of control involving the Corporation. Such payments can include severance pay, loan forgiveness and acceleration of option vesting. 

Gross-Up Payment.  

        In the event that it is determined that any payment or distribution of any type to or for the benefit of the Eligible Executive made by the Corporation, by any of
its affiliates, by any person who acquires ownership or effective control of the Corporation or ownership of a substantial portion of the Corporation's assets (within the meaning of
section 280G of the Code and the regulations thereunder) or by any affiliate of such person, whether paid or payable or distributed or distributable pursuant to the terms of this Plan or under
any other agreement including an Eligible Executive's stock option agreement and including loan forgiveness (the "Total Payments"), would be subject to the excise tax imposed by section 4999 of
the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest or penalties, are collectively referred to as the "Excise Tax"),
then the Corporation shall pay Eligible Executive an additional amount (a "Gross-Up Payment") equal to the amount that shall fund the payment by the Eligible Executive of any Excise Tax on
the Total Payments as well as all income taxes imposed on the Gross-Up Payment, any Excise Tax imposed on the Gross-Up Payment and any interest or penalties imposed with
respect to taxes on the Gross-Up Payment or any Excise Tax. 

Determination by Accountant.  

        All mathematical determinations and all determinations of whether any of the Total Payments are "parachute payments" (within the meaning of section 280G of
the Code) that are required to be made under this Section 4, including all determinations of whether a Gross-Up Payment is required, of the amount of such Gross-Up
Payment and of amounts relevant to the last sentence of this section, shall be made by an independent accounting firm selected by the Corporation (the "Accounting Firm"), which shall provide its
determination (the "Determination"), together with detailed supporting calculations regarding the amount of any Gross-Up Payment and any other relevant matters, both to the Corporation and
to the Eligible Executive within seven business days of the Eligible Executive's termination date, if applicable, or such earlier time as is requested by the Corporation or by the Eligible Executive
(if the Eligible Executive reasonably believes that any of the Total Payments may be subject to the Excise Tax). If the Accounting Firm determines that no Excise Tax is payable by the Eligible
Executive, it shall furnish the Eligible Executive with a written statement that such Accounting Firm has concluded that no Excise Tax is payable (including the reasons therefor) and that the Eligible
Executive has substantial authority not to report any Excise Tax on the Eligible Executive's federal income tax return. If a Gross-Up Payment is determined to be payable, it shall be paid
to the Eligible Executive within five business days after the Determination is delivered to the Corporation or the Eligible Executive. Any determination by the Accounting Firm shall be binding upon
the Corporation and the Eligible Executive, absent manifest error. 

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Underpayments and Overpayments.  

        As a result of uncertainty in the application of section 4999 of the Code at the time of the initial Determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments not made by the Corporation should have been made ("Underpayments") or that Gross-Up Payments will have been made by the Corporation which
should not have been made ("Overpayments"). In either event, the Accounting Firm shall determine the amount of the Underpayment or Overpayment that has occurred. In the case of an Underpayment, the
amount of such Underpayment shall promptly be paid by the Corporation to or for the benefit of the Eligible Executive. In the case of an Overpayment, the Eligible Executive shall, at the direction and
expense of the Corporation, take such steps as are reasonably necessary (including the filing of returns and claims
for refund), follow reasonable instructions from, and procedures established by, the Corporation and otherwise reasonably cooperate with the Corporation to correct such Overpayment;  provided, however,
that (i) the Eligible Executive shall in no event be obligated to return to the Corporation an amount greater than the net
after-tax portion of the Overpayment that the Eligible Executive has retained or has recovered as a refund from the applicable taxing authorities and (ii) this provision shall be
interpreted in a manner consistent with the intent of this section, which is to make the Eligible Executive whole, on an after-tax basis, for the application of the Excise Tax, it being
understood that the correction of an Overpayment may result in the Eligible Executive's repaying to the Corporation an amount which is less than the Overpayment. 

 
 

III. OTHER IMPORTANT INFORMATION    
    

	1.
	Release and Waiver of Claims.    Any other provision of this Plan notwithstanding, an Eligible Executive shall not be entitled
to receive any Severance Payment, other payment, or benefit under this Plan unless such Eligible Executive has executed a waiver of claims and a general release of all claims in favor of the
Corporation and its affiliates. Such waiver and release shall be executed on a form provided by and acceptable to the Corporation. The form of the waiver and general release will specify how much time
such Eligible Executive has to sign it and whether there is a revocation period.

	2.
	Plan Administration.    As the Plan Administrator, the Corporation has full discretionary authority to administer
and
interpret the Plan, including discretionary authority to determine eligibility for benefits under the Plan and the amount of benefits (if any) payable per participant. Any determination by the Plan
Administrator will be final and conclusive upon all persons. The Plan Administrator hereby delegates to the Chief Financial Officer all of its administrative duties. Accordingly, the Chief Financial
Officer, on behalf of the Plan Administrator, has full discretionary authority to carry out its delegated duties. Any determination by the Chief Financial Officer will be final and conclusive upon all
persons. The Corporation, as the Plan Administrator, will indemnify and hold harmless the Chief Financial Officer for carrying out the responsibilities of the Plan Administrator;  provided, however, such
person does not act with gross negligence or willful misconduct.

	3.
	Benefits.    When benefits are due, they will be paid in one lump sum from the general assets of the Corporation
on the first
scheduled payroll date of the Corporation following the latest of the following dates: the Eligible Executive's last day of employment, the date the Company receives the Eligible Executive's signed
general release of all claims, or the date the revocation period (if any) specified in the general release of all claims expires. The Corporation is not required to establish a trust to fund the Plan.
The benefits provided under this Plan are not assignable and may be conditioned upon your compliance with any confidentiality agreement you have entered into with the Corporation.

	4.
	Claims Procedure.    If you believe you are incorrectly denied a benefit or are entitled to a greater benefit than
the benefit
you receive under the Plan, you may submit a signed, written application 

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to
the Plan Administrator within ninety (90) days of your Termination Date or, in the case of a dispute involving a Gross-Up Payment, the date on which a Determination is made
regarding a Gross-Up Payment. You will be notified of the approval or denial of this claim within ninety (90) days of the date that the Plan Administrator receives the claim, unless
special circumstances require an extension of time for processing the claim. If your claim is denied, the notification will state specific reasons for the denial and you will have sixty
(60) days from receipt of the written notification of the denial of your claim to file a signed, written request for a review of the denial with the Plan Administrator. This request
should include the reasons you are requesting a review, facts supporting your request and any other relevant comments. Pursuant to its discretionary authority to administer and interpret the Plan and
to determine eligibility for benefits under the Plan, the Plan Administrator will generally make a final, written determination of your eligibility for benefits within sixty (60) days of
receipt of your request for review. 

	5.
	Plan Terms.    This Plan supersedes any and all prior separation, severance and salary continuation arrangements, programs and
plans which were previously offered by the Corporation relating to a Change in Control event, for which you are eligible, but excluding terms of the Corporation's stock option plans and individual
letter agreements which address the vesting of stock options or restricted stock. In no event shall an Eligible Executive receive cash severance benefits under this Plan following a Change in Control
event and under any other Plan, program or arrangement.

	6.
	Plan Amendment or Termination.    The Corporation, acting through its Board of Directors or its Compensation
Committee,
reserves the right to terminate or amend the Plan at any time and in any manner. Any termination or amendment of the Plan may be made effective immediately with respect to any benefits not yet paid,
whether or not prior notice of such amendment or termination has been given to affected employees. However, no amendment or termination may be approved following the execution of a definitive
agreement to effect any Change in Control involving the Corporation without the consent of 75% of the then participating Eligible Executives.

	7.
	Taxes.    Except as set forth herein, the Corporation will withhold taxes and other payroll deductions from any
severance
payment.

	8.
	No Right to Employment.    This Plan does not provide you with any right to continue employment with the
Corporation or affect
the Corporation's right, which right is hereby expressly reserved, to terminate the employment of any individual at any time for any reason with or without cause. 

 
 

IV. STATEMENT OF ERISA RIGHTS    
    

        As a participant in the Plan, you are entitled to certain rights and protections under ERISA. ERISA provides that all Plan participants shall be entitled to: 

	1.
	Examine,
without charge, at the Plan Administrator's office, all Plan documents, including all documents filed by the Plan with the U.S. Department of Labor.

	2.
	Obtain
copies of all Plan documents and other Plan information upon written request to the Plan Administrator. The Plan Administrator may make a reasonable charge for the copies.

	3.
	File
suit in a federal court, if you, as a participant, request materials and do not receive them within thirty (30) days of your request. In such a case, the court may require
the Plan Administrator to provide the materials and to pay you a fine of up to $100 for each day's delay until the materials are received, unless the materials were not sent because of reasons beyond
the control of the Plan Administrator. 

        In
addition to creating rights for certain employees of the Corporation under the Plan, ERISA imposes obligations upon the people who are responsible for the operation of the Plan. The
people 

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who
operate the Plan (called "fiduciaries") have a duty to do so prudently and in the interest of the Corporation's employees who are covered by the Plan. 

        No
one, including your employer or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a benefit to which you are entitled under
the Plan or from exercising your rights under ERISA. 

        If
your claim for a severance benefit is denied or ignored, in whole or in part, you have a right to file suit in a federal or a state court. If Plan fiduciaries are misusing the Plan's
assets (if any) or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor or file suit in a federal court. The court will decide who will
pay court costs and legal fees. If you are successful in your lawsuit, the court may, if it so decides, order the party you have sued to pay your legal costs, including attorney fees. However, if you
lose, the court may order you to pay these costs and fees, for example, if it finds that your claim or suit is frivolous. 

        If
you have any questions about the Plan, this statement or your rights under ERISA, you should contact the Plan Administrator or the nearest Area Office of the U.S. Labor-Management
Services Administration, Department of Labor. 

 
 

ADDITIONAL PLAN INFORMATION    
    

	

Name of Plan:	
 	

Theravance, Inc. Change in Control Severance Plan
	

Corporation Sponsoring Plan:	
 	

Theravance, Inc.

901 Gateway Boulevard

South San Francisco, CA 94080

650-808-6000
	

Employer Identification Number:	
 	

94-3265960
	

Plan Number:	
 	

506
	

Plan Year:	
 	

The calendar year; the first plan year shall end December 31, 2004
	

Plan Administrator:	
 	

Theravance, Inc.

901 Gateway Boulevard

South San Francisco, CA 94080

650-808-6000
	

Agent for Service of Legal Process:	
 	

Plan Administrator
	

Type of Plan:	
 	

Severance Plan/Employee Welfare Benefit Plan
	

Plan Costs:	
 	

The cost of the Plan is paid by Theravance, Inc.

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QuickLinks

Exhibit 10.5

THERAVANCE, INC. CHANGE IN CONTROL SEVERANCE PLAN AND SUMMARY PLAN DESCRIPTION

I. ELIGIBILITY

II. HOW THE PLAN WORKS

III. OTHER IMPORTANT INFORMATION

IV. STATEMENT OF ERISA RIGHTS

ADDITIONAL PLAN INFORMATIONQuickLinks
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Exhibit 10.6    
    

THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.

 
 

WARRANT AGREEMENT    
    
    To Purchase Shares of the Series B Preferred Stock of    
    
    ADVANCED MEDICINE, INC.    
    
    Dated as of April 27, 1998 (the
"Effective Date")    

        WHEREAS, Advanced Medicine, Inc., a Delaware corporation (the "Company") has entered into a Master Lease Agreement dated as of
May 7, 1997, Equipment Schedules No. VL-4 and VL-5 dated as of April 27, 1998, and related Summary Equipment Schedules (collectively, the "Leases") with
Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and 

        WHEREAS, the Company desires to grant to Warrantholder, in consideration for such Leases, the right to purchase shares of its
Series B Preferred Stock; 

        NOW, THEREFORE, in consideration of the Warrantholder executing and delivering such Leases and in consideration of mutual covenants and
agreements contained herein, the Company and Warrantholder agree as follows: 

1.     GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.  

        The Company hereby grants to the Warrantholder, and the Warrantholder is entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 24,000 fully paid and non-assessable shares of the Company's Series B Preferred Stock ("Preferred Stock") at a purchase price of $5.00
per share (the "Exercise Price"). The number, class and purchase price of such shares are subject to adjustment as provided in Section 8 hereof. 

2.     TERM OF THE WARRANT AGREEMENT.  

        Except as otherwise provided for herein, the term of this Warrant Agreement and the right to purchase Preferred Stock as granted herein shall commence on the
Effective Date and shall be exercisable for a period of seven years. 

        Notwithstanding
the foregoing, this Warrant shall terminate, if not previously exercised immediately upon the consummation of (i) a consolidation or merger of the Company with or
into any other corporation or corporations in which the shareholders of the Company immediately prior to such transaction own less than fifty percent (50%) of the shares of capital stock of the
surviving corporation (other than a mere reincorporation transaction), or (ii) the sale of all or substantially all of the assets of the Company, or a series of related transactions in which
more than fifty percent (50%) of the voting power of the Company is disposed, ("Change of Control"). The Company shall notify Warrantholder twenty (20) business days prior to the closing of
such Change of Control, and if the Company fails to provide such notice, then notwithstanding anything to the contrary contained in this Warrant, the right to purchase Preferred Stock shall not expire
until the Company complies with such notice provisions. Such notice shall contain details of the transaction as are reasonable under the circumstances. If such closing does not take place the Company
shall notify Warrantholder that the proposed Change of Control has terminated and Warrantholder may rescind any exercise of its 

 

purchase
rights promptly after such notice of termination. In the event of such recession, the Warrant shall continue to be exercisable on the same terms and conditions contained herein. 

3.     EXERCISE OF THE PURCHASE RIGHTS.  

        The purchase rights set forth in this Warrant Agreement are exercisable by the Warrantholder, in whole or in part, at any time, or from time to time, prior to the
expiration of the term set forth in Section 2 above, by tendering to the Company at its principal office a notice of exercise in the form attached hereto as Exhibit I (the "Notice of
Exercise"), duly completed and executed. Promptly upon receipt of the Notice of Exercise and the payment of the purchase price in accordance with the terms set forth below, and in no event later than
twenty-one (21) days thereafter, the Company shall issue to the Warrantholder a certificate for the number of shares of Preferred Stock purchased and shall execute the
acknowledgment of exercise in the form attached hereto as Exhibit II (the "Acknowledgment of Exercise") indicating the number of shares which remain subject to future purchases, if any. 

        The
Exercise Price may be paid at the Warrantholder's election either (i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as determined below. If the
Warrantholder elects the Net Issuance method, the Company will issue Preferred Stock in accordance with the following formula: 

	X =	 	Y(A-B)

A

	 	Where:	 	X =	 	the number of shares of Preferred Stock to be issued to the Warrantholder.
	 	 	Y =	 	the number of shares of Preferred Stock requested to be exercised under this Warrant Agreement.
	 	 	A =	 	the fair market value of one (1) share of Preferred Stock.
	 	 	B =	 	the Exercise Price.

        For
purposes of the above calculation, current fair market value of Preferred Stock shall mean with respect to each share of Preferred Stock: 

        (i)    if
the exercise is in connection with an initial public offering of the Company's Common Stock, and if the Company's Registration Statement relating to such public
offering has been declared effective by the SEC, then the fair market value per share shall be the product of (x) the initial "Price to Public" specified in the final prospectus with respect to
the offering and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; 

        (ii)   if
this Warrant is exercised after, and not in connection with the Company's initial public offering, and: 

        (a)   if
traded on a securities exchange, the fair market value shall be deemed to be the product of (x) the average of the closing prices over a twenty-one
(21) day period ending three days before the day the current fair market value of the securities is being determined and (y) the number of shares of Common Stock into which each share of
Preferred Stock is convertible at the time of such exercise; or 

        (b)   if
actively traded over-the-counter, the fair market value shall be deemed to be the product of (x) the average of the closing bid and
asked prices quoted on the NASDAQ system (or similar system) over the twenty-one (21) day period ending three days before the day the 

2

 

current
fair market value of the securities is being determined and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such
exercise; 

        (iii)  if
at any time the Common Stock is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Preferred Stock shall be the product of (x) the highest price per share which the Company could obtain from a willing buyer (not a current employee or director) for
shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by its Board of Directors and (y) the number of shares of Common Stock into which
each share of Preferred Stock is convertible at the time of such exercise, unless the Company shall become subject to a merger, acquisition or other consolidation pursuant to which the Company is not
the surviving party, in which case the fair market value of Preferred Stock shall be deemed to be the value received by the holders of the Company's Preferred Stock on a common equivalent basis
pursuant to such merger or acquisition. 

        Upon
partial exercise by either cash or Net Issuance, the Company shall promptly issue an amended Warrant Agreement representing the remaining number of shares purchasable hereunder. All
other terms and conditions of such amended Warrant Agreement shall be identical to those contained herein, including, but not limited to the Effective Date hereof. 

4.     RESERVATION OF SHARES.  

        (a)    Authorization and Reservation of Shares.    During the term of this Warrant Agreement, the Company will at all
times have authorized and reserved a sufficient number of shares of its Preferred Stock to provide for the exercise of the rights to purchase Preferred Stock as provided for herein. 

5.     NO FRACTIONAL SHARES OR SCRIP.  

        No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the Warrant, but in lieu of such fractional shares the Company
shall make a cash payment therefor upon the basis of the Exercise Price then in effect. 

6.     NO RIGHTS AS SHAREHOLDER.  

        This Warrant Agreement does not entitle the Warrantholder to any voting rights or other rights as a shareholder of the Company prior to the exercise of the
Warrant. 

7.     WARRANTHOLDER REGISTRY.  

        The Company shall maintain a registry showing the name and address of the registered holder of this Warrant Agreement. 

8.     ADJUSTMENT RIGHTS.  

        The purchase price per share and the number of shares of Preferred Stock purchasable hereunder are subject to adjustment, as follows: 

        (a)    Merger and Sale of Assets.    Subject to Section 2 hereof, if at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), or a merger or consolidation of the
Company with or into another corporation whether or not the Company is the surviving corporation, or the sale of all or substantially all of the Company's properties and assets to any other person
(hereinafter referred to as a "Merger Event"), then, as a part of such Merger Event, lawful provision shall be made so that the Warrantholder shall thereafter be entitled to receive, upon exercise of
the 

3

 

Warrant,
the number of shares of preferred stock or other securities of the successor corporation resulting from such Merger Event, equivalent in value to that which would have been issuable if
Warrantholder had exercised this Warrant immediately prior to the Merger Event. In any such case, appropriate adjustment (as determined in good faith by the Company's Board of Directors) shall be made
in the application of the provisions of this Warrant Agreement with respect to the rights and interest of the Warrantholder after the Merger Event to the end that the provisions of this Warrant
Agreement (including adjustments of the Exercise Price and number of shares of Preferred Stock purchasable) shall be applicable to the greatest extent possible. 

        (b)    Reclassification of Shares.    If the Company at any time shall, by combination, reclassification, exchange or
subdivision of securities, mandatory conversion pursuant to the Company's Certificate of Incorporation or otherwise, change any of the securities as to which purchase rights under this Warrant
Agreement exist into the same or a different number of securities of any other class or classes, this Warrant Agreement shall thereafter represent the right to acquire such number and kind of
securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision, mandatory conversion or other change. 

        (c)    Subdivision or Combination of Shares.    If the Company at any time shall combine or subdivide its Preferred
Stock, the Exercise Price shall be proportionately decreased in the case of a subdivision, or proportionately increased in the case of a combination. 

        (d)    Stock Dividends.    If the Company at any time shall pay a dividend payable in, or make any other distribution
(except any distribution specifically provided for in the foregoing subsections (a) or (b)) of the Company's stock, then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such record date by a fraction (i) the numerator of which shall be the
total number of all shares of the Company's stock outstanding immediately prior to such dividend or distribution, and (ii) the denominator of which shall be the total number of all shares of
the Company's stock outstanding immediately after such dividend or distribution. The Warrantholder shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the
number of shares of Preferred Stock (calculated to the nearest whole share) obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. The application of
Section 8(d) is not intended to result
in a double adjustment and if an adjustment is contemplated by the Certificate of Incorporation no adjustment will be implemented pursuant to this Section 8(d). 

        (e)    Antidilution Riqhts.    Additional antidilution rights applicable to the Preferred Stock purchasable hereunder
are as set forth in the Company's Certificate of Incorporation, as amended through the Effective Date, a true and complete copy of which is attached hereto as Exhibit  IV (the "Charter"). The Company
shall promptly provide the Warrantholder with any restatement, amendment, modification or waiver of the Charter. The
Company shall provide Warrantholder with written notice of any issuance of its stock or other equity security to occur after the Effective Date of this Warrant, which notice shall include
(a) the price at which such stock or security is to be sold, (b) the number of shares to be issued, and (c) such other information as necessary for Warrantholder to determine if a
dilutive event has occurred. 

        (f)    Notice of Adjustments.    If: (i) the Company shall declare any dividend or distribution upon its stock,
whether in cash, property, stock or other securities; (ii) the Company shall offer for subscription prorata to the holders of any class of its Preferred or other convertible stock any
additional shares of stock of any class or other rights; (iii) there shall be any Merger Event; (iv) there shall be an initial public offering; or (v) there shall be any voluntary
dissolution, liquidation or winding up of the 

4

 

Company;
then, in connection with each such event, the Company shall send to the Warrantholder: (A) at least twenty (20) days' prior written notice of the date on which the books of the
Company shall close or a record shall be taken for such dividend, distribution, subscription rights (specifying the date on which the holders of Preferred Stock shall be entitled thereto) or for
determining rights to vote in respect of such Merger Event, dissolution, liquidation or winding up; (B) in the case of any such Merger Event, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take place (and specifying the date on which the holders of Preferred Stock shall be entitled to exchange their Preferred
Stock for securities or other property deliverable upon such Merger Event, dissolution, liquidation or winding up); and (C) in the case of a public offering, the Company shall give the
Warrantholder at least twenty (20) days written notice prior to the effective date thereof. 

        Each
such written notice shall set forth, in reasonable detail, (i) the event requiring the adjustment, (ii) the amount of the adjustment, (iii) the method by which
such adjustment was calculated, (iv) the Exercise Price, and (v) the number of shares subject to purchase hereunder after giving effect to such adjustment, and shall be given by first
class mail, postage prepaid, addressed to the Warrantholder, at the address as shown on the books of the Company. 

        (g)    Timely Notice.    Failure to timely provide such notice required by subsection (f) above shall entitle
Warrantholder to retain the benefit of the applicable notice period notwithstanding anything to the contrary contained in any insufficient notice received by Warrantholder. The notice period shall
begin on the date Warrantholder actually receives a written notice containing all the information specified above. 

9.     REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.  

        (a)    Reservation of Preferred Stock.    The Preferred Stock issuable upon exercise of the Warrantholder's rights has
been duly and validly reserved and, when issued in accordance with the provisions of this Warrant Agreement, will be validly issued, fully paid and non-assessable, and will be free of any
taxes, liens, charges or encumbrances of any nature whatsoever; provided, however, that the Preferred Stock issuable pursuant to this Warrant Agreement may be subject to restrictions on transfer under
state and/or Federal securities laws. The Company has made available to the Warrantholder true, correct and complete copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made without charge to the Warrantholder for any issuance tax in respect thereof, or other cost incurred by the Company in
connection with, such exercise and the related issuance of shares of Preferred Stock. The Company shall not be required to pay any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the Warrantholder. 

        (b)    Due Authority.    The execution and delivery by the Company of this Warrant Agreement and the performance of
all obligations of the Company hereunder, including the issuance to Warrantholder of the right to acquire the shares of Preferred Stock, have been duly authorized by all necessary corporate action on
the part of the Company, and the Leases and this Warrant Agreement are not inconsistent with the Company's Charter or Bylaws, do not contravene any law or governmental rule, regulation or order
applicable to it, do not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound,
and the Leases and this Warrant Agreement constitute legal, valid and binding agreements of the Company, enforceable in accordance with their respective terms. 

        (c)    Consents and Approvals.    No consent or approval of, giving of notice to, registration with, or taking of any
other action in respect of any state, Federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this
Warrant Agreement, except for the filing of notices pursuant to Regulation D under the 

5

 

1933
Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby. 

        (d)    Issued Securities.    All issued and outstanding shares of Common Stock, Preferred Stock or any other
securities of the Company have been duly authorized and validly issued and are fully paid and
nonassessable. All outstanding shares of Common Stock, Preferred Stock and any other securities were issued in full compliance with all Federal and state securities laws. In addition: 

        (i)    The
authorized capital of the Company consists of (A) 20,000,000 shares of Common Stock, of which 4,285,000 shares are issued and outstanding, and
(B) 11,000,000 shares of preferred stock, of which 10,012,000 shares are issued and outstanding and are convertible into 10,012,000 shares of Common Stock. 

        (ii)   Except
as set forth in the Company's Certificate of Incorporation and Investors' Rights Agreement, no shareholder of the Company has preemptive rights to purchase new
issuances of the Company's capital stock. 

        (e)    Other Commitments to Register Securities.    Except as set forth in the Company's Investors' Rights Agreement,
dated as of March 4, 1998, the Company is not, pursuant to the terms of any other agreement currently in existence, under any obligation to register under the 1933 Act any of its presently
outstanding securities or any of its securities which may hereafter be issued. 

        (f)    Exempt Transaction.    Subject to the accuracy of the Warrantholder's representations in Section 10
hereof, the issuance of the Preferred Stock upon exercise of this Warrant will constitute a transaction exempt from (1) the registration requirements of Section 5 of the 1933 Act, in
reliance upon Section 4(2) thereof, and (ii) the qualification requirements of the applicable state securities laws. 

        (g)    Compliance with Rule 144.    At the written request of the Warrantholder, who proposes to sell Preferred
Stock issuable upon the exercise of the Warrant in compliance with Rule 144 promulgated by the Securities and Exchange Commission, the Company shall furnish to the Warrantholder, promptly after
receipt of such request, a written statement confirming the Company's compliance with the filing requirements of the Securities and Exchange Commission as set forth in such Rule, as such Rule may be
amended from time to time. 

10.   REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.  

        This Warrant Agreement has been entered into by the Company in reliance upon the following representations and covenants of the Warrantholder: 

        (a)    Investment Purpose.    The right to acquire Preferred Stock or the Preferred Stock issuable upon exercise of
the Warrantholders' rights contained herein will be acquired for investment and not with a view to the sale or distribution of any part thereof, and the Warrantholder has no present intention of
selling or engaging in any public distribution of the same except pursuant to a registration or exemption. 

        (b)    Private Issue.    The Warrantholder understands (i) that the Preferred Stock issuable upon exercise of
this Warrant is not registered under the 1933 Act or qualified under applicable state securities laws on the ground that the issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the Company's reliance on such exemption is predicated on the representations set forth in this Section 10. 

        (c)    Disposition of Warrantholder's Rights.    In no event will the Warrantholder make a disposition of any of its
rights to acquire Preferred Stock or Preferred Stock issuable upon exercise of such rights unless and until (i) it shall have notified the Company of the proposed disposition, and
(ii) if requested by the Company, it shall have furnished the Company with an opinion of counsel (which counsel may either be inside or outside counsel to the Warrantholder) satisfactory to the
Company and its counsel 

6

 

to
the effect that (A) appropriate action necessary for compliance with the 1933 Act has been taken, or (B) an exemption from the registration requirements of the 1933 Act is available.
Notwithstanding the foregoing, the restrictions imposed upon the transferability of any of its rights to acquire Preferred Stock or Preferred Stock issuable on the exercise of such rights do not apply
to transfers from the beneficial owner of any of the aforementioned securities to its nominee or from such nominee to its beneficial owner, and shall terminate as to any particular share of Preferred
Stock when (1) such security shall have been effectively registered under the 1933 Act and sold by the holder thereof in accordance with such registration or (2) such security shall have
been sold without registration in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been issued to the Warrantholder at its request by the staff of the Securities
and Exchange Commission or a ruling shall have been issued to the Warrantholder at its request by such Commission stating that no action shall be recommended by such staff or taken by such Commission,
as the case may be, if such security is transferred without registration under the 1933 Act in accordance with the conditions set forth in such letter or ruling and such letter or ruling specifies
that no subsequent restrictions on transfer are required. Whenever the restrictions imposed hereunder shall terminate, as hereinabove provided, the Warrantholder or holder of a share of Preferred
Stock then outstanding as to which such restrictions have terminated shall be entitled to receive from the Company, without expense to such holder, one or more new certificates for the Warrant or for
such shares of Preferred Stock not bearing any restrictive legend. 

        (d)    Financial Risk.    The Warrantholder has such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment. 

        (e)    Risk of No Registration.    The Warrantholder understands that if the Company does not register with the
Securities and Exchange Commission pursuant to Section 12 of the 1934 Act (the "1934 Act"), or file reports pursuant to Section 15(d), of the 1934 Act", or if a registration statement
covering the
securities under the 1933 Act is not in effect when it desires to sell (i) the rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii) the Preferred Stock issuable
upon exercise of the right to purchase, it may be required to hold such securities for an indefinite period. The Warrantholder also understands that any sale of its rights of the Warrantholder to
purchase Preferred Stock or Preferred Stock which might be made by it in reliance upon Rule 144 under the 1933 Act may be made only in accordance with the terms and conditions of that Rule. 

        (f)    Accredited Investor.    Warrantholder is an "accredited investor" within the meaning of the Securities and
Exchange Rule 501 of Regulation D, as presently in effect. 

11.   TRANSFERS.  

        Subject to the terms and conditions contained in Section 10 hereof, this Warrant Agreement and all rights hereunder are transferable in whole or in part by
the Warrantholder and any successor transferee, provided, however, in no event shall the number of transfers of the rights and interests in all of the Warrants exceed three (3) transfers. The
transfer shall be recorded on the books of the Company upon receipt by the Company of a notice of transfer in the form attached hereto as Exhibit III (the "Transfer Notice"), at its principal
offices and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer and subject to the transferee agreeing in writing to be subject to the terms
hereof. 

12.   MISCELLANEOUS.  

        (a)    Effective Date.    The provisions of this Warrant Agreement shall be construed and shall be given effect in all
respects as if it had been executed and delivered by the Company on the date hereof. This Warrant Agreement shall be binding upon any successors or assigns of the Company. 

7

 

        (b)    Attorney's Fees.    In any litigation, arbitration or court proceeding between the Company and the
Warrantholder relating hereto, the prevailing party shall be entitled to attorneys' fees and expenses and all costs of proceedings incurred in enforcing this Warrant Agreement. 

        (c)    Governing Law.    This Warrant Agreement shall be governed by and construed for all purposes under and in
accordance with the laws of the State of Illinois. 

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

        (e)    Notices.    Any notice required or permitted hereunder shall be given in writing and shall be deemed
effectively given upon personal delivery, facsimile transmission (provided that the original is sent by personal delivery or mail as hereinafter set forth) or seven (7) days after deposit in
the United States mail, by registered or certified mail, addressed (i) to the Warrantholder at 6111 North River Road, Rosemont, Illinois 60018, attention: James Labé, Venture
Group, cc: Legal Department, attn: General Counsel, (and/or, if by facsimile, (847) 518-5465 and (847) 518-5088) and (ii) to the Company at
270-B Littlefield Avenue, South San Francisco, CA 94080, attention: and/or if by facsimile, (415) 827-8690 such other address as any such party may subsequently
designate by written notice to the other party. 

        (f)    Remedies.    In the event of any default hereunder, the non-defaulting party may proceed to protect
and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance
for any default where Warrantholder will not have an adequate remedy at law and where damages will not be readily ascertainable. The Company expressly agrees that it shall not oppose an application by
the Warrantholder or any other person entitled to the benefit of this Agreement requiring specific performance of any or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement. 

        (g)    No Impairment of Riqhts.    The Company will not, by amendment of its Charter or through any other means, avoid
or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the Warrantholder against impairment. 

        (h)    Survival.    The representations, warranties, covenants and conditions of the respective parties contained
herein or made pursuant to this Warrant Agreement shall survive the execution and delivery of this Warrant Agreement. 

        (i)    Severability.    In the event any one or more of the provisions of this Warrant Agreement shall for any reason
be held invalid, illegal or unenforceable, the remaining provisions of this Warrant Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually
acceptable valid, legal and enforceable provision, which comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision. 

        (j)    Amendments.    Any provision of this Warrant Agreement may be amended by a written instrument signed by the
Company and by the Warrantholder. 

        (k)    Additional Documents.    The Company, upon execution of this Warrant Agreement, shall provide the Warrantholder
with certified resolutions with respect to the representations, warranties and covenants set forth in subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the
purchase price for the Leases referenced in the preamble of this Warrant Agreement exceeds $1,000,000, the Company will also provide Warrantholder with an opinion from the Company's counsel with
respect to those same representations, warranties and covenants. The Company shall also supply such other documents as the Warrantholder may from time to time reasonably request. 

8

 

        IN
WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement to be executed by its officers thereunto duly authorized as of the Effective Date. 

	 	 	Company: ADVANCED MEDICINE, INC.
	

 	
 	

By:	

/s/  JAMES TANANBAUM      

	 	 	Title:	President and CEO

	

 	
 	
Warrantholder: COMDISCO, INC.
	

 	
 	

By:	

/s/  JAMES P. LABE      

	 	 	Title:	President, Comdisco Ventures Division

9

QuickLinks

Exhibit 10.6

WARRANT AGREEMENT To Purchase Shares of the Series B Preferred Stock of ADVANCED MEDICINE, INC. Dated as of April 27, 1998 (the "Effective Date")

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