Document:

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

                                                                   EXHIBIT 10.9

                              AEROGEN/PATHOGENESIS

                    PRODUCT DEVELOPMENT AND SUPPLY AGREEMENT

                                JANUARY 20, 2000

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                                TABLE OF CONTENTS

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1.       DEFINITIONS..............................................................................................1

2.       DEVELOPMENT OF INHALER...................................................................................5

         2.1      Development of Clinical Test Inhaler............................................................5

         2.2      Development of Inhaler..........................................................................5

         2.3      Reporting.......................................................................................5

         2.4      Subcontracting..................................................................................5

         2.5      Delivery........................................................................................5

         2.6      Regulatory Cooperation..........................................................................5

         2.7      Facilities Access...............................................................................6

         2.8      License Grants..................................................................................6

                  2.8.1    Ampoules...............................................................................6

                  2.8.2    Inhaler Products and Adapters..........................................................6

                  2.8.3    Contingent License to Manufacture......................................................6

                  2.8.4    Aminoglycosides........................................................................6

                  2.8.5    Rights Retained by AeroGen.............................................................7

                  2.8.6    [*] for European Community.............................................................7

                  2.8.7    [*] for United States..................................................................8

                  2.8.8    Research Regarding Other PathoGenesis Products.........................................8

                  2.8.9    Further Licenses.......................................................................8

3.       DEVELOPMENT OF THE INHALER...............................................................................8

         3.1      Joint Development Team..........................................................................8

                  3.1.1    Formation; Purpose.....................................................................8

                  3.1.2    Membership.............................................................................8

                  3.1.3    Meetings...............................................................................9

                  3.1.4    Chairpersons...........................................................................9

                  3.1.5    Decision-Making........................................................................9

                  3.1.6    Dispute Resolution.....................................................................9

                  3.1.7    Limitation of Powers...................................................................9

         3.2      Liaisons........................................................................................9

         3.3      Payment for Development Activities..............................................................9

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

                                       i.
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         3.4      Fees in Excess of Development Cost Limit.......................................................10

         3.5      Invoices.......................................................................................10

4.       DEVELOPMENT AND DELIVERY OF THE DRUG PRODUCT............................................................11

         4.1      Development....................................................................................11

         4.2      Delivery.......................................................................................11

5.       CLINICAL SUPPLY AND TESTING.............................................................................11

         5.1      Delivery of Clinical Supply....................................................................11

         5.2      Ampoule for Clinical Testing...................................................................11

         5.3      Testing and Acceptance.........................................................................11

         5.4      Ownership of Data..............................................................................11

6.       REGULATORY OBLIGATIONS AND COMMERCIALIZATION............................................................12

         6.1      Commercialization of the Product...............................................................12

         6.2      Regulatory Filings for the Products............................................................12

7.       COMMERCIAL MANUFACTURE AND SUPPLY OF THE INHALER........................................................13

         7.1      Manufacturing and Delivery.....................................................................13

         7.2      Quality and Acceptance.........................................................................13

         7.3      Subcontracting.................................................................................13

         7.4      Forecasts and Purchase Order...................................................................14

         7.5      Delivery.......................................................................................14

         7.6      Payments to Third Parties......................................................................14

         7.7      Facilities Access and Regulatory Inspections...................................................14

         7.8      Use of Trademarks on Products..................................................................15

         7.9      Title and Risk of Loss.........................................................................15

         7.10     Product Insurance..............................................................................15

8.       PAYMENTS FOR THE MANUFACTURED INHALER PRODUCTS..........................................................15

         8.1      Inhaler Transfer Price.........................................................................15

         8.2      Invoicing......................................................................................16

9.       ROYALTY.................................................................................................16

         9.1      Royalty Payments by PathoGenesis for Products..................................................16

         9.2      Minimum Royalty................................................................................16

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

                                      ii.
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                                   (CONTINUED)

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         9.3      Royalty Term...................................................................................17

         9.4      Royalty Reports................................................................................17

         9.5      Reduction of Royalties.........................................................................17

         9.6      Books and Records..............................................................................18

         9.7      Inspection.....................................................................................18

         9.8      Withholding Tax................................................................................18

         9.9      Marking........................................................................................18

10.      INTELLECTUAL PROPERTY...................................................................................19

         10.1     Inhaler Ownership..............................................................................19

         10.2     Drug Product Ownership.........................................................................19

         10.3     Cooperation....................................................................................19

11.      EQUITY PURCHASE.........................................................................................19

12.      CONFIDENTIALITY.........................................................................................19

         12.1     Use of Confidential Information................................................................19

         12.2     Confidentiality and Non-use....................................................................20

         12.3     Exclusions.....................................................................................20

         12.4     Confidentiality Agreements.....................................................................20

         12.5     Publicity - Results............................................................................20

         12.6     Publicity - Terms of Agreement.................................................................20

         12.7     Publicity - Press Releases.....................................................................21

         12.8     Publicity - Use of Parties' Names..............................................................21

13.      ADVERSE INFORMATION AND EVENT REPORTING.................................................................21

         13.1     Notification...................................................................................21

         13.2     Product Recalls................................................................................21

14.      REPRESENTATIONS AND WARRANTIES..........................................................................21

         14.1     AeroGen Representations and Warranties.........................................................22

         14.2     PathoGenesis Representations and Warranties....................................................23

15.      INDEMNIFICATION AND INSURANCE...........................................................................23

         15.1     Indemnification of AeroGen.....................................................................23

         15.2     Indemnification of PathoGenesis................................................................24

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

                                      iii.
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         15.3     Insurance......................................................................................24

         15.4     Limitation of Damages..........................................................................24

         15.5     AeroGen's Right to Prosecute Infringements.....................................................25

         15.6     PathoGenesis' Option to Prosecute Infringements................................................25

16.      DISPUTE RESOLUTION......................................................................................26

         16.1     Negotiation....................................................................................26

         16.2     Mediation......................................................................................26

         16.3     Arbitration....................................................................................26

         16.4     Injunctive Relief..............................................................................27

17.      TERM AND TERMINATION....................................................................................27

         17.1     Term...........................................................................................27

         17.2     Termination for Breach.........................................................................27

         17.3     Termination for Cause..........................................................................27

         17.4     Termination Without Cause......................................................................27

         17.5     Effects of Termination.........................................................................27

                  17.5.1   Sales After Termination...............................................................27

                  17.5.2   Noncancellable Costs..................................................................28

         17.6     Survival.......................................................................................28

         17.7     Rights in Bankruptcy...........................................................................28

18.      MISCELLANEOUS...........................................................................................28

         18.1     Entire Agreement...............................................................................28

         18.2     Notices........................................................................................28

         18.3     Governing Law..................................................................................29

         18.4     Assignability..................................................................................29

         18.5     Waivers and Amendments.........................................................................29

         18.6     Severability...................................................................................29

         18.7     Section Headings...............................................................................30

         18.8     Counterparts...................................................................................30

         18.9     Further Assurances.............................................................................30

         18.10    Force Majeure..................................................................................30

</TABLE>

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

                                      iv.
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         18.11    Compliance of Law..............................................................................30

         18.12    Confidentiality of Terms of Agreement..........................................................30

         18.13    Relationship of the Parties....................................................................30

         18.14    Binding Agreement..............................................................................30

         18.15    Books and Records..............................................................................30

Exhibit A         Specification for Inhaler

Exhibit B         Schedule

Exhibit C         AeroGen Patent Rights

Schedule 14.1(h)
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[*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                       v.
<PAGE>

                              AEROGEN/PATHOGENESIS

                    PRODUCT DEVELOPMENT AND SUPPLY AGREEMENT

         THIS PRODUCT DEVELOPMENT AND SUPPLY AGREEMENT ("Agreement") is entered
into and effective as of January 20, 2000 (the "Effective Date"), between
AEROGEN, INC. a Delaware corporation with a principal place of business at 1310
Orleans Drive, Sunnyvale, California 94089 ("AeroGen"), and PATHOGENESIS
CORPORATION, a Delaware corporation with a principal place of business at 201
Elliott Avenue West, Suite 150, Seattle, Washington 98119 ("PathoGenesis").

                                    RECITALS

         WHEREAS, PathoGenesis has the expertise and experience to undertake the
development, manufacture and commercialization of antiinfective drugs and has
developed and is selling tobramycin, an antiinfective in the aminoglycoside
class.

         WHEREAS, AeroGen has in development, and has the expertise and
experience to undertake further development, manufacture and supply of, a drug
delivery inhaler for the delivery of a liquid containing drug molecules; and

         WHEREAS, PathoGenesis and AeroGen desire to initially develop and
commercialize such new drug delivery inhaler for the delivery of tobramycin, on
the terms and conditions set forth herein.

                                    AGREEMENT

         In consideration of the recitals set forth above, the mutual covenants,
terms and conditions set forth below, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, AeroGen and
PathoGenesis agree as follows:

1.       DEFINITIONS

         As used in this Agreement, the following terms shall have the following
meanings:

         "ADAPTER" means one or more customized components which enable the
Ampoule to interfit or co-act with the Dispenser, as described in Exhibit A.

         "AEROGEN INHALER" means that mechanism, which aerosolizes liquids
containing drug molecules for inhalation delivery to the human respiratory
tract, under development by AeroGen as of the Effective Date, for
commercialization by AeroGen and use in conjunction with the delivery of certain
drugs outside the Field.

         "AEROGEN'S INHALATION INTELLECTUAL PROPERTY" means AeroGen's Patent
Rights, AeroGen's Copyrights, AeroGen's Trade Dress Rights and AeroGen's
Know-How owned, licensed or controlled by AeroGen and relating to, covering or
claiming inhalation devices, apparatus, products, systems, methods, processes
and technology, whether created before or after the Effective Date, where such
terms have the following meanings, respectively:

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

                                       1
<PAGE>

                                    (i)      "AEROGEN'S PATENT RIGHTS" means
AeroGen's inventions, proposed inventions, patents, patent applications,
provisional patent applications, divisional applications, continuation
applications, continuation-in-part applications, continued prosecution
applications, renewals, reissues, reexaminations, extensions, and substitutions
thereof, and counterparts for other countries, and any and all patents issuing
therefrom, including, without limitation, the patents and patent applications
set forth in Exhibit C.

                                    (ii)     "AEROGEN'S COPYRIGHTS" means
AeroGen's copyrights in works, including, without limitation, drawings, product
literature, manuals, brochures, catalogues, advertisements, software, and other
written or graphic material and all derivative works arising therefrom, whether
or not such copyrights are registered.

                                    (iii)    "AEROGEN'S TRADE DRESS RIGHTS"
means AeroGen's statutory and common law rights in trade dress and the
associated good will, including, without limitation, rights in product shape,
color, packaging, and overall image.

                                    (iv)     "AEROGEN'S KNOW-HOW" means
AeroGen's confidential or proprietary information, knowledge, data and trade
secrets, including, without limitation, inventions, discoveries, product
designs, models, prototypes, engineering drawings, schematics, manufacturing
processes, methods, equipment and systems, vendor information, and other product
manufacturing and product marketing information.

         An "AFFILIATE" of a party means any person or entity that directly or
indirectly owns or controls, is owned or controlled by or is under common
ownership or control with such party. "Control" of a party shall mean beneficial
ownership, directly or indirectly, of 50% or more of the outstanding voting
shares or securities or the ability otherwise to elect a majority of the board
of directors or other managing authority of the party.

         "AMINOGLYCOSIDE" means compounds consisting of a central streptamine
or deoxystreptamine linked directly to two or more aminosaccharide or
saccharide residues with a molecular weight of not more than 800 daltons.
This includes, but is not limited to, amikacin, gentamycin, kanamycin,
neomycin, streptomycin, and tobramycin.

         "AMPOULE" means an ampoule or canister for storing an Antiinfective
Drug, which coacts with or is received by the Adapter, and which is adapted to
be housed or received in the Dispenser, as described in Exhibit A.

         "ANTIINFECTIVE DRUG" means any chemical or biological agent used for
the treatment or prophylaxis of infectious disease.

         "cGMP" means current Good Manufacturing Practices regulations and
Quality System regulations, as promulgated by the FDA.

         "CLINICAL TEST INHALER" means an inhalation device based in part upon
the AeroGen Inhaler, which is fully operable without an Adapter or Ampoule, as
described in Exhibit A.

         "DEVELOPMENT ACTIVITIES" means the development, reporting, supply and
delivery of the Clinical Test Inhalers and the Inhalers in accordance with
Sections 2 and 3 of this Agreement and as described in Exhibit A and Exhibit B.

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

                                       2.
<PAGE>

         "DEVELOPMENT COSTS" means the fully burdened costs and expenses
incurred by AeroGen and specifically identifiable to the Development Activities
including the clinical supply of the Clinical Test Inhalers and the Inhalers
pursuant to this Agreement, all to the extent consistent with U.S. generally
accepted accounting principles, consistently applied. Development Costs include,
without limitation, FTE Costs and the direct costs of materials, all as
specified in the budgets developed by the Joint Development Team, as provided in
Section 3.3.

         "DISPENSER" means a component of an Inhaler which houses an inspiration
sensor, an aerosol generator, which interfits or interacts with the Adapter and
Ampoule, and which includes a mouth piece, as described in Exhibit A.

         "ELECTRONIC COMPONENT" means the component of an Inhaler which houses a
power supply such as one or more batteries and other electronics, and which is
removably connected to the Dispenser, as described in Exhibit A.

         "FDA" means the United States Food and Drug Administration or any
successor to that agency.

         "FIELD" means the treatment or prophylaxis of infectious disease.

         "FTE" shall mean a full time scientific/technical employee of AeroGen
for one year (or, in the case of less than a full-time dedicated
scientific/technical person, a full time equivalent scientific/technical
employee), dedicated to the Development Activities, including development and
clinical supply of the Inhaler and the Clinical Test Inhaler.

         "FTE COSTS" shall mean the annual fully-burdened costs of an FTE, which
has been determined by the parties as of the Effective Date to equal [*] per
FTE.

         "INHALER" means the AeroGen Inhaler as further developed and refined in
accordance with Section 2.2 of this Agreement, and including without limitation:
(i) a Dispenser, and (ii) an Electronic Component, as described in Exhibit A.

         "INHALER MARKUP" has the meaning set forth in Section 8.1 of this
Agreement.

         "INHALER TRANSFER PRICE" has the meaning set forth in Section 8.1 of
this Agreement.

         "JOINT DEVELOPMENT TEAM" or "JDT" means the joint development team
described in Section 3.1 that shall oversee the Development Activities.

         "NET SALES" means the amount invoiced by PathoGenesis, its Affiliates
or sublicensees for sales of the Product less the following deductions: (a)
discounts, returns, allowances, commissions and wholesaler chargebacks; (b)
import, export, excise, sales or use taxes, value added taxes, and other taxes,
tariffs and duties imposed on such sales; (c) freight, freight insurance,
packaging, handling, transportation and other insurance relating to such sales;
and (d) amounts allowed or credited on such sales for retroactive price
reductions or rebates including, but not limited to Medicaid. PathoGenesis, may,
at its option, allocate the above deductions from sales of the Product based
upon accruals estimated reasonably and consistent with

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

                                       3.
<PAGE>

PathoGenesis' standard business practices, and in any event in accordance with
generally accepted accounting principles applied on a consistent basis. If
PathoGenesis elects to utilize such accruals, actual deductions will be
calculated and, if applicable, a "true-up" made, on an annual basis.

         "NORTH AMERICA" means the U.S., its territories and possessions, Canada
and Mexico,

         "OTHER INHALER" means a mechanism developed by AeroGen after the
Effective Date, either alone or in conjunction with a third party (i.e., other
than PathoGenesis), which aerosolizes liquids containing drug molecules for
inhalation delivery to the respiratory tract of a human, but which is [*].

         "OTHER PATHOGENESIS PRODUCT" has the meaning set forth in Section
2.8.5(b).

         "PRODUCT(S)" means any one or more of the following: Inhaler-Drug
Product(s), Inhaler Product(s), and Drug Product(s), where such terms have the
following meanings:

                                    (i)      "INHALER-DRUG PRODUCT(S)" means an
Inhaler Product sold with a Drug Product;

                                    (ii)     "INHALER PRODUCT(S)" means an
Inhaler, including an Electronic Component and Dispenser sold without an Ampoule
or Adapter; and

                                    (iii)    "DRUG PRODUCT(S)" means an Ampoule
filled with a Tobramycin Solution, sold with an Adapter, for use in conjunction
with an Inhaler or Inhaler Product.

         "STOCK PURCHASE AGREEMENT" means that stock purchase agreement to be
entered into by AeroGen and PathoGenesis, for the sale of Preferred Stock of
AeroGen to PathoGenesis.

         "TERRITORY" means the entire world.

         "TERM" means the later of: (a) expiration of the last to expire Valid
Claim within AeroGen's Patent Rights covering or claiming the Product; and (b)
fifteen (15) years from the Effective Date.

         "TOBRAMYCIN SOLUTION(S)" means an aqueous solution containing
tobramycin as described in Exhibit A.

         "VALID CLAIM" means a claim in an issued patent included within
AeroGen's Patent Rights, which has not expired, lapsed, been canceled or become
abandoned and has not been finally found to be invalid (or not valid) or
unenforceable by an unreversed or unappealable final decision or judgment of a
court or other authority or agency of competent jurisdiction.

2.       DEVELOPMENT OF INHALER

         2.1      DEVELOPMENT OF CLINICAL TEST INHALER. AeroGen shall use
commercially reasonable efforts to develop the Clinical Test Inhaler, in
accordance with the specifications set

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

                                       4.
<PAGE>

forth in Exhibit A and the schedule set forth in Exhibit B. Additionally,
AeroGen shall develop the Clinical Test Inhaler: (i) in compliance with cGMP;
and (ii) in accordance with AeroGen's internal quality control and product
specifications or as otherwise agreed upon by AeroGen and PathoGenesis. At
PathoGenesis' reasonable request, AeroGen shall provide PathoGenesis with
documentation for the purpose of verifying AeroGen's compliance with this
section.

         2.2      DEVELOPMENT OF INHALER. AeroGen shall use commercially
reasonable efforts to develop the Inhaler in accordance with the specifications
set forth in Exhibit A and the schedule set forth in Exhibit B. Additionally,
AeroGen shall develop the Inhaler: (i) in compliance with cGMP; and (ii) in
accordance with AeroGen's internal quality control and product specifications or
as otherwise agreed upon by AeroGen and PathoGenesis. At PathoGenesis'
reasonable request, AeroGen shall provide PathoGenesis with documentation for
the purpose of verifying AeroGen's compliance with this section.

         2.3      REPORTING. AeroGen shall keep PathoGenesis up-to-date on the
progress of the development of the Clinical Test Inhaler and the Inhaler, and
specifically shall provide PathoGenesis with written monthly progress reports
and oral progress reports on the development of the Clinical Test Inhaler and
the Inhaler, as reasonably requested by PathoGenesis. Such written reports shall
accompany the invoices submitted by AeroGen under Section 3.5.

         2.4      SUBCONTRACTING. AeroGen may subcontract portions of the
development of the Clinical Test Inhaler or the Inhaler provided that: (i)
AeroGen advises PathoGenesis in advance, to the extent practicable, of entering
into any such subcontract, the terms and conditions (related to technical or
cGMP matters) and the work to be performed; (ii) any such subcontractor agrees
to perform such work in compliance with cGMP and AeroGen's internal quality
control and product specifications or as otherwise agreed upon by AeroGen and
PathoGenesis; and (iii) any subcontractor engaged by AeroGen agrees to perform
such work in compliance with all regulatory requirements imposed by the FDA and
other regulatory agencies.

         2.5      DELIVERY. AeroGen shall use commercially reasonable efforts to
provide PathoGenesis with the samples of the Clinical Test Inhaler for
examination, testing and comment in the amounts and according to the schedule
set forth in Exhibit B. AeroGen shall provide PathoGenesis with the samples of
the Inhaler for examination, testing and comment in the amounts and according to
the schedule set forth in Exhibit B.

         2.6      REGULATORY COOPERATION. AeroGen shall cooperate with and
provide commercially reasonable assistance to PathoGenesis in connection With
PathoGenesis making the necessary submissions and filings for obtaining
regulatory approvals for the Products, as discussed under Section 6. AeroGen
shall be reimbursed for costs reasonably incurred in conducting activities
undertaken pursuant to this Section 2.6 which are above and beyond those
activities for which it is being reimbursed under Section 3.3, in the same
manner and at the same rates as the Development Costs under Section 3.

         2.7      FACILITIES ACCESS. PathoGenesis shall have reasonable access
to the Development Activities conducted in AeroGen facilities. PathoGenesis'
representatives shall be permitted, from time to time and upon reasonable
notice, to visit those portions of the AeroGen facilities

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

                                       5.
<PAGE>

which are used for the development, manufacture, and testing of the Clinical
Test Inhaler or Inhaler during normal or usual hours of operation to monitor the
Development Activities.

         2.8      LICENSE GRANTS.

                  2.8.1    AMPOULES. Subject to the terms and conditions of this
Agreement, including specifically Section 2.8.5, AeroGen hereby grants to
PathoGenesis an exclusive license within the Field, including the right to grant
sublicenses, under AeroGen's Inhalation Intellectual Property to make, have
made, use, import, export, offer for sale and sell Ampoules for use in
connection with the Inhaler, in the Territory.

                  2.8.2    INHALER PRODUCTS AND ADAPTERS. Subject to the terms
and conditions of this Agreement, including specifically Section 2.8.5, AeroGen
hereby grants to PathoGenesis an exclusive license within the Field, including
the right to grant sublicenses, under AeroGen's Inhalation Intellectual Property
to use, import, export, offer for sale and sell the Inhaler Product(s) and the
Adapters (as part of a Drug Product) for the inhalation delivery of
Antiinfective Drugs, in the Territory.

                  2.8.3    CONTINGENT LICENSE TO MANUFACTURE.

                           (a)      Except as otherwise provided herein,
PathoGenesis shall purchase its clinical and commercial requirements for the
Inhaler Products and the Adapters (excluding the Ampoules) from AeroGen pursuant
to the terms and conditions of this Agreement. In the event of a "Triggering
Event" (as defined below), AeroGen shall promptly notify PathoGenesis in writing
thereof, and effective only in such event, AeroGen hereby grants to PathoGenesis
an exclusive (subject to Sections 2.8.6, 2.8.7 and 9.2) license within the
Field, including the right to grant sublicenses, under AeroGen's Inhalation
Intellectual Property, to make and have made the Inhaler Products and the
Adapters for sale and use consistent with the license set forth in Section
2.8.2, for the Term. In such event, PathoGenesis shall notify AeroGen in writing
of its election to exercise such right, and upon receipt AeroGen shall promptly
provide PathoGenesis with the AeroGen Know-How reasonably necessary for
PathoGenesis (or its designee) to make and have made the Inhaler Products
(including Adapters).

                           (b)      As used in this section, "Triggering Event"
shall mean either: (i) [*]; (ii) all or a substantial portion of AeroGen's
assets are transferred to an assignee for the benefit of creditors, to a
receiver or a trustee in bankruptcy; (iii) AeroGen is adjudged bankrupt; or (iv)
[*].

                  2.8.4    AMINOGLYCOSIDES. Subject to the terms and conditions
of this Agreement, including specifically Section 2.8.5, AeroGen hereby grants
to PathoGenesis an exclusive license, within the Field, including the right to
grant sublicenses, under AeroGen's Inhalation Intellectual Property to use,
import, export, offer for sale and sell any inhalation device, adapter or
ampoule (including, without limitation, the Inhaler, Adapter and Ampoule), for
the inhalation delivery of Aminoglycosides in the Territory.

                  2.8.5    RIGHTS RETAINED BY AEROGEN.

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

                                       6.
<PAGE>

                           (a)      Subject to Section 10 and notwithstanding
anything else in this Agreement to the contrary, AeroGen may make, have made,
use, import, export, offer for sale and sell either itself or with or through
any third party inhalation devices, including Inhalers, the AeroGen Inhaler,
Adapters and Ampoules for the delivery of any drug other than an Antiinfective
Drug. In addition, it is understood and agreed by the parties that AeroGen shall
have the right to develop, make, have made, sell, import and market, either
itself or with or through any third party, any Other Inhaler, or any adapter or
ampoule compatible or interfitting or interacting therewith, for the delivery of
any Antiinfective Drug which is not an Aminoglycoside.

                           (b)      Notwithstanding the grant of licenses and
rights under Sections 2.8.1, 2.8.2, 2.8.3, and 2.8.4, in the event PathoGenesis
intends to enter human clinical development of, and/or commercialize the
Inhaler, Ampoule and/or Adapter for the inhalation delivery, in the Field, of an
Antiinfective Drug or Aminoglycosides other than Tobramycin Solution (an "Other
PathoGenesis Product"), it shall so notify AeroGen in writing, and PathoGenesis
shall not proceed with such development or commercialization of any Other
PathoGenesis Product unless and until AeroGen and PathoGenesis negotiate and
enter into a written agreement (or amendment to this Agreement) with respect to
the terms of such development and/or commercialization; including, without
limitation, the development work, if any, to be undertaken by AeroGen, the
development costs of such work, and the consideration to be paid to AeroGen for
commercialization of such Other PathoGenesis Product. In such event,
PathoGenesis and AeroGen shall negotiate in good faith.

                  2.8.6    [*] FOR EUROPEAN COMMUNITY. In the event that: (i)
PathoGenesis files for and obtains regulatory approval for the Drug Product in
the United States as set forth in Section 6.2; (ii) AeroGen obtains the CE mark
for the Inhaler Product in Europe; and (iii) PathoGenesis does not file for a
regulatory approval of the Drug Product within the European Community ("EC")
within a period of [*] (the "EC Filing Date"), then AeroGen shall have the
right upon thirty (30) days written notice to PathoGenesis to [*].
Notwithstanding the foregoing, AeroGen shall not have the right to [*] under
this Section 2.8.6 if, as of the EC Filing Date, PathoGenesis is in the process
of [*], or is in the process of [*]; provided that in all events
PathoGenesis thereafter files for regulatory approval in the EC no later than
[*] from the EC Filing Date.

                  2.8.7    [*] FOR UNITED STATES. In the event that, following
commercial launch of the Drug Product and the Inhaler Product: (i) PathoGenesis
sells an inhalation device for the delivery of Tobramycin Solution in the United
States, the effect of which is to substantially reduce (as defined below) the
sales of the Drug Products in the United States; (ii) such inhalation devices
are not licensed or supplied to PathoGenesis by AeroGen; (iii) such inhalation
devices are not as of the Effective Date being distributed by PathoGenesis; and
(iv) AeroGen is supplying the Inhaler Products to PathoGenesis under the terms
and conditions of this Agreement, then AeroGen shall have the right upon thirty
(30) days written notice to PathoGenesis to [*]. As used in this Section
2.8.7, "substantially reduces" means that Net Sales of the Drug Product for a
given calendar year are less than [*].

                  2.8.8    RESEARCH REGARDING OTHER PATHOGENESIS PRODUCTS. In
the event PathoGenesis intends to utilize the Clinical Test Inhaler, Inhaler,
Adapter, Ampoule or any other

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

                                       7.
<PAGE>

technology covered by AeroGen's Inhalation Intellectual Property, for conducting
research with respect to the use thereof in connection with any Antiinfective
Drug other than Tobramycin Solution in accordance with Section 2.8.5(b); or any
other research outside of that contemplated hereunder, it shall notify AeroGen
in writing.

                  2.8.9    FURTHER LICENSES. Except as expressly provided
herein, neither party grants the other party any rights or licenses under this
Agreement.

3.       DEVELOPMENT OF THE INHALER

         3.1      JOINT DEVELOPMENT TEAM.

                  3.1.1    FORMATION; PURPOSE. Within ten (10) days after the
Effective Date, AeroGen and Pathogenesis shall establish the Joint Development
Team ("JDT"). The general purposes of the JDT shall be (i) to determine the
overall technical strategy for the development of the Inhaler and Adapter (and
the way in which they coact or interfit with the Ampoule), (ii) to oversee and
coordinate the parties' activities in the development of the Inhaler and Adapter
pursuant to the specifications and the timelines set forth in Exhibits A and B,
and (iii) to develop and propose for the parties' approval the final
specifications for the Inhaler and Adapter, all based on the principles of
prompt and diligent development, consistent with good pharmaceutical and medical
device practices. The JDT shall perform such other functions as appropriate to
further the purposes of the this Agreement as determined by the parties,
including the periodic evaluation of performance against goals.

                  3.1.2    MEMBERSHIP. The JDT shall initially have three (3)
representatives of each party with the requisite levels of skill and experience
in product development, engineering or such other matters as the parties may
agree. The JDT may change its size from time to time by written agreement of the
parties; provided that the JDT at all times shall be composed of an equal number
of representatives appointed by each of AeroGen and PathoGenesis. Each party may
replace its JDT representatives at any time upon written notice to the other
party; provided that each party's representatives shall at all times be persons
possessing the appropriate level of skill, experience and familiarity with the
Products.

                  3.1.3    MEETINGS. The JDT shall hold meetings at such times
as the JDT elects to do so, but in no event shall such meetings be held less
frequently than once every calendar quarter. The JDT shall meet alternately at
AeroGen's facilities in Sunnyvale, CA and PathoGenesis' facilities in Seattle,
Washington, or at such locations as the parties may otherwise agree. With the
consent of the representatives of each party serving on the JDT, other
representatives of each party or of third parties involved in the development,
manufacture or commercialization of the Products may attend meetings of the JDT
as nonvoting observers. Meetings of the JDT may be held by audio or video
teleconference with the consent of each party, provided that at least half of
the minimum number of meetings set forth above shall be held in person. Each
party shall be responsible for all of its own expenses of participating in the
JDT. Meetings of the JDT shall be effective only if a representative of each
party is present or participating.

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

                                       8.
<PAGE>

                  3.1.4    CHAIRPERSONS. The JDT shall be chaired first by a
representative of AeroGen from the Effective Date through June 30, 2000, and the
Chairperson position shall rotate thereafter on a semi-annual basis with
PathoGenesis to appoint the Chairperson for the six month period beginning July
1, 2000. The Chairperson shall be responsible for calling meetings, preparing
and circulating an agenda in advance of each meeting, and preparing and issuing
minutes of each meeting within thirty (30) days thereafter.

                  3.1.5    DECISION-MAKING. Each of AeroGen's and PathoGenesis'
representatives shall have one vote. All decisions of the JDT shall be
unanimous. The JDT shall remain in operation until the earlier of (i)
termination of this Agreement, or (ii) the regulatory approval in both the US
and the EC of the Inhaler-Drug Product.

                  3.1.6    DISPUTE RESOLUTION. In the event that the JDT is
unable to reach agreement on an issue within thirty (30) days, such issue shall
be subject to dispute resolution as set forth in Section 16.

                  3.1.7    LIMITATION OF POWERS. The powers of the JDT are
limited to those expressly set forth in this Agreement. Without limiting the
generality of the foregoing, the JDT shall not have the right to amend this
Agreement. The actions of the JDT shall not substitute for either party's
ability to exercise any right, nor excuse the performance of any obligation, set
forth herein.

         3.2      LIAISONS. Each party will designate an individual to serve as
the liaison between the parties to undertake and coordinate any day-to-day
communications as may be required between the parties relating to their
activities under this Agreement. Each party may change such liaison from time to
time during the term of this Agreement upon written notice thereof to the other
party.

         3.3      PAYMENT FOR DEVELOPMENT ACTIVITIES. Subject to the terms and
conditions of this Agreement, PathoGenesis shall pay to AeroGen, by wire
transfer to the bank account designated by AeroGen, the Development Costs
incurred by AeroGen [*]. The JDT shall develop mutually agreeable budgets and
schedules which will establish the maximum amount of Development Costs (such
amount is referred to herein as the "Development Cost Limit") to be expended in
developing the Clinical Test Inhaler and the Inhaler to the point of completion
of an application for Section 510(k) Premarket Notification Clearance ("510(k)
Clearance") for the Inhaler. The Development Cost Limit is currently expected
not to exceed the sum of [*] in FTE Costs owed to AeroGen (after taking into
account the above discount) plus [*] in other direct costs. AeroGen shall
account for and calculate the Development Costs in accordance with its internal
accounting systems and GAAP (as defined in Section 8.1). AeroGen, in accordance
with Section 18.15 hereof, shall allow PathoGenesis reasonable access to
AeroGen's books and records in order to verify such Development Costs.

         3.4      FEES IN EXCESS OF DEVELOPMENT COST LIMIT. The Development
Costs for developing the Inhaler shall not exceed the Development Cost Limit
unless AeroGen obtains prior written approval from PathoGenesis. A decision by
PathoGenesis not to agree to provide funding for Development Costs in excess of
the Development Cost Limit shall not constitute a termination or breach of this
Agreement. Unless the parties agree otherwise in writing, in no

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

                                       9.
<PAGE>

event shall AeroGen be obligated to undertake any Development Activities that
would cause it to incur Development Costs in excess of the Development Cost
Limit. The JDT shall work together in good faith to resolve any disputes
regarding the Development Costs. In the event the JDT is unable to resolve such
disputes, such disputes shall be resolved in accordance with Section 16 of this
Agreement.

         3.5      INVOICES. AeroGen shall submit monthly invoices to
PathoGenesis for the Development Activities AeroGen conducts in the preceding
month. The invoices shall contain the following information:

                                    (i)      identification of the number or
fraction of FTEs and subcontractors who performed the Development Activities
during the month covered by the invoice;

                                    (ii)     a general description of the
Development Activities performed during such month by FTEs and subcontractors,
and a report of the progress made to date in light of the goals and timelines
set forth in Exhibits A and B;

                                    (iii)    a statement of costs, categorized
in reasonable detail, of all supplies and materials used and other out-of-pocket
costs incurred during such month directly in connection with the Development
Activities;

                                    (iv)     a statement of payments (if any)
made by AeroGen to third parties during such month in connection with the
Development Activities; and

                                    (v)      the number of Clinical Test
Inhalers or Inhalers, as the case may be, supplied to PathoGenesis for clinical
development during such month.

         PathoGenesis shall make payments to AeroGen as incurred against invoice
within [*] of receipt of such invoice.

4.       DEVELOPMENT AND DELIVERY OF THE DRUG PRODUCT

         4.1      DEVELOPMENT. PathoGenesis shall use commercially reasonable
efforts to develop the Drug Product in accordance with the schedule set forth in
Exhibit B.

         4.2      DELIVERY. PathoGenesis shall use commercially reasonable
efforts to deliver, at PathoGenesis' expense, the filled Ampoule or Tobramycin
Solution, as applicable (in quantities mutually agreed to by the parties) to
AeroGen in accordance with the schedule set forth in Exhibit B. AeroGen shall
use all quantities of filled Ampoule or Tobramycin Solution so supplied by
PathoGenesis pursuant to this Agreement exclusively for the development and
related testing of the Clinical Test Inhaler and the Inhaler. AeroGen shall
handle, store and use the filled Ampoules and Tobramycln Solution in compliance
with all applicable laws, rules and regulations, and shall not use the filled
Ampoules or Tobramycin Solution in any manner on human or animal subjects or in
anything destined for human or animal consumption.

5.       CLINICAL SUPPLY AND TESTING

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

                                      10.
<PAGE>

         5.1      DELIVERY OF CLINICAL SUPPLY. AeroGen shall provide to
PathoGenesis the Clinical Test Inhaler for clinical testing (in quantities and
in accordance with the schedule set forth in Exhibit B and the specifications in
Exhibit A). AeroGen shall provide to PathoGenesis the inhalers for clinical
testing (in quantities and in accordance with the schedule set forth in Exhibit
B and in accordance with the specifications in Exhibit A).

         5.2      AMPOULE FOR CLINICAL TESTING. PathoGenesis shall be
responsible for all Drug Product for clinical testing of the Inhaler, and all
Tobramycin Solution needed for clinical testing of the Clinical Test Inhaler.

         5.3      TESTING AND ACCEPTANCE. PathoGenesis shall have a period of
[*] from the date of receipt of the shipment of Clinical Test Inhaler(s) to test
for quality of the shipment and to accept or reject such shipment. If
PathoGenesis determines that any shipment of the Clinical Test Inhalers or
portions thereof do not meet the specifications set forth in Exhibit A,
PathoGenesis shall notify AeroGen in writing within such [*] period,
indicating the date of delivery and the defective nature of the Clinical Test
Inhaler(s). AeroGen shall undertake commercially reasonable efforts to correct
such defect, and supply PathoGenesis with a replacement shipment of Clinical
Test Inhalers acceptable to PathoGenesis, within a reasonable time and in view
of the timelines set forth in Exhibit B.

         5.4      OWNERSHIP OF DATA. PathoGenesis shall own all data, reports,
applications, approvals and information, all intellectual property rights
therein and all rights arising from its clinical testing and commercialization
activities and efforts with respect to the Products, including, but not limited
to, all data, reports, information and rights arising out of any regulatory
filing for the Ampoule, any regulatory application approval thereof or any
corresponding application or approval in any country in the Territory.
Notwithstanding the foregoing, AeroGen (or its designee) shall have the right,
upon reasonable written request, the granting of which is not to be unreasonably
withheld, to use any data or information generated by PathoGenesis with respect
to the performance characteristics of the Inhaler (the "Inhaler Data"), in
connection with AeroGen's development and submission for regulatory approval and
commercialization of, the AeroGen Inhaler, consistent with AeroGen's obligations
under Section 2.

6.       REGULATORY OBLIGATIONS AND COMMERCIALIZATION

         6.1      COMMERCIALIZATION OF THE PRODUCT. In the event the clinical
testing set forth in Section 5 of this Agreement produces favorable results in
the reasonable discretion of PathoGenesis, PathoGenesis shall use commercially
reasonable efforts to obtain regulatory approval and commercialize the Products
in the United States. PathoGenesis may, at its sole discretion, commercialize
the Products in any other country in the Territory in accordance with
PathoGenesis' other commercial obligations, if any. If any further
documentation, agreement or information is necessary to facilitate PathoGenesis'
commercialization of the Products in countries other than the United States, the
parties agree to cooperate in good faith to effect such documentation or
agreement and to provide such information.

         6.2      REGULATORY FILINGS FOR THE PRODUCTS. The parties agree and
acknowledge that the regulatory approval process for the Inhaler Product and
Drug Product, and their combined use, has not been determined definitively as of
the Effective Date. The parties, through the JDT,

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

                                      11.
<PAGE>

will coordinate and work in good faith to determine the most efficient and
effective regulatory strategy for regulatory approval of the Products. It is
contemplated by the parties, as of the Effective Date, that AeroGen shall
develop the Inhaler Product and prepare such reports and submissions as are
necessary to complete an application for a 510(k) Clearance for the general use
of the Inhaler Product for the delivery of liquids containing drug molecules.
Whether AeroGen, or PathoGenesis, in fact files for such 510(k) Clearance shall
be determined by the JDT in light of the objectives of PathoGenesis under this
Agreement and AeroGen's objectives to develop and commercialize the AeroGen
Inhaler outside this Agreement. PathoGenesis, its Affiliates and sublicensees
shall have the right to prepare, file, prosecute and maintain all necessary and
appropriate applications, submissions and filings with the appropriate
regulatory authorities, to obtain approval of the Drug Products alone, and in
conjunction with the Inhaler Product, in each country within the Territory in
which PathoGenesis, any Affiliate of PathoGenesis or any sublicensee of
PathoGenesis intends to market the Drug Products. PathoGenesis makes no
representation or warranty that PathoGenesis, any Affiliate of PathoGenesis or
any sublicensee of PathoGenesis will obtain approvals for the Products in any
country in the Territory. PathoGenesis, Affiliates of PathoGenesis and
sublicensees of PathoGenesis shall not be liable to AeroGen for any damages or
other compensation if PathoGenesis, Affiliates of PathoGenesis or sublicensees
of PathoGenesis use commercially reasonable efforts to obtain approvals of the
Products, but do not obtain approvals for the Drug Products. PathoGenesis shall
bear all costs for any regulatory filing covering the Products. In the event
PathoGenesis has not [ * ], after the parties have discussed the issue in good
faith, AeroGen shall have the right upon thirty (30) days written notice to
PathoGenesis to [*]. In addition, in the event PathoGenesis has not [*], after
the parties have discussed the issue in good faith, AeroGen shall have the right
to terminate this Agreement upon [*] written notice to PathoGenesis.

7.       COMMERCIAL MANUFACTURE AND SUPPLY OF THE INHALER

         7.1      MANUFACTURING AND DELIVERY. During the Term, and subject to
the provisions of this Section 7, AeroGen shall manufacture for and supply to
PathoGenesis, and PathoGenesis shall purchase from AeroGen, all of the
requirements of PathoGenesis, its Affiliates and sublicensees for the Inhalers
and Adapters (excluding the Ampoules) in the Territory. AeroGen shall
manufacture the Inhaler: (i) in compliance with cGMP; (ii) in compliance with
all regulatory requirements imposed by FDA; and (iii) in accordance with
AeroGen's internal quality control standards and product specifications or as
otherwise agreed upon by AeroGen and PathoGenesis. To enable AeroGen to comply
with its obligations with respect to regulatory requirements outside the United
States, PathoGenesis shall inform AeroGen as early as practical of its intention
to pursue regulatory approval of the Product in a country outside the United
States. Upon AeroGen's reasonable request, PathoGenesis and AeroGen shall meet
and confer regarding the regulatory requirements of such country, compliance
therewith, the timeline for compliance, the costs associated with compliance and
the manufacture of the Inhaler in compliance therewith. The quantities and
delivery schedules shall be as specified in Section 7.4 hereof and in purchase
orders submitted to AeroGen by PathoGenesis. At PathoGenesis' reasonable
request, AeroGen shall provide PathoGenesis with documentation for the purpose
of verifying AeroGen's compliance with this section.

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

                                      12.
<PAGE>

         7.2      QUALITY AND ACCEPTANCE. Both parties acknowledge that quality
is critical to ensuring the performance and reliability of the Product, and that
quality is a material term of this Agreement. AeroGen shall use commercially
reasonable efforts to manufacture the Inhalers to achieve an acceptable quality
level ("AQL") of non-conforming units, as determined by the JDT. The parties,
through the JDT, will negotiate in good faith to identify critical, major and
minor components and corresponding specifications, test methods and associated
AQLs. PathoGenesis shall have a period of [*] from the date of receipt of any
shipment of the Inhalers to test for quality and quantity of the shipment and to
accept or reject such shipment. If PathoGenesis determines that any shipment or
portion thereof of the Inhalers does not meet the specifications set forth in
this Agreement, PathoGenesis shall notify AeroGen in writing within such [*],
indicating the particular lot, date of delivery and the defective nature of the
Inhalers. In such event, PathoGenesis shall promptly return the shipment or
defective portion thereof to AeroGen and PathoGenesis shall have no obligation
to pay for such shipment or defective portion of such shipment, as the case may
be. Upon receipt, AeroGen shall undertake commercially reasonable efforts to
repair or replace defective Inhalers and supply PathoGenesis with a replacement
shipment of Inhalers acceptable to PathoGenesis, within a commercially
reasonable time. In the event PathoGenesis does not so notify AeroGen within [ *
] of receipt of any shipment of Inhalers, PathoGenesis shall be deemed to have
accepted such shipment and shall be obligated to make payment therefor as
provided under Section 8.2.

         7.3      SUBCONTRACTING. AeroGen may subcontract portions of the
manufacturing of the Inhaler provided that: (i) AeroGen advises PathoGenesis in
advance, to the extent practicable, of entering into any such subcontract, the
terms and conditions (related to technical or cGMP matters) and the work to be
performed; (ii) any such subcontractor agrees to comply with cGMP, and AeroGen's
internal quality control and product specifications or as otherwise agreed upon
by AeroGen and PathoGenesis; and (iii) any subcontractor engaged by AeroGen
agrees to comply with all regulatory requirements imposed by the FDA and other
regulatory agencies.

         7.4      FORECASTS AND PURCHASE ORDER. On a [*] basis, PathoGenesis
shall provide AeroGen with its good faith written projections of the anticipated
requirements to be ordered from and delivered by AeroGen during the subsequent [
* ] (as may be amended from time to time by PathoGenesis, the "Supply
Forecast"). PathoGenesis shall provide AeroGen with the Supply Forecast no later
than [*] before the start of each [*]. The Supply Forecast will be binding for
the next [*] and will be non-binding for the subsequent [*]. For each [*], and
by no later than the first day of such [*], PathoGenesis will issue a firm
purchase order for finished Inhaler Products required on a [*] basis by
PathoGenesis in such [*], and a delivery date of no less than [*] from the date
of such purchase order. AeroGen shall accept any such purchase order, or will
negotiate a new delivery schedule for such purchase order and accept such
revised purchase order, within [*] of receipt of such purchase order. Any
purchase order for a given [*] so placed by PathoGenesis shall specify an amount
which is at least [*] of the amount most recently forecast for such [*].
AeroGen shall accept and fill such purchase order; provided however, that where
such purchase order specifies an amount which is more than [*] of the amount
most recently forecast, AeroGen shall use commercially reasonable efforts to
manufacture and supply such excess amount, but shall not be liable in any way in
the event it is unable to so supply such excess amount.

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

                                      13.
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         7.5      DELIVERY. AeroGen shall use diligent efforts, consistent with
its other shipment obligations and manufacturing capacity, to ship all Inhaler
Products and Adapters for which purchase orders are accepted on or before the
requested shipment date, to the extent such date is at least [*] after the date
AeroGen accepts the purchase order for such shipment. The shipping and packaging
method used will be at the discretion of AeroGen. Deliveries shall be shipped to
PathoGenesis' address as set forth in this Agreement. All Products will be
shipped by AeroGen freight collect, or if prepaid, such freight will be
subsequently billed to PathoGenesis. PathoGenesis shall be responsible for
clearing all Products for export. If required, AeroGen shall insure the
shipments against damage or loss and will subsequently bill PathoGenesis for
such shipping insurance.

         7.6      PAYMENTS TO THIRD PARTIES. AeroGen, its affiliates, and its
assignees, shall be fully responsible for paying any and all licensee fees,
royalties and other such payments owed by it to any third parties for the
manufacture, sale, offer for sale, use, importation or exportation of the
Inhalers provided by AeroGen. Third party payments owed by PathoGenesis shall be
handled as provided under Section 9.5(a).

         7.7      FACILITIES ACCESS AND REGULATORY INSPECTIONS. PathoGenesis
shall have reasonable access to the manufacturing activities conducted in
AeroGen facilities. PathoGenesis' representatives shall be permitted, from time
to time and upon reasonable notice, to visit the AeroGen facilities during
normal or usual hours of operation to monitor the manufacturing activities. In
addition, PathoGenesis shall have the right, upon reasonable notice to AeroGen,
and provided such subcontractor agrees to such visit, to visit the facilities of
any of the subcontractors AeroGen utilizes pursuant to Section 2.4 or 7.3;
provided that the PathoGenesis representatives are accompanied by AeroGen
representatives. AeroGen shall promptly notify PathoGenesis of any regulatory
inspection of AeroGen facilities used in the manufacturing, processing or
packaging of the Inhaler Product. At the reasonable written request of
PathoGenesis, AeroGen shall promptly provide to PathoGenesis copies of the
documents relating to or arising out of the inspection such as FDA Form 483 list
of observations, establishment inspection reports, and warning letters.

         7.8      USE OF TRADEMARKS ON PRODUCTS. PathoGenesis will have the
right to mark the Inhaler Product with its own Company Trademarks. PathoGenesis
and AeroGen acknowledge that it may be mutually beneficial to mark the Inhaler
Product with the trademarks, trade names, Iogos, or company names ("Company
Trademarks") of both PathoGenesis and AeroGen. In the event that both parties
desire (or where regulations require) the Inhaler Product to bear the Company
Trademarks of PathoGenesis and AeroGen simultaneously, AeroGen will cooperate
with PathoGenesis and conform to the marking scheme of PathoGenesis. The parties
will agree to the size and placement of the Company Trademarks. Notwithstanding
the foregoing, the parties understand that this Section 7.7 does not include
trademark licenses and that neither PathoGenesis nor AeroGen will use one
another's Company Trademarks without an appropriate license to do so.

         7.9      TITLE AND RISK OF LOSS. Risk of damage or loss of Inhalers
shipped to PathoGenesis by AeroGen shall remain with AeroGen until an Inhaler
Product is shipped at the instructions of PathoGenesis.

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

                                      14.
<PAGE>

         7.10     PRODUCT INSURANCE. AeroGen shall furnish PathoGenesis with
Certificates of Insurance within forty-five (45) days of the first commercial
sale of the Inhaler Drug Product or Inhaler Product and shall furnish
PathoGenesis with annual renewal Certificates of Insurance fifteen (15) days
prior to each anniversary of such first sale. The Certificate of Insurance will
extend [*] to PathoGenesis. A thirty (30) day written notice, as practicable, of
cancellation or reduction in scope or amount of coverage will be provided to
PathoGenesis. If such insurance is written on a claims-made form following
termination of this Agreement, coverage shall survive for a period of no less
than [*].

8.       PAYMENTS FOR THE MANUFACTURED INHALER PRODUCTS

         8.1      INHALER TRANSFER PRICE. Subject to the terms and conditions of
this Agreement, PathoGenesis shall pay AeroGen the per unit manufacturing cost
for each Inhaler delivered to and accepted by PathoGenesis, plus [*] of the
manufacturing cost per unit (the "Inhaler Markup") (the sum of the manufacturing
cost per unit and the Inhaler Markup shall be referred to herein as the "Inhaler
Transfer Price"). The manufacturing cost per unit is the [*] of AeroGen, on a
consolidated basis, of manufacturing the Inhaler. AeroGen shall determine such
cost in accordance with its internal accounting systems and methodologies and
GAAP, and shall allow PathoGenesis reasonable access to AeroGen's books and
records in order to verify such cost in accordance with Section 18.15 hereof. In
computing such cost, AeroGen will utilize standard industry practice, as
mutually agreed upon by the parties, which agreement shall not be unreasonably
withheld or delayed. At the time of [*], the parties will mutually agree on a
target manufacturing cost per unit (the "Target Cost") and consequent Inhaler
Transfer Price. Under current conditions, as of the Effective Date the Target
Cost of the AeroGen Inhaler is projected to be [*], as per AeroGen's 1999
Business Plan. In the event that the actual Target Cost exceeds the agreed upon
Target Cost by [*] or more, then the Inhaler Markup shall be reduced by [*] for
every [*] of such excess. In the event that the actual Target Cost is below the
agreed upon Target Cost by [*] or more, then the Inhaler Markup shall be
increased by [*] for every [*] of such decrease. AeroGen shall use its best
efforts to obtain and maintain appropriate capital funding to satisfy its
obligations under this Agreement. All capital expenditures necessary to
manufacture and supply the Clinical Test Inhalers and the Inhalers pursuant to
this Agreement shall be the sole responsibility of AeroGen.

         8.2      INVOICING. AeroGen shall invoice PathoGenesis when AeroGen
ships the Inhaler. PathoGenesis shall pay all invoices for the Inhalers
delivered to and accepted in accordance with this Agreement within forty-five
(45) days after receipt of the Inhalers.

9.       ROYALTY

         9.1      ROYALTY PAYMENTS BY PATHOGENESIS FOR PRODUCTS. Except as
provided herein and subject to the terms and conditions of this Agreement,
PathoGenesis shall pay to AeroGen, on a country-by-country basis, a royalty
("Royalty" or "Royalties") based upon the Net Sales of the Products at the
following rates:

                           (a)      a royalty of [*] of the annual Net Sales of
the Products sold in each country other than those countries in North America;

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

                                      15.
<PAGE>

                           (b)      a royalty of [*] of the annual Net Sales of
the Products sold in each country in North America.

         PathoGenesis shall pay the royalties owed to AeroGen on Net Sales of
the Products on a calendar-quarterly basis, within sixty (60) days following the
end of the calendar quarter during which the sales in question were made. Upon
payment of a royalty for any sale of a Product, the royalty obligation under
this Agreement with respect to that Product shall be deemed exhausted.

         9.2      MINIMUM ROYALTY. Subject to the terms and conditions of this
Agreement, [*] (the "Minimum Royalty Commencement Date"), and at each
anniversary of the Minimum Royalty Commencement Date during the Term,
PathoGenesis shall pay to AeroGen, in arrears, a minimum annual royalty payment
of [*] within [*] of such Minimum Royalty Commencement Date or anniversary
thereof; provided that any and all royalty payments actually made with respect
to Net Sales during such calendar year shall be credited against such minimum
royalty amount. In the event PathoGenesis fails to make such payment, and such
payment is not made within [*] written notice thereof, AeroGen shall have the
right to [*].

         9.3      ROYALTY TERM. The parties acknowledge that PathoGenesis'
royalty obligations shall be in effect for so long as PathoGenesis, or any
sublicensee, is selling the Product supplied by AeroGen hereunder anywhere in
the Territory.

         9.4      ROYALTY REPORTS. After the first commercial sale of the
Product in the Territory, PathoGenesis shall provide AeroGen with
calendar-quarterly written royalty reports, within sixty (60) days from the last
day of each calendar quarter during the term of the Agreement. Each report shall
include a summary of the Net Sales of the Product for sales made during the
calendar quarter in question on which a royalty is payable and the royalties
which are payable on such Net Sales. Any objection by AeroGen to the accuracy or
completeness of any such reports must be made in writing to PathoGenesis within
two (2) years after the report is provided to AeroGen, or such report shall be
deemed to be true and correct.

         9.5      REDUCTION OF ROYALTIES.

                           (a)      If it is "necessary" (as defined below)
for PathoGenesis, any Affiliate of PathoGenesis or any sublicensee of
PathoGenesis in any country within the Territory to obtain a license and pay
a royalty under such license to either (i) a third party [*] or (ii) a third
party [*], under any patent or other proprietary interest of such third party
in order to use, import, export, offer for sale or sell the Inhaler Product
in that country, PathoGenesis' obligations to pay royalties to AeroGen on Net
Sales in that country shall be [*]; or (b) [*]; provided that in no event
shall AeroGen's royalties be reduced under this Section 9.5(a) below [*] of
the applicable rate set forth in Section 9.1. It shall be considered
"necessary" to obtain a license if so ordered by a court of competent
jurisdiction in such country or if PathoGenesis, any Affiliate of
PathoGenesis or any sublicensee obtains a written opinion from an independent
qualified patent counsel or agent in such country, reasonably acceptable to
AeroGen, that the use or sale of the Inhaler Product in the Field infringes
upon such third party's patent rights or other proprietary interests. As used
in this Section 9.5(a), an "Excepted Party" means [*].

                           (b)      In the event: (i) [*]; or (ii) a third party
obtains, by order, decree or grant from a court or other regulatory authority of
competent jurisdiction in any country in the Territory, a compulsory license
under AeroGen's Inhalation Intellectual Property authorizing such third party to
make, have made, use, import, export, offer for sale or sell the Product in such
country, AeroGen shall give prompt written notice to PathoGenesis. In either
such event

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

                                      16.
<PAGE>

PathoGenesis' obligations to pay royalties with respect to Net Sales of the
Product in such country under this Agreement shall be [*].

                           (c)      If, for any other reason or under any other
circumstances, the exclusive licenses and rights granted to PathoGenesis under
Section 2 of this Agreement [*], the royalties owed by PathoGenesis to AeroGen
for Net Sales of the Products in such country shall be reduced by [*].

         9.6      BOOKS AND RECORDS. PathoGenesis shall keep full, true and
accurate books and records which disclose the Net Sales of the Products, the
number of Products sold in the Territory and all matters relating to those sales
which are relevant for the purposes of determining the royalties to be paid by
PathoGenesis to AeroGen. Such books and records shall be retained for three (3)
years following the occurrence of such sales.

         9.7      INSPECTION. AeroGen, at its own expense, shall have the right
during normal business hours on thirty (30) days' prior written notice to
PathoGenesis, and not more than once in any calendar year, to have a nationally
recognized independent public accounting firm selected by AeroGen and reasonably
acceptable to PathoGenesis, to examine the relevant books and records of
PathoGenesis for the purpose of verifying the royalties due under Section 9.1 of
this Agreement. Such accounting firm shall not work on a contingency fee basis,
shall execute and deliver to PathoGenesis a standard and reasonable
confidentiality agreement and shall not disclose to AeroGen any information
relating to PathoGenesis' business, except whether the PathoGenesis royalty
reports are correct or incorrect. If such reports are incorrect, then the
accounting firm shall provide PathoGenesis with the specific details concerning
any discrepancies and the amounts of the royalties due under Section 9.1 of this
Agreement. If such examination reveals a discrepancy, PathoGenesis shall pay to
AeroGen any additional royalties owed to AeroGen, or AeroGen shall refund to
PathoGenesis any excess royalty payments made by PathoGenesis, as appropriate.
In the event that the discrepancy amounts to an underpayment by PathoGenesis of
[*] or more of the royalties due under Section 9.1 of this Agreement,
PathoGenesis shall promptly reimburse AeroGen for its out-of-pocket expenses
reasonably incurred in connection with such examination.

         9.8      WITHHOLDING TAX. Any and all withholding taxes or similar
charges imposed by any government on royalties due from PathoGenesis under this
Agreement will be deducted from the amounts due and paid to AeroGen, will be
paid by PathoGenesis to the proper taxing authority, and proof of payment of
said taxes or other charges will be promptly secured and sent to AeroGen as
evidence of such payment.

         9.9      MARKING. AeroGen shall provide PathoGenesis with written
notice of the patent number and country of each of the patents in AeroGen's
Patent Rights when issued by providing PathoGenesis a revised Exhibit C of this
Agreement or providing other suitable written notice to PathoGenesis.
PathoGenesis shall use commercially reasonable efforts to place, in a
conspicuous location on the Inhaler Product, a patent notice in accordance with
and when required by applicable laws of the Country in which the Inhaler Product
is sold and in which there is a Valid Claim of a patent in AeroGen's Patent
Rights covering the Inhaler Product. With respect to the patents in AeroGen's
Patent Rights, PathoGenesis will respond to any request for

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

                                      17.
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disclosure under 35 U.S.C. Section 287(b)(4)(B) only by notifying AeroGen of the
request for disclosure.

10.      INTELLECTUAL PROPERTY

         10.1     INHALER OWNERSHIP. Except as provided herein, AeroGen shall
own all right, title, and interest in all intellectual property rights related
[ * ], whether created independently or jointly by PathoGenesis or AeroGen
during the Term of and pursuant to this Agreement. To the extent that
PathoGenesis owns or acquires any interest in such rights, PathoGenesis hereby
assigns to AeroGen any interest in such intellectual property rights.
PathoGenesis shall own all [ * ], whether such rights are created
independently or jointly by PathoGenesis or AeroGen. To the extent that
AeroGen owns or acquires any interest in such rights, AeroGen hereby assigns
to PathoGenesis any interest in such design patent rights, copyrights and
trade dress rights for the Inhaler.

         10.2     DRUG PRODUCT OWNERSHIP. As between AeroGen and PathoGenesis,
PathoGenesis shall own [*] whether created independently or jointly by
PathoGenesis or AeroGen during the Term of and pursuant to this Agreement. To
the extent AeroGen owns or acquires any interest in such rights, AeroGen hereby
assigns to PathoGenesis any interest in such rights. PathoGenesis shall also own
all right, title, and interest in all patent rights, copyrights, trade dress
rights, and know-how rights covering [*]. To the extent that AeroGen owns or
acquires any interest in such rights, AeroGen hereby assigns such interest to
PathoGenesis.

         10.3     COOPERATION. With respect to the intellectual property rights
addressed in this Section 10, both parties shall cooperate with each other to
obtain, prosecute, maintain and enforce its intellectual property rights. Such
cooperation shall include, without limitation, obtaining assignments from the
other party's employees and causing the execution of all documents and
instruments as the other party may reasonably consider appropriate to pursue
protection.

11.      EQUITY PURCHASE. Pursuant to the Stock Purchase Agreement,
PathoGenesis shall purchase Two Million Five Hundred Thousand Dollars
($2,500,000) of Series E Preferred Stock of AeroGen, at a purchase price of
$2.60 per share.

12.      CONFIDENTIALITY

         12.1     USE OF CONFIDENTIAL INFORMATION. During the Term of this
Agreement, AeroGen and PathoGenesis may each provide Confidential Information,
including but not limited to each party's proprietary materials and/or
technologies, economic information, business or research strategies, trade
secrets and material embodiments thereof, to the other. As used herein,
"Confidential Information" of a party means any such confidential information
disclosed by such party to the other party (i) in written form marked
"confidential," or (ii) in oral form if summarized in a writing marked
"confidential" delivered to the receiving party within thirty (30) days after
the oral disclosure. The parties shall only use Confidential Information of the
other party for those purposes specified in this Agreement.

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

                                      18.
<PAGE>

         12.2     CONFIDENTIALITY AND NON-USE. The recipient party shall
maintain the providing party's Confidential Information in strict confidence,
except if and to the extent that such disclosure is required by applicable law
and provided that the providing party has received written notice reasonably far
in advance of the proposed disclosure. The recipient party shall use the
providing party's Confidential Information solely to exercise its rights and
perform its obligations under this Agreement, unless otherwise mutually agreed
in writing. Upon request by the providing party, the recipient party shall,
within ten (10) days of receiving such request, return all tangible materials
comprising Confidential Information of the providing party and return or destroy
any notes, copies, summaries or extracts of the providing party's Confidential
Information, provided that each party shall be permitted to retain one copy of
such embodiments of the other party's Confidential Information for legal
archiving purposes.

         12.3     EXCLUSIONS. Confidential Information shall not include
information that: (i) is shown by contemporaneous documentation of the recipient
party to have been in its possession prior to receipt from the providing party;
(ii) is or becomes, through no fault of the recipient party, publicly known;
(iii) is furnished to the recipient party by a third party without breach of a
duty to the disclosing party; or (iv) is independently developed by the
recipient party without access to the providing party's Confidential
Information.

         12.4     CONFIDENTIALITY AGREEMENTS. AeroGen and PathoGenesis shall use
commercially reasonable efforts to obtain, if not already in place,
confidentiality agreements from its relevant employees, agents, subcontractors
and consultants to protect the confidential information as herein provided.

         12.5     PUBLICITY - RESULTS. During the Term of this Agreement,
AeroGen and PathoGenesis each acknowledge the other party's interest in
publishing certain of its results to obtain recognition within the scientific
community and to advance the state of scientific knowledge. Each party also
recognizes the mutual interest in obtaining valid patent protection and
protecting business interests. Consequently, either party, its employees or
consultants wishing to make a publication or other disclosure (including any
oral disclosure made without obligation of confidentiality) relating to work
performed by such party as part of the work being conducted under this Agreement
(the "Publishing Party") shall transmit to the other party (the "Reviewing
Party") a copy of the proposed written publication or disclosure or an outline
of such oral disclosure at least sixty (60) days prior to submission for
publication or oral disclosure. Such publication or disclosure shall not be made
without the prior written consent of the Reviewing Party, which consent shall
not be unreasonably withheld.

         12.6     PUBLICITY - TERMS OF AGREEMENT. Except as provided in Section
12.7., neither party shall disclose this Agreement or any of the material terms
thereof to any third party, whether in writing or orally, without the prior
written consent of the other party, except for terms or subject matter which has
been the subject of public disclosure or has been mutually approved for such
disclosure pursuant to Section 12. Notwithstanding the foregoing, each party
shall have the right to disclose the material terms of this Agreement in
confidence to any bona fide potential or actual investor, investment banker,
counsel, acquirer, merger target, and where reasonably practicable, shall obtain
a binder of confidentiality consistent with the terms of this Agreement. In
addition, either party may make any such disclosure if, but only to the extent
such disclosure is, on advice of counsel, required by applicable law. The
disclosing party shall use all

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

                                      19.
<PAGE>

commercially reasonable efforts to preserve the confidentiality of this
Agreement and the terms thereof notwithstanding any such required disclosure,
and will give the other party written notice of such required disclosure in
advance thereof, to the extent practicable. In the event either party is
required to file this Agreement with the Securities and Exchange Commission or
any other regulatory agency, such party shall apply for confidential treatment
of this Agreement to the fullest extent permitted by law, shall provide the
other party a copy of the confidential treatment request far enough in advance
of its filing to give the other party a meaningful opportunity to comment
thereon, and shall incorporate in such confidential treatment request any
reasonable comments of the other party.

         12.7     PUBLICITY - PRESS RELEASES. The parties may issue press
releases, either jointly or independently, following the execution of this
Agreement, the form and substance of which shall be approved by the parties,
provided such approval shall not be unreasonably withheld or delayed. Any
subsequent press releases regarding this Agreement, the progress or status
thereof or any developments or other information related thereto shall be
approved in advance by the parties, such approval not to be unreasonably
withheld or delayed.

         12.8     PUBLICITY - USE OF PARTIES' NAMES. Neither party shall use the
name of the other party or any of the other party's affiliates, employees or
subsidiaries, or reference any of the other party's products in any promotions,
public statements or public disclosures without the prior written consent of an
authorized representative of the other party, except where required by law.

13.      ADVERSE INFORMATION AND EVENT REPORTING

         13.1     NOTIFICATION. Each party shall report to the other party, in
as much detail as possible, within forty eight (48) hours from receipt of the
information (or less, where required so as to comply with FDA or after
applicable regulations) any experience coincident with the use of the Inhaler,
AeroGen Inhaler or the Products at any dose, whether or not considered drug
related, that suggests a significant hazard, contraindication, side effect or
precaution. This includes, but is not limited to, any serious adverse experience
or expectation regarding the use of the Products. A serious adverse experience
or expectation includes, at minimum, any possible event coincident with the use
of inhalation devices or the Products that results in any of the following
outcomes: death, a life-threatening experience, inpatient hospitalization,
prolongation of an existing hospitalization, a persistent or significant
disability or incapacity, or a congenital anomaly or birth defect.

         13.2     PRODUCT RECALLS. In the event the FDA orders a recall of the
Inhalers or the Products or one or both parties determine that a voluntary
recall of the Inhaler Product is warranted, the parties agree to meet and confer
in good faith as to whether and how to proceed with such recall and the
allocation of expenses to be incurred in connection therewith.

14.      REPRESENTATIONS AND WARRANTIES

         14.1     AEROGEN REPRESENTATIONS AND WARRANTIES. AeroGen represents,
warrants and covenants that:

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

                                      20.
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                           (a)      AeroGen is a corporation duly organized,
existing and in good standing under the laws of the State of Delaware, with full
right, power and authority to enter into and perform this Agreement;

                           (b)      the execution, delivery and performance of
this Agreement does not conflict with, violate or breach any agreement to which
AeroGen is a party, any court order to which AeroGen is a party or subject to or
AeroGen's certificate of incorporation or bylaws;

                           (c)      this Agreement has been duly executed and
delivered by AeroGen and is a legal, valid and binding obligation enforceable
against AeroGen in accordance with its terms subject to applicable bankruptcy,
insolvency, reorganization, arrangement, moratorium and other laws relating to
or affecting creditors' rights generally and equitable principles;

                           (d)      as of the Effective Date, AeroGen owns or
controls AeroGen's Inhalation Intellectual Property;

                           (e)      to the best of its knowledge, AeroGen [*];

                           (f)      AeroGen has the right to grant the licenses
and rights set forth in this Agreement;

                           (g)      to the best knowledge of AeroGen, [*];

                           (h)      except as set forth on Schedule 14.1(h),
[*];

                           (i)      to the best knowledge of AeroGen, [*].

                           (j)      AeroGen has not knowingly withheld from
PathoGenesis any [*], and to the best knowledge of AeroGen, the information
relating to the manufacture, safety or efficacy of the Clinical Test Inhaler,
Inhaler and the Products provided to PathoGenesis does not contain any
misstatement of a material fact nor omit to state any material fact required to
make such information not misleading;

                           (k)      the execution and delivery by AeroGen of
this Agreement and the performance by AeroGen of the obligations under this
Agreement require no regulatory approvals other than approvals by FDA or other
similar agencies in the Territory to be obtained on the part of AeroGen, or, if
required, AeroGen has obtained such approvals;

                           (l)      during the Term and subject to the terms and
conditions of this Agreement, AeroGen will not grant any license or other right
in any of AeroGen's Inhalation Intellectual Property that interferes with or
conflicts with any of the licenses or rights granted to PathoGenesis under this
Agreement;

                           (m)      the financial information, including but not
limited to audited financial statements, that AeroGen has provided to
PathoGenesis as of the Effective Date comply with GAAP (as defined in Section
8.1) and are correct in all material respects; and

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

                                      21.
<PAGE>

                           (n)      the Clinical Test Inhalers and Inhalers
AeroGen supplies to PathoGenesis hereunder shall, [*].

         14.2     PATHOGENESIS REPRESENTATIONS AND WARRANTIES. PathoGenesis
represents, warrants and covenants that:

                           (a)      PathoGenesis is a corporation duly
organized, existing and in good standing under the laws of the State of
Delaware, with full right, power and authority to enter into and perform this
Agreement;

                           (b)      the execution, delivery and performance of
this Agreement does not conflict with, violate or breach any agreement to which
PathoGenesis is a party, any court order to which PathoGenesis is a party or
subject to or PathoGenesis' certificate of incorporation or bylaws;

                           (c)      this Agreement has been duly executed and
delivered by PathoGenesis and is a binding obligation enforceable against
PathoGenesis in accordance with its terms subject to applicable bankruptcy,
insolvency, reorganization, arrangement, moratorium and other laws relating to
or affecting creditors' rights generally and equitable principles; and

                           (d)      during the term, PathoGenesis will not use
AeroGen's Inhalation Intellectual Property outside the Field or for the delivery
of any drug other than Tobramycin Solution, except as provided under Section
2.8.5(b).

15.      INDEMNIFICATION AND INSURANCE

         15.1     INDEMNIFICATION OF AEROGEN. PathoGenesis shall at all times
during and after the Term be responsible for, and shall defend, indemnify and
hold AeroGen, its directors, officers, employees, agents and representatives
harmless from and against any and all losses, claims, lawsuits, proceedings,
expenses, recoveries and damages, including reasonable legal expenses, costs and
attorneys fees, arising out of: (i) any product liability claim or lawsuit by a
third party directly arising from the Drug Products or any other products made,
used, sold or distributed by PathoGenesis, except to the extent attributable to
AeroGen's breach of its representations and warranties provided in Section 14.1;
(ii) any breach of any representation or warranty given in this Agreement by
PathoGenesis; (iii) any negligent conduct or willful misconduct by PathoGenesis;
and (iv) any representation made or warranty given by PathoGenesis with respect
to the Products (other than the labeling therefor as approved by the relevant
regulatory authorities) provided however, that: (a) AeroGen gives PathoGenesis
prompt notice of any such claim or lawsuit; (b) PathoGenesis has the right to
compromise, settle or defend such claim or lawsuit; and (c) AeroGen, at the
expense of PathoGenesis, cooperates with PathoGenesis in the defense of such
claim or lawsuit. AeroGen, at its expense, may participate in the defense of any
such claim or lawsuit.

         15.2     INDEMNIFICATION OF PATHOGENESIS. AeroGen shall at all times
during and after the Term be responsible for, and shall defend, indemnify and
hold PathoGenesis, its directors, officers, employees, agents and
representatives harmless from and against any and all losses, claims, lawsuits,
proceedings, expenses, recoveries and damages, including reasonable legal

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

                                      22.
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expenses, costs and attorneys fees, arising out of:. (i) any product liability
or lawsuit by a third party directly arising from the Clinical Test Inhalers or
the Inhalers provided by AeroGen to PathoGenesis, except to the extent
attributable to PathoGenesis' breach of its representations and warranties
provided in Section 14.2; (ii) any breach of any representation or warranty
given in this Agreement by AeroGen; and (iii) any negligent conduct or willful
misconduct by AeroGen; provided however, that (a) PathoGenesis gives AeroGen
prompt notice of any such claim or lawsuit; (b) AeroGen has the right to
compromise, settle or defend such claim or lawsuit; and (c) PathoGenesis, at the
expense of AeroGen, cooperates with AeroGen in the defense of such claim or
lawsuit. PathoGenesis, at its expense, may participate in the defense of any
such claim or lawsuit.

         15.3     INSURANCE. Each party shall maintain appropriate product
liability insurance with respect to any clinical trials, manufacturing,
development, sales, marketing, distribution and promotion activities performed
by it hereunder, in each case in the amount of [*] per occurrence and in total,
except that AeroGen shall not be required to maintain separate insurance
pursuant to this Section 15.3 if it maintains substantially the same coverage
pursuant to Section 7.10. Each party shall maintain such insurance until such
Products are no longer sold. In the case of clinical trial insurance, each party
shall maintain such insurance for [*] following the completion of clinical
trials. Upon termination of such insurance, each party shall obtain tail end
product liability coverage for a [*] term in such amounts and subject to such
deductibles as the parties may mutually agree based upon standards prevailing in
the industry at the time. Each party shall name the other party as an additional
insured on any policy required by this section, and shall deliver certificates
of insurance to the other party to document compliance with this section.

         15.4     LIMITATION OF DAMAGES. IN NO EVENT WILL EITHER PARTY BE LIABLE
TO THE OTHER FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES
ARISING IN ANY WAY OUT OF THIS AGREEMENT, HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY. THIS LIMITATION WILL APPLY EVEN IF THE OTHER PARTY HAS BEEN ADVISED
OF THE POSSIBILITY OF SUCH DAMAGE AND NOTWITHSTANDING ANY FAILURE OF ESSENTIAL
PURPOSE OF ANY LIMITED WARRANTY PROVIDED HEREIN. THIS LIMITATION SHALL NOT
APPLY, HOWEVER, TO A PARTY'S INDEMNIFICATION OBLIGATION FOR THIRD PARTY CLAIMS
PURSUANT TO SECTION 15.

         15.5     AEROGEN'S RIGHT TO PROSECUTE INFRINGEMENTS. AeroGen, at
AeroGen's expense and discretion, shall have the first right, but not the
obligation, to take action in its own name, in the name of its Affiliates and
its sublicensees, and in the name of PathoGenesis if necessary, to restrain any
infringement, threatened infringement or suspected infringement of any AeroGen
Inhalation Intellectual Property. PathoGenesis, at AeroGen's expense, shall
reasonably cooperate with AeroGen in such action. PathoGenesis, at PathoGenesis'
option and expense, may actively participate as a party in any such action,
where the infringing product at issue delivers an Antiinfective Drug, so long as
the licenses under Section 2 are exclusive with respect to the country in which
such action is brought (a "Relevant Claim"). Subject to the terms and conditions
of this Agreement, AeroGen shall have the right to control prosecution of such
action and the right to settle and compromise such action or dispute. In the
event any monetary recovery in connection with such action or settlement is
obtained, such recovery shall be applied in the following priority: [*].

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

                                      23.
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         15.6     PATHOGENESIS' OPTION TO PROSECUTE INFRINGEMENTS. If AeroGen
does not file an action to restrain such infringement, threatened infringement
or suspected infringement of AeroGen's Inhalation Intellectual Property in the
Field relating to delivery of an Antiinfective Drug, [*], within [*] after (i)
AeroGen becomes aware of such infringement, threatened infringement or suspected
infringement, or (ii) receipt of PathoGenesis' written request to AeroGen to do
so, then PathoGenesis, at PathoGenesis' expense, shall have the right, but not
the obligation, to take action in its name, to restrain such infringement,
threatened infringement or suspected infringement. AeroGen, at PathoGenesis'
expense shall reasonably cooperate with PathoGenesis in such action. AeroGen, at
AeroGen's option and expense, may actively participate as a party in such
action. Subject to the terms and conditions of this Agreement, PathoGenesis
shall have the sole and exclusive right to control prosecution of such action,
but shall not settle and/or compromise such action or dispute without the
consent of AeroGen, which shall not be unreasonably withheld. In the event any
monetary recovery in connection with such infringement action is obtained, such
recovery shall be applied in the following priority: [*].

16.      DISPUTE RESOLUTION

         16.1     NEGOTIATION. AeroGen and PathoGenesis shall endeavor to
resolve any claim or controversy arising out of or relating to this Agreement or
arising from the JDT, or the threatened breach, breach, termination or validity
of this Agreement informally by negotiation between the senior executives,
officers or management of AeroGen and PathoGenesis. Either party may give the
other party written notice of any claim or controversy not resolved in the
normal course of business, or in the case of the JDT, as provided in Section
3.1.6 (the "Disputing Party Notice"). Within [*] after the delivery of the
Disputing Party Notice, the receiving party shall submit to the other party a
written response (the "Response"). The Disputing Party Notice and Response shall
include a statement of each party's position and a summary of the arguments
supporting that position. Within [*] after the Disputing Party Notice, such
designated senior executives, officers or management of AeroGen and PathoGenesis
shall meet at a mutually acceptable time and place and thereafter as often as
they reasonably deem necessary to attempt to resolve the claim or controversy.
All negotiations pursuant to this clause are confidential and without prejudice
and shall be treated as compromise and settlement negotiations for purposes of
applicable rules of evidence.

         16.2     MEDIATION. If the claim or controversy has not been
resolved by negotiation pursuant to Section 16.1 of this Agreement within [*]
of the Disputing Party Notice, or if the parties fail to meet within the time
periods specified in Section 16.1 of this Agreement, the parties shall
endeavor to settle the dispute by mediation under the then current Model
Mediation Procedure for Business Disputes of the Center for Public Resources
("CPR"). Unless otherwise agreed, the parties shall select a mediator from
the CPR panel of neutrals and shall notify CPR to initiate the selection
process. Either party may initiate this procedure [*] after the Disputing
Party Notice whether or not the parties have met.

         16.3     ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement, or the threatened breach, breach, termination or
validity thereof, which remains unresolved for forty five (45) days after the
appointment of a mediator pursuant to Section 16.2 of this Agreement shall be
finally settled by arbitration in accordance with the CPR Rules for
Non-Administered Arbitration of Patent and Trade Secret Disputes. The
tribunal shall consist of a sole arbitrator unless in the initial notice of
arbitration or notice of defense, either party requests a panel of three
arbitrators in which event the panel will consist of three

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

                                      24.
<PAGE>

arbitrators, none of whom shall be appointed by a party. In selecting the
arbitrator(s), either party may, but need not, strike any candidate who does
not have a background in the field of pharmaceuticals with related
scientific, legal or business experience. The arbitration shall be governed
by the United States Arbitration Act, 9 U.S.C. Section 1 et seq., and
judgment upon the award rendered by the arbitrator(s) may be entered by any
court or authority having jurisdiction thereof. Insofar as the proceeding
relates to patents, it shall also be governed by 35 U.S.C. Section 294, to
the extent applicable. The arbitrators are not empowered to award treble,
punitive or any other damages in excess of compensatory damages and each
party irrevocably waives any claim to recover any such damages. The place of
the arbitration shall be in Seattle, Washington if the arbitration is
initiated by AeroGen, or in San Francisco, California if the arbitration is
initiated by PathoGenesis.

         16.4     INJUNCTIVE RELIEF. Notwithstanding the foregoing, each party
shall have the right to immediately apply to a court of competent jurisdiction
to seek temporary, or permanent injunctive relief to restrain any conduct or any
threatened conduct in violation of or otherwise with respect to Sections 10, 12,
13 and 15 of this Agreement, or that could threaten the parties' rights in or
to, or protect or enforce, any of the parties' intellectual property.

17.      TERM AND TERMINATION

         17.1     TERM. The term of this Agreement is effective as of the
Effective Date as first written above, and except as otherwise provided in this
Section 17 of this Agreement, shall terminate at the end of the Term.

         17.2     TERMINATION FOR BREACH. If either party shall be in default
of, or fail to comply with any material obligation or condition of this
Agreement, the non-defaulting party may terminate this Agreement by giving [*]
notice to the defaulting party, specifying in reasonable detail the basis for
termination. If within [*] after the receipt of such notice, the party who
received such notice remedies the condition forming the basis for termination,
such notice shall cease to be operative, and this Agreement shall continue in
full force and effect. If [*] after the receipt of such notice, the party who
received such notice fails to remedy the condition forming the basis for
termination, this Agreement shall be terminated.

         17.3     TERMINATION FOR CAUSE.

                  17.3.1   PathoGenesis shall have the option to terminate this
Agreement without penalty by giving AeroGen sixty (60) days' written notice if
PathoGenesis, in its sole discretion, determines that the results, [*] are
unsatisfactory; provided that PathoGenesis shall have informed AeroGen promptly
of the basis underlying such decision to terminate, including summaries of data,
and AeroGen shall have had the opportunity to comment thereon and the parties
shall have discussed the matter in good faith.

         17.4     TERMINATION WITHOUT CAUSE. Notwithstanding anything in this
Agreement to the contrary, after the first commercial sale of the Product in any
country, either party, in its sole discretion and without cause, may give the
other party written notice of its intent to terminate this Agreement, such
termination to be effective two (2) years after the receipt of such notice.

         17.5     EFFECTS OF TERMINATION.

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

                                      25.
<PAGE>

                  17.5.1   SALES AFTER TERMINATION. Upon early termination of
this Agreement, other than pursuant to Section 17.1 of this Agreement,
PathoGenesis shall have the right for six (6) months to sell the Product in
inventory, on order, or being manufactured at the time of notification of
termination, whether or not in the form of raw materials, products in process or
finished products on hand, provided the royalties and Inhaler Transfer Price
owed to AeroGen on such sales are paid to AeroGen when due in accordance with
this Agreement.

                  17.5.2   NONCANCELLABLE COSTS. In the event PathoGenesis
terminates this Agreement pursuant to Section 17.3, it shall nonetheless
reimburse AeroGen for any and all non-cancelable costs to be incurred by AeroGen
due to such early termination.

         17.6     SURVIVAL. The rights and obligations described in Sections
5.4, 9.6, 9.7, 10, 12, 13, 15.1, 15.2, 15.3, 15.4, 16, 17, 18 of this Agreement
shall survive expiration or termination of this Agreement.

         17.7     RIGHTS IN BANKRUPTCY. All rights and licenses granted under or
pursuant to this Agreement by AeroGen are, and shall otherwise be deemed to be,
for purposes of Section 365(n) of the United States Bankruptcy Code, licenses of
a right to "intellectual property" as defined under Section 101 of the United
States Bankruptcy Code. PathoGenesis, as licensee of such rights under this
Agreement, shall retain and may fully exercise all of its rights and elections
under the United States Bankruptcy Code in the event of the commencement of a
bankruptcy proceeding by or against AeroGen under the United States Bankruptcy
Code including, but not limited to, the right to treat this Agreement or any
agreement supplementary to this Agreement as terminated or to retain its rights
under this Agreement or any Agreement supplementary to this Agreement. In the
event that PathoGenesis elects to retain its rights under this Agreement or any
agreement supplementary to this Agreement, AeroGen shall provide to
PathoGenesis, within [*] of written notice by PathoGenesis to AeroGen in
accordance with Section 18.2 of this Agreement, all intellectual property and
all embodiments of such intellectual property within the possession or control
of AeroGen.

18.      MISCELLANEOUS

         18.1     ENTIRE AGREEMENT. This Agreement, which includes the Exhibits
hereto, contains the entire agreement between AeroGen and PathoGenesis with
respect to the transactions contemplated by this Agreement and supersedes all
prior arrangements or understandings with respect thereto.

         18.2     NOTICES. All notices or other communications that are required
or permitted under this Agreement shall be in writing and shall be sent by
Federal Express or other reliable overnight courier, or hand delivered or mailed
by registered or certified mail, postage prepaid and return receipt requested,
to the appropriate party addressed as follows:

                  If to AeroGen:        AeroGen, Inc.
                                        1310 Orleans Drive
                                        Sunnyvale, California

                                        Attention: Dr. Jane E. Shaw

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

                                      26.
<PAGE>

                                        Chairman and Chief Executive Officer

                  with a copy to:       Cooley Godward LLP
                                        Five Palo Alto Square
                                        3000 El Camino Road
                                        Palo Alto CA 94306-2155

                                        Attention: Barbara A. Kosacz

                  If to PathoGenesis:   PathoGenesis Corporation
                                        5215 Old Orchard Rd. #900
                                        Skokie, Illinois 60077

                                        Attention: Wilbur H. Gantz
                                        Chairman and Chief Executive Officer

                  with a copy to:       PathoGenesis Corporation
                                        5215 Old Orchard Rd., #900
                                        Skokie, Illinois 60077

                                        Attention:Cameron S. Avery
                                        General Counsel

         Any party may by such notice change the address to which notice or
other communications to it are to be delivered or mailed.

         18.3     GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of Delaware excluding its conflict-of-law
rules. This provision shall not preclude application of the United States
Arbitration Act.

         18.4     ASSIGNABILITY. This Agreement shall not be assignable other
than by operation of law by either party without the prior written consent of
the other party, and any purported assignment by either party without the prior
written consent of the other party shall be void, except that either party may
assign its rights under this Agreement to any other corporation or other entity
that succeeds to all or substantially all of that portion of its business to
which this Agreement relates pursuant to any reorganization or sale or
disposition of substantially all of its assets related to that portion of its
business, provided that the assignee agrees to assume the assignor's obligations
hereunder, in which case the assignor shall have no further rights or
obligations under this Agreement. Nothing in this Agreement or such assignment
shall eliminate such assignor's obligations under this Agreement which arise
prior to the time of such assignment. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective successors and
permitted assigns.

         18.5     WAIVERS AND AMENDMENTS. Any waiver of any term or condition of
this Agreement, or any amendment or supplementation of this Agreement, shall be
effective only if in writing signed by the parties. A waiver of any breach or
failure to enforce any of the terms or conditions of this Agreement shall not in
any way affect, limit or waive a party's rights

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

                                      27.
<PAGE>

hereunder at any time to enforce strict compliance thereafter with every term or
condition of this Agreement.

         18.6     SEVERABILITY. In the event that any provision contained in
this Agreement shall be determined to be invalid, illegal or unenforceable in
any respect for any reason, the validity, legality and enforceability of any
such provision in every other respect and the remaining provisions of this
Agreement shall not, at the election of the party for whose benefit the
provision exists, be in any way impaired.

         18.7     SECTION HEADINGS. The section headings contained in this
Agreement are for the purpose of convenience and are not intended to define or
limit the contents of such sections.

         18.8     COUNTERPARTS. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The parties may exchange
signature pages of this Agreement by facsimile with originals to follow by
overnight delivery.

         18.9     FURTHER ASSURANCES. Upon the reasonable request of either
party, the other party shall execute any additional certificates or other
documents that may be reasonably necessary to fully implement this Agreement.

         18.10    FORCE MAJEURE. Except pursuant to existing laws, regulations
and orders, no failure or omission by either party in the performance of any
obligation of this Agreement shall be deemed a breach of this Agreement or
create any liability if the same shall arise from any cause or causes beyond the
control of the parties including, but not limited to the following which, for
the purposes of this Agreement, shall be regarded as beyond the control of the
party in question: (i) any act or omission of any government; (ii) any future
rule, regulation or order issued by any governmental authority or by any
officer, department, agency, or instrumentality thereof which makes such
performance impossible or commercially unreasonable; or (iii) any Act of God;
fire; storm; flood; earthquake; accident; war;, rebellion; insurrection; riot;
invasion; strike; and lockout.

         18.11    COMPLIANCE OF LAW. In conducting any activities under this
Agreement or in connection with the manufacture, use or sale of the Product,
AeroGen and PathoGenesis shall comply with all applicable laws and regulations
including, but not limited to, all Export Administration Regulations of the
United States Department of Commerce.

         18.12    CONFIDENTIALITY OF TERMS OF AGREEMENT. Without the prior
written consent of the other party, neither of the parties shall disclose to
anyone any of the material terms of this Agreement, except upon the
recommendation of counsel in view of any governmental or regulatory law, rule or
guideline (in which event, the disclosing party shall make reasonable efforts to
obtain whatever protection against further disclosure may be available in the
circumstances). Notwithstanding the above, either party may issue a press
release as agreed upon by the parties.

         18.13    RELATIONSHIP OF THE PARTIES. The relationship of the parties
under this Agreement is that of independent contractors. Neither party shall be
deemed to be the agent of the other, nor

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

                                      28.
<PAGE>

shall the parties be deemed to be partners or joint venturers. Neither party
hereto shall have any express or implied right or authority to assume or create
any obligations on behalf of or in the name of the other party or to bind the
other party to any contract, agreement or undertaking.

         18.14    BINDING AGREEMENT. This Agreement, and the Exhibits hereto,
constitute a legally valid and binding obligation of both parties.

         18.15    BOOKS AND RECORDS. Each party shall keep full and accurate
books of account containing all particulars that may be necessary for the
purpose of calculating all amounts owed to the other party hereunder and for the
purpose of calculating any costs or developing any budgets hereunder. Said books
of account shall be kept at the parties' respective principal places of
business. All such reports and data shall be open for inspection by the other
party on a confidential basis at all reasonable times and either party may
conduct, at its own expense, once every year during normal business hours
through an independent certified public accountant, an examination of the
accounts contemplated above.

         IN WITNESS WHEREOF, the parties hereby have executed this Agreement, as
of the date first above written.

AEROGEN:

AEROGEN, INC.

/s/ Jane E. Shaw
-------------------------------------------
Dr. Jane E. Shaw
Chairman and Chief Executive Officer

PATHOGENESIS:

PATHOGENESIS CORPORATION

By: /s/ Wilbur H. Gantz
   ----------------------------------------
     Wilbur H. Gantz
     Chairman and Chief Executive Officer

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

                                      29.
<PAGE>

                                    EXHIBIT A

            SPECIFICATIONS FOR AERODOSE/TOBRAMYCIN SOLUTION INHALERS

         TOBRAMYCIN SOLUTION - an aqueous solution containing tobramycin, [*].

         ADAPTER - see drawing attached as part of Exhibit A

         AMPOULE - see drawing attached as part of Exhibit A

         I)       GENERAL

                  A)       [*].

                  B)       Specifications are subject to change by [*]

                  C)       [*]

         II)      [*]

                  A)       [*]

                           [*]

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

                                      30.
<PAGE>

                              EXHIBIT A - CONTINUED

                  [*]

III)     [*]

                  [*]

                  1)       [*]

                                                       EXHIBIT A - CONTINUED

                           [*]

                           [*]

                                                       EXHIBIT A - CONTINUED

                  [*]

         IV)      COMMERCIAL DEVICES: [*]

                  A)       [*]

                  B)       [*]

                  C)       [*]

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

                                      31.
<PAGE>

                                    EXHIBIT A

                                      [*]

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

                                      32.
<PAGE>

                              EXHIBIT A - CONTINUED
                  AEROGEN/PATHOGENESIS PROGRAM COST PROJECTION

<TABLE>
<CAPTION>
CLINICAL PHASE I DEVELOPMENT
<S><C>
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------     -----------------    -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------
         [*]                    [*]                  [*]                   [*]                  [*]

<CAPTION>
PHASE I MANUFACTURING/RELEASE
<S><C>
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------     -----------------    -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------
         [*]                    [*]                  [*]                   [*]                  [*]

[*]                                                  [*]                   [*]                  [*]
[*]                                                  [*]                   [*]                  [*]
                                              ------------------
[*]                                                  [*]                   [*]                  [*]
</TABLE>

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

                                      33.
<PAGE>

                              EXHIBIT A - CONTINUED
                  AEROGEN/PATHOGENESIS PROGRAM COST PROJECTION

<TABLE>
<S>                     <C>                   <C>                   <C>                  <C>
CLINICAL PHASE III DEVELOPMENT
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------     -----------------    -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------     -----------------    -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
                        -------------------                         -----------------    -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------                        -----------------
         [*]                    [*]                  [*]                   [*]                  [*]

PHASE III MANUFACTURING/RELEASE
         [*]                    [*]                  [*]           [*]                  [*]
----------------------  -------------------   -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------                                              -----------------    -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------                                              -----------------    -----------------
         [*]                    [*]                  [*]                   [*]                  [*]

[*]                                          [*]                           [*]                  [*]
[*]                                          [*]                           [*]                  [*]
[*]                                                  [*]                   [*]                  [*]

[*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------     -----------------    -----------------
[*]                             [*]                  [*]                   [*]                  [*]

[*]                     [*]                  [*]                   [*]                  [*]
</TABLE>

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

                                      34.
<PAGE>

                              EXHIBIT A - CONTINUED
                  AEROGEN/PATHOGENESIS PROGRAM COST PROJECTION

<TABLE>
<S>                     <C>                   <C>                   <C>                  <C>
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------   -----------------     -----------------    -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------                                              -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
         [*]                    [*]                  [*]                   [*]                  [*]
----------------------  -------------------                         -----------------
         [*]                    [*]                  [*]                   [*]                  [*]
                                                                                                [*]
[*]                             [*]                  [*]                   [*]                  [*]

[*]
[*]                                                  [*]                   [*]                  [*]
[*]                                                  [*]                   [*]                  [*]
[*]                                                  [*]                   [*]                  [*]
                                              -----------------
[*]                                                  [*]                   [*]                  [*]
</TABLE>

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

                                      35.
<PAGE>

                                    EXHIBIT B

                                      [*]

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

                                      36.
<PAGE>

                                    EXHIBIT C

                              AEROGEN PATENT RIGHTS

ISSUED U.S. PATENTS AND FOREIGN COUNTERPARTS

         U.S. PATENT NO. 5,164,740, Issued Nov. 17, 1992
         Filed April 24, 1991

                Foreign Counterparts:
                ---------------------

                Argentine Patent No. 247,686
                Brazilian Patent No. PI9201487
                Canadian Patent No. 2066838
                France 0510648
                Mexican Patent No. 179906
                EPC Patent No. 510648B1 (French and UK issued)
                German Patent No. DE 692 12 688.0-08
                Japan: pending

         U.S. PATENT NO. 5,938,117, Issued August 17, 1999
         Filed April 5, 1995

                Foreign Counterparts:  Pending in Great Britain, France and
                ---------------------  Germany

         U.S. PATENT NO. 5,586,550, Issued December 24, 1996
         Filed August 13, 1995

                Foreign Counterparts:  Pending in Australia, Brazil, Canada,
                ---------------------  Germany, France, Great Britain,
                                       Netherlands, Sweden and Japan

         U.S. PATENT NO. 5,758,637, Issued June 2, 1998
         Filed February 21, 1996

                Foreign Counterparts:  Pending in nine foreign counterparts
                ---------------------  of U.S. Patent No. 5,586,550.

         U.S. PATENT NO. 6,014,970, Issued January 18, 2000
         Filed June 11, 1998

                Foreign Counterparts:  Pending in Australia, Brazil, Canada,
                ---------------------  China, Europe (all designated states),
                                       India, Japan, Mexico, New Zealand, and
                                       Russia

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

                                      37.
<PAGE>

                              EXHIBIT C - CONTINUED
                              AEROGEN PATENT RIGHTS

PENDING U.S. PATENT APPLICATIONS

[*]

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

                                      38.
<PAGE>

                              EXHIBIT C - CONTINUED
                              AEROGEN PATENT RIGHTS

         [*]

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

                                      39.
<PAGE>

                                SCHEDULE 14.1(h)

                                      [*]

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

                                      40.<PAGE>

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

                                                                  EXHIBIT 10.10

                                 INSULIN INHALER

                                   DEVELOPMENT

                                    AGREEMENT

                                 BY AND BETWEEN

                          BECTON, DICKINSON AND COMPANY

                                       AND

                                  AEROGEN, INC.

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

<PAGE>

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

         1.1      "AeroGen Know-How"..............................................................................1

         1.2      "AeroGen Patents"...............................................................................1

         1.3      "AeroGen Technology"............................................................................2

         1.4      "Affiliate".....................................................................................2

         1.5      "BD Cartridge"..................................................................................2

         1.6      "BD Know-How"...................................................................................2

         1.7      "BD Patents"....................................................................................2

         1.8      "BD Percentage".................................................................................2

         1.9      "BD Technology".................................................................................2

         1.10     "Cartridge".....................................................................................2

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

         1.12     "Controlled"....................................................................................2

         1.13     "Critical System Specifications"................................................................2

         1.14     "Development Patents"...........................................................................2

         1.15     "Development Invention".........................................................................2

         1.16     "Development Technology"........................................................................2

         1.17     "Development Term"..............................................................................2

         1.18     "Drug"..........................................................................................3

         1.19     "Field".........................................................................................3

         1.20     "Final Specifications"..........................................................................3

         1.21     "Information"...................................................................................3

         1.22     "Inhaler".......................................................................................3

         1.23     "Initial Phase II Trials".......................................................................3

         1.24     "Interface".....................................................................................3

         1.25     "Interface Technology"..........................................................................3

         1.26     "Interim Technical Specifications"..............................................................3

         1.27     "Joint Development Team" or "JDT"...............................................................3

         1.28     "Joint Know-How"................................................................................3

         1.29     "Joint Patents".................................................................................3

         1.30     "Joint Technology"..............................................................................3

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

                                       i
<PAGE>

         1.31     "Marketing Partner".............................................................................3

         1.32     "NDA"...........................................................................................3

         1.33     "Net Sales".....................................................................................4

         1.34     "Partnering Agreement"..........................................................................4

         1.35     "Patent"........................................................................................4

         1.36     "Preliminary Final Specifications"..............................................................4

         1.37     "Product".......................................................................................4

         1.38     "Qualified Supplier"............................................................................4

         1.39     "Retail Product"................................................................................4

         1.40     "Royalty" or "Royalties"........................................................................4

         1.41     "Specifications"................................................................................4

         1.42     "Steering Committee"............................................................................4

         1.43     "Stock Purchase Agreement"......................................................................4

         1.44     "Supply Agreement"..............................................................................4

         1.45     "Technical Development Plan"....................................................................4

         1.46     "Technical Development Program".................................................................4

         1.47     "Third Party"...................................................................................5

         1.48     "Valid Claim"...................................................................................5

         1.49     "Validation Studies"............................................................................5

2.       OVERVIEW.................................................................................................5

         2.1      Development of the Product......................................................................5

         2.2      Commercialization...............................................................................5

3.       MANAGEMENT...............................................................................................5

         3.1      Joint Development Team..........................................................................5

         3.2      Steering Committee..............................................................................6

         3.3      Limitation of Powers............................................................................8

         3.4      Liaisons........................................................................................8

4.       TECHNICAL DEVELOPMENT PROGRAM............................................................................8

         4.1      Technical Development Plan......................................................................8

         4.2      AeroGen Development Activities..................................................................8

         4.3      BD Development Activities.......................................................................8

         4.4      Conduct of Technical Development Program........................................................9

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

                                       ii
<PAGE>

         4.5      Development of Product Specifications...........................................................9

         4.6      Records and Reports.............................................................................9

         4.7      Invention Assignment Agreements................................................................10

5.       CLINICAL DEVELOPMENT....................................................................................10

         5.1      AeroGen Responsibilities.......................................................................10

         5.2      BD Participation...............................................................................11

6.       COMMERCIALIZATION.......................................................................................11

         6.2      BD Right to Secure Marketing Partner...........................................................11

         6.3      Failure to Obtain a Marketing Partner..........................................................11

         6.4      Services by BD.................................................................................12

7.       MANUFACTURING AND SUPPLY................................................................................12

         7.1      Supply of the Drug.............................................................................12

         7.2      Manufacture and Supply of the Cartridge........................................................12

         7.3      Exclusivity....................................................................................13

         7.4      Use of AeroGen Intellectual Property...........................................................14

         7.5      Cost Standards.................................................................................14

8.       LICENSE GRANTS..........................................................................................14

         8.1      To BD..........................................................................................14

         8.2      To AeroGen.....................................................................................15

         8.3      Use of the BD Cartridge Outside of the Field...................................................15

         8.4      Reservation of Rights..........................................................................15

9.       ROYALTIES...............................................................................................16

         9.1      Royalties......................................................................................16

         9.2      Pre-Paid Royalties.............................................................................16

         9.3      Calculation of BD Percentage in Certain Circumstances..........................................16

         9.4      Upfront Payments...............................................................................17

         9.5      Payment of the BD Percentage...................................................................17

         9.6      Audits.........................................................................................17

10.      INTELLECTUAL PROPERTY...................................................................................18

         10.1     Ownership......................................................................................18

         10.2     Patent Matters.................................................................................19

         10.3     Defense and Settlement of Third Party Claims...................................................20

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

                                      iii
<PAGE>

         10.4     Infringement By Third Parties..................................................................20

         10.5     Settlements....................................................................................20

11.      CONFIDENTIALITY.........................................................................................20

         11.1     Treatment of Confidential Information..........................................................21

         11.2     Publications...................................................................................21

         11.3     Publicity......................................................................................21

         11.4     Terms of the Agreement.........................................................................22

         11.5     Required Disclosure............................................................................22

         11.6     Survival of Confidentiality....................................................................22

12.      REPRESENTATIONS AND COVENANTS...........................................................................22

         12.1     Mutual Authority...............................................................................22

         12.2     BD Representations and Warranties..............................................................22

         12.3     AeroGen Representations and Warranties.........................................................23

         12.4     Disclaimer.....................................................................................23

13.      TERM AND TERMINATION....................................................................................23

         13.1     Term...........................................................................................23

         13.2     Termination For Other Than Cause...............................................................23

         13.3     Termination For Breach.........................................................................26

         13.4     Effect of Termination..........................................................................27

         13.5     Bankruptcy Rights..............................................................................27

         13.6     Survival.......................................................................................27

14.      INDEMNIFICATION.........................................................................................27

         14.1     By AeroGen.....................................................................................27

         14.2     By BD..........................................................................................27

         14.3     Apportionment..................................................................................28

         14.4     Notice and Procedures..........................................................................28

15.      MISCELLANEOUS...........................................................................................28

         15.1     Entire Agreement; Amendment....................................................................28

         15.2     Dispute Resolution.............................................................................28

         15.3     Force Majeure..................................................................................29

         15.4     Notices........................................................................................29

         15.5     Limitation of Liability........................................................................30

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

                                       iv
<PAGE>

         15.6     Consents Not Unreasonably Withheld or Delayed..................................................30

         15.7     Independent Contractors........................................................................30

         15.8     Maintenance of Records.........................................................................30

         15.9     United States Dollars..........................................................................30

         15.10    No Strict Construction.........................................................................30

         15.11    Assignment.....................................................................................30

         15.12    Performance by Affiliates......................................................................30

         15.13    Counterparts...................................................................................31

         15.14    Further Actions................................................................................31

         15.15    Severability...................................................................................31

         15.16    Ambiguities....................................................................................31

         15.17    Headings.......................................................................................31

         15.18    No Waiver......................................................................................31

EXHIBIT 1  CRITICAL SYSTEM SPECIFICATIONS........................................................................33

EXHIBIT 2  TECHNICAL DEVELOPMENT PLAN............................................................................34

EXHIBIT 4  POTENTIAL INVENTORS...................................................................................43

EXHIBIT 5  FORM OF STANDARD EMPLOYMENT AGREEMENT.................................................................44

EXHIBIT 6  AEROGEN INHALER WITH BD CARTRIDGE.....................................................................45
</TABLE>

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

                                       v
<PAGE>

                      INSULIN INHALER DEVELOPMENT AGREEMENT

         THIS INSULIN INHALER DEVELOPMENT AGREEMENT (the "Agreement") is
executed as of May 10, 2000 (the "Signing Date") and effective as of the 1st day
of January, 2000 (the "Effective Date") by and between AEROGEN, INC., a Delaware
corporation having its principal place of business at 1310 Orleans Drive,
Sunnyvale, CA 94089 ("AeroGen"), and BECTON, DICKINSON AND COMPANY, a New Jersey
corporation having its principal place of business at 1 Becton Drive, Franklin
Lakes, New Jersey 07417-1866 ("BD"). AeroGen and BD are sometimes referred to
herein individually as a "Party" and collectively as the "Parties."

                                    RECITALS

WHEREAS, AeroGen has developed and possesses proprietary drug delivery
technology, including without limitation an aerosol generator device useful for
the systemic delivery of insulin as further described herein; and

WHEREAS, BD possesses extensive experience in the development and
commercialization of medical devices and components thereof, including without
limitation devices for the delivery of insulin; and

WHEREAS, AeroGen and BD desire to enter into a collaboration for the
development of a product for the systemic delivery of insulin to humans,
pursuant to the terms and conditions of this Agreement, with the goal of
achieving rapid, effective development and worldwide registration of a
pulmonary insulin inhaler with a titratable dosing mechanism that has broad
commercial appeal;

NOW, THEREFORE, in consideration of the foregoing and the covenants and promises
contained herein, the Parties hereby agree as follows:

1.       DEFINITIONS

         The following capitalized terms shall have the following meanings as
used in this Agreement:

         1.1      "AEROGEN KNOW-HOW" means all Information Controlled by
AeroGen during the term of this Agreement that is necessary or useful for (a)
BD's conduct of its design and development activities with respect to the
Interface and the BD Cartridge hereunder, and/or (b) BD's manufacture or sale
of the BD Cartridge hereunder. "AeroGen Know-How" includes the Development
Technology solely owned by AeroGen pursuant to Section 10.1(a), but
specifically excludes the AeroGen Patents and the Joint Know-How.

         1.2      "AEROGEN PATENTS" means all Patents Controlled by AeroGen
during the term of this Agreement to the extent that such Patents contain one
or more claims covering an invention that is practiced by BD (a) in the
conduct of its design and development activities with respect to the
Interface and the BD Cartridge hereunder, and/or (b) in the manufacture or
sale of the BD Cartridge hereunder. "AeroGen Patents" includes any Patents
covering the Development Technology that are solely owned by AeroGen pursuant
to Section 10.1(a), but specifically excludes the Joint Patents.

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

                                       1.
<PAGE>

         1.3      "AEROGEN TECHNOLOGY" means the AeroGen Know-How and the
AeroGen Patents.

         1.4      "AFFILIATE" means any company or entity controlled by,
controlling or under common control with a Party. As used in this Section 1.4,
"control" means that (a) an entity or company owns, directly or indirectly,
fifty percent (50%) or more of the voting stock of another entity, or (b) an
entity, person or group has the actual ability to control and direct the
management of the entity, whether by contract or otherwise.

         1.5      "BD CARTRIDGE" means the Cartridge developed by BD pursuant
to this Agreement which interfits with the Inhaler, for example, as
illustrated in Exhibit 6 hereto.

         1.6      "BD KNOW-HOW" means all Information Controlled by BD during
the term of this Agreement that is necessary or useful for the development,
manufacture, use or sale of the BD Cartridge, the Interface or any
improvements thereto. "BD Know-How" includes the Development Technology
solely owned by BD pursuant to Section 10.1(a), but specifically excludes the
Joint Know-How and the BD Patents.

         1.7      "BD PATENTS" means all Patents Controlled by BD during the
term of this Agreement to the extent that such Patents contain one or more
claims covering an invention that is practiced by AeroGen (or its
sublicensees hereunder) in the development, manufacture, use, importation,
offer for sale or sale of the BD Cartridge, the Interface or any improvements
thereto. "BD Patents" includes any Patents covering the Development
Technology that are solely owned by BD pursuant to Section 10.1(a), but
specifically excludes the Joint Patents.

         1.8      "BD PERCENTAGE" shall have the meaning ascribed in Section
9.1.

         1.9      "BD TECHNOLOGY" means the BD Patents and the BD Know-How.

         1.10     "CARTRIDGE" means a titratable container and dispensing
mechanism for pulmonary delivery of the Drug.

         1.11     "CONFIDENTIAL INFORMATION" shall have the meaning ascribed in
Section 11.1.

         1.12     "CONTROLLED" means, with respect to any material, Information
or intellectual property right, possession of the ability by a Party to grant
access, a license, or a sublicense to such material, Information or intellectual
property right as provided for herein without violating an agreement with a
Third Party as of the time such Party would be first required hereunder to grant
the other Party such access, license or sublicense.

         1.13     "CRITICAL SYSTEM SPECIFICATIONS" means the critical design
and performance criteria for the Product set forth in Exhibit 1 hereto.

         1.14     "DEVELOPMENT PATENTS" means any Patents claiming a
Development Invention; provided, however, that such Patents do not include
any continuation or division applications claiming priority to a parent
application or continuation-in-part application filed prior to the
commencement of the Development Term.

         1.15     "DEVELOPMENT INVENTION" means an invention in the Development
Technology.

         1.16     "DEVELOPMENT TECHNOLOGY" means all Information created or
developed pursuant to the Technical Development Program or thereafter pursuant
to this Agreement, either solely by a Party or jointly by the Parties, and all
Patents covering such Information.

         1.17     "DEVELOPMENT TERM" means the period beginning on the Effective
Date and ending on the earlier of (a) [*], or (b) [*], unless extended by mutual
written agreement of the Parties.

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

                                       2.
<PAGE>

         1.18     "DRUG" means a solution or liquid suspension of
short-acting human insulin, including without limitation reconstituted powder.

         1.19     "FIELD" means the treatment of diabetes mellitus in humans.

         1.20     "FINAL SPECIFICATIONS" mean the final specifications for the
Product that are required for the use of the Product in Phase III clinical
studies in the Field, to be developed by the JDT pursuant to Section 4.5(c).

         1.21     "INFORMATION" means (a) techniques, data, inventions,
practices, methods, knowledge, know-how, skill, experience, test data including
pharmacological, toxicological and clinical test data, analytical and quality
control data, regulatory submissions, correspondence and communications,
marketing, pricing, distribution, cost, sales, manufacturing, patent and legal
data or descriptions, and (b) compositions of matter, assays and biological
materials, and all intellectual property rights in and to any of the foregoing.

         1.22     "INHALER" means AeroGen's proprietary aerosol generator and
related components (excluding the Cartridge) for the pulmonary delivery of
the Drug for use in the Field.

         1.23     "INITIAL PHASE II TRIALS" means the first clinical study for
the use of the Inhaler in patients in the Field conducted in any location.

         1.24     "INTERFACE" means the interface and/or interconnection
between the Inhaler and the BD Cartridge.

         1.25     "INTERFACE TECHNOLOGY" shall have the meaning ascribed in
Section 10.1(a)(iii).

         1.26     "INTERIM TECHNICAL SPECIFICATIONS" means the technical
specifications for the [*] for the Product, to be determined by the JDT
pursuant to Section 4.5(a) based upon the Critical System Specifications and
the work conducted pursuant to the Technical Development Plan.

         1.27     "JOINT DEVELOPMENT TEAM" OR "JDT" means the joint development
team described in Section 3.1 that shall oversee the Parties' activities under
the Technical Development Program.

         1.28     "JOINT KNOW-HOW" means all Information in the Development
Technology jointly owned by the Parties in accordance with Section 10.1(a),
provided that "Joint Know-How" shall specifically exclude the Joint Patents.

         1.29     "JOINT PATENTS" means any Patents claiming a Development
Invention and jointly owned by the Parties in accordance with Section 10.1(a).

         1.30     "JOINT TECHNOLOGY" means the Joint Know-How and the Joint
Patents.

         1.31     "MARKETING PARTNER" means a Third Party with whom AeroGen has
entered into a Partnering Agreement.

         1.32     "NDA" means a New Drug Application filed with the U.S. Food
and Drug Administration.

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

                                       3.
<PAGE>

         1.33     "NET SALES" means, with respect to each Partnering
Agreement, net sales of the Retail Product as defined in such agreement;
provided that in no event shall "Net Sales" include any deduction for any
discounts given for bundling the Retail Product with products other than the
Product, the Inhaler or the BD Cartridge.

         1.34     "PARTNERING AGREEMENT" means a written agreement between
AeroGen and a Third Party for the commercial development, promotion,
manufacture (other than manufacture of a Cartridge), marketing and/or sale
and distribution of the Product in any country of the world.

         1.35     "PATENT" means (a) unexpired letters patent which have not
been held invalid or unenforceable by a court of competent jurisdiction from
which no appeal can be taken or has been taken within the required time period,
including without limitation any substitution, extension, registration,
confirmation, inventor's certificate, reissue, re-examination, renewal or any
like filing thereof; and (b) pending applications for letters patent, including
without limitation any continuation, division or continuation-in-part thereof
and any provisional applications.

         1.36     "PRELIMINARY FINAL SPECIFICATIONS" means the preliminary
final specifications for the Product required for the conduct of the
Validation Studies, to be developed by the JDT pursuant to Section 4.5(b).

         1.37     "PRODUCT" means any product for the pulmonary delivery of the
Drug comprising the Inhaler and the BD Cartridge.

         1.38     "QUALIFIED SUPPLIER" shall have the meaning ascribed in
Section 7.1(a).

         1.39     "RETAIL PRODUCT" means either (a) the Product; (b) the BD
Cartridge filled with the Drug; or (c) the Inhaler, in such case packaged
separately for retail sale.

         1.40     "ROYALTY" OR "ROYALTIES" means a percentage of Net Sales
actually received by AeroGen from a Marketing Partner pursuant to a Partnering
Agreement from sales of the Retail Product in any country covered by such
Partnering Agreement.

         1.41     "SPECIFICATIONS" means the Critical System Specifications, the
Interim Technical Specifications, the Preliminary Final Specifications or the
Final Specifications, as applicable.

         1.42     "STEERING COMMITTEE" means the committee described in Section
3.2 that shall oversee the commercialization activities of the Parties
hereunder.

         1.43     "STOCK PURCHASE AGREEMENT" means that certain stock purchase
agreement entered into as of the Signing Date, whereby BD shall purchase from
AeroGen shares of AeroGen Series E Preferred Stock.

         1.44     "SUPPLY AGREEMENT" means the agreement described in Section
7.2.

         1.45     "TECHNICAL DEVELOPMENT PLAN" shall have the meaning ascribed
in Section 4.1.

         1.46     "TECHNICAL DEVELOPMENT PROGRAM" means the collaborative
activities to be conducted by the Parties to develop the Product under the
direction of the JDT during the Development Term, as further described in
Article 4.

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

                                       4.
<PAGE>

         1.47     "THIRD PARTY" means any entity other than AeroGen or BD or
their respective Affiliates.

         1.48     "VALID CLAIM" shall mean a claim of an issued and unexpired
Patent that (a) is included within the AeroGen Technology, BD Technology or the
Joint Technology, (b) claims the manufacture, use or sale of the Product and (c)
has not been held unenforceable, unpatentable, or invalid by a court or other
governmental agency of competent jurisdiction, and that has not been admitted to
be invalid or unenforceable through reissue, disclaimer or otherwise.

         1.49     "VALIDATION STUDIES" shall have the meaning ascribed in
Section 5.1(b).

2.       OVERVIEW

         2.1      DEVELOPMENT OF THE PRODUCT. Commencing promptly following
the Effective Date and during the Development Term, the Parties shall
undertake the Technical Development Program in accordance with the Technical
Development Plan, pursuant to which AeroGen shall develop the Inhaler and a
manufacturing process therefor, BD shall develop the BD Cartridge and a
manufacturing process therefor and the Parties shall jointly develop the
Interface, all as further described in Article 4. The Parties' efforts under
the Technical Development Program shall be overseen by the JDT, as further
described in Section 3.1.

         2.2      COMMERCIALIZATION. AeroGen shall seek one or more Marketing
Partners for the commercialization of the Product, as further described in
Section 6.1. AeroGen shall be responsible for identifying and qualifying a
source of the Drug for use with the Product. BD shall exclusively supply to
AeroGen and its Marketing Partner(s), and AeroGen and its Marketing
Partner(s) shall exclusively purchase from BD, AeroGen's clinical and
commercial requirements for the BD Cartridge pursuant to the Supply
Agreement. AeroGen shall be responsible for manufacturing or having
manufactured the Product for clinical trials and commercial use. The Steering
Committee shall oversee the Parties' activities with respect to the clinical
and commercial supply of the Product, and shall advise the Parties with
respect to the commercialization of the Product hereunder, as further
described in Section 3.2.

3.       MANAGEMENT

         3.1      JOINT DEVELOPMENT TEAM.

                  (a)      FORMATION. Within ten (10) days after the Effective
Date, AeroGen and BD shall establish the Joint Development Team ("JDT").

                  (b)      PURPOSE AND PRINCIPLES. The general purposes of the
JDT shall be (i) to determine the overall technical strategy for the development
of the Product, including without limitation developing an integrated system
design for the Product and establishing appropriate specifications, (ii) to
develop the Technical Development Plan and to modify or amend it as necessary,
(iii) to develop and propose for the Parties' approval the Interim Technical
Specifications, the Preliminary Final Specifications and the Final
Specifications in accordance with Section 4.5 and to modify or amend them as
necessary, and (iv) to coordinate the Parties'

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

                                       5.
<PAGE>

activities under the Technical Development Program, all based on the principles
of prompt and diligent development of the Product consistent with good
pharmaceutical and medical device practices. The JDT shall perform such other
functions as appropriate to further the purposes of the Technical Development
Program as determined by the Parties, including the periodic evaluation of
performance against goals.

                  (c)      MEMBERSHIP. The JDT shall initially have three (3)
representatives of each Party with the requisite levels of skill and experience
in engineering and such other matters as the Parties may agree. The JDT may
change its size from time to time by written agreement of the Parties; provided
that the JDT at all times shall be composed of an equal number of
representatives appointed by each of AeroGen and BD. Each Party may replace its
JDT representatives at any time upon written notice to the other Party; provided
that each Party's representatives shall at all times be persons possessing the
appropriate level of skill, experience and familiarity with the Product.

                  (d)      MEETINGS. The JDT shall hold meetings at such times
as the JDT elects to do so, but in no event shall such meetings be held less
frequently than once every calendar quarter. The JDT shall meet alternately at
AeroGen's facilities in Sunnyvale, CA and BD's facilities in Franklin Lakes, NJ
or at such locations as the Parties may otherwise agree. With the consent of the
representatives of each Party serving on the JDT, other representatives of each
Party or of Third Parties involved in the development, manufacture or
commercialization of the Product may attend meetings of the JDT as nonvoting
observers. Meetings of the JDT may be held by audio or video teleconference with
the consent of each Party, provided that at least half of the minimum number of
meetings set forth above shall be held in person. Each Party shall be
responsible for all of its own expenses of participating in the JDT. Meetings of
the JDT shall be effective only if a representative of each Party is present or
participating.

                  (e)      CHAIRPERSONS. The JDT shall be chaired first by a
representative of AeroGen from the Effective Date through June 30, 2000, and the
Chairperson position shall rotate thereafter on a semi-annual basis with BD to
appoint the Chairperson for the six month period beginning July 1, 2000. The
Chairperson shall be responsible for calling meetings, preparing and circulating
an agenda in advance of each meeting, and preparing and issuing minutes of each
meeting within thirty (30) days thereafter. From time to time, the JDT may
establish subcommittees or subordinate committees (which may or may not include
members of the JDT itself) to oversee particular projects or activities, and
such subcommittees or subordinate committees shall be constituted and shall
operate as the JDT agrees.

                  (f)      DECISION-MAKING. Each of AeroGen's and BD's
representatives shall have one vote. All decisions of the JDT shall be
unanimous. Any disagreement among the members of the JDT will be resolved in
light of the principles set forth in this Article 3. Should the JDT be unable to
reach a unanimous decision on an issue within thirty (30) days, such issue shall
be referred to the Steering Committee for resolution.

                  (g)      TERM. The JDT shall remain in operation for the
duration of the Development Term unless otherwise agreed by the Parties in
writing.

         3.2      STEERING COMMITTEE.

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COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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                  (a)      FORMATION. Within thirty (30) days following the
Effective Date, the Parties shall establish the Steering Committee, which shall
advise the Parties with respect to the commercial development of the Product.

                  (b)      PURPOSE AND PRINCIPLES. The general purposes of the
Steering Committee shall be (i) to play an advisory role with respect to the
Product positioning and the overall commercialization strategy, (ii) to
determine strategies for supply of the Drug for the Product, (iii) to oversee
the JDT, and (iv) to coordinate the Parties' manufacturing and supply activities
hereunder with respect to the initial commercial introduction of the Product,
all based on the principles of prompt and diligent development of the Product
consistent with good pharmaceutical and medical device practices. The Steering
Committee shall perform such other functions as appropriate to further the
purposes of this Agreement as determined by the Parties, including the periodic
evaluation of performance against goals. In addition to its overall
responsibility for the collaboration established by this Agreement, the Steering
Committee shall explore further collaborative opportunities between the Parties,
including use of the BD Cartridge [*].

                  (c)      MEMBERSHIP. The Steering Committee shall initially
have three (3) representatives of each Party, provided that neither Party's
Chief Executive Officer may serve as a member of the Steering Committee. The
Steering Committee may change its size from time to time by written agreement of
the Parties; provided that the Steering Committee at all times shall be composed
of an equal number of representatives appointed by each of AeroGen and BD. Each
Party may replace its Steering Committee representatives at any time upon
written notice to the other Party, provided that each Party's representatives
shall at all times be persons possessing the appropriate level of skill,
experience and familiarity with the Product.

                  (d)      MEETINGS. The Steering Committee shall hold meetings
at such times as the Steering Committee elects to do so, but in no event shall
such meetings be held less frequently than once every quarter. The Steering
Committee shall meet alternately at AeroGen's facilities in Sunnyvale, CA and
BD's facilities in Franklin Lakes, NJ or at such locations as the Parties may
otherwise agree. With the consent of the representatives of each Party serving
on the Steering Committee, other representatives of each Party or of Third
Parties involved in the manufacture or commercialization of the Product may
attend meetings of the Steering Committee as nonvoting observers. Meetings of
the Steering Committee may be held by audio or video teleconference with the
consent of each Party, provided that at least half of the minimum number of
meetings set forth above shall be held in person. Each Party shall be
responsible for all of its own expenses of participating in the Steering
Committee. Meetings of the Steering Committee shall be effective only if a
representative of each Party is present or participating.

                  (e)      CHAIRPERSONS. The Steering Committee shall be chaired
by an AeroGen representative. The Chairperson shall be responsible for calling
meetings, preparing and circulating an agenda in advance of each meeting, and
preparing and issuing minutes of each meeting within thirty (30) days
thereafter. From time to time, each Committee may establish subcommittees or
subordinate committees (which may or may not include members of the Committee
itself) to oversee particular projects or activities, and such subcommittees or
subordinate committees shall be constituted and shall operate as the Committee
agrees.

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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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Notwithstanding the foregoing, BD shall have the right to call a special
meeting of the Steering Committee on two (2) weeks written notice to AeroGen.

                  (f)      DISPUTE RESOLUTION. In the event that the Steering
Committee is unable to reach agreement on an issue within thirty (30) days,
including any dispute referred to it by the JDT, such issue shall be subject to
dispute resolution as set forth in Section 15.2.

                  (g)      TERM. The Steering Committee shall remain in
operation for the period extending from its date of formation under
subsection (a) above until the longer of: (i) the date of first commercial
sale of the Product in any country of the world, or (ii) the date that a
Marketing Partner requests its dissolution, unless otherwise agreed by the
Parties in writing.

         3.3      LIMITATION OF POWERS. The powers of the JDT and the Steering
Committee are limited to those expressly set forth in this Agreement. Without
limiting the generality of the foregoing, neither the JDT nor the Steering
Committee shall have the right to amend this Agreement. The actions of the JDT
and/or the Steering Committee shall not substitute for either Party's ability to
exercise any right, nor excuse the performance of any obligation, set forth
herein.

         3.4      LIAISONS. Each Party will designate in writing to the other an
individual to serve as the liaison between the Parties to undertake and
coordinate any day-to-day communications as may be required between the Parties
relating to their activities under this Agreement. Each Party may change such
liaison from time to time during the term of this Agreement upon written notice
thereof to the other Party.

4.       TECHNICAL DEVELOPMENT PROGRAM

         4.1      TECHNICAL DEVELOPMENT PLAN. The specific tasks of each Party
under the Technical Development Program and a time-table therefor, i.e., the
"Technical Development Plan," is attached as Exhibit 2 hereto. Any changes or
modifications to the Technical Development Plan shall be agreed upon in writing
by the Parties.

         4.2      AEROGEN DEVELOPMENT ACTIVITIES. AeroGen shall undertake its
assigned activities under the Technical Development Program in accordance with
the Technical Development Plan, at its own expense, and shall use commercially
reasonable, diligent efforts to (a) itself develop the Inhaler and (b) jointly
with BD develop the Interface, all in accordance with the applicable
Specifications and the timetable as set forth in the Technical Development Plan.
AeroGen shall have the overall responsibility for the development of the
Product, except with respect to the BD Cartridge and other development
activities assigned to BD under the Technical Development Plan. AeroGen shall
have the responsibility for final design review for the Product, including
without limitation system engineering and sign-off.

         4.3      BD DEVELOPMENT ACTIVITIES. BD shall undertake its assigned
activities under the Technical Development Program in accordance with the
Technical Development Plan, at its own expense, and shall use commercially
reasonable, diligent efforts to (a) itself develop the BD Cartridge and (b)
jointly with AeroGen develop the Interface, all in accordance with the
applicable Specifications and the timetable as set forth in the Technical
Development Plan.

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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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         4.4      CONDUCT OF TECHNICAL DEVELOPMENT PROGRAM. AeroGen and BD each
shall conduct their activities under the Technical Development Program in good
scientific and engineering manner, and shall use commercially reasonable
diligent efforts to achieve their objectives efficiently and expeditiously in
compliance in all material respects with all requirements of applicable laws,
rules and regulations and all applicable good laboratory practices and design
controls. AeroGen and BD shall each proceed diligently with the work set out in
the Technical Development Plan using their respective good faith efforts.

         4.5      DEVELOPMENT OF PRODUCT SPECIFICATIONS.

                  (a)      INTERIM TECHNICAL SPECIFICATIONS. The JDT shall
develop and recommend to the Parties for their approval the Interim Technical
Specifications, including any necessary and appropriate changes or
modifications to the Technical Development Plan. The target date for approval
of the Interim Technical Specifications by the Parties is [ * ].

                  (b)      PRELIMINARY FINAL SPECIFICATIONS. The JDT shall
develop and recommend to the Parties for their approval the Preliminary Final
Specifications for the Product, including any necessary and appropriate
changes to the Technical Development Plan. The target date for approval of
the Preliminary Final Specifications is [ * ].

                  (c)      FINAL SPECIFICATIONS. The JDT shall develop and
recommend to the Parties for their approval the Final Specifications for the
Product, including any necessary and appropriate changes or modifications to
the Technical Development Plan. The target date for approval of the Final
Specifications by the Parties is [*].

                  (d)      RESPONSIBILITIES. BD shall be primarily
responsible for the development of such portion of each of such
Specifications as relates specifically to the BD Cartridge. AeroGen shall be
primarily responsible for the development of all other portions of each of
such Specifications, including such as relate specifically to the Inhaler,
except as relate specifically to the Interface. The Parties shall be jointly
responsible for the development of such portions of each of such
Specifications as relates specifically to the Interface. Each Party shall use
diligent, commercially reasonable, good faith efforts to expeditiously
develop and approve each of such Specifications pursuant to this Section 4.5
by the relevant target date.

                  (e)      REVISION OR MODIFICATION. The Parties may revise or
modify the Specifications from time to time as necessary by mutual written
agreement.

                  (f)      FAILURE TO AGREE ON FINAL SPECIFICATIONS. In the
event that the Parties are unable to agree upon the Final Specifications by [*],
and following completion of the Parties' efforts to resolve such dispute
pursuant to Section 15.2, either Party may terminate this Agreement pursuant to
Section 13.2(a).

         4.6      RECORDS AND REPORTS.

                  (a)      RECORD KEEPING. AeroGen and BD each shall maintain
records which shall be complete and accurate and shall fully and properly
reflect all work done and results achieved in the performance of the Technical
Development Program in sufficient detail and in good scientific manner
appropriate for patent and regulatory purposes.

                  (b)      INSPECTION. Each Party shall have the right, during
normal business hours and upon reasonable notice to inspect and copy all of the
records of the other Party described in

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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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subsection (a) above. Such records and the information disclosed therein shall
be deemed Confidential Information and subject to Article 11. Each Party shall
have the right to arrange for a reasonable number of its employees, agents and
outside consultants to visit the other Party at its offices and laboratories
during normal business hours and upon reasonable notice, and to discuss the
Technical Development Program and its results in detail with the technical
personnel and consultants of the other Party. All inspections, copying and
visits hereunder shall be conducted in a manner so as not to disrupt the other
Party's business or cause any disclosure of any other Party's confidential and
proprietary information.

                  (c)      REPORTS. Within thirty (30) days following the end of
each calendar quarter during the Development Term, each Party shall provide to
the other Party a written progress report which shall describe the work
performed by such Party to date on the Technical Development Program, evaluate
the work performed by such Party in relation to the goals of the Technical
Development Program and provide such other information required by the Technical
Development Program or reasonably requested by the other Party relating to the
progress of the goals or performance of the Technical Development Program. Upon
request, each Party shall provide to the other Party copies of the records
described in subsection (a) above.

         4.7      INVENTION ASSIGNMENT AGREEMENTS. Each Party hereby covenants
that each of such Party's employees, consultants and agents performing any work
under the Technical Development Program will have entered into a written
invention assignment agreement requiring that each such individual assign to
such Party all right, title and interest in any Information conceived of or
reduced to practice by such individual pursuant to the Technical Development
Program.

5.       CLINICAL DEVELOPMENT

         5.1      AEROGEN RESPONSIBILITIES.

                  (a)      AeroGen shall be responsible for the preclinical
development and clinical development of the Product and its use with the Drug
in the Field, and for the development of an appropriate formulation of the
Drug for use with the Product, in collaboration with one or more Marketing
Partners; PROVIDED, HOWEVER, that BD acknowledges that it is not AeroGen's
intent to solely fund the clinical development of the Product beyond the [*],
and that AeroGen will have no obligations under this Agreement with respect
to such clinical development of the Product beyond the [*] in the event that
AeroGen is unable to enter into a Partnering Agreement that provides that the
applicable Marketing Partner will fund such further clinical development.

                  (b)      Notwithstanding subsection (a) above, AeroGen
shall conduct, at its expense, the validation studies reasonably necessary to
qualify the BD Cartridge and Product [*] (the "Validation Studies");
provided that the foregoing obligation shall not apply to such studies that
are required due to a failure of the BD Cartridge in a prior study and such
failure was solely due to BD's negligence or wrongful act.

                  (c)      All clinical data (including, without limitation,
pharmacological, toxicological and other test data) generated by or on behalf of
AeroGen pursuant to its activities under this Section 5.1 shall be deemed
AeroGen's Confidential Information, and AeroGen shall retain sole ownership
thereof. BD shall not use such clinical data for any purpose other than its

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COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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activities under the Technical Development Program and the Supply Agreement
without AeroGen's prior written consent.

                  (d)      AeroGen (or its Marketing Partner) shall be
responsible for filing for, and obtaining all applications for regulatory
approval of the Retail Product, as further provided in the Supply Agreement.

         5.2      BD PARTICIPATION. BD will furnish AeroGen with such
assistance and cooperation as AeroGen may reasonably request in connection
with the securing of regulatory approvals required for the conduct of
clinical trials and Product registrations in any country of the world
including, to the extent applicable, rights of reference to all regulatory
filings of BD, if any, regarding the BD Cartridge. AeroGen agrees to share
the protocol for any clinical trials with BD, to permit BD to observe such
clinical trials and to share results of each such clinical trials with BD, in
each case solely to the extent necessary for BD's compliance with its
regulatory obligations. All Information received by BD in connection with
such clinical trials shall be deemed to be AeroGen's Confidential Information
and subject to Article 11.

6.       COMMERCIALIZATION

         6.1      COLLABORATION WITH MARKETING PARTNER(S) AeroGen shall use
commercially reasonable efforts to identify potential Marketing Partner(s) and
to enter into Partnering Agreements therewith and to keep BD regularly apprised
of its progress on at least a monthly basis. BD will cooperate reasonably with
AeroGen in such efforts consistent with BD's lead responsibilities set forth in
Exhibit 2A. AeroGen may carry out any or all of its development and
commercialization obligations under this Agreement in collaboration with or
solely through its Marketing Partner(s). Notwithstanding the foregoing, BD
acknowledges that AeroGen may not enter into a Partnering Agreement, and that
such failure shall not be deemed to be a breach of this Agreement.

         6.2      BD RIGHT TO SECURE MARKETING PARTNER. In the event that
AeroGen has not executed at least one (1) Partnering Agreement by [ * ]
following completion of the Validation Studies, BD then shall have the right,
but not the obligation, to secure a Marketing Partner reasonably acceptable
to AeroGen on reasonable terms to be negotiated by such potential Marketing
Partner and BD and with AeroGen's reasonable assistance; PROVIDED THAT
AeroGen shall not be obligated to enter into any Partnering Agreement, except
on terms reasonably acceptable to AeroGen. BD may exercise such right at any
time following such [*] period by providing AeroGen thirty (30) days prior
written notice thereof. Notwithstanding the foregoing, BD may not exercise
such right if at such time AeroGen is engaged in active negotiations with a
Third Party with respect to a Partnering Agreement, as evidenced by a term
sheet or letter of intent with such Third Party. BD shall not have the right
to enter into a Partnering Agreement except with AeroGen's prior written
consent.

         6.3      FAILURE TO OBTAIN A MARKETING PARTNER. In the event that
AeroGen has not executed a Partnering Agreement as provided in Section 6.1
and BD has not secured a Marketing Partner as provided in Section 6.2 [*]
following completion of the Validation Studies, then either Party may
terminate this Agreement as set forth in Section 13.2(b). Notwithstanding the
foregoing, neither Party shall have the right to terminate this Agreement
under this Section 6.3 at any time during which a Party with the right to
secure a Marketing Partner is engaged in active negotiations with a Third
Party with respect to a Partnering Agreement, as evidenced by a term sheet or
letter of intent with such Third Party.

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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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         6.4      SERVICES BY BD. In the event that a Marketing Partner desires
that BD perform certain services in connection with a Partnering Agreement, BD
shall negotiate in good faith with such Marketing Partner the commercially
reasonable terms under which BD would provide such services, including without
limitation the reasonable compensation to be paid therefor. Upon reaching
agreement on such terms, BD shall enter into a written agreement with such
Marketing Partner for such services on such terms.

7.       MANUFACTURING AND SUPPLY

         7.1      SUPPLY OF THE DRUG.

                  (a)      AeroGen shall be responsible for identifying and
qualifying a supplier of the Drug for use with the Product (a "Qualified
Supplier"), and shall use commercially reasonable, good faith efforts to
identify, qualify and enter into a supply agreement with a Qualified Supplier
for the Drug for use with the Product (a "Drug Supply Agreement").
Notwithstanding the foregoing, BD acknowledges that AeroGen may not be able to
identify or qualify a Qualified Supplier and/or may not enter into a Drug Supply
Agreement with a Qualified Supplier, and that such failure shall not be deemed a
breach of this Agreement.

                  (b)      In the event that AeroGen has not executed a Drug
Supply Agreement, as described in subsection (a) above, by [*] following
completion of the Validation Studies, BD then shall have the right, but not
the obligation, to secure a Qualified Supplier reasonably acceptable to
AeroGen on reasonable terms to be negotiated by such potential Qualified
Supplier and BD and with AeroGen's reasonable assistance; PROVIDED that
AeroGen shall not be obligated to enter into any Drug Supply Agreement,
except on terms reasonably acceptable to AeroGen. BD may exercise such right
at any time following such [*] period by providing AeroGen written notice
thereof. Notwithstanding the foregoing, BD may not exercise such right if at
such time AeroGen is engaged in active negotiations with a Qualified Supplier
with respect to such a Drug Supply Agreement, as evidenced by a term sheet or
letter of intent with such Qualified Supplier. BD shall not enter into a
Drug Supply Agreement with any Qualified Supplier without AeroGen's prior
written consent.

                  (c)      In the event that AeroGen has not executed a Drug
Supply Agreement as provided in subsection (a) above, and BD has not secured
a Qualified Supplier as provided in subsection (b) above within [*] following
completion of the Validation Studies, then either Party may terminate this
Agreement as set forth in Section 13.2(b). Notwithstanding the foregoing,
neither Party shall have the right to terminate the Agreement under this
subsection (c) at any time during which a Party with the right to secure a
Qualified Supplier is engaged in active negotiations with a Qualified
Supplier with respect to a Drug Supply Agreement, as evidenced by a term
sheet or letter of intent with such Qualified Supplier.

         7.2      MANUFACTURE AND SUPPLY OF THE CARTRIDGE.

                  (a)      The Parties agree to negotiate in good faith and
enter into, as soon as is reasonably practicable, a supply agreement under
which BD would agree to exclusively manufacture and supply AeroGen and its
Marketing Partner(s) with their requirements of Unfilled BD Cartridges, and
AeroGen and its Marketing Partner(s) would agree to exclusively purchase such
requirements from BD, on mutually acceptable terms and conditions (the
"Supply Agreement"). Neither Party shall be obligated to enter into such
Supply Agreement before finalization of the Final Specifications under
Section 4.5(c).

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COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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                  (b)      Such Supply Agreement shall include the terms, or
terms in accordance with the principles, set forth in Exhibit 3 attached hereto,
and shall include such other terms and conditions as are appropriate and
customary, including without limitation: (i) minimum purchase and supply
requirements to be agreed upon by the Parties in good faith following
finalization of the Final Specifications under Section 4.5(c); (ii) inventory
requirements, if applicable; and (iii) provisions to ensure continuity of supply
in the event of a catastrophe, BD's default or, if such a provision is agreed
upon by the Parties, BD's termination of the Supply Agreement for convenience.
In addition, AeroGen shall have the right to assign the Supply Agreement to a
Marketing Partner with BD's prior written consent, which consent shall not be
unreasonably withheld or delayed.

                  (c)      Notwithstanding anything to the contrary contained
in either this Agreement or the Supply Agreement, either explicitly or by
implication, BD shall not be required to commit or otherwise expend capital
resources to expand production beyond the capacity of its pilot line for the
BD Cartridge unless and until, (i) AeroGen has [*], and (ii) AeroGen and/or
its Marketing Partner has [*].

         7.3      EXCLUSIVITY.

                  (a)      BD agrees that, during the Development Term and
for three (3) years thereafter (the "Exclusivity Period") it shall not:

                           (i)      develop, have developed, manufacture,
have manufactured or sell and/or otherwise transfer to any Third Party,
directly or indirectly, either itself or on behalf of a Third Party, any
Cartridge (including, without limitation, the BD Cartridge) for use in the
Field, except as provided in this Agreement or the Supply Agreement; or

                           (ii)     purchase any Cartridge (including,
without limitation, the BD Cartridge) from any Third Party directly or
indirectly, for use in the Field by BD or any Third Party; in each case,
without the prior written consent of AeroGen.

                  (b)      AeroGen agrees that, during the Exclusivity Period it
shall not:

                           (i)      develop, have developed, manufacture, or
have manufactured any Cartridge (including, without limitation, the BD
Cartridge) either itself or with or on behalf of a Third Party for use in the
Field (except as may otherwise be provided in the Supply Agreement in the
event of a supply default by BD); or

                           (ii)     purchase from any Third Party any
Cartridge (including, without limitation, the BD Cartridge) either itself or
with or on behalf of any Third Party for use in the Field (except as may be
otherwise provided in the Supply Agreement in the event of a supply default
by BD); or

                           (iii)    sell and/or otherwise transfer, directly
or indirectly, to any Third Party any Cartridge (including, without
limitation, the BD Cartridge) for use in the Field, except as is provided in
this Agreement and the Supply Agreement.

                  (c)      Notwithstanding anything to the contrary contained
in either this Agreement or the Supply Agreement, either explicitly or by
implication, BD shall be free to manufacture, have manufactured, import, use,
offer for sale and/or sell, or otherwise transfer to any Third Party,
directly or indirectly, any titratable container and dispensing mechanism for
the pulmonary delivery of any drug solely for use outside of the Field,
subject to Section 8.3, Section 13.2(e)(i)(B), and Section 7.3(e).

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COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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                  (d)      The negative covenants set forth in this Section
7.3(a) and (b) shall not survive any early termination of this Agreement by
either Party.

                  (e)      BD covenants that it shall not, during the
Exclusivity Period manufacture, have manufactured, sell, offer for sale or
import, directly or indirectly, any titratable container and dispensing
mechanism for the pulmonary delivery of a drug that interfits and is
compatible with the Inhaler, other than the BD Cartridge pursuant to this
Agreement. BD further covenants that it shall not, during the Exclusivity
Period manufacture any titratable container and dispensing mechanism for the
pulmonary delivery of any drug, which container is covered by a claim of an
issued and unexpired Development Patent claiming the manufacture, use or sale
of such titratable container, which claim (i) has not been held
unenforceable, unpatentable, or invalid by a court or other governmental
agency of competent jurisdiction, and (ii) has not been admitted to be
invalid or unenforceable through reissue, disclaimer or otherwise (a
"Development Patent Cartridge") with the intent that such Development Patent
Cartridge interfit and be compatible with any AeroGen inhaler device, for use
within or outside the Field, nor shall it have manufactured, use in Phase III
clinical trials, sell and/or otherwise transfer to any Third Party, directly
or indirectly, either itself or on behalf of a Third Party, any such
Development Patent Cartridge.

         7.4      USE OF AEROGEN INTELLECTUAL PROPERTY.

                  (a)      AeroGen shall notify BD in writing, prior to the
adoption of the Final Specifications for the BD Cartridge, to the extent any
AeroGen intellectual property is incorporated into the BD Cartridge. Promptly
following BD's receipt of such notice, the JDT shall discuss in good faith
whether it is appropriate and desirable for such intellectual property to be
incorporated into the BD Cartridge. If the Parties agree to so incorporate
such intellectual property, upon BD's request, the Parties shall also agree
in writing on a reasonable royalty or other compensation to be paid to
AeroGen by BD in the event that BD manufactures, has manufactured, imports,
uses, offers for sale or sells the BD Cartridge incorporating such AeroGen
intellectual property, for use outside of the Field.

                  (b)      If AeroGen fails to notify BD of any AeroGen
intellectual property that is incorporated into the BD Cartridge as provided
in Section (a) above, BD's sole and exclusive remedy for such breach shall be
the grant of the following covenant, which covenant shall only apply to the
intellectual property for which AeroGen failed to provide such notice (the
"AeroGen Cartridge IP"): AeroGen shall covenant that it shall not, and shall
not permit its Affiliates and sublicensees to, bring suit against BD, its
Affiliates, its successors-in-interest, their customers or their respective
permitted sublicensees with respect to the infringement, misappropriation or
other wrongful use of AeroGen Cartridge IP in connection with the making,
having made, using, selling, offering for sale or importing of the BD
Cartridge (as the BD Cartridge is envisioned by the Parties as of the
Effective Date, and as the BD Cartridge may be developed in accordance with
the Specifications to be mutually agreed upon by the Parties pursuant to this
Agreement) or a Development Patent Cartridge to the extent incorporating the
AeroGen Cartridge IP that was incorporated in the BD Cartridge, throughout
the world by BD, its successors-in-interest or their respective permitted
sublicensees hereunder solely for use [*].

                  (c)      Except as expressly provided in this Section 7.4,
BD is not granted any license or rights to, or covenant not to sue under, any
intellectual property right of AeroGen covering the manufacture, use,
importation, offer sale, or sale of the BD Cartridge for use [*]. AeroGen
grants no license or rights to, or covenant not to sue under, any
intellectual property right of AeroGen covering any Cartridge other than the
BD Cartridge or a Development Patent Cartridge to the extent incorporating
the AeroGen Cartridge IP that was incorporated in the BD Cartridge.

         7.5      COST STANDARDS. Prior to entering into the Supply Agreement,
BD shall provide to AeroGen such information as AeroGen reasonably requests with
respect to BD's accounting practices as they relate to the calculation of the
cost of goods, including without limitation BD's standard costs and standard
methods of calculating costs.

8.       LICENSE GRANTS

         8.1      TO BD.

                  (a)      DEVELOPMENT LICENSE. Subject to the terms and
conditions of this Agreement, AeroGen hereby grants to BD a non-exclusive,
worldwide, royalty-free license under the AeroGen Technology solely to conduct
its assigned activities under the Technical

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Development Program with respect to the Interface and the BD Cartridge. BD
may grant sublicenses under the foregoing license only with AeroGen's prior
written consent.

                  (b)      MANUFACTURING LICENSE. Subject to the terms and
conditions of this Agreement and of the Supply Agreement, AeroGen hereby
grants to BD an exclusive, worldwide, royalty-free license under the AeroGen
Technology and AeroGen's interest in the Joint Technology to manufacture the
BD Cartridge and the Interface solely for AeroGen (or its assignee under the
Supply Agreement) or its Marketing Partners pursuant to the Supply Agreement.
BD may grant sublicenses under the foregoing license only with AeroGen's
prior written consent.

                  (c)      BD COVENANT. BD hereby covenants that it shall not
use the AeroGen Technology for any purpose other than is expressly permitted
under this Section 8.1 and Section 7.4.

         8.2      TO AEROGEN.

                  (a)      DEVELOPMENT LICENSE. Subject to the terms and
conditions of this Agreement, BD hereby grants to AeroGen a non-exclusive,
worldwide, royalty-free license under the BD Technology solely to conduct its
assigned activities under the Technical Development Program with respect to
the Interface. AeroGen may grant sublicenses under the foregoing license only
with BD's prior written consent.

                  (b)      AEROGEN COVENANT. AeroGen hereby covenants that it
shall not use the BD Technology for any purpose other than is expressly
permitted under this Section 8.2.

                  (c)      BD COVENANT. BD acknowledges and agrees that it is
not BD's intent that AeroGen be prevented from developing, making, having
made, using, selling, offering for sale or importing the Product for use in
the Field in accordance with the terms of this Agreement, as the Product is
envisioned by the Parties as of the Effective Date, and as the Product may be
developed in accordance with the Specifications to be mutually agreed upon by
the Parties pursuant to this Agreement. Therefore, BD hereby covenants that
during the longer of (i) the term of this Agreement or (ii) the term of the
Supply Agreement, it shall not, and shall not permit its Affiliates and
sublicensees to bring suit against AeroGen, its Marketing Partner(s), its
successors-in-interest or their respective permitted sublicensees hereunder,
with respect to the infringement, misappropriation or other wrongful use of
any intellectual property right of BD in connection with the making, having
made, using, selling, offering for sale or importing of the Product for use
in the Field (as the Product is envisioned by the Parties as of the Effective
Date, and as the Product may be developed in accordance with the
Specifications to be mutually agreed upon by the Parties pursuant to this
Agreement) throughout the world by AeroGen, its Marketing Partner(s), its
successors-in-interest or their respective permitted sublicensees hereunder.

         8.3      USE OF THE BD CARTRIDGE OUTSIDE OF THE FIELD. At AeroGen's
request, the Parties shall negotiate in good faith the commercially
reasonable terms under which BD would supply the BD Cartridge to AeroGen for
use outside the Field.

         8.4      RESERVATION OF RIGHTS.

                  (a)      BY AEROGEN. AeroGen reserves all rights under the
AeroGen Technology, except as otherwise expressly stated herein, including
without limitation the right to freely use, assign, transfer, grant licenses
thereunder and otherwise dispose of the AeroGen Technology for any purpose
consistent with the terms of this Agreement.

                  (b)      BY BD. BD reserves all rights under the BD
Technology, except as otherwise expressly stated herein, including without
limitation the right to freely use, assign, transfer, grant licenses thereunder
and otherwise dispose of the BD Technology for any purpose consistent with the
terms of this Agreement.

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

                                      15.
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9.       ROYALTIES

         9.1      ROYALTIES.

                  (a)      In partial consideration for the rights granted
hereunder, AeroGen shall pay BD a percentage of all Royalties received from each
Marketing Partner pursuant to the applicable Partnering Agreement (the "BD
Percentage"), in accordance with this Section 9.1. The BD Percentage with
respect to the Royalty paid by each Marketing Partner shall be calculated as
follows, except as otherwise set forth in Section 9.3 below:

                           (i)      If the Royalty paid by such Marketing
Partner is less than or equal to [ * ] of Net Sales, then the BD Percentage
with respect to such Royalty shall be [*] of such Royalty. Solely for
purposes of example, if AeroGen receives a Royalty of [*], then the amount
due to BD with respect to such Royalty under this subsection (a) would be [*]
of Net Sales; and

                           (ii)     If the Royalty paid by such Marketing
Partner is greater than [*] of Net Sales, then the BD Percentage with respect
to such Royalty shall be [*] of the first [ * ] of such Royalty, plus [*].
Solely for purposes of example, if AeroGen receives a Royalty of [*], then
the amount due to BD with respect to such Royalty under this subsection (a)
would be: [*] of Net Sales.

                  (b)      Notwithstanding the foregoing, in no event will
the BD Percentage as calculated under this Section 9.1 be less than (i) [*]
of Net Sales by such Marketing Partner in the event that a Valid Claim exists
at the time of a sale of the Product in the country of sale, or (ii) [*] of
Net Sales by such Marketing Partner in the event that (A) no Valid Claim
exists at the time of a sale of the Product in the country of sale, and (B)
the Royalty paid to AeroGen on such sale is at a reduced rate because no such
Valid Claim exists.

                  (c)      AeroGen's obligations under this Section 9.1 shall
expire concurrently with the last to expire obligation of a Marketing Partner to
pay Royalties to AeroGen.

         9.2      PRE-PAID ROYALTIES. In the event that AeroGen receives any
Pre-Paid Royalties (as defined below), AeroGen shall pay to BD the BD
Percentage of such Pre-Paid Royalties as set forth in Section 9.1 in
accordance with Section 9.5 . As used in this Section 9.2, "Pre-Paid
Royalties" means any cash payment received by AeroGen from a Marketing
Partner pursuant to a Partnering Agreement, which payment or portion thereof
either (a) may later be credited by such Marketing Partner against royalties
due to AeroGen on Net Sales of the Product by such Marketing Partner pursuant
to such Partnering Agreement, or (b) is intended to be a lump-sum payment in
lieu of royalties that would otherwise be payable by such Marketing Partner
on sales of the Retail Product by such Marketing Partner pursuant to such
Partnering Agreement.

         9.3      CALCULATION OF BD PERCENTAGE IN CERTAIN CIRCUMSTANCES.

                  (a)      NO ROYALTY. In the event a Partnering Agreement
does not include payment of a Royalty, the BD Percentage shall be [*] of net
sales (as defined in subsection (d) below).

                  (b)      NO MARKETING PARTNER. In the event AeroGen (or its
successor-in-interest) either alone or in combination with a Third Party
(E.G. a hired sales force), other than a Marketing Partner, commercializes
the Product, the BD Percentage shall be [*] of net sales (as defined in
subsection (d) below).

                  (c)      ADJUSTMENTS TO BD PERCENTAGE. In the event that no
Valid Claim exists at the time of a sale of the Retail Product in the country
of sale, and (i) a Third Party is selling a competitive product for the
pulmonary delivery of the Drug for use in the Field in such country at such
time, and (ii) such competitive product is a copy of the Retail Product, then
the BD Percentage as calculated under subsections (a) and (b) above shall be
reduced by [ * ] with respect to such sale.

                  (d)      DEFINITION OF "NET SALES." As used in this Section
9.3, "net sales" shall mean the gross sales of the Retail Product sold by
AeroGen and its Affiliates and its sublicensees to Third Party purchasers, less:

                           (i)      sales returns (including for defective
products);

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

                                      16.
<PAGE>

                           (ii)     discounts given for volume purchases;

                           (iii)    cost of distribution and freight, as billed
on the relevant invoice; and

                           (iv)     sales, turnover applicable or value-added or
excise taxes (but not income taxes).

         Sales between AeroGen, its Affiliates and its sublicensees shall not be
deemed a sale for the purposes of this subsection (d).

                  (e)      TERM OF ROYALTY OBLIGATION. AeroGen's obligations
under subsections (a) and (b) above shall expire, on a country-by-country
basis, on the later of ten (10) years from the date of the first commercial
sale of the Product in such country, or the date of expiration of the last to
expire Patent in such country containing a Valid Claim.

         9.4      UPFRONT PAYMENTS.

                  (a)      In the event that a Partnering Agreement includes
an Upfront Payment (as defined below) to AeroGen, whether in addition to or
in lieu of a royalty on sales of the Product, AeroGen shall pay to BD [*] of
the amount of such Upfront Payment that is in excess of [ * ], within thirty
(30) days of the receipt by AeroGen of such Upfront Payment.

                  (b)      As used in subsection (a) above, "Upfront Payment"
means a cash payment received by AeroGen in connection with the execution of
a Partnering Agreement, including such amounts designated as license fees or
technology access fees; PROVIDED THAT in no event shall an "Upfront Payment"
be deemed to include any (i) amounts intended for the support of further
research and development of the Product or the conduct of clinical trials for
the Product, (ii) milestone payments, (iii) amounts received in connection
with the purchase of equity, (iv) loans, (v) amounts allocable to the use or
license of technology other than technology directly related to the Product,
(vi) Pre-Paid Royalties (as defined in Section 9.2), or (vii) reimbursements
for amounts due to one or more Third Parties pursuant to a license agreement
between AeroGen and each such Third Party.

         9.5      PAYMENT OF THE BD PERCENTAGE.

                  (a)      AeroGen shall provide BD with a copy of a written
report of all Net Sales of the Retail Product as is provided by each Marketing
Partner for each calendar quarter following the first commercial sale of the
Product within fifteen (15) days of its receipt of such report. AeroGen shall
make payment to BD of the BD Percentage due BD on such Net Sales within ten (10)
days of receipt of any payments on sales of the Retail Product under Sections
9.1 and 9.3(a)-(c).

                  (b)      In the event that a Marketing Partner, in breach
of the applicable Partnering Agreement, fails to pay to AeroGen any amount
due to AeroGen under such Partnering Agreement on Net Sales of the Product by
such Marketing Partner (the "Royalties Due"), and following AeroGen's (i)
good faith attempts to collect the Royalties Due, (ii) exhaustion of all
applicable contractual procedures under such Partnering Agreement with
respect to such Marketing Partner's failure to pay the Royalties Due, and
(iii) failure to timely initiate, or cessation of its pursuit of, any legal
or equitable remedies available to AeroGen with respect to such failure to
pay the Royalties Due, BD then shall have the right, but not the obligation,
to pursue all legal and equitable remedies available to it against such
Marketing Partner with respect to the Royalties Due as an intended third
party beneficiary under such Partnering Agreement. Any recovery by BD of the
Royalties Due shall first be applied to reimburse BD's reasonable costs and
expenses of such recovery; BD then shall pay to AeroGen any remaining amounts
less the BD Percentage of such amounts.

         9.6      AUDITS. At the request (and expense) of BD, AeroGen shall
permit an independent certified public accountant appointed by BD and reasonably
acceptable to AeroGen,

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

                                      17.
<PAGE>

at reasonable times and upon reasonable notice, but not more than once a year,
to examine only those records as may be necessary to determine the correctness
or completeness of any report or payment made under this Agreement, with respect
to any calendar year ending not more than two (2) years prior to BD's request.
Results of any such examination shall be (a) limited to information relating to
the Product, (b) made available to both Parties and (c) deemed Confidential
Information subject to Article 11. Such accountant shall not disclose any of
AeroGen's confidential or proprietary information. BD shall bear the full cost
of the performance of any such audit, unless such audit discloses a variance of
more than ten percent (10%) from the amount of the original report, royalty or
payment calculation. In such case, AeroGen shall bear the full cost of the
performance of such audit, as well as promptly paying any shortfall reported,
provided that BD shall promptly refund any overage to AeroGen. In addition,
AeroGen shall use commercially reasonable efforts to include a similar provision
in any Partnering Agreement so that upon the reasonable request of BD under this
provision, AeroGen will audit such Marketing Partner, at BD's expense.

10.      INTELLECTUAL PROPERTY

         10.1     OWNERSHIP.

                  (a)      GENERAL. Each Party shall disclose to the other Party
all Development Technology. The rights of ownership in such Development
Technology shall be retained by the Party that employs or otherwise engages the
inventor. Inventorship shall be determined in accordance with the U.S. patent
laws. Accordingly, AeroGen shall own Development Technology invented solely by
employees of or persons otherwise engaged by AeroGen, BD shall own Development
Technology invented solely by employees of or persons otherwise engaged by BD,
and BD and AeroGen shall own jointly any Development Technology invented jointly
by employees of or persons otherwise engaged by BD and AeroGen, except as
follows:

                           (i)      INHALER TECHNOLOGY. Development
Technology (including without limitation all Patents therein) relating solely
to the Inhaler, including without limitation its manufacture or use, whether
the same is invented jointly by employees of or persons otherwise engaged by
AeroGen and BD or solely by employees of or persons otherwise engaged by
AeroGen or BD, shall be owned solely and exclusively by AeroGen, and BD
hereby assigns all right, title and interest in such Development Technology
to AeroGen.

                           (ii)     CARTRIDGE TECHNOLOGY. Development
Technology (including without limitation all Patents therein) relating solely
to the Cartridge, including without limitation its manufacture or use,
whether the same is invented jointly by employees of or persons otherwise
engaged by AeroGen and BD or solely by employees of or persons otherwise
engaged by AeroGen or BD, shall be owned solely and exclusively by BD, and
AeroGen hereby assigns all right, title and interest in such Development
Technology to BD.

                           (iii)    Interface TECHNOLOGY. Development
Technology (including without limitation all Patents therein) relating solely
to the Interface, including without limitation its manufacture or use,
whether the same is invented jointly by employees of or persons otherwise
engaged by AeroGen and BD or solely by employees of or persons otherwise
engaged by AeroGen or BD ("Interface Technology"), shall be owned jointly by
BD and AeroGen.

                  (b)      PREVIOUSLY OWNED TECHNOLOGY. AeroGen shall remain the
sole owner of the AeroGen Technology and any other intellectual property that it
owned as of the Effective Date. BD shall remain the sole owner of the BD
Technology and any other intellectual property that it owned as of the Effective
Date.

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

                                      18.
<PAGE>

         10.2     PATENT MATTERS.

                  (a)      BD PATENTS. BD shall have the sole right, but not the
obligation, to file, prosecute and maintain the BD Patents.

                  (b)      AEROGEN PATENTS. AeroGen shall have the sole right,
but not the obligation, to file, prosecute and maintain the AeroGen Patents.

                  (c)      JOINT PATENTS.

                           (i)      Each Party shall be responsible for filing
and prosecuting patent applications covering Development Technology exclusively
owned by it and shall keep the other Party advised of the status of such patent
prosecution. However, with respect to Joint Technology, and except as described
in subsection (ii) below, the Parties shall mutually agree on whether and in
which countries to file and prosecute patent applications covering the Joint
Technology, and to maintain patents granted thereunder; with each Party having
an opportunity to review and comment on any such filings prior to submission and
to discuss the strategy for preparing, filing, prosecuting, maintaining and
defending of any such patent applications or resulting patents, and with the
Parties sharing equally any out-of-pocket costs and expenses incurred with
respect to such actions.

                           (ii)     Notwithstanding subsection (i) above,
AeroGen shall have the first right, but not the obligation, to file and
prosecute patent applications covering the Interface Technology, and to
maintain patents granted thereunder. In the event that AeroGen fails to file
a patent application claiming a particular invention in the Interface
Technology in a particular country within one hundred and twenty (120) days
of its receipt of BD's written request, then BD shall have the right, but not
the obligation, to file and prosecute such patent application, and to
maintain patents granted thereunder. In any event, the Party that files and
prosecutes a patent application under this subsection (ii) shall provide the
other Party an opportunity to review and comment on any such filings prior to
submission and to discuss the strategy for preparing, filing, prosecuting,
maintaining and defending of any such patent applications or resulting
patents, and with the Parties sharing equally any out-of-pocket costs and
expenses incurred with respect to such actions.

                           (iii)    Neither Party shall use any Confidential
Information solely owned by the other Party in filing and/or prosecution of any
patent application under this subsection (c) without such other Party's prior
written consent. In the event that a Party filing and/or prosecuting a patent
application under this subsection (c) wishes to use Confidential Information
jointly owned by the Parties in such filing and/or prosecution, such Party shall
give the other Party at least ten (10) days prior written notice thereof, and
shall consider any objections of such other Party reasonably and in good faith.

                  (d)      COOPERATION. Upon request, each Party shall execute
and deliver to the other Party all descriptions, applications, assignments and
other documents and instruments necessary or proper to carry out the provisions
of this Agreement without further compensation; and the Parties shall cooperate
with and assist each other or their nominees in all reasonable ways and at all
reasonable times, including, but not limited to, testifying in all legal
proceedings,

                                      19.
<PAGE>

signing all lawful papers and in general performing all lawful acts reasonable,
necessary or proper, to aid the other Party in obtaining, maintaining, defending
and enforcing all lawful patent, copyright, trade secret, know-how and like
rights in the United States and elsewhere.

         10.3     DEFENSE AND SETTLEMENT OF THIRD PARTY CLAIMS. If a Third Party
asserts that a patent or other intellectual property right owned by it is
infringed by a Party's activities under this Agreement, then such Party shall
immediately provide the other Party with notice of such claim and the related
facts in reasonable detail. The Party against whom the claim of infringement is
made shall have the right, but not the obligation, to control such defense, at
its expense. The Party not controlling such defense shall cooperate reasonably
with the Party controlling such defense and shall have the right to be
represented separately by counsel of its own choice. The Party that controls the
defense of a given claim shall also have the right to control settlement of such
claim, subject to Section 10.5.

         10.4     INFRINGEMENT BY THIRD PARTIES. BD and AeroGen shall promptly
notify the other in writing of any alleged or threatened infringement of the
AeroGen Patents, BD Patents or Joint Patents relating to the manufacture, use or
sale or the Product of which they become aware. The Parties shall then proceed
as follows:

                  (a)      AeroGen, or its Marketing Partner, shall have the
right, but not the obligation, to control the prosecution of any infringement
described in this Section 10.4 with respect to the AeroGen Patents.

                  (b)      BD shall have the right, but not the obligation, to
control the prosecution of any infringement described in this Section 10.4 with
respect to the BD Patents.

                  (c)      AeroGen shall have the right, but not the obligation,
to control the prosecution of any infringement described in this Section 10.4
with respect to Joint Patents, either itself or through its Marketing Partner.
In the event AeroGen decides not to control such prosecution, either itself or
through its Marketing Partner, BD then shall have the right, but not the
obligation, to control such prosecution. AeroGen may assign its rights under
this subsection (c) to a Marketing Partner with BD's prior written consent,
which consent shall not be unreasonably withheld or delayed.

                  (d)      Each Party shall cooperate fully in any action
brought under this Section 10.4 by the other Party, including, if required to
bring such action, naming the other Party only if a court of competent
jurisdiction determines that the other Party is a necessary party to such
suit, in which event the Party shall hold the other Party free, clear and
harmless from any and all liability of such litigation, including costs,
expenses and attorneys' fees. In addition, each Party at all times shall have
the right to be represented separately in such action by counsel of its own
choice. Any recovery realized as a result of such litigation or related
settlement shall first be applied pro rata to reimburse the Parties' costs
and expenses of such litigation, and any remaining amounts shall be retained
by the Party bringing such action, except the Parties shall share equally any
remaining amounts recovered in connection with Joint Patents.

         10.5     SETTLEMENTS. Neither Party may enter into any settlement or
consent judgment or other voluntary final disposition of a suit under this
Article 10 that would adversely affect the rights of the other Party without the
prior written consent of such Party.

11.      CONFIDENTIALITY

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

                                      20.
<PAGE>

         11.1     TREATMENT OF CONFIDENTIAL INFORMATION. A Party receiving or
gaining access to Confidential Information, as defined below, (the "Receiving
Party") of the other Party (the "Disclosing Party") will (i) maintain in
confidence such Confidential Information to the same extent the Receiving Party
maintains its own proprietary information (but at a minimum the Receiving Party
shall use commercially reasonable efforts), (ii) not disclose such Confidential
Information to any Third Party without prior written consent of the Disclosing
Party, except for disclosures made in confidence to any Third Party pursuant to
a plan approved by the JDT or the Steering Committee, and (iii) not use such
Confidential Information for any purpose except as expressly permitted by this
Agreement. As used herein, "Confidential Information" shall mean all
Information, and any other information and materials, received by the Receiving
Party from the Disclosing Party pursuant to this Agreement. Without limiting the
generality of the foregoing, the AeroGen Technology shall be deemed Confidential
Information of AeroGen, the BD Technology shall be deemed Confidential
Information of BD, and the Joint Technology shall be deemed Confidential
Information of both Parties. Notwithstanding the foregoing, "Confidential
Information" shall not include any Information that:

                  (a)      is at the time of receipt by the Receiving Party, or
later becomes, generally available to the public without restriction through no
breach of this Article 11; or

                  (b)      was known to the Receiving Party, without obligation
to keep it confidential, prior to its receipt from the Disclosing Party; or

                  (c)      is subsequently disclosed to the Receiving Party by a
Third Party lawfully in possession thereof without obligation to keep it
confidential; or

                  (d)      has been independently developed by the Receiving
Party without the aid, application or use of the Disclosing Party's Confidential
Information.

         11.2     PUBLICATIONS. Neither Party shall publish or present the
results of studies carried out under this Agreement without the opportunity for
prior review by the other Party. Each Party agrees to provide the other Party
the opportunity to review any proposed abstracts, manuscripts or presentations
(including verbal presentations) which relate to any Product at least thirty
(30) days prior to their intended submission for publication and agrees, upon
request, not to submit any such abstract or manuscript for publication until the
other Party is given a reasonable period of time to secure patent protection for
any material in such publication which it believes to be patentable. The Parties
agree to review and consider delay of publication and filing of patent
applications as appropriate. The Steering Committee will review such requests
and recommend subsequent action. Neither Party shall have the right to publish
or present Confidential Information of the other Party.

         11.3     PUBLICITY. The Parties agree that the public announcement of
the execution of this Agreement shall be in the form of a press release mutually
agreed upon. Any other publication, news release or other public announcement
relating to this Agreement or to the performance hereunder, shall first be
reviewed and approved by both Parties, which approval shall not be unreasonably
withheld or delayed; provided, however, that any disclosure which is required by
law as advised by the disclosing Party's counsel may be made without the prior
consent of the other Party, although the other Party shall be given prompt
notice of any such

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

                                      21.
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legally required disclosure and to the extent practicable shall provide the
other Party an opportunity to comment on the proposed disclosure.

         11.4     TERMS OF THE AGREEMENT. The Parties agree that the material
terms of this Agreement will be considered Confidential Information of both
Parties. Notwithstanding the foregoing, each Party shall have the right to
disclose the material terms of this Agreement in confidence to any bona fide
potential investor, investment banker, acquirer, merger partner or other
potential financial partner (including without limitation a potential Marketing
Partner), and where reasonably practicable, shall obtain an adequate binder of
confidentiality consistent with the terms of this Agreement.

         11.5     REQUIRED DISCLOSURE. If the Receiving Party is required by any
governmental agency, court or other quasi-judicial or regulatory body to provide
Confidential Information received under this Agreement, the Receiving Party
shall not be liable for such disclosure PROVIDED THAT the Receiving Party, as
promptly as reasonably possible, gives notice to the Disclosing Party of the
requirement in order that the Disclosing Party may contest the requirement to
provide such information and cooperates reasonably with the Disclosing Party in
such efforts. In the event that this Agreement is required to be filed with the
U.S. Securities Exchange Commission, the Party making such filing shall use
commercially reasonable, diligent efforts to avoid the public disclosure of as
much Confidential Information as possible, and to consult in good faith with the
other Party prior to making such filing.

         11.6     SURVIVAL OF CONFIDENTIALITY. All obligations of
confidentiality and non-use imposed upon the Parties under this Agreement shall
continue indefinitely until such time as the information that is subject to such
obligations no longer comprises Confidential Information under one of the
exceptions set forth in Section 11.1.

12.      REPRESENTATIONS AND COVENANTS

         12.1     MUTUAL AUTHORITY. AeroGen and BD each represents and warrants
to the other that (a) it has the authority and right to enter into and perform
this Agreement, and (b) its execution, delivery and performance of this
Agreement will not conflict in any material fashion with the terms of any other
agreement to which it is or becomes a party or by which it is or becomes bound.

         12.2     BD REPRESENTATIONS AND WARRANTIES. BD represents and warrants
to AeroGen that as of the Signing Date:

                  (a)      To the best of BD's knowledge and belief, none of
the BD Technology has been misappropriated from any Third Party nor is the
result of any misuse of any Third Party's intellectual property;

                  (b)      To the best of BD's knowledge and belief, there is
no action, suit or proceeding pending or that has been threatened, orally or
in writing, against BD, with respect to the infringement or misappropriation
of any Third Party's intellectual property rights through the use of the BD
Technology as contemplated hereunder; and

                  (c)      To the best of BD's knowledge and belief, the
individuals listed on Exhibit 4 have signed BD's standard employment agreement,
a form of which is attached as Exhibit 5.

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

                                      22.
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         12.3     AEROGEN REPRESENTATIONS AND WARRANTIES. AeroGen represents and
warrants to BD that as of the Signing Date:

                  (a)      To the best of AeroGen's knowledge and belief, the
practice of the inventions claimed in the AeroGen Patents as anticipated
herein will not infringe upon the intellectual property rights of any Third
Party;

                  (b)      To the best of AeroGen's knowledge and belief,
none of the AeroGen Technology has been misappropriated from any Third Party
nor is the result of any misuse of any Third Party's intellectual property;

                  (c)      To the best of AeroGen's knowledge and belief, all
inventors of the AeroGen Technology existing as of the Effective Date have
irrevocably assigned all right, title and interest in the AeroGen Technology
to AeroGen; and

                  (d)      To the best of AeroGen's knowledge and belief,
there is no action, suit or proceeding pending or that has been threatened,
orally or in writing, against AeroGen, with respect to the infringement or
misappropriation of any Third Party's intellectual property rights through
the use of the AeroGen Technology as contemplated hereunder.

         12.4     DISCLAIMER. EXCEPT AS SPECIFICALLY SET FORTH IN SECTION 4.7,
THIS ARTICLE 12, EXHIBIT 3, AND THE STOCK PURCHASE AGREEMENT, NEITHER PARTY
MAKES ANY WARRANTY CONCERNING ITS PATENT RIGHTS OR INFORMATION LICENSED UNDER
THIS AGREEMENT, INCLUDING WITHOUT LIMITATION THE VALIDITY OR SCOPE OF ITS PATENT
RIGHTS OR THAT PRODUCTS WILL BE FREE FROM INFRINGEMENT OF THE PATENT RIGHTS OF
THIRD PARTIES. EACH PARTY SPECIFICALLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO BOTH ITS TECHNOLOGY AND THE
PRODUCT.

13.      TERM AND TERMINATION

         13.1     TERM. This Agreement shall become effective on the Effective
Date and shall remain in effect until the later of (a) expiration of the last to
expire Valid Claim, or (b) expiration of all of AeroGen's payment obligations
under this Agreement unless terminated as earlier provided in Section 13.2 or
13.3 below. In addition, this Agreement may be extended by mutual written
consent of the Parties.

         13.2     TERMINATION FOR OTHER THAN CAUSE.

                  (a)      FOR FAILURE TO AGREE ON FINAL SPECIFICATIONS. Either
Party may terminate this Agreement upon thirty (30) days written notice to the
other Party in the event the Parties fail to agree upon the Final
Specifications, as set forth in Section 4.5(f).

                  (b)      FAILURE TO SECURE A MARKETING PARTNER OR A QUALIFIED
SUPPLIER. Either Party may terminate this Agreement on thirty (30) days written
notice in the event that (a) neither Party secures a Marketing Partner, as set
forth in Section 6.3, or (b) neither Party secures a Qualified Supplier, as set
forth in Section 7.1.

                  (c)      THIRD PARTY PATENTS. Either Party may terminate this
Agreement at any time in the event that such Party determines, in its sole,
reasonable, good faith judgment, that the BD Cartridge, Inhaler or Product
cannot be developed or commercialized under this Agreement or the Supply
Agreement because of a Third Party Patent that covers the manufacture, having
manufactured, use, importation, offering for sale or sale of the BD Cartridge,
Inhaler or Product in the United States, subject to the following:

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

                                      23.
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                           (i)      Prior to providing such notice, such
Party shall refer the issue to the JDT for its analysis of whether the
development, manufacture, use, importation, offer for sale or sale of the BD
Cartridge, Inhaler or the Product by a Party pursuant to this Agreement would
infringe such Patent, and if so, whether a license under such Patent can be
obtained on commercially reasonable terms (as determined in the sole
discretion of the Party required to obtain such license) and/or whether it is
commercially feasible to redesign the BD Cartridge, Inhaler and/or the
Product so that such Patent would not be so infringed, and shall recommend a
course of action to the Parties; and

                           (ii)     Such Party shall take the JDT's
recommendation under good faith consideration, and if such Party still desires
to terminate this Agreement despite such recommendation and the other Party does
not desire such termination, then the Parties shall attempt to resolve such
dispute first through referral to the Steering Committee and then, if necessary,
pursuant to Section 15.2.

         If the Parties are unable to resolve such issue as set forth in
subsections (i) and (ii) above, then such Party may terminate this Agreement
upon thirty (30) days written notice to the other Party.

                  (d)      INABILITY TO DEVELOP A SAFE AND EFFECTIVE PRODUCT. In
the event that AeroGen and/or its Marketing Partner is unable to file an NDA for
the Product for use in the Field because the data from the Phase III clinical
trial for the Product will not support such an NDA, then either Party may
terminate this Agreement upon thirty (30) days written notice to the other
Party; PROVIDED THAT if the Parties disagree as to whether such data will
support such an NDA, such termination shall not be effective until such issue is
resolved by the Steering Committee, and, if necessary, through the dispute
resolution procedures set forth in Section 15.2.

                  (e)      TERMINATION FOR CONVENIENCE. BD may terminate this
Agreement without cause and without explanation upon ninety (90) days written
notice to AeroGen; PROVIDED THAT in no event will such termination become
effective prior to the expiration of the Development Term.

                           (i)      BD OBLIGATIONS. In the event of termination
by BD under this subsection (e), BD's only obligations and liabilities to
AeroGen with respect to such termination shall be to:

                                    (A)      Grant AeroGen a royalty-free,
fully paid-up, non-exclusive, sublicenseable, irrevocable license under the
BD Technology, [*] in the event BD has any rights thereto, and BD's interest
in the Joint Technology, limited to develop, use, make, have made, import,
offer for sale and sell the BD Cartridge for use with the Drug in the Field
world-wide to the extent legally permissible by BD and subject to any rights
or obligations placed upon BD; and

                                    (B)      Covenant (1) not to make, have
made, import, offer for sale and sell the BD Cartridge for use in the Field;
(2) not to make have made, import, offer for sale or sell any titratable
container and dispensing mechanism for the pulmonary delivery of any drug
which interfits and is compatible with, the Inhaler; and (3) not to
manufacture any Royalty-Bearing Cartridge (as defined below in subsection
(i)(F)) with the intent that such Royalty-Bearing Cartridge interfit and be
compatible with any AeroGen inhaler device, for use within or outside the
Field, nor to have manufactured, use in

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

                                      24.
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Phase III clinical trials, sell and/or otherwise transfer to any Third Party,
directly or indirectly, either itself or on behalf of a Third Party, any such
Royalty-Bearing Cartridge;

                                    (C)      Promptly disclose to AeroGen all BD
Know-How necessary for the manufacture of the BD Cartridge, and upon AeroGen's
written request, BD shall provide diligent, commercially reasonable, good-faith
assistance and cooperation to enable a Third Party manufacturer to manufacture
and supply the BD Cartridge to AeroGen and its Marketing Partner(s) as rapidly
as possible;

                                    (D)      Provide AeroGen with any
dedicated tooling developed directly as a result of the Technical Development
Program necessary for making the BD Cartridge; and continue to manufacture
and supply to AeroGen those components of the BD Cartridge which require the
use of molding or tooling used for manufacture of the BD Cartridge as well as
other Products, for a period of twelve (12) months after the effective date
of each termination, at a price equal to [*]; and

                                    (E)      Pay to AeroGen one million
dollars ($1,000,000) within ten (10) business days of AeroGen's receipt of
such termination notice; and

                                    (F)      Pay to AeroGen a running royalty
equal to [*] of the net sales (as defined below) of any Drug-filled Cartridge
used in connection with the pulmonary delivery of the Drug in the Field sold
after the effective date of such termination by either BD or any licensee or any
other third party with which BD contracts and covered by a claim of an issued
and unexpired Patent as provided in subsection (ii)(B) below ("Royalty-Bearing
Cartridge"). As used herein, "net sales" shall have the meaning set forth in
Section 9.3(d), except that references to "AeroGen" therein shall be changed to
"BD".

                           (ii)     TERM OF NON-COMPETE OBLIGATION & ROYALTY
OBLIGATION.

                                    (A)      BD's obligation under subsection
(i)(B) above not to make, have made, import, offer for sale and sell the BD
Cartridge for use in the delivery of Drug in the Field, or any Cartridge
which interfits with or is compatible with the Inhaler, or any
Royalty-Bearing Cartridge which interfits with any AeroGen inhaler shall
commence with the effective date of such termination and expire, on a
country-by-country basis, on the later of ten (10) years from the effective
date of such termination or the date of expiration of the last to expire
Patent in such country containing a claim of an issued and unexpired Patent
that (1) is included within the Development Patents, (2) claims the
manufacture, use or sale of the BD Cartridge, and (3) has not been held
unenforceable, unpatentable, or invalid by a court or other governmental
agency of competent jurisdiction, and that has not been admitted to be
invalid or unenforceable through reissue, disclaimer or otherwise; and

                                    (B)      BD's obligation under subsection
(i)(F) above to pay a royalty to AeroGen in connection with a Royalty-Bearing
Cartridge shall commence with and continue, on a country-by-country basis,
with the date of issuance of the first to issue until the date of expiration
of the last to expire Patent in such country containing a claim of an issued
and unexpired Patent that (1) is included within the Development Patents, (2)
claims the manufacture, use or sale of the BD Cartridge and the
Royalty-Bearing Cartridge, and (3) has not been held unenforceable,
unpatentable, or invalid by a court or other governmental agency of competent
jurisdiction, and that has not been admitted to be invalid or unenforceable
through reissue, disclaimer or otherwise.

                           (iii)    AEROGEN'S RIGHTS OUTSIDE THE FIELD. In the
event of termination by BD under this Subsection (e), and notwithstanding
Section 8.3, AeroGen shall be granted the right and license by BD, to make, have
made, use, sell, offer for sale or import the BD Cartridge for the pulmonary
delivery of certain drugs (other than the Drug) as provided herein. Within
thirty (30) days following the effective date of termination of this Agreement
under this Section

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

                                      25.
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13.2(e), AeroGen shall select no more than [ * ] specific drugs, i.e.,
distinct chemical entities with respect to which it desires a license under
this Subsection 13.2(e)(iii) and identify such drugs in writing to BD (the
"Initial Licensed Drugs"). Upon receipt of such notice of the Initial
Licensed Drugs by AeroGen, BD shall promptly inform AeroGen in writing as to
whether such drugs have not been exclusively licensed, exclusively optioned
or otherwise subject to any prior commitments to a Third Party and thus are
available for non-exclusive license grant to AeroGen (each, an "Available
Drug"). In the event any such identified drugs are not Available Drugs,
AeroGen shall have an additional thirty days in which to select a replacement
for each prior selected drug which was not an Available Drug. Such election
and notification period shall continue until AeroGen has identified [*]
Available Drugs, whereupon BD shall grant to AeroGen a royalty-bearing,
non-exclusive, worldwide license (with the right to sublicense to licensees
of the AeroGen technology only with respect to AeroGen's right to use, sell
and offer for sale the BD Cartridge), to make, have made, use, sell, offer
for sale or import the BD Cartridge for the pulmonary delivery of such
Available Drugs, including the right to modify the BD Cartridge to the extent
necessary to use it in connection with the pulmonary delivery of such
Available Drugs. In exchange for such license, AeroGen shall pay to BD a
royalty of [*] of the net sales of all BD Cartridges filled with Available
Drug. Notwithstanding the foregoing, such license shall expire and the rights
revert to BD, on an Available Drug by Available Drug basis, in the event
AeroGen or its sublicensee fails to both (i) [ * ] within [ * ] from the date
of such license grant and (ii) [ * ] within [ * ] from the date of such
license grant, with respect to a product incorporating such Available Drug.
BD further agrees that, in the event AeroGen desires to obtain a license
under the above described terms with respect to any other Available Drug
other than the initial [*] Available Drugs, AeroGen shall notify BD within
such thirty (30) day period described above, and each such license shall be
granted subject to the payment by AeroGen to BD of [*] at the time of grant
of such license, such fee to be creditable against royalties at the rate
provided above. As used in this Subsection (iii), "Net sales" shall be
defined as provided in Section 9.3(d). The royalty hereunder shall commence
with, and continue, on a country by country basis, with the date of issuance
of the first to issue until the date of expiration of the last to Expire
Patent in such country containing a claim of an issued and unexpired Patent
owned or controlled by BD and covering the manufacture, use, sale, offer for
sale or importation of the BD Cartridge.

         13.3     TERMINATION FOR BREACH.

                  (a)      If either Party believes that the other is in
material breach of this Agreement, then the non-breaching Party may deliver
notice of such breach to the other Party. In such notice the non-breaching Party
shall identify the actions or conduct that such Party would consider to be an
acceptable cure of such breach. The allegedly breaching Party shall have sixty
(60) days to either cure such breach or, if cure cannot be reasonably effected
within such 60-day period, to deliver to the other Party a reasonably acceptable
plan for curing such breach. 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 commercially reasonable diligent efforts to carry out the plan
and cure the breach, subject to the non-breaching Party's acceptance of such
plan.

                  (b)      If the Party receiving notice of material breach
fails to cure such breach within the 60-day period, or the Party providing the
notice reasonably determines that the proposed corrective plan or the actions
being taken to carry it out is not commercially

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

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practicable, the Party originally delivering the notice may terminate this
Agreement upon thirty (30) days advance written notice.

         13.4     EFFECT OF TERMINATION. Except as provided in Section 13.2(e),
upon termination of this Agreement:

                  (a)      All licenses granted by each Party to the other
pursuant to Article 8 shall terminate.

                  (b)      Each Party shall, within sixty (60) days of such
termination, return all Confidential Information of the other Party in its
possession; PROVIDED, HOWEVER, that each Party may retain an archival copy of
such Confidential Information solely for determining the scope of its
confidentiality obligations hereunder.

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

         13.6     SURVIVAL. The following provisions shall survive termination
of this Agreement: Sections 7.3(c), 9.6, 12.4, 13.2(e), 13.4 and 13.6, and
Articles 10, 11, 14 and 15. Termination of this Agreement shall not relieve
either Party of any liability which accrued hereunder prior to the effective
date of such termination, nor preclude either Party from pursuing all rights and
remedies it may have hereunder or at law or in equity with respect to any breach
of this Agreement, nor prejudice either Party's right to obtain performance of
any obligation. The remedies provided under this Agreement are cumulative, and
are not exclusive of other remedies available to a Party in law or equity.

14.      INDEMNIFICATION

         14.1     BY AEROGEN. AeroGen hereby agrees to indemnify, defend and
hold harmless BD and its officers, directors, agents and employees from and
against any and all Losses from any Third Party claim resulting directly or
indirectly from (a) AeroGen's breach of any of its covenants or representations
and warranties hereunder, or (b) the negligence or wrongdoing of AeroGen, but
only to the extent such Losses do not result from the negligence or wrongdoing
of BD.

         14.2     BY BD. BD hereby agrees to indemnify, defend and hold harmless
AeroGen and its officers, directors, agents and employees from and against any
and all Losses from any Third Party claim resulting directly or indirectly from
(a) BD's breach of any of its covenants or

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

                                      27.
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representations and warranties hereunder, or (b) the negligence or wrongdoing of
BD, but only to the extent such Losses do not result from the negligence or
wrongdoing of AeroGen. Additional indemnification obligations of BD with respect
to its manufacture and supply of the BD Cartridge shall be set forth in the
Supply Agreement.

         14.3     APPORTIONMENT. Consistent with the foregoing, in the event any
Losses from any Third Party relate specifically to the Interface, each Party
hereby agrees to indemnify, defend and hold harmless the other Party and its
officers, directors, agents and employees with respect to that portion of any
such Losses apportioned between the Parties based upon each Party's percentage
of all Royalties received from each Marketing Partner; provided, however, that
this Section 14.3 shall not apply to any such Losses arising from the
indemnifying Party's breach of any of its covenants or representations and
warranties hereunder.

         14.4     NOTICE AND PROCEDURES. In all cases where one Party seeks
indemnification by the other under this Article 14, the Party seeking
indemnification shall promptly notify the indemnifying Party of receipt of any
claim or lawsuit covered by such indemnification obligation and shall cooperate
fully with the indemnifying Party in connection with the investigation and
defense of such claim or lawsuit. The indemnifying Party shall have the right to
control the defense, with counsel of its choice, provided that the
non-indemnifying Party shall have the right to be represented by advisory
counsel at its own expense. The indemnifying Party shall not settle or dispose
of the matter in any manner which could negatively and materially affect the
rights or liability of the non-indemnifying Party without the non-indemnifying
Party's prior written consent, which shall not be unreasonably withheld or
delayed.

15.      MISCELLANEOUS

         15.1     ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Supply
Agreement and the Stock Purchase Agreement sets forth the complete, final and
exclusive agreement between the Parties with respect to the subject matter
hereof, and all of the covenants, promises, agreements, warranties,
representations, conditions and understandings between the Parties hereto with
respect to such subject matter, and supersedes and terminates all prior
agreements and understandings between the Parties with respect to such subject
matter. There are no covenants, promises, agreements, warranties,
representations, conditions or understandings, either oral or written, between
the Parties with respect to such subject matter other than as are set forth
herein and therein. No subsequent alteration, amendment, change or addition to
this Agreement shall be binding upon the Parties unless reduced to writing and
signed by an authorized officer of each Party.

         15.2     DISPUTE RESOLUTION. In the event of any controversy or claim
arising out of, relating to or in connection with any provision of this
Agreement, or the rights or obligations of the Parties hereunder, the Parties
shall try to settle their differences amicably between themselves by referring
the disputed matter to the Chief Executive Officer of AeroGen and the Vice
President and General Manager of BD Consumer Healthcare for discussion and
resolution. Either Party may initiate such informal dispute resolution by
sending written notice of the dispute to the other Party, and within ten (10)
days of such notice the Chief Executive Officer of AeroGen and the Vice
President and General Manager of BD Consumer Healthcare shall meet for attempted
resolution by good faith negotiations. If such personnel are unable to resolve
such

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

                                      28.
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dispute within thirty (30) days of initiating such negotiations, each Party may
thereafter pursue any and all rights and remedies it may have at law or equity.
If mutually agreeable, the Parties may explore alternative forms of dispute
resolution, such as mediation and/or arbitration. Notwithstanding any other
provision of this Section 15.2, either Party may seek a temporary restraining
order or injunction against the other Party in the event of a breach of any
confidentiality obligation hereunder, or to prevent a Party's wrongful use of
any intellectual property hereunder.

         15.3     FORCE MAJEURE. Both Parties shall be excused from the
performance of their obligations under this Agreement to the extent that such
performance is prevented by force majeure and the non-performing Party promptly
provides notice of the prevention to the other Party. Such excuse shall be
continued so long as the condition constituting force majeure continues and the
non-performing Party takes reasonable efforts to remove the condition. For
purposes of this Agreement, "force majeure" shall include conditions beyond the
control of the Parties, including without limitation, an act of God, voluntary
or involuntary compliance with any regulation, law or order of any government,
war, civil commotion, labor strike or lock-out, epidemic, failure or default of
public utilities or common carriers, destruction of production facilities or
materials by fire, earthquake, storm or like catastrophe; provided, however, the
payment of invoices due and owing hereunder shall not be delayed by the payor
because of a force majeure affecting the payor.

         15.4     NOTICES. Any notice required or permitted to be given under
this Agreement shall be in writing, shall specifically refer to this Agreement
and shall be deemed to have been sufficiently given for all purposes if mailed
by first class certified or registered mail, postage prepaid, express delivery
service or personally delivered. Unless otherwise specified in writing, the
mailing addresses of the Parties shall be as described below.

                  For AeroGen:    AeroGen, Inc.
                                  1310 Orleans Drive
                                  Sunnyvale, CA 94089
                                  Attention: Chief Executive Officer

                  With a copy to: Cooley Godward LLP
                                  Five Palo Alto Square
                                  3000 El Camino Real
                                  Palo Alto, CA  94306
                                  Attention:  Barbara A. Kosacz, Esq.

                  For BD:         Becton, Dickinson and Company
                                  1 Becton Drive
                                  Franklin Lakes, NJ 07417-1866
                  Attention:      VP and General Manager, BD Consumer Healthcare

                  With a copy to: Becton, Dickinson and Company
                                  1 Becton Drive
                                  Franklin Lakes, NJ 07417-1866
                                  Attention: VP and General Counsel

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

                                      29.
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         15.5     LIMITATION OF LIABILITY. IN NO EVENT WILL EITHER PARTY BE
LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, COLLATERAL, CONSEQUENTIAL, SPECIAL
OR PUNITIVE DAMAGES ARISING IN CONNECTION WITH THIS AGREEMENT.

         15.6     CONSENTS NOT UNREASONABLY WITHHELD OR DELAYED. Whenever
provision is made in this Agreement for either Party to secure the consent or
approval of the other, that consent or approval shall not unreasonably be
withheld or delayed, and whenever in this Agreement provisions are made for one
Party to object to or disapprove a matter, such objection or disapproval shall
not unreasonably be exercised, unless expressly stated that such consent is to
be given in such Party's sole discretion.

         15.7     INDEPENDENT CONTRACTORS. The status of the Parties under this
Agreement shall be that of independent contractors. Neither Party shall have the
right to enter into any agreements on behalf of the other Party, nor shall it
represent to any person that it has any such right or authority. Nothing in this
Agreement shall be construed as establishing a partnership or joint venture
relationship between the Parties.

         15.8     MAINTENANCE OF RECORDS. Each Party shall keep and maintain all
records required by law or regulation with respect to the Product and shall make
copies of such records available to the other Party upon request.

         15.9     UNITED STATES DOLLARS. References in this Agreement to
"Dollars" or "$" shall mean the legal tender of the United States of America.

         15.10    NO STRICT CONSTRUCTION. This Agreement has been prepared
jointly and shall not be strictly construed against either Party.

         15.11    ASSIGNMENT. Neither Party may assign or transfer this
Agreement or any rights or obligations hereunder without the prior written
consent of the other, except a Party may make such an assignment without the
other Party's consent to a successor-in-interest to substantially all of the
business assets of such Party to which this Agreement relates, whether in a
merger, sale of stock, sale of assets or other transaction. Any permitted
successor or assignee of rights and/or obligations hereunder shall, in a writing
to the other Party, expressly assume performance of such rights and/or
obligations. Any permitted assignment shall be binding on the successors of the
assigning Party. Any assignment or attempted assignment by either Party in
violation of the terms of this Section 15.11 shall be null and void and of no
legal effect. This Agreement shall be binding upon and shall inure to the
benefit of each Party's successors-in-interest and permitted assigns.

         15.12    PERFORMANCE BY AFFILIATES. The Parties recognize that each
Party may perform some or all of its obligations under this Agreement through
one or more of its Affiliates, provided, however, that each Party shall remain
responsible for and shall guarantee such performance by its Affiliates and shall
cause its Affiliates to comply with the provisions of this Agreement in
connection with such performance. Each Party hereby expressly waives any
requirement that the other Party exhaust any right, power or remedy, or proceed
against an

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

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Affiliate, for any obligation or performance hereunder prior to proceeding
directly against such Party.

         15.13    COUNTERPARTS. This 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.

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

         15.15    SEVERABILITY. If any one or more of the provisions of this
Agreement is held to be invalid or unenforceable, the provision shall be
considered severed from this Agreement and shall not serve to invalidate any
remaining provisions hereof. The Parties shall make a good faith effort to
replace any invalid or unenforceable provision with a valid and enforceable one
such that the objectives contemplated by the Parties when entering this
Agreement may be realized.

         15.16    AMBIGUITIES. Ambiguities, if any, in this Agreement shall not
be construed against any Party, irrespective of which Party may be deemed to
have authored the ambiguous provision.

         15.17    HEADINGS. The headings for each article and section in this
Agreement have been inserted for convenience of reference only and are not
intended to limit or expand on the meaning of the language contained in the
particular article or section.

         15.18    NO WAIVER. Any delay in enforcing a Party's rights under this
Agreement or any waiver as to a particular default or other matter shall not
constitute a waiver of such Party's rights to the future enforcement of its
rights under this Agreement, excepting only as to an express written and signed
waiver as to a particular matter for a particular period of time.

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

                                      31.
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         IN WITNESS WHEREOF, the Parties have executed this Agreement in by
their proper officers as of the date and year first above written.

BECTON, DICKINSON AND COMPANY                   AEROGEN, INC.

By:/s/ Gary M. Cohen                            By: /s/ Jane E. Shaw
   -----------------------------------------       --------------------

Name:  Gary M. Cohen                            Name:  Jane E. Shaw
     ---------------------------------------         ------------------

Title: President - Worldwide Medical Systems    Title:  Chairman / Ceo
      --------------------------------------          -----------------

EXHIBIT 1  CRITICAL SYSTEM SPECIFICATIONS

EXHIBIT 2  TECHNICAL DEVELOPMENT PLAN

EXHIBIT 3  SUPPLY AGREEMENT TERMS

EXHIBIT 4  POTENTIAL INVENTORS

EXHIBIT 5  FORM OF EMPLOYMENT AGREEMENT

EXHIBIT 6  DIAGRAM OF AEROGEN INHALER AND BD CARTRIDGE

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

                                      32.
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                                    EXHIBIT 1

                         CRITICAL SYSTEM SPECIFICATIONS

                                      [*]

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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

                                      33.
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                                    EXHIBIT 2

                           TECHNICAL DEVELOPMENT PLAN

                                      [*]
                                          [*]

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

                                      34.
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                                    EXHIBIT 3

                             SUPPLY AGREEMENT TERMS

1.       PURCHASE AND SUPPLY OBLIGATIONS. AeroGen shall purchase its and its
         Marketing Partners' requirements of BD Cartridges from BD, except as
         provided herein in the event of a supply default. BD shall manufacture
         and supply to AeroGen and its Marketing Partners their requirements for
         the BD Cartridge in accordance with binding purchase orders provided by
         AeroGen as described below.

2.       EXCLUSIVITY.

         During the term of the Supply Agreement, BD agrees that it shall not:

                           (i)      manufacture, have manufactured, use in Phase
         III clinical trials or sell and/or otherwise transfer to any Third
         Party, directly or indirectly, either itself or on behalf of a Third
         Party, the BD Cartridge for use in the Field;

                           (ii)     manufacture, have manufactured, use in
         Phase III clinical trials or sell and/or otherwise transfer to any
         Third Party, directly or indirectly, either itself or on behalf of a
         Third Party, any titratable container and dispensing mechanism for
         the pulmonary delivery of any drug, which interfits and is
         compatible with the Inhaler; and

                           (iii)    manufacture, have manufactured, use in
         Phase III clinical trials or sell and/or otherwise transfer to any
         Third Party, directly or indirectly, either itself or on behalf of a
         Third Party, any Development Patent Cartridge (as defined in Section
         7.3(e) of the Development Agreement) with the intent that such
         Development Patent Cartridge interfit and be compatible with any
         AeroGen inhaler device, for use within or outside the Field.

3.       TRANSFER PRICE.

         BD will manufacture the BD Cartridge (unfilled with Drug) and
         transfer the same to AeroGen for a [*] during the first year of
         commercial sale; and for a [*] during the second year of commercial
         sale.

         Following the second full year following commercial sale of the
         Retail Product and each subsequent year, provided that AeroGen
         orders at least [*] BD Cartridges during such year, the Transfer
         Price of the unfilled BD Cartridge shall be equal to BD's Cost of
         Goods (as defined below) [ * ], but in no event greater than [*].
         Any reduction in Cost of Goods of the unfilled BD Cartridge below [*]
         shall be shared between BD and AeroGen as follows: (i) from [ * ]
         to a Cost of Goods greater than or equal to [ * ], BD receiving [ * ]
         and AeroGen receiving [ * ] of the benefit of such cost savings and
         (ii) for any additional reduction in BD's Cost of Goods less than
         [ * ], BD receiving [ * ] and AeroGen receiving [ * ]. For example,
         should the Cost of Goods be reduced to [*], then BD would receive a
         Transfer Price [ * ] for the unfilled BD Cartridge [ * ],
         and, should the Cost of Goods be reduced to [ * ], then BD would
         receive a Transfer Price of [ * ] for the unfilled BD Cartridge [ * ].
         In the event the [*] or any subsequent year production volume is
         less than [*] units, then the steady state transfer price shall be
         the actual Cost of Goods [ * ] per unfilled BD Cartridge. In the
         event BD sells or otherwise transfers to a Third Party any
         Development Patent Cartridge filled with the Drug for use in the
         Field, such [*] unit threshold shall be reduced proportionately.

         In the event the titratable container of the BD Cartridge includes a
         [*] shall be transferred to AeroGen as follows: (i) when BD's Cost
         of Goods is equal to or greater than [ * ], at [*] and (ii) when
         BD's Cost of Goods is less than [ * ], at BD's Cost of Goods [*].
         For example, should the Cost of Goods equal [*], the transfer price
         of [*] mechanism shall be [*].

         "COST OF GOODS" means the cost of manufacturing, supplying and shipping
         the BD

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

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         Cartridge, and shall consist of (i) in the case of products and/or
         services acquired from Third Parties, payments to such Third Parties
         (including, for example, charges by such Third Parties for an
         allocation of overhead for production of components of the BD
         Cartridge), and (ii) in the case of manufacturing services performed by
         BD, including manufacturing services in support of Third Party
         manufacturing, the actual unit costs of the manufacture, plus the
         variances and other costs specifically provided for herein. Actual unit
         costs shall consist of direct material and direct labor costs plus
         manufacturing overhead attributable directly to the BD Cartridge, all
         calculated in accordance with BD Financial Policies and Generally
         Accepted Accounting Principles ("GAAP").

                           (a)      As used herein, "direct material costs"
         shall include the costs of materials (including waste), including
         applicable taxes imposed thereon, shipping costs and customs duty and
         charges levied by government authorities, and the costs of packaging
         components.

                           (b)      As used herein, "direct labor" shall include
         the cost of employees engaged in direct manufacturing activities and
         direct or indirect quality control and quality assurance activities who
         are directly employed in the manufacture, testing and/or packaging of
         the BD Cartridge.

                           (c)      "Overhead attributable directly to the BD
         Cartridge" shall include a reasonable and customary allocation of
         indirect labor (not previously included in direct labor), a reasonable
         allocation of administrative costs, and a reasonable allocation of
         facilities costs (including but not limited to, electricity, water,
         sewer, waste disposal, property taxes, and depreciation over the
         expected life of buildings and equipment), unless otherwise agreed upon
         by the Steering Committee. Such allocations shall be in accordance with
         BD's general business practice, and GAAP. Attributable overhead shall
         not include corporate overhead or plant start-up costs not otherwise
         allocable to the manufacture of the BD Cartridge, nor shall
         attributable overhead include costs associated with capacity not used
         in the manufacture of the BD Cartridge. Actual costs shall exclude
         costs associated with excess capacity not directly related to the BD
         Cartridge.

                           (d)      Cost of Goods shall also include
         manufacturing variances and other attributable non-standard costs.

4.       FORECASTS. In order to assist BD in its production planning, AeroGen
         would submit to BD at least six (6) months prior to the commencement of
         the market launch of the Product a non-binding forecast of its best
         estimate of its purchase requirements of the BD Cartridge for the first
         twelve (12) months of marketing of the BD Cartridge by month.
         Thereafter, AeroGen would provide BD with an updated non-binding
         rolling estimate of its purchase requirements for the BD Cartridge on a
         monthly basis for the subsequent twelve (12) month period. Forecasts in
         excess of BD's capacity would need to be mutually agreed upon between
         BD and AeroGen.

5.       ORDERS.  Within thirty (30) days of signing a Supply Agreement,
         AeroGen would submit to BD a binding purchase order for its
         requirements for the BD Cartridge for the first [*] months of
         marketing. Thereafter, AeroGen would provide BD with an updated binding

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

                                      36.
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         purchase order of its requirements for the BD Cartridge, each month, at
         least [*] months before requested delivery ("Purchase Order"), and BD
         would confirm all Purchase Orders within at least twenty (20) days of
         receipt. In each Purchase Order for any month, AeroGen would state,
         after consultation with BD, a reasonable delivery schedule for the BD
         Cartridge to be delivered. BD would make a reasonable business effort
         to comply with unplanned changes in Purchase Orders but would not be
         required to accept orders for the BD Cartridge that are not within [*]
         of the quantity forecasted subject to BD's capacity. Orders for the BD
         Cartridge in excess of such amounts would be subject to acceptance by
         BD in its reasonable discretion. However, BD would exercise reasonable
         business efforts to meet any changes, including schedule and quantity
         changes.

6.       SHIPMENT AND DELIVERY. The BD Cartridge would be packed and shipped in
         accordance with a shipping specifications to be mutually agreed to in
         writing between the Parties. Each such shipment shall contain any
         documents and/or information mutually agreed upon by the Parties in
         connection with the manufacture and shipment of the BD Cartridge
         (collectively, "Documentation"). The BD Cartridge would be shipped
         F.O.B. point of origin, unless otherwise mutually agreed. Risk of loss
         or damage would pass to AeroGen upon delivery to the common carrier.
         AeroGen would specify in the applicable purchase order the destination
         for each shipment. The quantity shipped may vary within [*] of the
         confirmed order; provided that AeroGen shall only be required to pay
         for those quantities actually shipped. No provision on AeroGen's
         purchase order forms which may purport to impose different conditions
         upon a Party, nor any other modifications of the Supply Agreement,
         would be of any force or effect, unless in writing and signed by the
         Parties claimed to be bound thereby. All Documentation required in
         connection with a shipment would be forwarded to the attention of
         AeroGen, unless otherwise specified in writing by AeroGen.

7.       INSPECTION, REJECTION AND ACCEPTANCE.

                  (a)      Within thirty (30) days of receipt of each shipment
         of BD Cartridges, in addition to any usual and customary incoming
         inspection including examination of the external appearance and
         integrity of the packaging, and before any use of the BD Cartridge,
         AeroGen or its designee, shall inspect each shipment of the BD
         Cartridges, in accordance with a mutually agreed upon inspection
         procedure. If AeroGen finds that the BD Cartridges do not conform to
         the Final Specifications, AeroGen shall within ten (10) days after the
         discovery of the non-conforming BD Cartridges, give BD written notice
         of any claim setting forth the details of such non-conformity, or
         otherwise shall be deemed to have accepted the BD Cartridges. BD in its
         discretion shall either repair or replace any non-conforming the BD
         Cartridge at BD's expense and at no cost to AeroGen. In accordance with
         BD's request, any the BD Cartridge which does not conform to the
         Specifications shall either be returned to BD or destroyed at BD's
         expense.

                  (b)      In the event the Parties disagree as to whether a
         shipment of the BD Cartridges or a portion thereof conforms to the
         Final Specifications, the rejected BD Cartridges would be submitted to
         a mutually acceptable third party testing laboratory, which would
         determine whether such BD Cartridges meet the Final Specifications. The
         Parties agree that such testing laboratory's determination would be
         final and

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

                                      37.
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         determinative. The Party against whom the testing laboratory rules
         would bear the reasonable costs of the testing laboratory. If the
         testing laboratory rules that the BD Cartridges meet the Final
         Specifications, AeroGen would purchase the BD Cartridges at the
         agreed-upon price, irrespective of whether BD has already replaced
         same. If the testing laboratory rules that the BD Cartridges do not
         meet the Final Specifications and the BD Cartridges were not replaced,
         BD would credit AeroGen's account in an amount equal to the purchase
         price of the rejected BD Cartridges, or refund that sum to AeroGen, as
         appropriate.

8.       TITLE. Title to the BD Cartridges shipped by BD for a given purchase
         order would pass to AeroGen upon delivery to the common carrier. BD
         shall warrant that upon such delivery, BD shall convey good title
         thereto, free and clear from any lawful security interest or lien or
         encumbrance.

9.       INVOICES. BD would invoice AeroGen upon each shipment of the BD
         Cartridge, and AeroGen would pay the full balance of each invoice in
         U.S. Dollars, less any applicable credits for rejected goods or if
         volumes rise so as to meet the next qualified price levels or charge
         backs if volumes fall below quoted levels, including those within
         thirty (30) days of delivery by BD to the common carrier. All such
         invoices would be forwarded as specified by AeroGen.

10.      INTELLECTUAL PROPERTY REPRESENTATIONS AND WARRANTIES.

                  (a)      AeroGen represents and warrants that to the best of
         its knowledge and belief the manufacture, use, sale, offer for sale or
         importation of the Product will not infringe any valid and enforceable
         claim of any third party patent.

                  (b)      BD represents and warrants that to the best of its
         knowledge and belief, the manufacture, use, sale, offer for sale or
         importation of the BD Cartridge will not infringe any valid and
         enforceable claim of any third party patent.

11.      PRODUCT WARRANTIES AND DISCLAIMER.

                  (a)      BD shall warrant to AeroGen that (a) all BD
         Cartridges manufactured and supplied under the Supply Agreement (i)
         will meet the Final Specifications, (ii) will be manufactured and
         supplied in accordance with quality systems regulations and other
         mutually agreeable standards, and (iii) will be free from defects in
         materials and workmanship. Claims on account of quality, loss or damage
         to the BD Cartridge will need to be made by AeroGen in writing within
         thirty (30) days following delivery to BD, unless otherwise mutually
         agreed to in writing between the Parties. AeroGen's sole and exclusive
         remedy, and BD's sole obligation under the warranty (except with
         respect to Latent Defects as defined in Sub-Section 15(c)) will be the
         repair or replacement, at BD's sole option, of any defective BD
         Cartridges. The warranty will not apply to (a) any BD Cartridge that
         had been misused, neglected, altered, abused or used by a party other
         than BD for any purpose other than the one for which it was
         manufactured or (b) any damages or defects caused by unauthorized
         repair or use of unauthorized parts or components. If no claim is made
         by AeroGen within the thirty (30) day period of time, the BD Cartridge

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

                                      38.
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         will be deemed acceptable to AeroGen, and BD will no longer have any
         liability with respect thereto.

                  (b)      ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
         INCLUDING WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
         PURPOSE, ARE HEREBY DISCLAIMED. IN ADDITION, BD EXPRESSLY DISCLAIMS
         ANY REPRESENTATIONS AND WARRANTIES REGARDING THE PERFORMANCE, SAFETY
         AND EFFICACY OF THE BD CARTRIDGE IN COMBINATION WITH THE INHALER OR
         ANY OTHER CARTRIDGE OR COMPONENTS.

12.      CHANGES TO THE BD CARTRIDGE.

                  BD shall not make any material or process changes that would
         affect any regulatory approvals obtained with respect to the BD
         Cartridge. Notwithstanding the foregoing, BD may make such changes if
         they would not have any material effect on the BD Cartridge or the
         Product, solely to the extent permitted by QSR and other applicable
         laws and regulations.

13.      PRODUCT DISCONTINUANCE AND SUPPLY DEFAULT.

                  In the event BD wishes to discontinue the manufacture and
         supply of the BD Cartridge, BD shall provide AeroGen with at least [*]
         months prior, written notice of discontinuation. In addition, BD agrees
         to continue to supply AeroGen with the BD Cartridge for at least [*]
         months from the date of such notice, during which period of time, BD
         shall provide AeroGen with diligent, commercially reasonable,
         good-faith assistance and cooperation to enable a Third Party
         manufacturer to manufacture and supply the BD Cartridge to AeroGen and
         its Marketing Partner(s) as rapidly as possible.

14.      REGULATORY MATTERS.

                  (a)      AeroGen shall be responsible, at its expense, for
         diligently filing and prosecuting any authorizations or approvals for
         the commercial manufacture and sale of the Product, including the BD
         Cartridge, and shall diligently respond to any comments or concerns
         raised by such regulatory authorities. AeroGen shall provide BD with
         any registration dossier or materials, and any amendment thereof, that
         are in its possession or control in respect of the Product, including
         the BD Cartridge. In addition, AeroGen shall promptly notify BD of an
         inquires from or comments or concerns raised by any regulatory
         authorities with respect to the Product or the BD Cartridge.

                  (b)      BD shall have full access and the right of reference
         to the other AeroGen's regulatory filings and approvals, but only to
         the extent necessary and appropriate for the filing of any necessary
         regulatory submissions.

15.      INSPECTIONS AND AUDITS.

                  (a)      Upon written request to BD, AeroGen shall have the
         right to have representatives visit BD's manufacturing facilities
         during normal business hours to

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

                                      39.
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         review BD's manufacturing operations and assess its compliance with QSR
         and quality assurance standards and to discuss any related issues with
         BD's manufacturing and management personnel.

                  (b)      BD shall notify AeroGen within two (2) business days
         of any planned inspection by any regulatory agency which may have an
         impact on the manufacturing of the BD Cartridge. BD shall forward to
         AeroGen copies of all regulatory communications with respect to the BD
         Cartridge within two (2) business days of receipt of such
         communications by BD.

16.      ADVERSE EVENT REPORTING AND RECALLS.

                  (a)      The Parties shall, throughout the duration of the
         Supply Agreement, notify one-another within two (2) business days after
         receiving any information concerning any complaint, injury, or
         sensitivity reaction associated with the use of the Product or the BD
         Cartridge, whether or not considered related to the Product or the BD
         Cartridge. The information shall be collected by the recipient of such
         information in accordance with a Standard Operating Procedure to be
         agreed to by the Parties and provided to the other in the form of a
         report. The report shall indicate if the performance of the Product or
         the BD Cartridge contributed to the event. The Parties shall require
         any third party under contract with either of the Parties to provide
         such information to both Parties on an expedited basis, the receipt of
         which information shall trigger the notification requirements set forth
         in this Section. If the adverse event is serious (including an adverse
         event that is fatal or life-threatening, is permanently or
         significantly disabling, or requires or prolongs in-patient
         hospitalization), then the recipient of such information shall use its
         best efforts to notify the other Party within one (1) business day
         after receipt of such information. In addition, moderately severe
         adverse events requiring medical intervention such as significant
         unexplained hypoglycemia, allergic bronchospasms requiring emergency
         room treatment, new abnormal liver function tests or abnormal CBC shall
         be reported to the other Party within three (3) business days. All
         notifications pursuant to this Section shall be by facsimile with
         confirmation copy by Certified or Registered mail and shall be written
         out on designated adverse event forms to be agreed to by the Parties.

                  (b)      If customer complaints other than those described
         above are received by either Party regarding the performance of the
         Product or the BD Cartridge, the Parties will exchange this information
         within five (5) business days after receipt of such information.
         Monthly reports summarizing any complaints or defects relating to the
         performance of the Product or the BD Cartridge shall be exchanged by
         the Parties. Efforts will be made to retrieve defective Product or the
         BD Cartridge and return them in the case of the Inhaler to AeroGen and
         in the case of the BD Cartridge to BD. All such reports and information
         obtained by either Party or exchanged under this Section shall be
         treated as Confidential Information in accordance with the terms of the
         Insulin Inhaler Development Agreement.

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

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                  (c)      AeroGen shall notify BD promptly if any Product or
         any BD Cartridge manufactured by BD hereunder is the subject of a
         recall or correction, and AeroGen and/or its designee shall have the
         sole responsibility for the handling and disposition of such recall or
         correction. In the event that a recall is required during the
         shelf-life of the BD Cartridge as a result of any non-compliance of the
         BD Cartridge with the Final Specification and if such non-compliance
         was not reasonably discoverable by AeroGen with the inspection
         performed pursuant to Section 6 in accordance with the mutually agreed
         inspection procedure (hereinafter referred to as "Latent Defect"), and
         AeroGen recalls either the Product or the BD Cartridge primarily due to
         such Latent Defect of the BD Cartridge, then, in addition to repair or
         replacement, BD shall reimburse AeroGen for the reasonable costs and
         expenses associated with such recall or correction, but only to the
         extent that the foregoing costs and expenses are directly attributable
         to BD's breach of its warranties under Sub-Section 10(a)(i). In all
         other events of a recall, all costs and expenses incurred in connection
         with such recall or correction shall be borne by AeroGen. AeroGen
         and/or its designee shall serve as the sole point of contact with the
         FDA or other applicable regulatory authority concerning any recall or
         correction with respect to the Product and the BD Cartridge.

17.      INDEMNITIES.

                  (a)      INDEMNIFICATION BY AEROGEN. AeroGen shall indemnify,
         defend (subject to Sub-Section (e) below) and hold BD harmless from and
         against any and all claims, demands, actions, suits, causes of action,
         damages and expenses (including but not limited to expenses of
         investigation, settlement, litigation and reasonable attorneys' fees
         incurred in connection therewith) which are hereafter made, sustained
         or brought against BD by any third party (i) for the recovery of
         damages to personal property or bodily injury, illness or death of any
         third party caused or alleged to be caused by the use, distribution, or
         sale of the Retail Product, or the BD Cartridge by AeroGen or its
         sublicensees, or (ii) arising out of or resulting from allegations
         against BD that the manufacture, use, offer for sale, sale or
         importation of the Inhaler infringes a third party patent or trademark
         to which BD has no ownership or license rights thereunder, unless in
         each such case, such claims, demands, actions, suits, causes of action,
         damages or expenses allegedly occurred as a result of BD's negligence,
         willful misconduct, or breach of its representations and warranties
         contained herein.

                  (b)      INDEMNIFICATION BY BD. BD shall indemnify, defend
         (subject to Sub-Section (e) below) and hold AeroGen harmless from and
         against any and all claims, demands, actions, suits, causes of action,
         damages and expenses (including, but not limited to expenses of
         investigation, settlement, litigation and reasonable attorneys' fees
         incurred in connection therewith) which are hereafter made, sustained
         or brought against AeroGen by any third party (i) to the extent arising
         out of or resulting from BD's negligence, willful misconduct or breach
         of its representations and warranties contained herein, or (ii) arising
         out of or resulting from allegations against AeroGen that the
         manufacture, use, sale, offer for sale or importation of the BD
         Cartridge infringes a third party patent or trademark to which AeroGen
         has no ownership or license rights thereunder; provided, unless such
         claims, demands, actions, suits, causes of action,

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

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         damages or expenses allegedly occurred as a result of AeroGen's
         negligence, willful misconduct, or breach of its representations and
         warranties contained herein.

                  (c)      LIMITATION OF LIABILITY. Under no circumstances
         shall either Party be liable to the other Party for any special,
         indirect, consequential or incidental damages, including, but not
         limited to, loss of profits or revenues or damage to or loss of
         other products, property and/or equipment incurred by such Party or
         AeroGen's Marketing Partner or Qualified Supplier, or any other
         party seeking indemnification hereunder. In addition, BD shall not
         be liable for any damages arising or resulting from any failure of
         BD or AeroGen to warn, or to adequately warn, against the dangers of
         the BD Cartridge or failure of BD or AeroGen to instruct or to
         adequately instruct, about the safe and proper use of the BD
         Cartridge, or any damages arising or resulting from the filling
         and/or assembly of the BD Cartridge by AeroGen or any third party.

                  (d)      APPORTIONMENT. Consistent with the foregoing, in the
         event any and all such claims, demands, actions, suits, causes of
         action, damages and expenses (including, but not limited to expenses of
         investigation, settlement, litigation and reasonable attorneys' fees
         incurred in connection therewith) relate to the Interface, each Party
         hereby agrees to indemnify, defend and hold harmless the other Party
         and its officers, directors, agents and employees with respect to that
         portion of any such claims, demands, actions, suits, causes of action,
         damages and expenses (including, but not limited to expenses of
         investigation, settlement, litigation and reasonable attorneys' fees
         apportioned between the Parties based upon each Party's percentage of
         all Royalties received from each Marketing Partner.

                  (e)      PROCEDURES. SHOULD A PARTY (THE "INDEMNIFIED PARTY")
         INTEND TO CLAIM INDEMNIFICATION HEREUNDER, IT SHALL PROMPTLY NOTIFY
         THE OTHER PARTY ("INDEMNIFYING PARTY") IN WRITING OF ANY LOSS, CLAIM,
         DAMAGE, LIABILITY OR ACTION IN RESPECT OF WHICH SUCH INDEMNIFIED PARTY
         INTENDS TO CLAIM SUCH INDEMNIFICATION, AND THE INDEMNIFYING PARTY SHALL
         BE ENTITLED, BUT NOT OBLIGATED, TO ASSUME THE DEFENSE THEREOF WITH
         COUNSEL SELECTED BY THE INDEMNIFYING PARTY, AND THE INDEMNIFIED PARTY,
         INCLUDING ITS EMPLOYEES AND AGENTS, SHALL COOPERATE FULLY WITH
         INDEMNIFYING PARTY AND ITS LEGAL REPRESENTATIVES IN THE INVESTIGATION
         AND DEFENSE OF ANY ACTION, CLAIM OR LIABILITY COVERED BY THIS SECTION.

                  (f)      EXCEPT AS PROVIDED HEREIN, BD MAKES NO OTHER
         WARRANTIES AND ASSUMES NO OTHER OBLIGATIONS, EXPRESS OR IMPLIED, WITH
         RESPECT TO THE BD CARTRIDGE OR THE PRODUCT. ALL OTHERS ARE HEREBY
         DISCLAIMED BY BD.

18.      TERM. The term of the Supply Agreement would be for an initial period
         of five (5) years. The Supply Agreement would be automatically renewed
         for additional two (2) year periods unless either Party provides the
         other Party with written notice of its desire not to renew the Supply
         Agreement at least eighteen (18) months before the expiration of the
         term of such Supply Agreement or any renewal thereof.

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

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                                    EXHIBIT 4

                               POTENTIAL INVENTORS

                                      [*]

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BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED.

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                                    EXHIBIT 5

                      FORM OF STANDARD EMPLOYMENT AGREEMENT

                               EMPLOYEE AGREEMENT

                                      [*]

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

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                                    EXHIBIT 6

                         AEROGEN INHALER WITH BD CARTRIDGE

                                      [*]

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

                                      45.

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