Document:

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                                                                 CONFIDENTIAL

                                                                    EXHIBIT 10.6

                          SECOND AMENDED AND RESTATED

                  DEVELOPMENT AND COMMERCIALIZATION AGREEMENT

                                    between

                               ALZA CORPORATION

                                      and

                              DURECT CORPORATION

*Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
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                               TABLE OF CONTENTS

                                                                            PAGE

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

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                          SECOND AMENDED AND RESTATED
                          ---------------------------
                  DEVELOPMENT AND COMMERCIALIZATION AGREEMENT
                  -------------------------------------------

     This Second Amended and Restated Development and Commercialization
Agreement (the "Agreement") is effective as of April 28, 1999 ("Effective Date")
between ALZA Corporation, a Delaware corporation ("ALZA"), and Durect
Corporation, a Delaware corporation ("Durect").

                                   RECITALS
                                   --------

     A.   ALZA and Durect have previously entered into that certain Development
and Commercialization Agreement with an effective date of April 21, 1998 and
subsequently entered into an Amended and Restated Development and
Commercialization Agreement with an effective date of April 28, 1999
(collectively "Previous Agreement") for the development, manufacture and
marketing of pharmaceutical products utilizing proprietary technology of ALZA
relating to the DUROS(R) System for the controlled delivery of drugs in certain
fields, as set forth herein.

     B.   The parties wish to amend such Previous Agreement and restate their
understandings herein.

     NOW THEREFORE, in consideration of the mutual covenants and agreements
provided herein, the parties hereby agree as follows:

                            SECTION 1 - DEFINITIONS
                            -----------------------

     For purposes of this Agreement, the following terms shall have the
respective meanings set forth below:

          1.1  "Affiliate" shall mean a corporation or any other entity that
                ---------
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

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common control with, the designated party, but only for so long as the
relationship exists. "Control" shall mean ownership of shares of stock having at
least 50% of the voting power entitled to vote for the election of directors in
the case of a corporation, and at least 50% of the interests in profits in the
case of a business entity other than a corporation.

          1.2  "Catheter" shall mean a device for transporting Drug from the
                --------
System to a specific anatomical site for delivery, which device is selected,
identified or developed by Durect (and not by ALZA) for use in a Product.

          1.3  "Commercialization" shall mean the ongoing process and activities
                -----------------
generally engaged in by a company marketing life-science products to establish
and maintain a nationwide presence for a product, including, but not limited to
offering for sale, selling, marketing, promoting, distributing and importing
such product.

          1.4  "Confidential Information" shall mean all non-public Technical
                ------------------------
Information, whether in oral, written or other tangible form that one party
discloses to the other under this Agreement and designates as confidential at
the time of disclosure or within 30 days thereafter.

          1.5  "Development Costs" shall mean ALZA's fully-allocated costs of
                -----------------
performing the development activities for the Program, as calculated in
accordance with Exhibit E.

          1.6  "Drug" shall mean an active pharmaceutical agent, in its pure
                ----
form or in a formulation, that is incorporated in a System to create a Product
under the terms and conditions of this Agreement.

          1.7  "Durect Field" shall mean, subject to modification under the
                ------------
terms of this Agreement, one of the following fields of use, and no others:

               (a) "CNS Field" shall mean delivery of drugs for the treatment of
                    ---------
pain, [* * *] directly into a component of the central nervous system from an
implantable pump via a catheter; provided, however, solely with respect to a
Product using Sufentanil as the Drug, there shall be no requirement that the
Drug be delivered via a catheter.

               (b) "Middle/Inner Ear Field" shall mean delivery of drugs
                    ----------------------
directly into the middle and/or inner ear from an implantable or external pump
via a catheter.

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

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               (c) "Pericardium Field" shall mean delivery of drugs directly
                    -----------------
into the pericardial sac from an implantable pump via a catheter.

               (d) "Vascular Graft Field" shall mean delivery of drugs
                    --------------------
consisting of and limited to [* * *] directly into vascular grafts from an
implantable pump via a catheter .

               (e) "Cancer Antigen Field" shall mean delivery from an
                    --------------------
implantable pump of an anti-cancer antigen from the list of anti-cancer antigens
attached hereto as Exhibit A or a combination of such anti-cancer antigens,
solely for treatment by immunization therapy. Such list of anti-cancer antigens
may be reviewed for additions or deletions from time to time by representatives
of ALZA and Durect, such determination to be made by mutual written agreement at
the discretion of each party.

     To provide further clarification, the Durect Fields shall not include
applications of any ALZA drug delivery technology other than applications of
DUROS(R) Technology as set forth in this Agreement.

          1.8  "DUROS(R) Technology" shall mean all Technical Information
                -------------------
relating to the System.

          1.9  "FDA" shall mean the United States Food and Drug Administration
                ---
or any successor United States governmental agency performing similar functions
with respect to pharmaceutical products.

          1.10 "IND" shall mean the application for Investigation of a New Drug
                ---
submitted to the FDA.

          1.11 "Intellectual Property Rights" shall mean trade secrets, patents,
                ----------------------------
copyrights, know-how and similar rights of any type under the laws of any
governmental authority, domestic or foreign, including all applications and
registrations relating to any of the foregoing.

          1.12 "Major Market Country" shall mean any one of Canada, France,
                --------------------
Germany, Italy, Japan, the United Kingdom and the United States.

          1.13 "Minimum Payments" shall have the meaning set forth in Section
                ----------------
6.2 hereof.

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

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          1.14 "Minimum Payment Year" shall mean a period of four consecutive
                --------------------
Payment Computation Periods beginning with the first day of the Payment
Computation Period following the Payment Computation Period during which all
necessary regulatory approvals to market the Product in a Major Market Country
have been received, and each successive four Payment Computation Periods
thereafter.  The first four Payment Computation Periods shall be the First
Minimum Payment Year; the next four Payment Computation Periods shall be the
Second Minimum Payment Year; etc.

          1.15 "NDA" shall mean a "New Drug Application," "Product License
                ---
Application," or other application for approval to market a product submitted to
the FDA, as amended or supplemented from time to time.

          1.16 "Net Sales" shall mean the amounts invoiced on sales of a Product
                ---------
by Durect and its Affiliates and Subcontractors to independent, unrelated third
parties in bona fide arms-length transactions, less the following deductions
actually allowed by Durect, its Affiliates and Subcontractors and taken by such
third parties and not otherwise recovered by or reimbursed to Durect, or its
Affiliates or Subcontractors:  (i) trade, cash and quantity discounts; (ii)
taxes or government charges levied on the sale of Product to the extent added to
the sales price and set forth separately as such in the amount invoiced; (iii)
amounts repaid or credited by reason of rejections, defects or returns or
because of rebates or retroactive price reductions; and (iv) delivery charges
(including transportation and insurance costs) actually included in the Net
Sales invoiced.  Net sales shall not include the prices charged (at fair market
value) for separate products such as catheter access devices, syringes, gloves,
and gauze pads, that may be either sold separately from the Product or bundled
with the Product in the form of a kit;  provided, however, that any Net Sales
shall be deemed to include the amount or fair market value of any consideration
(other than consideration described in Section 6.1(b)) received by Durect or its
Affiliates or Subcontractors that can be attributable to a Product, whether such
consideration is in cash or payments in kind.  Net Sales shall not include sales
of a Product between or among Durect and its Affiliates and Subcontractors.

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

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          1.17 "Payment Computation Period" shall mean each three month period,
                --------------------------
or any portion thereof, ending March 31, June 30, September 30, or December 31
of each year during the term of this Agreement.

          1.18 "Primary Field" shall mean the [***].
                -------------

          1.19 "Product" shall mean at any time: (i) any human pharmaceutical
                -------
product consisting of a Drug incorporated in or combined with a System and
(except in cases where the Durect Field definition does not require a catheter)
Catheter, which product is: (A) designed for use in a Durect Field; and (B)
selected as a Product under Section 2.2; or (ii) another product that is
substantially similar to the Product of clause (i), for example, a different
strength (i.e., a different amount of active ingredient delivered in the same
          ----
pattern and by the same route of administration), or having only cosmetic
changes such as size, color, shape, etc., or similar nontherapeutic changes.
                                    ----

          1.20 "Product Candidate" shall mean any human pharmaceutical product
                -----------------
consisting of a Drug incorporated in or combined with a System and (except in
cases where the Durect Field definition does not require a catheter) Catheter,
which product is designed for use in a Durect Field and which enters the
Screening Stage of development (as described in Exhibit C). Product Candidates
shall be listed on Schedule 1, which Schedule shall be amended from time to time
as required by adding those Product Candidates in accordance with Section 2.1
and deleting those Product Candidates that have become Products or are no longer
being developed as provided hereunder. A Product Candidate shall become a
Product when it enters the Feasibility Stage of development (as described in
Exhibit C).

          1.21 "Product Payments" shall mean the payments described in Section
                ----------------
6.1.

          1.22 "Program" shall mean all activities for developing and obtaining
                -------
regulatory approval to Commercialize Product(s) developed under this Agreement
in the Durect Fields in  the Territory.

          1.23 "Program Information" shall mean any Technical Information
                -------------------
developed or acquired by either party and/or a Subcontractor under or in
connection

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

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with the Program, and any Technical Information developed by one party using any
other Program Information or any of the other party's Confidential Information.

          1.24 "Regulatory Data" shall mean the medical, toxicological,
                ---------------
pharmacological and clinical data included within Technical Information to the
extent necessary to, required for, or included in any governmental regulatory
filing to obtain or maintain regulatory approval to market a Product.

          1.25 "Secondary Fields" shall mean the [***].
                ----------------

          1.26 "Subcontractors" shall mean any third party persons or entities
                --------------
(other than wholesalers) to which Durect or any Durect Affiliate directly or
indirectly grants any right to Commercialize a Product as provided for
hereunder.

          1.27 "Supply Agreement" shall mean an agreement for the supply of
                ----------------
Durect's, its Affiliates' and Subcontractors' total requirements of each Product
by ALZA, referenced in Section 5.6.

          1.28 "Subterritory" shall mean one of the following:
                ------------

               Subterritory A -- The United States, Canada and Mexico.
               Subterritory B -- European Community
               Subterritory C -- Japan and the Far East (as described in Exhibit
                                 D).
               Subterritory D -- All other countries of the Territory

          1.29 "System" shall mean a drug delivery system which includes and is
                ------
contained within an implantable (or externally worn) osmotic pump intended to
function by releasing the active agent or agents on a controlled basis. The term
"System" shall include all materials, technology and attributes contained
within, or incorporated in the osmotic pump (other than the Drug itself) and
shall include the formulation and stabilization of a therapeutic agent (such as
the Drug) in the System. The System shall not include a Catheter as defined in
Section 1.2, or (except to the extent agreed upon in writing by the parties) any
docking mechanism or other components used to connect a Catheter to the osmotic
pump, and shall not include by way of example, any delivery system that is
ingested in the gastrointestinal tract or that delivers drug through
substantially intact  skin.

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                       6
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          1.30 "Technical Information" shall mean know-how, trade secrets,
                ---------------------
formulations, inventions, data (including Regulatory Data), technology,
processes and information necessary or useful to the Products and/or the
Program, which a party hereto has the lawful and contractual right to disclose
to the other party, and any and all Intellectual Property Rights therein and
thereto. "Technical Information" shall include, without limitation, processes
and analytical methodology used in development, testing, analysis and
manufacture, and medical, clinical, toxicological and other scientific data.
Notwithstanding the foregoing, "Technical Information" shall not include
trademarks. Subject to the foregoing, ALZA Technical Information shall include:
(A) DUROS Technology (including but not limited to all information relating to
manufacture of Systems) and any other Technical Information owned by or licensed
to ALZA prior to April 21, 1998; (B) ALZA's Program Information (as set forth in
Section 8.1); and (C) Technical Information developed by ALZA outside the
Program after April 21, 1998 ("ALZA Technical Information"); and Durect
Technical Information shall include: (a) Technical Information owned by or
licensed to Durect prior to April 21, 1998; (b) Durect's Program Information (as
set forth in Section 8.1); and (c) Technical Information developed by Durect
outside the Program after April 21, 1998 ("Durect Technical Information").

          1.31 "Territory" shall mean all of the countries of the world, but
                ---------
shall exclude, for any Product: (i) countries which may be eliminated from the
Territory from time to time in accordance with this Agreement, and (ii) any
countries for which Durect does not have rights to commercialize the Drug
incorporated in such Product.

          1.32 "Work Plan" and "Cost Estimate" shall have the meaning set forth
                ---------       -------------
in Section 2.3.

                        SECTION 2- DEVELOPMENT PROGRAM
                        ------------------------------

          2.1  Product Development. Subject to the terms and conditions herein,
               -------------------
Durect shall diligently develop Products under the Program in accordance with
this Agreement, including making available such of its personnel, and taking
such steps as are

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                       7
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reasonably necessary, in order to carry out its obligations. In the event Durect
desires to initiate development work on a new product, it shall send to ALZA a
written notice setting forth a description of the proposed new product and
projected target dates for the filing of an IND, start of Phase III and filing
of an NDA (each a "Milestone"), which target dates shall be reasonable by
industry standards and shall be consistent with the timeline used by Durect for
internal planning and presentation to investors. Upon ALZA's written approval of
the target dates for the Milestones, which approval shall not be unreasonably
withheld, the proposed new product shall be added as a Product Candidate to
Schedule 1. From time to time, the parties will review the target dates for the
Milestones in good faith and, by mutual written agreement, revise and update the
target dates if necessary. Durect shall notify ALZA in writing when a Product
Candidate is ready to pass into the clinical development stage as outlined in
Exhibit C, in which event it shall be added as a Product to Schedule 2. Subject
to the terms and conditions of this Agreement, the addition or deletion of a
Product Candidate or Product to Schedule 1 or Schedule 2 shall be determined
based on the reasonable, good faith judgment of Durect, provided that any
proposed Product Candidate or proposed Product will not be added in the event
that: (i) such proposed Product Candidate or proposed Product was within the
past 12 months removed by ALZA from the Program pursuant to Section 2.5; or (ii)
ALZA determines, reasonably and in good faith, based on medical or technical
reasons, that the proposed Product Candidate or proposed Product is not suitable
for development because development or Commercialization of such proposed
Product or Product Candidate would be likely to be harmful to the reputation of
ALZA and/or DUROS Technology, provided, however, that: (a) ALZA's determination
pursuant to this clause (iii) shall be subject to review by a mutually
acceptable third party expert in the event of disagreement by the parties as to
such determination, and (b) ALZA shall not initiate development of such proposed
Product Candidate (or proposed Product), pursuant to Section 5.3 or otherwise,
for its own account or with a third party for a period of [***] years from the
date of ALZA's determination without first proposing such proposed Product
Candidate (or proposed Product) to Durect for development and providing Durect
with a period of [***] days in which to accept or reject such proposed Product
Candidate (or

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                       8
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Proposed Product) in writing and diligently initiate development under the terms
of this Agreement.

          2.2  Sharing of Information.
               ----------------------
          During the term of this Agreement, representatives of ALZA and Durect
shall meet within 30 days after the end of each calendar quarter, unless
mutually agreed to by the parties, to discuss and provide information regarding
the status of development, clinical programs, regulatory applications and
development costs and expenses incurred for the Products and Product Candidates
listed on Schedules 1 and 2 including without limitation progress against
diligence obligations. Upon request by ALZA or Durect, the parties shall also
meet from time to time to discuss improvements made to the System by each party.
In addition, each party shall promptly provide any information as reasonably
requested by the other party from time to time regarding its activities and
progress with respect to the Program.   The information exchanged by the parties
pursuant to this Section 2.2 shall be in confidence subject to the terms of
Section 4.1.

          2.3  Work Plans and System Development.
               ---------------------------------
               (a) In the event that Durect desires that ALZA provide certain
development services relating to any Product or Product Candidate, and ALZA
agrees to provide such services to Durect, Durect and ALZA shall develop a
mutually acceptable development plan ("Work Plan") for each Product Candidate
(or Product) which shall set forth:  (i) the development activities to be
performed by ALZA and estimated time schedule therefor; (ii) and the estimated
Development Costs therefor ("Cost Estimates"); which Work Plans and Cost
Estimates shall be signed by an authorized officer of each party.  ALZA shall
diligently perform those development activities assigned to it under the Work
Plan and shall use diligent efforts to complete tasks in the Work Plan in an
expeditious and cost-effective manner.

               (b) Development work for the System may be performed by Durect or
ALZA (to the extent agreed upon in the Work Plans). Durect shall have the right
to subcontract to third parties development of System components (but not

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                       9
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System design). The subcontracting of all other System development work will be
subject to the prior written consent of ALZA. If Durect desires to subcontract
out the development of System components as permitted herein to any third party,
prior to providing any information relating to Systems to such third party,
Durect shall notify ALZA of the identity of such third party, and Durect shall
enter into a confidentiality and invention assignment agreement with such third
party in a form previously approved by ALZA which expressly makes ALZA a third-
party beneficiary of such agreement and permits ALZA to directly enforce its
terms. Unless agreed to in writing by ALZA, the rights granted to Durect to
perform development work for the System pursuant to this Section 2.3 shall
terminate after a change in control of Durect in which Durect becomes controlled
by a third party company, in which event ALZA shall have the right to elect to
perform all development work relating to the System and ALZA and Durect shall
enter into a Work Plan for such System development work which shall provide for
the continued diligent performance of such System development work so as to
minimize disruption of Product timelines. If ALZA elects not to perform
development work relating to the System after such change in control, then
Durect shall continue to have the right to perform development work relating to
the System as set forth in this Section 2.3. For the purposes of this Section
2.3, "control" shall have the same meaning as set forth in Section 1.1. All
other Product development activities may be performed by Durect, ALZA (to the
extent agreed upon in Work Plans) or subcontracted to third parties.

          2.4  Development Payments. In consideration for ALZA's work on the
               --------------------
Program, Durect shall pay to ALZA its Development Costs provided that Durect
shall not be obligated to pay Development Costs in excess of those provided for
in approved Work Plans and Cost Estimates, and ALZA shall not be obligated to
perform work-which would result in Development Costs exceeding such approved
Cost Estimates.

          2.5  Durect Field(s) Diligence and Loss of Rights.  Durect shall
               --------------------------------------------
approve, fund and take other actions necessary to provide for development of
Products in each of the Durect Fields in accordance with the minimum diligence
requirements set forth in Exhibit F, and to pursue and fund proof of principle
work for Products in the Secondary

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      10
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Fields in accordance with Exhibit F. If Durect fails to meet the diligence
requirements relating to a Durect Field as set forth in Exhibit F, for which
such failure continues for [* * *] days after-the delivery of written notice
thereof by ALZA, then ALZA's sole and exclusive remedy shall be to terminate the
restrictions on ALZA provided for in Section 5.3 upon written notice from ALZA
solely in the Durect Field in which such requirements were not met (or such
Durect Field as is otherwise provided for in Exhibit F under "Consequences for
Fields"), in which event such Durect Field shall be deemed to be eliminated from
the "Durect Fields" definition, and thereafter no Product Candidates shall be
added to Schedule 1 within such Durect Field and no Products shall be added to
Schedule 2 for such Durect Field except for those Product Candidates existing at
the time of such elimination and for which the screening stage has been or
subsequently is successfully completed. Notwithstanding the elimination of any
Durect Field hereunder, Durect shall continue to have rights to the Product
Candidates and Products already included in Schedules 1 and 2 as of the date
that such field is eliminated so long as it continues to meet its obligations
for such Product Candidates and/or Products, including those set forth in
Exhibit F, provided, however, that if Durect fails to meet such obligations with
respect to a Product Candidate or Product and such failure continues for [* * *
] days after the delivery of written notice thereof by ALZA, then ALZA may
eliminate such Product Candidate or Product from this Agreement and ALZA shall
have the rights set forth in Section 11.6.

          2.6  Regulatory Activities.
               ---------------------
               (a) Durect shall diligently take all steps necessary to obtain
regulatory approval to market each Product in each Major Market Country of the
Territory, so long as Durect retains Commercialization rights for such Product
under this Agreement, including promptly preparing and filing necessary
applications for regulatory approval to market the Product in each such country
(including the IND and NDA and corresponding regulatory filings outside the
United States) and shall work diligently to obtain such approvals as
expeditiously as possible.  Durect shall use reasonable commercial diligence to
obtain such regulatory approvals in other countries of the

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      11
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Territory. ALZA may be delegated certain duties relating to clinical and
regulatory activities under the Program on a Product-by-Product basis by mutual
agreement as set forth in Work Plans. The CMC Section of any regulatory filing,
to the extent it relates to the System, may be maintained by ALZA, in one or
more of ALZA's Drug Master Files to the extent permissible under applicable laws
and regulations, for which Durect shall have the right of reference for each
Product hereunder. Durect shall prepare the CMC Section subject to ALZA's review
and decision-making authority under Section 2.6(b).

               (b) Notwithstanding the allocation of regulatory responsibilities
in this Section 2.6, the representatives of each party shall have the right to
review and comment upon all regulatory filings proposed to be made with respect
to any Product for each country of the Territory as to which Durect maintains
rights hereunder, provided that for any such comments to be considered, the
comments shall be provided within [* * *] business day after the receipt of any
draft filings for review. To the extent ALZA performs review of regulatory
filings or attends meetings with regulatory agencies as to matters beyond the
requirements of its activities under the Program (and not at Durect's request),
it shall do so at its cost and expense. Durect shall have the right to make
final decisions with regard to any regulatory filings relating to any Product,
provided that notwithstanding anything to the contrary herein, due to ALZA's
continuing interest in development and production of Systems for multiple
applications, ALZA shall have the right to approve regulatory matters relating
to the System or its function, manufacture or safety, including manufacturing
specifications and the relevant portions of the CMC Section of an NDA or its
equivalent. Each party shall with reasonable promptness provide the other party
with copies of all correspondence from or to such regulatory authorities
concerning each such Product. ALZA shall have the right to participate in any
conference or meeting with regulatory authorities with respect to each Product.
Durect shall notify ALZA in writing of its receipt of regulatory approval to
market the Product in any country of the Territory within [* * *] days after
receipt of any such approval.

          (c) Representatives of each party shall have the right to review and
comment on all proposed protocols for any clinical studies to be conducted by

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      12
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either party with respect to any Product, and each party shall make such changes
in such protocols as may be reasonably requested by the other in writing within
[* * *] business days after receiving the proposed protocols, provided that
Durect shall make final decisions on the protocols and their implementation. To
the extent ALZA conducts review of protocols as to matters beyond the
requirements of its activities in the Program (and not at Durect's request),
ALZA shall do so at its cost and expense.

               (d)  From time to time during the term of this Agreement, ALZA
may wish to include certain patent information in the patent certification of an
NDA filed or which may be filed by or on behalf of Durect under this Agreement
relating to a Product. If ALZA advises Durect in writing of the patent number
and expiration date, or such other information as the FDA may from time to time
require, of patents to be included in the NDA patent certification or any
amendment thereof, Durect shall include such information in the NDA, or amend
the NDA, within the applicable time limits required by law.

               (e)  Nothing contained in this Section 2.6 or elsewhere in this
Agreement is intended to conflict with any applicable regulations and laws
relating to procuring and maintaining regulatory approval for the Products in
all countries of the Territory where the Products will be developed and
Commercialized, and in the event of any conflict with the terms of this
Agreement and applicable laws, the applicable laws will control.

               SECTION 3 - DISCLOSURE OF INFORMATION
               -------------------------------------
          3.1  Disclosure.  Upon execution of this Agreement, and thereafter
               ----------
during the term hereof, at such times as the parties shall mutually agree, each
party shall disclose to the other, in confidence subject to Section 4.1 hereof,
relevant Confidential Information and Program Information necessary or useful to
the Program. Each party may use such Confidential Information and Program
Information disclosed by the other party for the purposes permitted by this
Agreement, but for no other purpose. Each party shall, at the request of the
other and on a confidential basis

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      13
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subject to Section 4.1, allow personnel of the other party to consult with its
staff at mutually agreeable times, to discuss and review such Confidential
Information and Program Information. All Confidential Information and Program
Information heretofore or hereafter disclosed by either party to the other
relating to the subject matter hereof shall be deemed to have been disclosed
pursuant to this Agreement and shall be subject to the provisions of this
Agreement including, but not limited to, Section 4.1.

               SECTION 4 - CONFIDENTIALITY OF INFORMATION
               ------------------------------------------
          4.1  Confidentiality.  Except as specifically authorized by this
               ---------------
Agreement, each party shall, for the term of this Agreement and for [* * *]
years after its expiration or termination for any reason, keep confidential, not
disclose to others and use only for the purposes authorized herein, all of the
other party's Confidential Information and Program Information, except as
permitted by this Agreement; provided, however that the foregoing obligation
shall not apply to the extent that any such information is (i) already known to
the recipient at the time of disclosure, as evidenced by its prior written
records (but not including information known to Durect personnel as a result of
prior association with ALZA), (ii) publicly known prior to or after disclosure
other than through unauthorized acts or omissions of the recipient, or (iii)
disclosed in good faith to the recipient by a third party lawfully entitled to
make such disclosure, or (iv) independently developed by the recipient without
use of the disclosing party's Confidential Information as evidenced by written
records of the recipient; provided, however, that the exception in clause (iv)
shall not apply with respect to any alleged independent development by Durect of
information relating to Systems or DUROS Technology (including the manufacture
thereof), and provided further that ALZA shall have no obligations of
confidentiality or non-use respecting any information provided by Durect
relating to Systems or DUROS Technology. Notwithstanding the foregoing, any
Confidential Information may be (A) disclosed to governmental agencies and to
others where such information may be required to be included in patent
applications or regulatory filings permitted under the terms of this Agreement;
(B) provided to third

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      14
<PAGE>

parties under appropriate terms and conditions including confidentiality
provisions substantially equivalent to those in this Agreement for consulting,
manufacturing, development, external testing and marketing trials with respect
to the Product; (C) published, if and to the extent such publication has been
approved in writing by ALZA, to the extent it relates to ALZA Confidential
Information, or Durect, to the extent it relates to Durect Confidential
Information; or (D) disclosed to the extent required by applicable laws or
regulations or as ordered by a court or other regulatory body having competent
jurisdiction. In each of the foregoing cases, the recipient will use its
reasonable efforts to limit the disclosure and maintain confidentiality to the
extent possible.

               SECTION 5 - COMMERCIALIZATION RIGHTS
               ------------------------------------
          5.1  Grant of Rights.
               ---------------
               (a)  On the terms and conditions of this Agreement and subject to
ALZA's rights set forth in Section 5.5: (i) Durect shall have the exclusive
right to Commercialize each of the Products in the Territory, with the right to
record sales for its own account; (ii) on a Product-by-Product basis, Durect
shall have the right to appoint an Affiliate or Affiliates of Durect to
Commercialize Products in any country or countries of the Territory; (iii)
Durect shall also have the right, on a Product-by-Product basis, to appoint
and/or enter into agreements with Subcontractor(s) to Commercialize, sell and
distribute such Product in any country or countries of the Territory; and (iv)
Durect shall have the exclusive right (subject to the rights and obligations
under this Agreement respecting the development of the Systems including the
provisions of Section 2.3) to develop the Products and to appoint and/or enter
into agreements with Subcontractors to perform such development pursuant to this
Agreement. In the case of such appointment in any country by Durect of a non-
Affiliate: (i) such Subcontractor shall be subject to the terms and conditions
of this Agreement; (ii) if the Subcontractor will not be restricted from
developing or commercializing products (other than the Products for which the
Subcontractor is appointed under this Agreement) in the same Durect Field as the
Product(s) for which the Subcontractor is appointed, [***]

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      15
<PAGE>

[***] and (iii) the rights of ALZA under this Agreement shall not be prejudiced
or in any other way reduced or limited by such subcontracting arrangement.
Subject to the terms and conditions of this Agreement, ALZA hereby grants to
Durect and its Affiliates a license under Intellectual Property Rights covering
ALZA Confidential Information (including information owned by ALZA as of April
21, 1998 relating to catheters and mechanisms for docking catheters to the
Systems), ALZA Program Information, and the Systems solely to the extent
necessary for Durect to Commercialize and Manufacture (subject to Section 5.6
hereof) Products, to perform development activities as contemplated herein, and
to otherwise perform its obligations in accordance with this Agreement.

               (b)  Subject to the terms and conditions of this Agreement,
including but not limited to Section 5.3, Durect shall have the exclusive right
to Commercialize each Product on Schedule 2: (A) in Subterritories A, B and C
for a period of 20 years from the date of first commercial sale of such Product
to an independent third party in a Major Market Country in such Subterritory;
(B) in Subterritory D for a period of 20 years from the date of first commercial
sale of such Product in any Major Market Country.

               (c)  Subject to the terms and conditions of this Agreement,
Durect shall have an option to extend year-by-year the period of
Commercialization rights granted under Section 5.1(a) on a Product-by-Product,
Subterritory-by-Subterritory basis (with respect to the Products, Subterritories
and countries for which Durect has retained rights), by written notice to ALZA
given at least [* * *] prior to the expiration of Durect's rights under Section
5.1(b) for such Product in such Subterritory.

               (d)  If the option to extend Commercialization rights is
exercised in accordance with Section 5.1(c) for any Product in any Subterritory,
Durect shall commence making payments automatically under the provisions of
Section 6.3 for such

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      16
<PAGE>

Product with respect to such Subterritory as the obligations to make Product
Payments for such Product in such Subterritory under Section 6.1 expire. In the
event that Durect exercises its option to extend its rights described in Section
5.1(c), the Commercialization rights granted under Section 5.1(a) for such
Product in such Subterritory shall continue for the extension term(s) and under
the conditions set forth in Section 6.3.

               From time to time during the term of this Agreement, Durect may
proposed to ALZA in writing additional components to be added to the CNS Field,
consisting of a specific drug, drug class or clinical indication. Such proposal
shall include Durect's summary development plan and budget for developing
Products in such additional component for each of the five years following such
proposal.  Provided that such additional component is not in an area in which
ALZA at that time has commitments to a third party or has an active development
program of its own, and Durect and ALZA agree upon reasonable diligence
provisions for such additional component (which agreement the parties shall in
good faith attempt to reach within 60 days after ALZA's receipt of Durect's
summary development plan), the parties shall add such component to the CNS Field
definition.

          5.2  Commercial Diligence.  Within 30 days after the filing for
               --------------------
regulatory approval in the first Major Market Country for each Product, Durect
shall notify ALZA in writing as to its plans for Commercializing such Product in
the Territory. Durect shall diligently pursue regulatory approval and
Commercialization of the Products in the Territory. Promptly after obtaining the
necessary regulatory approvals (and pricing approval where applicable) in any
country of the Territory (and in any event within [* * *] months after such
approvals) Durect (or its Affiliates or Subcontractors) shall commence and shall
continue diligently to Commercialize the Product on a nationwide basis in such
country using the same efforts that an established pharmaceutical company
normally devotes to its own comparable products, so long as Durect retains
Commercialization rights under this Agreement. Without limiting the foregoing,
at any time after the [* * *] ALZA may, upon [* * *] days prior written notice
to Durect, identify any country in which a Product is not being commercially
sold by Durect, its Affiliates or Subcontractors and

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      17
<PAGE>

for which neither Durect or its Affiliates or Subcontractors are, nor have been
for at least the preceding [* * *] years, diligently seeking regulatory approval
to Commercialize the Product in such country (the "Identified Country"). ALZA
and Durect shall attempt in good faith, for up to [* * *] year from the date of
such notice, to seek a mutually acceptable means of Commercializing the Product
in such Identified Country, which may include both ALZA and Durect negotiating
an agreement with a third party. If after such [* * *] period no such means has
been agreed upon, then ALZA may, by written notice to Durect, terminate the
rights of Durect hereunder to Commercialize such Product in such Identified
Country. For each Product with respect to which Durect does not retain
Commercialization rights in any particular country ("Terminated Countries"),
ALZA shall have the rights to such Product in such Terminated Countries in
accordance with Section 11.6.

          5.3  Durect Field Exclusivity.
               ------------------------
               (a)  Subject to the terms and conditions of this Agreement
(including without limitation Section 5.3(c) and Section 2.5), ALZA shall not:
(i) develop for its own account a product using the System that is designed for
use in any Durect Field, or (ii) grant to a third party any rights to develop,
manufacture or Commercialize products using the System (or license Intellectual
Property Rights covering ALZA Technical Information) that ALZA knows or has
reason to know, at the time such third party arrangement is entered into, would
be a product designed for use in a Durect Field. Nothing herein shall be deemed
to restrict ALZA from developing or granting rights with respect to any products
that are not designed and developed for use in a Durect Field, subject to the
following:

               (A)  ALZA may not itself develop or Commercialize, nor grant
rights to a third party to develop or Commercialize any product using the System
which incorporates Sufentanil so long as Durect and/or a Subcontractor
(including ALZA) is diligently developing or Commercializing the non-
catheterized Product using Sufentanil as the Drug ("Sufentanil Product") in
accordance with the terms of this Agreement.

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      18
<PAGE>

               (B)  In the event ALZA (or a third party to whom ALZA has granted
rights) Commercializes a product using the System which incorporates an opioid
compound (other than Sufentanil) as the active ingredient, then starting upon
the FDA approval for such other product and during such period as Durect and/or
a Subcontractor is diligently developing or Commercializing the Sufentanil
Product in accordance with the terms of this Agreement, the payments due to ALZA
under Section 6 for the Sufentanil Product shall be reduced by [* * *].

               (C)  In the event that ALZA (or a third party to whom ALZA has
granted rights) Commercializes the Sufentanil Product as a result of ALZA's
exercise of its option right under Section 5.5(a), then if ALZA (or any third
party to whom ALZA has granted rights) commences Commercialization of any
product using the System which incorporates any opioid other than Sufentanil,
then commencing upon the FDA approval of such other product, Durect shall have
the right to [* * *] in which event [* * *]

     If Durect can reasonably show that a third party contractor of ALZA is
manufacturing or Commercializing products using the System, which products are
being used in the Durect Fields, then ALZA agrees to notify such third party
contractor of Durect's rights in the Durect Fields and, to the extent it has the
legal right to do so, to use its reasonable commercial efforts to stop such
third party from manufacturing or Commercializing such products in the Durect
Fields.  However, Durect acknowledges that ALZA may not have the right to limit
uses of products that are not designed for use in a Durect Field.  The
obligations of ALZA under Section 5.3 shall continue only for such period as is
covered by specifically agreed-upon diligence requirements as set forth in
Section 2.5 or Exhibit F.

               (b)  From time to time during the term of this Agreement, Durect
and ALZA may, at their discretion, discuss opportunities to add either
additional products or additional fields of products to the definition of Durect
Fields under this Agreement, by written agreement of the parties; provided that
neither party shall be obligated to enter into negotiations or into such an
agreement, or to reserve for the other party rights to any additional products
or fields until such time as an agreement is

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      19
<PAGE>

made to that effect. In addition, if any such additional Products, or Products
in such additional fields, involves clinical applications in the areas of [* *
*] or delivery of drugs to the [* * *] and subject to the exception provided in
the next sentence below, then ALZA shall have an option to obtain exclusive
Commercialization rights to such Products as set forth in Section 5.5(a). The
foregoing option to ALZA shall not apply to any Product which Durect
Commercializes through a Subcontractor who holds exclusive rights (by ownership
or exclusive license) to a United States patent which: (i) covers the Drug
incorporated into such Product, or the Drug's manufacture or use which but for a
license from the Subcontractor would preclude Durect from the development,
Commercialization or manufacture of such Product incorporating such Drug, and
(ii) will provide at least [***] years of market exclusivity from the time
Durect and the Subcontractor enter into an agreement for the development and/or
Commercialization of such Product (any such Product shall herein be referred to
as "Proprietary Product").

               (c) Notwithstanding Section 5.3(a), if ALZA is requested by a
third party to develop a product using the System without a catheter, which
product is designed for use in the Cancer Antigen Field, then ALZA shall notify
Durect in writing of such opportunity. Durect shall notify ALZA within [* * *]
days after the receipt of such notice from ALZA as to whether or not Durect
wishes to pursue such opportunity as a Product under this Agreement with such
third party. If Durect and such third party enter into a written agreement
providing for the development and Commercialization of the product within [* *
*] days after Durect's receipt of the notice from ALZA described in the first
sentence of this Section 5.3(c), then such product shall be developed as a
Product under this Agreement, and if such condition has not been met, then ALZA
shall be free to pursue such opportunity using the System without a catheter
with such third party; provided, however, that: (A) ALZA may not develop or
grant rights to a third party to develop or Commercialize any such product using
the System in the Cancer Antigen Field which product incorporates the same Drug
as a Product which is then being developed or Commercialized diligently by
Durect or a Subcontractor under this

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      20
<PAGE>

Agreement in the Cancer Antigen Field; and (B) for a period of [* * *] years
after April 21, 1998 ("Exclusion Period"), ALZA will refrain from developing or
granting rights to a third party to Commercialize any such product in the Cancer
Antigen Field which product is designed for the same clinical use for which a
Product is then being developed or Commercialized diligently by Durect or a
Subcontractor under this Agreement in the Cancer Antigen Field. Durect may
extend such Exclusion Period, by written notice to ALZA at least [* * *] days
before expiration of such Exclusion Period, by up to an additional [* * *] years
if Durect (i) has met and continues to meet all of its diligence requirements
under Section 2.5 in a timely manner, and (ii) is funding active development of
at least [* * *] Products in the Cancer Antigen Field, but in no event shall any
extension to the Exclusion Period be granted beyond [* * *] years following the
date of an initial public offering of Durect Stock. Subject to the foregoing, if
ALZA develops or Commercializes with a third party a product using the System
without a catheter designed for use in the Cancer Antigen Field pursuant to the
terms of this Section 5.3(c), and such product is designed for the same clinical
use a product for which development of a Durect Product the "Prior Durect
Product") has commenced under this Agreement prior to ALZA's entering into the
agreement with the third party, then if the basis on which ALZA is licensing,
developing or supplying such third party's product is more favorable to the
third party than the basis on which ALZA is licensing, developing or supplying
the Prior Durect Product hereunder, and there are no other terms or factors in
the third party arrangement that compensate for such more favorable terms, than
ALZA will offer the more favorable terms to Durect solely with respect to the
Prior Durect Product.

          5.4  Other Technologies; Conversion of Rights. The parties acknowledge
               ----------------------------------------
that ALZA is relying on Durect's commitment to utilizing DUROS Technology in
development of its products. Accordingly, the Commercialization rights for
Products granted to Durect under this Agreement shall become non-exclusive
rights, and the restrictions on ALZA provided for in Section 5.3 will terminate
upon written notice from ALZA, if at any time during the term of this Agreement
Durect develops or Commercializes any drug delivery technology for use in any of
the Durect Fields and that would be used in a manner similar to the DUROS
Technology. In such event, no additional Product Candidates or Products shall be
added to Schedules 1 or 2 (but Durect shall retain exclusive rights only to
Products already included in Schedule 2 and only for so long as Durect continues
to meet its obligations for such Products including those set forth in Exhibit F
and does not develop any product using such other drug delivery technology that
contains the same Drug for use in the same Durect Field as any of such
Products). Nothing in this Section 5.4 shall be deemed to restrict Durect from
developing and Commercializing any type of drug delivery technology in any
fields of use outside of the Durect Fields. During the term of this Agreement,
Durect shall have the right to delete any Durect Field(s) from the "Durect
Fields" definition by written notice to ALZA effective [* * * ] day after
such notice is received by ALZA, in which event,

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      21
<PAGE>

all rights of Durect in such Durect Field shall terminate; provided, however,
such deletion of any Durect Field by Durect shall not affect the rights and
obligations of the parties with respect to any other Durect Fields not deleted
in accordance with this Section 5.4.

          5.5  ALZA Rights.
               -----------
               (a)   Durect hereby grants to ALZA options to obtain exclusive
worldwide Commercialization rights to each Product in the Cancer Antigen Field
which is not a Proprietary Product (as defined in Section 5.3(b) above) and each
additional Product for which ALZA has option rights under Section 5.3(b) (each
an "Option Product") and an option to obtain exclusive Commercialization rights
in the U.S. and Canada to the Sufentanil Product subject to the following
conditions. At the time that Durect has received data from [* * *], Durect may
deliver written notice thereof to ALZA, along with the data and a report
summarizing such data regarding such Product, provided that Durect must deliver
such notice to ALZA by [* * *] unless mutually agreed to in writing by the
parties. No later than [* * *] days after such notice from Durect ("Option
Period"), ALZA shall notify Durect in writing whether it elects to:

               (i)   enter into an agreement with Durect to develop and
Commercialize such Product, in which case the parties shall negotiate in good
faith an agreement for the development and Commercialization of such Product,
which agreement shall require ALZA to Commercialize such Product with the same
degree of diligence as required of Durect under Section 5.2; or

               (ii)  not obtain Commercialization rights to such Product, in
which event Durect shall be entitled to enter into an agreement with a third
party to develop and Commercialize such Product; or

               (iii) solely with respect to an Option Product, extend the Option
Period by increments of [***] months until such time as [* * *] and thereafter
by increments of [***] year until such time [***] (each increment an "Extension
Period"), provided that ALZA shall be required to fund development work for such

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      22
<PAGE>

Product during each such Extension Period, but provided further that ALZA shall
not be required to fund development work on more than [***] at a time in the
Cancer Antigen Field or any additional field under Section 5.3(b) in order to
extend its options for all Products in such Durect Field. ALZA may not extend
the OPtion Period past the [***] for such Product unless mutually agreed to in
writing by the parties.

          If ALZA elects to exercise its option to the Sufentanil Product or any
other Product subject to this Section 5.5(a) at any time during the Option
Period or any Extension Period, and the parties are unable to agree on terms for
such Commercialization rights within [***] days after such exercise, either
party may elect to submit the determination of such terms to special arbitration
in accordance with Section 15, provided that judgment must be rendered no later
than [***] days after the commencement of arbitration (as defined in Section
15). In such arbitration, the arbitrators shall be instructed to make a
determination as to the fair market value of the rights granted to the Product
in question as between two independent companies negotiating at arms' length and
shall determine appropriate terms, including reasonable diligence provisions,
taking into account, among other things, evidence presented concerning the terms
agreed upon by other parties in arms' length negotiations for products at a
similar stage of development and with similar market potential. Upon such
decision by the arbitrators, the decision shall become a binding agreement of
the parties.

          In addition, with respect to any Products in all Durect Fields not
subject to the application of Section 5.5(a), except for those Products for
which Durect either obtains funding or access to a proprietary Drug from a third
party and has granted Commercialization rights to the third party providing such
funding or Drug prior to the commencement of human clinical trials for such
Product, if Durect seeks a third party to Commercialize a Product other than
such excepted Products (including by Subterritory), Durect shall deliver
written notice thereof to ALZA. Upon receipt of such notice by ALZA, if ALZA is
interested in such opportunity, the parties shall attempt to negotiate in good
faith the terms of an agreement for ALZA to Commercialize such product for a
period of 90 days ("Negotiation Period"). If, despite such good faith
negotiations, ALZA and Durect are unable to agree upon binding written terms for
such an arrangement within the Negotiation period, then Durect will thereafter
be free to enter into agreement(s) with other parties for the commercialization
of such Product.

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      23
<PAGE>

[***]

          5.6  Manufacture of Product.
               ----------------------
               (a)  Subject to the terms and conditions of this Agreement,
including those set forth in this Section 5.6: (i) Durect shall have the
exclusive right, in the Territory, to manufacture, assemble and finish
commercial and clinical supplies of Products, including the right to make
Systems and fill Systems solely and specifically for incorporation into Products
and not for any other purpose (collectively "Manufacture"); (ii) on a
                                             -----------
Product-by-Product basis, Durect shall have the right to appoint such Affiliates
for which Durect possesses, directly or indirectly, the power to direct or cause
the direction of the management or policies of such Affiliates to Manufacture
Products in [* * *] and such other countries as shall be agreed upon by the
parties from time to time; and (iii) on a Product-by-Product basis, Durect shall
also have the right to subcontract out to third parties who normally engage in
such subcontract assembly work for others the manufacture of production and
process equipment, System components, the filling of Systems, and sterilization
and final assembly of Product for commercial and clinical supplies of Products,
provided that System subassembly may not be subcontracted to third parties
without ALZA's written approval. Other than subcontracting as specifically set
forth in Section 5.6(a)(ii)-(iii) above, the Manufacture of Product shall be
performed only by Durect and may not be subcontracted to any parties other than
ALZA without the prior written consent of ALZA. Unless agreed to in writing by
ALZA, the rights granted to Durect pursuant to this Section 5.6 or manufacturing
rights granted elsewhere in this Agreement shall terminate upon a change in
control of Durect in which Durect becomes controlled by a third party company,
in which event, ALZA shall have the right to elect to supply all of Durect's and
its Affiliates and Subcontractor's clinical and commercial requirements for
Product (excluding any Catheter or other components as agreed upon by the
parties which are external to the System), at ALZA's fully allocated
Manufacturing Costs plus 25% of such Costs as determined in accordance with
Exhibit G

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      24
<PAGE>

hereto, and ALZA and Durect shall enter into a written supply agreement for such
manufacture and supply to Durect, its Affiliates and Subcontractors which shall
include such provisions for interim supply to ensure uninterrupted supply of
Products (at a price to Durect of ALZA's fully allocated Manufacturing Costs
plus 25% if ALZA provides for all or any part of such interim supply until ALZA
is able to fully meet Durect and its Affiliates and Subcontractor's requirements
after such a change in control. If ALZA elects not to supply Durect and its
Affiliates and Subcontractor's requirements after such a change in control, then
Durect shall continue to have the right to Manufacture Product as set forth in
this Section 5.6. For the purposes of this Section 5.6(a), "control" shall have
the same meaning as set forth in Section 1.1.

               (b)  The parties acknowledge that ALZA has provided Durect with
reasonable assistance (including making available scientific, engineering and
manufacturing and other personnel) and transferred to Durect appropriate
documentation relating to Systems manufacture in accordance with a work plan
agreed upon by the Parties. All such materials and information shall remain the
sole property of ALZA.  At the request of ALZA, Durect shall promptly transfer
back to ALZA any and all improvements, documentation or other Technical
Information that may be developed by Durect or its subcontractors relating to
Manufacture of Systems.  To the extent such transfer requires technical
assistance from Durect, ALZA shall reimburse Durect for the cost of such
assistance as determined in accordance with Exhibit E.

               (c)  All Manufacturing of Product by Durect hereunder shall be in
strict accordance with all applicable laws and regulations, including the
"current good manufacturing practices" regulations of the U.S. Food and Drug
Administration.  If Durect desires to subcontract any part of manufacturing of
Systems as permitted herein to any third party, prior to providing any
manufacturing information relating to Systems to such third party, Durect shall
notify ALZA of the identity of such third party, and Durect shall enter into a
confidentiality and invention assignment agreement in a form previously approved
by ALZA with such third party which expressly makes ALZA a third-party
beneficiary of such agreement and permits ALZA to directly enforce its terms.

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      25
<PAGE>

          5.7  Identification of ALZA.  At ALZA's request, Durect shall cause
               ----------------------
each Product and its packaging to display prominently, in a manner reasonably
acceptable to ALZA, an ALZA name and logo, and to identify ALZA as a developer
of such Product. All uses of the ALZA name and marks shall be subject to prior
review and approval by ALZA within 30 days.

                             SECTION 6 - PAYMENTS
                             --------------------
          6.1  Product Payments.  In consideration of the rights granted to
               ----------------
Durect hereunder, the performance of the Program by ALZA and ALZA's other
obligations under this Agreement, Durect shall make Product Payments to ALZA on
Net Sales of the Product for the term of the Commercialization rights set forth
in Section 5.1. The payments to be made under this Section 6.1 are in
recognition of the unusual nature of the arrangements between the parties,
pursuant to which ALZA will provide access to technology over several years,
without profit, in anticipation of possible future payments under this section
6.1.  By the payments under this Section 6.1, it is the intent of the parties
that ALZA's efforts and expenditures in creating DUROS Technology to be utilized
in the Program be recognized by a long-term financial sharing in Durect's
Product revenues.

               (a)  Product Payments on Net Sales of Product due under this
Section 6.1 for any calendar year shall be based on the prior calendar year's
total Net Sales of Product in the Territory, with payment rates for such
calendar year to be the applicable percentages set forth herein. The applicable
payment rate shall be calculated by [***] but shall not be less than 2.5% nor
more than 5%. During the first calendar year of Product sales, the payment rate
will be 2.5%.

          Examples:

               Sales in Year X-1*   Payment Rate
                   ($ Million)      For Year X**
               ------------------   ------------

                      [***]            [***]
**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      26
<PAGE>

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

*   Net Sales in the Territory by Durect, its Affiliates and Subcontractors for
    the prior calendar year.
**  The applicable payment rate for the current calendar year.

          (b)  In addition to Product Payments under Section 6.1(a), Durect
shall make payments to ALZA equal to 5% of any upfront, milestone or any special
fees, payments or other Consideration received by Durect, its Affiliates or
Subcontractors with respect to Products after deducting from such consideration:
(i) any tax or other government charge (other than income tax) levied on such
consideration to the extent borne by Durect, its Affiliates and Subcontractors
and (ii) any payments (or portions thereof) that constitute reimbursement of
(and are determined based upon) genuine research, development and/or
manufacturing costs incurred by Durect, its Affiliates and Subcontractors
including but not limited to reimbursement of expenses for reagents, materials,
equipment, salaries, testing, clinical trials, insurance and any overhead
reasonably attributable to such research, development or manufacture.

          6.2  Minimum Payments.  Durect shall make Minimum Payments to ALZA, on
               ----------------
a Subterritory by Subterritory basis for Subterritories A, B and C, as follows:
With respect to each Product, periodically during the Program, commencing in the
calendar quarter when a Product first becomes a Product, Durect shall provide
ALZA with good faith projections of Net Sales for each of the first [* * *]
years of marketing such Product in each Subterritory. At least [* * *] in each
calendar year Durect shall update such projections, with one update to be
delivered no later than [* * *] days after NDA filing (or if earlier, the first
filing for regulatory clearance to market the Product in a Major Market
Country), and a final update to be delivered within [* * *] days after the first
regulatory clearance to market the Product in a Major Market Country. Such
projections shall be consistent with those provided for purposes of forecasting
amounts to be manufactured by Durect or supplied by ALZA pursuant to the Supply
Agreement. Minimum Payments shall commence and shall be paid as follows:

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      27
<PAGE>

               Subterritory        Minimum Payment Commences With
               ------------        ------------------------------

               A or B*             First Minimum Payment Year
               A or B**            Second Minimum Payment Year
               C                   Third Minimum Payment Year

*   Whichever of Subterritory A or B in which the Product is first approved in a
    Major Market Country.
**  The other of Subterritory A or B.

Once commenced in accordance with the above table, Quarterly Minimum Payments
for each of Subterritories A, B and C shall be 0.375% of the total final
projection for each of the first [* * *] years of marketing of the Product for
such Subterritory (1.5% of projected Net Sales of Product on an annual basis),
                   ----
and Min imum Payments for each such Subterritory shall continue thereafter at
the [* * *] year level. Minimum Payments paid to ALZA by Durect shall be fully
creditable against Product Payments on Net Sales under Section 6.1 for the
Minimum Payment Year for which the Minimum Payments are made. No Minimum
Payments will be payable in Subterritory D.

          6.3  Optional Payments to Extend Commercialization Rights; Payment
               -------------------------------------------------------------
Adjustments. If Durect exercises its option to extend its sole Commercialization
-----------
rights under Section 5.1 in accordance with Section 5.1(c) hereof for any
Subterritory, Durect shall pay to ALZA, for each country of such Subterritory,
beginning on the date when the obligation to make Product Payments under Section
6.1 has terminated for such Subterritory and for as long as Durect elects to
continue its sole Commercialization rights under Section 5.1(c) hereof for such
Subterritory the same Product Payments as set forth in Section 6.1(a) and (b)
for the initial Commercialization term of Net Sales of Product in such
Subterritory. Payments by Durect under this Section 6.3 for each Subterritory
shall continue until such time as Durect provides written notice to ALZA, not
less than [* * *] days before the beginning of any calendar year, that payments
under this Section 6.3 will cease as to such Subterritory at the beginning of
the calendar year set forth in such notice, at which time the rights under
Section 5.1 shall terminate for such Product for such Subterritory.

          6.4  Compulsory License.  During the period that Durect retains the
               ------------------
sole Commercialization rights to a Product in any country, if in such country
any third party tries to obtain from ALZA or Durect or any Affiliate or
Subcontractor thereof a compulsory license or rights pursuant to governmental
authority to market the Product

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      28
<PAGE>

in such country, ALZA and Durect will use all reasonable efforts to oppose the
grant of such license or rights and to obtain the highest royalty or payment
rate possible if such compulsory license cannot be avoided. In the event that a
third party obtains such compulsory license in such country, Durect shall have
the benefit of any more favorable payment terms with respect to such Product in
such country as is granted under such compulsory license or right, from the date
of first commercial sale by the third party of the Product in such country.

          6.5  Payment Estimates.  Within [* * *] days after the end of each
               -----------------
Payment Computation Period, beginning with the Payment Computation Period as to
which payments are first due to ALZA under this Section 6, Durect shall provide
ALZA with a written estimate of Product sales as to which payments will be due
in respect of the Payment Computation Period in question.

          6.6  Other Consideration.
               -------------------
               (i)   Simultaneous with the execution of this Agreement, Durect
is issuing to ALZA 1,000,000 shares of Durect Common Stock pursuant to the
Common Stock Purchase Agreement attached hereto as Exhibit I.

               (iii) Simultaneously with the execution of this Agreement, Durect
is issuing to ALZA warrants to purchase, 1,000,000 shares of Durect Common Stock
pursuant to the Warrant Agreement attached hereto as Exhibit J.

                        SECTION 7 - PAYMENT PROCEDURES
                        ------------------------------
          7.1  Development Cost Payments. Payments due under Sections 2.4 and
               -------------------------
2.6 hereof shall be made quarterly within 30 days after the date of receipt by
Durect of ALZA's invoice.

          7.2  Product-Based Payments.  Payments to ALZA from Durect due under
               ----------------------
Sections 6.1 and 6.3 hereof shall be made within 60 days after the end of each
Payment Computation Period with respect to Net Sales of the applicable Products
during such Payment Computation Period. Payments to ALZA from Durect due under
Section 6.2 shall be made within 60 days after the end of each Payment
Computation

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      29
<PAGE>

Period as to which payments are due. Each payment under this Section 7.2 shall
be accompanied by a report setting forth the calculations of the amounts payable
to ALZA on a Product-by-Product and Subterritory-by-Subterritory basis.

          7.3  Manner of Payment.  All payments due hereunder shall be made in
               -----------------
United States dollars and, unless otherwise agreed in writing, shall be made by
wire transfer to such bank as ALZA may designate in writing without set-off and
free and clear of, and without any deduction or withholding for or on account
of, any taxes, duties, levies, fees or charges except those taxes or duties
levied against ALZA which are legally required to be withheld by Durect.
Payments due on Net Sales made in currency other than United States dollars
shall first be calculated in the foreign currency and then converted to United
States dollars on the basis of the exchange rate in effect for the purchase of
United States dollars with such foreign currency as quoted in the Wall Street
                                                                  -----------
Journal (or comparable publication if not quoted in the Wall Street Journal)
-------
with respect to the currency of the country of origin of such payment on the
last business day of the Payment Computation Period for which the payment is
being made.  If restrictions on the transfer of currency exist in any country
such as to prevent Durect from making payments in the United States, Durect
shall take all reasonable steps to obtain a waiver of such restrictions or
otherwise to enable Durect to make such payments, failing which Durect shall, or
shall cause a United States Affiliate to, pay the amounts due upon sales in such
country in United States dollars.

          7.4  Books of Account.  Each party shall maintain true and complete
               ----------------
books of account containing an accurate record of all data necessary for the
proper computation of payments due from it or charges made by it under this
Agreement.  Each party shall have the right, through the independent certified
public accountant employed by the other party to conduct its regular annual
audit, or through a firm of independent public accountants selected by mutual
agreement of the parties, to examine the books of account of the other party at
any time within two years after the date of the payment or charges to which they
relate (but not more than once in each calendar year) for the purpose of
verifying the amount of such payments or charges

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      30
<PAGE>

and the accuracy of such books of account. Such examination shall be made during
normal business hours at the place of business of the party being audited. The
parties agree that information furnished as a result of any such examination
shall be limited to a written statement by such certified public accountants to
the effect that they have reviewed the books of account of the party being
audited and either (i) the amounts of the payments due or charges made under
this Agreement are in conformity with such books of account and the applicable
provisions of this Agreement or (ii) setting forth any required adjustments. The
fees and expenses of the accountants performing such verification shall be borne
by the party requesting the audit. If any such audit shows any underpayment or
overcharge, a correcting payment or refund shall be made within 30 days after
receipt of the written statement described above. Notwithstanding the foregoing,
if any such audit results in any underpayment or overcharge with respect to any
Payment Computation Period of more than the greater of (i) $10,000 or (ii) 5% of
the payment or charge actually due, then the party being audited shall bear all
costs of the audit.

          7.5  Late Payments.  All payments not made when due hereunder shall
               -------------
bear interest at the maximum rate permitted by applicable law.

     SECTION 8 - OWNERSHIP AND USE OF PROGRAM INFORMATION
     ----------------------------------------------------

          8.1  Ownership.  All Program Information, including but not limited to
               ---------
Program Information relating to the site specific administration of drugs (e.g.
pharmaco-kinetics and pharmaco-distribution) and/or relating to any Drug as
such, or any Catheter as such, except for any Program Information that is the
property of ALZA as set forth herein, shall be the sole property of Durect (and
shall be included in Durect Technical Information for purposes of this
Agreement).  ALZA shall promptly disclose to Durect any such Program
Information, and ALZA and its personnel and subcontractors working on the
Program shall execute and deliver such assignments, confirmations of
assignments, or other written instruments as are necessary to vest in Durect
clear and marketable title to Program Information assigned to Durect hereunder.
Notwithstanding

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      31
<PAGE>

the foregoing, all Program Information relating to the System or its manufacture
or to any combination of Systems with other components, active agents, features
or processes and any Technical Information developed by Durect (whether or not
pursuant to the Program) that relates to DUROS Technology shall be the sole
property of ALZA (and shall be included in ALZA Technical Information for
purposes of this Agreement). Durect shall promptly disclose to ALZA any such
Program Information and Technical Information, and Durect and its personnel and
Subcontractors working on the Program shall execute and deliver such
assignments, confirmations of assignments, or other written instruments as are
necessary to vest in ALZA clear and marketable title to Program Information
assigned to ALZA hereunder. In addition to the foregoing, to the extent Durect
develops any Technical Information relating to a means of connecting or
"docking" a catheter to a system and subject to ALZA abiding by the terms and
conditions of the Amended and Restated Market Stand-Off Agreement entered into
between Durect and ALZA dated June 19, 1998 and attached hereto as Exhibit H,
Durect grants to ALZA a worldwide, royalty free, nonexclusive license, with the
right to grant sublicenses, to any such Technical Information.

          8.2  Use.  Each party shall have the right to use, disclose and
               ---
license to any third party all Program Information owned by such party under
Section 8.1, provided such use, disclosure or license does not conflict with the
rights granted to the other party under this Agreement.

          8.3  Patents.  Each party shall be responsible, at its own expense,
               -------
for filing and prosecuting patent applications as it deems appropriate and for
paying maintenance fees on patents issued therefrom, for the term of this
Agreement, with respect to Technical Information owned by it.  Each party shall
promptly render all necessary assistance reasonably requested by the other party
in applying for and prosecuting patent applications based on Technical
Information owned by the other party under this Agreement.

          SECTION 9 - INTELLECTUAL PROPERTY INDEMNITY AND ENFORCEMENT
          -----------------------------------------------------------

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      32
<PAGE>

          9.1  Claims by Third Parties.  If a claim, suit or proceeding
               -----------------------
("Claim") is brought by a third party against Durect and/or ALZA alleging that
the making, using, selling, offering for sale or importing of Product infringes
an Intellectual Property Right of such third party (except for any patent which
covers a manufacturing process used by Durect and not by ALZA), then each party
will give prompt written notice to the other of such Claim.  If such alleged
infringement of such third party's Intellectual Property Right arises from or
relates to DUROS Technology, the System or ALZA Technical Information, then ALZA
shall have the right to conduct the defense of any suit resulting from such
Claim.  ALZA shall advise Durect in writing, within 30 days after Durect's
notice, whether it intends to defend at its own expense such Claim.  If ALZA
elects not to so defend or to otherwise dispose of such Claim, Durect may,
subject to Section 9.2 below, defend at its own expense such Claim. Except as
specifically provided above, Durect shall indemnify and hold harmless ALZA from
and against any claims of infringement by a third party.

          9.2  Infringement by Third Parties.  If, at any time during the term
               -----------------------------
of this Agreement, either party shall become aware of any third party who is
infringing or suspected to be infringing any patent owned by ALZA by the
manufacture, use or sale of any product that is substantially similar to a
Product and contains the same Drug as such Product (an "Infringing Product"),
the following provisions shall apply:

               (a)  The party becoming so aware shall forthwith give written
notice to the other ("Notice"). If there is disagreement as to whether the act
complained of is in fact an infringement of an ALZA patent, the parties shall
refer such issue to a mutually acceptable independent patent counsel. The costs
incurred in this regard shall be shared equally.

               (b)  If, with or without the advice of independent counsel, ALZA
desires to litigate such alleged third party infringement, ALZA shall bear all
costs thereof and shall be entitled to all recoveries.  ALZA shall have the
right to join Durect in such suit at ALZA's cost and expense.  ALZA shall notify
Durect within 90 days after the delivery of Notice by one party to the other
above whether it intends to so litigate.

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      33
<PAGE>

          (c)  If ALZA determines not to litigate in accordance with paragraph
(b) above, the parties will promptly confer, and if both parties jointly desire
to litigate such third party infringement, they shall share any costs thereof
and any recovery therein equally, unless otherwise agreed by the parties.

          (d)  With respect to alleged infringement of such patents, the claims
of which are limited to applications of DUROS Technology in the Durect Fields,
and which do not include claims for other applications, if no action is taken or
agreed to be taken under paragraph (b) or (c) above within 90 days after the
Notice and (i) the unit sales volume of the Infringing Product in any country is
equal to or exceeds [*  *  *] of the unit sales volume by Durect and its
Affiliates and Subcontractors of the Product that is substantially similar to
the Infringing Product in such country, and (ii) the patent counsel described in
paragraph (a) above has opined that the act complained of is, or most likely is,
an infringement in such country, then Durect may, in its sole discretion, and at
its sole cost and expense, bring suit in its name (or, if ALZA is an
indispensable party, in the name of and on behalf of ALZA) to restrain such
third party infringement in such country, and in such instance, Durect shall be
entitled to receive and retain, for its own use and benefit, any recovery
awarded in such suit.

          9.3  Cooperation.  Each party shall cooperate with the other party, to
               -----------
the extent reasonably requested, in any legal action brought by or against the
other party or both of them and relating to the subject matter of this
Agreement, provided that such cooperation shall be at the expense of the party
bringing the action, and each party shall have the right to participate at its
own expense in any defense, compromise or settlement of any such legal action,
to the extent that in its judgment it may be prejudiced thereby.  Neither party
shall settle any claim or suit in any manner that may adversely affect any
patent of the other party or that would require any payment or grant of license
or other rights by the other party, without the prior written consent of the
other party, to be given or withheld in the other party's sole discretion.

                    SECTION 10 - REPORTS OF ADVERSE REACTION
                    ----------------------------------------

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      34
<PAGE>

          10.1  Reports.  During the term of this Agreement, each party shall
                -------
promptly inform the other party of any information that it obtains or develops
regarding the efficacy or safety of any Product and shall promptly report to the
other party any information or notice of adverse or unexpected reactions or side
effects related to the utilization or medical administration of any Product
(and, in the case of ALZA, the System, and in case of Durect, the Drug, Catheter
or other part of the Product, but in each case, only if such adverse reaction
appears to be potentially relevant to the Product).  Each party shall comply,
and shall cooperate with the other party in complying, with the adverse reaction
reporting requirements of the Food, Drug and Cosmetic Act, 21 USC 321 et seq.,
and regulations thereunder with respect to the Product.  Each party shall
provide the other party with copies of Adverse Drug Experience Reports filed
with the FDA as to the Product.  Each party's obligations under this Section
10.1 shall be subject to its legal and contractual obligations prohibiting the
disclosure of such information.  Durect agrees and acknowledges that ALZA may
provide information it obtains under this Section 10.1 to ALZA's other clients
developing and/or marketing products incorporating the System.

           SECTION 11 - TERM AND TERMINATION; MODIFICATION OF RIGHTS
           ---------------------------------------------------------

          11.1  Term.  This Agreement shall remain in effect for as long as
                ----
Durect is obligated to make payments to ALZA under this Agreement, unless
earlier terminated pursuant to this Section 11.

          11.2  Termination for Breach; Insolvency.
                ----------------------------------
                (a) In addition to the rights and remedies provided elsewhere in
this Agreement, if either party breaches or defaults in the performance or
observance of any of its material obligations under this Agreement, and such
breach or default is not cured within [* * *] days after receipt by such party
of a written notice from the nonbreaching party specifying the breach or default
(or such longer period as is reasonably necessary if the breach is of such a
nature that it cannot reasonably be cured within [* * *] days the nonbreaching
party shall have the right to terminate this

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      35
<PAGE>

Agreement upon an additional 30 days' written notice to the breaching or
defaulting party. Failure to pay any amounts due under this Agreement within
[***] days after notice that such amounts are overdue shall be deemed a material
breach of this Agreement.

          (b)  Either party may terminate this Agreement and the rights granted
hereunder, effective upon giving written notice of such termination to the other
party, if such other party is liquidated or dissolved, or enters into any
proceeding, whether voluntary or otherwise, in bankruptcy, reorganization, or
arrangement for the appointment of a receiver or trustee to take possession of
such other party's assets or any other proceeding under any law for the relief
of creditors, or makes an assignment for the benefit of creditors.

          11.3 Termination by Durect.  Durect may terminate this Agreement at
               ---------------------
any time upon not less than [***] days' prior written notice to ALZA.  In such
event, this Agreement shall terminate as of the effective date of such notice.

          11.4 Effect of Termination.  Except as provided in Section 16.8, all
               ---------------------
rights and obligations of the Parties shall cease upon expiration or termination
of this Agreement.  The expiration or termination of this Agreement for whatever
reason shall not affect: (i) Durect's obligation to pay ALZA, within [***] days
after the receipt of ALZA's invoice, for all Development Costs incurred up to
the effective date of the termination and for all uncancellable obligations of
ALZA incurred in connection with the Program prior to the date of termination
pursuant to approved Work Plans; and (ii) the parties' obligations to pay to
each other all other amounts due under this Agreement accruing prior to and up
to the effective date of such expiration or  termination.

          11.5 ALZA Termination.  If, at any time prior to July 1, 2002, Durcet
or any of its Affiliates solicits for employment or hires, without ALZA's prior
written consent, a person who is an ALZA employee or has been an ALZA employee
within 180 days prior to such hiring, or at any time prior to July 1, 2006,
Durect or any of its Affiliates solicits for employment or hires, without ALZA's
prior written consent, a person who is an ALZA employee in the DUROS Technology
group or who has been an ALZA employee in the DUROS Technology group within 180
days prior to such hiring, then ALZA shall have the right to terminate this
Agreement on 60 days written notice, unless during such 60 days Durect ceases
such solicitation and such person remains employed by ALZA and confirms his or
her intent to remain an employee of ALZA. The provisions of this Section 11.5
shall be of no further force or effect if, as a result of a change in control of
ALZA, the employees working in the DUROS Technology group are not generally
retained as employees. The parties agree and acknowledge that the provisions of
this Section 11.5 are necessary to induce ALZA to participate in the formation
of Durect and to agree with the terms and conditions hereof, and form an
essential part of this Agreement.

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      36
<PAGE>

          11.6 Certain Program Information and Other Rights.  Solely with
               --------------------------------------------
respect to (i) any Product which has been eliminated from this Agreement
pursuant to Section 2.5; (ii) any country for which the Commercialization rights
granted to Durect under Section 5.1 have expired, or have been terminated
pursuant to this Agreement with respect to any Product or (iii) upon the
expiration or termination of this Agreement (except for termination by Durect
due to a breach by ALZA under Section 11.2); and in each case solely to the
extent required by ALZA to develop, make, have made, use and sell the Product to
which such termination or elimination relates in the relevant Subterritory or
country, Durect hereby grants to ALZA the exclusive right and license, with the
right to sublicense, solely to use any and all data, rights and information
necessary for such purpose, including but not limited to regulatory filings and
Program Information to which ALZA does not already have rights hereunder, and
the right to cross-reference any and all regulatory filings with respect to the
Product.  (To the extent possible, regulatory filings for those countries for
which ALZA obtains commercialization rights shall be transferred to ALZA.)  If
and when ALZA Commercializes a Product pursuant to this Section, in order to
compensate Durect for its investment in developing such filings and information,
ALZA shall make payments to Durect at a rate as set forth in Section 6.1 (but
determined based on ALZA's net sales of Product), but only until the aggregate
of such payments is equal to [* * *] with respect to the applicable
Product (or with respect to the Product in such applicable country if ALZA
obtains rights only as

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      37
<PAGE>

to a specified country or countries). Notwithstanding the foregoing, in the
event of the elimination of a Product under this Agreement, if Durect has
developed and successfully filed an NDA covering such Product prior to such
elimination, then in consideration of the rights granted ALZA respecting such
Product ALZA shall pay Durect continuing royalties of [* * *] percent of its Net
Sales after the obligation to make payments under the preceding sentence has
expired, provided that the obligations to pay royalties shall expire for the
Territory twenty years after the first commercial sale in any Major Market
Country. In each case, such payments by ALZA will be subject to adjustments
under the same terms as are applicable to Durect's Product Payment obligations
under this Agreement.

                           SECTION 12 - FORCE MAJEURE
                           --------------------------

          12.1 Force Majeure.  Neither party to this Agreement shall be liable
               -------------
for failure or delay in the performance of any of its obligations hereunder, if
such failure or delay is due to causes beyond its reasonable control, including,
without limitation, acts of God, earthquakes, fires, strikes, acts of war, or
intervention of any governmental authority, but any such delay or failure shall
be remedied by such party as soon as possible after the removal of the cause of
such failure or delay.

                            SECTION 13 - ASSIGNMENT
                            -----------------------

          13.1 Assignment.  This Agreement shall not be assigned by either party
               ----------
without the prior written consent of the other party, except that either party
may assign this Agreement, in whole or in part, to an Affiliate of such party or
to the successor (including the surviving company in any consolidation,
reorganization or merger) or assignee of all or substantially all of its
business.  This Agreement will be binding upon any permitted assignee of either
party.  No assignment shall have the effect of relieving any party to this
Agreement of any of its obligations hereunder.

                          SECTION 14 - INDEMNIFICATION
                          ----------------------------

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      38
<PAGE>

          14.1 Durect Indemnity.  Durect shall defend, indemnify and hold
               ----------------
harmless ALZA and its Affiliates, and their officers, directors, employees and
agents (collectively, "ALZA Indemnitees") from and against any and all losses,
liabilities, claims, obligations, costs and expenses (including without
limitation reasonable attorneys' fees) (collectively, "Losses") arising out of
the Program (including the use, storage and handling of the Drug hereunder) or
the use, design, labeling or manufacture, processing or packaging (subject to
the terms of the Supply Agreement) or sale or Commercialization of Products by
Durect, its Affiliates and Subcontractors, including without limitation any
product liability claims with respect to any Products, except for Losses arising
from the gross negligence or willful misconduct of ALZA, material breach of this
Agreement by ALZA, or breach by ALZA of any product warranty in the Supply
Agreement; provided that such ALZA Indemnitee:  (i) provides reasonable notice
to Durect of such Loss and permits Durect to control, in a manner not adverse to
such ALZA Indemnitee, the defense, settlement, adjustment or compromise of any
such Claim using counsel reasonably acceptable to such ALZA Indemnitee; and (ii)
reasonably cooperates with Durect in the defense of any such Claim, subject to
Durect's payment of all reasonable costs and expenses associated with such
cooperation, and further provided that Durect shall not be liable for any such
costs or expenses incurred without its prior written authorization.  Durect
shall not enter into any settlement that affects an ALZA Indemnitee's rights or
interest without prior written approval by the ALZA Indemnitee.  The ALZA
Indemnitee shall have no authority to settle any claim for Losses on behalf of
Durect.  The ALZA Indemnitee shall have the right to participate, at its own
expense, in the defense of any such claim or demand to the extent it so desires.

          14.2 ALZA Indemnity.  ALZA shall defend, indemnify and hold harmless
               --------------
Durect and its Affiliates, and their officers, directors, employees and agents
(collectively, "Durect Indemnitees") from and against any Losses arising from
the gross negligence or willful misconduct of ALZA, material breach of this
Agreement by ALZA, or breach by ALZA of any product warranty in the Supply
Agreement; provided that

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      39
<PAGE>

such Durect Indemnitee: (i) provides reasonable notice to ALZA of such Loss and
permits ALZA to control, in a manner not adverse to such Durect Indemnitee, the
defense, settlement, adjustment or compromise of any such Claim using counsel
reasonably acceptable to such Durect Indemnitee; and (ii) reasonably cooperates
with ALZA in the defense of any such Claim, subject to ALZA's payment of all
reasonable costs and expenses associated with such cooperation, and further
provided that ALZA shall not be liable for any such costs or expenses incurred
without its prior written authorization. ALZA shall not enter into any
settlement that affects a Durect Indemnitee's rights or interest without prior
written approval by the Durect Indemnitee. The Durect Indemnitee shall have no
authority to settle any claim for Losses on behalf of ALZA. The Durect
Indemnitee shall have the right to participate, at its own expense, in the
defense of any such claim or demand to the extent it so desires.

          14.3 Disclaimer of Consequential Damages.  IN NO EVENT WILL EITHER
               -----------------------------------
DURECT OR ALZA BE LIABLE TO THE OTHER FOR ANY SPECIAL, CONSEQUENTIAL,
INCIDENTAL, OR PUNITIVE DAMAGES INCURRED BY A PARTY ARISING UNDER OR AS A RESULT
OF THIS AGREEMENT (OR THE TERMINATION HEREOF) INCLUDING, BUT NOT LIMITED TO, THE
LOSS OF PROSPECTIVE PROFITS OR ANTICIPATED SALES, OR ON ACCOUNT OF EXPENSES,
INVESTMENTS, OR COMMITMENTS IN CONNECTION WITH THE BUSINESS OR GOODWILL OF ALZA
OR DURECT OR OTHERWISE.

          14.4 Insurance.  Durect shall obtain and maintain in full force and
               ---------
effect during the term of this Agreement a policy of products liability
insurance covering liabilities that may arise from the Products and naming ALZA
as an additional named insured, in such amounts as are reasonable in view of the
development and Commercialization status of the Products.  Durect shall provide
ALZA a certificate of such insurance within 15 days after request by ALZA.

                           SECTION 15 - ARBITRATION
                           ------------------------

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      40
<PAGE>

          15.1 Arbitration.  All disputes which may arise under, out of, in
               -----------
connection with, or relating to this Agreement shall be settled by arbitration
conducted in Santa Clara County, California, in accordance with the then
existing rules of the American Arbitration Association, and judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof.  The parties hereby agree that service of any notices in
the course of such arbitration at their respective addresses as provided for in
Section 16.4 of this Agreement shall be valid and sufficient.

          15.2 Arbitrators.  In any arbitration pursuant to this Section 15, the
               -----------
award shall be rendered by a majority of the members of a board of arbitration
consisting of three members who shall be appointed by the parties jointly, or if
the parties cannot agree as to three arbitrators within 30 days after the
commencement of the arbitration proceeding, then one arbitrator shall be
appointed by ALZA and one arbitrator shall be appointed by Durect within 60 days
after the commencement of the arbitration proceeding.  The third arbitrator
shall be appointed by mutual agreement of such two arbitrators.  In the event of
failure of the two arbitrators to agree within 75 days after commencement of the
arbitration proceeding upon the appointment of the third arbitrator, the third
arbitrator shall be appointed by the American Arbitration Association in
accordance with its then existing rules.  Notwithstanding the foregoing, in the
event that any party shall fail to appoint an arbitrator it is required to
appoint within the specified time period, such arbitrator and the third
arbitrator shall be appointed by the American Arbitration Association in
accordance with its then existing rules.  For purposes of this Section 15, the
"commencement of the arbitration proceeding" shall be deemed to be the date upon
which a written demand for arbitration is received by the American Arbitration
Association from one of the parties.

                           SECTION 16 - MISCELLANEOUS
                           --------------------------

          16.1 Amendment.  Any waiver by any party hereto of a breach of any
               ---------
provisions of this Agreement shall not be implied and shall not be valid unless
such

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      41
<PAGE>

waiver is recited in writing and signed by such party. Failure of any party to
require, in one or more instances, performance by the other party in strict
accordance with the terms and conditions of this Agreement shall not be deemed a
waiver or relinquishment of the future performance of any such terms or
conditions or of any other terms and conditions of this Agreement. A waiver by
either party of any term or condition of this Agreement shall not be deemed or
construed to be a waiver of such term or condition for any other term. All
rights, remedies, undertakings, obligations and agreements contained in this
Agreement shall be cumulative and none of them shall be a limitation of any
other remedy, right, undertaking, obligation or agreement of either party. This
Agreement may not be amended except in a writing signed by both parties.

          16.2 Relationship of the Parties.  For all purposes of this Agreement,
               ---------------------------
Durect and ALZA shall be deemed to be independent entities and anything in this
Agreement to the contrary notwithstanding, nothing herein shall be deemed to
constitute Durect and ALZA as partners, joint venturers, co-owners, an
association or any entity separate and apart from each party itself, nor shall
this Agreement constitute any party hereto an employee or agent, legal or
otherwise, of the other party for any purposes whatsoever.  Neither party hereto
is authorized to make any statements or representations on behalf of the other
party or in any way obligate the other party, except as expressly authorized in
writing by the other party.  Anything in this Agreement to the contrary
notwithstanding, no party hereto shall assume nor shall be liable for any
liabilities or obligations of the other party, whether past, present or future.

          16.3 Governing Law.  This Agreement shall be governed by the laws of
               -------------
the State of California, excluding any choice of law rules which may direct the
application of the laws of another jurisdiction.

          16.4 Notices.  Notices required under this Agreement shall be in
               -------
writing and sent by registered or certified mail, postage prepaid, or by telex
or facsimile and confirmed by registered or certified mail and addressed as
follows:

          If to ALZA:    ALZA Corporation
                         1900 Charleston Rd.
                         Mountain View, CA  94309

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      42
<PAGE>

                         Attention: General Counsel

          If to Durect:  Durect Corporation
                         10240 Bubb Road
                         Cupertino, CA  95014
                         Attention: Chief Executive Officer

All notices shall be deemed to be effective five days after the date of mailing
or upon receipt if sent by facsimile (but only if followed by certified or
registered confirmation).  Either party may change the address at which notice
is to be received by written notice pursuant to this Section 16.4.

          16.5 Severability.  If any provision of this Agreement is held by a
               ------------
court of competent jurisdiction to be invalid or unenforceable, it shall be
modified, if possible, to the minimum extent necessary to make it valid and
enforceable or, if such modification is not possible, it shall be stricken and
the remaining provisions shall remain in full force and effect; provided,
however, that if a provision is stricken so as to significantly alter the
economic arrangements of this Agreement, the party adversely affected may
terminate this Agreement upon 60 days' prior written notice to the other party.

          16.6 Headings.  The headings set forth at the beginning of the various
               --------
sections of this Agreement are for reference and convenience and shall not
affect the meanings of the provisions of this Agreement.

          16.7 Public Disclosure.
               -----------------

          (a)  Neither party shall, without the prior written consent of the
other party, disclose to third parties, nor originate any publicity, news
release or public announcement, written or oral, whether to the public, the
press, stockholders or otherwise, referring to the existence or terms of this
Agreement, including its existence, the subject matter to which it relates, the
performance under it or any of its specific terms and conditions, except such
announcements or disclosures as, in the opinion of the counsel for the party
making such announcement, are required by law, including United States
securities laws, and each party may disclose the existence of this Agreement and
the material terms and conditions hereof under circumstances that

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      43
<PAGE>

reasonably ensure the confidentiality thereof to: (i) any government or
regulatory authorities, including without limitation the United States
Securities and Exchange Commission to the extent required by applicable law,
(ii) its legal representatives, advisors and prospective investors, and (iii) to
prospective Subcontractors to the extent required for entering into agreements
with such Subcontractors. If a party decides to make an announcement it believes
to be required by law with respect to this Agreement, it will give the other
party such notice as is reasonably practicable and an opportunity to comment
upon the announcement.

               (b)  Durect shall submit for review to ALZA, and obtain ALZA's
prior written consent for any reference to or description of ALZA or its
technology, proprietary rights or products that is to be disseminated to third
parties.

         16.8  Survival.  The provisions of Sections 1, 4, 8, 11, 15, 16.3,
               --------
16.4, 16.5, 16.6, 16.7 and this Section 16.8, (and Sections 6.1, 6.2, 6.3, 6.6,
7, 9, 10, and 14 with respect to events occurring prior to termination), shall
survive the termination for any reason of this Agreement. Neither party shall be
liable to the other due to the termination of this Agreement as provided herein,
whether in loss of goodwill, anticipated profits or otherwise.

         16.9  No Conflict. Each party represents that neither this Agreement
               -----------
nor any of its obligations hereunder will conflict or result in a breach of any
arrangement or agreement between such party and any third party. Each party
represents that it has not been debarred and has not been the subject of
debarment proceedings by the FDA.

         16.10 Entire Agreement.  This Agreement, including the exhibits hereto,
               ----------------
sets forth the entire understanding between the parties hereto as to the subject
matter hereof and supersedes all other documents, agreements, verbal consents,
arrangements and understandings by or between the parties with respect to the
subject matter hereof including but not limited to the Prior Agreement. Prior to
the execution of this Agreement, the parties have had numerous discussions,
conversations and negotiations, and have generated correspondence, writings and
other memoranda with respect to the subject matter hereof. Notwithstanding all
of such activities, this

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      44
<PAGE>

Agreement (including the exhibits hereto) is intended to define the full extent
of the parties' respective agreements, arrangements and obligations with respect
to the subject matter hereof, and each party represents that it is not relying
on any such other discussions, conversations, negotiations, correspondence,
writings and memoranda in executing and delivering this Agreement or performing
its respective obligations hereunder.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above by their duly authorized
representatives.

DURECT
CORPORATION                             ALZA CORPORATION

By: /s/ Peter Staple                    By: /s/ James E. Brown
    __________________________              __________________________

Title: Executive Vice President         Title:  Chief Executive Officer
      __________________________              __________________________

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      45
<PAGE>

                 EXHIBIT A - Specified Anticancer Antigens for
                             Immunization Therapy

<TABLE>
<CAPTION>
------------------------------------------------------------------------------
     Name and/or                                 Reference
     Abbreviation
==============================================================================
<S>                                     <C>
       *  *  *                                    *  *  *
==============================================================================
       *  *  *                                    *  *  *
==============================================================================
       *  *  *                                    *  *  *
==============================================================================
       *  *  *                                    *  *  *
==============================================================================
       *  *  *                                    *  *  *
==============================================================================
       *  *  *                                    *  *  *
==============================================================================
       *  *  *                                    *  *  *
==============================================================================
       *  *  *                                    *  *  *
==============================================================================
       *  *  *                                    *  *  *
==============================================================================
       *  *  *                                    *  *  *
==============================================================================
       *  *  *                                    *  *  *
==============================================================================
       *  *  *                                    *  *  *
==============================================================================
       *  *  *                                    *  *  *
==============================================================================
       *  *  *                                    *  *  *
==============================================================================
       *  *  *                                    *  *  *
==============================================================================
       *  *  *                                    *  *  *
==============================================================================
       *  *  *                                    *  *  *
==============================================================================
</TABLE>

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      46
<PAGE>

                                 CONFIDENTIAL

--------------------------------------------------------------------------------

ALZA

  DUROS/TM/ DUR-1 sufentanil (subcutaneous)

  WORK PLAN AND COST ESTIMATE

  Stage 3: Initial Product Development

--------------------------------------------------------------------------------

Submitted to:                   DURECT Corporation
Prepared by:
  Product Development Mgr:      Jim Hunt
  Proj Mgmt Associate           Angie Griffin
Date:                           August 2, 1999

                                      -1-
*Confidential Treatment is requested for the language that has been underscored
or marked. Such language has been deleted from the copy filed with the SEC.

<PAGE>

                  EXHIBIT B - Manufacturing Process Transfer

                             [work plan attached]

August 3, 1999

Judy Magruder
Durect Corporation
10240 Bubb Road
Cupertino, CA 95014-4166

Dear Judy,

Enclosed please find the revised Work Plan and Cost Estimate (WP&CE} dated
August 2, 1999 for review and approval by Durect Corporation. Per Durect's
request, ALZA has made the following minor modifications to the draft revised
WP&CE dated June 30, 1999.

 .  Changed start date of Task 2.6 from [***]
 .  Changed start date of Task 4.1.2 from [***]
 .  Changed start date of Task 4.2.1 from [***]
 .  Changed start date of Task 5.1.1 from [***]
 .  Changed start date of Task 5.1.2 from [***]

Please indicate Durect's approval of the revised WP&CE dated August 2, 1999 by
signing in the appropriate place below and returning the original to ALZA.
Please keep the letter marked "COPY" for you files.

Note that this information is provided to you under the provisions of
confidentiality agreement between Durect Corporation and ALZA Corporation. Feel
free to contact me if you have any questions or comments.

Sincerely,

Angelica Griffin
Project Management Associate

                                       Approved:________________________

                                       Title:___________________________

                                       Date:____________________________

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                 CONFIDENTIAL
===============================================================================

ALZA

   DUROS(TM) DUR-1 sufentanil (subcutaneous)

   WORK PLAN AND COST ESTIMATE

   Stage 3: Initial Product Development

===============================================================================

Submitted to:                            DURECT Corporation
Prepared by:
  Product Development Mgr:               Jim Hunt
  Proj Mgmt Associate:                   Angie Griffin
Date:                                    August 2, 1999

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                 CONFIDENTIAL

===============================================================================

I.    INTRODUCTION

Sufentanil is a potent opioid analgesic, which is currently marketed for
intravenous and epidural injection as an analgesic component of general
anesthesia (intravenous administration) and as an analgesic during labor and
vaginal delivery (epidural administration). In balanced anesthesia, sufentanil
has been reported to be as much as 10 times as potent as fentanyl. Due to
sufentanil's high potency, the compound may have utility in the management of
chronic pain requiring continuous administration when combined with the
DUROS(TM) human implant technology. The DUROS(TM) sufentanil product would
provide a convenient form for the management of baseline analgesia for those
patients whose pain cannot be managed by oral or transdermal opioid
administration alone.

In April 1998, ALZA and DURECT entered into a partnership for the development
and commercialization of DUROS(TM) sufentanil product. The overall objective of
the program is to develop and commercialize a product that provides continuous,
zero-order subcutaneous delivery of sufentanil over a three-month duration
utilizing the DUROS(TM) implant system for the management of malignant and/or
non-malignant chronic pain.

Review of the literature indicated that the target delivery refers for
subcutaneously delivered sufentanil have not been well established [***]

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                 CONFIDENTIAL

================================================================================

[***]

This revised WP&CE outlines the ALZA-specific tasks required to transfer
DUROS(TM) manufacturing capability and technical know-how to DURECT, provide
certain subassembly parts [***], and provide consultation and support services
to the DURECT program form the technical, clinical, regulatory, nonclinical,
and project management areas. This WP&CE defines the development activities
and estimated resources (labor and expenses) required to support the project
through December 2000.

II.   OBJECTIVES:

[***]

The specific objectives of this WP&CE are to:

1)  [***]

2)  [***]

3)  [***]

4)  [***]

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                 CONFIDENTIAL

================================================================================

III.  PROJECT SUMMARY SHEET:

<TABLE>
<S>                                <C>
Indication:

Therapeutic Agent:

Technical Development

                         Platform: [***]

     Drug Delivery Specifications: [***]

                    Target Dosage: [***]

                Clinical Strategy: [***]

              Regulatory Strategy: [***]
</TABLE>

Per workplan dated: August 2, 1999

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                 CONFIDENTIAL

================================================================================

IV.   ASSUMPTIONS

      A.  [***]

      B.  [***]

      C.  [***]

      D.  [***]

      E.  [***]

      F.  [***]

      G.  [***]

      H.  [***]

      I.  [***]

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                 CONFIDENTIAL

================================================================================

      J.  [***]

      K.  [***]

      L.  [***]

      M.  [***]

      N.  [***]

      O.  [***]

      P.  [***]

      Q.  [***]

      R.  [***]

      S.  [***]

      T.  [***]

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

          [***]

      U.  [***]

      V.  [***]

      W.  [***]

      X.  [***]

      Y.  [***]

      Z.  [***]

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                 CONFIDENTIAL

================================================================================

V.    DESCRIPTION OF TASKS

1     System Development [***]

1.1   [***]

1.2   [***]

1.3   [***]

2     Manufacturing

2.1   [***]

      A.   [***]

      B.   [***]

      C.   [***]

           In addition, meetings specific to Analytical and Microbiological
           testing will be help separately.

2.2   [***]

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                 CONFIDENTIAL

================================================================================

      [***]

2.3   [***]

2.4   [***]

2.5   [***]

2.6   [***]

2.7   [***]

2.8   [***]

2.9   [***]

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                 CONFIDENTIAL

================================================================================

2.10  [***]

3     Nonclinical

3.1   [***]

3.2   [***]

4     Clinical

4.1   [***]

4.2   [***]

4.3   [***]

5     Regulatory

5.1   [***]

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                 CONFIDENTIAL

================================================================================

6.    Project Management

6.1   [***]

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                 CONFIDENTIAL

================================================================================

    VI.   ESTIMATED TIMING & COSTS

<TABLE>
<CAPTION>
                                                                        3Q-4Q00
                                                                        -------
                                                                      (7/1/00 to    Total
                        2q99        3Q99         4Q99       10-Q00    ----------    -----
                     (5/1/99 to  (7/1/99 to  (10/1/99 to  (1/1/00 to   12/31/00)     Plan
                      6/30/99)    9/30/99)    12/31/99)    6/30/00)    ---------     ----
<S>                 <C>          <C>         <C>          <C>         <C>          <C>
SYSTEM DEVELOPMENT
             Labor     $11,000    $160,000      $50,000     $48,000    [***]        [***]
          Expenses                  $2,000
MANUFACTURING
             Labor    $197,000    $108,000     $110,000     $92,000    [***]        [***]
          Expenses     $30,000     $11,000      $28,000     $15,000    [***]        [***]
NONCLINICAL
             Labor      $3,000     $22,000      $25,000     $13,000    [***]        [***]
          Expenses
CLINICAL
             Labor     $10,000     $33,000      $21,000     $85,000    [***]        [***]
          Expenses
REGULATORY
             Labor     $10,000     $22,000      $19,000     $43,000    [***]        [***]
          Expenses
PROJECT MANAGEMENT
             Labor     $15,000     $31,000      $26,000     $51,000    [***]        [***]
          Expenses                  $1,000                   $1,000    [***]        [***]
TOTAL COSTS           $276,000    $390,000     $279,000    $348,000    [***]        [***]
</TABLE>

This proposal represents ALZA's best estimate for the timing and costs of the
activities described in this plan. ALZA will not deviate form the WP&CE without
prior consultation with DURECT, subject to Sections 2.3 and 2.4 of the Amended
and Restated Development and Commercialization Agreement between Durect and ALZA
effective April 28, 1999.

DURECT will be invoiced quarterly on a Development Cost basis for the actual
costs of the work performed by ALZA. payment schedule is subject to the
invoicing terms of the agreement between DURECT and ALZA as of April 28, 1999.
This cost estimate reflects expected direct and indirect costs in 1999 dollars
to complete the outlined tasks and is contingent on details described in the
Assumptions section.

VII.  GANTT CHART

See attached Gantt chart for timing of specific activities and breakdown of
tasks.

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                 CONFIDENTIAL

================================================================================

[Bar chart outlining timing for planned activities for each of the itemized
activities above from Q199 through Q101, broken down by task name and indicating
"planned," "summary," "milestone," and "project summary" timelines, with start
dates commencing 4/1/99 and ending 5/19/99].

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                   47
<PAGE>

                         EXHIBIT C - Development Stages

Screening of Proposed Product Candidates
----------------------------------------

The Screening Stage may consist of the following:

     [* * *]

Feasibility and Prototype Development

     [* * *]

Product Development

     [* * *]

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      48
<PAGE>

        EXHIBIT D - Countries of Sub-Territory C (Japan and East Asia)

Australia
Bangladesh
Brunei
Burma
Cambodia
China, People's Republic
India
Indonesia
Japan
Laos
Macao
Malaysia
New Zealand
North Korea
Pakistan
Philippines
Singapore
South Korea
Sri Lanka
Taiwan
Thailand
Vietnam

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      49
<PAGE>

          EXHIBIT E - Cost Calculation for Purposes of Section 2.3(a)

Development Costs are equal to the sum of (i) research expenses, (ii) general
and administrative expenses and (iii) capital asset expenditures.

     (i)   Research expenses include both direct expenses and indirect expenses.

           (a)   Direct expenses include direct research salaries (including
                 project management and temporary labor), clinical expenses,
                 supplies and other expenses incurred specifically in connection
                 with the Program.

           (b)   Indirect expenses include general research management and
                 support costs of the research and product development
                 organization. Indirect expenses are allocated to all projects
                 and billed to clients at a fixed rate* of 160% of direct
                 research salaries.

           Examples of items included in direct and indirect expenses are listed
           on Exhibit E-1

           (ii)  General and administrative expenses are allocated among the
           research and product development, manufacturing and marketing
           organizations. The portion allocated to the research and product
           development organization is then allocated to all research and
           development projects and billed to clients at a fixed rate* of 80% of
           direct research salaries.

                 Examples of items included in general and administrative
           expenses are listed on Exhibit E-1.

           (iii) Capital asset expenditures are the actual costs of new capital
           assets acquired specifically for the project.

--------------
     * This fixed billing rate will not be changed prior to January 1, 1999 and,
if changed on or after January 1, 1999, such changes will be limited to not more
than one change per calendar year and shall be a maximum of 10% of the rate in
effect at the time of the increase.

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      50
<PAGE>

                  EXHIBIT E-1 - Examples of Research Expenses

Direct Expenses

Direct research salaries*
Project clinical expenses and outside services
Project specific supplies
Project travel and related expenses
Miscellaneous project expenses
Regulatory and filing fees and maintenance payments

Indirect Expenses

Research management and indirect salaries*
General research supplies and materials
General research consulting and outside services
Facilities expenses
Telephone and communications
Equipment depreciation, rent, maintenance and services
Research travel and related expenses
Patent and trademark expenses
Miscellaneous indirect research expenses

                                  Examples of
                                  -----------
                      General and Administrative Expense
                      ----------------------------------

Corporate management, administrative, and indirect salaries*
Telephone and communications
Equipment depreciation, rent, maintenance and services
Board of directors and corporate consulting
Annual audit, accounting and legal expenses
Facilities expenses
Information services (data processing) expenses
Interest expense
Miscellaneous general and administrative expenses

*Salaries include fringe benefits at a fixed rate of 52% of salaries. This fixed
rate will not be changed prior to January 1, 1999 and, if changed on or after
January 1, 1999, such changes will be limited to not more than one change per
calendar year and shall be a maximum of 10% of the rate in effect at the time of
the increase.

                                      51
<PAGE>

                   EXHIBIT F - Minimum Diligence Obligations

     Durect will comply with the following minimum diligence obligations of
Durect respecting research and development of Products:

     A.   Diligence in Durect Fields
          --------------------------

          Durect will fund the amounts as described below for the development of
Products in the Durect Fields. The first partial "Contract Year" will start on
September 1, 1998 and end on December 31, 1998, and each subsequent "Contract
Year" will start on January 1 of each subsequent year.

<TABLE>
<CAPTION>
                                        Number of        Total development
                  Products being        separate        costs per Contract
                   developed in      Products being        Year for each
Contract Year    Fields identified      funded(1)      Product ($mm)/(2)//(3)/
-------------------------------------------------------------------------------
<S>              <C>                 <C>               <C>
(Partial) 1      [* * *]                [* * *]        [* * *]

          2      [* * *]                [* * *]        [* * *]

          3      [* * *]                [* * *]        [* * *]

          4      [* * *]                [* * *]        [* * *]

          5      [* * *]                [* * *]/(4)/   [* * *]

          6      [* * *]                [* * *]/(4)/   [* * *]

          7      [* * *]                [* * *]/(4)/   [* * *]
</TABLE>

(1)  To be included, a Product must be funded to the extent of at least [* * *]]
                                                                               -
     of fully allocated development costs per year

(2)  During the year a Product is initiated after Contract Year 1, the "total
     development cost" for that year can be the year-end spending rate based on
     at least 3 months' activity.

(3)  For each Contract Year for which more than one cost level is given, the
     lower cost figures apply to the Products in earlier stages of development.

(4)  At least [* * *] Products which shall be [[* * *].

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      52
<PAGE>

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      53
<PAGE>

Notwithstanding the table above, Durect shall be deemed to be meeting its
minimum obligations under this Part A with respect to a particular Field (other
than the [* * *]) during Contract Years 5, 6, and 7 if Durect funds at least
[[* * *]] during each such year for development of at least [* * *] Product in
that Field and conducts a research program to determine the feasibility of
other Products in that Field in an amount equal to at least [[* * *]] for each
such year.                                                          -

Consequences for Fields:
-----------------------

Years 1, 2 and 3: If the above development obligations for Years 1, 2 and 3 are
----------------
not met in one of such Contract Years, then [* * *] Field shall be eliminated.
In such case, if Durect had not identified in writing prior to the commencement
of each Contract Year which Field it intends to pursue for purposes of the above
table, then ALZA may select the Field to be eliminated; otherwise it will be the
Field as previously identified by Durect. If such obligations are not met for
two of such Contract Years, [* * *] Fields will be eliminated.

Year 4:  If obligations are not met for the [* * *] or other Field or both,
------
then the Field for which the obligation is not met will be eliminated. If
obligations are not met for any Field, then [* * *] Fields will be eliminated.

Years 5, 6 and 7: If obligations are not met for any specific Field, then
----------------
[* * *] will be eliminated.

After Year 7: Product development levels must be sufficient to fully develop
------------
the commercial potential of each Field. In order to maintain rights to each
Field, appropriate levels of development efforts for such Field need to be
jointly agreed upon before the end of Year 7.

________________________________________________________________________________

     B.   Proof of Principle:  Secondary Fields
          -------------------------------------

     During Year 1, Durect will fund at least [[* * *]] of proof of principle
                                                      -
work in at least [* * *] of the Secondary Fields (which amount shall be
reasonably pro-rated if the initial financing of Durect is completed later
than August 1, 1998). Durect will diligently pursue and fund proof of
principle work in each Secondary Field during each subsequent Contract Year
until proof of principle is positively established. Proof of Principle shall
be established for a Secondary Field when Durect has received, for a Product
Candidate in such Secondary Field, pre-clinical animal pharmacological or
human clinical data: (i) that would reasonably support a development program
and (ii) from which Durect initiates IND enabling work for such Product
Candidate.

     Proof of Principle will be positively established for at least [* * *]
Secondary Field in Contract Year 3, for [* * *] additional Secondary Field by
the end of Contract Year 4, and for the [* * *] Secondary Field by the end of
Contract Year 5; for each such year in which Durect has not met the foregoing
Proof of Principle requirements, ALZA will have the right to eliminate [* * *]
of the Secondary Fields for which no Proof of Principle is established. Unless
the parties agree otherwise, the Field eliminated shall be the Field for which
Durect's funding of development costs is smallest (and in the case of a tie,
shall be determined by ALZA).

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      54
<PAGE>

     C.   Product Development Diligence
          -----------------------------

     Durect's minimum diligence obligations with regard to development of a
particular Product will be deemed to have been met if Durect has achieved each
Milestone (as defined in Section 2.1) within [[* * *]] year of the corresponding
                                                     -
target date.

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      55
<PAGE>

                        EXHIBIT G - Manufacturing Costs

"Cost of Manufacturing" shall mean ALZA's standard cost of manufacturing
Product, including packaging thereof, determined in accordance with generally
accepted accounting procedures and consistent with ALZA's accounting practices
on its other products, and including the cost of materials, direct labor and
benefits, and allocated overhead, the total expressed as Manufacturing Cost per
Unit of Product manufactured.

        A.   Materials.  Includes those items which form an integral and direct
part of the Product, or are necessary for its production, as well as cartons,
labels, package inserts, shippers, etc.

        B.   Direct Labor and Benefits.  Includes labor and related payroll
taxes and employment benefits spent in the actual production of the Product. It
is that portion of basic wages, taxes and benefits which can be identified with
or charged to a specific product.

        C.   Overhead.  Overhead includes all operating expenses incurred by and
in support of all manufacturing cost centers and quality operations. Cost
elements included are:

             -   Direct labor, related payroll taxes and employee benefits

             -   Depreciation

             -   Taxes

             -   Insurance

             -   Rent

             -   Repairs and maintenance

             -   Supplies, scrap and inventory expenses

             -   Utilities

             -   Factory administration expenses

             -   Other similar cost elements of factory overhead

             -   Allocation of general and administrative overhead allocated to
                 Product manufacturing centers and quality operations.

                                      56
<PAGE>

          EXHIBIT H - Amended and Restated Market Stand-Off Agreement

                   [Filed as exhibit 10.19 to the Form S-1]

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      57
<PAGE>

                  EXHIBIT I - Common Stock Purchase Agreement

                   [Filed as exhibit 10.17 to the Form S-1]

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      58
<PAGE>

                         EXHIBIT J - Warrant Agreement

                   [Filed as exhibit 10.18 to the Form S-1]

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      59
<PAGE>

                        SCHEDULE 1 - Product Candidates

                              [no exhibit exists]

**Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      60
<PAGE>

                             SCHEDULE 2 - Products

                              [no exhibit exists]<PAGE>

                                                                   EXHIBIT 10.7

                         PRODUCT ACQUISITION AGREEMENT

          PRODUCT ACQUISITION AGREEMENT, dated as of April 14, 2000, by and
between DURECT Corporation, a Delaware corporation, and ALZA Corporation, a
Delaware corporation.

                                   RECITALS

          WHEREAS, Seller manufactures and sells osmotic, miniature, implantable
pumps for research use in laboratory animals (the "Business"); and

          WHEREAS, Seller desires to sell and cause to be transferred to Buyer
(including either existing Affiliates of Buyer or those organized for that
purpose), and Buyer (including such Affiliates) desires to purchase and accept
the transfer from Seller certain assets and properties of Seller used primarily
in the Business, including the Product as defined below, all as hereinafter
specifically provided;

          NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties and agreements herein contained, the parties hereto
hereby agree as follows:

                                   ARTICLE I
                                  DEFINITIONS

 1.1  Certain Defined Terms.  As used in this Agreement, the following terms
shall have the following meanings (such definitions to be equally applicable to
both the singular and plural forms of the terms defined):

          "Accessory Products" means any products or devices including without
limitation those products set forth on Schedule 1 and other products or devices,
e.g., catheters and cannulas, to the extent such products and devices are sold
specifically for use with the Product or an Improvement.

          "Action" means any notice of material noncompliance or violation, or
any claim, demand, action, suit, audit, assessment or arbitration, or any other
request (including any request for information), proceeding or investigation, by
or before any Governmental Authority or any nongovernmental arbitration,
mediation or other nonjudicial dispute resolution body.

          "Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
under the Securities Exchange Act of 1934, as amended.

          "Agreement" means this Product Acquisition Agreement, including all
schedules and exhibits hereto, as it may be further amended from time to time as
herein provided.

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -1-

<PAGE>

          "Ancillary Agreements" means the General Support Services Agreement,
Coating Services Agreement and New Models Development Agreement attached hereto
as Exhibit A, Exhibit B and Exhibit C respectively, each of which is required by
this Agreement to be executed and delivered by the parties hereto at or before
the Closing.

          "Assets" has the meaning specified in Section 2.1.

          "Assumed Liabilities" has the meaning specified in Section 3.1.

          "Books and Records" means all of the following which are maintained at
Seller's facilities in Mountain View, California and the Vacaville Facility
which relate solely to the making, using and sale of the Product and Accessory
Products: books, records, manuals and other materials, accounting books and
records, property records for property, plant and equipment, files, computer
tapes, disks and other storage media and records, advertising matter, market
research, catalogues, price lists, correspondence, mailing lists, lists of
customers and suppliers, distribution lists, photographs, production data (for
two years), sales and promotional materials and records, purchasing materials
and records, personnel records, credit records, manufacturing and quality
control records and procedures, lot records, blueprints, copies of research and
development files, data and laboratory books, trademark files and disclosures,
media materials and plates, sales order files, and artwork.

          "Business" has the meaning specified in the Recitals to this
Agreement.

          "Buyer" means DURECT Corporation, a Delaware corporation, and, as
applicable, Affiliates of Buyer used or formed for the purpose of consummating
the transactions contemplated by this Agreement.

          "Buyer Indemnified Parties" has the meaning specified in Section 8.2.

          "Buyer Loss" has the meaning specified in Section 8.2.

          "Closing" means the closing of the transactions contemplated by this
Agreement as specified in Section 4.1.

          "Contracts" has the meaning specified in subsection 2.1(c).

          "Employee" has the meaning specified in Section 5.9.

          "Encumbrance" means any interest (including any security interest),
pledge, mortgage, lien (including environmental liens), charge, claim (including
any adverse claim) or other right of third Persons, whether created by law or in
equity, including any such restriction on the use, voting, transfer, receipt of
income or other exercise of any attributes of ownership.

          "Environmental Laws" means all laws, regulations, ordinances, codes,
policies, Governmental Orders and consent decrees, and any judicial or
administrative interpretations thereof, of Governmental Authorities, or any
common law doctrines, in effect from time to time relating to pollution or
protection of the environment, natural resources or protection of health

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -2-
<PAGE>

from Hazardous Material exposure, including those relating to emissions,
discharges, releases or threatened releases of Hazardous Material into the
environment (including ambient air, surface water, groundwater or land), or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Material.

          "Governmental Authority" means any international, national, federal,
state, territorial or provincial, municipal or local government, governmental
authority, regulatory or administrative agency, governmental commission,
department, board, bureau, agency or instrumentality, political subdivision,
court, tribunal, official, arbitrator or arbitral body.

          "Governmental Order" means any order, writ, rule, judgment,
injunction, decree, stipulation, determination, award, citation or notice of
violation entered by or with any Governmental Authority

          "Hazardous Material" means all substances, materials, chemicals,
compounds, pollutants or wastes regulated by, under or pursuant to any
Environmental Laws.

          "Improvements" means an improved version of the Product which meets
all of the following criteria: (i) is designed, marketed and sold for research
use in laboratory animals only; (ii) is an osmotic implantable pump; (iii) does
not contain any drug substance when sold; (iv) has a maximum pumping duration of
8 weeks; (v) has a fill volume not exceeding 2.5 milliliters; and (vi) has a
reservoir that is not made of metallic materials.

          "Inventories" has the meaning specified in subsection 2.1(a).

          "Lease" has the meaning specified in subsection 2.1(d).

          "Liabilities" means any and all debts, liabilities and obligations of
any nature whatsoever, whether accrued or fixed, absolute or contingent, mature
or unmatured or determined or determinable, including those arising under any
law, rule, regulation, Action, Governmental Order, and those arising under any
contract, agreement, commitment or undertaking.

          "Material Adverse Effect" means any event(s) with respect to,
change(s) in, or effect(s) on, the Product or the Assets or the Business which,
individually or in the aggregate, may be adverse to the Business or the results
of operations, the condition (financial or otherwise), assets, properties,
Liabilities of the Business in a manner that is material to the Business taken
as a whole, excluding any effects of a general nature which do not affect the
Business uniquely.

          "Person" shall include any individual, trustee, firm, corporation,
partnership, limited liability company, Governmental Authority or other entity,
whether acting in an individual, fiduciary or any other capacity.

          "Product" means the ALZET(R) osmotic, implantable pumps for research
use in laboratory animals as existing on the Closing Date, as described on
Schedule 1.

          "Product Trademark" means the ALZET(R) trademark, including all common
law rights and applications and registrations therefor, throughout the world.

          "Purchase Price" has the meaning specified in Section 2.4.

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -3-
<PAGE>

          "Retained Liabilities" has the meaning specified in Section 3.2.

          "Seller" means ALZA Corporation, a Delaware corporation.

          "Seller Indemnified Parties" has the meaning specified in Section 8.3.

          "Seller Loss" has the meaning specified in Section 8.3.

          "Vacaville Facility" means Seller's facility used for the manufacture
of Product prior to the Closing located in Vacaville, California.

 1.2  Other Defined Terms.  In addition to the terms defined in Section 1.1,
certain other terms are defined elsewhere in this Agreement and, whenever such
terms are used in this Agreement, they shall have their respective defined
meanings.

                                  ARTICLE II
                          PURCHASE AND SALE OF ASSETS

 2.1  Purchase of Assets. Upon the terms and subject to the conditions herein
set forth, in consideration of the payment of the Purchase Price, Seller hereby
sells, conveys, assigns, transfers and delivers to Buyer, and Buyer hereby
purchases and acquires from Seller, subject only to the express representations
set forth in Article V, all of Seller's rights, title and interests in and to
the following (collectively, the "Assets"):

          (a)  the Product and all raw materials and inventories, including
inventories of work in process, stores, supplies and finished goods, which are
used solely in the manufacture, use or sale of the Product and Accessory
Products as listed on Schedule 2.1(a) (collectively, the "Inventories");

          (b)  that machinery, manufacturing equipment, laboratory and testing
equipment, computers, tools and other tangible personal property, whether owned,
leased or subleased, set forth on Schedule 2.1(b) (collectively, the "Fixed
Assets");

          (c)  the contracts listed on Schedule 2.1(c) (collectively, the
"Contracts");

          (d)  subject to the consent by the landlord to the assignment, the
lease to the Vacaville Facility described on Schedule 2.1(d) (the "Lease"),
together with all of Seller's rights to improvements thereon and fixtures
thereto;

          (e)  (1) the Product Trademark and other trademarks listed on Schedule
2.1(e), including all applications and registrations therefor, and any and all
common law trademarks pertaining to the Product or as used with Accessory
Products throughout the world and the goodwill associated with the foregoing
trademarks; (2) all copyrights, including any common law copyrights and
applications therefor throughout the world for Product and Accessory Products
related advertising material, and (3) the good will associated with the Product
(collectively, the "Intangible Personal Property"); and

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -4-
<PAGE>

          (f)  all Books and Records and the marketing assets as listed in
Schedule 2.1(f).

     In the event that assets which are used primarily in the manufacture, use
or sale of the Product and Accessory Products are inadvertently omitted from the
above schedules, then Buyer and Seller shall in good faith, upon mutual
agreement, revise the schedules to include such assets.

     2.2  License.  Seller hereby grants to Buyer a nonexclusive license to
Seller's know-how, trade secrets, confidential information, software, technical
information, process technology, plans, drawings, analytical and process methods
related to the manufacture, testing and packaging of the Product, designs,
inventions, research records, procedures, manuals and blue prints in order for
Buyer to make, use and sell the Product.

     2.3  Product Trademark.

          (a)  Buyer acknowledges that the Product Trademark is similar to
Seller's name and that Seller has a continuing interest in the manner that the
Product Trademark is used.  Buyer agrees to use the Product Trademark only in
connection with the Product, Improvements and Accessory Products and will not
without Seller's prior written consent: (a) modify or alter in any way the
Product Trademark; (b) transfer the Product Trademark, other than to an
Affiliate of Buyer; or (c) authorize any use of the Product Trademark other than
in connection with the Product, Improvements or Accessory Products.  Buyer
further agrees not to use the DUROS(R) trademark, Seller's name or any other
trademark of Seller in any manner in association with the Product, Improvements
or Accessory Products except as provided in Section 7.8.

          (b)  Buyer shall notify ALZA in writing of any conflicting uses of, or
of any acts of infringement, unfair competition or imitation by others involving
the Product Trademark promptly after such matters are brought to Buyer's
attention or Buyer obtains knowledge thereof.

     2.4  Purchase Price and Payment.  Upon the terms and subject to the
conditions herein set forth, and in consideration of the sale, assignment,
transfer and delivery to Buyer and its Affiliates of the Assets, at the Closing,
Buyer or its Affiliates shall pay to Seller an aggregate of (i) Four Million
Dollars ($4,000,000), plus (ii) such amounts as shall be due under Section 7.6
for purchase of the Inventories (collectively, the "Purchase Price"); and Buyer
shall, or shall cause its Affiliates to, assume, as of the Closing, the Assumed
Liabilities as and to the extent provided in Article III.

     2.5  Full Possession.  Subject to the terms and conditions of this
Agreement, and subject to the Ancillary Agreements, at the Closing, Seller shall
put Buyer and its Affiliates into full and actual possession and enjoyment of
the Product and the Assets.  The sale of the Product and the Assets contemplated
hereby shall be effected by instruments of conveyance, transfer and assignment
as Buyer may request that are necessary to vest in Buyer all of the rights,
title and interests of Seller in the Product and the Assets as provided herein
and to put Buyer in full and actual possession, enjoyment and operating control
of the Product and the Assets.

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -5-
<PAGE>

                                   ARTICLE I
                           ASSUMPTION OF LIABILITIES

 3.1  Assumption of Liabilities.  Effective as of the Closing, without any
further responsibility or Liability of or recourse to Seller or any of Seller's
Affiliates, subsidiaries, stockholders, officers, directors, employees, agents,
successors or assigns, Buyer hereby absolutely and irrevocably assumes, and
shall pay, perform and be liable and responsible for, only the following
Liabilities of Seller (collectively, the "Assumed Liabilities"):

          (a) all obligations of Seller arising after the Closing Date under the
Contracts; and

          (b) subject to the assignment of the Lease to Buyer, all obligations
of Seller arising after the Closing Date under the Lease.

     3.2  Retained Liabilities. Except as provided in Section 3.1, Buyer and its
Affiliates shall not assume and shall not be responsible for, and there shall
not be transferred to or assumed by Buyer or any of its Affiliates, any
Liabilities of Seller or its Affiliates (or any predecessors thereof).

                                   ARTICLE I
                                    CLOSING

 4.1  Closing. The consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements (the "Closing") shall take place at
Seller's principal executive offices located at 1900 Charleston Road, Mountain
View, CA, at 2 p.m., local time, on April 14, 2000 or at such other place, time
and date as the parties hereby may agree in writing. The consummation of such
transactions is herein collectively referred to as the "Closing." The date and
time of the Closing are sometimes referred to herein as the "Closing Date."

 4.2  Seller's Obligations at Closing. At the Closing, Seller shall deliver or
cause to be delivered to Buyer:

          (a)  All bills of sale and other instruments of conveyance, transfer
and assignment, including a trademark assignment in connection with the
trademarks assigned in Section 2.1(e) in the form attached as Exhibit D, that
are necessary to vest in Buyer all of the rights, title and interests of Seller
in the Assets, free and clear of all Encumbrances;

          (b)  This Agreement and the Ancillary Agreements, duly executed by
     Seller.

 4.3  Buyer's Obligations at Closing. At the Closing, Buyer shall deliver or
cause to be delivered to Seller:

          (a)  The Purchase Price, which shall be delivered to Seller by wire
transfer of immediately available funds to an account or accounts designated in
writing by Seller;

          (b)  A California resale certificate pursuant to Sections 6091 et seq
of the California Revenue and Taxation Code; and

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -6-
<PAGE>

          (c)  This Agreement and the Ancillary Agreements, duly executed by
Buyer or its Affiliates, as the case may be.

                                   ARTICLE I
                   REPRESENTATIONS AND WARRANTIES OF SELLER

          Seller represents and warrants to Buyer as follows:

 5.1  Organization, Standing and Power. Seller is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and has full corporate power and authority to own its assets and
properties and to conduct its business as and where it is being conducted,
including to own the Assets owned by it and conduct its business as and where it
is being conducted by it. Seller is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of the properties owned, leased or operated by it or the nature of
its business makes such qualification or licensing necessary, except where the
failure to be so qualified or licensed would not result in a Material Adverse
Effect.

 5.2  Authorization.

          (a) Seller has full corporate power and authority to enter into this
Agreement and the Ancillary Agreements and to consummate the transactions
contemplated hereby and thereby.  The execution and delivery of this Agreement
and the Ancillary Agreements and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Seller.  This Agreement has been duly executed
and delivered by Seller.  This Agreement constitutes, and upon the execution and
delivery thereof by Seller each Ancillary Agreement will constitute, a legal,
valid and binding obligation of Seller, enforceable against Seller in accordance
with its terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and general principles
of equity (regardless of whether enforceability is considered in a proceeding at
law or in equity).

          (b) Except for transfer of Seller's interest in the Lease, no consent,
waiver, approval, order or authorization of, notice to, or registration,
declaration, designation, qualification or filing with, any Governmental
Authority or third Person, domestic or foreign, is or has been or will be
required on the part of Seller in connection with the execution and delivery of
this Agreement or any Ancillary Agreement or the consummation of the
transactions contemplated hereby or thereby, except where the failure to obtain
such consent would not result in a Material Adverse Effect.

 5.3  Non-Contravention. Neither the execution and delivery of this Agreement or
any Ancillary Agreement, nor the consummation of the transactions contemplated
hereby or thereby, will violate or conflict with or provide a right of
termination to any Person under (a) any provision of the Charter or Bylaws of
Seller, (b) any law, rule, regulation or Governmental Order to which Seller or
the Product and the Assets are bound or subject or (c) any agreement, indenture,
undertaking, permit, license or other instrument to which Seller is a party or
by which it or any of

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -7-
<PAGE>

its properties may be bound or affected, other than (x) the requirements of any
applicable bulk sales or bulk transfer laws or (y) where such violation,
conflict or right of termination would not result in a Material Adverse Effect.

 5.4  Disclosure. There is no fact (other than matters of a general societal,
economic or political nature which do not affect the business of Seller or Buyer
uniquely) known to Seller, and there have been no events or transactions or
information which have come to the attention of Seller, which might reasonably
be expected to have a Material Adverse Effect on the Product or the Assets.

 5.5  Real Property.

          (a)  The Lease is a legal, valid and binding agreement enforceable in
accordance with its terms and is in full force and effect. There are no existing
material defaults under the Lease by Seller and no event of default on the part
of Seller or, to the knowledge of Seller, on the part of any other party thereto
has occurred which (whether with or without notice, lapse of time or the
happening or occurrence of any other event) would constitute a default
thereunder permitting landlord to terminate. Subject to consent by the landlord
to assignment of the Lease to Buyer, upon consummation of the transactions
contemplated by this Agreement, the Lease will continue in full force and effect
without penalty or other adverse consequence and shall be unaffected by such
transactions. The Lease has not been amended or otherwise affected by any side
letter, interpretation or correspondence relating thereto except for amendments
provided to Buyer. Seller has made available to Buyer true and correct copies of
the Lease.

 5.6  Title to Assets. Seller has good and marketable title to the Product and
all of the Assets, free and clear of any Encumbrances.

 5.7  Intangible Personal Property.

          (a)  The execution, delivery and performance of this Agreement, the
Ancillary Agreements, and the consummation of the transactions contemplated
hereby and thereby will not breach, violate or conflict with any instrument or
agreement governing any intellectual property necessary or required for, or used
in, the conduct of the Business as presently conducted; and

          (b)  Seller has not been notified of any claim by a third party that
Seller's manufacture or sales of the Product violate any proprietary right of
any other party. The Product Trademark is subsisting and Seller has no notice of
any claims that a third party has any rights thereto. There are no existing or
pending patents held by Seller that would prevent Buyer from manufacturing,
using or selling the Product. Seller has not received any notice asserting that
the manufacture, use or sale of the Product conflicts with the rights of any
other party. Seller is not aware of any material unauthorized use, infringement
or misappropriation on the part of any third party of the Assets or the
Intangible Personal Property.

    5.8  Litigation; Legal Matters. There is no Action pending or, to the
knowledge of Seller, threatened against or involving Seller or any of the
officers, directors, stockholders, properties, assets or businesses of Seller,
whether at law or in equity, or before or by any

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -8-
<PAGE>

Governmental Authority, nor any Governmental Order against, or the subject of
which is, the Product or the Assets.

    5.9  Employees; Employee Benefit Plans; Labor.

          (a)  Schedule 5.9 contains a complete and correct list of all
employees of Seller whose employment is primarily devoted to the manufacture or
sale of the Product (collectively, the "Employees").

          (b)  There are no employment agreements or other similar arrangements
that pertain to any Employee, except standard secrecy agreements for all
employees.

          (c)  Except to the extent provided in Article X, Buyer will incur no
Liability with respect to, or on account of, and Seller will retain any
Liability for, and on account of, any employee benefit plan of Seller including,
but not limited to, Liabilities Seller may have to such employees under all
employee benefit schemes, incentive compensation plans, bonus plans, pension and
retirement plans, vacation, profit-sharing plans (including any profit-sharing
plan with a cash-or-deferred arrangement) share purchase and option plans,
savings and similar plans, medical, dental, travel, accident, life, disability
and other insurance and other plans or arrangements, whether written or oral and
whether "qualified" or "non-qualified," or to any employee as a result of
termination of employment by Seller as contemplated by this Agreement.

          (d)  No Employee is covered under any collective bargaining agreement.
With respect to the use of the Assets: (a) there is no unfair labor practice
complaint against Seller pending or, to the knowledge of Seller, threatened
before the National Labor Relations Board or any comparable state or local
Governmental Authority; (b) there is no labor strike, dispute, slowdown or
stoppage actually pending or, to the knowledge of Seller, threatened against or
directly affecting Seller; (c) no union representation question exists or
negotiations regarding union representation have taken place or are ongoing
respecting the employees of any of the Business and no notice or demand for
union recognition has been received by Seller; (d) no grievance or any Action
arising out of or under collective bargaining agreements is pending and no
claims therefor exist; (e) no collective bargaining agreement which is binding
on Seller prevents it from relocating or closing any of its operations; (f)
Seller has not experienced any work stoppage or other labor difficulty; and (g)
there are no pending or, to the knowledge of Seller, threatened unfair
employment practice charges or administrative proceedings relating to any past
or present employees of the Business.

    5.10 Environmental Matters. Except as set forth in Schedule 5.10:

          (a)  to Seller's knowledge, prior to the Closing, Seller has operated
and maintained the Business and the Assets, in compliance with all applicable
Environmental Laws and Governmental Orders and the requirements of all
Environmental Permits held or required to be held by Seller and Seller has not
received a notice of violation or other demand from a third Person alleging that
the Business is in violation of any Environmental Law;

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -9-
<PAGE>

          (b)  to Seller's knowledge, no Environmental Permits are necessary or
required for any activities currently conducted by or on behalf of the Business
except for the permit required for the coating process currently conducted in
Seller's Mountain View facility;

          (c)  to Seller's knowledge, there are no underground storage tanks at
the Vacaville Facility containing Hazardous Materials or which formerly
contained Hazardous Materials; nor is there, to Seller's knowledge, Hazardous
Material in any of the fixtures, structures, soils, groundwater, surface water
or air on, under or about or emanating from the Assets or the Vacaville
Facility,

          (d)  to Seller's knowledge, the Vacaville Facility is not listed nor
proposed for listing on the U.S. National Priorities List under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
42 U.S.C. (S)(S) 9601 et seq. or on the Comprehensive Environmental Response
Compensation Liability Information System or any foreign or state list of sites
requiring investigation, remediation or cleanup;

          (e)  Seller has provided Buyer with true, accurate and complete copies
of any Governmental Orders applicable to the Product, the Vacaville Facility and
the Assets, and written reports, if any, of material releases of Hazardous
Materials on, under, or emanating from the Vacaville Facility in Seller's
possession or reasonable control.

    5.11 Contracts and Commitments.

          (a)  True and complete copies of all Contracts (together with all
ancillary documents thereto, including any amendments, consents for alterations
and documents regarding variations) set forth in Schedule 2.1(c) have been
delivered to Buyer.

          (b)  With respect to the Contracts, (i) each is a legal, valid and
binding obligation of Seller and, to the knowledge of Seller, each other party
thereto, and is in full force and effect, and (ii) Seller has not been notified
that it is in breach of any such Contract, nor has Seller notified the other
party that it is in breach of any such Contract.

    5.12 Compliance With Laws.  Seller has not been notified of any violation
of laws or regulations in connection with its manufacture and sale of Product.

    5.13 Inventory.  All of the Inventories consist of a quality and quantity
usable and salable in the ordinary course of business.

    5.14 Brokers and Finders.  Neither Seller nor any of its officers, directors
or employees has employed any broker or finder or incurred any liability for any
brokerage fee, commission or finder's fee in connection with the transactions
contemplated by this Agreement.

    5.15 Permits. Except as disclosed in Section 5.10(b), to Seller's knowledge,
there are no governmental licenses, permits, approvals, license applications and
product registrations required for the making, using and selling of the Product.

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -10-
<PAGE>

     5.16 Patents.  As of the Closing Date, there are no unexpired patents (or
equivalent rights) nor applications pending anywhere in the world which are
owned or controlled by Seller which would be infringed by the manufacture, use
and sale of the Product.

                                   ARTICLE I
                    REPRESENTATIONS AND WARRANTIES OF BUYER

          Buyer represents and warrants to Seller as follows:

    6.1  Organization.  Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware.

    6.2  Authorization.

          (a)  Buyer has full corporate power and authority to enter into this
Agreement and the Ancillary Agreements and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Ancillary Agreements and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Buyer. This Agreement has been duly executed and
delivered by Buyer. This Agreement constitutes, and upon the execution and
delivery thereof by Buyer, each Ancillary Agreement will constitute, a legal,
valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and general principles
of equity (regardless of whether enforceability is considered in a proceeding at
law or in equity).

          (b)  No consent, waiver, approval, order or authorization of, notice
to, or registration, declaration, designation, qualification or filing with, any
Governmental Authority or third Person, domestic or foreign, is or has been or
will be required on the part of Buyer or any of its Affiliates in connection
with the execution and delivery of this Agreement or any Ancillary Agreement or
the consummation of the transactions contemplated hereby or thereby.

    6.3  Non-Contravention.  Neither the execution and delivery of this
Agreement or any Ancillary Agreement, nor the consummation of the transactions
contemplated hereby or thereby, will violate or conflict with (a) any provision
of the charter or bylaws of Buyer or any of its Affiliates, (b) any law, rule,
regulation or Governmental Order to which Buyer or any such Affiliate or any of
their business or assets are bound or subject or (c) any agreement, indenture,
undertaking, permit, license or other instrument to which Buyer or any such
Affiliate is a party or by which any of them or any of their properties may be
bound or affected.

                                  ARTICLE II
                               CERTAIN COVENANTS

    7.1  Access to Information. To the extent reasonably requested by Buyer,
Seller shall provide Buyer with information about the Product and the Business
following the Closing.

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -11-
<PAGE>

    7.2  Transition.  For the 30-day period after the Closing, Seller will
conduct the Business on behalf of Buyer under the General Support Services
Agreement.

    7.3  Confidentiality. After the Closing Date, each party shall, and shall
cause its representatives, Affiliates and employees:  (a) to treat and hold as
confidential (and not to disclose or provide access to any Person to) any
confidential information of the other party disclosed in connection with this
transaction or in performance of this Agreement or the Ancillary Agreements; and
(b) in the event that any of them becomes legally compelled to disclose any such
information: (i) to provide the other party with prompt written notice of such
requirement so that such other party or an Affiliate thereof may seek a
protective order or other remedy or waive compliance with this Section 7.3; (ii
in the event that such protective order or other remedy is not obtained, or such
other party waives compliance with this Section 7.3, to furnish only that
portion of such information which is legally required to be provided and to
exercise its best efforts to obtain assurances that confidential treatment will
be accorded such information; and (iii) to the extent permitted by law, to
promptly furnish (prior to, at, or as soon as practicable following such
required disclosure) to the other party any and all copies (in whatever form or
medium) of all such disclosed information; provided, however, that this sentence
shall not apply to any information which, at the time of disclosure, is
available publicly and was not disclosed in breach of this Agreement, or is
subsequently disclosed to the public, or to Seller or Buyer by a third party.
Each party agrees and acknowledges that remedies at law for any breach of its
obligations under this Section 7.3 may be inadequate and that in addition
thereto the other party (or its Affiliate) shall be entitled to seek equitable
relief, including injunction and specific performance, in the event of any such
breach.

    7.4  Bulk Sales Compliance.  Buyer will not seek to enforce compliance by
Seller with the provisions of any bulk sales or transfers law or similar law of
any jurisdiction in respect of the transactions contemplated by this Agreement
and the Ancillary Agreements.

    7.5  Restrictive Covenants.

          (a)  Except to perform its obligations under this Agreement or the
Ancillary Agreements, for a period of [* * *], Seller will not sell for research
use in laboratory animals any products that compete directly with the Product
and that work in substantially the same way as the Product, or manufacture any
such products for such purpose, nor will Seller grant rights to any third party
to do so, or own, directly or indirectly, more than 20 percent of the
outstanding voting stock or other equity interest in any other entity that
engages in such activity. Nothing herein shall be deemed to limit the activities
of any entity that is the successor or assignee of all or substantially all of
Seller's business.

          (b)  For a period of [* * *], Seller shall not, without Buyer's
written consent, solicit for employment at Seller nor hire any Employee, unless
such Employee has ceased to be employed by Buyer or any of its Affiliates for at
least 6 months; provided, however, the restriction in this Section 7.5(b) shall
not apply to any Employee who Buyer has terminated at its own initiative.

          (c)  Seller agrees and acknowledges that remedies at law for any
breach of Seller's obligations under this Section 7.5 may be inadequate and that
in addition thereto Buyer (or its

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -12-
<PAGE>

Affiliate) shall be entitled to seek equitable relief, including injunction and
specific performance, in the event of any such breach.

    7.6  Purchase of Inventory.  On the Closing Date, Buyer shall purchase the
Inventories from Seller at the per unit standard cost set forth on Schedule 7.6.
Buyer shall pay Seller the purchase price for the Inventories in accordance with
the following schedule: twenty-five percent (25%) of the purchase price on the
Closing Date; twenty-five percent (25%) of the purchase price on or before June
30, 2000; twenty-five percent (25%) of the purchase price on or before September
30, 2000; and the remaining twenty-five percent (25%) of the purchase price on
or before December 31, 2000; provided, however, that the purchase price shall be
paid in full within 30 days after Buyer completes a registered offering under
the Securities Act of 1933, as amended, if such purchase price has not been paid
in full by that time.

    7.7  Product Discussions. At the request of Seller, Buyer shall participate
in periodic discussions with Seller summarizing the type and quantity of
products sold in connection with the Business, the identity of all customers of
the Business and, to the extent known by Buyer, the purpose for which each such
product was ordered.

    7.8  Promotional and Marketing Material.The parties acknowledge that Buyer
intends to continue to utilize the Product Trademark in the marketing and sale
of the Product after the Closing. As soon as practicable after the Closing Date,
Buyer shall make such changes to the packaging, product labeling, and
promotional and marketing materials in connection with the Business as necessary
to reflect (i) Buyer as the manufacturer and seller of the Product and (ii) to
include Seller's logo and identify Seller as the developer of the Product;
provided, however, that finished Product in the Inventories as of the Closing
Date may be sold as currently packaged in the ordinary course of business so
long as such packaging is modified to indicate Buyer as the seller of such
products.

    7.9  Vendors. Upon written request by Buyer, after the Closing Date Seller
will provide all reasonable assistance to Buyer in contacting and establishing
an ongoing business relationship with vendors of supplies, raw materials and
services used by Seller in connection with the manufacture and sale of the
Product prior to the Closing Date.

    7.10 Exploitation of the Business; Discontinuation of the Business.  After
the Closing, Buyer will use its reasonable Commercial efforts to market, sell
and distribute the Product throughout its commercial life, using at least the
efforts another small Company would devote to products of similar commercial
potential, taking into account that the Product is unique and used by
researchers around the world as an important research tool. If at any time after
the Closing Date, Buyer discontinues the Business (other than as a result of
transferring the Business to a third party), Seller may, at its sole discretion,
obtain from Buyer (i) all rights, title and interest in the Product and the
Assets (to the extent then existing) at a purchase price to be negotiated by the
parties and (ii) the Product inventory then in Buyer's possession at the
standard cost incurred by Buyer therefor.

    7.11 No Action. Seller, on behalf of itself, its assigns, successors and
Affiliates, hereby covenants that neither it nor its Affiliates, assigns or
successors will institute or bring any Action against Buyer, its assigns,
successors or Affiliates alleging that the making, using, selling, offering for
sale or importation of the Product and Improvements will infringe any patent or
equivalent intellectual property rights anywhere in the world owned or
controlled by Seller or any of its Affiliates, provided that such Products and
Improvements are sold solely for research use in laboratory animals.

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -13-
<PAGE>

                                  ARTICLE III
                   INDEMNIFICATION, LIMITATION OF LIABILITY
                          AND DISCLAIMER OF WARRANTY

    8.1 Survival. All representations and warranties of Seller and Buyer and
their Affiliates contained in this Agreement and the Ancillary Agreements
(including all schedules and exhibits hereto and thereto and all certificates,
documents, instruments and undertakings furnished pursuant to this Agreement and
the Ancillary Agreements) shall survive the consummation of the transactions
contemplated hereby and thereby. All indemnification obligations of Seller and
Buyer in this Agreement or the Ancillary Agreements (including all schedules and
exhibits thereto and all certificates, documents, instruments and undertakings
furnished pursuant to this Agreement and the Ancillary Agreements) shall survive
indefinitely. All covenants, obligations and agreements of Buyer and Seller and
their Affiliates contained in this Agreement and the Ancillary Agreements
(including all schedules and exhibits hereto and thereto and all certificates,
documents, instruments and undertakings furnished pursuant to this Agreement and
the Ancillary Agreements) shall survive the consummation of the transactions
contemplated hereby and thereby.

    8.2 Indemnification by Seller. Seller shall indemnify and hold harmless
Buyer, its subsidiaries and Affiliates, any assignee or successor thereof, and
each officer, director, employee, agent and representative of each of the
foregoing (collectively, the "Buyer Indemnified Parties") from and against, and
pay or reimburse the Buyer Indemnified Parties for, any and all losses, Actions,
Liabilities, damages, claims, costs and expenses (including reasonable expenses
of investigation and legal fees and costs in connection therewith), interest,
awards, judgments, penalties and Encumbrances suffered or incurred by any of the
Buyer Indemnified Parties (hereinafter a "Buyer Loss") to the extent arising
from any Action instituted by a third party against any of the Buyer Indemnified
Parties relating to the manufacture, use, sale, distribution, import, export or
testing of Products, the operation of the Business or the use, operation,
ownership, lease, possession, control, occupancy, maintenance or condition of
the Assets, in each case, prior to the Closing.

    8.3 Indemnification by Buyer. Buyer shall indemnify and hold harmless
Seller, any assignee or successor of Seller, and each officer, director,
employee, agent and representative of each of the foregoing (collectively, the
"Seller Indemnified Parties") from and against, and pay or reimburse the Seller
Indemnified Parties for, any and all losses, Actions, Liabilities, damages,
claims, costs and expenses (including reasonable expenses of investigation and
legal fees and costs in connection therewith), interest, awards, judgments,
penalties and Encumbrances suffered or incurred by any of the Seller Indemnified
Parties (hereinafter a "Seller Loss") to the extent arising from any Action
instituted by a third party against any of the Seller Indemnified Parties
relating to any Assumed Liability or the manufacture, use, sale, distribution,
import, export or testing of Products, the operation of the Business or the use,
operation, ownership, lease, possession, control, occupancy, maintenance or
condition of the Assets, in each case, after the Closing.

    8.4 General Indemnification Provisions.

          (a)  For the purposes of this Section 8.4, the term "Indemnitee" shall
refer to the Person or Persons indemnified, or entitled, or claiming to be
entitled, to be indemnified, pursuant

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -14-
<PAGE>

to the provisions of Section 8.2 or 8.3, as the case may be; the term
"Indemnitor" shall refer to the Person having the obligation to indemnify
pursuant to such provisions; and "Losses" shall refer to Seller Losses or Buyer
Losses, as the case may be.

          (b)  Within a reasonable time following the determination thereof, an
Indemnitee shall give the Indemnitor written notice of any matter which such
Indemnitee has determined has given rise to a right of indemnification under
this Agreement stating the amount of the Loss, if known, and method of
computation thereof, all with reasonable particularity and containing a
reference to the provisions of this Agreement in respect of which such right of
indemnification is claimed or arises (subject to the last sentence of this
subsection). The obligations and Liabilities of any party under this Article
VIII with respect to Losses arising from claims, assertions, events or
proceedings of any third party (including claims by any assignee or successor of
the Indemnitee or any Governmental Authority), which are subject to the
indemnification provided for in this Article VIII ("Third Party Claims") shall
be governed by and be subject to the following additional terms and conditions:
If any Indemnitee shall receive written notice of any Third Party Claim, the
Indemnitee shall promptly give the Indemnitor written notice of such Third Party
Claim (subject to the last sentence of this subsection) and shall permit the
Indemnitor, at its option, to participate in the defense of such Third Party
Claim by counsel of its own choice and at its expense. If the Indemnitor
acknowledges in writing its obligation to indemnify the Indemnitee hereunder
against any Loss (without limitation) that may result from such Third Party
Claim, then the Indemnitor shall be entitled, at its option, to assume and
control the defense against such Third Party Claim at its expense and through
counsel of its choice if it gives written notice of its intention to do so to
the Indemnitee within 15 calendar days of the receipt of notice of such Third
Party Claim from Indemnitee, unless, in the reasonable opinion of counsel for
the Indemnitee, there is a conflict or a potential conflict of interest between
the Indemnitee and the Indemnitor in such Action, in which event the Indemnitee
shall be entitled to direct the defense with respect to those issues as to which
such conflict exists with separate counsel of its choice reasonably acceptable
to the Indemnitor. The fees and expenses of any such separate counsel shall be
borne by the Indemnitor. In the event that the Indemnitor exercises its right to
undertake the defense against any such Third Party Claim as provided above, the
Indemnitee shall cooperate with the Indemnitor in such defense and make
available to the Indemnitor, at Indemnitor's expense, all witnesses, pertinent
records, materials and information in its possession or under its control
reasonably relating thereto as is required by the Indemnitor. Similarly, in the
event the Indemnitee is, directly or indirectly, conducting the defense against
any Third Party Claim, the Indemnitor shall cooperate with the Indemnitee in
such defense and make available to it all witnesses, pertinent records,
materials and information in its possession or under its control reasonably
relating thereto as is reasonably required by the Indemnitee. No such Third
Party Claim, except the settlement thereof which involves the payment of money
only either by a party other than the Indemnitee or for which the Indemnitee is
totally indemnified (without limitation) by the Indemnitor and the unconditional
release from all related liability of the Indemnitee, may be settled by the
Indemnitor without the written consent of the Indemnitee. In the event that an
Indemnitee reasonably determines, and gives notification to the Indemnitor, that
the failure to resolve a Third Party Claim is having a material adverse effect
on the Indemnitee's ongoing business, and as a result the Indemnitee wishes to
propose a settlement of the Third Party Claim and the third party will
unconditionally release the Indemnitor from any and all Liabilities relating

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -15-
<PAGE>

to or arising from such Third Party Claim, then the Indemnitor shall not
unreasonably withhold its consent to such settlement. If the Indemnitor does not
consent to such settlement, the Indemnitee may settle the Third Party Claim on
the terms proposed without discharging the Indemnitor from its liability
hereunder with respect to such Third Party Claim. The foregoing notwithstanding,
the failure of any Indemnitee to give any notice required to be given hereunder
shall not affect such Indemnitee's right to indemnification hereunder except to
the extent the Indemnitor from whom such indemnity is sought shall have been
actually and materially prejudiced in its ability to defend the claim or action
for which such indemnification is sought by reason of such failure.

          (c)  Payment by an Indemnitee to a third party with respect to a Loss
shall not affect such Indemnitee's rights to indemnification pursuant to this
Article VIII.

    8.5 Limitation on Liability.

          (a)  EXCEPT FOR THE INDEMNIFICATION OBLIGATIONS SET FORTH IN SECTIONS
8.2 AND 8.3 OR AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, IN NO EVENT
SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, INDIRECT, PUNITIVE OR
CONSEQUENTIAL DAMAGES ARISING OUT OF OR RELATING TO THE TRANSACTION CONTEMPLATED
BY THIS AGREEMENT, REGARDLESS OF THE FORM OF THE CLAIM, INCLUDING WITHOUT
LIMITATION CLAIMS FOR INDEMNIFICATION, TORT, BREACH OF CONTRACT, WARRANTY,
REPRESENTATION OR COVENANT OR ANY LOSS OF PROFITS, EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES AND WHETHER OR NOT SUCH DAMAGES ARE REASONABLY
FORESEEABLE.

          (b) Except for the indemnification obligations set forth in Sections
8.2 and 8.3,  Buyer's obligation to pay for the inventory set forth in section
7.6 or as otherwise expressly provided in this Agreement, (i) Seller or Buyer's
aggregate liability arising out of or related to the transaction contemplated by
this Agreement, regardless of the form of the claim or action, is limited to the
amount by which all liabilities exceed $10,000 and in no event will either
party's aggregate liability hereunder exceed a total of $500,000, and (ii)
neither party shall have any claim against the other for any inaccuracy in any
representation or breach of warranty set forth in Articles V and VI unless such
party shall have given the other party notice of such claim not later than 2
years after the Closing Date.

    8.6 Disclaimer of Warranty.  EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, SELLER MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY
KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF
QUALITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND OTHER THAN
EXPRESSLY SET FORTH IN THIS AGREEMENT, SPECIFICALLY DISCLAIMS ALL SUCH
WARRANTIES.

                                  ARTICLE II
                                  TAX MATTERS

     9.1  Taxes Relating to Transactions Contemplated by This Agreement.  All
sales and use taxes imposed in connection with the transfer of the Assets,
whether such taxes are

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -16-
<PAGE>

assessed initially against Seller or Buyer or any Affiliate of Buyer, shall be
borne and paid by Buyer.

                                   ARTICLE I
                     EMPLOYEES AND EMPLOYEE BENEFIT PLANS

   10.1 Business Employees.

          (a)  Within seven (7) days after the Closing, Buyer shall offer to
employ, for at least a [* * *] period following the Closing, the Employees;
provided that Buyer shall not be obligated to hire any Employee (i) [* * *]. For
                                                                         ---
any Employee, such employment shall be offered on terms which include no less
than (i) [* * *]

          (b)  Seller will coordinate with Buyer in communicating with the
Employees so offered employment by Buyer.

          (c)  If the employment of any Employee is terminated by Buyer, other
than for cause, at any time within [*  *  *], Buyer agrees to provide [*  *  *].

          (d) Buyer and Seller acknowledge and agree that the Employees are
deemed to be third party beneficiaries of this Article X.

   10.2 Modification of Confidentiality and Related Agreements. Seller agrees
that disclosure of information relating specifically to manufacture, use or sale
of the Product or provision of any services by any Person who becomes an
employee of Buyer or its Affiliates in connection with the transactions
contemplated hereby (a "New Employee") to Buyer or its Affiliates shall not be a
violation of any provision of any trade secret, confidentiality, non-compete or
comparable agreements entered into prior to the Closing between Seller, on the
one hand, and any New Employee, on the other hand.

                                  ARTICLE II
                              GENERAL PROVISIONS

   11.1 Fees and Expenses. Except as otherwise provided in this Agreement, each
party will pay all fees and expenses incurred by it in connection with this
Agreement, the Ancillary Agreements and the transactions contemplated hereby and
thereby.

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -17-
<PAGE>

   11.2 Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the date delivered or mailed if delivered personally or mailed by
registered or certified mail (postage prepaid, return receipt requested), or
sent by facsimile transmission, (confirmation received) to the parties at the
following addresses and facsimile transmission numbers (or at such other address
or number for a party as shall be specified by like notice), except that notices
after the giving of which there is a designated period within which to perform
an act and notices of changes of address or number shall be effective only upon
receipt:

          (a)  If to Seller

               ALZA Corporation
               1900 Charleston Road
               Mountain View, California  94043
               Attention:  General Counsel
               Telecopy No.:  650-564-7848
               Telephone No.:  650-564-5260

          (b)  if to Buyer:

               DURECT Corporation
               10240 Bubb Road
               Cupertino, California  95014-4166
               Attention:  General Counsel
               Telecopy No.:  (408) 777-3577
               Telephone No.:  (408) 777-1827

               with a copy to:

               Orrick, Herrington & Sutcliffe LLP
               Old Federal Reserve Bank Building
               400 Sansome Street
               San Francisco, California 94111
               Attention:  Richard V. Smith, Esq.
               Telecopy No.:  (415) 773-5759
               Telephone No.:  (415) 392-1122

   11.3 Interpretation; Conflict Between Agreements.

          (a)  When a reference is made in this Agreement to Sections,
subsections, Schedules or Exhibits, such reference shall be to a Section,
subsection, Schedule or Exhibit to this Agreement unless otherwise indicated.
The words "include," "includes" and "including" when used herein shall be deemed
in each case to be followed by the words "without limitation." The word "herein"
and similar references mean, except where a specific Section or Article
reference is

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -18-
<PAGE>

expressly indicated, the entire Agreement rather than any specific Section or
Article. The table of contents and the headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Except as otherwise expressly provided herein,
all monetary amounts referenced in this Agreement shall mean U.S. dollars.

          (b)  In the event of any inconsistency, conflict or ambiguity as to
the rights and obligations of the parties under this Agreement and any Ancillary
Agreement, the terms of this Agreement shall control and supersede any such
inconsistency, conflict or ambiguity.

   11.4 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of statute, law,
regulation, Governmental Order or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner adverse to any party. In such event, any
such term or provision shall be modified, amended and limited to the extent
necessary to render the same and the remainder of this Agreement valid,
enforceable and lawful.

   11.5 Assignment. This Agreement may not be assigned by operation of law or
otherwise, except that either party (including its Affiliates) may assign its
rights and benefits hereunder and under the Ancillary Agreements (provided that
the assigning party or its Affiliates, as applicable, shall remain responsible
for its obligations hereunder) (a) to any Affiliate of the assigning party, (b)
to any Person acquiring all or substantially all of the assets and properties of
the assigning party or, (c) in the case of Buyer, to any person acquiring all or
substantially all of the assets and properties of the Business, as such Business
is then conducted by Buyer and its Affiliates. Subject to the preceding
sentence, this Agreement will apply to, be binding in all respects upon and
inure to the benefit of the successors and permitted assigns of Buyer and
Seller.

   11.6  No Third-Party Beneficiaries. Other than as set forth in Section
10.1(d), this Agreement is for the sole benefit of the parties hereto and their
permitted assigns and nothing herein expressed or implied shall give or be
construed to give to any Person, other than the parties hereto and such assigns,
any legal or equitable rights hereunder.

   11.7  Amendment, Other Remedies and Waiver.

          (a)  This Agreement may not be amended or modified except by an
instrument in writing signed by Seller and Buyer.

          (b)  The rights and remedies of the parties to this Agreement are
cumulative and not alternative of any other remedy conferred hereby or by law or
equity, and the exercise of any remedy will not preclude the exercise of any
other.

          (c)  Neither the failure nor any delay by any party in exercising any
right, power or privilege under this Agreement or any Ancillary Agreement will
operate as a waiver of such right, power or privilege, and single or partial
exercise of any such right, power or privilege will preclude any other or
further exercise of such right, power or privilege or the exercise of any

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -19-
<PAGE>

other right, power or privilege. To the maximum extent permitted by law, (i) no
Action or right arising out of this Agreement or the Ancillary Agreements can be
discharged by one party, in whole or in part, by a waiver or renunciation of the
Action or right unless in a writing signed by the other party; (ii) no waiver
that may be given by a party will be applicable except in the specific instance
for which it is given; and (iii) no notice to or demand on one party will be
deemed to be a waiver of any obligation of such party or of the right of the
party giving such notice or demand to take further action without notice or
demand as provided in this Agreement or the documents referred to in this
Agreement.

   11.8 Further Assurances. Each of Buyer and Seller agrees to (a) cooperate
fully with the other party, and to cause its Affiliates to cooperate fully, (b)
execute and cause such Affiliates to execute such further instruments, documents
and agreements, and (c) give such further written assurances as may be
reasonably requested by Buyer or Seller, as the case may be, to evidence and
reflect the transactions described herein and contemplated hereby and to carry
into effect the intents and purposes of this Agreement. If at any time and from
time to time after the Closing Date (without limitation as to time or otherwise)
Buyer reasonably determines that all of Seller's rights, title and interests in
and to an Asset has failed to be fully transferred and conveyed in accordance
with this Agreement to Buyer or an Affiliate thereof, as the case may be, then
Seller shall cause such Asset to be transferred and conveyed to Buyer or an
Affiliate thereof in accordance with this Agreement as soon as reasonably
practicable after notice from Buyer to Seller. If requested by Buyer, Seller
shall prosecute or otherwise enforce in its own name for the benefit of Buyer
any claims, rights or benefits that are transferred to Buyer and its Affiliates
by this Agreement and that require prosecution or enforcement in the name of
Seller. Any prosecution or enforcement of claims, rights or benefits under this
Section 11.8 shall be solely at Buyer's expense, unless the prosecution or
enforcement is made necessary by a breach of this Agreement by Seller. Following
the Closing Date, Seller shall refer to Buyer and its Affiliates, as
appropriate, as promptly as practicable, any telephone calls, letters, orders,
notices, requests, inquiries and other communications relating to the Assets and
the Business.

   11.9 Mutual Drafting. This Agreement is the joint product of Buyer and Seller
and each provision hereof has been subject to the mutual consultation,
negotiation and agreement of Buyer and Seller and shall not be construed for or
against any party hereto.

  11.10 Governing Law; Consent to Jurisdiction. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of California
(without giving effect to its choice of law principles). Subject to Section
11.11, each of the parties hereto irrevocably submits to the exclusive
jurisdiction of (a) the Superior Court of the State of California, San Francisco
County, and (b) the United States District Court for the Northern District of
California, for the purposes of any Action arising out of this Agreement, any
Ancillary Agreement or any transaction contemplated hereby or thereby. Each of
the parties hereto agrees to commence any Action relating hereto either in the
United States District Court for the Northern District of California, or if such
Action may not be brought in such court for jurisdictional reasons, in the
Superior Court of the State of California, San Francisco County. Each of the
parties hereto further agrees that service of any process, summons, notice or
document by U.S. registered mail to such party's respective address set forth in
Section 11.2 shall be effective service of process for any Action in

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -20-
<PAGE>

California with respect to any matters to which it has submitted to jurisdiction
in this Section 11.10. Each of the parties hereto irrevocably and
unconditionally waives any objection to the laying of venue of any Action
arising out of this Agreement, any Ancillary Agreement or any transaction
contemplated hereby or thereby in (i) the Superior Court of the State of
California, San Francisco County, or (ii) the United States District Court for
the Northern District of California, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such Action brought in any such court has been brought in an inconvenient
forum.

  11.11 Dispute Resolution. Any dispute, controversy or claim between the
parties relating to, arising out of or in connection with this Agreement or the
Ancillary Agreements (or any subsequent agreements or amendments thereto),
including as to their existence, enforceability, validity, interpretation,
performance, indemnification, breach or damages, including claims in tort,
whether arising before or after the termination of this Agreement, shall be
settled only by binding arbitration pursuant to the Commercial Arbitration
Rules, as then amended and in effect, of the American Arbitration Association
(the "Rules"), subject to the following:

          (a)  The arbitration shall take place in San Francisco County,
California, and in no other place.

          (b)  There shall be one arbitrator, who shall be selected under the
normal procedures prescribed in the Rules.

          (c)  Subject to legal privileges, each party shall be entitled to
discovery in accordance with the Federal Rules of Civil Procedure.

          (d)  The arbitrators shall comply with Section 11.10, provided that
the procedural law shall be the U.S. Arbitration Act, as amended, to the extent
not inconsistent with the Rules and this Section 11.11.

          (e)  At the arbitration hearing, each party may make written and oral
presentations to the arbitrator, present testimony and written evidence and
examine witnesses.

          (f)  The arbitrators' decision shall be in writing, shall be binding
and final and may be entered and enforced in any court of competent
jurisdiction.

          (g)  The arbitrators shall have the authority to grant injunctive
relief and order specific performance.

          (h)  No party shall be eligible to receive, and the arbitrators shall
not have the authority to award, exemplary or punitive damages.

          (i)  Each party to the arbitration shall bear their own attorney's
fees and costs, but shall pay one-half of the fees and expenses of the
arbitrators and the American Arbitration Association.

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -21-
<PAGE>

  11.12 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.

   11.13 Public Announcements. Neither Buyer, Seller nor the representatives of
either of them shall issue to the media any news release or other public
announcement with respect to this Agreement or the transactions contemplated
hereby without the prior written consent of the other party hereto. The
foregoing notwithstanding, any such news release or other public announcement
may be made if required by applicable law or a securities exchange rule,
provided that the party required to make such news release or other public
announcement shall confer with the other party concerning the timing and content
of such news release or other public announcement before the same is made. Buyer
and Seller will consult with each other concerning the means by which employees,
customers and suppliers and others having dealings with Seller with respect to
the Business will be informed of the transactions contemplated hereby, and Buyer
shall be allowed to have present for any such communication a representative of
Buyer.

   11.14 Entire Agreement. This Agreement, together with all Schedules and
Exhibits hereto, and the documents and instruments and other agreements among
the parties delivered pursuant hereto, constitute the entire agreement and
supersede all prior agreements and undertakings, both written and oral, among
Buyer and Seller with respect to the subject matter hereof and are not intended
to confer upon any other Person any rights or remedies hereunder, except as
otherwise expressly provided herein.

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -22-
<PAGE>

          IN WITNESS WHEREOF, Buyer and Seller have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.

                              DURECT CORPORATION, INC.,
                               a Delaware corporation

                              By:  /s/ James E. Brown
                                   ________________________________
                                   Name:  James E. Brown
                                   Title: Chief Executive Officer

                              ALZA CORPORATION,
                               a Delaware corporation

                              By:  /s/ Peter Staple
                                   ________________________________
                                   Name:  Peter Staple
                                   Title: Executive Vice President

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -23-
<PAGE>

                                  ATTACHMENTS

EXHIBITS

Exhibit A           General Support Services Agreement

Exhibit B           Coating Services Agreement

Exhibit C           New Models Development Agreement

Exhibit D           Form of Trademark Assignment

Schedule 1          Product and Accessory Products

Schedule 2.1 (a)    Inventories

Schedule 2.1 (b)    Fixed Assets

Schedule 2.1 (c)    Contracts

Schedule 2.1 (d)    Lease

Schedule 2.1 (e)    Trademarks

Schedule 2.1 (f)    Marketing Materials

Schedule 5.9        Employees

Schedule 5.10       Environmental Matters

Schedule 7.6        Inventory Price List

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -24-
<PAGE>

                      GENERAL SUPPORT SERVICES AGREEMENT

          This GENERAL SUPPORT SERVICES AGREEMENT (this "Agreement"), dated as
of April 14, 2000 (the "Effective Date" ), is made by and between ALZA
CORPORATION, a Delaware corporation ("Seller"), and DURECT CORPORATION, a
Delaware corporation ("Buyer").

                                R E C I T A L S

          A.  Seller and Buyer have entered into a Product Acquisition Agreement
of even date herewith (the "Acquisition Agreement"), providing for the sale by
Seller to Buyer of certain Assets (as defined in the Acquisition Agreement).

          B.  Buyer desires that Seller render certain services to Buyer on an
interim basis to assist in the operation of the Business (as defined in the
Acquisition Agreement) of the manufacture and sale of the Product (as defined in
the Acquisition Agreement).  Seller is willing to perform such services on the
terms and subject to the conditions set forth herein.

                               A G R E E M E N T

          In consideration of the premises and the respective covenants and
obligations set forth herein the parties agree as follows:

          1.   Services.  (a)  For the 30-day period, or a shorter period as
               --------
Buyer may designate, commencing on the Effective Date, Seller shall conduct all
aspects of the ALZET osmotic pump business ("Business") on behalf of Buyer in
its usual, regular and ordinary manner, substantially in the same manner as
conducted prior to the Effective Date (the "Transition Period").

               (b)  For the period commencing on the cessation of the Transition
Period through the term hereof, Seller shall provide to Buyer for use in
connection with the manufacture and sale of the Product the services described
in the Schedule of Services attached hereto as Exhibit A and incorporated herein
                                               ---------
by this reference.  Except as otherwise noted on Exhibit A, the Services shall
                                                 ---------
be of the type and at the level of use provided by Seller to the Business
immediately prior to the Effective Date.  Such services will be provided at
reasonable times and upon reasonable notice, as mutually agreed.

               (c)  The services provided by Seller to Buyer under subsection
1(a) and 1(b) are individually and collectively referred to hereafter as the
"Services".

          2.   Term.  The term of this Agreement shall commence on the Effective
               ----
Date.  The parties acknowledge that the purpose of this Agreement is to provide
Services on an interim basis to permit Buyer to develop its ability to provide
the Services or to obtain alternate sources of supply of Services within a
reasonable period of time after the date hereof.  Buyer shall use its best
efforts to

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.
<PAGE>

develop its ability to provide to itself the Services and/or obtain alternate
sources of supply for the Services as soon as practicable after the Effective
Date. Buyer may terminate this Agreement with respect to any item of Service
upon 7 days' prior written notice to Seller. Unless this Agreement is renewed by
mutual agreement of the parties, this Agreement shall terminate not later than
December 31, 2000; provided that, no such termination shall affect the
obligations of Buyer to make payments due hereunder.

          3.   Compensation.  On the Effective Date, Buyer shall pay $500,000.
               ------------
With respect to Services during the Transition Period, it is intended that any
profits or losses incurred in connection within operation of the Business by
Seller for Buyer shall be passed on to Buyer. Buyer and Seller shall coordinate
with each other to account for and implement the foregoing provision in a
mutually acceptable manner. After the Transition Period, Buyer shall pay
Seller's "Costs" in providing the Services. Seller's "Costs," for purposes of
this Agreement, shall include reimbursement for (i) Seller's direct and indirect
expenses as defined under "Payment for Services" in Exhibit A hereto, and (ii)
the cost of assets purchased for use solely on behalf of Buyer, the purchase of
which is approved in writing by Buyer.

          4.   Invoicing.  Seller shall invoice Buyer for the Services on one or
               ---------
more invoices at such intervals as Seller shall determine, provided that Seller
will not invoice Buyer more than once  per month.  All payments shall be due and
payable 30 days after the date of the invoice.

          5.   Disputes.  If Buyer disputes any charge set forth in an invoice,
               --------
Buyer shall notify Seller in writing within 30 days after receipt of such
invoice.  The parties shall promptly attempt to resolve any such dispute.  If
either party determines that the dispute cannot be resolved in a mutually
agreeable manner, the dispute shall be resolved exclusively as set forth in
Section 11.11 of the Acquisition Agreement.

          6.   Force Majeure.  Neither Seller nor Buyer shall have any liability
               -------------
to the other for any failure to fulfill any obligations hereunder during a
period in which they are prevented from doing so by act of God, fire, riot,
labor disturbance, accident, war, act of any government, partial or total
interruption or loss, or shortage of transportation facilities or supplies or by
other causes beyond the reasonable control of the parties, whether similar to
the causes specified or not.  The party claiming benefit of this provision shall
notify the other promptly of the cause and attempt in good faith to resume
performance as soon as reasonably possible, and there shall be no charge for
supplies not in fact delivered or services not performed.  Neither party shall
be obligated to settle a dispute or otherwise take any action which is not
commercially reasonable to terminate an event of force majeure.

          7.   Notice of Scheduled Shutdowns.  Seller will provide to Buyer
               -----------------------------
reasonable notice, consistent with Seller's past practices, of any scheduled
shutdowns which are reasonably likely to interrupt the Services.

          8.   Indemnities.  Subject to the terms of the Acquisition Agreement,
               -----------
(a) Seller shall indemnify, defend and hold harmless Buyer and its affiliates,
officers, directors, stockholders, employees, agents, representatives,
successors and assigns, from and against any and all claims, liabilities,
obligations, losses, deficiencies and damages (except for criminal penalties) or
judgments of any kind or nature whatsoever caused by the willful misconduct or
gross negligence of Seller or its affiliates, officers, directors, stockholders,
employees, agents, representatives, successors and assigns arising from or
associated with provision of the Services set forth on Exhibit A, including
reasonable fees and expenses of counsel and (b) except as provided in clause
(a), Buyer shall indemnify, defend and hold harmless Seller and its affiliates,
officers, directors, stockholders, employees, agents,

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

<PAGE>

representatives, successors and assigns, from and against any and all claims,
liabilities, obligations, losses, deficiencies and damages (except for criminal
penalties) or judgments of any kind or nature whatsoever arising from or
associated with provision of the Services set forth on Exhibit A, including
reasonable fees and expenses of counsel.

          9.   Relationship of the Parties.  For purposes of this Agreement,
               ---------------------------
Buyer and Seller shall be deemed to be independent contractors, and anything in
this Agreement to the contrary notwithstanding, nothing herein shall be deemed
to constitute Buyer and Seller as partners, joint venturers, co-owners, an
association or any entity separate and apart from each party itself, nor shall
this Agreement constitute any party hereto an employee or agent, legal or
otherwise, of the other party for any purposes whatsoever.  Neither party hereto
is authorized to make any statements or representations on behalf of the other
party or in any way obligate the other party, except as expressly authorized in
writing by the other party.  Anything in this Agreement to the contrary
notwithstanding, no party hereto shall assume nor shall be liable for any
liabilities or obligations of the other party, whether past, present or future.

          10.  Confidentiality.  The parties agree to keep confidential any and
               ---------------
all information and data received or generated pursuant to this Agreement except
for such disclosures which are required by law or other governmental authority
or which are reasonably necessary to be disclosed by Seller in order to provide
any Services.

          11.  Expenses, Taxes, Etc.  Except as otherwise provided in this
               --------------------
Agreement, each party will pay all fees and expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby and
thereby.

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                                                               3
<PAGE>

          12.  Notices.  All notices and other communications given or made
               -------
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered or mailed if delivered personally or mailed by
registered or certified mail (postage prepaid, return receipt requested), or
sent by facsimile transmission, (confirmation received) to the parties at the
following addresses and facsimile transmission numbers (or at such other address
or number for a party as shall be specified by like notice), except that notices
after the giving of which there is a designated period within which to perform
an act and notices of changes of address or number shall be effective only upon
receipt:

          (a)   If to Seller

                ALZA Corporation
                1900 Charleston Road
                Mountain View, California 94043Attention:  General
                CounselTelecopy No.:  (650) 564-7848
                Telephone No.:  (650) 564-5260

          (b)   if to Buyer:

                DURECT Corporation10240 Bubb RoadCupertino,
                California 95014-4166Attention: Jean Liu,
                Esq.Telecopy No.:  (408)777-3577Telephone No.:
                (408) 777-1417

          13.  Interpretation.  Capitalized terms used in this Agreement and not
               --------------
defined herein shall have the meanings assigned to them in the Acquisition
Agreement.  When a reference is made in this Agreement to Sections or Exhibits,
such reference shall be to a Section or Exhibit to this Agreement unless
otherwise indicated.  The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation."  The word "herein" and similar references mean, except where a
specific Section reference is expressly indicated, the entire Agreement rather
than any specific Section.  The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.  Except as otherwise expressly provided
herein, all monetary amounts referenced in this Agreement shall mean U.S.
dollars.

          14.  Severability.  If any term or other provision of this Agreement
               ------------
is invalid, illegal or incapable of being enforced by any rule of statute, law,
regulation, judgment, injunction, decree or public policy, all other conditions
and provisions of this Agreement shall nevertheless remain in full force and
effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party.  In such
event, any such term or provision shall be deemed, without further action on the
part of the parties hereto, modified, amended and limited to the extent
necessary to render the same and the remainder of this Agreement valid,
enforceable and lawful.

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                                                               4
<PAGE>

          15.  Assignment.  This Agreement may not be assigned by operation of
               ----------
law or otherwise, except that either party (including its Affiliates) may assign
its rights and benefits hereunder (provided that the assigning party or its
Affiliates, as applicable, shall remain responsible for its obligations
hereunder) (a) to any Affiliate of the assigning party, (b) to any Person
acquiring all or substantially all of the assets and properties of the assigning
party, or in the case of Buyer, the Business, as such Business is then conducted
by Buyer and its Affiliates or (c) to any Person acquiring a distinct line or
division of such Business, with respect to the rights and benefits of Buyer
hereunder that pertain thereto.  Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon and inure to the
benefit of the successors and permitted assigns of Buyer and Seller.

          16.  No Third-Party Beneficiaries.  This Agreement is for the sole
               ----------------------------
benefit of the parties hereto and their permitted assigns and nothing herein
expressed or implied shall give or be construed to give to any Person, other
than the parties hereto and such assigns, any legal or equitable rights
hereunder.

          17.  Amendment, Other Remedies and Waiver.
               ------------------------------------

          (a)  This Agreement may not be amended or modified except by an
instrument in writing signed by Seller and Buyer.

          (b)  The rights and remedies of the parties to this Agreement are
cumulative and not alternative of any other remedy conferred hereby or by law or
equity, and the exercise of any remedy will not preclude the exercise of any
other.

          (c)  Neither the failure nor any delay by any party in exercising any
right, power or privilege under this Agreement will operate as a waiver of such
right, power or privilege, and single or partial exercise of any such right,
power or privilege will preclude any other or further exercise of such right,
power or privilege or the exercise of any other right, power or privilege.  To
the maximum extent permitted by law, (i) no Action or right arising out of this
Agreement can be discharged by one party, in whole or in part, by a waiver or
renunciation of the Action or right unless in a writing signed by the other
party; (ii) no waiver that may be given by a party will be applicable except in
the specific instance for which it is given; and (iii) no notice to or demand on
one party will be deemed to be a waiver of any obligation of such party or of
the right of the party giving such notice or demand to take further action
without notice or demand as provided in this Agreement or the documents referred
to in this Agreement.

          18.  Mutual Drafting.  This Agreement is the joint product of Buyer
               ---------------
and Seller and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of Buyer and Seller and shall not be
construed for or against any party hereto.

          19.  Governing Law; Consent to Jurisdiction.  This Agreement shall be
               --------------------------------------
governed by, and construed in accordance with, the laws of the State of
California (without giving effect to its choice of law principles).  Each of the
parties hereto irrevocably submits to the exclusive jurisdiction of (a) the
Superior Court of the State of California, San Francisco County,

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                                                               5
<PAGE>

and (b) the United States District Court for the Northern District of
California, for the purposes of any Action arising out of this Agreement or any
transaction contemplated hereby or thereby. Each of the parties hereto agrees to
commence any Action relating hereto either in the United States District Court
for the Northern District of California, or if such Action may not be brought in
such court for jurisdictional reasons, in the Superior Court of the State of
California, San Francisco County. Each of the parties hereto further agrees that
service of any process, summons, notice or document by U.S. registered mail to
such party's respective address set forth in Section 12 shall be effective
                                                     --
service of process for any Action in California with respect to any matters to
which it has submitted to jurisdiction in this Section 19.  Each of the parties
hereto irrevocably and unconditionally waives any objection to the laying of
venue of any Action arising out of this Agreement or any transaction
contemplated hereby or thereby in (i) the Superior Court of the State of
California, San Francisco County, or (ii) the United States District Court for
the Northern District of California, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such Action brought in any such court has been brought in an inconvenient
forum.

          20.  Counterparts.  This Agreement may be executed in one or more
               ------------
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.

          21.  Public Announcements.  Neither Buyer, Seller nor the
               --------------------
representatives of either of them shall issue to the media any news release or
other public announcement with respect to this Agreement or the transactions
contemplated hereby without the prior written consent of the other party hereto.
The foregoing notwithstanding, any such news release or other public
announcement may be made if required by applicable law or a securities exchange
rule, provided that the party required to make such news release or other public
announcement shall confer with the other party concerning the timing and content
of such news release or other public announcement before the same is made.
Buyer and Seller will consult with each other concerning the means by which
employees, customers and suppliers and others having dealings with Seller with
respect to the Business will be informed of the transactions contemplated
hereby, and Buyer shall be allowed to have present for any such communication a
representative of Buyer.

          22.  Entire Agreement.  This Agreement, together with all Exhibits
               ----------------
hereto, and the documents and instruments and other agreements among the parties
delivered pursuant hereto constitute the entire agreement and supersede all
prior agreements and undertakings, both written and oral, among Buyer and Seller
with respect to the subject matter hereof and are not intended to confer upon
any other Person any rights or remedies hereunder, except as otherwise expressly
provided herein.

          23.  Survival.  The provisions of Sections 5, 8, 9, 10, 11, 12, 14,
               --------
19, 21 and this Section 23 shall survive the termination for any reason of this
Agreement.  Any payments due under this Agreement with respect to any period
prior to its termination shall be made notwithstanding the termination of this
Agreement.

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                                                               6
<PAGE>

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

DURECT CORPORATION,                  ALZA CORPORATION
a Delaware corporation               a Delaware corporation

By: /s/ James E. Brown               By: /s/ Peter Staple
   _________________________            _________________________
   Name:  James E. Brown                Name:  Peter Staple
   Title: Chief Executive Officer       Title: Executive Vice President

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                                                               7
<PAGE>

                                   EXHIBIT A

                             Schedule of Services

Services to be Provided:

1.   Purchasing
2.   Engineering/R&D support of ALZET manufacturing
3.   Analytical: lot release, intermediate and raw material testing
4.   Shipping of material from V1
5.   Material transfer within Vacaville
6.   Transfer of material back and forth from Vacaville to Mountain View for the
     purposes of coating
7.   Shipping of marketing materials from Mountain View
8.   Production Planning
9.   Administration
10.  QA/QC
11.  Document services: Lot record processing and review
12.  Milling of salt sleeve components in V1
13.  Toxicology testing services associated with manufacturing and material
     acquisition
14.  Pass through of ordering, shipping and collections activity at Livingston
15.  Sterilization of materials by Sterigenics
16.  Storage/inventory and shipping/receiving of raw materials, intermediates
     and finished goods in V1 warehouse
17.  Waste disposal, including hazardous materials
18.  Training

Payment for Services:

DIRECT EXPENSES
---------------

     Direct Salaries*
     Temporary Help
     Telephone and Communications
     Corporate Consulting
     Equipment Expenses
     Data Processing Services and Expense
     Supplies
     Miscellaneous General Administrative Expenses

INDIRECT EXPENSES**
-----------------

     Management and Administrative Salaries
     Equipment Depreciation
     Facilities Expense
     Corporate Data Processing Services and Expenses
     Interest Expense
     Miscellaneous General and Administrative Overhead

*Direct Salaries include benefits
**Indirect Expenses are billed at a rate of 50% of Direct Salaries

*Materials has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      -1-
<PAGE>

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -2-
<PAGE>

                          COATING SERVICES AGREEMENT

          This COATING SERVICES AGREEMENT (this "Agreement"), dated as of April
14, 2000 (the "Effective Date"), is made by and between ALZA CORPORATION, a
Delaware corporation ("Seller"), and DURECT CORPORATION, a Delaware corporation
("Buyer").

                                R E C I T A L S

          A.   Seller and Buyer have entered into a Product Acquisition
Agreement of even date herewith (the "Acquisition Agreement"), providing for the
sale by Seller to Buyer of certain Assets (as defined in the Acquisition
Agreement).

          B.   Buyer desires that Seller render certain services to Buyer on an
interim basis to assist in the operation of the Business (as defined in the
Acquisition Agreement) of the manufacture and sale of the Product (as defined in
the Acquisition Agreement).  Seller is willing to perform such services on the
terms and subject to the conditions set forth herein.

                               A G R E E M E N T

          In consideration of the premises and the respective covenants and
obligations set forth herein the parties agree as follows:

          1.   Services.  Seller shall provide to Buyer for use in connection
               --------
with the manufacture and sale of the Product the services described in the
Schedule of Services attached hereto as Exhibit A and incorporated herein by
                                        ---------
this reference (individually and collectively, the "Services").  Except as
otherwise noted on Exhibit A, the Services shall be of the type and at the level
                   ---------
of use provided by Seller to the Business immediately prior to the Effective
Date.  Such services will provided at reasonable times and upon reasonable
notice, as mutually agreed.

          2.   Term.  The term of this Agreement shall commence on the Effective
               ----
Date. The parties acknowledge that the purpose of this Agreement is to provide
Services on an interim basis to permit Buyer to develop its ability to provide
the Services or to obtain alternate sources of supply of Services within a
reasonable period of time after the date hereof. Buyer shall use its best
efforts to develop its ability to provide to itself the Services and/or obtain
alternate sources of supply for the Services as soon as practicable after the
Effective Date. Buyer may terminate this Agreement with respect to any item of
Service upon 30 days' prior written notice to Seller. Unless this Agreement is
renewed by mutual agreement of the parties, this Agreement shall terminate not
later than the date which is three (3) years following the Closing Date (as
defined in the Acquisition Agreement); provided that, no such termination shall
affect the obligations of Buyer to make payments due hereunder.

          3.   Compensation.  On the Effective Date, Buyer shall pay Seller
               ------------
$500,000. In addition, Buyer shall pay Seller's "Costs" in providing the
Services. Seller's "Costs", for purposes of this Agreement, shall include
reimbursement for Seller's direct and indirect expenses as defined under
"Payment for Services" in Exhibit A hereto.

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -3-
<PAGE>

          4.   Invoicing.  Seller shall invoice Buyer for the Services on one or
               ---------
more invoices at such intervals as Seller shall determine, provided that Seller
will not invoice Buyer more than once  per month.  All payments shall be due and
payable 30 days after the date of the invoice.

          5.   Disputes.  If Buyer disputes any charge set forth in an invoice,
               --------
Buyer shall notify Seller in writing within 30 days after receipt of such
invoice.  The parties shall promptly attempt to resolve any such dispute.  If
either party determines that the dispute cannot be resolved in a mutually
agreeable manner, the dispute shall be resolved exclusively as set forth in
Section 11.11 of the Acquisition Agreement.

          6.   Specific Performance.  Each of the parties hereto acknowledges
               --------------------
and agrees that the extent of damages to Buyer in the event of a breach by
Seller of this Agreement would be impossible to ascertain and there is and will
be available to Buyer no adequate remedy at law to compensate it in the event of
such a breach.  Consequently, the Seller agrees that, in the event that it fails
to perform any Services hereunder, Buyer shall be entitled, in addition to any
other relief to which it may be entitled including without limitation money
damages, to enforce any or all of such covenants to perform any Services by
injunctive or other equitable relief ordered by any court of competent
jurisdiction.

          7.   Indemnities.  Subject to the terms of the Acquisition Agreement,
               -----------
(a) Seller shall indemnify, defend and hold harmless Buyer and its affiliates,
officers, directors, stockholders, employees, agents, representatives,
successors and assigns, from and against any and all claims, liabilities,
obligations, losses, deficiencies and damages (except for criminal penalties) or
judgments of any kind or nature whatsoever caused by the willful misconduct or
gross negligence of Seller or its affiliates, officers, directors, stockholders,
employees, agents, representatives, successors and assigns arising from or
associated with provision of the Services set forth on Exhibit A, including
                                                       ---------
reasonable fees and expenses of counsel and (b) except as provided in clause
(a), Buyer shall indemnify, defend and hold harmless Seller and its affiliates,
officers, directors, stockholders, employees, agents, representatives,
successors and assigns, from and against any and all claims, liabilities,
obligations, losses, deficiencies and damages (except for criminal penalties) or
judgments of any kind or nature whatsoever arising from or associated with
provision of the Services set forth on Exhibit A, including reasonable fees and
                                       ---------
expenses of counsel.

          8.   Force Majeure.  Neither Seller nor Buyer shall have any liability
               -------------
to the other for any failure to fulfill any obligations hereunder during a
period in which they are prevented from doing so by act of God, fire, riot,
labor disturbance, accident, war, act of any government, partial or total
interruption or loss, or shortage of transportation facilities or supplies or by
other causes beyond the reasonable control of the parties, whether similar to
the causes specified or not.  The party claiming benefit of this provision shall
notify the other promptly of the cause and attempt in good faith to resume
performance as soon as reasonably possible, and there shall be no charge for
supplies not in fact delivered or services not performed.  Neither party shall
be obligated to settle a dispute or otherwise take any action which is not
commercially reasonable to terminate an event of force majeure.

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -4-
<PAGE>

          9.   Notice of Scheduled Shutdowns.  Seller will provide to Buyer
               -----------------------------
reasonable notice, consistent with Seller's past practices, of any scheduled
shutdowns which are reasonably likely to interrupt the Services.

          10.  Relationship of the Parties.  For purposes of this Agreement,
               ---------------------------
Buyer and Seller shall be deemed to be independent contractors, and anything in
this Agreement to the contrary notwithstanding, nothing herein shall be deemed
to constitute Buyer and Seller as partners, joint venturers, co-owners, an
association or any entity separate and apart from each party itself, nor shall
this Agreement constitute any party hereto an employee or agent, legal or
otherwise, of the other party for any purposes whatsoever.  Neither party hereto
is authorized to make any statements or representations on behalf of the other
party or in any way obligate the other party, except as expressly authorized in
writing by the other party.  Anything in this Agreement to the contrary
notwithstanding, no party hereto shall assume nor shall be liable for any
liabilities or obligations of the other party, whether past, present or future.

          11.  Confidentiality.  The parties agree to keep confidential any and
               ---------------
all information and data received or generated pursuant to this Agreement except
for such disclosures which are required by law or other governmental authority
or which are reasonably necessary to be disclosed by Seller in order to provide
any Services.

          12.  Expenses, Taxes, Etc.  Except as otherwise provided in this
               --------------------
Agreement, each party will pay all fees and expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby and
thereby.

          13.  Notices.  All notices and other communications given or made
               -------
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered or mailed if delivered personally or mailed by
registered or certified mail (postage prepaid, return receipt requested), or
sent by facsimile transmission, (confirmation received) to the parties at the
following addresses and facsimile transmission numbers (or at such other address
or number for a party as shall be specified by like notice), except that notices
after the giving of which there is a designated period within which to perform
an act and notices of changes of address or number shall be effective only upon
receipt:

           (a)  If to Seller

                ALZA Corporation
                1900 Charleston Road
                Mountain View, California 94043
                Attention: General Counsel
                Telecopy No.: (650) 564-7848
                Telephone No.: (650) 564-5260

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -5-
<PAGE>

           (b)  if to Buyer:

                DURECT Corporation
                10240 Bubb Road
                Cupertino, California  95014-4166
                Attention: Jean Liu, Esq.
                Telecopy No.: (408) 777-3577
                Telephone No.: (408) 777-1417

          14.  Interpretation.  Capitalized terms used in this Agreement and not
               --------------
defined herein shall have the meanings assigned to them in the Acquisition
Agreement.  When a reference is made in this Agreement to Sections or Exhibits,
such reference shall be to a Section or Exhibit to this Agreement unless
otherwise indicated.  The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation."  The word "herein" and similar references mean, except where a
specific Section reference is expressly indicated, the entire Agreement rather
than any specific Section.  The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.  Except as otherwise expressly provided
herein, all monetary amounts referenced in this Agreement shall mean U.S.
dollars.

          15.  Severability.  If any term or other provision of this Agreement
               ------------
is invalid, illegal or incapable of being enforced by any rule of statute, law,
regulation, judgment, injunction, decree or public policy, all other conditions
and provisions of this Agreement shall nevertheless remain in full force and
effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party.  In such
event, any such term or provision shall be deemed, without further action on the
part of the parties hereto, modified, amended and limited to the extent
necessary to render the same and the remainder of this Agreement valid,
enforceable and lawful.

          16.  Assignment.  This Agreement may not be assigned by operation of
               ----------
law or otherwise, except that Buyer (including its Affiliates) may assign its
rights and benefits hereunder (provided that Buyer or its Affiliates, as
applicable, shall remain responsible for its obligations hereunder) (a) to any
Affiliate of Buyer, (b) to any Person acquiring all or substantially all of the
assets and properties of the Business, as such Business is then conducted by
Buyer and its Affiliates or (c) to any Person acquiring a distinct line or
division of such Business, with respect to the rights and benefits of Buyer
hereunder that pertain thereto.  Subject to the preceding sentence, this
Agreement will apply to, be binding in all respects upon and inure to the
benefit of the successors and permitted assigns of Buyer and Seller.

          17.  No Third-Party Beneficiaries.  This Agreement is for the sole
               ----------------------------
benefit of the parties hereto and their permitted assigns and nothing herein
expressed or implied shall give or be construed to give to any Person, other
than the parties hereto and such assigns, any legal or equitable rights
hereunder.

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -6-
<PAGE>

          18.  Amendment, Other Remedies and Waiver.
               ------------------------------------

          (a) This Agreement may not be amended or modified except by an
instrument in writing signed by Seller and Buyer.

          (b) The rights and remedies of the parties to this Agreement are
cumulative and not alternative of any other remedy conferred hereby or by law or
equity, and the exercise of any remedy will not preclude the exercise of any
other.

          (c) Neither the failure nor any delay by any party in exercising any
right, power or privilege under this Agreement will operate as a waiver of such
right, power or privilege, and single or partial exercise of any such right,
power or privilege will preclude any other or further exercise of such right,
power or privilege or the exercise of any other right, power or privilege.  To
the maximum extent permitted by law, (i) no Action or right arising out of this
Agreement can be discharged by one party, in whole or in part, by a waiver or
renunciation of the Action or right unless in a writing signed by the other
party; (ii) no waiver that may be given by a party will be applicable except in
the specific instance for which it is given; and (iii) no notice to or demand on
one party will be deemed to be a waiver of any obligation of such party or of
the right of the party giving such notice or demand to take further action
without notice or demand as provided in this Agreement or the documents referred
to in this Agreement.

          19.  Mutual Drafting.  This Agreement is the joint product of Buyer
               ---------------
and Seller and each provision hereof has been subject to the mutual
consultation, negotiation and agreement of Buyer and Seller and shall not be
construed for or against any party hereto.

          20.  Governing Law; Consent to Jurisdiction.  This Agreement shall be
               --------------------------------------
governed by, and construed in accordance with, the laws of the State of
California (without giving effect to its choice of law principles).  Each of the
parties hereto irrevocably submits to the exclusive jurisdiction of (a) the
Superior Court of the State of California, San Francisco County, and (b) the
United States District Court for the Northern District of California, for the
purposes of any Action arising out of this Agreement or any transaction
contemplated hereby or thereby.  Each of the parties hereto agrees to commence
any Action relating hereto either in the United States District Court for the
Northern District of California, or if such Action may not be brought in such
court for jurisdictional reasons, in the Superior Court of the State of
California, San Francisco County.  Each of the parties hereto further agrees
that service of any process, summons, notice or document by U.S. registered mail
to such party's respective address set forth in Section 12 shall be effective
service of process for any Action in California with respect to any matters to
which it has submitted to jurisdiction in this Section 19.  Each of the parties
hereto irrevocably and unconditionally waives any objection to the laying of
venue of any Action arising out of this Agreement or any transaction
contemplated hereby or thereby in (i) the Superior Court of the State of
California, San Francisco County, or (ii) the United States District Court for
the Northern District of California, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such Action brought in any such court has been brought in an inconvenient
forum.

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -7-

<PAGE>

          21.  Counterparts.  This Agreement may be executed in one or more
               ------------
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.

          22.  Public Announcements.  Neither Buyer, Seller nor the
               --------------------
representatives of either of them shall issue to the media any news release or
other public announcement with respect to this Agreement or the transactions
contemplated hereby without the prior written consent of the other party hereto.
The foregoing notwithstanding, any such news release or other public
announcement may be made if required by applicable law or a securities exchange
rule, provided that the party required to make such news release or other public
announcement shall confer with the other party concerning the timing and content
of such news release or other public announcement before the same is made.
Buyer and Seller will consult with each other concerning the means by which
employees, customers and suppliers and others having dealings with Seller with
respect to the Business will be informed of the transactions contemplated
hereby, and Buyer shall be allowed to have present for any such communication a
representative of Buyer.

          23.  Entire Agreement.  This Agreement, together with all Exhibits
               ----------------
hereto, and the documents and instruments and other agreements among the parties
delivered pursuant hereto constitute the entire agreement and supersede all
prior agreements and undertakings, both written and oral, among Buyer and Seller
with respect to the subject matter hereof and are not intended to confer upon
any other Person any rights or remedies hereunder, except as otherwise expressly
provided herein.

          24.  Survival.  The provisions of Sections 5, 6, 7, 10, 11, 12, 13,
               --------
15, 20, 22 and this Section 24 shall survive the termination for any reason of
this Agreement.  Any payments due under this Agreement with respect to any
period prior to its termination shall be made notwithstanding the termination of
this Agreement.

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -8-
<PAGE>

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

DURECT CORPORATION,                  ALZA CORPORATION
a Delaware corporation               a Delaware corporation

By: /s/ James E. Brown                By: /s/ Peter Staple
   -------------------------------       ---------------------------------
   Name: James E. Brown                  Name: Peter Staple
   Title: Chief Executive Officer        Title: Executive Vice President

                                   EXHIBIT A

                             Schedule of Services

Services to be Provided:

1.  [***] coating of 100X, 200X and 2ML ALZET subassemblies and improvements
    thereto, subject to the following Responsibilities and Fees.

Responsibilities of ALZA in Provision of Services:

1.  ALZA will coat the specific number of lots or sublots of Product requested
    by DURECT. DURECT and ALZA will negotiate to find mutually convenient
    time(s) to coat the requested Product to permit observation by Durect and so
    that materials can be made available in a timely manner.

2.  If ALZA is unable to schedule mutually convenient time(s) to coat the
    requested Product within the requested month, then ALZA has additional 30
    days in which to coat the Product in a manner consistent with DURECT's
    request.

3.  ALZA will provide the manpower necessary to coat the requested Product.

4.  ALZA will provide to DURECT the following services as they relate:

    A.  Shipping and receiving of materials in Mountain View
    B.  Storage of solvents and materials staged for use in the coating process

Responsibilities of DURECT in Provision of Services:

1.  For each calendar month, DURECT will provide ALZA with a request for coating
    of a specific number of lots or sublots of Product. Such requests will be
    provided to ALZA not less than 30 days in advance of the beginning of the
    calendar month.

2.  DURECT will provide, on a timely basis, observation for the coating of all
    lots and sublots of Product coated by ALZA under this Agreement based on a
    coating schedule identified by ALZA in advance.

3.  DURECT will provide on a timely basis sufficient materials to coat requested
    lots and sublots of Product based on a coating schedule identified by ALZA
    in advance.

Payment for Services: DURECT will pay ALZA a rate of 350% of direct salaries to
cover ALZA's direct and indirect costs for performing the above services

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC.

                                      -9-
<PAGE>

                       NEW MODELS DEVELOPMENT AGREEMENT

   THIS NEW MODELS DEVELOPMENT AGREEMENT ("AGREEMENT") IS ENTERED INTO AS OF
    APRIL 14, 2000 BETWEEN ALZA CORPORATION ("ALZA") AND DURECT CORPORATION
                                  ("DURECT").

                                R E C I T A L S
                                ---------------

     A.   ALZA and DURECT are parties to a Product Acquisition Agreement
("Acquisition Agreement") dated the date hereof, whereby DURECT acquired ALZA's
right, title and interest in and to the osmotic, miniature, implantable pumps
for research use in laboratory animals, sold under the trademark ALZET(R) (the
"Product").

     B.   The parties desire that ALZA continue certain in-process development
of two New Models of the Product.

     NOW THEREFORE, in consideration of the mutual covenants and agreements
provided herein, the parties hereby agree as follows:

     1.   Definitions.  For the purposes of this Agreement, the following terms
          -----------
will have the respective meanings set forth below:

          1.1  "Development Costs" means the costs of the Program incurred by
ALZA pursuant to this Agreement and determined in accordance with Exhibit A
hereto.
          1.2  "New Models" means either of and each of (1) [* * *] and (2)
[* * *].
     -
          1.3  "Program" means all activities undertaken by either or both
parties in accordance with the terms hereof for the development of the New
Models.

     2.   Product Development Program.
          ---------------------------

          2.1  Promptly after execution of this Agreement and approval of a work
plan as described in Section 2.2, ALZA will commence the Program activities
necessary to continue development of the New Models.  In connection with the
Program, both parties will make available appropriate scientific, engineering
and other

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC. 10
<PAGE>

personnel to perform tasks under the Program. The parties will use reasonable
commercial efforts to carry out the Program, will participate in periodic
conferences to review its status and will cooperate in the prompt preparation
and review of, and discussion concerning, work plans and cost estimates and
revisions thereto described in Section 2.2.

          2.2  ALZA and DURECT agree to cooperate to devise mutually acceptable
work plans and cost estimates for the development of the New Models.  The
parties understand and agree that it is difficult to accurately predict the
activities that will be necessary to develop the New Models, or the cost
thereof, and significant uncertainties exist in any product development effort.
As a result, any such work plan and cost estimate will be diligently reviewed
and revised from time to time in order that it remain a faithful best-estimate
of work to be done by the parties under the Program and, with regard to ALZA's
activities, the Development Costs thereof.

          2.3  DURECT will pay to ALZA, on a monthly basis, all Development
Costs incurred by ALZA in connection with the activities carried out under the
Program. ALZA will invoice DURECT on or before the fifteenth day of each month
for the preceding month's Development Costs. All payments will be made within 30
days after the date of the invoice. Notwithstanding the foregoing, DURECT will
not be obligated to any Development Costs in excess of those provided for in
approved work plans and costs estimates, and ALZA will not be obligated to
perform any work which would result in Development Costs exceeding such approved
cost estimates.

     3.   Ownership.
          ---------

          Any inventions and information solely relating to the New Models
("Inventions") and any intellectual property rights therein and thereto will be
the property of DURECT, without regard to whether the Inventions are made by
employees of DURECT, ALZA or both parties.  ALZA shall promptly disclose any
such Inventions to DURECT, execute all required instruments to assign ownership
of such Inventions to DURECT and cooperate with DURECT to obtain and enforce any
patents or other registrations covering such Inventions.  This provision will
survive the termination of this Agreement for any reason.

     4.   Term and Termination.
          --------------------

          4.1  Unless earlier terminated under Section 4.2, this Agreement will
remain in effect until completion of the development of the New Models.

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC. 11
<PAGE>

          4.2  DURECT may terminate this Agreement at any time upon not less
than 30 days' written notice to ALZA.  ALZA may terminate this Agreement upon
not less than 30 days' written notice to DURECT, if DURECT fails to pay any
amounts due to ALZA under this Agreement within 30 days after the date of
invoice, unless DURECT shall have paid such outstanding amounts within 30 days
of DURECT's receipt of ALZA's written notice thereof.

          4.3  Termination of this Agreement will be without prejudice to ALZA's
right to receive payment of all Development Costs incurred prior to the
effective date of the termination.  After termination of this Agreement by
DURECT or termination by ALZA due to a breach of this Agreement by DURECT,
DURECT will reimburse ALZA, within 30 days after invoice, for any uncancellable
obligations and expenses incurred by ALZA prior to such termination in
connection with the Program and all costs incurred by ALZA in terminating the
Program.

     5.   Miscellaneous.
          -------------

          5.1  This Agreement will be governed by and construed in accordance
with the laws of the State of California, excluding any choice of law rules
which may direct the application of the laws of another jurisdiction.

          5.2  This Agreement will not be amended or modified except in a
writing signed by each of the parties hereto.

          5.3  All notices, requests and other communications required or
permitted to be given hereunder or with respect hereto will be in writing, and
may be given by (i) personal delivery, (ii) registered first-class United States
mail, postage prepaid by the sender, return receipt requested, (iii) overnight
delivery service, charges prepaid by the sender, or (iv) via facsimile and, in
each case, addressed to the other party at the address for such party as set
forth below, and will be effective upon receipt in the case of (i) (iii) or (iv)
above, and five days after mailing in the case of (ii) above.

     If to ALZA:    ALZA Corporation
                    1900 Charleston Road
                    Mountain View, CA 94043
                    Fax #: 650-564-7848
                    Attention: Senior Vice President and General Counsel

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC. 12
<PAGE>

     If to DURECT:  DURECT CORPORATION
                    10240 Bubb Road
                    Cupertino, CA 95014
                    Fax #: (408) 777-3577
                    Attention: General Counsel

Any party may change its address at which notice is to be received by written
notice provided pursuant to this Section 5.3.

          5.4  Each party will be responsible for assuring that all applicable
rules, laws and regulations are met in the performance of its duties hereunder.

          5.5  This Agreement, together with the exhibits hereto, sets forth the
entire agreement and understanding between the parties with respect to the
subject matter hereof, and supersedes all prior agreements and understandings
between the parties with respect to the subject matter hereof, whether oral or
in writing.

          5.6  Neither party will be liable to the other due to the termination
of this Agreement as provided herein, whether in loss of good will, anticipated
profits or otherwise.

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

ALZA CORPORATION                             DURECT CORPORATION

By:    /s/ Peter Staple                      By:    /s/ James E. Brown
       __________________________                   _________________________

Title: Executive Vice President              Title: Chief Executive Officer
       __________________________                   _________________________

*Material has been omitted pursuant to a request for confidential treatment, and
such material has been filed separately with the SEC. 13
<PAGE>

                                   EXHIBIT A

                               DEVELOPMENT COSTS

Development Costs are equal to the sum of (i) research expenses, (ii) general
and administrative expenses and (iii) capital asset expenditures.

     (i)   Research expenses include both direct expenses and indirect expenses.

           (a)   Direct expenses include direct research salaries (including
                 project management and temporary labor), clinical expenses,
                 supplies and other expenses incurred specifically in connection
                 with the Program.

           (b)   Indirect expenses include general research management and
                 support costs of the research and product development
                 organization. Indirect expenses are allocated to all projects
                 and billed to clients at a fixed rate* of 160% of direct
                 research salaries.

           Examples of items included in direct and indirect expenses are listed
           on Exhibit A-1

           (ii)  General and administrative expenses are allocated among the
           research and product development, manufacturing and marketing
           organizations. The portion allocated to the research and product
           development organization is then allocated to all research and
           development projects and billed to clients at a fixed rate* of 80% of
           direct research salaries.

                 Examples of items included in general and administrative
           expenses are listed on Exhibit A-1.

           (iii) Capital asset expenditures are the actual costs of new capital
           assets acquired specifically for the project.

--------------
* This fixed billing rate will not be changed prior to January 1, 2001 and, if
changed on or after January 1, 2001, such changes will be limited to not more
than one change per calendar year and shall be a maximum of 10% of the rate in
effect at the time of the increase.

* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC. 1

<PAGE>

                                  EXHIBIT A-1

                                  Examples of
                               Research Expenses
                               -----------------

Direct Expenses
---------------

Direct research salaries*
Project clinical expenses and outside services
Project specific supplies
Project travel and related expenses
Miscellaneous project expenses
Regulatory and filing fees and maintenance payments

Indirect Expenses
-----------------

Research management and indirect salaries*
General research supplies and materials
General research consulting and outside services
Facilities expenses
Telephone and communications
Equipment depreciation, rent, maintenance and services
Research travel and related expenses
Patent and trademark expenses
Miscellaneous indirect research expenses

                                  Examples of
                      General and Administrative Expense
                      ----------------------------------

Corporate management, administrative, and indirect salaries*
Telephone and communications
Equipment depreciation, rent, maintenance and services
Board of directors and corporate consulting
Annual audit, accounting and legal expenses
Facilities expenses
Information services (data processing) expenses
Interest expense
Miscellaneous general and administrative expenses

*Salaries include fringe benefits at a fixed rate of 52% of salaries. This fixed
rate will not be changed prior to January 1, 2001 and, if changed on or after
January 1, 2001, such changes will be limited to not more than one change per
calendar year and shall be a maximum of 10% of the rate in effect at the time
of the increase.

* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.
<PAGE>

                                  SCHEDULE 1
                                  ----------

                                  THE PRODUCT
                                  -----------

A General Description

      ALZET osmotic pumps are miniature, implantable pumps used for research in
mice, rats, and other laboratory animals.  These infusion pumps continuously
deliver drugs, hormones, and other test agents at controlled rates from one day
to four weeks without the need for external connections or frequent handling.
Their unattended operation eliminates the need for repeated nighttime or weekend
dosing.

      ALZET pumps can be used for systemic administration when implanted
subcutaneously or intraperitoneally.  They an be attached to a catheter for
intravenous, intracerebral, or intra-arterial infusion.  ALZET pumps can also be
used for target delivery, where   the effects of a drug or test agent are
localized in a particular tissue or organ, by means of a catheter.  The pumps
have been used to target delivery to a wide variety of sites including the
spinal cord, spleen, liver, organ or tissue transplants, and would heating
sites.  ALZET pumps have been used in thousands of studies on the effects of
controlled delivery of a wide range of experimental agents, including peptides,
growth factors, cytokines, chemotherapeutic drugs, additive drugs hormones,
steroids, and antibodies.  Due to the unique mechanism by which ALZET pumps
operate, compounds of any molecular conformation can be delivered predictably at
controlled rates, independent of their physical and chemical properties.  A
bibliography of pump work which has been documented in the scientific literature
is available, as is information on the osmotic delivery mechanism of ALZET
pumps.

ALZET pumps are intended for use in experimental animals only.  They are not to
be placed into animals used for food products.  They are not to be used in
humans.

           ------------------------------------------------------------------
                        Item                              Part #
           ------------------------------------------------------------------

             ALZET/(R)/ Model 2001                     0000292
           ------------------------------------------------------------------

             ALZET/(R)/ Model 2002                     0000296
           ------------------------------------------------------------------

             ALZET/(R)/ Model 2004                     0000298
           ------------------------------------------------------------------

             ALZET/(R)/ Model 2ML1                     0000323
           ------------------------------------------------------------------

             ALZET/(R)/ Model 2ML2                     0000325
           ------------------------------------------------------------------

             ALZET/(R)/ Model 2ML4                     0000327
           ------------------------------------------------------------------

             ALZET/(R)/ Model 1002                     0004317
           ------------------------------------------------------------------

             ALZET/(R)/ Model 1003D                    0000289
           ------------------------------------------------------------------

             ALZET/(R)/ Model 2001D                    0000294
           ------------------------------------------------------------------

             ALZET/(R)/ Model 1007D                    0000290
           ------------------------------------------------------------------

             ALZAID Test Kit                           00004750
           ------------------------------------------------------------------

             ALZET/(R)/ Brain Infusion Kit II          00008663
           ------------------------------------------------------------------

             Brain Infusion Kit                        00004760
           ------------------------------------------------------------------

Ancillary products:
------------------

 .  Filling tubes (blunt-end needle syringes) for 100 ul, 200 ul and 2 ML pumps,
   and:

 .  Flow moderators for 100 ul, 200 ul and 2 ML pumps

* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      -7-
<PAGE>

                                SCHEDULE 2.1(a)
                                ---------------

                                   INVENTORY
                                   ---------

The attached inventory list is subject to confirmation by Seller and Buyer.

<TABLE>
<CAPTION>

Alzet

                                    Feb-00
                                    Ending        Raw                  Applied      Total
Item #     Type     Description     Balance     Material     Labor     Overhead
------     ----     -----------     -------     --------     -----     --------     -----
<S>       <C>      <C>             <C>         <C>          <C>       <C>          <C>
[***]      [***]       [***]         [***]        [***]      [***]       [***]      [***]
</TABLE>

* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      -8-
<PAGE>

                                SCHEDULE 2.1(b)
                                ---------------
                                 FIXED ASSETS
                                 ------------

           Asset No.      Description
           --------       -----------
               N/A        portable crane
               N/A        6 shop benches
               N/A        mold master (salt sleeve control)
               N/A        5 tables in molding room
               N/A        2 chairs in molding room
               N/A        3 ladders on wheels in molding room
              8776        Van Dorn molder (#1)
             10020        Van Dorn molder (#2)
             91036        Arburg molder
             14223        Sentra temperature controller with Van Dorn #2
              9709        Conair temperature controller with Arburg
             14502        Sentra temperature controller with Van Dorn #1
              8745        Crane over VanDorns
              7216        Manesty tablet press
              7875        Norton roll mill
              1927        Temtek temperature control
             10197        100x 2 shuttle plates and mold
             13119        100x salt sleeve mold
            201778        100x reservoir
             13150        100x reservoir
              9553        100x plug
             61886        200x salt sleeve mold
              7529        200x flow mod cap
              9170        200x reservoir
              9367        200x plug
              8339        200x catheter shuttle plates (in cabinet)
              7937        2 ml reservoir
              9160        2 ml flow mod cap
              2183        2 ml sleeve
              8469        2 ml flow mod catheter
              7904        2 ml plug
          14132-94        air compressor
           sn17069        Maximum chiller
           sn34114        Advantage chiller
         37352-1-1        Lady-pack shrinkwrapper
              0550        Oven 5
              8630        Grieve oven
              7457        UPAC-400
               N/A        Hood Clean Air II (in UPAC room)
               N/A        Pressure Tester (on cart in UPAC room)
               N/A        Forklift, Raymond 9
              9913        Grinder
               N/A        Drill Press
              8627        Robot
               N/A        Temptek Digital Controller
             10957        Floor Scale (NCI Model 5788)
          3727-1-1        Chiller (in 3 parts on pallets near utility room)
               N/A        Dalemark printer 975-F
              9353        IMS graqulator
         89689-1-3        Blue M Oven
         89689-1-4        Blue M Oven
              7467        Norton Roll Mill
              8098        Red Devil
         44850-1-1        Micro-Vu
             10723        Acuforce
             12680        Metler Balance
              8151        Washer
              8109        Dryer
             13974        Vertrod sealer
               N/A        5 each assembly tables
              7521        Fume hood
             14368        Fume hood
        66856-1-1A        Fume hood
             14369        Fume hood
              7521        Fume hood
        66856-1-3A        Fume hood
         66856-1-1        Fume hood
         66856-1-3        Fume hood
        66856-1-2A        Fume hood
         66856-1-2        Fume hood
              0221        Vertrod sealer
             10956        Balance
             41967        Balance
               N/A        Drills for drilling alzet pumps (3 each)
       205744-01-1        Computer
               N/A        Computer at Mechanic's Station
               N/A        Printer at Mechanic's Station
               N/A        Computer in assembly room
               N/A        Printer in assembly room
               N/A        Computer in outer office (bldg T)
               N/A        Printer in outer office (bldg T)
               N/A        Fax machine in outer office (bldg T)
               N/A        Computer in oven area (bldg T)
               N/A        Printer in oven area (bldg T)
        64505-11-4        File Cabinet
               N/A        Desks (2 each)
               N/A        File cabinets (2 each)
               N/A        OTC Crane
             13327        Blue M oven
               N/A        Rolling toolbox with top box
               N/A        Bench grinder
               N/A        Compressor
               N/A        Pallet jack
               N/A        Bar code printer
        214999-1-2        Lap Top
       208368-01-2        Computer
         61025-1-1        Fax
      205745-01-26        Computer
       207434-01-7        Computer
        267265-1-4        Printer
       215173-01-9        Printer
         64271-1-6        Printer
               N/A        Inspection Boards (with defective samples)
               N/A        Batch histories
               N/A        equipment logs

* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                      -9-
<PAGE>

                                SCHEDULE 2.1(c)
                                ---------------

                                   CONTRACTS
                                   ---------

1.  Distributorship Agreement between ALZA and [[ * * * ].]
                                               -         --

2.  Distributorship Agreement between ALZA and [[ * * * ].]
                                                         --

3.  Distributorship Agreement between ALZA and[[ * * * ].]
                                                        --

4.  Distributorship Agreement between ALZA and[[ * * * ].]
                                                        --

5.  Distributorship Agreement between ALZA and [[ * * * ]

6.  Distributorship Agreement between ALZA and [[ * * * ]

7.  Distributorship Agreement between ALZA and [ * * * ]

8.  Distributorship Agreement between ALZA and [[ * * * ]

9.  Distributorship Agreement between ALZA and [[ * * * ]

10. Distributorship Agreement between ALZA and [ * * * ]

* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                     -10-
<PAGE>

                                SCHEDULE 2.1(d)
                                ---------------

                                     LEASE
                                     -----

Lease between ALZA and Chevron Land and Development Company dated February 1,
1986, as amended October 15, 1990, January 25, 1995, March 27, 1997 and December
1, 1999.

* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                     -11-
<PAGE>

                                SCHEDULE 2.1(e)
                                ---------------

                                  TRADEMARKS

1.   ALZET

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Trademark Name:                   Country Name      Registration No:     Reg. Date:           Classes:
------------------------------------------------------------------------------------------------------------
<S>                          <C>                    <C>                  <C>                  <C>
ALZET                             Argentina         1.665.422            22-Apr-1977           10
------------------------------------------------------------------------------------------------------------
ALZET                             Austria           84364                14-Jan-1977           10
------------------------------------------------------------------------------------------------------------
ALZET                             Australia         A301.597             04-Aug-1978           9
------------------------------------------------------------------------------------------------------------
ALZET                             Brazil            665.326              10-Mar-1978           9
------------------------------------------------------------------------------------------------------------
ALZET                             Benelux           613.976              02-Mar-1998           9, 10
------------------------------------------------------------------------------------------------------------
ALZET                             Canada            226.193              17-Feb-1978           10
------------------------------------------------------------------------------------------------------------
ALZET                             Switzerland       286.230              14-Feb-1977           10
------------------------------------------------------------------------------------------------------------
ALZET                             Germany           963 761              19-Oct-1977           10
------------------------------------------------------------------------------------------------------------
ALZET                             Denmark           3275/1977            23-Sep-1977           10
------------------------------------------------------------------------------------------------------------
ALZET                             Spain             831,109              07-Dec-1977           10
------------------------------------------------------------------------------------------------------------
ALZET                             France            I 380 436            23-Nov-1986           10
------------------------------------------------------------------------------------------------------------
ALZET                             United            1069756              22-Jun-1978           10
------------------------------------------------------------------------------------------------------------
ALZET                             Isreal            43153                06-Feb-1979           10
------------------------------------------------------------------------------------------------------------
ALZET                             Italy             754244               20-Aug-1998           10
------------------------------------------------------------------------------------------------------------
ALZET                             Japan             2381270              28-Feb-1992           10
------------------------------------------------------------------------------------------------------------
ALZET                             New Zealand       117350               22-Oct-1976           10
------------------------------------------------------------------------------------------------------------
ALZET                             Sweden            160.954              07-Oct-1977           10
------------------------------------------------------------------------------------------------------------
ALZET                             Venezuela         97.679               12-Mar-1981           10
------------------------------------------------------------------------------------------------------------
ALZET                             South Africa      76/5358              21-Oct-1976           10
------------------------------------------------------------------------------------------------------------
ALZET                             Mexico            335.843              10-Nov-1987           44
------------------------------------------------------------------------------------------------------------
</TABLE>

2.   SPECIAL DELIVERY

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
 Country    Trademark Name:                  Owner Name       Registration No:      Reg. Date:         Classes:
-------------------------------------------------------------------------------------------------------------------
<S>         <C>                           <C>                 <C>                  <C>                 <C>
  US           SPECIAL DELIVERY                ALZA             1.521.792             24-Jan-            16
-------------------------------------------------------------------------------------------------------------------
</TABLE>

3.   ALZAID

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
 Country    Trademark Name:                    Owner        Registration No:     Reg. Date:            Classes:
-------------------------------------------------------------------------------------------------------------------
<S>         <C>                                <C>          <C>                  <C>                   <C>
  US            ALZAID                         ALZA             1.409.074             16-Sep-1986        1
--------------------------------------------------------------------------------------------------------------------
</TABLE>

* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                     -12-
<PAGE>

* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                     -13-
<PAGE>

                                SCHEDULE 2.1(f)
                                ---------------

                               MARKETING ASSETS
                               ----------------

[[ * * * ]

* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                     -14-
<PAGE>

                                 SCHEDULE 5.9
                                 ------------

                                   EMPLOYEES
                                   ---------

Name                                  Title
----                                  -----

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

* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                     -15-
<PAGE>

                                 SCHEDULE 5.10
                                 -------------

                             ENVIRONMENTAL MATTERS
                             ---------------------

The following are exceptions to the representations and warranties of Seller in
Section 5.10:

[ *  *   * ]

* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                     -16-
<PAGE>

                                 SCHEDULE 7.6
                                 ------------

                   PER UNIT PRICE OF PRODUCTS IN INVENTORIES
                   -----------------------------------------

                                   Part #                  Price (per Unit)
                                   -----                   ----------------

ALZET/(R)/ Model 2001              0000292                   [ *  *  *  ]
ALZET/(R)/ Model 2002              0000296                   [ *  *  *  ]
ALZET/(R)/ Model 2004              0000298                   [ *  *  *  ]
ALZET/(R)/ Model 2ML1              0000323                   [ *  *  *  ]
ALZET/(R)/ Model 2ML2              0000325                   [ *  *  *  ]
ALZET/(R)/ Model 2ML4              0000327                   [ *  *  *  ]
ALZET/(R)/ Model 1002              0004317                   [ *  *  *  ]
ALZET/(R)/ Model 1003D             0000289                   [ *  *  *  ]
ALZET/(R)/ Model 2001D             0000294                   [ *  *  *  ]
ALZET/(R)/ Model 1007D             0000290                   [ *  *  *  ]
ALZAID Test Kit                    00004750                  [ *  *  *  ]
ALZET/(R)/ Brain Infusion Kit II   00008663                  [ *  *  *  ]
Brain Infusion Kit                 00004760                  [ *  *  *  ]

* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                     -17-
<PAGE>

* Material has been omitted pursuant to a request for confidential treatment,
and such material has been filed separately with the SEC.

                                     -18-

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00014-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00014-of-00352.parquet"}]]