Document:

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                              AMENDED AND RESTATED
                            INVESTOR RIGHTS AGREEMENT

                         INTERMUNE PHARMACEUTICALS, INC.

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                                TABLE OF CONTENTS
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                                                                                                               PAGE
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1.       DEFINITIONS..............................................................................................1

2.       REGISTRATION; TRANSFER RESTRICTIONS......................................................................3

         2.1      Transfer Restrictions...........................................................................3

         2.2      Demand Registration.............................................................................4

         2.3      Piggyback Registration..........................................................................6

         2.4      Form S-3 Registration...........................................................................7

         2.5      Expenses Of Registration........................................................................8

         2.6      Obligations of the Company......................................................................8

         2.7      Termination of Registration Rights..............................................................9

         2.8      Delay of Registration; Furnishing Information..................................................10

         2.9      Indemnification................................................................................10

         2.10     Assignment of Registration Rights..............................................................12

         2.11     Amendment of Registration Rights...............................................................12

         2.12     Limitation on Subsequent Registration Rights...................................................13

         2.13     "Market Stand-Off" Agreement...................................................................13

         2.14     Rule 144 Reporting.............................................................................13

3.       COVENANTS OF THE COMPANY................................................................................14

         3.1      Basic Financial Information and Reporting......................................................14

         3.2      Inspection Rights..............................................................................15

         3.3      Confidentiality of Records.....................................................................15

         3.4      Reservation of Common Stock....................................................................15

         3.5      Stock Vesting..................................................................................15

         3.6      Key Person Insurance...........................................................................16

         3.7      Proprietary Information and Inventions Agreement...............................................16

         3.8      Approval.......................................................................................16

         3.9      Directors' Liability and Indemnification.......................................................16

         3.10     Real Property Holding Corporation..............................................................16

         3.11     Termination of Covenants.......................................................................16

         3.12     Certain Covenants Relating to Management and Board Participation...............................17
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                                          TABLE OF CONTENTS
                                              CONTINUED
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4.       RIGHTS OF FIRST REFUSAL.................................................................................18

         4.1      Subsequent Offerings...........................................................................18

         4.2      Exercise Of Rights.............................................................................18

         4.3      Issuance of Equity Securities to Other Persons.................................................18

         4.4      Termination of Rights of First Refusal.........................................................19

         4.5      Transfer of Rights of First Refusal............................................................19

         4.6      Excluded Securities............................................................................19

5.       MISCELLANEOUS...........................................................................................20

         5.1      Governing Law..................................................................................20

         5.2      Survival.......................................................................................20

         5.3      Successors and Assigns.........................................................................20

         5.4      Entire Agreement...............................................................................20

         5.5      Severability...................................................................................20

         5.6      Amendment and Waiver...........................................................................20

         5.7      Delays or Omissions............................................................................21

         5.8      Notices........................................................................................21

         5.9      Attorneys' Fees................................................................................21

         5.10     Titles and Subtitles...........................................................................21

         5.11     Prior Agreement................................................................................21

         5.12     Counterparts...................................................................................22
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                              AMENDED AND RESTATED
                            INVESTOR RIGHTS AGREEMENT

         THIS AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (the "Agreement")
is made effective as of the 7th day of January, 2000, by and among INTERMUNE
PHARMACEUTICALS, INC., a California corporation (the "Company"), the holders of
the Company's Series A-1 Preferred Stock and Series A-2 Preferred Stock
(collectively the "Series A Stock"), and the purchasers of the Company's Series
B Preferred Stock (the "Series B Stock") set forth on Exhibit A of that certain
Series B Preferred Stock Purchase Agreement of even date herewith (the "Purchase
Agreement"). The purchasers of the Series B Stock may be referred to hereinafter
as the "Purchasers" and each individually as a "Purchaser", and the holders of
the Series A Stock (the "Series A Holders"), the holders of the Series B Stock
(the "Series B Holders") and the Purchasers, the Series A Holders, and Series B
Holders may be referred to hereinafter as the "Investors" and each individually
as an "Investor."

                                    RECITALS

         WHEREAS, the Company proposes to sell and issue up to five million two
hundred thousand (5,200,000) shares of its Series B Stock pursuant to the
Purchase Agreement; and

         WHEREAS, the Company and the Series A Holders previously entered into
that certain Investor Rights Agreement, dated as of April 27, 1999, as amended
August 19, 1999 (as amended, the "Prior Agreement"); and

         WHEREAS, as a condition of entering into the Purchase Agreement, the
Purchasers have requested that the Company and the Series A Holders agree to
amend and restate the Prior Agreement to extend to them registration rights,
information rights and other rights as set forth below;

         WHEREAS, pursuant to Section 5.6 of the Prior Agreement, the holders of
at least sixty-five percent (65%) of the Series A-1 Preferred Stock and Series
A-2 Preferred Stock, voting separately by series, have agreed to amend and
restate the Prior Agreement in its entirety with this Agreement;

         NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement and in the Purchase Agreement, the parties mutually agree as follows:

         1. DEFINITIONS.

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

         "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

         "FORM S-3" means such form under the Securities Act as in effect on the
date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which

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permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC.

         "HOLDER" means any person owning of record Registrable Securities that
have not been sold to the public or any assignee of record of such Registrable
Securities in accordance with Section 2.10 hereof.

         "INITIAL OFFERING" means the Company's first firm commitment
underwritten public offering of its Common Stock registered under the Securities
Act in connection with which the Company's Preferred Stock is converted into
Common Stock.

         "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document.

         "REGISTRABLE SECURITIES" means (i) Common Stock of the Company issued
or issuable upon conversion of the Shares; (ii) an aggregate of 975,000 shares
of Common Stock of the Company issued to certain of the Investors pursuant to a
Common Stock Purchase Agreement between certain of the Investors and the
Company, dated April 27, 1999; and (iii) any Common Stock of the Company issued
as (or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
or in exchange for or in replacement of, such above-described securities.
Notwithstanding the foregoing, Registrable Securities shall not include any
securities sold by a person to the public either pursuant to a registration
statement or Rule 144 promulgated under the Securities Act or sold in a private
transaction in which the transferor's rights under Section 2 of this Agreement
are not assigned.

         "REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of shares
determined by calculating the total number of shares of the Company's Common
Stock that are Registrable Securities and either (1) are then issued and
outstanding or (2) are issuable pursuant to then exercisable or convertible
securities.

         "REGISTRATION EXPENSES" shall mean all expenses incurred by the Company
in complying with Sections 2.2, 2.3 and 2.4 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, reasonable fees and disbursements of a
single special counsel for the Holders, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company).

         "SEC" or "COMMISSION" means the Securities and Exchange Commission.

         "SECURITIES ACT" shall mean the Securities Act of 1933, as amended.

         "SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the sale.

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         "SHARES" shall mean the Company's Series A Stock issued pursuant to the
Company's Series A-1 and A-2 Preferred Stock Purchase Agreement, dated April 27,
1999, and held by the Investors listed on Exhibit A thereto, the Company's
Series A Stock issued pursuant to the Company's Series A-2 Preferred Stock
Purchase Agreement, dated August 19, 1999, and the Company's Series B Stock
issued pursuant to the Purchase Agreement and held by the Investors listed on
Exhibit A thereto and their permitted assigns. For the purposes of this
Agreement, "Shares" shall be deemed to include Series A-4 Preferred Stock,
Series A-3 Preferred Stock, or Series B-1 Preferred Stock of the Company issued
to a Holder or its permitted assign in the event that Series A-1 Preferred
Stock, Series A-2 Preferred Stock, or Series B Preferred Stock is converted into
Series A-4 Preferred Stock, Series A-3 Preferred Stock, or Series B-1 Preferred
Stock pursuant to the Company's Amended and Restated Articles of Incorporation.
References to Series A-1 Preferred Stock, Series A-2 Preferred Stock, and Series
B Preferred Stock shall be deemed for the purposes of this Agreement to mean the
Series A-1 Preferred Stock and Series A-4 Preferred Stock, the Series A-2
Preferred Stock and the Series A-3 Preferred Stock, and the Series B Preferred
Stock and Series B-1 Preferred Stock when determining the rights and obligations
of the parties hereto.

         2. REGISTRATION; TRANSFER RESTRICTIONS.

                  2.1 TRANSFER RESTRICTIONS.

                           (a) Each Holder agrees not to make any disposition of
all or any portion of the Shares or the shares of Common Stock issuable upon
conversion of the Shares unless and until:

                                    (i) There is then in effect a registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or

                                    (ii) (A) The transferee has agreed in
writing to be bound by the terms of this Agreement, (B) such Holder shall have
notified the Company of the proposed disposition and shall have furnished the
Company with a detailed statement of the circumstances surrounding the proposed
disposition, and (C) if reasonably requested by the Company, such Holder shall
have furnished the Company with an opinion of counsel, reasonably satisfactory
to the Company, that such disposition will not require registration of such
shares under the Securities Act. It is agreed that the Company will not require
opinions of counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.

                                    (iii) Notwithstanding the provisions of
paragraphs (i) and (ii) above, no such registration statement or opinion of
counsel shall be necessary for a transfer by a Holder which is (A) a partnership
to its partners or former partners in accordance with partnership interests, (B)
a corporation to its shareholders in accordance with their interest in the
corporation, (C) a limited liability company to its members or former members in
accordance with their interest in the limited liability company, or (D) to the
Holder's family member or trust

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for the benefit of an individual Holder; provided that in each case the
transferee will be subject to the terms of this Agreement to the same extent as
if he were an original Holder hereunder.

                           (b) Each certificate representing Shares or
Registrable Securities shall (unless otherwise permitted by the provisions of
the Agreement) be stamped or otherwise imprinted with a legend substantially
similar to the following (in addition to any legend required under applicable
state securities laws or as provided elsewhere in this Agreement):

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR
UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.

                           (c) The Company shall be obligated to reissue
promptly unlegended certificates at the request of any Holder thereof if the
Holder shall have obtained an opinion of counsel (which counsel may be counsel
to the Company) reasonably acceptable to the Company to the effect that the
securities proposed to be disposed of may lawfully be so disposed of without
registration, qualification or legend.

                           (d) Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with respect
to such securities shall be removed upon receipt by the Company of an order of
the appropriate blue sky authority authorizing such removal.

                  2.2 DEMAND REGISTRATION.

                           (a) Subject to the conditions of this Section 2.2, if
the Company receives a written request from either (i) the Holders of more than
a majority of the Registrable Securities then held by the Series A Holders (but
only a single time) or (ii) the Holders of more than a majority of the
Registrable Securities then held by the Series B Holders (but only a single
time) (the "Initiating Holders") that the Company file a registration statement
under the Securities Act covering the registration of at least a majority of
Registrable Securities then outstanding (or a lesser percentage if the
anticipated aggregate offering price, net of underwriting discounts and
commissions would exceed $50 million), then the Company shall, within thirty
(30) days of the receipt thereof, give written notice of such request to all
Holders, and subject to the limitations of this Section 2.2, use its best
efforts to effect, as soon as practicable, the registration under the Securities
Act of all Registrable Securities that the Holders request to be registered;
provided, however, if such request is made prior to the Company's first firm
commitment underwritten public offering of its Common Stock, the aggregate
offering price to the public must be in excess of $15,000,000 and with a per
share price of not less than $7.50 per share.

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                           (b) If the Initiating Holders intend to distribute
the Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 2.2 or any request pursuant to Section 2.4 and the Company shall
include such information in the written notice referred to in Section 2.2(a) or
Section 2.4(a) as applicable. In such event, the right of any Holder to include
its Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided in this Agreement. All Holders proposing to distribute their securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by a majority in interest of the Initiating Holders (which
underwriter or underwriters shall be reasonably acceptable to the Company).
Notwithstanding any other provision of this Section 2.2 or Section 2.4, if the
underwriter advises the Company that marketing factors require a limitation of
the number of securities to be underwritten (including Registrable Securities)
then the Company shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares that
may be included in the underwriting shall be allocated to the Holders of such
Registrable Securities on a pro rata basis based on the number of Registrable
Securities held by all such Holders (including the Initiating Holders). Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration.

                           (c) The Company shall not be required to effect a
registration pursuant to this Section 2.2:

                                    (i) prior to the earlier of April 27, 2001
or one year following the Initial Offering; or

                                    (ii) after the Company has effected two (2)
registrations pursuant to this Section 2.2, and such registrations have been
declared or ordered effective;

                                    (iii) during the period starting with the
date of filing of, and ending on the date one hundred eighty (180) days
following the effective date of the registration statement pertaining to the
Initial Offering; provided that the Company makes all reasonable good faith
efforts to cause such registration statement to become effective; or

                                    (iv) if within thirty (30) days of receipt
of a written request from Initiating Holders pursuant to Section 2.2(a), the
Company gives notice to the Holders of the Company's intention to make its
Initial Offering within ninety (90) days; or

                                    (v) if the Company shall furnish to Holders
requesting a registration statement pursuant to this Section 2.2, a certificate
signed by the Chairman of the Board stating that in the good faith judgment of
the Board of Directors of the Company, it would be seriously detrimental to the
Company and its shareholders for such registration statement to be effected at
such time, in which event the Company shall have the right to defer such filing
for

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a period of not more than ninety (90) days after receipt of the request of the
Initiating Holders; provided that such right to delay a request shall be
exercised by the Company not more than twice in any twelve (12) month period.

                  2.3 PIGGYBACK REGISTRATION. The Company shall notify all
Holders of Registrable Securities in writing at least thirty (30) days prior to
the filing of any registration statement under the Securities Act for purposes
of a public offering of securities of the Company (including, but not limited
to, registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans or with respect to corporate reorganizations or other transactions under
Rule 145 of the Securities Act) and will afford each such Holder an opportunity
to include in such registration statement all or part of such Registrable
Securities held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by it
shall, within twenty (20) days after the above-described notice from the
Company, so notify the Company in writing. Such notice shall state the intended
method of disposition of the Registrable Securities by such Holder. If a Holder
decides not to include all of its Registrable Securities in any registration
statement thereafter filed by the Company, such Holder shall nevertheless
continue to have the right to include any Registrable Securities in any
subsequent registration statement or registration statements as may be filed by
the Company with respect to offerings of its securities, all upon the terms and
conditions set forth herein.

                           (a) UNDERWRITING. If the registration statement under
which the Company gives notice under this Section 2.3 is for an underwritten
offering, the Company shall so advise the Holders of Registrable Securities. In
such event, the right of any such Holder to be included in a registration
pursuant to this Section 2.3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting by the Company.
Notwithstanding any other provision of the Agreement, if the underwriter
determines in good faith that marketing factors require a limitation of the
number of shares to be underwritten, the number of shares that may be included
in the underwriting shall be allocated, first, to the Company; second, to the
Holders on a pro rata basis based on the total number of Registrable Securities
held by the Holders; and third, to any shareholder of the Company (other than a
Holder) on a pro rata basis. Notwithstanding the foregoing, in no event shall
the amount of securities of the selling Holders included in the offering be
reduced below thirty percent (30%) of the total amount of securities included in
such offering, unless such offering is the Initial Offering, in which case, the
selling Holders may be excluded if the underwriter makes the determination
described above and no other shareholder's securities are included in the
offering.

                           (b) RIGHT TO TERMINATE REGISTRATION. The Company
shall have the right to terminate or withdraw any registration initiated by it
under this Section 2.3 prior to the effectiveness of such registration whether
or not any Holder has elected to include securities in such registration. The
Registration Expenses of such withdrawn registration shall be borne by the
Company in accordance with Section 2.5 hereof.

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                  2.4 FORM S-3 REGISTRATION. In case the Company shall receive
from any Holder or Holders of at least fifteen percent (15%) of the Registrable
Securities then outstanding, a written request or requests that the Company
effect a registration on Form S-3 (or any successor to Form S-3) or any similar
short-form registration statement and any related qualification or compliance
with respect to all or a part of the Registrable Securities owned by such Holder
or Holders, the Company will:

                           (a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders
of Registrable Securities; and

                           (b) as soon as practicable, effect such registration
and all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within fifteen (15) days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to effect
any such registration, qualification or compliance pursuant to this Section 2.4:

                                    (i) if Form S-3 (or any successor or similar
form) is not available for such offering by the Holders, or

                                    (ii) if the Holders, together with the
holders of any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other securities
(if any) at an aggregate price to the public of less than One Million Dollars
($1,000,000), or

                                    (iii) if the Company shall furnish to the
Holders a certificate signed by the Chairman of the Board of Directors of the
Company stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its shareholders
for such Form S-3 registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than ninety (90) days after receipt of the
request of the Holder or Holders under this Section 2.4: provided, that such
right to delay a request shall be exercised by the Company not more than twice
in any twelve (12) month period, or

                                    (iv) if the Company has, within the six (6)
month period preceding the date of such request, already effected one (1)
registration on Form S-3 for any Holders pursuant to this Section 2.4, or the
Company within the twelve (12) month period preceding the request already
effected two (2) registrations on Form S-3 for any Holders pursuant to this
Section 2.4, or

                                    (v) in any particular jurisdiction in which
the Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.

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                           (c) Subject to the foregoing, the Company shall file
a Form S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders. All such Registration Expenses incurred
in connection with registrations requested pursuant to this Section 2.4 shall be
paid by the Company.

                  2.5 EXPENSES OF REGISTRATION. Except as specifically provided
herein, all Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 2.2 or any registration under
Section 2.3 or Section 2.4 herein shall be borne by the Company. All Selling
Expenses incurred in connection with any registrations hereunder, shall be borne
by the holders of the securities so registered pro rata on the basis of the
number of shares so registered. The Company shall not, however, be required to
pay for expenses of any registration proceeding begun pursuant to Section 2.2 or
2.4, the request of which has been subsequently withdrawn by the Initiating
Holders unless (a) the withdrawal is based upon material adverse information
concerning the Company of which the Initiating Holders were reasonably not aware
at the time of such request or (b) the Holders of a majority of Registrable
Securities agree to forfeit their right to one requested registration pursuant
to Section 2.2 or Section 2.4, as applicable, in which event such right shall be
forfeited by all Holders. If the Holders are required to pay the Registration
Expenses, such expenses shall be borne by the holders of securities (including
Registrable Securities) requesting such registration in proportion to the number
of shares for which registration was requested. If the Company is required to
pay the Registration Expenses of a withdrawn offering pursuant to clause (a)
above, then the Holders shall not forfeit their rights pursuant to Section 2.2
or Section 2.4 to a demand registration or Form S-3 registration, respectively.

                  2.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect
the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:

                           (a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use all reasonable
efforts to cause such registration statement to become effective, and, upon the
request of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to ninety (90)
days or, if earlier, until the Holder or Holders have completed the distribution
related thereto.

                           (b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.

                           (c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.

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                           (d) Use all reasonable efforts to register and
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.

                           (e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter(s) of such offering. Each
Holder participating in such underwriting shall also enter into and perform its
obligations under such an agreement.

                           (f) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.

                           (g) Furnish, at the request of a majority of the
Holders participating in the registration, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to the underwriters in an
underwritten public offering and reasonably satisfactory to a majority in
interest of the Holders requesting registration, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(ii) a letter dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and if
permitted by applicable accounting standards, to the Holders requesting
registration of Registrable Securities

                  2.7 TERMINATION OF REGISTRATION RIGHTS. All registration
rights granted under this Section 2 shall terminate and be of no further force
and effect five (5) years after the date of the Company's Initial Offering. In
addition, a Holder's registration rights shall expire if (i) the Company has
completed its Initial Offering and is subject to the provisions of the Exchange
Act, (ii) such Holder (together with its affiliates, partners and former
partners) holds less than 1% of the Company's outstanding Common Stock (treating
all shares of convertible Preferred Stock on an as converted basis) and (iii)
all Registrable Securities held by and issuable to such Holder (and its
affiliates, partners and former partners) may be sold under Rule 144 during any
ninety (90) day period.

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                  2.8 DELAY OF REGISTRATION; FURNISHING INFORMATION.

                           (a) No Holder shall have any right to obtain or seek
an injunction restraining or otherwise delaying any such registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Section 2.

                           (b) It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 2.2, 2.3 or
2.4 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them and the intended
method of disposition of such securities as shall be required to effect the
registration of their Registrable Securities.

                           (c) The Company shall have no obligation with respect
to any registration requested pursuant to Section 2.2 or Section 2.4 if, due to
the operation of subsection 2.2(b), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in Section 2.2 or Section 2.4,
whichever is applicable.

                  2.9 INDEMNIFICATION. In the event any Registrable Securities
are included in a registration statement under Sections 2.2, 2.3 or 2.4:

                           (a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, members, officers,
directors and legal counsel of each Holder, any underwriter (as defined in the
Securities Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Securities Act or the Exchange
Act, against any losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the Securities Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation") by the Company: (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law in connection with the offering
covered by such registration statement; and the Company will reimburse each such
Holder, partner, member, officer or director, underwriter or controlling person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided however, that the indemnity agreement contained in this Section 2.9(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company, which consent shall not be unreasonably withheld, nor shall the Company
be liable in any such case for any such loss, claim, damage, liability or action
to

                                       10

<PAGE>

the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by such Holder, partner, member,
officer, director, underwriter or controlling person of such Holder.

                           (b) To the extent permitted by law, each Holder will,
if Registrable Securities held by such Holder are included in the securities as
to which such registration qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers,
and legal counsel and each person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter and any other Holder selling
securities under such registration statement or any of such other Holder's
partners, directors or officers or any person who controls such Holder, against
any losses, claims, damages or liabilities (joint or several) to which the
Company or any such director, officer, controlling person, underwriter or other
such Holder, or partner, member, director, officer or controlling person of such
other Holder may become subject under the Securities Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder and stated to be specifically for use in connection
with such registration; and each such Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person, underwriter or other Holder, or partner, member, officer,
director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action if
it is judicially determined that there was such a Violation; provided, however,
that the indemnity agreement contained in this Section 2.9(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided further, that in no event shall any
indemnity under this Section 2.9 exceed the proceeds from the offering received
by such Holder.

                           (c) Promptly after receipt by an indemnified party
under this Section 2.9 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 2.9,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 2.9, but the omission so to deliver
written notice to the

                                       11

<PAGE>

indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 2.9.

                           (d) If the indemnification provided for in this
Section 2.9 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or liabilities
referred to herein, the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the Violation(s) that resulted
in such loss, claim, damage or liability, as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by a court of law by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information supplied by
the indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission; provided, that in no event shall any contribution by
a Holder hereunder exceed the proceeds from the offering received by such
Holder.

                           (e) The obligations of the Company and Holders under
this Section 2.9 shall survive completion of any offering of Registrable
Securities in a registration statement and the termination of this Agreement. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.

                  2.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause
the Company to register Registrable Securities pursuant to this Section 2 may be
assigned by a Holder to a transferee or assignee of Registrable Securities which
(i) is a subsidiary, parent, member, general partner, limited partner or retired
partner of a Holder, (ii) is a Holder's family member or trust for the benefit
of an individual Holder, or (iii) acquires at least two hundred thousand
(200,000) shares of Registrable Securities (as adjusted for stock splits and
combinations); provided, however, (A) the transferor shall, within ten (10) days
after such transfer, furnish to the Company written notice of the name and
address of such transferee or assignee and the securities with respect to which
such registration rights are being assigned and (B) such transferee shall agree
to be subject to all restrictions set forth in this Agreement.

                  2.11 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Section 2 may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company, the Holders of at
least fifty five percent (55%) of the Series A-1 Preferred Stock then
outstanding held by Holders, voting as a separate class, the Holders of at least
sixty five percent (65%) of the Series A-2 Preferred Stock then outstanding held
by Holders, voting as a separate class, and the Holders of at least a majority
of the Series B Preferred Stock then outstanding held by Holders,

                                      12
<PAGE>

voting as a separate class. Any amendment or waiver effected in accordance
with this Section 2.11 shall be binding upon each Holder and the Company. By
acceptance of any benefits under this Section 2, Holders of Registrable
Securities hereby agree to be bound by the provisions hereunder.

                  2.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of at least fifty five percent (55%) of the Series A-1
Preferred Stock held by Holders, voting as a separate class, the Holders of
at least sixty five percent (65%) of the Series A-2 Preferred Stock then
outstanding held by Holders, voting as a separate class, and the Holders of
at least a majority of the Series B Preferred Stock then outstanding held by
Holders, voting as a separate class, enter into any agreement with any holder
or prospective holder of any securities of the Company that would grant such
holder registration rights senior to those granted to the Holders hereunder.

                  2.13 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees
that, if requested to do so by the underwriters of the Company's Common Stock,
such Holder shall not sell or otherwise transfer or dispose of any Common Stock
(or other securities) of the Company held by such Holder (other than those
included in the registration) for a period specified by the representative of
the underwriters of Common Stock (or other securities) of the Company not to
exceed one hundred eighty (180) days following the effective date of a
registration statement of the Company filed under the Securities Act, provided
that:

                           (a) such agreement shall apply only to the Company's
Initial Offering; and

                           (b) all officers and directors of the Company and all
other holders of at least 5% of the Company's securities enter into similar
agreements and such agreements are not waived or terminated.

Each Holder agrees to execute and deliver such other agreements as may be
reasonably requested by the Company or the underwriter which are consistent with
the foregoing or which are necessary to give further effect thereto. The
obligations described in this Section 2.13 shall not apply to a registration
relating solely to employee benefit plans on Form S-1 or Form S-8 or similar
forms that may be promulgated in the future, or a registration relating solely
to a Commission Rule 145 transaction on Form S-4 or similar forms that may be
promulgated in the future. The Company may impose stop-transfer instructions
with respect to the shares of Common Stock (or other securities) subject to the
foregoing restriction until the end of said one hundred eighty (180) day period.

                  2.14 RULE 144 REPORTING. With a view to making available to
the Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its best efforts to:

                           (a) Make and keep public information available, as
those terms are understood and defined in SEC Rule 144 or any similar or
analogous rule promulgated under the

                                       13

<PAGE>

Securities Act, at all times after the effective date of the first registration
filed by the Company for an offering of its securities to the general public;

                           (b) File with the SEC, in a timely manner, all
reports and other documents required of the Company under the Exchange Act;

                           (c) So long as a Holder owns any Registrable
Securities, furnish to such Holder forthwith upon request: a written statement
by the Company as to its compliance with the reporting requirements of said Rule
144 of the Securities Act, and of the Exchange Act (at any time after it has
become subject to such reporting requirements); a copy of the most recent annual
or quarterly report of the Company; and such other reports and documents as a
Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing it to sell any such securities without registration.

         3. COVENANTS OF THE COMPANY.

                  3.1 BASIC FINANCIAL INFORMATION AND REPORTING.

                           (a) The Company will maintain true books and records
of account in which full and correct entries will be made of all its business
transactions pursuant to a system of accounting established and administered in
accordance with generally accepted accounting principles consistently applied,
and will set aside on its books all such proper accruals and reserves as shall
be required under generally accepted accounting principles consistently applied.

                           (b) As soon as practicable after the end of each
fiscal year of the Company, and in any event within ninety (90) days thereafter,
the Company will furnish each Major Investor (as defined below), a consolidated
balance sheet of the Company, as at the end of such fiscal year, and a
consolidated statement of income and a consolidated statement of cash flows of
the Company, for such year, all prepared in accordance with generally accepted
accounting principles consistently applied and setting forth in each case in
comparative form the figures for the previous fiscal year, all in reasonable
detail. Such financial statements shall be accompanied by a report and opinion
thereon by independent public accountants of national standing selected by the
Company's Board of Directors.

                           (c) The Company will furnish each Major Investor, as
soon as practicable after the end of the first, second and third quarterly
accounting periods in each fiscal year of the Company, and in any event within
forty-five (45) days thereafter, a consolidated balance sheet of the Company as
of the end of each such quarterly period, and a consolidated statement of income
and a consolidated statement of cash flows of the Company for such period and
for the current fiscal year to date, prepared in accordance with generally
accepted accounting principles, with the exception that no notes need be
attached to such statements and year-end audit adjustments may not have been
made.

                           (d) So long as an Investor (with its affiliates)
shall own not less than two hundred thousand (200,000) shares of Registrable
Securities (as adjusted for stock splits and

                                       14

<PAGE>

combinations) (a "Major Investor"), the Company will furnish each such Major
Investor (i) at least thirty (30) days prior to the beginning of each fiscal
year an annual budget and operating plans for such fiscal year (and as soon as
available, any subsequent revisions thereto); and (ii) as soon as practicable
after the end of each month, and in any event within thirty (30) days
thereafter, a consolidated balance sheet of the Company as of the end of each
such month, and a consolidated statement of income and a consolidated statement
of cash flows of the Company for such month and for the current fiscal year to
date, including a comparison to plan figures for such period, prepared in
accordance with generally accepted accounting principles consistently applied,
with the exception that no notes need be attached to such statements and
year-end audit adjustments may not have been made; and (iii) an annual financial
statement within one hundred twenty (120) days of the end of each fiscal year
which may be audited as determined by the Board of Directors of the Company.

                  3.2 INSPECTION RIGHTS. Each Major Investor shall have the
right to visit and inspect any of the properties of the Company or any of its
subsidiaries, and to discuss the affairs, finances and accounts of the Company
or any of its subsidiaries with its officers, and to review such information as
is reasonably requested all at such reasonable times and as often as may be
reasonably requested; provided, however, that the Company shall not be obligated
under this Section 3.2 with respect to a competitor of the Company or with
respect to information which the Board of Directors determines in good faith is
confidential and should not, therefore, be disclosed.

                  3.3 CONFIDENTIALITY OF RECORDS. Each Investor agrees to use,
and to use its best efforts to insure that its authorized representatives use,
the same degree of care as such Investor uses to protect its own confidential
information to keep confidential any information furnished to it which the
Company identifies as being confidential or proprietary (so long as such
information is not in the public domain), except that such Investor may disclose
such proprietary or confidential information to any partner, member, subsidiary
or parent of such Investor for the purpose of evaluating its investment in the
Company as long as such partner, member, subsidiary or parent is advised of the
confidentiality provisions of this Section 3.3 and agrees to be bound thereby.

                  3.4 RESERVATION OF COMMON STOCK. The Company will at all times
reserve and keep available, solely for issuance and delivery upon the conversion
of the Preferred Stock, all Common Stock issuable from time to time upon such
conversion.

                  3.5 STOCK VESTING. Unless otherwise approved by the Board of
Directors, all stock options and other stock equivalents issued after the date
of this Agreement to employees, directors, consultants and other service
providers shall be subject to vesting as follows: (i) twenty-five percent (25%)
of such stock shall vest at the end of the first year following the earlier of
the date of issuance or such person's services commencement date with the
Company, and (ii) seventy-five percent (75%) of such stock shall vest monthly in
equal installments over the following thirty-six (36) months. With respect to
any shares of stock purchased by any such person, the Company's repurchase
option shall provide that upon such person's termination of employment or
service with the Company, with or without cause, the Company or its assignee

                                       15

<PAGE>

(to the extent permissible under applicable securities laws and other laws)
shall have the option to purchase at cost any unvested shares of stock held by
such person.

                  3.6 KEY PERSON INSURANCE. Subject to the approval of the Board
of Directors, the Company will use commercially reasonable efforts to obtain and
maintain in full force and effect term life insurance in the amount of one
million ($1,000,000) dollars on the Company's President; naming the Company as
beneficiary.

                  3.7 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. The
Company shall require all employees and consultants to execute and deliver a
Proprietary Information and Inventions Agreement in a form approved by the
Company's Board of Directors.

                  3.8 APPROVAL. The Company shall not without the unanimous
consent of the Board of Directors, authorize or enter into any transactions with
any director or management employee, or such director's or employee's immediate
family.

                  3.9 DIRECTORS' LIABILITY AND INDEMNIFICATION. The Company's
Articles of Incorporation and Bylaws shall provide (i) for elimination of the
liability of each director of the Company to the maximum extent permitted by law
and (ii) for indemnification of directors for acts on behalf of the Company to
the maximum extent permitted by law. In addition, the Company shall enter into
and use its best efforts to at all times maintain indemnification contracts with
each of its directors to indemnify such directors to the maximum extent
permissible under California law. The Company shall have in force a directors
and officers liability insurance policy in an amount and with a carrier approved
by the unanimous consent of the Board of Directors. The Company will use its
reasonable efforts to limit the liability, to the fullest extent permissible
under California law, of any director representing any of the Investors.

                  3.10 REAL PROPERTY HOLDING CORPORATION. The Company covenants
that it will operate in a manner such that it will not become a "United States
real property holding corporation" as that term is defined in Section 897(c)(2)
of the Internal Revenue Code of 1986, as amended, and the regulations thereunder
("FIRPTA"). The Company agrees to make determinations as to its status as a
USRPHC, and will file statements concerning those determinations with the
Internal Revenue Service, in the manner and at the times required under Reg.
Section 1.897-2(h), or any supplementary or successor provision thereto. Within
30 days of a request from an Investor or any of its partners or members, the
Company will inform the requesting party, in the manner set forth in Reg.
Section 1.897- 2(h)(1)(iv) or any supplementary or successor provision thereto,
whether that party's interest in the Company constitutes a United States real
property interest (within the meaning of Internal Revenue Code Section 897(c)(1)
and the regulations thereunder) and whether the Company has provided to the
Internal Revenue Service all required notices as to its USRPHC status.

                  3.11 TERMINATION OF COVENANTS. All covenants of the Company
contained in Section 3 of this Agreement (except Sections 3.9 and 3.12(c) and
(d)) shall expire and terminate as to each Investor on the earlier of the
effective date of the registration statement pertaining to the Initial Offering
or acquisition of the Company by another corporation or entity by

                                       16

<PAGE>

consolidation, merger, or other reorganization in which the holders of the
Company's outstanding voting stock immediately prior to such transaction own,
immediately after such transaction, securities representing less than fifty
percent (50%) of the voting power of the corporation or other entity surviving
such transaction.

                  3.12 CERTAIN COVENANTS RELATING TO MANAGEMENT AND BOARD
PARTICIPATION.

                           (a) CONSULTATION WITH MANAGEMENT. The Investors shall
be entitled to consult with and advise management of the Company on significant
business issues, including management's proposed annual operating plans, and
management will meet with Investors regularly during each year at the Company's
facilities at mutually agreeable times for such consultation and advise and to
review progress in achieving said plans.

                           (b) BOARD OF DIRECTORS REPRESENTATIVE. If, at any
time, any of the Sanderling, BioAsia, or Sofinnova venture capital firms control
Investors holding an aggregate of at least 500,000 shares of Series A Stock and
there is not a representative of Sanderling, BioAsia, or Sofinnova, as the case
may be, on the Company's Board of Directors, the Company shall invite
Sanderling, BioAsia, of Sofinnova (whichever is not already on the Board of
Directors) to attend all meetings of its Board of Directors in a non-voting
observer capacity, and in this respect shall give such representative copies of
all notices, minutes, consents and other material that it provides to its
directors; provided, however, that the Company reserves the right to exclude
such representative from access to any material or meeting or portion thereof if
the Company believes upon advice of counsel that such exclusion is reasonably
necessary to preserve the attorney-client privilege, to protect highly
confidential proprietary information or for other similar reasons. Such
representative may participate in discussions of matters brought to the Board of
Directors.

                           (c) Following the Initial Offering, until the earlier
of (i) such date as the Warburg entities own beneficially (within the meaning of
Rule13d-3 under the Exchange Act) that number of shares as is less than to
ninety-five percent (95%) of the shares of Common Stock held by the Warburg
entities as of the closing of the Series B Preferred Stock financing (including
the Series B Stock held by the Warburg entities on an as-converted basis) or
(ii) the date which is four years from the date of this agreement, the Company
will nominate and use reasonable efforts to elect and to cause to remain as a
director on the Company's Board of Directors at least one individual designated
by the Warburg entities.

                           (d) Following the Initial Offering, until the earlier
of (i) such date as the Sanderling entities own beneficially (within the meaning
of Rule13d-3 under the Exchange Act) that number of shares as is less than
ninety-five percent (95%) of the shares of Common Stock held by the Sanderling
entities as of the closing of the Series B Preferred Stock financing (including
the Series A Stock and Series B Stock held by the Sanderling entities on an
as-converted basis) or (ii) the date which is four years from the date of this
agreement, the Company will nominate and use reasonable efforts to elect and to
cause to remain as a director on the Company's Board of Directors at least one
individual designated by the Sanderling entities.

                                       17

<PAGE>

         4. RIGHTS OF FIRST REFUSAL.

                  4.1 SUBSEQUENT OFFERINGS. Each Major Investor shall have a
right of first refusal to purchase its pro rata share of all Equity Securities,
as defined below, that the Company may, from time to time, propose to sell and
issue after the date of this Agreement, other than the Equity Securities
excluded by Section 4.6 hereof. The pro rata share of each Major Investor is
equal to the ratio of (A) the number of shares of the Company's Common Stock
(including all shares of Common Stock issued or issuable upon conversion of the
Shares) which such Major Investor is deemed to be a holder immediately prior to
the issuance of such Equity Securities to (B) the total number of shares of the
Company's outstanding Common Stock (including all shares of Common Stock issued
or issuable upon conversion of the Shares or upon the exercise of outstanding
warrants or options) immediately prior to the issuance of the Equity Securities.
The term "Equity Securities" shall mean (i) any Common Stock, Preferred Stock or
other equity security of the Company, (ii) any security convertible, with or
without consideration, into any Common Stock, Preferred Stock or other equity
security (including any option to purchase such a convertible security), (iii)
any security carrying any warrant or right to subscribe to or purchase any
Common Stock, Preferred Stock or other equity security or (iv) any such warrant
or right.

                  4.2 EXERCISE OF RIGHTS. If the Company proposes to issue any
Equity Securities, it shall give each Major Investor written notice of its
intention, describing the Equity Securities, the price and the terms and
conditions upon which the Company proposes to issue the same. Each Major
Investor shall have fifteen (15) days from the giving of such notice to agree to
purchase its pro rata share of the Equity Securities for the price and upon the
terms and conditions specified in the notice by giving written notice to the
Company and stating therein the quantity of Equity Securities to be purchased.
Notwithstanding the foregoing, the Company shall not be required to offer or
sell such Equity Securities to any Major Investor who would cause the Company to
be in violation of applicable federal securities laws by virtue of such offer or
sale.

                  4.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If certain
of the Major Investors do not elect to purchase their pro rata share of the
Equity Securities, then the Company shall promptly notify in writing Major
Investors who do so elect and shall offer to Major Investors the right to
acquire such unsubscribed shares in accordance with their pro rata share. Such
Major Investors shall have five (5) days after receipt of such notice to notify
the Company of its election to purchase all or a portion thereof of the
unsubscribed shares. If the Major Investors fail to exercise in full the rights
of first refusal, the Company shall have ninety (90) days thereafter to sell the
Equity Securities in respect of which the rights of the Major Investors were not
exercised, at a price and upon general terms and conditions materially no more
favorable to the purchasers thereof than specified in the Company's notice to
the Major Investors pursuant to Section 4.2 hereof. If the Company has not sold
such Equity Securities within ninety (90) days of the notice provided pursuant
to Section 4.2, the Company shall not thereafter issue or sell any Equity
Securities, without first offering such securities to the Major Investors in the
manner provided above.

                                       18

<PAGE>

                  4.4 TERMINATION OF RIGHTS OF FIRST REFUSAL. The rights of
first refusal established by this Section 4 shall not apply to, and shall
terminate, upon the effective date of the registration statement pertaining to
the Company's Initial Offering.

                  4.5 TRANSFER OF RIGHTS OF FIRST REFUSAL. The rights of first
refusal of each Major Investor under this Section 4 may be transferred to the
same parties, subject to the same restrictions as any transfer of registration
rights pursuant to Section 2.10.

                  4.6 EXCLUDED SECURITIES. The rights of first refusal
established by this Section 4 shall have no application to any of the following
Equity Securities:

                           (a) up to 2,000,000 shares (or such larger number if
otherwise approved by the holders of at least a majority of the Registrable
Securities held by Major Investors) of Common Stock (and/or options, warrants or
other Common Stock purchase rights issued pursuant to such options, warrants or
other rights) issued or to be issued to employees, officers or directors of, or
consultants or advisors to the Company or any subsidiary or entities with whom
the Company or its subsidiaries does business, pursuant to stock purchase or
stock option plans or other arrangements that are approved by the Board of
Directors;

                           (b) stock issued pursuant to any rights or agreements
outstanding as of the date of this Agreement, options and warrants outstanding
as of the date of this Agreement; and stock issued pursuant to any such rights
or agreements granted after the date of this Agreement, provided that the rights
of first refusal established by this Section 4 applied with respect to the
initial sale or grant by the Company of such rights or agreements;

                           (c) shares of Common Stock issued in connection with
any stock split, stock dividend or recapitalization by the Company;

                           (d) shares of Common Stock issued upon conversion of
the Shares;

                           (e) any Equity Securities issued pursuant to any
equipment leasing arrangement, or debt financing from a bank or similar
financial institution;

                           (f) up to two hundred thousand (200,000) shares of
Equity Securities issued in connection with strategic transactions involving the
Corporation and other entities, including join ventures, manufacturing,
marketing, distribution, technology transfer or development arrangements;

                           (g) shares of Series B Stock (including shares of
Common Stock issuable upon conversion of such Series B Stock); or

                           (h) any Equity Securities that are issued by the
Company pursuant to a registration statement filed under the Securities Act.

                                       19

<PAGE>

         5. MISCELLANEOUS.

                  5.1 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.

                  5.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.

                  5.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors, and administrators of
the parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a Holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the Holder of such shares in its records as the absolute owner and Holder of
such shares for all purposes, including the payment of dividends or any
redemption price.

                  5.4 ENTIRE AGREEMENT. This Agreement, the Exhibits hereto, the
Purchase Agreement and the other documents delivered pursuant thereto constitute
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and no party shall be liable or bound to any other in any
manner by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.

                  5.5 SEVERABILITY. In case any provision of the Agreement shall
be invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.

                  5.6      AMENDMENT AND WAIVER.

                           (a) Except as otherwise expressly provided, this
Agreement may be amended or modified only upon the written consent of the
Company, the Holders of at least fifty five percent (55%) of the Series A-1
Preferred Stock then outstanding held by Holders, voting as a separate class,
the Holders of at least sixty five percent (65%) of the Series A-2 Preferred
Stock then outstanding held by Holders, voting as a separate class, and the
Holders of at least a majority of the Series B Preferred Stock then outstanding
held by Holders, voting as a separate class.

                           (b) Except as otherwise expressly provided, the
obligations of the Company and the rights of the Holders under this Agreement
may be waived only with the

                                       20

<PAGE>

written consent of the Holders of at least fifty five percent (55%) of the
Series A-1 Preferred Stock then outstanding held by Holders, the Holders of at
sixty five percent (65%) of the Series A-2 Preferred Stock then outstanding held
by Holders, voting as a separate class, and the Holders of at least a majority
of the Series B Preferred Stock then outstanding held by Holders, voting as a
separate class.

                           (c) Notwithstanding the foregoing, this Agreement may
be amended with only the consent of the Company to include additional purchasers
of the Shares as "Investors", "Holders", and parties hereto.

                  5.7 DELAYS OR OMISSIONS. It is agreed that no delay or
omission to exercise any right, power, or remedy accruing to any Holder, upon
any breach, default or noncompliance of the Company under this Agreement shall
impair any such right, power, or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent, or approval of
any kind or character on any Holder's part of any breach, default or
noncompliance under the Agreement or any waiver on such Holder's part of any
provisions or conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, by law, or otherwise afforded to Holders,
shall be cumulative and not alternative.

                  5.8 NOTICES. All notices required or permitted hereunder shall
be in writing and shall be deemed effectively given: (i) upon personal delivery
to the party to be notified, (ii) when sent by confirmed telex or facsimile if
sent during normal business hours of the recipient; if not, then on the next
business day, (iii) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (iv) one (1) day
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All communications shall be
sent to the party to be notified at the address as set forth on the signature
pages hereof or Exhibit A hereto or at such other address as such party may
designate by ten (10) days advance written notice to the other parties hereto.

                  5.9 ATTORNEYS' FEES. In the event that any dispute among the
parties to this Agreement should result in litigation, the prevailing party in
such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.

                  5.10 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.

                  5.11 PRIOR AGREEMENT. The Prior Agreement is hereby superseded
in its entirety and shall be of no further force or effect.

                                       21

<PAGE>

                  5.12 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument

                                       22

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.

COMPANY:

INTERMUNE PHARMACEUTICALS, INC.

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

                AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.

INVESTORS:

WARBURG, PINCUS EQUITY PARTNERS, L.P.

By: Warburg, Pincus & Co., General Partner

By: /s/ Jonathan Leff
   ---------------------------------------------------
Print Name: Jonathan Leff
           -------------------------------------------
Title: Partner
      ------------------------------------------------

WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS I., C.V.

By: Warburg, Pincus & Co., General Partner

By: /s/ Jonathan Leff
   ---------------------------------------------------
Print Name: Jonathan Leff
           -------------------------------------------
Title: Partner
      ------------------------------------------------

WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS II, C.V.

By: Warburg, Pincus & Co., General Partner

By: /s/ Jonathan Leff
   ---------------------------------------------------
Print Name: Jonathan Leff
           -------------------------------------------
Title: Partner
      ------------------------------------------------

WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS III, C.V.

By: Warburg, Pincus & Co., General Partner

By: /s/ Jonathan Leff
   ---------------------------------------------------
Print Name: Jonathan Leff
           -------------------------------------------
Title: Partner
       -----------------------------------------------

                AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.

CONNETICS CORPORATION

By: /s/  Thomas G. Wiggans
   ---------------------------------------------------
Print Name: Thomas G. Wiggans
           -------------------------------------------
Title: President and CEO
       -----------------------------------------------

                AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.

GENENTECH, INC.

By: /s/ Brad Goodwin
   ---------------------------------------------------
Print Name: Brad Goodwin
           -------------------------------------------
Title: V.P.-Finance
      ------------------------------------------------

                AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.

SANDERLING VENTURE PARTNERS IV, L.P.

/s/ Fred A. Middleton                         /s/ Robert G. McNeil
----------------------------------            ----------------------------------
FRED A. MIDDLETON                             ROBERT G. MCNEIL
General Partner                               General Partner

SANDERLING IV LIMITED, L.P.

/s/ Fred A. Middleton                         /s/ Robert G. McNeil
----------------------------------            ----------------------------------
FRED A. MIDDLETON                             ROBERT G. MCNEIL
General Partner                               General Partner

SANDERLING IV BIOMEDICAL, L.P.

/s/ Fred A. Middleton                         /s/ Robert G. McNeil
----------------------------------            ----------------------------------
FRED A. MIDDLETON                             ROBERT G. MCNEIL
General Partner                               General Partner

SANDERLING [FERI TRUST] VENTURE PARTNERS IV, L.P.

/s/ Fred A. Middleton                         /s/ Robert G. McNeil
----------------------------------            ----------------------------------
FRED A. MIDDLETON                             ROBERT G. MCNEIL
General Partner                               General Partner

SANDERLING IV VENTURE MANAGEMENT

/s/ Fred A. Middleton                         /s/ Robert G. McNeil
----------------------------------            ----------------------------------
FRED A. MIDDLETON                             ROBERT G. MCNEIL
General Partner                               General Partner

                AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.

SANDERLING IV CO-INVESTMENT FUND, L.P.

/s/ Fred A. Middleton                         /s/ Robert G. McNeil
----------------------------------            ----------------------------------
Fred A. Middleton                             Robert G. McNeil
General Partner                               General Partner

SANDERLING IV BIOMEDICAL CO-INVESTMENT FUND, L.P.

/s/ Fred A. Middleton                         /s/ Robert G. McNeil
----------------------------------            ----------------------------------
Fred A. Middleton                             Robert G. McNeil
General Partner                               General Partner

                AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.

BIOTECHNOLOGY DEVELOPMENT FUND, L.P.    BIOTECHNOLOGY DEVELOPMENT FUND II, L.P.
By: BioAsia Investments, LLC,           By: BioAsia Investments, LLC,
Its General Partner                     its General Partner

By: /s/ Frank Kung                      By: /s/ Frank Kung
   ----------------------------------      ---------------------------------
Print Name: Frank Kung                  Print Name: Frank Kung
           --------------------------              -------------------------
Title: Managing Member                  Title: Managing Member
      -------------------------------         ------------------------------

                AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.

CHARTER VENTURES III, LLC

By: /s/ A. Barr Dolan
   ----------------------------------
Print Name: A. Barr Dolan
           --------------------------
Title:   Managing Member

                AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.

SOFINNOVA VENTURE PARTNERS IV, LP

By: Sofinnova Management IV, LLC, General Partner

By: /s/ Michael F. Powell
   ----------------------------------------------
Name: Michael F. Powell
     --------------------------------------------
Title: Managing Director

SOFINNOVA VENTURE AFFILIATES IV, LLC

By: Sofinnova Management IV, LLC

By: /s/ Michael F. Powell
   ----------------------------------------------
Name: Michael F. Powell
     --------------------------------------------
Title: Managing Director

                AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.

ALTA CALIFORNIA PARTNERS II, L.P.

By: Alta California Management Partners II, LLC
   --------------------------------------------
By: /s/ Alix Marduel
   --------------------------------------------
Name: Alix Marduel
     ------------------------------------------
Title: General Partner
      -----------------------------------------

ALTA EMBARCADERO PARTNERS II, LLC

By: /s/ Guy Nohra
   -------------------------------------------
Name: Guy Nohra
     -----------------------------------------
Title: Member
      ----------------------------------------

                AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have executed this AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.

VERON INTERNATIONAL, LTD.

By: /s/ Nina Kung (Nina T. H. Wang)
   ------------------------------------
Print Name: Nina Kung (Nina T. H. Wang)
           ----------------------------
Title: Director
      --------------------------

                AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT<PAGE>

                               INDEMNITY AGREEMENT

         THIS AGREEMENT is made and entered into this _____ day of
________________, 2000 by and between INTERMUNE PHARMACEUTICALS, INC., a
Delaware corporation (the "Corporation"), and __________ ("Agent").

                                    RECITALS

         WHEREAS, Agent performs a valuable service to the Corporation in his
capacity as _______ of the Corporation;

         WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");

         WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and

         WHEREAS, in order to induce Agent to continue to serve as _________ of
the Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;

         NOW, THEREFORE, in consideration of Agent's continued service as
________ after the date hereof, the parties hereto agree as follows:

                                    AGREEMENT

         1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
__________ of the Corporation or as a director, officer or other fiduciary of an
affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; PROVIDED,
HOWEVER, that Agent may at any time and for any reason resign from such position
(subject to any contractual obligation that Agent may have assumed apart from
this Agreement) and that the Corporation or any affiliate shall have no
obligation under this Agreement to continue Agent in any such position.

         2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless
and indemnify Agent to the fullest extent authorized or permitted by the
provisions of the Bylaws and the Code, as the same may be amended from time to
time (but, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than the Bylaws or the Code permitted
prior to adoption of such amendment).

                                       1.

<PAGE>

         3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:

                  (a) against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement and any
other amounts that Agent becomes legally obligated to pay because of any claim
or claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and

                  (b) otherwise to the fullest extent as may be provided to
Agent by the Corporation under the non-exclusivity provisions of the Code and
the Bylaws.

         4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:

                  (a) on account of any claim against Agent solely for an
accounting of profits made from the purchase or sale by Agent of securities of
the Corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law;

                  (b) on account of Agent's conduct that is established by a
final judgment as knowingly fraudulent or deliberately dishonest or that
constituted willful misconduct;

                  (c) on account of Agent's conduct that is established by a
final judgment as constituting a breach of Agent's duty of loyalty to the
Corporation or resulting in any personal profit or advantage to which Agent was
not legally entitled;

                  (d) for which payment is actually made to Agent under a valid
and collectible insurance policy or under a valid and enforceable indemnity
clause, bylaw or agreement, except in respect of any excess beyond payment under
such insurance, clause, bylaw or agreement;

                  (E) if indemnification is not lawful (and, in this respect,
both the Corporation and Agent have been advised that the Securities and
Exchange Commission believes that indemnification for liabilities arising under
the federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or

                  (f) in connection with any proceeding (or part thereof)
initiated by Agent, or any proceeding by Agent against the Corporation or its
directors, officers, employees or other agents, unless (i) such indemnification
is expressly required to be made by law, (ii) the

                                       2.

<PAGE>

proceeding was authorized by the Board of Directors of the Corporation, (iii)
such indemnification is provided by the Corporation, in its sole discretion,
pursuant to the powers vested in the Corporation under the Code, or (iv) the
proceeding is initiated pursuant to Section 9 hereof.

         5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.

         6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and amounts
paid in settlement and any other amounts that Agent becomes legally obligated to
pay in connection with any action, suit or proceeding referred to in Section 3
hereof even if not entitled hereunder to indemnification for the total amount
thereof, and the Corporation shall indemnify Agent for the portion thereof to
which Agent is entitled.

         7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:

                  (a) the Corporation will be entitled to participate therein at
its own expense;

                  (b) except as otherwise provided below, the Corporation may,
at its option and jointly with any other indemnifying party similarly notified
and electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless (i)
the employment of counsel by Agent has been authorized by the Corporation, (ii)
Agent shall have reasonably concluded, and so notified the Corporation, that
there is an actual conflict of interest between the Corporation and Agent in the
conduct of the defense of such action or (iii) the Corporation shall not in fact
have employed counsel to assume the defense of such

                                       3.

<PAGE>

action, in each of which cases the fees and expenses of Agent's separate counsel
shall be at the expense of the Corporation. The Corporation shall not be
entitled to assume the defense of any action, suit or proceeding brought by or
on behalf of the Corporation or as to which Agent shall have made the conclusion
provided for in clause (ii) above; and

                  (c) the Corporation shall not be liable to indemnify Agent
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent, which shall not be unreasonably withheld.
The Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.

         8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.

         9. ENFORCEMENT. Any right to indemnification or advances granted by
this Agreement to Agent shall be enforceable by or on behalf of Agent in any
court of competent jurisdiction if (i) the claim for indemnification or advances
is denied, in whole or in part, or (ii) no disposition of such claim is made
within ninety (90) days of request therefor. Agent, in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. It shall be a defense to any action for which a claim
for indemnification is made under Section 3 hereof (other than an action brought
to enforce a claim for expenses pursuant to Section 8 hereof, PROVIDED THAT the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of Directors
or its stockholders) to have made a determination prior to the commencement of
such enforcement action that indemnification of Agent is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or its stockholders) that such indemnification is improper
shall be a defense to the action or create a presumption that Agent is not
entitled to indemnification under this Agreement or otherwise.

         10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.

         11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.

                                       4.

<PAGE>

         12. SURVIVAL OF RIGHTS.

                  (a) The rights conferred on Agent by this Agreement shall
continue after Agent has ceased to be a director, officer, employee or other
agent of the Corporation or to serve at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise and shall inure
to the benefit of Agent's heirs, executors and administrators.

                  (b) The Corporation shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.

         13. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.

         14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.

         15. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.

         16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the existence
of this Agreement.

         17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.

         18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:

                  (a)      If to Agent, at the address indicated on the
                           signature page hereof.

                                       5.

<PAGE>

                  (b)      If to the Corporation, to:

                           INTERMUNE PHARMACEUTICALS, INC.
                           3294 West Bayshore Road
                           Palo Alto, CA 94303

or to such other address as may have been furnished to Agent by the Corporation.

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.

                                    INTERMUNE PHARMACEUTICALS, INC.

                                     By:
                                        ----------------------------------------
                                        W. Scott Harkonen, M.D.
                                        President and Chief Executive Officer

                                     AGENT

                                     By:
                                        ----------------------------------------

                                        Name:
                                             -----------------------------------

                                        Address:
                                                --------------------------------

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

                                       6.

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